10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

or

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

For the transition period from                             to                            

Commission file number 001-34856

THE HOWARD HUGHES CORPORATION

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices, including zip code)

(214) 741-7744

(Registrant’s telephone number, including area code)

N / A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  xYes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

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

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

The number of shares of common stock, $0.01 par value, outstanding as of November 5, 2012 was 37,973,640.

THE HOWARD HUGHES CORPORATION

INDEX

		PAGE
		NUMBER
PART I	FINANCIAL INFORMATION
	Item 1: Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011	5
	Condensed Consolidated Statements of Equity for the nine months ended September 30, 2012 and 2011	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011	7
	Notes to Condensed Consolidated Financial Statements	8
	Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
	Item 3: Quantitative and Qualitative Disclosures about Market Risk Operations	52
	Item 4: Controls and Procedures	53
PART II	OTHER INFORMATION
	Item 1: Legal Proceedings	53
	Item 1A: Risk Factors	53
	Item 6: Exhibits	53
	SIGNATURE	54
	EXHIBIT INDEX	55

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

	September 30,			December 31,
	2012			2011
	(In thousands, except share amounts)
Assets:
Investment in real estate:
Master Planned Community assets	$	1,585,514		$	1,602,437
Land	253,867			236,363
Buildings and equipment	646,459			556,786
Less: accumulated depreciation	(106,387		)	(92,494		)
Developments in progress	224,370			195,034
Net property and equipment	2,603,823			2,498,126
Investment in Real Estate Affiliates	36,162			62,595
Net investment in real estate	2,639,985			2,560,721
Cash and cash equivalents	272,854			227,566
Accounts receivable, net	13,425			15,644
Municipal Utility District receivables, net	105,487			86,599
Notes receivable, net	28,677			35,354
Tax indemnity receivable, including interest	326,150			331,771
Deferred expenses, net	12,740			10,338
Prepaid expenses and other assets, net	124,752			127,156
Total assets	$	3,524,070		$	3,395,149
Liabilities:
Mortgages, notes and loans payable	$	683,804		$	606,477
Deferred tax liabilities	75,538			75,966
Warrant liabilities	290,488			127,764
Uncertain tax position liability	135,468			129,939
Accounts payable and accrued expenses	136,760			125,404
Total liabilities	1,322,058			1,065,550
Commitments and Contingencies (see Note 13)
Equity:
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued	—			—
Common stock: $.01 par value; 150,000,000 shares authorized, 37,973,640 shares issued and outstanding as of September 30, 2012 and 37,945,707 shares issued and outstanding as of December 31, 2011	379			379
Additional paid-in capital	2,714,258			2,711,109
Accumulated deficit	(508,686		)	(381,325		)
Accumulated other comprehensive loss	(9,590		)	(5,578		)
Total stockholders’ equity	2,196,361			2,324,585
Noncontrolling interests	5,651			5,014
Total equity	2,202,012			2,329,599
Total liabilities and equity	$	3,524,070		$	3,395,149

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands, except per share amounts)
Revenues:
Master Planned Community land sales	$	40,218		$	34,152		$	120,235		$	75,692
Builder price participation	1,867			1,233			4,208			2,351
Minimum rents	23,135			19,403			62,609			53,098
Tenant recoveries	6,065			5,398			17,932			14,537
Condominium unit sales	—			9,071			267			19,495
Resort and conference center revenues	8,328			7,200			29,954			7,200
Other land revenues	6,385			5,537			13,433			9,093
Other rental and property revenues	8,817			4,679			19,879			9,130
Total revenues	94,815			86,673			268,517			190,596
Expenses:
Master Planned Community cost of sales	21,439			27,033			63,096			51,907
Master Planned Community operations	9,936			10,734			30,962			22,313
Rental property real estate taxes	3,574			2,010			10,583			7,793
Rental property maintenance costs	2,263			2,155			6,304			5,278
Other property operating costs	16,933			14,961			46,306			34,413
Condominium unit cost of sales	—			5,470			96			13,722
Resort and conference center operations	6,965			6,352			21,750			6,352
Provision for (recovery of) doubtful accounts	240			(141		)	285			174
General and administrative	9,339			8,673			25,896			21,156
Depreciation and amortization	6,764			7,208			17,715			13,592
Total expenses	77,453			84,455			222,993			176,700
Operating income	17,362			2,218			45,524			13,896
Interest income	2,375			2,341			7,048			7,097
Interest expense	(445		)	—			(646		)	—
Early extinguishment of debt	—			(11,305		)	—			(11,305		)
Warrant liability gain (loss)	(64,303		)	169,897			(162,724		)	100,762
Reduction in tax indemnity receivable	(2,873		)	—			(11,655		)	—
Investment in Real Estate Affiliate basis adjustment	—			(6,053		)	—			(6,053		)
Equity in earnings from Real Estate Affiliates	310			166			3,432			7,787
Income (loss) before taxes	(47,574		)	157,264			(119,021		)	112,184
Provision (benefit) for income taxes	2,618			(7,760		)	7,703			(4,344		)
Net income (loss)	(50,192		)	165,024			(126,724		)	116,528
Net income (loss) attributable to noncontrolling interests	781			(729		)	(637		)	(777		)
Net income (loss) attributable to common stockholders	$	(49,411	)	$	164,295		$	(127,361	)	$	115,751
Basic income (loss) per share:	$	(1.30	)	$	4.33		$	(3.36	)	$	3.05
Diluted income (loss) per share:	$	(1.30	)	$	(0.14	)	$	(3.36	)	$	0.38

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)
Comprehensive income (loss), net of tax:
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528
Other comprehensive income (loss):
Interest rate swaps (a)	(954		)	(2,024		)	(3,115		)	(2,772		)
Capitalized swap interest (b)	(328		)	—			(897		)	—
Other comprehensive loss	(1,282		)	(2,024		)	(4,012		)	(2,772		)
Comprehensive income (loss)	(51,474		)	163,000			(130,736		)	113,756
Comprehensive income (loss) attributable to noncontrolling interests	781			(729		)	(637		)	(777		)
Comprehensive income (loss) attributable to common stockholders	$	(50,693	)	$	162,271		$	(131,373	)	$	112,979

(a)Net of deferred taxes of $1.1 million during both the three and nine months ended September 30, 2011. Net of deferred taxes of $ 0.1 million and $ 0.2 million during the three and nine months ended September 30, 2012, respectively.

(b) Net of deferred taxes of $ 0.2 million and $0.5 million during the three and nine months ended September 30, 2012, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

UNAUDITED

									Accumulated			Noncontrolling
				Additional					Other			Interests in
		Common		Paid-In		Accumulated			Comprehensive			Consolidated			Total
(In thousands, except shares)	Shares	Stock		Capital		Deficit			Income (Loss)			Ventures			Equity
Balance January 1, 2011	37,904,506	$	379	$	2,708,036	$	(528,505	)	$	(1,627	)	$	824		$	2,179,107
Net income (loss)		—		—		115,751			—			777			116,528
Adjustment to noncontrolling interests		—		—		—			—			3,700			3,700
Acquisitions		—		—		—			—			(248		)	(248		)
Interest rate swaps, net of tax $1,100		—		—		—			(2,772		)	—			(2,772		)
Stock plan activity	37,601	—		2,500		—			—			—			2,500
Balance, September 30, 2011	37,942,107	$	379	$	2,710,536	$	(412,754	)	$	(4,399	)	$	5,053		$	2,298,815
Balance January 1, 2012	37,945,707	$	379	$	2,711,109	$	(381,325	)	$	(5,578	)	$	5,014		$	2,329,599
Net income (loss)		—		—		(127,361		)	—			637			(126,724		)
Interest rate swaps, net of tax $212		—		—		—			(3,115		)	—			(3,115		)
Capitalized swap interest, net of tax $523		—		—		—			(897		)	—			(897		)
Stock plan activity	27,933	—		3,149		—			—			—			3,149
Balance, September 30, 2012	37,973,640	$	379	$	2,714,258	$	(508,686	)	$	(9,590	)	$	5,651		$	2,202,012

The accompanying notes are an integral part of the condensed consolidated financial statements.

6

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

	Nine Months Ended September 30,
	2012			2011
	(In thousands)
Cash Flows from Operating Activities:
Net income (loss)	$	(126,724	)	$	116,528
Adjustments to reconcile net loss to cash provided by operating activities:
Reduction in tax indemnity receivable	11,655			—
Equity in earnings (loss) from Real Estate Affiliates, net of distributions	14			(3,693		)
Investment in Real Estate Affiliate basis adjustment	—			6,053
Provision for doubtful accounts	285			174
Depreciation	14,062			11,235
Amortization	3,653			2,357
Amortization of deferred financing costs and debt market rate adjustments, net	(49		)	393
Amortization of intangibles other than in-place leases	(263		)	(1,205		)
Straight-line rent amortization	(379		)	(1,223		)
Deferred income taxes	6,454			(4,730		)
Restricted stock and stock option amortization	3,149			2,500
Warrant liability loss (gain)	162,724			(100,762		)
Master Planned Community and condominium development expenditures	(72,741		)	(65,813		)
Master Planned Community and condominium cost of sales	60,407			65,359
Net changes:
Accounts and notes receivable	13,284			(1,822		)
Prepaid expenses and other assets	1,168			(3,463		)
Deferred expenses	(2,377		)	(872		)
Accounts payable and accrued expenses	(15,341		)	2,393
Other, net	279			(1,457		)
Cash provided by operating activities	59,260			21,952
Cash Flows from Investing Activities:
Real estate and property expenditures	(36,815		)	(25,015		)
Cash acquired from The Woodlands acquisition, net of cash consideration	—			5,493
Reimbursement for infrastructure improvements from municipality	—			5,560
Proceeds from dispositions	—			1,130
Consideration paid to acquire Millennium Waterway Apartments, net of cash acquired	(2,721		)	—
Distribution from Millennium Waterway Apartments	6,876			—
Proceeds from sales of investment in Real Estate Affiliates	8,579			—
Investments in Real Estate Affiliates, net	(496		)	—
Decrease in restricted cash	4,251			—
Cash used in investing activities	(20,326		)	(12,832		)
Cash Flows from Financing Activities:
Proceeds from issuance of mortgages, notes and loans payable	44,828			241,644
Principal payments on mortgages, notes and loans payable	(37,193		)	(241,148		)
Deferred financing costs	(1,281		)	(2,935		)
Proceeds from issuance of management warrants	—			2,000
Cash provided by (used in) financing activities	6,354			(439		)
Net change in cash and cash equivalents	45,288			8,681
Cash and cash equivalents at beginning of period	227,566			284,682
Cash and cash equivalents at end of period	$	272,854		$	293,363
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	16,398		$	15,272
Interest capitalized	19,737			16,687
Income taxes paid	966			—
Non-Cash Transactions:
Acquisition of Millennium Waterway Apartments
Land	(15,917		)	—
Building and equipment	(56,002		)	—
Other Assets	(2,669		)	—
Mortgages, notes and loans payable	55,584			—
Other liabilities	754			—
Acquisition of 70 CCC
Land	(1,281		)	—
Building and equipment	(13,089		)	—
Other Assets	(2,957		)	—
Mortgages, notes and loans payable	16,037			—
Other liabilities	1,290			—
Reduction in investments in Real Estate Affiliates due to the Millennium Waterway Apartments’ acquisition	22,405			—
Special Improvement District bond transfers associated with land sales	(2,689		)	(3,188		)
Real estate and property expenditures	11,984			—
Reduction in investments in Real Estate Affiliates due to The Woodlands’ acquisition	—			(128,764		)
Acquisition note related to The Woodlands (See Note 4)	—			96,500
Debt assumed from The Woodlands’ acquisition (See Note 4)	—			296,695
Prepetition liabilities funded by GGP	—			3,323
MPC land contributed to Real Estate Affiliate	(2,190		)	—
Purchase of land from GGP	(1,315		)	—

The accompanying notes are an integral part of the condensed consolidated financial statements.

7

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

NOTE 1        BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as issued by the Securities Exchange Commission (the “SEC”). Such condensed consolidated financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In addition, readers of this Quarterly Report on Form 10-Q (“Quarterly Report”) should refer to The Howard Hughes Corporation’s (“HHC” or the “Company”) audited Consolidated Financial Statements for the year ended December 31, 2011 which are included in the Company’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2011. 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. We have made certain reclassifications in 2011 to conform to the 2012 presentation. In 2011, we reclassified $4.7 million of deferred income taxes from accounts payable and accrued expenses on the Condensed Consolidated Statements of Cash Flows to conform to the 2012 presentation. We reclassified certain salaries and overhead costs relating to land development activities for The Woodlands from general and administrative expenses to Master Planned Community operations of $1.5 million and $4.0 million related to the three and nine months ended September 30, 2011, respectively. In addition, we reclassified operating costs related to the Columbia office properties from general and administrative expenses to other property costs. The results for the interim period ended September 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full fiscal year.

As more fully described in Note 4, on July 1, 2011, we acquired our partner’s 47.5% economic interest in The Woodlands not previously owned by us. As a result of this acquisition, beginning on July 1, 2011, we consolidated the financial results of The Woodlands which were previously accounted for under the equity method. Our condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2012 are not comparable to the same period in 2011 due to the consolidation of The Woodlands.

Management has evaluated all material events occurring subsequent to the date of the condensed consolidated financial statements up to the date and time this Quarterly Report is filed.

NOTE 2        SPONSORS AND MANAGEMENT WARRANTS

On November 9, 2010 (the “Effective Date”), we issued warrants to purchase 8.0 million shares of our common stock to certain of the sponsors (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 and the number of shares of common stock underlying each warrant are subject to adjustment for future stock dividends, splits or reverse splits of our common stock or certain other events. 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 are subsequently exercisable without notice any time thereafter. The Sponsors Warrants expire on November 9, 2017.

In November 2010 and February 2011, we 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 which may be adjusted pursuant to a net settlement option were issued pursuant to such agreements at fair value in exchange for a combined total of approximately $19.0 million in cash from such executives at the commencement of their respective employment. Mr. Weinreb and Mr. Herlitz’s warrants have exercise prices of $42.23 per share and Mr. Richardson’s warrant has an exercise price of $54.50 per share. Generally, the Management Warrants become exercisable in November 2016 and expire by February 2018.

The estimated $230.2 million fair value for the Sponsors Warrants and estimated $60.3 million fair value for the Management Warrants as of September 30, 2012, have been recorded as liabilities because the holders of these warrants could require us to settle such warrants in cash upon a change of control. The fair values were estimated

8

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

using an option pricing model and Level 3 inputs due to the unavailability of comparable market data. The estimated fair values for the Sponsor Warrants and Management Warrants were $102.6 million and $25.2 million, respectively, as of December 31, 2011. Increases (loss) and decreases (gain) in the fair value of the Sponsors Warrants and the Management Warrants are recognized in earnings.

NOTE 3        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 any potentially dilutive common shares. The dilutive effect of options and non-vested stock issued under stock-based compensation plans is computed using the “treasury stock” method. The dilutive effect of the Sponsors Warrants and Management Warrants is computed using the if-converted method. Gains, if any, 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.

Information related to our EPS calculations is summarized as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands, except per share amounts)
Basic EPS:
Numerator:
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528
Net income (loss) attributable to noncontrolling interests	781			(729		)	(637		)	(777		)
Net income (loss) attributable to common stockholders	$	(49,411	)	$	164,295		$	(127,361	)	$	115,751
Denominator:
Weighted average basic common shares outstanding	37,916			37,912			37,909			37,907
Diluted EPS:
Numerator:
Net income (loss) attributable to common stockholders	$	(49,411	)	$	164,295		$	(127,361	)	$	115,751
Less: Warrant liability gain	—			(169,897		)	—			(100,762		)
Adjusted net income (loss) available to common stockholders	$	(49,411	)	$	(5,602	)	$	(127,361	)	$	14,989
Denominator:
Weighted average basic common shares outstanding	37,916			37,912			37,909			37,907
Restricted stock and stock options	—			—			—			5
Warrants	—			843			—			1,585
Weighted average diluted common shares oustanding	37,916			38,755			37,909			39,497
Basic earnings (loss) per share:	$	(1.30	)	$	4.33		$	(3.36	)	$	3.05
Diluted earnings (loss) per share:	$	(1.30	)	$	(0.14	)	$	(3.36	)	$	0.38

9

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

The diluted EPS computations for the three and nine months ended September 30, 2012 exclude 843,962 stock options, 57,933 shares of restricted stock, 8,000,000 shares of common stock underlying the Sponsor Warrants and 2,862,687 shares of common stock underlying the Management Warrants because their inclusion would have been anti-dilutive.

Additionally, the diluted EPS computation for the three months ended September 30, 2011 excludes 692,362 stock options and 38,953 shares of restricted stock because their inclusion would have been anti-dilutive. The diluted EPS computation for the nine months ended September 30, 2011 excludes 692,362 stock options because their inclusion would have been anti-dilutive.

NOTE 4        ACQUISITIONS AND DISPOSITIONS

On August 15, 2012, we acquired 70 Columbia Corporate Center (“70 CCC”), a 169,590 square foot Class A office building located in the Columbia, Maryland town center by assuming a promissory note which encumbered the property and providing a participation right to the lender for 30% of the appreciation in the market value of the building less our preferred return. The promissory note bears interest at 4.25% and matures on August 31, 2017. The building was approximately 23.7% leased at closing. Simultaneous with the closing of the transaction, we executed a lease for 76,308 square feet that will increase occupancy to approximately 68.7% when the tenants take possession which is estimated to occur in March 2013. As part of the transaction, we deposited approximately $5.0 million into an escrow account for capital expenditures, tenant improvements and leasing commissions at the property. We are entitled to a 10% cumulative preferred return, after debt service, on our invested capital in the property. Cash flow is then split pro-rata based on our original contributed equity of $5.0 million plus any additional equity contributed and the loan amount. Excess proceeds from a capital event, after repayment of outstanding debt and the preferred return will be split 30% to the lender and 70% to us. The acquisition was recorded at fair value of $17.5 million and consists of land and a building that was valued as if it were vacant and the “as-if-vacant” value was allocated between the land and building. The “as-if-vacant” value was derived by estimating the value of the 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 that we would incur to achieve stabilized cash flow if the property were vacant. The fair value of the liabilities assumed was determined using a discounted cash flow analysis. 70 CCC is included in our Operating segment.

On July 6, 2012, we sold 11.5 acres including 104,705 square feet of mostly vacant retail space in Pocatello, ID (Alameda Plaza) for $4.5 million. Our net earnings recognized on the sale was $2.0 million. As the sale of certain development assets is an integral part of our business strategy, we recognize the proceeds as revenue in the condensed consolidated statements of operations.

On May 31, 2012, we acquired our partner’s interest in the 393-unit Millennium Waterway Apartments for $6.9 million, following the funding of a $55.6 million ten-year non-recourse mortgage bearing a 3.75% interest rate. Total assets of $78.6 million and liabilities of $56.4 million, including the recently funded loan, were consolidated into our financial statements at fair value as of the acquisition date. Prior to the acquisition, we accounted for our investment in Millennium Waterway Apartments under the equity method. We now own 100% of this stabilized Class A multi-family property located in The Woodlands Town Center. Included in the condensed consolidated statements of operations are revenues of $1.9 million and $2.5 million and net earnings of $0.6 million and $0.9 million since the acquisition date, for the three and nine months ended September 30, 2012, respectively. In conjunction with this acquisition, we entered into a new joint venture with the partner to construct a 314-unit Class A multi-family property. Please refer to Note 7 — Real Estate Affiliates for information about the new joint venture.

On July 1, 2011, we acquired 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”) for $117.5 million. The Woodlands is located near Houston, Texas.  As a result of the acquisition, we now consolidate The Woodlands operations into our financial statements: therefore, our condensed consolidated financial statements are not comparable for the nine months ended September 30, 2011.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

Please refer to Note 15 — Segments for a presentation of the results as if we consolidated The Woodlands for all periods presented. Prior to such acquisition, we accounted for The Woodlands using the equity method. Our acquisition of The Woodlands net assets resulted in a $3.9 million after-tax loss on the re-measurement 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 Condensed Consolidated Statements of Operations. Included in the Condensed Consolidated Statement of Operations for the three months and nine months ended September 30, 2011, 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 was prepared as if The Woodlands’ acquisition had occurred as of the beginning of such period:

	Nine Months Ended September 30, 2011
	(In thousands)
Total revenues	$	276,240
Net income (loss) attributable to common shareholders	112,393

Pro forma adjustments were made for: (1) purchase accounting, including (a) depreciation for the step-up in basis for net property and equipment, (b) amortization of in-place and above/below market leases, (c) land cost of sales increase for step-up in land basis for finished lots acquired and sold and (d) amortization of deferred financing costs, prepaid commissions and deferred profits which were eliminated and (2) adjustments for interest expense which is capitalizable in accordance with our 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.

NOTE 5        IMPAIRMENT

We review our real estate assets, including operating assets, land held for development and sale and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Generally accepted accounting principles require that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its 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.

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

There were no impairment charges recorded during the three or nine months ended September 30, 2012 or 2011.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

NOTE 6FAIR 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,” our assets and liabilities that are measured at fair value on a recurring basis.

	September 30, 2012								December 31, 2011
	Fair Value Measurements Using								Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)								(In thousands)
Liabilities
Warrants	$	290,488	$	—	$	—	$	290,488	$	127,764	$	—	$	—	$	127,764
Interest rate swaps	7,724		—		7,724		—		4,367		—		4,367		—

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 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 and includes consideration of counterparty credit risk. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

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

	2012		2011
	(In thousands)
Balance as of December 31,	$	127,764	$	227,348
Warrant liability (gain) loss	162,724		(100,762		)
Purchases	—		2,000
Balance as of September 30,	$	290,488	$	128,586

The significant unobservable input used in the fair value measurement of our warrants designated as Level 3 as of September 30, 2012 is as follows:

	Fair Value		Valuation Technique	Unobservable Input	Range/ Average
	(In thousands)
Warrants	$	290,488	Option Pricing Valuation Model	Expected Volatility (a)	27%-28% (28%)

(a) Based on the asset volatility of comparable companies.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

The expected volatility in the table above is a significant unobservable input used to estimate the fair value of our warrant liabilities. An increase in expected volatility would increase the fair value of the liability, while a decrease in expected volatility would decrease the fair value of the liability.

The following tables summarize our assets and liabilities that were measured at fair value on a non-recurring basis:

	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss (Gain) Three and Nine Months Ended September 30, 2012
	(In thousands)
Investment in Real Estate Affiliates	$	22,405	$	22,405	(a)	$	—	$	—	$	—

(a)We measured our equity interest in Millennium Waterway Apartments based on our purchase of our partner’s 23.5% economic interest in Millennium Waterway Apartments. We used Level 1 inputs for the cash payment.

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

	September 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Assets:
Notes receivable, net	$	28,677	$	28,677	$	35,354	$	35,354
Tax indemnity receivable, including interest	326,150		(c)		331,771		(c)
Liabilities:
Fixed-rate debt	$	159,098	$	160,689	$	83,164	$	85,047
Variable-rate debt (a)	473,778		473,778		468,100		468,100
SID bonds (b)	50,928		50,928		55,213		55,213
Total mortgages, notes and loans payable	683,804		685,395		606,477		608,360

(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.

(b) Due to the uncertain repayment terms of the Special Improvement District (“SID”) bonds, the carrying value approximates fair value.

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

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

The fair value of debt in the table above was estimated based on a discounted future cash payment model using Level 2 inputs which includes risk premiums for loans of comparable quality and a risk free rate derived from the current London Interbank Offered Rate (“LIBOR) or U.S. Treasury obligation interest rates. The discount rates reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

maturities and credit quality would be if credit markets were operating efficiently and assuming that the debt is outstanding through maturity.

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

NOTE 7REAL ESTATE AFFILIATES

In the ordinary course of business, we enter into partnerships or joint ventures primarily for the development and operations of real estate assets which are referred to as real estate affiliates. These partnerships or joint ventures are typically characterized by a non-controlling ownership interest with decision making and distribution of expected gains and losses being proportionate to the ownership interest.  We account for these partnerships and joint ventures in accordance with ASC 810, as amended (“ASC 810”).

In accordance with ASC 810, we assess our partnerships or joint ventures at inception to determine if any meet the qualifications of a variable interest entity (“VIE”). We consider a partnership or joint venture to be a VIE if: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity); or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, we reassess our initial determination of whether the partnership or joint venture is a VIE. We also perform a qualitative assessment of each VIE to determine if we are the primary beneficiary, as required by ASC 810.

We account for investments in joint ventures deemed to be variable interest entities for which we are not considered to be the primary beneficiary using the equity method, and investments in joint ventures where we have virtually no influence on the joint venture’s operating and financial policies, on the cost method. Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages.

On October 11, 2011, we entered into a joint venture with two local developers and formed HHMK Development, LLC to explore the development of a luxury condominium tower at the Ala Moana Center, Honolulu, HI. On June 14, 2012, we formed another 50:50 joint venture, KR Holdings, LLC (“KR Holdings”), with the same partner. The initial capital contribution which is due at closing for the construction loan will include our interest in the condominium declaration and air rights for the condominium tower and cash from our partner. We anticipate the construction loan to close in June 2013. We determined that KR Holdings is a VIE, and that we are not the primary beneficiary. Accordingly, we account for our investment in KR Holdings using the equity method. On September 17, 2012, KR Holdings closed on two $20.0 million non-recourse mezzanine loan commitments with List Island Properties, LLC and A & B Properties, Inc. These loans have a blended interest rate of 12%, must be drawn in full at the construction loan closing date and mature on April 30, 2018 with the option to extend for one year. In addition to the mezzanine loans, A & B Properties and List Island Properties, LLC, both have a back-end profit interest in KR Holdings, LLC, which entitles them to receive a share of the profits after we get a return of our capital plus a 13% preferred return on our capital. LIST Co., Ltd, the parent of List Island Properties, LLC, will serve as an exclusive representative for buyers in Japan for the residences. Three million dollars of the $40.0 million provided by the mezzanine lenders may be drawn and used to fund the pre-development costs of the venture. Per the terms of the mezzanine loans, the venture is not required to repay this $3.0 million if the construction loan fails to close or the project fails to go forward. Of the committed pre-development costs, $2.0 million has been funded as of September 30, 2012 and is non-interest bearing.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

On May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC (“Millennium Phase II”), with the same partner from Millennium Waterway Apartments as discussed in Note 4 for the construction of a 314-unit Class A multi-family complex in The Woodlands Town Center. Our partner is the managing member of Millennium Phase II.  As the managing member, our partner controls, directs, manages and administers the affairs of Millennium Phase II. Millennium Phase II is a variable interest entity, and although we have the majority ownership interest in the joint venture, we determined that we are not the primary beneficiary because our partner has the power to direct activities that most significantly impact the economic performance of the joint venture (81.43%). On July 5, 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres of land valued at $15.5 million to the joint venture, our partner’s contribution of $3.0 million in cash, and by a construction loan in the amount of $37.7 million which is guaranteed by our partner. The development of Millennium Phase II further expands our multi-family portfolio in The Woodlands Town Center.

On October 30, 2012, we funded $4.5 million in cash to the Bridges at Mint Hill joint venture in accordance with the venture’s operating agreement. The cash was used to repay a mortgage secured by land to be contributed by our partner. As a result, our ownership percentage increased to 90.5% from 79.0%, and we now have the ability to direct the significant economic activities of the entity; therefore, we will begin consolidating this joint venture in the fourth quarter of 2012.

The Bridges at Mint Hill, LLC, HHMK Development, LLC, KR Holdings, LLC, Millennium Woodlands Phase II, LLC and the Parcel D Development, LLC joint venture entities included in the table below are VIEs. The aggregate carrying value of the unconsolidated VIEs was $7.9 million and $3.2 million as of September 30, 2012 and December 31, 2011, respectively, and was classified as Investments in Real Estate Affiliates in the Condensed Consolidated Balance Sheet. Because these joint ventures are in the pre-development stage, there were no earnings for the three and nine months ended September 30, 2012. Our maximum exposure to loss as a result of these investments is limited to the aggregate carrying value of the investment as we have not provided any guarantees on behalf of these VIEs.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

Below is a summary of our Investments in Real Estate Affiliates:

	Economic/ Legal Ownership				Carrying Value				Share of Earnings/Dividends
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011		2012		2011		2012			2011		2012		2011
	(In percentages)				(In thousands)				(In thousands)
The Woodlands (a)					$	—	$	—	$	—		$	—	$	—	$	3,727
Bridges at Mint Hill, LLC (b)	79.00	%	79.00	%	673		180		—			—		—		—
Circle T	50.00	%	50.00	%	9,004		9,004		—			—		—		—
Forest View Apartments (c) (d)	—		50.00	%	—		5,358		—			1		2		1
HHMK Development, LLC	50.00	%	50.00	%	947		—		—			—		—		—
KR Holdings, LLC	50.00	%	—		—		—		—			—		—		—
Millennium Waterway Apartments (e)	100.00	%	83.55	%	—		21,998		—			14		406		14
Millennium Woodlands Phase II, LLC	81.43	%	—		2,190		—		—			—		—		—
Parcel D Development, LLC	50.00	%	50.00	%	4,084		2,990		—			—		—		—
Stewart Title (c)	50.00	%	50.00	%	3,758		3,643		324			85		640		85
Timbermill Apartments (c) (d)	—		50.00	%	—		3,988		—			1		2		1
Woodlands Sarofim #1 (c)	20.00	%	20.00	%	2,462		2,456		(14		)	30		6		30
Other investments					300		—		—			—		—		—
					23,418		49,617		310			131		1,056		3,858
Cost basis investments (f)					12,744		12,978		—			35		2,376		3,929
Total					$	36,162	$	62,595	$	310		$	166	$	3,432	$	7,787

(a)As of July 1, 2011, The Woodlands is consolidated and no longer a Real Estate Affiliate (Refer to Note 4). Prior to July 1, 2011, we owned 52.5% economic interest in The Woodlands.

(b)Ownership percentage as of October 30, 2012 is 90.50%

(c)Equity investment consolidated into our financial statements as part of the acquisition of our partner’s economic interest in The Woodlands on July 1, 2011.

(d)On April 19, 2012, the joint ventures owning the Forest View and Timbermill Apartments completed their sale to a third party. Our share of the distributable cash, after repayment of debt and transaction expenses, was $8.6 million.

(e)On May 31, 2012, we acquired our partner’s interest for $6.9 million and consolidated this property.

(f)Includes dividends received from Summerlin Hospital Medical Center.

As of September 30, 2012, approximately $9.1 million of indebtedness was secured by the properties owned by our Real Estate Affiliates in which our share was approximately $2.5 million (KR Holdings, LLC - $1.0 million; Millennium Woodlands Phase II - $0.1 million; and Woodlands Sarofim #1 - $1.4 million) based upon our economic ownership. The debt is non-recourse to us.

NOTE 8MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	September 30,		December 31,
	2012		2011
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	159,098	$	83,164
Special Improvement District bonds	50,928		55,213
Variable-rate debt:
Collateralized mortgages, notes and loans payable	473,778		468,100
Total mortgages, notes and loans payable	$	683,804	$	606,477

16

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

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

				Maximum		Carrying Value
	Final Maturity (a)	Interest Rate		Facility Amount		September 30, 2012		December 31, 2011
						(In thousands)
110 N. Wacker (b)	October 2019	5.21	%			$	29,000	$	29,000
70 Columbia Corporate Center	August 2017	4.25	%			16,037		—
Other Financing Arrangements	July 2015	—				754		—
Bridgeland
Land Loan (d)	June 2022	5.50	%			18,066		—
Development Loan (e)	June 2015	5.00	%	$	30,000	2,757		—
Various mortgage notes	—	—				—		20,604
Bridgeland Total						20,823		20,604
Special Improvement District bonds
Summerlin South - S108	December 2016	5.95	%			1,183		1,302
Summerlin South - S124	December 2019	5.95	%			342		378
Summerlin South - S128	December 2020	7.30	%			825		862
Summerlin South - S128C	December 2030	6.05	%			5,847		5,956
Summerlin South - S132	December 2020	6.00	%			5,067		5,378
Summerlin South - S151	June 2025	6.00	%			11,064		12,293
Summerlin West - S808	April 2021	5.71	%			—		682
Summerlin West - S809	April 2023	6.65	%			—		1,000
Summerlin West - S810	April 2031	7.13	%			22,185		22,770
The Shops at Summerlin Centre - S128	December 2030	6.05	%			3,765		3,829
The Shops at Summerlin Centre - S108	December 2016	5.95	%			650		713
SID Payable to Nevada Cancer Institute	December 2019	5.95	%			—		50
Special Improvement District bonds Total						50,928		55,213
The Woodlands
Master Credit Facility (f)	March 2015	5.00	%	$	270,000	176,704		183,000
Resort and Conference Center (g)	October 2013	6.00	%			36,100		36,100
2201 Lake Woodlands Drive	November 2016	5.25	%			—		4,803
Weiner Tract	January 2013	6.25	%			—		1,479
Land in Montgomery Co.	December 2012	6.00	%			—		649
Land in Harris Co.	January 2013	6.00	%			—		381
Capital lease obligation	—	2.84	%			67		147
CVS	upon sale	3.25	%			—		101
4 Waterway Square	December 2023	4.88	%			40,359		41,000
9303 New Trails	December 2023	4.88	%			13,781		14,000
3 Waterway Square (h)	January 2017	3.25	%	$	43,295	217		—
20/25 Waterway	May 2022	4.79	%			14,450		—
Millennium Waterway Apartments (i)	June 2022	3.75	%			55,584		—
The Woodlands Total						337,262		281,660
Ward Centers (j)	September 2016	3.40	%	$	250,000	229,000		220,000
						$	683,804	$	606,477

(a)Maturity date includes any extension option periods which are within our control.

(b)Loan has a stated interest rate of one-month LIBOR + 2.25%. The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity.

(c)The loan was refinanced during the second quarter of 2012.

(d)Loan is for ten year term. First five years interest is fixed at 5.50% and for second five years interest rate is floating based on three-month LIBOR +2.75%.

(e)Revolving development loan provides for a maximum of $30.0 million outstanding balance at any time with all draws not to exceed $140.0 million. The loan bears interest at three-month LIBOR + 3.25% and has a 5.00% minimum rate.

(f)Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor.

(g)Loan currently bears interest at one-month LIBOR + 5.00% and has a 1.00% LIBOR floor. The rate increases by 0.5% every six months after March 23, 2012 until maturity.

(h)Loan bears interest at one-month LIBOR + 2.65%.

(i)Loan payments are interest only until June 2017, then monthly principal and interest payment of $257,418 with unpaid balance due at maturity.

(j)Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.80% fixed rate through maturity.

17

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

The weighted average interest rate on our mortgages, notes and loans payable was 4.52% and 4.68% as of September 30, 2012 and December 31, 2011, respectively.

Mortgages, Notes and Loans Payable

As of September 30, 2012, we had $683.8 million of mortgages, notes and loans payable. Approximately $337.3 million of the debt included in the table above 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 loans which are recourse to the partnerships that directly own The Woodlands operations, and a $7.0 million parent guarantee associated with the 110 N. Wacker mortgage, which is more fully discussed below.

The Woodlands Master Credit Facility is a $270.0 million facility consisting of a $170.0 million term loan and a $100.0 million revolving credit line (together, the “TWL Facility”). As of September 30, 2012, the TWL Facility had an outstanding balance of $176.7 million. The TWL Facility bears interest at one-month LIBOR plus 4.00% with a 1.00% 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 or covenants 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.  We have not distributed and do not currently intend to distribute cash from The Woodlands; therefore, this distribution provision has had no impact on us. As of September 30, 2012, leverage was approximately 37.90%. There was $11.0 million of undrawn and available borrowing capacity under the TWL Facility based on the collateral underlying the facility and covenants as of September 30, 2012. The TWL Facility also requires mandatory principal amortization payments during its initial term and during the extension period, if exercised.  Repayments of $25.0 million and $30.0 million are required on March 29, 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.

On August 15, 2012, we assumed a $16.0 million loan as part of the acquisition of 70 CCC. The non-recourse, interest only promissory note matures on August 31, 2017, has a fixed rate of 4.25% and is secured by the property. Please refer to Note 4 — Acquisitions and Dispositions for description of the acquisition.

The Woodlands Resort and Conference Center loan has a $36.1 million outstanding balance as of September 30, 2012. The maturity date has been extended to December 2012 and may be further extended to October 2013 at our option. The loan bears interest at one-month LIBOR plus 5.00% as of September 30, 2012 and has a 1.00% LIBOR floor. The rate began to increase by 0.50% every six months after March 23, 2012 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.

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

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THE HOWARD HUGHES CORPORATION

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 UNAUDITED

On May 31, 2012, as part of our acquisition of the partner’s interest in Millennium Waterway Apartments, we consolidated a $55.6 million non-recourse first mortgage loan. The proceeds from the mortgage were used to refinance the joint venture’s existing debt and to fund our acquisition of the partner’s interest in the property. The loan matures on June 1, 2022 and has a fixed interest rate of 3.75%. Payments are interest only until June 2017, then monthly principal and interest payments of $257,418 with the unpaid principal balance due at maturity.

On April 26, 2012, we closed on a 10-year, fixed rate loan with interest at 4.79% secured by 20/25 Waterway Avenue. The proceeds from the loan were $13.6 million.

On February 2, 2012, we secured non-recourse financing totaling $43.3 million for the construction of 3 Waterway Square, an eleven-story, 232,021-square foot office building in The Woodlands. The loan matures on January 31, 2015 and has two, one-year extension options. The loan bears interest at LIBOR plus 2.65%.

On December 5, 2011, we secured a $41.0 million loan for 4 Waterway Square and a $14.0 million loan for 9303 New Trails. The non-recourse mortgages mature on December 11, 2023 and have fixed interest rates of 4.88%.

On September 30, 2011, we closed on a $250.0 million first mortgage financing secured by the Ward Centers in Honolulu, HI, 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 3.80% fixed rate for the term of the loan. The loan had a weighted-average interest rate of 3.40% as of September 30, 2012. 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% debt yield to draw additional loan proceeds under the facility. The loan also permits partial repayment during its term in connection with property releases for development. On September 17, 2012, we drew an additional $9.0 million on the loan. As a result, the unused portion of this mortgage is $21.0 million as of September 30, 2012.

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

As of September 30, 2012, $1.1 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable.

Special Improvement District Bonds

The Summerlin master planned community uses Special Improvement District bonds to finance certain common infrastructure improvements.  These bonds are issued by the municipalities and, although unrated, are secured by the assessments on the land.  The majority of proceeds from each bond issued is held in a construction escrow and disbursed to us as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the Special Improvement District bonds have been classified as debt. The Summerlin Master Planned Community pays the debt service on the bonds semi-annually. However, our residential land sales contracts provide for the reimbursement of the principal amounts included in these debt service payments. In addition, as Summerlin sells land, the purchasers assume a proportionate share of the bond obligation.

As of September 30, 2012, we were in compliance with all of the financial covenants related to our debt agreements.

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UNAUDITED

NOTE 9DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are primarily exposed to interest rate risks related to our variable interest debt, and we seek to manage this risk by utilizing interest rate derivatives. Our objectives in using interest rate derivatives are to add stability to interest costs by reducing our exposure to interest rate movements. To accomplish this objective and predictability, we use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company 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. The outstanding derivatives at September 30, 2012 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, 2012, the amount of ineffectiveness recorded in earnings was insignificant.

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

As of September 30, 2012, we had gross notional amounts of $172.0 million for interest rate swaps and a $100.0 million interest rate cap that were designated as cash flow hedges of interest rate risk. The fair value of the interest rate cap derivative was insignificant.

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

	September 30,		December 31,
	2012		2011
	(In thousands)
Interest Rate Swaps	$	7,724	$	4,367
Total derivatives designated as hedging instruments	$	7,724	$	4,367

The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Statements of Operations:

	Three months ended September 30,							Three months ended September 30,
	2012			2011				2012			2011
Cash Flow Hedges	Amount of (Loss) Recognized in OCI			Amount of Gain (Loss) Recognized in OCI			Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of (Loss) Reclassified from AOCI into Earnings			Amount of Gain or (Loss) Reclassified from AOCI into Earnings
	(In thousands)							(In thousands)
Interest Rate Swaps	$	(1,466	)	$	(1,834	)	Interest Expense	$	(512	)	$	(205	)
	$	(1,466	)	$	(1,834	)		$	(512	)	$	(205	)

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UNAUDITED

	Nine months ended September 30,							Nine months ended September 30,
	2012			2011				2012			2011
Cash Flow Hedges	Amount of (Loss) Recognized in OCI			Amount of Gain (Loss) Recognized in OCI			Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of (Loss) Reclassified from AOCI into Earnings			Amount of Gain or (Loss) Reclassified from AOCI into Earnings
	(In thousands)							(In thousands)
Interest Rate Swaps	$	(4,627	)	$	(2,582	)	Interest Expense	$	(1,512	)	$	(316	)
	$	(4,627	)	$	(2,582	)		$	(1,512	)	$	(316	)

NOTE 10INCOME TAXES

Several of our subsidiaries are involved in a dispute with the IRS relating to years in which those subsidiaries were owned by GGP, and in connection therewith General Growth Properties (“GGP”) has provided us with an indemnity against certain potential tax liabilities. 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”), 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 (“MPC Taxes”), in an amount up to $303.8 million, plus interest and penalties related to these amounts (the “Indemnity Cap”) so long as GGP controls the action in the Tax Court related to the dispute with the IRS as described below.  We recorded the Tax Indemnity receivable at the Indemnity Cap amount as of the spinoff date. The unrecognized tax benefits and related accrued interest recorded through September 30, 2012 are primarily related to the taxes that are the subject of the Tax Indemnity. We have recorded interest income receivable on the Tax Indemnity receivable in the amounts of $34.0 million and $28.0 million as of September 30, 2012 and December 31, 2011, respectively.

The timing of the utilization of the tax assets attributable to indemnified and non-indemnified gains results in changes to the Tax Indemnity receivable and is dependent on numerous future events, such as the timing of recognition of indemnified and non-indemnified gains, the amount of each type of gain recognized in each year, the use of specific deductions and the ultimate amount of indemnified gains recognized. These non-cash changes could be material to our financial statements.  Resolution of the Tax Court case noted below could also result in changes to the master planned community deferred gains and the timing of utilization of the tax assets, both of which could result in changes to the Tax Indemnity receivable.  We record the Tax Indemnity receivable based on the amounts indemnified which are determined in accordance with the provisions set forth in ASC 740 (Income Taxes).

During the three and nine months ended September 30, 2012, the reduction in tax indemnity receivable of $2.9 million and $11.7 million, respectively, related to our utilization of tax assets that contractually limit the amount we can receive pursuant to the Tax Matters Agreement and changes to our deferred tax liability for the MPC Taxes.

On May 6, 2011, GGP filed Tax Court petitions on behalf of the two former taxable REIT subsidiaries of GGP seeking a redetermination of federal income tax for the years 2007 and 2008. The petitions seek to overturn determinations by the IRS that the taxpayers were liable for combined deficiencies totaling $144.1 million. 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. The litigation is currently scheduled for trial in November 2012.

Unrecognized tax benefits recorded pursuant to uncertain tax positions were $101.0 million as of September 30, 2012 and $101.4 as of December 31, 2011, excluding interest, of which this entire amount would not

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

impact our effective tax rate. Accrued interest related to these unrecognized tax benefits amounted to $34.5 million as of September 30, 2012 and $28.5 million as of December 31, 2011. We recognized an increase in interest expense related to the unrecognized tax benefits of $2.1 million and $6.0 million for the three and nine months ended September 30, 2012, respectively. A significant amount of the unrecognized tax benefits recorded in the financial statements are related to the tax court litigation and are expected to be resolved within the next twelve months.

We file a consolidated corporate tax return which includes all of our subsidiaries with the exception of Victoria Ward, Limited (“Ward”, substantially all of which is owned by us). Ward elected to be taxed as a REIT, commencing with the taxable year beginning January 1, 2002.  Ward has satisfied the REIT distribution requirements for 2011, and presently we intend to continue to operate Ward as a REIT.

NOTE 11STOCK-BASED PLANS

Stock Options

Our stock based plans are described, and informational disclosures provided, in the notes to the Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2011. The following table summarizes our stock option plan activity for the nine months ended September 30, 2012:

	Stock Options		Weighted Average Exercise Price
Stock Options Outstanding at December 31, 2011	712,640		$	57.72
Granted	165,000		63.38
Forfeited	(36,200	)	58.56
Stock Options Outstanding at September 30, 2012	841,440		$	58.79

Options granted vest ratably over five years, expire ten years after the grant date and generally do not become exercisable until 2017 due to their restriction on exercise until after the five-year anniversary of grant date.

Restricted Stock

During the second quarter of 2012, we granted 14,900 shares of restricted stock shares at a share price of $67.11. The restrictions on the shares generally lapse in 2017. In addition, shares of restricted stock shares totaling 13,033 at a share price of $60.15 were awarded to certain non-employee directors as part of an annual retainer for their services during the second quarter of 2012. Likewise, 8,953 of restricted stock shares at a share price $65.04 were awarded during the second quarter of 2011. The restrictions on the shares granted in 2011 have lapsed and the restrictions on the shares granted in 2012 will generally lapse in the second quarter of 2013. As of September 30, 2012, there were 57,933 shares of restricted stock outstanding.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

NOTE 12OTHER ASSETS AND LIABILITIES

Prepaid Expenses and Other Assets

The following table summarizes the significant components of prepaid expenses and other assets.

	September 30,		December 31,
	2012		2011
	(In thousands)
Special Improvement District receivable	$	41,402	$	40,580
Other receivables	2,818		4,181
Federal income tax receivable	5,401		5,393
Prepaid expenses	7,209		6,507
Below-market ground leases	20,426		20,680
Security and escrow deposits	12,944		17,266
Above-market tenant leases	1,042		1,014
Uncertain tax position asset	12,070		11,935
In-place leases	13,713		11,865
Intangibles	3,714		3,074
Other	4,013		4,661
	$	124,752	$	127,156

Accounts Payable and Accrued Expenses

The following table summarizes the significant components of accounts payable and accrued expenses.

	September 30,		December 31,
	2012		2011
	(In thousands)
Construction payable	$	11,470	$	8,923
Accounts payable and accrued expenses	38,998		45,078
Membership deposits	19,091		16,033
Above-market ground leases	2,629		2,748
Deferred gains/income	8,112		5,739
Accrued interest	2,218		2,747
Accrued real estate taxes	8,916		3,439
Tenant and other deposits	7,882		5,966
Insurance reserve	6,015		4,728
Accrued payroll and other employee liabilities	10,205		9,658
Interest rate swaps	7,724		4,367
Other	13,500		15,978
	$	136,760	$	125,404

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UNAUDITED

NOTE 13COMMITMENTS 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 had outstanding letters of credit and surety bonds of $34.5 million as of September 30, 2012 and $41.6 million as of December 31, 2011. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

On June 29, 2012, we entered into an agreement to amend and restate the South Street Seaport ground lease with the City of New York according to the terms described in a non-binding letter of intent, dated December 12, 2011 between the New York City Economic Development Corporation and us. The agreement allows for the redevelopment of Pier 17 (“Renovation Project”). The restated ground lease will become effective when we meet certain milestones, the most important of which is the commencement of construction by June 30, 2013. Following commencement of construction of the Renovation Project, annual ground rent will be fixed at $1.2 million with an escalation of 3.00% annually and we will be entitled to a total $1.5 million rent credit, to be taken monthly over a 30-month period.  We also must provide a completion guarantee to New York City for the Renovation Project. We agreed to pay approximately $1.1 million of esplanade maintenance costs over a five-year period.  The initial esplanade payment of $210,000 per year escalates annually at CPI for the duration of the lease.

See Note 10 for additional contingencies related to our uncertain tax positions.

NOTE 14TRANSACTIONS RELATED TO THE SPINOFF  FROM GGP AND RELATED PARTIES

Prior to the Effective Date, we entered into a Transition Services Agreement (the “TSA”) whereby GGP agreed to provide to us, on a transitional basis, certain specified services on an interim basis for various terms not exceeding 24 months following the Spinoff, subject to our right of earlier termination. Concurrently, we entered into a Reverse Transition Services Agreement (“RTSA”) whereby we agreed to provide GGP with certain income tax and accounting support services, also subject to earlier termination prior to its scheduled expiration of November 9, 2013. We incurred $0.4 million of expenses related to the TSA, and we received negligible reimbursements under the RTSA for the nine months ended September 30, 2011. No services have been provided under the TSA and RTSA for the nine months ended September 30, 2012, and we do not expect to provide or incur any services in the future. On November 9, 2010, we entered in to a Tax Matters Agreement with GGP. For a discussion of the Tax Matters Agreement, please refer to Note 10 — Income Taxes.

In January 2011, we entered into a Transition Agreement with TPMC Realty Services Group, Inc. (“TPMC”). David Weinreb, a director and our CEO, is the sole equity owner and the chief executive officer of TPMC, and Grant Herlitz, our president, is the president of TPMC. The Transition Agreement provided for, among other things, certain mutual transactions and services that facilitated the continuity of Company management, the net value of which were not material for the nine months ended September 30, 2011. Additionally, reflected in our general and administrative expense for the nine months ended September 30, 2011 are reimbursements to TPMC of $0.9 million related to Mr. Weinreb’s employment agreement with us. We also entered into a lease agreement for 3,253 square feet of office space in Los Angeles, California with an affiliate of TPMC, which commenced on May 1, 2011. Annual rental expense relating to the lease is approximately $111,965 per year and the lease expires in July 2016.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

On January 31, 2011, we terminated a Management Services Agreement with Brookfield Advisors LP. Pursuant to the agreement which was executed on August 6, 2010, Brookfield Advisors LP provided us services that included strategic advice, project development oversight, financial planning, financing consultation, internal controls expertise and community and investor relations. This agreement provided for payments to Brookfield Advisors LP of $0.5 million per month.

NOTE 15SEGMENTS

We have three business segments which offer different products and services. Our three segments are managed separately because each requires different operating strategies or management expertise and are reflective of management’s operating philosophies and methods. In addition, our segments or assets within such segment could change in the future as development of certain properties commences or other operational or management changes occur. We do not distinguish or group our combined operations on a geographic basis.  Furthermore, all operations are within the United States and no customer or tenant comprises more than 10% of revenues. Our reportable segments are as follows:

·Master Planned Communities (“MPCs”) — 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.

·Operating Assets — includes retail and office properties, a multi-family property, The Woodlands Resort and Conference Center and other real estate investments. These assets are currently generating revenues, and we believe there is an opportunity to redevelop or reposition many of these assets to improve operating performance.

·Strategic Developments — includes all properties held for development and redevelopment which are not currently operating (primarily retail and other interests in real estate at such locations), and our one residential condominium project located in Natick (Boston), Massachusetts, in which the remaining units were sold during the first six months of 2012.

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THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

The assets included in each segment as of September 30, 2012, are contained in the following chart:

As more fully discussed in Note 4, on July 1, 2011, we acquired our partner’s interest in The Woodlands. We now own 100% of The Woodlands and consolidate its operations. As such, The Woodlands operating results for historical periods when this investment was a Real Estate Affiliate are now analyzed internally on a non-GAAP consolidation basis by management in order to provide management comparability between periods for analyzing operating results.

As our segments are managed separately, different operating measures are utilized to assess operating results and allocate resources among the segments. The one common operating measure used to assess operating results for the business segments is Real Estate Property Earnings Before Taxes (“REP EBT”) which represents the operating revenues of the properties less property operating expenses and adjustments for interest, as further described below. Management believes that REP EBT provides useful information about the operating performance for all of our assets, projects and properties.

REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate interest income and depreciation expense, provision for income taxes, warrant liability gain (loss). We present REP 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

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) to calculate REP EBT is appropriate to provide additional information to investors because REP EBT excludes certain non-recurring and non-cash items, which we believe are not indicative of our core operating performance. REP EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss) as it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

Segment operating results are as follows:

	Three Months Ended September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	40,218		$	—		$	40,218
Builder price participation	1,867			—			1,867
Minimum rents	130			—			130
Other land revenues	6,385			—			6,385
Other rental and property revenues	(7		)	—			(7		)
Total revenues	48,593			—			48,593
Cost of sales - land	21,439			—			21,439
Land sales operations	8,209			—			8,209
Land sales real estate and business taxes	1,751			—			1,751
Depreciation and amortization	64			—			64
Interest income	(49		)	—			(49		)
Interest expense (1)	(3,638		)	—			(3,638		)
Total expenses	27,776			—			27,776
MPC EBT	20,817			—			20,817
Operating Assets
Minimum rents	22,788			—			22,788
Tenant recoveries	6,030			—			6,030
Resort and conference center revenues	8,328			—			8,328
Other rental and property revenues	4,342			—			4,342
Total revenues	41,488			—			41,488
Rental property real estate taxes	2,934			—			2,934
Rental property maintenance costs	2,126			—			2,126
Resort and conference center operations	6,965			—			6,965
Other property operating costs	14,853			—			14,853
Provision for doubtful accounts	237			—			237
Depreciation and amortization	6,440			—			6,440
Interest income	(48		)	—			(48		)
Interest expense	4,313			—			4,313
Equity in Earnings from Real Estate Affiliates	—			(310		)	(310		)
Total expenses	37,820			(310		)	37,510
Operating Assets EBT	3,668			310			3,978
Strategic Developments
Minimum rents	217			—			217
Tenant recoveries	35			—			35
Other rental and property revenues	4,482			—			4,482
Total revenues	4,734			—			4,734
Condominium sales operations	(24		)	—			(24		)
Real estate taxes	640			—			640
Rental property maintenance costs	137			—			137
Other property operating costs	2,080			—			2,080
Provision for doubtful accounts	3			—			3
Depreciation and amortization	56			—			56
Interest expense	(193		)	—			(193		)
Total expenses	2,699			—			2,699
Strategic Developments EBT	2,035			—			2,035
REP EBT	$	26,520		$	310		$	26,830

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

	Three Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	34,152		—			$	34,152
Builder price participation	1,233			—			1,233
Minimum rents	122			—			122
Other land revenues	5,597			—			5,597
Total revenues	41,104			—			41,104
Cost of sales - land	27,033			—			27,033
Land sales operations	8,430			—			8,430
Land sales real estate and business taxes	2,059			—			2,059
Depreciation and amortization	23			—			23
Interest income	(70		)	—			(70		)
Interest expense (1)	(3,808		)	—			(3,808		)
Total expenses	33,667			—			33,667
MPC EBT	7,437			—			7,437
Operating Assets
Minimum rents	19,072			—			19,072
Tenant recoveries	5,387			—			5,387
Resort and conference center revenues	7,200			—			7,200
Other rental and property revenues	4,593			—			4,593
Total revenues	36,252			—			36,252
Rental property real estate taxes	2,829			—			2,829
Rental property maintenance costs	2,016			—			2,016
Resort and conference center operations	6,352			—			6,352
Other property operating costs	14,249			—			14,249
Recovery of doubtful accounts	(136		)	—			(136		)
Depreciation and amortization	6,961			—			6,961
Interest income	(46		)	—			(46		)
Interest expense	4,050			—			4,050
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates	—			(166		)	(166		)
Total expenses	47,580			(166		)	47,414
Operating Assets EBT	(11,328		)	166			(11,162		)
Strategic Developments
Minimum rents	209			—			209
Tenant recoveries	11			—			11
Condominium unit sales	9,071			—			9,071
Other land revenues	(60		)	—			(60		)
Other rental and property revenues	86			—			86
Total revenues	9,317			—			9,317
Condominium unit cost of sales	5,470			—			5,470
Condominium sales operations	245			—			245
Real estate taxes	(819		)	—			(819		)
Rental property maintenance costs	139			—			139
Other property operating costs	712			—			712
Recovery of doubtful accounts	(5		)	—			(5		)
Depreciation and amortization	59			—			59
Interest expense	149			—			149
Total expenses	5,950			—			5,950
Strategic Developments EBT	3,367			—			3,367
REP EBT	$	(524	)	$	166		$	(358	)

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

29

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

	Nine Months Ended September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	120,235		—			$	120,235
Builder price participation	4,208			—			4,208
Minimum rents	384			—			384
Other land revenues	13,401			—			13,401
Other rental and property revenues	28			—			28
Total revenues	138,256			—			138,256
Cost of sales - land	63,096			—			63,096
Land sales operations	25,382			—			25,382
Land sales real estate and business taxes	5,533			—			5,533
Depreciation and amortization	67			—			67
Interest income	(179		)	—			(179		)
Interest expense (1)	(10,709		)	—			(10,709		)
Total expenses	83,190			—			83,190
MPC EBT	55,066			—			55,066
Operating Assets
Minimum rents	61,532			—			61,532
Tenant recoveries	17,817			—			17,817
Resort and conference center revenues	29,954			—			29,954
Other rental and property revenues	15,307			—			15,307
Total revenues	124,610			—			124,610
Rental property real estate taxes	8,160			—			8,160
Rental property maintenance costs	5,851			—			5,851
Resort and conference center operations	21,750			—			21,750
Other property operating costs	43,274			—			43,274
Provision for doubtful accounts	386			—			386
Depreciation and amortization	16,969			—			16,969
Interest income	(134		)	—			(134		)
Interest expense	11,373			—			11,373
Equity in Earnings from Real Estate Affiliates (2)	—			(3,432		)	(3,432		)
Total expenses	107,629			(3,432		)	104,197
Operating Assets EBT	16,981			3,432			20,413
Strategic Developments
Minimum rents	693			—			693
Tenant recoveries	115			—			115
Condominium unit sales	267			—			267
Other land revenues	32			—			32
Other rental and property revenues	4,544			—			4,544
Total revenues	5,651			—			5,651
Condominium unit cost of sales	96			—			96
Condominium sales operations	47			—			47
Real estate taxes	2,423			—			2,423
Rental property maintenance costs	453			—			453
Other property operating costs	3,032			—			3,032
Recovery of doubtful accounts	(101		)	—			(101		)
Depreciation and amortization	173			—			173
Interest expense	61			—			61
Total expenses	6,184			—			6,184
Strategic Developments EBT	(533		)	—			(533		)
REP EBT	$	71,514		$	3,432		$	74,946

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $2.4 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

30

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

	Nine Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	75,692		46,773			$	122,465
Builder price participation	2,351			1,108			3,459
Minimum rents	739			14			753
Other land revenues	9,093			3,924			13,017
Total revenues	87,875			51,819			139,694
Cost of sales - land	51,907			23,932			75,839
Land sales operations	16,343			8,439			24,782
Land sales real estate and business taxes	5,110			899			6,009
Depreciation and amortization	23			46			69
Interest income	(70		)	(364		)	(434		)
Interest expense (1)	(8,936		)	(2,370		)	(11,306		)
Total expenses	64,377			30,582			94,959
Venture partner share of The Woodlands EBT				(10,088		)	(10,088		)
MPC EBT	23,498			11,149			34,647
Operating Assets
Minimum rents	51,701			2,803			54,504
Tenant recoveries	14,391			1,061			15,452
Resort and conference center revenues	7,200			19,106			26,306
Other rental and property revenues	8,034			6,992			15,026
Total revenues	81,326			29,962			111,288
Rental property real estate taxes	7,167			972			8,139
Rental property maintenance costs	4,807			477			5,284
Resort and conference center operations	6,352			13,904			20,256
Other property operating costs	31,716			9,060			40,776
Provision for (recovery of) doubtful accounts	317			(9		)	308
Depreciation and amortization	13,200			3,968			17,168
Interest income	(79		)	(2		)	(81		)
Interest expense	9,143			2,316			11,459
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates (2)	—			(3,139		)	(3,139		)
Total expenses	83,928			27,547			111,475
Venture partner share of The Woodlands EBT				(1,067		)	(1,067		)
Operating Assets EBT	(2,602		)	1,348			(1,254		)
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
Other land revenue	—			—			—
Total revenues	21,395			—			21,395
Condominium unit cost of sales	13,722			—			13,722
Condominium sales operations	860			—			860
Real estate taxes	626			—			626
Rental property maintenance costs	471			—			471
Other property operating costs	2,697			—			2,697
Recovery of doubtful accounts	(143		)	—			(143		)
Provision for impairment	—			—			—
Depreciation and amortization	176			—			176
Interest expense	154			—			154
Total expenses	18,563			—			18,563
Strategic Developments EBT	2,832			—			2,832
REP EBT	$	23,728		$	12,497		$	36,225

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $3.9 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

31

THE HOWARD HUGHES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

UNAUDITED

The following reconciles REP EBT to GAAP-basis income (loss):

Reconciliation of REP EBT to GAAP-net	Three Months Ended September 30,						Nine Months Ended September 30,
income (loss)	2012			2011			2012			2011
	(In thousands)						(In thousands)
Real estate property EBT:
Segment basis	$	26,830		$	(358	)	$	74,946		$	36,225
Real Estate Affiliates	(310		)	(166		)	(3,432		)	(12,497		)
	26,520			(524		)	71,514			23,728
General and administrative	(9,339		)	(8,673		)	(25,896		)	(21,156		)
Corporate interest income	2,315			2,616			6,814			7,309
Warrant liability gain (loss)	(64,303		)	169,897			(162,724		)	100,762
Benefit (provision) for income taxes	(2,618		)	7,760			(7,703		)	4,344
Reduction in tax indemnity receivable	(2,873		)	—			(11,655		)	—
Equity in earnings from Real Estate Affiliates	310			166			3,432			7,787
Investment in Real Estate Affiliate basis adjustment	—			(6,053		)	—			(6,053		)
Corporate depreciation	(204		)	(165		)	(506		)	(193		)
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528

The following reconciles segment revenue to GAAP-basis consolidated and combined revenues:

Reconciliation of Segment Basis Revenues to	Three Months Ended September 30,				Nine Months Ended September 30,
GAAP Revenues	2012		2011		2012		2011
	(In thousands)				(In thousands)
Master Planned Communities - Total Segment	$	48,593	$	41,104	$	138,256	$	139,694
Operating Assets - Total Segment	41,488		36,252		124,610		111,288
Strategic Developments - Total Segment	4,734		9,317		5,651		21,395
Total Segment revenues	94,815		86,673		268,517		272,377
Less: The Woodlands Partnerships revenues	—		—		—		(81,781		)
Total revenues - GAAP basis	$	94,815	$	86,673	$	268,517	$	190,596

The assets by segment and the reconciliation of total segment assets to the total assets in the consolidated balance sheets at September 30, 2012 and December 31, 2011 are summarized as follows:

	September 30,		December 31,
	2012		2011
	(In thousands)
Master Planned Communities	$	1,787,034	$	1,778,515
Operating Assets	950,665		869,186
Strategic Developments	217,217		189,807
Total segment assets	2,954,916		2,837,508
Corporate and other	569,154		557,641
Total assets	$	3,524,070	$	3,395,149

NOTE 16              SUBSEQUENT EVENTS

As disclosed in Note 2 - Sponsors and Management Warrants, we have issued warrants to purchase 8.0 million shares of our common stock to certain sponsors.  In early November, Brookfield Asset Management, Inc. (“Brookfield”), one of our sponsors, exercised warrants to purchase 1,525,272 shares of our common stock at an exercise price of $50.00 per warrant or $76.3 million.  In addition, we agreed to purchase Brookfield’s remaining warrants to purchase 2,308,061 shares of our common stock for $89.3 million.  The cash consideration paid to Brookfield net of the exercise price was $13.0 million.  The warrant liability included in our condensed consolidated balance sheet as of September 30, 2012 associated with these warrants that has subsequently been settled was $110.3 million.  As a result of these transactions, an additional warrant liability loss of $11.4 million related to Brookfield’s warrants will be recorded in our financial statements in the fourth quarter.

As a result of superstorm Sandy, South Street Seaport which is one of our operating assets located in lower Manhattan in New York City, suffered damage due to flooding. We believe that our insurance will cover most of the cost of repairing the property and the surrounding area and also will compensate us for any rental income or other revenue that is lost as a result of the storm or the recovery from the storm. Consequently, we do not believe that Hurricane Sandy, or the resulting damage, will have a significant impact on our earnings.

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ITEM 2   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references to numbered Notes are to specific footnotes to our Condensed Consolidated Financial Statements included in this Quarterly Report. The following discussion should be read in conjunction with such Condensed Consolidated Financial Statements and related Notes.

Forward-looking information

We may make forward-looking statements in this Quarterly Report and in other reports that we file with the SEC. In addition, our management may make forward-looking statements orally to analysts, investors, creditors, the media and others.

Forward-looking statements include:

·Projections of our revenues, operating income, net income, earnings per share, REP EBT, capital expenditures, income tax, 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.

In this Quarterly Report, for example, we make forward-looking statements discussing our expectations about:

·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.

Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “would,” or similar expressions.  Forward-looking statements should not be unduly relied upon. They give our expectations about the future and are not guarantees.  Forward-looking statements speak only as of the date they are made, and we might not update them to reflect changes that occur after the date they are made.

There are several factors, many beyond our control, which could cause results to differ materially from our expectations. These factors are described in our Annual Report and are incorporated herein by reference.  Any factor could, by itself, or together with one or more other factors, adversely affect our business, results of operations or financial condition. There may also be other factors that we have not described in this Quarterly Report or in our Annual Report that could cause results to differ from our expectations. These forward-looking statements present our estimates and assumptions only as of the date of this Quarterly Report.  Except as may be required by law, we undertake no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

Real Estate Property Earnings Before Taxes

We use a number of operating measures for assessing operating performance of our communities, assets, properties and projects within our segments, some of which may not be common among all three of our segments. We believe that investors may find some operating measures more useful than others when separately evaluating each segment.  One common operating measure used to assess operating results for our business segments is Real Estate Property Earnings Before Taxes (“REP EBT”).  Management believes that REP EBT provides useful information about our operating performance because it excludes certain non-recurring and non-cash items which we believe are not indicative of our core business.

33

REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate interest income, corporate interest and depreciation expense, provision (benefit) for income taxes, warrant liability gain (loss), the reduction in tax indemnity receivable, equity in earnings from Real Estate Affiliates and Investment in Real Estate Affiliate basis adjustment. We present REP 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) to calculate REP EBT is appropriate to provide additional information to investors.

REP EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss), as it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of this metric are that it:

·does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

·does not reflect corporate general and administrative expenses;

·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.

Operating Assets Net Operating Income

We believe that net operating income (“NOI”) is a useful supplemental measure of the performance of our Operating Assets because it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in occupancy rates, rental rates, and operating costs. We define NOI as property specific revenues (rental income, tenant recoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI also excludes straight line rents, property specific net interest expense, depreciation, ground rent and other amortization expenses and equity in earnings from real estate affiliates. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on our operating results, gross margins and investment returns.

Although we believe that NOI provides useful information to the investors about the performance of our Operating Assets due to the exclusions noted above, NOI should only be used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP operating income (loss) or net income (loss) available to common stockholders. For reference, and as an aid in understanding our computation of NOI, a reconciliation of NOI to REP EBT has been presented in the Operating Assets segment discussion below and a reconciliation of REP EBT to consolidated net income (loss) as computed in accordance with GAAP has been presented in Note 15.

Results of Operations

On July 1, 2011, we acquired our partner’s economic interest in The Woodlands located near Houston, Texas. As a result of the acquisition, we now consolidate The Woodlands’ operations in our condensed consolidated financial statements, and our condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2012 are not comparable to the same period in 2011. Prior to such acquisition, we accounted for The Woodlands using the equity method.

Consolidated revenues for the three months ended September 30, 2012 increased $8.1 million or 9.4%, to $94.8 million from $86.7 million for the three months ended September 30, 2011. The increase in revenues is primarily due to a $6.7 million increase in land sales and builder price participation in the MPC segment, $5.2 million higher revenues in the Operating Assets segment of which $2.4 million is from the acquisition of

34

Millennium Waterway Apartments and $0.9 million from The Woodlands Conference Center and Resort, partially offset by lower revenues from our Strategic Developments segment due to the absence of condominium unit sales at Nouvelle Natick of $9.1 million as a result of the sale of the last two units in the second quarter of 2012. The three months ended September 30, 2012 revenues also include $4.5 million of proceeds from the partial sale of Alameda Plaza.

Consolidated revenues for the nine months ended September 30, 2012 increased $77.9 million or 40.9%, to $268.5 million from $190.6 million for the nine months ended September 30, 2011. The increase in revenue is primarily due to the inclusion of $83.3 million from The Woodlands’ operations for the first half of 2012 compared to no revenues for the same period in the prior year because The Woodlands was not consolidated in 2011, higher MPC revenues of $3.7 million, higher revenues in the Operating Assets segment of $9.0 million and higher revenues at the Resort and Conference Center of $1.1 million offset by lower Natick condominium unit sales of $19.2 million.

Net loss attributable to common stockholders was $49.4 million for the three months ended September 30, 2012, compared to net income attributable to common stockholders of $164.3 million for the same period in 2011. The $213.7 million decrease in net income attributable to common stockholders is primarily due to the $234.2 million increase in value of outstanding warrants, higher tax provision of $10.4 million, lower Nouvelle at Natick profit contribution of $3.6 million and the reduction in tax indemnity receivable of $2.9 million. The decrease in net income attributable to common stockholders was partially offset by an improved profit margin from the MPC business of $13.9 million, principally relating to The Woodlands lower land inventory value resulting from our acquisition in 2011, the improved profit margin from our operating asset business of $4.9 million and non-recurring charges in 2011 for the early extinguishment of debt of $11.3 million and the investment in real estate basis adjustment of $6.1 million.

Net loss attributable to common stockholders was $127.4 million for the nine months ended September 30, 2012, compared to net income attributable to common stockholders of $115.8 million in the same period for 2011. The $243.2 million decrease in net income attributable to common stockholders is primarily due to the $263.5 million increase in value of the warrants, higher income tax provision of $12.0 million, the reduction in tax indemnity receivable of $11.7 million, lower Nouvelle at Natick profit contribution of $5.6 million, lower equity in earnings from Real Estate Affiliates of $1.4 million and higher general and administrative expenses of $2.0 million. The decrease in net income attributable to common stockholders was partially offset by the inclusion in earnings of $15.6 million from The Woodlands compared to no earnings in the prior year because The Woodlands was not consolidated in 2011, higher MPC earnings of $15.0 million, higher earnings from our operating assets of $5.5 million and nonrecurring charges in 2011 for the early extinguishment of debt of $11.3 million and the investment in real estate basis adjustment of $6.1 million.

Segment Operations

See Note 15 for additional information including reconciliations of our segment basis results to generally accepted accounting principles (“GAAP”) basis results.

Master Planned Communities Segment

MPC revenues vary between periods based on economic conditions and several factors such as location, development density and commercial or residential use, among others. Although our business does not involve the sale or resale of homes, we believe that net new home sales are an important indicator of future demand for lots; therefore, we use this statistic in the discussion of our MPCs below. Reported results may differ significantly from actual cash flows generated principally because cost of sales for GAAP purposes is derived from margins calculated using carrying values, projected future improvements and other capitalized costs in relation to projected future land sale revenues. Carrying values, generally, represent acquisition costs and improvements incurred in prior periods, and may also have been previously written down through impairment charges. Expenditures for improvements are capitalized and generally not reflected in the income statement of operations in the current year.

35

MPC sales data for the three months ended September 30, 2012 and 2011 is summarized as follows:

		Land Sales					Acres Sold		Number of Lots/Units		Price per acre				Price per lot
		Three Months Ended September 30,
($ in thousands)		2012			2011		2012	2011	2012	2011	2012		2011		2012		2011
Residential Land Sales
Maryland - Columbia	Single family - detached	$	—		$	630	—	0.5	—	3	$	—	$	1,260	$	—	$	210
	Townhomes	—			1,697		—	0.5	—	12	—		—		—		141
Bridgeland	Single family - detached	6,170			5,149		22.2	20.3	104	103	278		254		59		50
Summerlin	Single family - detached (1)	7,213			—		21.2	—	94	—	341		—		77		—
	Custom lots	515			—		0.6	—	1	—	805		—		515		—
The Woodlands	Single family - detached (2)	19,898			19,949		52.3	53.5	235	216	380		373		85		92
	Single family - attached	—			887		—	2.3	—	34	—		386		—		26
	Subtotal	33,796			28,312		96.3	77.1	434	368
Commercial Land Sales
Maryland - Columbia	Apartments	5,300			—		18.7	—	—	—	284		—		—		—
Summerlin	Not-for-profit	—			—		—	—	—	—	—		—
	Retail	—			—		—	—	—	—	—		—
The Woodlands	Office and other	1,330			—		10.4	—			128		—
	Retail	—			2,001		1.2	5.0			—		400
	Other	—			1,839		—	5.3			—		347
	Subtotal	6,630			3,840		30.3	10.3
Total acreage sales revenue		40,426			32,152
Deferred revenue		(1,051		)	2,000
Special Improvement District revenue		843			—
Total land sales - GAAP basis		$	40,218		$	34,152

(1) The Summerlin 2012 revenue per acre of $341,000 includes 41 single family finished lots that average $691,543 per acre and 53 super pad lots that average $230,000 per acre.

(2) The Woodlands 2011 lot sales revenues have been restated to include fixed price builder payments collected at lot closing to conform with the 2012 lot sales presentation.

36

MPC sales data for the nine months ended September 30, 2012 and 2011 is summarized as follows:

MPC Sale Summary

		Land Sales						Acres Sold		Number of Lots/Units		Price per acre				Price per lot
		Nine Months Ended September 30,
($ in thousands)		2012			2011			2012	2011	2012	2011	2012		2011		2012		2011
Residential Land Sales
Maryland - Columbia	Single family - detached	$	—		$	1,480		—	1.4	—	7	$	—	$	1,057	$	—	$	211
	Townhomes	4,156			3,311			1.2	1.0	28	24	—		—		148		138
Bridgeland	Single family - detached	17,183			13,846			63.9	52.2	313	260	269		265		55		53
Summerlin	Single family - detached (1)	23,773			25,504			71.6	62.4	353	312	332		409		67		82
	Custom lots	3,761			—			4.8	—	9	—	784		—		418		—
The Woodlands	Single family - detached (2)	55,459			55,523			151.0	149.8	598	610	367		371		93		91
	Single family - attached	—			887			—	2.3	—	34	—		386				26
	Subtotal	104,332			100,551			292.5	269.1	1,301	1,247
Commercial Land Sales
Maryland - Columbia	Apartments	5,300			—			18.7	—	—	—	284		—		—		—
Summerlin	Not-for-profit	—			3,615			—	16.0	—	—	—		226
	Retail	784			—			1.0	—	—	—	784		—
The Woodlands	Office and other	6,437			1,800			10.4	3.2			619		563
	Retail	1,250			5,115			1.2	10.5			1,042		487
	Other	50			1,839			0.8	5.3			63		347
	Subtotal	13,821			12,369			32.1	35.0
Total acreage sales revenue		118,153			112,920
Deferred revenue		(1,870		)	5,516
Special Improvement District revenue		3,952			4,028
Total segment land sales		120,235			122,464
The Woodlands acreage sales (3)		—			(46,772		)
Total land sales - GAAP basis		$	120,235		$	75,692

(1) The Summerlin 2012 revenue per acre of $332,000 includes 121 single family finished lots that average $688,516 per acre and 232 super pad lots that average $226,452 per acre.

(2) The Woodlands 2011 lot sales revenues have been restated to include fixed price builder payments collected at lot closing to conform with the 2012 lot sales presentation.

(3) The Woodlands acreage sales for the six months ended June 30, 2011 are deducted from total segment land sales revenue to derive Total land sale revenue - GAAP basis because The Woodlands operating results were not consolidated during this period.

Total land sales increased $6.1 million for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011. Residential land sales increased at Summerlin and Bridegeland by $8.7 million, offset by $2.3 million less land sales at Columbia. Commercial land sales increased by $2.8 million due to a $5.3 million land sale at Columbia for the development of an apartment complex offset by $2.5 million lower land sales

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at The Woodlands. In addition, Summerlin recognized $2.0 million of deferred revenue in 2011 which did not reoccur in 2012. Total segment land sales for the nine months ended September 30, 2012 decreased $2.2 million as compared to the nine months ended September 30, 2011 primarily due to $6.8 million of lower deferred revenue at The Woodlands related to our continuing involvement with a project requiring local government approval and a separate project requiring the construction of certain infrastructure partially offset by overall higher residential and commercial land sales of $3.8 million and $1.5 million, respectively, for the nine months ended September 30, 2012 compared to the same period in prior year. The increase in residential land sales is primarily due to increased land sales at Bridgeland of $3.3 million and Summerlin of $2.0 million due to improving market conditions, offset by lower residential land sales at The Woodlands and Columbia of $1.6 million due to less available inventory for sale.

In general, the lower the lot price, the lower the average price per acre. This relationship does not hold true for lower-priced, high-density lots that have a high price per acre. For large MPCs such as ours, sales prices on a per lot basis and per acre basis generally increase as the size of the developed lot grows. This is because smaller lots are more commodity-like and larger lots typically have more unique features. The average homebuyer will find more competition for new and resale homes on the lower end of the price range in the broader residential market. As lot sizes and prices increase, however, the potential customer and developer base decreases. Barring a softening in market conditions, when a MPC reaches the level whereby land is scarce, pricing begins to escalate markedly on a per lot and per acre basis due to a scarcity premium resulting from the market’s realization that new home site inventory will be depleted.

The Woodlands and Bridgeland MPCs

The Woodlands residential land sales were $19.9 million and $55.5 million representing 235 lots and 598 lots sold during the three and nine months ended September 30, 2012, respectively, which was relatively flat compared to $20.8 million and $56.4 million of revenues representing 250 lots and 644 lots sold for the same periods in 2011. The price per acre for the three month period ended September 30, 2012 was higher than the same period in 2011 and lower for the nine month period ended September 30, 2012 than the same period in 2011. The average price per acre for three months ended September 30, 2012 was flat compared to the same period in 2011 due to stable pricing and higher volume of smaller lots sold which approximated the same acreage sold in 2011. The decrease in average lot sales price for the three months ended September 30, 2012, was due to higher sales volume of small sized lower priced production lots, compared to the same period in 2011. The average price per acre and the average lot price for the nine months ended September 2012 were flat compared to the same period in 2011 due to approximately the same volume and mix of lots sold in both periods. The Woodlands housing market continues to be extremely strong with 859 net home sales in the first nine months of 2012 compared to 755 net home sales in the first nine months of 2011, representing an increase of 13.8%. This strong housing market creates a higher demand for finished lots. We estimate that The Woodlands has four to five years of remaining lot sales based on current sales velocity, and our goal is to maximize value by finding the optimal pricing/volume relationship. In the third quarter of 2012, we restructured our production lot sales program to a bidding process that has generated a substantial increase in average lot prices. In August of 2012, we conducted an auction with home builders in The Woodlands for 375 lots in seven new sections.  The auction generated an aggregate increase in price of approximately $16.7 million, or 49%, compared to selling prices prior to the auction.  As these sales have not yet closed, these results are not included in our condensed consolidated financial statements. Scheduled closings for these lots are expected to occur during the fourth quarter of 2012 and the first two quarters of 2013. We plan to continue the bid process for future sections to ensure we maximize values.

Bridgeland’s land sales revenues were $6.2 million and $17.2 million for the three and nine months ended September 30, 2012, respectively, a $1.0 million and $3.3 million increase for the same periods in 2011 due to the higher demand resulting from higher home sales. Bridgeland net new home sales increased 29.4% during the first nine months of 2012 with 352 net new home sales compared to 272 net new home sales for the same period in 2011. The increases in price for both the three and nine months ended September 30, 2012, in average price per acre and lot are due to price increases on all product types including premium amenity lots which was implemented during the second quarter of 2012.

ExxonMobil is constructing a large corporate campus on a 385-acre site just south of The Woodlands. The site is expected to include approximately three million square feet of space. According to several reports, ExxonMobil expects to begin relocating employees into this new location starting in 2014 and ending in 2015. We believe that the direct and indirect jobs related to this relocation will have a significant positive impact on The Woodlands and

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Bridgeland due to increased housing demand and commercial space needs for companies servicing ExxonMobil. Lastly, construction of the extension of the Grand Parkway to 1-45 is expected to commence in the near future and is anticipated to open by 2015. The new Parkway will have a very positive impact on travel patterns for residents living in The Woodlands and Bridgeland.

Summerlin MPC

Summerlin’s residential land sales revenues increased by $7.7 million and $2.0 million, respectively, for the three months and nine months ended September 30, 2012 compared to the same periods in 2011. Summerlin sold 95 and 362 residential lots during the three and nine months ended September 30, 2012 compared to none and 312 residential lots during the three and nine months ended September 30, 2011. The decrease in average lot prices for nine months ended September 30, 2012 was due to the higher mix of super pad lot sales which are priced lower than single family finished lots. Summerlin net new home sales ended the third quarter of 2012 at 372, a 119% increase over the same period in 2011. Inventory levels in both the new home segment and resale market continue to decline, resulting in improved home pricing. Increases in new home prices benefit us because we earn higher price participation fees from the home builders and the value of our land inventory increases as well. At September 30, 2012, Summerlin had 147 residential lots under contract representing approximately $11.8 million of sales, of which $3.7 million are scheduled to close in 2012 with the remaining $8.1 million scheduled for 2013, if all sales are completed.

Total revenue and expenses for the Master Planned Communities segment is summarized as follows:

	Three months Ended September 30,						Nine months Ended September 30,
	2012			2011			2012			2011
	(In thousands)						(In thousands)
Master Planned Communities (*)
Land sales	$	40,218		$	34,152		$	120,235		$	122,465
Builder price participation	1,867			1,233			4,208			3,459
Other land sale revenues	6,508			5,719			13,813			13,770
Total revenues	48,593			41,104			138,256			139,694
Cost of sales - land	21,439			27,033			63,096			75,839
Land sales operations	9,960			10,489			30,915			30,791
Depreciation and amortization	64			23			67			69
Interest, net	(3,687		)	(3,878		)	(10,888		)	(11,740		)
Total expenses	27,776			33,667			83,190			94,959
Venture partner share of The Woodlands EBT	—			—			—			(10,088		)
MPC REP EBT	$	20,817		$	7,437		$	55,066		$	34,647

(*)  Our Master Planned Communities segment includes revenues and expenses related to The Woodlands. On July 1, 2011, we acquired our partner’s equity interest. As a result of the acquisition, we now consolidate The Woodlands operations. Such amounts in prior periods include The Woodlands as if consolidated. For a detailed breakdown of EBT, refer to Note 15 in our Condensed Consolidated Financial Statements.

The cost of land sales decreased by $5.6 million for the three months ended September 30, 2012 compared to the same period in 2011 due primarily to higher land sales revenue at Summerlin and Columbia and fewer commercial land sales at The Woodlands. Our total land sales gross margins, which include builder price participation, increased to approximately 49.1% for the third quarter of 2012 compared to 23.6% for the third quarter of 2011. The increase primarily relates to the cost percentages attributable to The Woodlands sales. As part of The Woodlands acquisition, its land was valued at fair market value therefore the finished lots acquired were recorded at close to their actual selling prices, significantly reducing margins on their sales. The Woodlands third quarter 2011 cost of sales therefore reflected lower margins associated with its finished lot sales. Land sales revenues for The Woodlands in 2012 primarily consist of finished lots that were undeveloped as of the date of acquisition and had a much lower cost basis than those finished lots sold in 2011 which had reflected our recent purchase price adjustments.

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The cost of land sales decreased by $12.7 million for the nine months ended September 30, 2012 compared to the same period in 2011 due primarily to lower land sales in The Woodlands and the higher cost of sales percentage applied to The Woodlands third quarter 2011 land sales. Land sales gross margins, including builder price participation, increased for the nine months ended September 30, 2012 to 49.3% compared to 39.8%for the three and nine months ended September 30, 2011, respectively, due to sales of lots which were undeveloped as of July 1, 2011, the date of acquisition, and had a much lower costs basis due to purchase accounting adjustments.

Land sale operations were flat for the three and nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011.

MPC Net Contribution

	Three months Ended September 30,				Nine months Ended September 30,
	2012		2011		2012		2011
	(In thousands)				(In thousands)
MPC REP EBT (*)	$	20,817	$	7,437	$	55,066	$	34,647
Plus:
Cost of sales - land	21,439		27,033		63,096		64,471
Depreciation and amortization	64		23		67		47
Less:
MPC land/residential development and acquisitions expenditures	25,506		32,607		72,741		72,951
MPC Net Contribution	$	16,814	$	1,886	$	45,488	$	26,214

(*)  Our master planned communities segment includes revenues and expenses related to The Woodlands Partnerships. On July 1, 2011, we acquired our partner’s equity interest. As a result of the acquisition, we now consolidate The Woodlands’ operations into our consolidated financial statements. Prior to such acquisitions, we accounted for The Woodlands using the equity method.  For a detailed breakdown of EBT, refer to Note 15.

The above table sets forth MPC Net Contribution for the three and nine months ended September 30, 2012 and 2011. MPC Net Contribution is defined as MPC REP EBT, plus MPC cost of sales and depreciation and amortization, and reduced by MPC development and acquisition expenditures. Current period expenditures primarily relate to land expected to be sold in future periods. The increase in the MPC Net Contribution of $14.9 million during the three months ended September 30, 2012 is primarily due to increased land sales at Summerlin and decreased residential development and acquisitions expenditures mainly at Bridgeland and Summerlin.  The increase in the MPC Net Contribution of $19.3 million for the nine months ended September 30, 2012 compared to the same periods in 2011 is primarily due to the acquisition of our partner’s interest in The Woodlands during the nine months ended September 30, 2011 and the increase in Summerlin land sales during the third quarter of 2012.

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Operating Assets Segment

We view NOI as an important measure of the operating performance of our Operating Assets. These assets typically generate rental revenues sufficient to cover their operating costs, and variances between years in net operating income typically result from changes in rental rates, occupancy, tenant mix and operating expenses.

Operating Assets NOI and REP EBT

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)						(In thousands)
Operating Assets NOI
Retail
Ward Centers	$	5,616		$	5,630		$	16,735		$	16,449
South Street Seaport (a)	1,878			1,866			4,085			3,404
Rio West Mall	265			286			995			963
Landmark Mall (a)	153			108			662			627
Riverwalk Marketplace (a)	94			130			573			339
Cottonwood Square	97			83			320			299
Park West	251			159			739			490
20/25 Waterway Avenue	407			375			1,242			902
Waterway Garage Retail	(8		)	(8		)	2			6
Total Retail	8,753			8,629			25,353			23,479
Office
110 N. Wacker	1,517			1,526			4,554			4,518
Columbia Office Properties	593			326			1,698			1,662
70 Columbia Corporate Center	(8		)	—			(8		)	—
4 Waterway Square	1,478			426			4,140			1,102
9303 New Trails	475			299			1,435			852
1400 Woodloch Forest	440			239			1,202			649
2201 Lake Woodlands Drive	23			83			21			249
Total Office	4,518			2,899			13,042			9,032
Millennium Waterway Apartments (b)	1,147			—			1,407			—
The Woodlands Resort and Conference Center	1,363			848			8,205			6,050
Total Retail, Office, Multi-family, Resort and Conference Center	15,781			12,376			48,007			38,561
The Club at Carlton Woods	(1,081		)	(1,420		)	(3,383		)	(3,933		)
The Woodlands Parking Garages	(236		)	(469		)	(729		)	(906		)
The Woodlands Ground Leases	98			97			289			312
Other Properties	260			(148		)	1,037			1,173
Total Other	(959		)	(1,940		)	(2,786		)	(3,354		)
Total Operating Assets NOI- Consolidated	14,822			10,436			45,221			35,207
Straight-line lease amortization	(449		)	506			(32		)	1,318
Early Extinguishment of debt	—			(11,305		)	—			(11,305		)
Depreciation and amortization	(6,440		)	(6,961		)	(16,969		)	(17,168		)
Equity in earnings from Real Estate Affiliates	310			166			3,432			3,139
Interest expense, net	(4,265		)	(4,004		)	(11,239		)	(11,378		)
Less: Partners’ share of Operating Assets REP EBT	—			—			—			(1,067		)
Total Operating Assets REP EBT (c)	$	3,978		$	(11,162	)	$	20,413		$	(1,254	)

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)						(In thousands)
Operating Assets NOI - Equity and Cost Method Investments
Millennium Waterway Apartments (b)	$	—		$	779		$	1,768		$	741
Woodlands Sarofim # 1	61			364			537			1,138
Stewart Title (title company)	665			323			1,333			667
Forest View/Timbermill Apartments (d)	(25		)	465			557			1,317
Total NOI - equity investees	701			1,931			4,195			3,863
Adjustments to NOI (e)	(22		)	(1,412		)	(1,473		)	(3,748		)
Equity Method Investments REP EBT	679			519			2,722			115
Less: Joint Venture Partner’s Share of REP EBT	(369		)	(388		)	(1,666		)	(905		)
Equity in earnings (loss) from Real Estate Affiliates	310			131			1,056			(790		)
Distributions from Summerlin Hospital Investment	—			35			2,376			3,929
Segment equity in earnings from Real Estate Affiliates	$	310		$	166		$	3,432		$	3,139
Company’s Share of Equity Method Investments NOI
Millennium Waterway Apartments (b)	$	—		$	651		$	1,477		$	619
Woodlands Sarofim # 1	12			73			107			228
Stewart Title (title company)	333			162			667			334
Forest View/Timbermill Apartments (d)	(13		)	233			279			659
Total NOI - equity investees	$	332		$	1,119		$	2,530		$	1,840

	Economic		September 30, 2012
	Ownership		Debt
			(In thousands)
Millennium Waterway Apartments (b)	83.55	%	not applicable
Woodlands Sarofim #1	20.00	%	6,882
Stewart Title(title company)	50.00	%	—
Forest View/Timbermill Apartments (d)	50.00	%	not applicable

(a) Straight-line ground rent amortization was excluded from 2011 to conform with 2012.

(b) On May 31, 2012, we acquired our partner’s interest in the 393-unit Millennium Waterway Apartments. NOI for periods prior to June 1, 2012 is included in Operating Assets NOI - Equity and Cost Method Investments.

(c) For a detailed breakdown of our Operating Assets segment EBT, refer to Note 15. Such amounts in prior periods include The Woodlands as if consolidated.

(d) On April 19, 2012, the joint ventures owning the Forest View and Timbermill Apartments completed their sale to a third party. Our share of the distributable cash, after repayment of debt and transaction expenses, was $8.6 million.

(e) Adjustments to NOI primarily include straight-line and market lease amortization, depreciation and amortization and non-real estate taxes.

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Reconciliation of Operating Assets Segment Equity in Earnings

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2012			2011			2012			2011
Segment Equity in Earnings from Real Estate Affiliates	$	310		$	166		$	3,432		$	3,139
Less: Equity Method Investments Share of REP EBT	(310		)	(131		)	(1,056		)	790
Cost Basis Investments and dividends	—			35			2,376			3,929
Add HHC Equity Method investments:
The Woodlands	—			—			—			3,727
Circle T	—			—			—			—
Forest View/ Timbermill Apartments	—			2			4			2
Millennium Waterway Apartments	—			14			406			14
Stewart Title (title company)	324			85			640			85
Woodlands Sarofim #1	(14		)	30			6			30
Equity in Earnings from Real Estate Affiliates	$	310		$	166		$	3,432		$	7,787

Retail Properties

Retail NOI of $8.8 million for the three months ended September 30, 2012 increased $0.1 million compared to $8.6 million for the same period in 2011. Retail NOI of $25.4 million increased $1.9 million for the nine months ended September 30, 2012 as compared to $23.5 million for the same period in 2011.

For the nine months ended September 30, 2012, we have executed 61 leases representing 236,364 square feet with average annual rents of $31.69 per square foot during the initial year of the lease term. Of the 61 leases, 43 represent comparable leases where there was a prior tenant with an increase in cash basis rent of less than one percent. Included in our executed leases is an existing tenant who is relocating within our property and will vacate 30,000 square feet of space.

Ward Centers

Prior to the third quarter, we executed a lease with Bed Bath & Beyond for approximately 30,000 square feet formerly occupied by Borders. We expect Bed Bath & Beyond to occupy the space during the first quarter of 2013. Additionally, during the second quarter of 2012, we completed at a cost of approximately $9.4 million and opened the upper level of Phase One of Ward Village Shops at Ward Centers. The space is approximately 35,744 square feet and is leased to TJ Maxx commencing in May 2012.  We are seeking a tenant for the approximately 34,000 square foot space in the lower level.  Approximately $2.9 million has been incurred to complete this space as of September 30, 2012, and we estimate approximately $4.7 million of additional costs (including tenant allowances) to complete.  TJ Maxx and Bed Bath & Beyond are expected to provide an additional $2.0 million in NOI.

On July 25, 2012, we announced the development of Phase Two of Ward Village Shops, a 57,000 square foot, two story retail center located in Honolulu, Hawaii.  Construction began in the third quarter of 2012. Our anticipated investment is expected to be approximately $26.2 million with an expected opening in the fall of 2013.  Phase Two is 100% leased as we will relocate Pier 1 Imports and Nordstrom Rack from their current locations at Ward Centers. These tenants are expected to contribute an incremental $1.0 million of combined annual NOI when they take possession in late 2013 or early 2014.

In October 2012, we announced plans to create an urban master planned community in the Kaka′ako district of Honolulu, HI. Over the next decade, Ward Centers will be transformed into Ward Village, a mixed-use retail, dining, entertainment, along with market rate and affordable housing. The development of Ward Village will be consistent with the master plan approved by the Hawaii Community Development Authority (“HCDA”).  In January 2011, we entered into a development agreement with the HCDA which allows for up to 9.3 million square feet, including up to 7.6 million square feet of residential (4,300 units), five million square feet of retail and four million square feet of office, commercial and other uses. Full build out is estimated to take over fifteen years, but will ultimately

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depend on market absorption and many other factors that are difficult to estimate.  The redevelopment will commence with four components on four separate blocks consisting of two mixed-use market-rate residential towers, one reserved housing tower and the renovation of the IBM building, a portion of which will serve as the information and sales center for Ward Village. We anticipate breaking ground on the first phase in 2014 with an expected completion in 2016.

South Street Seaport

As more fully described in Note 13 — Commitments and Contingencies, during June of 2012, we entered into an agreement to amend and restate the South Street Seaport ground lease (“Agreement to Amend”), which allows us to renovate and rehabilitate Pier 17 (“Renovation Project”). The Renovation Project includes the renovation and reconstruction of the existing Pier 17 Building, which consists of approximately 195,000 square feet of leasable area. Construction on this site is expected to begin during the second quarter of 2013 and conclude mid-year 2015. We continue to process the necessary governmental approvals, and we are actively pursuing potential tenants.  Design development drawings are complete and construction documents and development budget are underway for this project. As of September 30, 2012, we have incurred $6.6 million of costs related to this project.

Riverwalk Marketplace

On July 26, 2012, we announced plans to redevelop Riverwalk Marketplace into an upscale outlet center.  The Outlet Collection at Riverwalk will be the nation’s first outlet center located in the downtown of a major city. The redevelopment will feature a tenant mix of top national retailers with established outlet stores, local retailers and several dining and entertainment options. Plans currently include expanding the current leasable area by 44,000 square feet to 244,000 square feet. The redevelopment is contingent upon obtaining an acceptable amount of pre-leasing for the property and financing.

Office Properties

All of the office properties listed in the NOI schedule, except for 110 N. Wacker, 70 Columbia Corporate Center (“70 CCC”) and the Columbia Office Properties, are located in The Woodlands. Leases related to our office properties, except those located in Columbia, MD, are generally triple net leases. These leases typically require tenants to pay their pro-rata share of certain property operating costs, such as real estate taxes, utilities and insurance.

NOI of $4.5 million increased $1.6 million, or 55.8% for the three months ended September 30, 2012 as compared to $2.9 million for the same period in 2011. NOI of $13.0 million increased $4.0 million, or 44.4% for the nine months ended September 30, 2012 as compared to $9.0 million for the same period in 2011. As of September 30, 2012, all of the office properties have reached stabilized NOI with the exception of 70 CCC and certain properties included in the Columbia Office portfolio that are more fully described below.

The increase in NOI is associated with 4 Waterway Square and 9303 New Trails and relates to the stabilization of these assets. Both properties are fully occupied as of September 30, 2012, but the occupancy percentage was 46.7% for 4 Waterway Square and 73.9% for 9303 New Trails as of September 30, 2011. Stabilized NOI for 4 Waterway Square and 9303 New Trails is approximately $5.2 million and $1.8 million, respectively.

On August 15, 2012, we acquired 70 CCC, a 169,590 square foot Class A office building located in Columbia, Maryland town center. The building was approximately 23.7% leased at closing. Simultaneous to the closing of the transaction, we executed a lease for 76,308 square feet that will increase occupancy to approximately 68.7% when the tenant takes possession which is estimated to occur in March 2013. Refer to Note 4 — Acquisitions and Dispositions.

On July 26, 2012, we entered into a lease agreement with Whole Foods Market to lease 45,000 square feet of the approximate 88,000 leasable area of our Columbia headquarters building located in Columbia, MD.  We will begin a complete restoration and redevelopment of the building that will serve as a catalyst for future developments in the area. We expect to invest approximately $25.0 million and plan to begin construction in the second quarter of 2013 with an anticipated completion during the third quarter 2014.  Based on our pro forma analyses and market rental

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rates, we estimate stabilized NOI of $2.1 million in the second quarter of 2015, compared to current annual NOI loss of approximately $1.0 million. Costs incurred to date are approximately $0.8 million.

For the nine months ended September 30, 2012, we executed 15 leases representing 238,103 square feet with average annual rents of $23.69 per square foot during the initial year of the lease term. Of the 15 leases, 11 are initial leases for first generation space that has never been occupied or represents pre-leasing at 3 Waterway Square, which is currently under construction. Two of the 15 leases represent comparable leases where there was a prior tenant with an increase in cash basis rent of 32.6%.

Multi-family

On May 31, 2012, we acquired our partner’s interest in Millennium Waterway Apartments. We now consolidate Millennium Waterway Apartments.  This asset adds a stabilized Class A multi-family property located in The Woodlands Town Center to our portfolio. The property is currently 95.4% occupied and has a stabilized annual NOI of approximately $4.2 million. In conjunction with this acquisition, we entered into a joint venture agreement with our partner to construct a 314-unit Class A multi-family property as more fully discussed under our Strategic Developments segment.

The Woodlands Resort and Conference Center

The Woodlands Resort and Conference Center’s $0.5 million and $2.2 million increases in NOI, respectively, for the three and nine months ended September 30, 2012 as compared to the same period in 2011 is primarily due to higher overall revenue per available room (which is the average daily room rate multiplied by average occupancy), which increased 14.7% and 14.5%, respectively. The overall revenue per available room increased to $98.10 from $85.53 and $113.64 and $99.27 for the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011. Increased business activity and strong local economic conditions at The Woodlands and surrounding areas are driving increased revenue and NOI as compared to 2011.

Other

The Club at Carlton Woods (the “Club”) is a 36-hole golf and country club at The Woodlands with 603 total members as of September 30, 2012. The Club sold 38 net new golf memberships generating approximately $3.1 million in cash during the nine months ended September 30, 2012. We estimate the Club requires approximately 800 members to achieve break-even NOI, and therefore we expect to continue to incur NOI losses for the foreseeable future.

The Woodlands Parking Garages comprise nearly 3,000 parking spaces in two separate parking structures. The Waterway Square Garage (1,942 spaces) is located in The Woodlands Town Center and has excess parking capacity for future commercial development. Woodloch Forest garage has approximately 1,000 total spaces with 300 spaces available for future adjacent office development.

Partially Owned

During the first quarter of 2012, we received a $2.4 million distribution from our Summerlin Hospital investment. We received a $3.9 million distribution in the first quarter of 2011, approximately $2.0 million of which was related to the calendar year 2010 and the remaining $1.9 million was related to periods prior to 2010 which had been deferred due to a capital project at the hospital. Distributions from the Summerlin Hospital are typically made one time per year and in the first quarter.

On April 19, 2012, the joint ventures owning the Forest View and Timbermill tax-credit apartments completed their sale to a third party.  There was no gain or loss recognized on these sales. Our share of the distributable cash, after repayment of debt and transaction costs, was $8.6 million. The NOI associated with the management fees for operating these joint ventures were included in Other Properties on the schedule of Operating Assets NOI and REP EBT. As a result of the sale, NOI decreased $0.2 million and $0.4 million for the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011.

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Total revenue and expenses for the Operating Assets segment is summarized as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands)						(In thousands)
Operating Assets (*)
Minimum rents	$	22,788		$	19,072		$	61,532		$	54,504
Resort and conference center revenues	8,328			7,200			29,954			26,306
Other rental and property revenues	10,372			9,980			33,124			30,478
Total revenues	41,488			36,252			124,610			111,288
Rental property real estate taxes	2,934			2,829			8,160			8,139
Rental property maintenance costs	2,126			2,016			5,851			5,284
Resort and conference center operations	6,965			6,352			21,750			20,256
Other property operating costs	14,853			14,249			43,274			40,776
Provisions for doubtful accounts	237			(136		)	386			308
Depreciation and amortization	6,440			6,961			16,969			17,168
Interest, net	4,265			4,004			11,239			11,378
Early Extinguishment of debt	—			11,305			—			11,305
Equity in Earnings from Real Estate Affiliates	(310		)	(166		)	(3,432		)	(3,139		)
Total expenses	37,510			47,414			104,197			111,475
Venture partner share of The Woodlands EBT	—			—			—			(1,067		)
Operating Assets REP EBT	$	3,978		$	(11,162	)	$	20,413		$	(1,254	)

(*) For a detailed breakdown of our Operating Assets segment EBT, refer to Note 15. Such amounts in prior periods include The Woodlands as if consolidated.

Total revenues of $41.5 million and $124.6 million for the three and nine months ended September 30, 2012 increased $5.2 million and $13.3 million, respectively, as compared to $36.3 million and $111.3 million for the same periods in 2011. The increase in minimum rents for the three months ended September 30, 2012 is primarily due to the acquisition of Millennium Waterway Apartments which contributed $2.4 million in revenue during the period.  In addition to the Millennium Waterway Apartment acquisition, South Street Seaport’s minimum rents are up $1.2 million and 4 Waterway Square’s minimum rents are up $2.0 million due to higher average occupancy during the nine months ended September 30, 2012. The Resort and Conference Center revenues increased due to higher overall revenue per available room as discussed above.

Total expenses for the three and nine months ended September 30, 2012 are lower primarily due to the early extinguishment of debt charge of $11.3 million related to the mortgage refinancing at Ward Center during the third quarter of 2011.  Other property operating costs generally include recoverable and non-recoverable costs relating to our properties such as utilities, ground rent, salaries and contract cleaning and security services. Other property operating costs for the three and nine months ended September 30, 2012, include expenses of $0.5 million associated with Millennium Waterway Apartments.

Strategic Developments Segment

Our Strategic Development assets generally require substantial future development to achieve their highest and best use. Other than the residential condominium project located in Nouvelle at Natick (Boston, Massachusetts), which is now sold out, the remaining properties in this segment generate little to no revenues. Expenses relating to these assets are primarily related to carrying costs, such as property taxes and insurance, and other ongoing costs related to maintaining the assets in their current condition. If we decide to redevelop a Strategic Development asset, we would expect that, upon completion of redevelopment, the asset would be reclassified to the Operating Assets segment and NOI would become an important measure of its operating performance.

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Total revenue and expenses for the Strategic Developments segment is summarized as follows:

	Three Months Ended September 30,							Nine Months Ended September 30,
		2012			2011			2012			2011
		(In thousands)						(In thousands)
Strategic Developments (*)
Minimum rents		$	217		$	209		$	693		$	658
Condominium unit sales		—			9,071			267			19,495
Other rental and property revenues		4,517			37			4,691			1,242
Total revenues		4,734			9,317			5,651			21,395
Condominium unit cost of sales		(24		)	5,715			143			14,582
Rental and other property operations		2,857			32			5,908			3,794
Recovery of doubtful accounts		3			(5		)	(101		)	(143		)
Depreciation and amortization		56			59			173			176
Interest, net		(193		)	149			61			154
Total expenses		2,699			5,950			6,184			18,563
Venture partner share of the Woodlands EBT		—			—			—			—
Strategic Developments REP EBT		$	2,035		$	3,367		$	(533	)	$	2,832

(*) For a detailed breakdown of our Strategic Developments segment of EBT, refer to Note 15.

Condominium unit sales and costs of sales decreased as we had no sales at Nouvelle at Natick in the three months ended September 30, 2012 and only sold two condominium units for the nine months ended September 30, 2012. There are no remaining units at September 30, 2012. The sales in 2012 were units designated for low-income housing.

Other rental and property revenues increased for the three and nine months ended September 30, 2012 as we sold 11.5 acres including 104,705 square feet of mostly vacant retail space for $4.5 million in Pocatello, ID (Alameda Plaza). We are continuing to explore the sale of the remaining 10.5 acres including 85,636 square feet of mostly vacant retail space. Other rental and property revenues for the nine months ended September 30, 2011 is primarily due to the sale of two ancillary parcels of land, aggregating approximately 4.6 acres, at the Kendall Town Center. Rental and other property operations for the three and nine months ended September 30, 2011 includes a real estate tax refund of $1.3 million received at one of our projects.

The following describes the status of our active Strategic Development Projects as of September 30, 2012:

The Woodlands

3 Waterway Square is a 232,021 square foot office building located in The Woodlands Town Center which began construction in the first quarter of 2012. The cost as of September 30, 2012 for this development is approximately $16.8 million (exclusive of allocated land value). Included in this amount is approximately $2.5 million in prepaid leasing costs. We estimate an additional $34.6 million to complete this project with an anticipated completion during the second quarter of 2013. The building is currently 90% pre-leased.  We currently expect the property to reach stabilized annual NOI of $5.9 million in the third quarter of 2013.

On May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC (“Millennium Phase II”), with The Dinerstein Companies, for the construction of a 314-unit Class A multi-family property in The Woodlands Town Center. Our partner is the managing member of Millennium Phase II.  On July 5, 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres of land valued at $15.5 million to the joint venture (compared to our $4.5 million book value), our partner’s contribution of $3.0 million in cash, and by a construction loan in the amount of $37.7 million, which is guaranteed by our partner. Total construction costs are estimated to be approximately $38.4 million (exclusive of land value).

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On July 18, 2012, we announced the development of a 66-acre mixed use site called Hughes Landing at Lake Woodlands. Hughes Landing is currently envisioned to ultimately have up to eight office buildings, hotels, retail and multi-family residential housing. As a result of a high demand for office space in The Woodlands, in the third quarter of 2012, we began pre-development of the first office building, One Hughes Landing, an eight story, 195,227 square foot Class-A building. Construction of this building is expected to begin in the fourth quarter of 2012 with completion anticipated in the fall of 2013. Approximately, $0.2 million of costs have been incurred through September 30, 2012. Total budgeted construction cost is $45.0 million (exclusive of land value).

One Ala Moana

During the first nine months of 2012, HHMK Development, LLC, our venture with local development partners in Honolulu, continued pre-development work on a proposed 206-unit condominium tower above the Nordstrom parking garage at Ala Moana shopping center in Honolulu, HI.  On September 17, 2012, we closed on non-recourse mezzanine loan commitments with List Island Properties, LLC and A & B Properties, Inc. to provide a combined $40.0 million of mezzanine financing, including $3.0 million of pre-development costs which is not required to be repaid if the construction loan fails to close or the project fails to go forward. Of the committed pre-development costs, $2.0 million has been funded as of September 30, 2012 and is non-interest bearing. We anticipate the construction loan to close in June 2013. The mezzanine financing has a blended 12.00% interest rate and a final maturity date of April 30, 2018. In addition to the mezzanine loans, A & B Properties and List Island Properties, LLC, both have a back-end profit interest in KR Holdings, LLC, which entitles them to receive a share of the profits after we get a return of our capital plus a 13% preferred return on our capital. We believe that these commitments, along with the capital committed by the venture partners and anticipated presale deposits, will be sufficient to provide all of the non-first mortgage capital for the project. Restated Condo Documents were submitted to the Real Estate Commission and we anticipate approval in the fourth quarter of 2012. This approval will allow us to enter into binding sales contracts with 30 day rescission rights. Accordingly, the venture expects to begin pre-sales prior to the end of the first quarter of 2013. Construction is expected to begin in the second quarter of 2013 with anticipated completion at the end of 2014.

Summerlin

On September 19, 2012, we announced Macy’s as the first department store tenant for The Shops at Summerlin.  We are continuing negotiations with a second department store. The Shops at Summerlin will be an approximately 1.6 million square foot regional mall located in downtown Summerlin, NV.  It will consist of a Fashion Center of approximately 1.1 million square feet that will feature three anchor tenants, retail and restaurants. Additionally, it will have approximately 198,000 square feet of office and approximately 280,000 square feet of big box and junior anchor retail space which will be located adjacent to the Fashion Center. Pre-development, design and leasing efforts continue. We anticipate construction to begin by middle of 2013. Costs incurred to date are $2.3 million.

Columbia

On April 12, 2012, the Columbia Parcel D venture, in which we are a 50% partner with a multi-family developer and which was formed to construct a 375-unit apartment building, received approval of the final development plan component of the entitlement process for the first phase.  The approval also includes Parcel C, which would allow for up to an additional 442 apartment units and 76,000 square feet of retail in the two parcels.  We have not entered into any partnerships or ventures with respect to the development of Parcel C. We submitted the site development plan in the fourth quarter of 2012 and we expect its approval. We currently expect construction to start in the first quarter of 2013, subject to obtaining debt financing and necessary approvals, with completion and leasing during 2014. Our share of the venture’s development costs to date is approximately $1.7 million.  The total project budget is $90.6 million including $20.1 million attributable to our contributed land. Our anticipated cash investment in this project is expected to be $5.9 million excluding our land contribution.

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Bridges at Mint Hill

On September 8, 2011, we entered into a joint venture with the owner of land adjacent to our property Bridges at Mint Hill located near Charlotte, NC to develop a shopping center on our properties.  On October 30, 2012, we contributed $4.5 million in cash to pay off an existing mortgage on our partner’s property and both parties contributed their respective properties into the venture. Our ownership in the venture increased from 79.0% to 90.5% as a result of the contribution transactions.  Costs to date are $0.8 million. The venture will continue pre-development work in the fourth quarter of 2012.

General and Administrative, Warrant Liability, Tax Indemnity Receivable, Tax and Equity in Earnings

General and administrative, warrant liability gain (loss), reduction in tax indemnity receivable, provision (benefit) for income taxes and equity in earnings from real estate affiliates are summarized as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2012			2011			2012			2011
General and administrative	$	9,339		$	8,673		$	25,896		$	21,156
Warrant liability gain (loss)	(64,303		)	169,897			(162,724		)	100,762
Reduction in tax indemnity receivable	(2,873		)	—			(11,655		)	—
Provision (benefit) for income taxes	2,618			(7,760		)	7,703			(4,344		)
Equity in earnings from Real Estate Affiliates	310			166			3,432			7,787

We reclassified certain salaries and overhead costs for 2011 relating to land development activities for The Woodlands from general and administrative expenses to MPC operations to be consistent with the 2012 presentation. The amounts reclassified were $1.5 million and $4.0 million for the three and nine months ended September 30, 2011, respectively.

We do not believe that the general and administrative expenses for the three and nine months ended September 30, 2011 are comparable to the three and nine months ended September 30, 2012 because during 2011 we were building our infrastructure and had not consolidated The Woodlands’ operations. If we had completed The Woodlands acquisition on January 1, 2011, our general and administrative expenses for the nine months ended September 30, 2011 would have increased by approximately $2.7 million to $23.9 million.

Our general and administrative expenses for the three months ended September 30, 2012 totaled $9.3 million compared to $8.4 million and $8.2 million for the first and second quarter of 2012, respectively. Included in general and administrative expenses for the third, second quarter and first quarter of 2012 were $2.2 million, $0.9 million and $1.8 million, respectively, related to The Woodlands. Corporate compensation and benefits expenses totaled approximately $5.9 million and $15.7 million for the three and nine months ended September 30, 2012, respectively.

During the three and nine months ended September 30, 2012, we capitalized $1.9 million and $5.8 million, respectively, of internal costs related to our MPC segment, compared to $2.1 million and $4.6 million for the same periods in 2011. Of those capitalized internal costs, salaries represented $1.2 million and $3.7 million for the three and nine months ended September 30, 2012, respectively, compared to $1.4 million and $2.7 million for the same periods in 2011. We capitalized $2.0 million and $4.5 million of internal costs related to our Strategic Development Segment for the three and nine months ended September 30, 2012. Approximately $1.7 million and $3.5 million of these costs are related to salaries for the three and six months ended September 30, 2012. We did not capitalize internal costs with respect to this segment in 2011 as we were in the initial stages of evaluating if any of the projects should be developed.

The increase in warrant liability for the nine months ended September 30, 2012 and 2011 is due to an increase in estimated value of the Sponsors and Management Warrants (Note 2) during the periods.

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The reduction in tax indemnity receivable of $2.9 million and $11.7 million for the three and nine months ended September 30, 2012, respectively, relate to the utilization of tax assets. See Note 10 — Income Taxes for more information related to the reduction in tax indemnity receivable.

The increase in the provision for income taxes for the three and nine months ended September 30, 2012 compared to the same periods in 2011 was primarily attributable to increases in operating income in the three and nine months ended September 30, 2012 compared to the same periods in 2011. The provision for income taxes was also impacted by changes in valuation allowances, unrecognized tax benefit interest expense and other permanent items.

The effective tax rates on our pretax earnings were (5.6)% and (6.4)% for the three and nine months ended September 30, 2012, respectively, compared to (5.0)% and (3.9)% for the three and nine months ended September 30, 2011, respectively. The changes in the tax rate were primarily attributable to the changes in the warrant liability for the three and nine months ended September 30, 2012 compared to the same periods in 2011. We have significant permanent differences, primarily from warrant liability gains and losses, interest income on the tax indemnity receivable, and changes in valuation allowances that cause our effective tax rate to deviate greatly from statutory rates.

Liquidity and Capital Resources

Our primary sources of cash include cash flow from land sales in our Master Planned Communities segment, cash generated from our operating assets, net proceeds from asset sales and first mortgage financings secured by our assets. Our primary uses of cash include working capital, overhead, debt service, property improvements, pre-development and development costs. We believe that our sources of cash, including existing cash on hand, will provide sufficient liquidity to meet our existing contracted obligations and anticipated ordinary course operating expenses for at least the next twelve months. The pursuit of development and re-development opportunities in our Operating Assets and Strategic Developments segments are capital intensive and will require significant additional funding. Most of these costs are currently discretionary, which means that we could discontinue spending on these activities if our liquidity profile, economic conditions or feasibility of projects changes. We intend to raise this additional funding with a mix of construction, bridge and long-term financings, by entering into joint venture arrangements and the sale of non-core assets at the appropriate time.

As of September 30, 2012, our consolidated debt was $683.8 million and our share of the debt of our Real Estate Affiliates aggregated $2.5 million. We have no final debt maturities for the remainder of 2012 and have approximately $36.1 million of debt related to the Woodlands Conference Center and Resort maturing in 2013. Please refer to Note 8 — Mortgages, Notes and Loans Payable for a table showing our debt maturity dates. We expect to refinance this loan no later than the first quarter of 2013 in connection with a planned renovation of the property which is currently estimated to cost approximately $75.0 million.

During the second quarter of 2012, we refinanced $18.1 million of existing debt related to our Bridgeland master planned community with a ten-year term loan facility at a fixed interest rate of 5.50% for the first five years and three-month LIBOR plus 2.75% for the remaining term and maturing on June 29, 2022. Beginning on June 29, 2014, annual principal payments are required in the amount of 5.00% of the then outstanding principal balance. In addition, we entered into a three year revolving credit facility with aggregate borrowing capacity of $140.0 million and a $30.0 million maximum loan amount. The revolving loan bears interest at the greater of 5.00% or LIBOR plus 3.25%. This loan will provide working capital for development at Bridgeland. Also, in the third quarter of 2012, we paid off several small notes totaling approximately $7.3 million.

The following table summarizes our Net Debt on a segment basis as of September 30, 2012. Net Debt is defined as our share of mortgages, notes and loans payable, at our ownership share, reduced by short-term liquidity sources to satisfy such obligations such as our ownership share of cash and cash equivalents and Special Improvement District receivables. Although Net Debt is not a recognized GAAP financial measure, it is readily computable from existing GAAP information and we believe, as with our other non-GAAP measures, that such information is useful to our investors and other users of our financial statements.

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Segment Basis Net Debt

	Master											Non-			Total
	Planned			Operating			Strategic		Segment			Segment			September 30,
(In thousands)	Communities			Assets			Developments		Totals			Amounts			2012
Mortgages, notes and loans payable	$	244,107	(a)	$	436,832	(b)	$	4,631	$	685,570		$	754		$	686,324
Less: Cash and cash equivalents	(103,114		)	(26,720		)(c)	—		(129,834		)	(144,356		)	(274,190		)
Special Improvement District receivables	(41,402		)	—			—		(41,402		)	—			(41,402		)
Municipal Utility District receivables	(105,487		)	—			—		(105,487		)	—			(105,487		)
Net debt	$	(5,896	)	$	410,112		$	4,631	$	408,847		$	(143,602	)	$	265,245

(a)Includes The Woodlands’ $176.7 million Master Credit Facility outstanding balance.

(b)Includes our $2.5 million share of debt of our Real Estate Affiliates.

(c)Includes our $1.3 million share of cash and cash equivalents of our Real Estate Affiliates.

Summary of Cash Flows

The Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 are not comparable on a line item basis because The Woodlands was not consolidated for the nine months ended September 30, 2011. As a result, the following line item comparisons between periods do not include The Woodlands.

Cash Flows from Operating Activities

Cash provided by operating activities was $59.3 million for the nine months ended September 30, 2012 as compared to cash provided by operations of $22.0 million for the nine months ended September 30, 2011. The increase of $37.3 million is primarily due to cash contribution from The Woodlands’ operations of $11.2 million and higher earnings from the non-Woodlands operating assets offset by lower condominium unit sales and higher master planned community and condominium development expenditures of $6.9 million.

Cash Flows from Investing Activities

Cash used in investing activities was $20.3 million for the nine months ended September 30, 2012 and $12.8 million for the nine months ended September 30, 2011.

Total cash expenditures for the nine months ended September 30, 2012 primarily include $5.1 million related to the Ward Village Shops, $2.7 million for property improvements at Ward Centers, $3.2 million related to improvements at South Street Seaport, $7.7 million of tenant-related improvements at The Woodlands and $8.4 million related to the 3 Waterway development. For the three months ended September 30, 2011, the majority of the expenditures were related to completing a parking garage at Ward Centers.

The expenditures were partially offset by proceeds from the sales of investment in real estate affiliate of $8.6 million generated by the sale of the Timbermill and Forest View Apartments in April of 2012. Further, the net cash from Millennium Phase II transaction of $4.1 million, and a decrease in restricted cash of $4.3 million also offset the expenditures.

Cash Flows from Financing Activities

Cash provided by financing activities was $6.4 million for the nine months ended September 30, 2012 compared to cash used of $0.4 million for the nine months ended September 30, 2011.

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Principal payments on mortgages, notes and loans payable were $37.2 million for the nine months ended September 30, 2012 and included repayment of $21.1 million of mortgages at Bridgeland, repayment of $6.3 million of The Woodlands Master Credit Facility and the remainder of repayments are associated with $9.9 million early repayment of several small notes and SID bonds. Proceeds from new borrowings totaling $44.8 million were generated from a $9.0 million draw on the Ward Centers mortgage loan and the $14.5 million financing at 20/25 Waterway, with the remaining proceeds primarily generated from the refinancing of the Bridgeland mortgage.

Cash provided by financing activities of $241.6 million for the nine months ended September 30, 2011 resulted primarily from the $250.0 million ($212.5 million initial funding as of September 30, 2011) Ward Centers mortgage financing and $29.0 million 110 N. Wacker Drive office building mortgage financing. The principal payments on mortgages, notes and loan payable including the refinancing of the Ward Centers and 110 N. Wacker mortgages were $241.1 million for the nine months ended September 30, 2011.

Off-Balance Sheet Financing Arrangements

We do not have any material off-balance sheet financing arrangements. We have interests in certain property owning non-consolidated ventures which have mortgage financing. The financings are non-recourse to us and totaled $9.1 million as of September 30, 2012.

REIT Requirements

In order for Ward Centers to remain qualified as a REIT for federal income tax purposes, Ward Centers must distribute or pay tax on 100% of its capital gains and distribute at least 90% of its ordinary taxable income to its stockholders, including us.  See Note 10 for more detail on Ward Center’s ability to remain qualified as a REIT.

Seasonality

Generally, revenues from our Operating Assets segment, Master Planned Communities segment and Strategic Developments segment are not subject to seasonal variations; however, rental incomes for certain retail tenants are subject to overage rent terms, which are based on tenant sales. These retail tenants are generally subject to seasonal variations, with a significant portion of their sales and earnings occurring during the last two months of the year.  As such, our rental income is higher in the fourth quarter of each year.

Critical Accounting Policies

Critical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and require management to make difficult, complex or subjective judgments.

Recently Issued Accounting Pronouncements

In May 2011, the FASB issued “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in the U.S. GAAP and IFRSs”, and it is effective for fiscal years beginning after December 15, 2011. The adoption of this policy did not have an impact on our financial statements. No other new accounting pronouncements have been issued which impact or could impact the prior, current or subsequent years.

ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk with respect to our fixed-rate financing in that changes in interest rates will impact the fair value of our fixed-rate financing and with respect to our floating rate financings in that increases in interest rates could adversely affect cash flow. As of September 30, 2012, we had $473.8 million of variable-rate debt outstanding of which $172.0 million has been swapped to a fixed-rate. Approximately $176.7 million of the $301.8 million of total variable rate debt that has not been swapped to a fixed rate is represented by the Master Credit Facility at The Woodlands. Due to the revolving nature of this type of debt, it is generally inefficient to use interest rate swaps as a hedging instrument; rather, we have purchased an interest rate cap for this facility to mitigate our exposure to rising interest rates. We also did not swap to a fixed rate $86.0 million of the outstanding balance on the Victoria Ward financing because it is structured to permit partial repayments to release collateral for

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re-development. Due to the uncertain timing of such partial repayments, hedging this portion of the outstanding balance is inefficient. As of September 30, 2012, annual interest costs would increase approximately $3.0 million for every 1% increase in floating interest rates. Generally, our interest costs are capitalized due to the level of assets we currently have under development; therefore, the impact of a change in our interest rate on our Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income (Loss) is expected to be minimal. For additional information concerning our debt, and management’s estimation process to arrive at a fair value of our debt as required by GAAP, reference is made to Item 2, the Liquidity and Capital Resources discussion above and to Notes 8 and 9. We intend to manage a portion of our floating rate interest exposure by using interest rate swaps and caps.

ITEM 4CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13(a)-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in our reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by SEC rules, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2012, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of September 30, 2012.

Internal Controls over Financial Reporting

There have been no changes in our internal controls during our most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART IIOTHER INFORMATION

ITEM 1LEGAL PROCEEDINGS

In the ordinary course of our business, we are from time to time involved in legal proceedings related to the ownership and operations of our properties.  Neither we nor any of our real estate affiliates are currently involved in any legal or administrative proceedings that we believe are  likely to have a materially adverse effect on our business, results of operations or financial condition.

ITEM 1ARISK FACTORS

There are no material changes to the risk factors previously disclosed in our Annual Report.

ITEM 6EXHIBITS

The Exhibit Index following the signature page to the Quarterly Report lists the exhibits furnished as required by Item 601 of Regulation S-K and is incorporated by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The Howard Hughes Corporation
By:	/s/ Andrew C. Richardson
	Andrew C. Richardson
	Chief Financial Officer
	November 9, 2012

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EXHIBIT INDEX

3.1	Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on February 29, 2012 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 29, 2012).
4.1	Section 382 Rights Agreement, dated as of February 27, 2012, by and between The Howard Hughes Corporation and Computershare Trust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed February 29, 2012).
10.1	Amendment No.1 to Employment Agreement, dated as of August 17, 2012, between The Howard Hughes Corporation and David R. Weinreb. +*
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	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.*

* Filed herewith

+ Management Contract, Compensatory plan or arrangement

Pursuant to Item 601(b)(4)(v) of Regulation S-K, the registrant has not filed debt instruments relating to long-term debt that is not registered and for which the total amount of securities authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on a consolidated basis as of September 30, 2012.  The registrant agrees to furnish a copy of such agreements to the SEC upon request.

Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2012 and 2011, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011, (iii) the Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011, (iv) Condensed Consolidated Statements of Equity for the nine months ended September 30, 2012 and 2011, and (v) the Condensed  Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011.

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EX-10.1

Exhibit 10.1

EXECUTION VERSION

AMENDMENT NO. 1
TO THE
THE HOWARD HUGHES CORPORATION
EMPLOYMENT AGREEMENT

THE HOWARD HUGHES CORPORATION, a Delaware corporation (the “Corporation”), and David R. Weinreb (the “Executive”) hereby enter into this amendment (this “Amendment”) to amend the Employment Agreement between the Corporation and the Executive, dated as of November 22, 2010 (the “Agreement”), set forth herein.  This Amendment will be effective as of August 17, 2012 (the “Effective Date”).  Except as specifically amended hereby, the Agreement will remain unchanged, and as amended herein, will continue in full force and effect.

1.Clause (iii) of Section 2(e) of the Agreement is hereby deleted in its entirety and replaced with the following:

beginning retroactively from the Effective Date, private air travel will be reimbursed in an amount equal to 80% of the actual cost of such private air travel up to a maximum aggregate amount of $400,000 per fiscal year.

IN WITNESS WHEREOF, the Corporation has caused this Amendment to be executed by its duly authorized officer as of the Effective Date.

THE HOWARD HUGHES CORPORATION

/s/ Gary Krow

Chairman of the Compensation Committee

ACKNOWLEDGED AND AGREED:

/s/ David R. Weinreb

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a — 14(a) ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, David Weinreb, certify that:

1.          I have reviewed this Quarterly report on Form 10-Q of The Howard Hughes Corporation;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ David R. Weinreb
	David R. Weinreb
	Chief Executive Officer
	November 9, 2012

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a — 14(a) ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Andrew Richardson, certify that:

1.          I have reviewed this Quarterly report on Form 10-Q of The Howard Hughes Corporation;

2.          Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.          Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.          The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.          The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Andrew C. Richardson
	Andrew C. Richardson
	Chief Financial Officer
	November 9, 2012

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. 1350 ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of The Howard Hughes Corporation (the “Company”) for the period ending September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers, in their capacity as officers, of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(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.

By:	/s/ David R. Weinreb
	David R. Weinreb
	Chief Executive Officer
	November 9, 2012
By:	/s/ Andrew C. Richardson
	Andrew C. Richardson
	Chief Financial Officer
	November 9, 2012

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EARNINGS PER SHARE (Details 2)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Stock options
Antidilutive securities excluded from computation of diluted earnings per share
Antidilutive securities excluded from computation of diluted earnings per share (in shares)	843,962	692,362	843,962	692,362
Restricted stock
Antidilutive securities excluded from computation of diluted earnings per share
Antidilutive securities excluded from computation of diluted earnings per share (in shares)	57,933	38,953	57,933
Sponsors Warrants
Antidilutive securities excluded from computation of diluted earnings per share
Antidilutive securities excluded from computation of diluted earnings per share (in shares)	8,000,000		8,000,000
Management Warrants
Antidilutive securities excluded from computation of diluted earnings per share
Antidilutive securities excluded from computation of diluted earnings per share (in shares)	2,862,687		2,862,687

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COMMITMENTS AND CONTINGENCIES (Details) (USD $)			1 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Non binding letter of intent with New York City Economic Authority	Dec. 31, 2011 Non binding letter of intent with New York City Economic Authority	Jun. 29, 2012 Non binding letter of intent with New York City Economic Authority
Commitments
Amount of outstanding letters of credit and surety bonds	$ 34,500,000	$ 41,600,000
Annual ground rent			1,200,000
Annual escalation rate (as a percent)					3.00%
Rent credit to be received			1,500,000
Maximum period for rent credit			30 months
Esplanade maintenance costs agreed to be paid					1,100,000
Period during which esplanade maintenance costs are agreed to be paid (in years)				5 years
Initial esplanade payments			$ 210,000

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Interest rate swaps
Derivative instruments and hedging activities
Estimated additional amount to be reclassified as an increase to interest expense	$ 22.3
Gross notional amounts of cash flow hedges	172.0
Interest rate cap
Derivative instruments and hedging activities
Gross notional amounts of cash flow hedges	$ 100.0

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TRANSACTIONS RELATED TO THE SPINOFF FROM GGP AND RELATED PARTIES (Details) (GGP, USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Transactions with related parties
Expenses incurred for services provided by related party to the entity under TSA	$ 0.4
Maximum
Transactions with related parties
Term for services provided by related party following separation (in months)	24 months

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MORTGAGES, NOTES AND LOANS PAYABLE (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Mortgages, notes and loans payable
Total mortgages, notes and loans payable	$ 683,804	$ 606,477
Collateralized mortgages, notes and loans payable
Mortgages, notes and loans payable
Fixed-rate debt:	159,098	83,164
Variable-rate debt:	473,778	468,100
Special Improvement District bonds
Mortgages, notes and loans payable
Fixed-rate debt:	50,928	55,213
Total mortgages, notes and loans payable	$ 50,928	$ 55,213

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OTHER ASSETS AND LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2012

OTHER ASSETS AND LIABILITIES

Summary of the significant components of prepaid expenses and other assets

	September 30,		December 31,
	2012		2011
	(In thousands)
Special Improvement District receivable	$	41,402	$	40,580
Other receivables	2,818		4,181
Federal income tax receivable	5,401		5,393
Prepaid expenses	7,209		6,507
Below-market ground leases	20,426		20,680
Security and escrow deposits	12,944		17,266
Above-market tenant leases	1,042		1,014
Uncertain tax position asset	12,070		11,935
In-place leases	13,713		11,865
Intangibles	3,714		3,074
Other	4,013		4,661
	$	124,752	$	127,156

Summary of the significant components of accounts payable and accrued expenses

	September 30,		December 31,
	2012		2011
	(In thousands)
Construction payable	$	11,470	$	8,923
Accounts payable and accrued expenses	38,998		45,078
Membership deposits	19,091		16,033
Above-market ground leases	2,629		2,748
Deferred gains/income	8,112		5,739
Accrued interest	2,218		2,747
Accrued real estate taxes	8,916		3,439
Tenant and other deposits	7,882		5,966
Insurance reserve	6,015		4,728
Accrued payroll and other employee liabilities	10,205		9,658
Interest rate swaps	7,724		4,367
Other	13,500		15,978
	$	136,760	$	125,404

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SEGMENTS (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Segments reporting
Number of reportable segments	3
Strategic Developments
Segments reporting
Number of residential condominium projects located in Natick (Boston), Massachusetts	1
Summerlin Hospital Medical Center | Operating Assets
Segments reporting
Dividends received from investment	$ 2.4	$ 3.9
The Woodlands | Master Planned Communities
Segments reporting
Ownership percentage	100.00%

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2012

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 16              SUBSEQUENT EVENTS

As disclosed in Note 2 - Sponsors and Management Warrants, we have issued warrants to purchase 8.0 million shares of our common stock to certain sponsors.  In early November, Brookfield Asset Management, Inc. (“Brookfield”), one of our sponsors, exercised warrants to purchase 1,525,272 shares of our common stock at an exercise price of $50.00 per warrant or $76.3 million.  In addition, we agreed to purchase Brookfield’s remaining warrants to purchase 2,308,061 shares of our common stock for $89.3 million.  The cash consideration paid to Brookfield net of the exercise price was $13.0 million.  The warrant liability included in our condensed consolidated balance sheet as of September 30, 2012 associated with these warrants that has subsequently been settled was $110.3 million.  As a result of these transactions, an additional warrant liability loss of $11.4 million related to Brookfield’s warrants will be recorded in our financial statements in the fourth quarter.

As a result of superstorm Sandy, South Street Seaport which is one of our operating assets located in lower Manhattan in New York City, suffered damage due to flooding. We believe that our insurance will cover most of the cost of repairing the property and the surrounding area and also will compensate us for any rental income or other revenue that is lost as a result of the storm or the recovery from the storm. Consequently, we do not believe that Hurricane Sandy, or the resulting damage, will have a significant impact on our earnings.

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Details 3) (Cash Flow Hedges, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Effect of the Company's derivative financial instruments on the income statement
Amount of Gain (Loss) Recognized in OCI	$ (1,466)	$ (1,834)	$ (4,627)	$ (2,582)
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings	(512)	(205)	(1,512)	(316)
Interest Rate Swaps
Effect of the Company's derivative financial instruments on the income statement
Amount of Gain (Loss) Recognized in OCI	(1,466)	(1,834)	(4,627)	(2,582)
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Earnings	$ (512)	$ (205)	$ (1,512)	$ (316)

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Liabilities
Warrants	$ 290,488	$ 127,764
Interest rate swaps	7,724	4,367
Recurring basis | Total
Liabilities
Warrants	290,488	127,764
Interest rate swaps	7,724	4,367
Recurring basis | Significant Other Observable Inputs (Level 2)
Liabilities
Interest rate swaps	7,724	4,367
Recurring basis | Significant Unobservable Inputs (Level 3)
Liabilities
Warrants	290,488	127,764
Non-recurring basis | Total
Assets:
Investment in Real Estate Affiliates	22,405
Non-recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Investment in Real Estate Affiliates	$ 22,405

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SPONSORS AND MANAGEMENT WARRANTS (Details) (USD $)	9 Months Ended			1 Months Ended				1 Months Ended
	Sep. 30, 2011	Sep. 30, 2012	Dec. 31, 2011	Nov. 30, 2010 Sponsors Warrants	Sep. 30, 2012 Sponsors Warrants	Dec. 31, 2011 Sponsors Warrants	Nov. 09, 2010 Sponsors Warrants	Feb. 28, 2011 Management Warrants	Sep. 30, 2012 Management Warrants	Dec. 31, 2011 Management Warrants	Feb. 28, 2011 Management Warrants David R. Weinreb	Feb. 28, 2011 Management Warrants Grant Herlitz	Feb. 28, 2011 Management Warrants Andrew C. Richardson
Sponsors and Management Warrants
Issuance of warrants to purchase common stock (in shares)							8,000,000	2,862,687
Estimated initial value							$ 69,500,000
Exercise price (in dollars per share)							$ 50.00				$ 42.23	$ 42.23	$ 54.50
Exercisable (in shares)							6,100,000
Exercisable upon prior notice (in shares)							1,900,000
Notice period to exercise warrants (in days)				90 days
Initial period during which prior notice is to be given for exercise of warrants				6 years 6 months
Proceeds from issuance of management warrants	2,000,000							19,000,000
Warrant liabilities		$ 290,488,000	$ 127,764,000		$ 230,200,000	$ 102,600,000			$ 60,300,000	$ 25,200,000

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STOCK-BASED PLANS (Details) (USD $)	9 Months Ended	3 Months Ended		3 Months Ended
	Sep. 30, 2012 Options	Jun. 30, 2012 Restricted common stock	Sep. 30, 2012 Restricted common stock	Jun. 30, 2012 Restricted common stock Certain non-employee directors	Jun. 30, 2011 Restricted common stock Certain non-employee directors
Stock-based plans
Vesting period (in years)	5 years
Expiration period (in years)	10 years
Shares granted		14,900
Shares granted, weighted-average grant date fair value (in dollars per share)		$ 67.11
Stock Options
Stock Options Outstanding at the beginning of the period (in shares)	712,640
Granted (in shares)	165,000			13,033	8,953
Forfeited (in shares)	(36,200)
Stock Options Outstanding at the end of the period (in shares)	841,440
Weighted Average Exercise Price
Stock Options Outstanding at the beginning of the period (in dollars per share)	$ 57.72
Granted (in dollars per share)	$ 63.38			$ 60.15	$ 65.04
Forfeited (in dollars per share)	$ 58.56
Stock Options Outstanding at the end of the period (in dollars per share)	$ 58.79
Shares of restricted stock outstanding			57,933

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SEGMENTS (Details 5) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Reconciliation of total segment assets to total assets
Total segment assets	$ 2,954,916	$ 2,837,508
Total assets	3,524,070	3,395,149
Master Planned Communities
Reconciliation of total segment assets to total assets
Total segment assets	1,787,034	1,778,515
Operating Assets
Reconciliation of total segment assets to total assets
Total segment assets	950,665	869,186
Strategic Developments
Reconciliation of total segment assets to total assets
Total segment assets	217,217	189,807
Corporate and other
Reconciliation of total segment assets to total assets
Total assets	$ 569,154	$ 557,641

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MORTGAGES, NOTES AND LOANS PAYABLE (Details 2) (USD $)				9 Months Ended				1 Months Ended	9 Months Ended		0 Months Ended					3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended																										3 Months Ended	9 Months Ended												3 Months Ended	9 Months Ended												1 Months Ended		1 Months Ended			1 Months Ended	9 Months Ended		1 Months Ended		1 Months Ended	9 Months Ended	0 Months Ended			3 Months Ended		9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Development Loan	Sep. 30, 2012 Development Loan Maximum	Sep. 30, 2012 Special Improvement District bonds	Dec. 31, 2011 Special Improvement District bonds	Dec. 31, 2011 SID Payable to Nevada Cancer Institute	May 31, 2011 110 N. Wacker	Sep. 30, 2012 110 N. Wacker	Dec. 31, 2011 110 N. Wacker	Aug. 15, 2012 70 Columbia Corporate Center	Sep. 30, 2012 70 Columbia Corporate Center	Sep. 30, 2012 Other Financing Arrangements	Dec. 31, 2011 Bridgeland	Sep. 30, 2012 Bridgeland Minimum	Sep. 30, 2012 Bridgeland Land Loan	Sep. 30, 2012 Bridgeland Land Loan	Sep. 30, 2012 Bridgeland Development Loan	Sep. 30, 2012 Bridgeland Development Loan	Dec. 31, 2011 Bridgeland Note # 1 - # 4	Sep. 30, 2012 Summerlin South S108	Dec. 31, 2011 Summerlin South S108	Sep. 30, 2012 Summerlin South S124	Dec. 31, 2011 Summerlin South S124	Sep. 30, 2012 Summerlin South S128	Dec. 31, 2011 Summerlin South S128	Sep. 30, 2012 Summerlin South S128C	Dec. 31, 2011 Summerlin South S128C	Sep. 30, 2012 Summerlin South S132	Dec. 31, 2011 Summerlin South S132	Sep. 30, 2012 Summerlin South S151	Dec. 31, 2011 Summerlin South S151	Sep. 30, 2012 Summerlin West S808	Dec. 31, 2011 Summerlin West S808	Sep. 30, 2012 Summerlin West S809	Dec. 31, 2011 Summerlin West S809	Sep. 30, 2012 Summerlin West S810	Dec. 31, 2011 Summerlin West S810	Sep. 30, 2012 The Shops at Summerlin Centre S108	Dec. 31, 2011 The Shops at Summerlin Centre S108	Sep. 30, 2012 The Shops at Summerlin Centre S128	Dec. 31, 2011 The Shops at Summerlin Centre S128	Sep. 30, 2012 The Woodlands	Dec. 31, 2011 The Woodlands	Sep. 30, 2012 The Woodlands TWL Facility	Sep. 30, 2012 The Woodlands TWL Facility	Dec. 31, 2011 The Woodlands TWL Facility	Sep. 30, 2012 The Woodlands TWL Facility Maximum	Sep. 30, 2012 The Woodlands TWL Facility March 29, 2013	Sep. 30, 2012 The Woodlands TWL Facility March 29, 2014	Sep. 30, 2012 The Woodlands TWL Facility June 29, 2014	Sep. 30, 2012 The Woodlands TWL Facility September 29, 2014	Sep. 30, 2012 The Woodlands TWL Facility December 29, 2014	Sep. 30, 2012 The Woodlands Term loan	Sep. 30, 2012 The Woodlands Revolving credit line	Sep. 30, 2012 The Woodlands Capital lease obligation	Dec. 31, 2011 The Woodlands Capital lease obligation	Sep. 30, 2012 Resort and Conference Center Room Acres	Sep. 30, 2012 Resort and Conference Center	Dec. 31, 2011 Resort and Conference Center	Sep. 30, 2012 2201 Lake Woodlands Drive	Dec. 31, 2011 2201 Lake Woodlands Drive	Sep. 30, 2012 Weiner Tract	Dec. 31, 2011 Weiner Tract	Sep. 30, 2012 Land in Montgomery Co.	Dec. 31, 2011 Land in Montgomery Co.	Sep. 30, 2012 Land in Harris Co.	Dec. 31, 2011 Land in Harris Co.	Sep. 30, 2012 CVS	Dec. 31, 2011 CVS	Dec. 31, 2011 4 Waterway	Sep. 30, 2012 4 Waterway	Dec. 31, 2011 9303 New Trails	Sep. 30, 2012 9303 New Trails	Dec. 05, 2011 4 Waterway and 9303 New Trails	Feb. 29, 2012 3 Waterway Square	Sep. 30, 2012 3 Waterway Square item	Feb. 02, 2012 3 Waterway Square item sqft	Apr. 30, 2012 20/25 Waterway	Sep. 30, 2012 20/25 Waterway	May 31, 2012 Millennium Waterway Apartments	Sep. 30, 2012 Millennium Waterway Apartments	Sep. 17, 2012 Ward Centers	Sep. 30, 2012 Ward Centers	Dec. 31, 2011 Ward Centers	Sep. 30, 2012 Ward Centers Minimum	Sep. 30, 2012 Ward Centers Maximum	Sep. 30, 2012 Victoria Ward	Dec. 31, 2011 Victoria Ward
Mortgages, notes and loans payable
Interest rate (as a percent)							5.95%		5.21%	5.21%		4.25%				5.50%	5.50%	5.00%	5.00%	6.50%	5.95%	5.95%	5.95%	5.95%	7.30%	7.30%	6.05%	6.05%	6.00%	6.00%	6.00%	6.00%	5.71%	5.71%	6.65%	6.65%	7.13%	7.13%	5.95%	5.95%	6.05%	6.05%			5.00%	5.00%	5.00%									2.72%	2.72%	6.00%	6.00%	5.50%	5.25%	5.25%	6.25%	6.25%	6.00%	6.00%	6.00%	6.00%	3.25%	3.25%	4.88%	4.88%	4.88%	4.88%	4.88%		3.25%			4.79%		3.75%		3.40%					3.45%
Maximum Facility Amount			$ 140,000,000															$ 30,000,000	$ 30,000,000																										$ 270,000,000	$ 270,000,000								$ 170,000,000	$ 100,000,000																						$ 43,295,000							$ 250,000,000
Total mortgages, notes and loans payable	683,804,000	606,477,000			50,928,000	55,213,000	50,000		29,000,000	29,000,000		16,037,000	754,000	20,604,000		18,066,000	18,066,000	2,757,000	2,757,000	20,604,000	1,183,000	1,302,000	342,000	378,000	825,000	862,000	5,847,000	5,956,000	5,067,000	5,378,000	11,064,000	12,293,000		682,000		1,000,000	22,185,000	22,770,000	650,000	713,000	3,765,000	3,829,000	337,262,000	281,660,000	176,704,000	176,704,000	183,000,000									67,000	147,000	36,100,000	36,100,000	36,100,000		4,803,000		1,479,000		649,000		381,000		101,000	41,000,000	40,359,000	14,000,000	13,781,000			217,000			14,450,000		55,584,000		229,000,000	220,000,000
Variable rate basis				three-month LIBOR					one-month LIBOR								three-month LIBOR		LIBOR																											one-month LIBOR													one-month LIBOR																	LIBOR	one-month LIBOR											one-month LIBOR
Interest rate margin (as a percent)									2.25%							2.75%	2.75%	3.25%	3.25%																										4.00%	4.00%												5.00%	5.00%																		2.65%	2.65%										2.50%
Outstanding principal balance of debt that is swapped to fixed rate through maturity	172,000,000								29,000,000																																																																															143,000,000
Fixed interest rate per swap (as a percent)									5.21%																																																																															3.80%
Term of debt instrument																10 years		3 years																																																													10 years
Period for which interest rate is fixed																5 years
Period for which interest rate is floating																5 years
Fixed interest rate (as a percent)																5.50%	5.50%																																																															4.79%		3.75%
Interest rate (as a percent)																			5.00%
Maximum outstanding loan amount at any time																		30,000,000	30,000,000
Amount of borrowings								29,000,000			16,000,000																																																												41,000,000		14,000,000			43,300,000							9,000,000
Rate of LIBOR floor (as a percent)																																														1.00%													1.00%
Interest rate increase every six months until maturity (as a percent)																																																										50.00%	50.00%
Monthly principal and interest payment required																																																																																		257,418
Annual principal payments as a percentage of outstanding principal balance																5.00%	5.00%
Cash balance required to be maintained															3,000,000
Net worth required to be maintained															250,000,000
Period of real estate taxes and debt service required to be escrowed with the lender																	1 year
Non-recourse mortgage assumed																																																																																	55,600,000
Proceeds from the loan																																																																															13,600,000
Number of stories of building to be constructed with loan proceeds																																																																														11
Area of office building to be constructed using proceeds from loan																																																																														232,021
Number of extension options																																																																													2
Weighted average interest rate (as a percent)	4.52%	4.68%																																																																																		3.40%
Corporate recourse guarantee amount	7,000,000								7,000,000
Area of land securing debt (in acres)																																																										40
Extension period at borrower's option (in years)																																													1 year													1 year																			1 year
Percentage of loan to value ratio at which debt will not be amortized on dollar for dollar basis for distributions made from The Woodlands																																																40.00%
Leverage expressed as loan to value ratio (as a percent)																																													37.90%	37.90%
Undrawn and available borrowing capacity																																													11,000,000	11,000,000
Amount of future required repayments																																																	25,000,000	30,000,000	10,000,000	10,000,000	10,000,000
Number of rooms in property securing debt (in rooms)																																																										440
Loan to value ratio to draw additional loan proceeds (as a percent)																																																																																							65.00%
Percentage of debt yield to draw additional loan proceeds																																																																																						10.00%
Unused portion of the debt instrument																																																																																				21,000,000
Amount to which debt will amortize ratably through maturity following an interest-only period									12,000,000
Land, buildings and equipment and developments in progress pledged as collateral	$ 1,100,000,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows from Operating Activities:
Net income (loss)	$ (126,724)	$ 116,528
Adjustments to reconcile net loss to cash provided by operating activities:
Reduction in tax indemnity receivable	11,655
Equity in earnings (loss) from Real Estate Affiliates, net of distributions	14	(3,693)
Investment in Real Estate Affiliate basis adjustment		6,053
Provision for doubtful accounts	285	174
Depreciation	14,062	11,235
Amortization	3,653	2,357
Amortization of deferred financing costs and debt market rate adjustments, net	(49)	393
Amortization of intangibles other than in-place leases	(263)	(1,205)
Straight-line rent amortization	(379)	(1,223)
Deferred income taxes	6,454	(4,730)
Restricted stock and stock option amortization	3,149	2,500
Warrant liability loss (gain)	162,724	(100,762)
Master Planned Community and condominium development expenditures	(72,741)	(65,813)
Master Planned Community and condominium cost of sales	60,407	65,359
Net changes:
Accounts and notes receivable	13,284	(1,822)
Prepaid expenses and other assets	1,168	(3,463)
Deferred expenses	(2,377)	(872)
Accounts payable and accrued expenses	(15,341)	2,393
Other, net	279	(1,457)
Cash provided by operating activities	59,260	21,952
Cash Flows from Investing Activities:
Real estate and property expenditures	(36,815)	(25,015)
Cash acquired from The Woodlands acquisition, net of cash consideration		5,493
Reimbursement for infrastructure improvements from municipality		5,560
Proceeds from dispositions		1,130
Consideration paid to acquire Millennium Waterway Apartments, net of cash acquired	2,721
Distribution from Millennium Waterway Apartments	6,876
Proceeds from sales of investment in Real Estate Affiliates	8,579
Investments in Real Estate Affiliates, net	(496)
Decrease in restricted cash	4,251
Cash used in investing activities	(20,326)	(12,832)
Cash Flows from Financing Activities:
Proceeds from issuance of mortgages, notes and loans payable	44,828	241,644
Principal payments on mortgages, notes and loans payable	(37,193)	(241,148)
Deferred financing costs	(1,281)	(2,935)
Proceeds from issuance of management warrants		2,000
Cash provided by (used in) financing activities	6,354	(439)
Net change in cash and cash equivalents	45,288	8,681
Cash and cash equivalents at beginning of period	227,566	284,682
Cash and cash equivalents at end of period	272,854	293,363
Supplemental Disclosure of Cash Flow Information:
Interest paid	16,398	15,272
Interest capitalized	19,737	16,687
Income taxes paid	966
Consolidation of partner's interest:
Special Improvement District bond transfers associated with land sales	(2,689)	(3,188)
Real estate and property expenditures	11,984
Acquisition note related to The Woodlands (See Note 4)		96,500
Debt assumed from The Woodlands' acquisition (See Note 4)		296,695
Prepetition liabilities funded by GGP		3,323
MPC land contributed to Real Estate Affiliate	(2,190)
Purchase of land from GGP	(1,315)
Millennium Waterway Apartments
Consolidation of partner's interest:
Land	(15,917)
Building and equipment	(56,002)
Other Assets	(2,669)
Mortgages, notes and loans payable	55,584
Other liabilities	754
Reduction in investments in Real Estate Affiliates due to the acquisition	22,405
The Woodlands
Consolidation of partner's interest:
Reduction in investments in Real Estate Affiliates due to the acquisition		(128,764)
70 Columbia Corporate Center
Consolidation of partner's interest:
Land	(1,281)
Building and equipment	(13,089)
Other Assets	(2,957)
Mortgages, notes and loans payable	16,037
Other liabilities	$ 1,290

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SUBSEQUENT EVENTS (Details) (USD $)	3 Months Ended		9 Months Ended				0 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2012 Subsequent event	Nov. 30, 2012 Subsequent event Brookfield	Dec. 31, 2012 Subsequent event Brookfield	Sep. 30, 2012 Pro forma Brookfield
SUBSEQUENT EVENTS
Issuance of warrants to purchase common stock (in shares)						8,000,000
Number of shares of common stock issued on exercise of warrants							1,525,272
Exercise price (in dollars per share)							$ 50.00
Proceeds from exercise of warrants							$ 76,300,000
Number of shares of common stock under warrants repurchased							2,308,061
Payments for repurchase of warrants							89,300,000
Cash consideration paid net of exercise price							13,000,000
Warrant liabilities	290,488,000		290,488,000		127,764,000				110,300,000
Warrant liability loss	$ (64,303,000)	$ 169,897,000	$ (162,724,000)	$ 100,762,000				$ 11,400,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) (Warrant Liability, USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3)
Balance at the beginning of the period	$ 127,764	$ 227,348
Warrant liability loss	162,724	(100,762)
Purchases		2,000
Balance at the end of the period	$ 290,488	$ 128,586
Significant Unobservable Inputs (Level 3) | Minimum
Reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3)
Expected Volatility (as a percent)	27.00%
Significant Unobservable Inputs (Level 3) | Maximum
Reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3)
Expected Volatility (as a percent)	28.00%
Significant Unobservable Inputs (Level 3) | Average
Reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3)
Expected Volatility (as a percent)	28.00%

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REAL ESTATE AFFILIATES (Tables)

9 Months Ended

Sep. 30, 2012

REAL ESTATE AFFILIATES

Schedule of information related to investments in real estate affiliates

	Economic/ Legal Ownership				Carrying Value				Share of Earnings/Dividends
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011		2012		2011		2012			2011		2012		2011
	(In percentages)				(In thousands)				(In thousands)
The Woodlands (a)					$	—	$	—	$	—		$	—	$	—	$	3,727
Bridges at Mint Hill, LLC (b)	79.00	%	79.00	%	673		180		—			—		—		—
Circle T	50.00	%	50.00	%	9,004		9,004		—			—		—		—
Forest View Apartments (c) (d)	—		50.00	%	—		5,358		—			1		2		1
HHMK Development, LLC	50.00	%	50.00	%	947		—		—			—		—		—
KR Holdings, LLC	50.00	%	—		—		—		—			—		—		—
Millennium Waterway Apartments (e)	100.00	%	83.55	%	—		21,998		—			14		406		14
Millennium Woodlands Phase II, LLC	81.43	%	—		2,190		—		—			—		—		—
Parcel D Development, LLC	50.00	%	50.00	%	4,084		2,990		—			—		—		—
Stewart Title (c)	50.00	%	50.00	%	3,758		3,643		324			85		640		85
Timbermill Apartments (c) (d)	—		50.00	%	—		3,988		—			1		2		1
Woodlands Sarofim #1 (c)	20.00	%	20.00	%	2,462		2,456		(14		)	30		6		30
Other investments					300		—		—			—		—		—
					23,418		49,617		310			131		1,056		3,858
Cost basis investments (f)					12,744		12,978		—			35		2,376		3,929
Total					$	36,162	$	62,595	$	310		$	166	$	3,432	$	7,787

(a)As of July 1, 2011, The Woodlands is consolidated and no longer a Real Estate Affiliate (Refer to Note 4). Prior to July 1, 2011, we owned 52.5% economic interest in The Woodlands.

(b)Ownership percentage as of October 30, 2012 is 90.50%

(c)Equity investment consolidated into our financial statements as part of the acquisition of our partner’s economic interest in The Woodlands on July 1, 2011.

(d)On April 19, 2012, the joint ventures owning the Forest View and Timbermill Apartments completed their sale to a third party. Our share of the distributable cash, after repayment of debt and transaction expenses, was $8.6 million.

(e)On May 31, 2012, we acquired our partner’s interest for $6.9 million and consolidated this property.

(f)Includes dividends received from Summerlin Hospital Medical Center.

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS

Schedule of assets and liabilities that are measured at fair value on a recurring basis

	September 30, 2012								December 31, 2011
	Fair Value Measurements Using								Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)								(In thousands)
Liabilities
Warrants	$	290,488	$	—	$	—	$	290,488	$	127,764	$	—	$	—	$	127,764
Interest rate swaps	7,724		—		7,724		—		4,367		—		4,367		—

Schedule of reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3)

	2012		2011
	(In thousands)
Balance as of December 31,	$	127,764	$	227,348
Warrant liability (gain) loss	162,724		(100,762		)
Purchases	—		2,000
Balance as of September 30,	$	290,488	$	128,586

Schedule of significant unobservable input used in the fair value measurement of warrants designated as Level 3

	Fair Value		Valuation Technique	Unobservable Input	Range/ Average
	(In thousands)
Warrants	$	290,488	Option Pricing Valuation Model	Expected Volatility (a)	27%-28% (28%)

(a) Based on the asset volatility of comparable companies.

Summary of assets and liabilities that were measured at fair value on a non-recurring basis as a result of partner's the acquisition of interest in the Millennium Waterway Apartments

	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss (Gain) Three and Nine Months Ended September 30, 2012
	(In thousands)
Investment in Real Estate Affiliates	$	22,405	$	22,405	(a)	$	—	$	—	$	—

(a)We measured our equity interest in Millennium Waterway Apartments based on our purchase of our partner’s 23.5% economic interest in Millennium Waterway Apartments. We used Level 1 inputs for the cash payment.

Schedule of estimated fair values of the Company's financial instruments that are not measured at fair value on a recurring basis

	September 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Assets:
Notes receivable, net	$	28,677	$	28,677	$	35,354	$	35,354
Tax indemnity receivable, including interest	326,150		(c)		331,771		(c)
Liabilities:
Fixed-rate debt	$	159,098	$	160,689	$	83,164	$	85,047
Variable-rate debt (a)	473,778		473,778		468,100		468,100
SID bonds (b)	50,928		50,928		55,213		55,213
Total mortgages, notes and loans payable	683,804		685,395		606,477		608,360

(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.

(b) Due to the uncertain repayment terms of the Special Improvement District (“SID”) bonds, the carrying value approximates fair value.

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

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TRANSACTIONS RELATED TO THE SPINOFF FROM GGP AND RELATED PARTIES (Details 2) (USD $)	9 Months Ended		6 Months Ended
	Sep. 30, 2011 TMPC	Sep. 30, 2012 Affiliate of TPMC sqft	Jan. 31, 2011 Brookfield Advisors LP
Transactions with related parties
Reimbursement of expenses related to Mr. Weinreb's employment included in general and administrative expenses	$ 900,000
Office space in Los Angeles, California under lease agreement (in sq. ft.)		3,253
Annual rental expenses under lease agreement		111,965
Monthly payments for services under management services agreement			$ 500,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Liabilities
Variable-rate debt that has been swapped to a fixed rate	$ 172,000,000
Carrying Amount
Assets:
Notes receivable, net	28,677,000	35,354,000
Tax indemnity receivable, including interest	326,150,000	331,771,000
Liabilities
Fixed-rate debt	159,098,000	83,164,000
Variable-rate debt	473,778,000	468,100,000
SID bonds	50,928,000	55,213,000
Total	683,804,000	606,477,000
Estimated Fair Value
Assets:
Notes receivable, net	28,677,000	35,354,000
Liabilities
Fixed-rate debt	160,689,000	85,047,000
Variable-rate debt	473,778,000	468,100,000
SID bonds	50,928,000	55,213,000
Total	$ 685,395,000	$ 608,360,000

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MORTGAGES, NOTES AND LOANS PAYABLE (Tables)

9 Months Ended

Sep. 30, 2012

MORTGAGES, NOTES AND LOANS PAYABLE.

Summary of mortgages, notes and loans payable

	September 30,		December 31,
	2012		2011
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	159,098	$	83,164
Special Improvement District bonds	50,928		55,213
Variable-rate debt:
Collateralized mortgages, notes and loans payable	473,778		468,100
Total mortgages, notes and loans payable	$	683,804	$	606,477

Schedule of mortgages, notes and loans payable by property

				Maximum		Carrying Value
	Final Maturity (a)	Interest Rate		Facility Amount		September 30, 2012		December 31, 2011
						(In thousands)
110 N. Wacker (b)	October 2019	5.21	%			$	29,000	$	29,000
70 Columbia Corporate Center	August 2017	4.25	%			16,037		—
Other Financing Arrangements	July 2015	—				754		—
Bridgeland
Land Loan (d)	June 2022	5.50	%			18,066		—
Development Loan (e)	June 2015	5.00	%	$	30,000	2,757		—
Various mortgage notes	—	—				—		20,604
Bridgeland Total						20,823		20,604
Special Improvement District bonds
Summerlin South - S108	December 2016	5.95	%			1,183		1,302
Summerlin South - S124	December 2019	5.95	%			342		378
Summerlin South - S128	December 2020	7.30	%			825		862
Summerlin South - S128C	December 2030	6.05	%			5,847		5,956
Summerlin South - S132	December 2020	6.00	%			5,067		5,378
Summerlin South - S151	June 2025	6.00	%			11,064		12,293
Summerlin West - S808	April 2021	5.71	%			—		682
Summerlin West - S809	April 2023	6.65	%			—		1,000
Summerlin West - S810	April 2031	7.13	%			22,185		22,770
The Shops at Summerlin Centre - S128	December 2030	6.05	%			3,765		3,829
The Shops at Summerlin Centre - S108	December 2016	5.95	%			650		713
SID Payable to Nevada Cancer Institute	December 2019	5.95	%			—		50
Special Improvement District bonds Total						50,928		55,213
The Woodlands
Master Credit Facility (f)	March 2015	5.00	%	$	270,000	176,704		183,000
Resort and Conference Center (g)	October 2013	6.00	%			36,100		36,100
2201 Lake Woodlands Drive	November 2016	5.25	%			—		4,803
Weiner Tract	January 2013	6.25	%			—		1,479
Land in Montgomery Co.	December 2012	6.00	%			—		649
Land in Harris Co.	January 2013	6.00	%			—		381
Capital lease obligation	—	2.84	%			67		147
CVS	upon sale	3.25	%			—		101
4 Waterway Square	December 2023	4.88	%			40,359		41,000
9303 New Trails	December 2023	4.88	%			13,781		14,000
3 Waterway Square (h)	January 2017	3.25	%	$	43,295	217		—
20/25 Waterway	May 2022	4.79	%			14,450		—
Millennium Waterway Apartments (i)	June 2022	3.75	%			55,584		—
The Woodlands Total						337,262		281,660
Ward Centers (j)	September 2016	3.40	%	$	250,000	229,000		220,000
						$	683,804	$	606,477

(a)Maturity date includes any extension option periods which are within our control.

(b)Loan has a stated interest rate of one-month LIBOR + 2.25%. The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity.

(c)The loan was refinanced during the second quarter of 2012.

(d)Loan is for ten year term. First five years interest is fixed at 5.50% and for second five years interest rate is floating based on three-month LIBOR +2.75%.

(e)Revolving development loan provides for a maximum of $30.0 million outstanding balance at any time with all draws not to exceed $140.0 million. The loan bears interest at three-month LIBOR + 3.25% and has a 5.00% minimum rate.

(f)Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor.

(g)Loan currently bears interest at one-month LIBOR + 5.00% and has a 1.00% LIBOR floor. The rate increases by 0.5% every six months after March 23, 2012 until maturity.

(h)Loan bears interest at one-month LIBOR + 2.65%.

(i)Loan payments are interest only until June 2017, then monthly principal and interest payment of $257,418 with unpaid balance due at maturity.

(j)Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.80% fixed rate through maturity.

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

9 Months Ended

Sep. 30, 2012

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Summary of fair value of the Company's derivative financial instruments

	September 30,		December 31,
	2012		2011
	(In thousands)
Interest Rate Swaps	$	7,724	$	4,367
Total derivatives designated as hedging instruments	$	7,724	$	4,367

Summary of effect of the Company's financial instruments on the Condensed Consolidated Statements of Operations

	Three months ended September 30,							Three months ended September 30,
	2012			2011				2012			2011
Cash Flow Hedges	Amount of (Loss) Recognized in OCI			Amount of Gain (Loss) Recognized in OCI			Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of (Loss) Reclassified from AOCI into Earnings			Amount of Gain or (Loss) Reclassified from AOCI into Earnings
	(In thousands)							(In thousands)
Interest Rate Swaps	$	(1,466	)	$	(1,834	)	Interest Expense	$	(512	)	$	(205	)
	$	(1,466	)	$	(1,834	)		$	(512	)	$	(205	)

	Nine months ended September 30,							Nine months ended September 30,
	2012			2011				2012			2011
Cash Flow Hedges	Amount of (Loss) Recognized in OCI			Amount of Gain (Loss) Recognized in OCI			Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of (Loss) Reclassified from AOCI into Earnings			Amount of Gain or (Loss) Reclassified from AOCI into Earnings
	(In thousands)							(In thousands)
Interest Rate Swaps	$	(4,627	)	$	(2,582	)	Interest Expense	$	(1,512	)	$	(316	)
	$	(4,627	)	$	(2,582	)		$	(1,512	)	$	(316	)

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CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Parenthetical) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Interest rate swaps, tax	$ 212	$ 1,100
Capitalized swap interest, tax	$ 523

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STOCK-BASED PLANS (Tables)

9 Months Ended

Sep. 30, 2012

STOCK-BASED PLANS

Summarizes stock option plan activity

	Stock Options		Weighted Average Exercise Price
Stock Options Outstanding at December 31, 2011	712,640		$	57.72
Granted	165,000		63.38
Forfeited	(36,200	)	58.56
Stock Options Outstanding at September 30, 2012	841,440		$	58.79

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ACQUISITIONS AND DISPOSITIONS (Details) (USD $)	1 Months Ended	3 Months Ended	1 Months Ended				1 Months Ended		3 Months Ended	9 Months Ended		1 Months Ended	3 Months Ended	9 Months Ended
	Aug. 31, 2012	Sep. 30, 2012 item	May 31, 2012 Millennium Woodlands Phase II, LLC. item	Aug. 31, 2012 70 Columbia Corporate Center sqft	Sep. 30, 2012 70 Columbia Corporate Center	Aug. 15, 2012 70 Columbia Corporate Center sqft	Jul. 31, 2011 The Woodlands	Jun. 30, 2011 The Woodlands	Sep. 30, 2011 The Woodlands	Sep. 30, 2011 The Woodlands	Jul. 02, 2011 The Woodlands	May 31, 2012 Millennium Waterway Apartments	Sep. 30, 2012 Millennium Waterway Apartments	Sep. 30, 2012 Millennium Waterway Apartments
Acquisitions
Area of real estate property acquired (in square foot)						169,590
Purchase price						$ 17,500,000					$ 117,500,000
Interest rate (as a percent)					4.25%								3.75%	3.75%
Percentage of appreciation in the market value of building				30.00%
Percentage of building leased at closing						23.70%
Area of building leased				76,308
Percentage of occupancy after lease is executed						68.70%
Amount deposited in escrow account				5,000,000
Percentage of cumulative preferred return after debt service on amount invested in property				10.00%
Original contributed equity						5,000,000
Percentage distribution of excess proceeds after repayment of outstanding debt and preferred return	70.00%			30.00%
Total assets consolidated into financial statements at fair value as of the acquisition date												78,600,000
Total liabilities consolidated into financial statements at fair value as of the acquisition date												56,400,000
Number of Units Acquired in Real Estate Property		393
Portion of refinanced mortgage proceeds used to acquire partner's interest												6,900,000
Non-recourse mortgage assumed												55,600,000
Term of debt instrument												10 years
Ownership interest (as a percent)												100.00%
Revenues and net losses included in the condensed consolidated statement of operations since the acquisition date
Revenues									40,300,000	40,300,000			1,900,000	2,500,000
Net earnings									7,900,000				600,000	900,000
Impact of increase in cost of sales on net loss									8,600,000
Number of units in Class A multi-family unit in The Woodlands Town Center to be constructed			314
Percentage of economic interest acquired							47.50%
Percentage of legal interest acquired											57.50%
After-tax loss on the remeasurement relating to existing economic interest								3,900,000
Existing economic interest (as a percent)								52.50%
Net book value of existing economic interest								134,800,000
Pro Forma Information
Total revenues										276,240,000
Net income (loss) attributable to common shareholders										$ 112,393,000

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OTHER ASSETS AND LIABILITIES (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Prepaid Expenses and Other Assets
Special Improvement District Receivable	$ 41,402	$ 40,580
Other receivables	2,818	4,181
Federal income tax receivable	5,401	5,393
Prepaid expenses	7,209	6,507
Security and escrow deposits	12,944	17,266
Uncertain tax position asset	12,070	11,935
Intangibles	3,714	3,074
Other	4,013	4,661
Total prepaid expenses and other assets	124,752	127,156
Accounts Payable and Accrued Expenses
Construction payable	11,470	8,923
Accounts payable and accrued expenses	38,998	45,078
Membership deposits	19,091	16,033
Deferred gains/income	8,112	5,739
Accrued interest	2,218	2,747
Accrued real estate taxes	8,916	3,439
Tenant and other deposits	7,882	5,966
Insurance reserve	6,015	4,728
Accrued payroll and other employee liabilities	10,205	9,658
Interest rate swaps	7,724	4,367
Other	13,500	15,978
Total accounts payable and accrued expenses	136,760	125,404
Below-market ground leases
Prepaid Expenses and Other Assets
Net carrying amount	20,426	20,680
Above-market tenant leases
Prepaid Expenses and Other Assets
Net carrying amount	1,042	1,014
In-place leases
Prepaid Expenses and Other Assets
Net carrying amount	13,713	11,865
Above-market ground leases
Accounts Payable and Accrued Expenses
Net carrying amount	$ 2,629	$ 2,748

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Investment in real estate:
Master Planned Community assets	$ 1,585,514	$ 1,602,437
Land	253,867	236,363
Buildings and equipment	646,459	556,786
Less: accumulated depreciation	(106,387)	(92,494)
Developments in progress	224,370	195,034
Net property and equipment	2,603,823	2,498,126
Investment in Real Estate Affiliates	36,162	62,595
Net investment in real estate	2,639,985	2,560,721
Cash and cash equivalents	272,854	227,566
Accounts receivable, net	13,425	15,644
Municipal Utility District receivables, net	105,487	86,599
Notes receivable, net	28,677	35,354
Tax indemnity receivable, including interest	326,150	331,771
Deferred expenses, net	12,740	10,338
Prepaid expenses and other assets, net	124,752	127,156
Total assets	3,524,070	3,395,149
Liabilities:
Mortgages, notes and loans payable	683,804	606,477
Deferred tax liabilities	75,538	75,966
Warrant liabilities	290,488	127,764
Uncertain tax position liability	135,468	129,939
Accounts payable and accrued expenses	136,760	125,404
Total liabilities	1,322,058	1,065,550
Commitments and Contingencies (see Note 13)
Equity:
Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued
Common stock: $.01 par value; 150,000,000 shares authorized, 37,973,640 shares issued and outstanding as of September 30, 2012 and 37,945,707 shares issued and outstanding as of December 31, 2011	379	379
Additional paid-in capital	2,714,258	2,711,109
Accumulated deficit	(508,686)	(381,325)
Accumulated other comprehensive loss	(9,590)	(5,578)
Total stockholders' equity	2,196,361	2,324,585
Noncontrolling interests	5,651	5,014
Total equity	2,202,012	2,329,599
Total liabilities and equity	$ 3,524,070	$ 3,395,149

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REAL ESTATE AFFILIATES (Details) (USD $)	3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended			3 Months Ended	9 Months Ended			9 Months Ended		0 Months Ended					3 Months Ended	9 Months Ended			1 Months Ended				3 Months Ended	9 Months Ended				1 Months Ended						3 Months Ended		9 Months Ended			3 Months Ended	9 Months Ended			3 Months Ended		9 Months Ended			1 Months Ended				1 Months Ended	9 Months Ended				1 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2012 Equity method investments	Sep. 30, 2011 Equity method investments	Sep. 30, 2012 Equity method investments	Sep. 30, 2011 Equity method investments	Dec. 31, 2011 Equity method investments	Sep. 30, 2011 Cost basis investments	Sep. 30, 2012 Cost basis investments	Sep. 30, 2011 Cost basis investments	Dec. 31, 2011 Cost basis investments	Sep. 30, 2011 The Woodlands Equity method investments	Jun. 30, 2011 The Woodlands Equity method investments	Oct. 30, 2012 Bridges at Mint Hill, LLC	Sep. 30, 2012 Bridges at Mint Hill, LLC Equity method investments	Dec. 31, 2011 Bridges at Mint Hill, LLC Equity method investments	Sep. 30, 2012 Circle T Equity method investments	Dec. 31, 2011 Circle T Equity method investments	Sep. 30, 2011 Forest View Apartments Equity method investments	Sep. 30, 2012 Forest View Apartments Equity method investments	Sep. 30, 2011 Forest View Apartments Equity method investments	Dec. 31, 2011 Forest View Apartments Equity method investments	Oct. 31, 2011 HHMK Development, LLC item	Sep. 30, 2012 HHMK Development, LLC Equity method investments	Dec. 31, 2011 HHMK Development, LLC Equity method investments	May 31, 2012 Millennium Waterway Apartments	Sep. 30, 2011 Millennium Waterway Apartments Equity method investments	Sep. 30, 2012 Millennium Waterway Apartments Equity method investments	Sep. 30, 2011 Millennium Waterway Apartments Equity method investments	May 14, 2012 Millennium Waterway Apartments Equity method investments	Dec. 31, 2011 Millennium Waterway Apartments Equity method investments	Jul. 31, 2012 Millennium Woodlands Phase II, LLC. Acres	May 31, 2012 Millennium Woodlands Phase II, LLC. item	May 14, 2012 Millennium Woodlands Phase II, LLC.	Sep. 30, 2012 Millennium Woodlands Phase II, LLC. Equity method investments	Sep. 30, 2012 Parcel D Development, LLC Equity method investments	Dec. 31, 2011 Parcel D Development, LLC Equity method investments	Sep. 30, 2012 Stewart Title Equity method investments	Sep. 30, 2011 Stewart Title Equity method investments	Sep. 30, 2012 Stewart Title Equity method investments	Sep. 30, 2011 Stewart Title Equity method investments	Dec. 31, 2011 Stewart Title Equity method investments	Sep. 30, 2011 Timbermill Apartments Equity method investments	Sep. 30, 2012 Timbermill Apartments Equity method investments	Sep. 30, 2011 Timbermill Apartments Equity method investments	Dec. 31, 2011 Timbermill Apartments Equity method investments	Sep. 30, 2012 Woodlands Sarofim # 1 Equity method investments	Sep. 30, 2011 Woodlands Sarofim # 1 Equity method investments	Sep. 30, 2012 Woodlands Sarofim # 1 Equity method investments	Sep. 30, 2011 Woodlands Sarofim # 1 Equity method investments	Dec. 31, 2011 Woodlands Sarofim # 1 Equity method investments	Apr. 30, 2012 Forest View/Timbermill Apartments	Sep. 30, 2012 Properties owned by real estate affiliates	Sep. 30, 2012 Properties owned by real estate affiliates Millennium Woodlands Phase II, LLC.	Sep. 30, 2012 Properties owned by real estate affiliates Woodlands Sarofim # 1	Sep. 30, 2012 KR Holdings, LLC	Sep. 30, 2012 KR Holdings, LLC	Sep. 17, 2012 KR Holdings, LLC	Sep. 30, 2012 KR Holdings, LLC Equity method investments	Sep. 30, 2012 KR Holdings, LLC Properties owned by real estate affiliates	Sep. 30, 2012 KR Holdings, LLC Mezzanine loan agreements item	Sep. 17, 2012 KR Holdings, LLC Mezzanine loan agreements
Real Estate Affiliates
Number of local developers with whom the entity entered into a joint venture																										2
Ownership ratio in a joint venture																																																												50.00%
Number of debt instruments																																																																2
Amount of borrowings																																																																$ 20,000,000
Blended interest rate (as a percent)																																																																	12.00%
Option to extend, term																																																																1 year
Preferred return on capital (as a percent)																																																											13.00%
Committed pre-development costs																																																																	3,000,000
Committed pre-development costs																																																													40,000,000
Funded pre-development costs																																																																2,000,000
Investment in Real Estate Affiliates
Economic ownership (as a percent)																52.50%	90.50%	79.00%	79.00%	50.00%	50.00%				50.00%		50.00%	50.00%	100.00%		100.00%		18.57%	83.55%				81.43%	50.00%	50.00%	50.00%		50.00%		50.00%				50.00%	20.00%		20.00%		20.00%								50.00%
Carrying Value	36,162,000		36,162,000		62,595,000	23,418,000		23,418,000		49,617,000		12,744,000		12,978,000				673,000	180,000	9,004,000	9,004,000				5,358,000		947,000							21,998,000				2,190,000	4,084,000	2,990,000	3,758,000		3,758,000		3,643,000				3,988,000	2,462,000		2,462,000		2,456,000
Share of Earnings	310,000	166,000	3,432,000	7,787,000		310,000	131,000	1,056,000	3,858,000		35,000	2,376,000	3,929,000		3,727,000							1,000	2,000	1,000						14,000	406,000	14,000									324,000	85,000	640,000	85,000		1,000	2,000	1,000		(14,000)	30,000	6,000	30,000
Aggregate carrying value of unconsolidated VIEs	7,900,000		7,900,000		3,200,000
Number of units in Class A multi-family unit in The Woodlands Town Center to be constructed																																				314
Amount funded in cash to joint venture																	4,500,000
Economic interest (as a percent)																	90.50%																				81.43%
Ownership percentage before acquiring additional interest																	79.00%
Area of land contributed to the joint venture (in acres)																																			4.8
Value of the land contributed to joint venture																																			15,500,000
Cash contributed by joint venture partner																																			3,000,000
Construction loan secured																																			37,700,000
Share of distributable cash				1,130,000																																																			8,600,000
Secured debt																																																								9,100,000
Share of the entity in secured debt																																																								$ 2,500,000	$ 100,000	$ 1,400,000					$ 1,000,000

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Interest rate swaps, deferred tax expense	$ 0.1	$ 1.1	$ 0.2	$ 1.1
Capitalized swap interest, deferred tax expense	$ 0.2		$ 0.5

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SEGMENTS (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Reconciliation of REP EBT to GAAP net income (loss)
General and administrative	$ (9,339)	$ (8,673)	$ (25,896)	$ (21,156)
Corporate interest income	2,375	2,341	7,048	7,097
Corporate interest expense	(445)		(646)
Warrant liability gain (loss)	(64,303)	169,897	(162,724)	100,762
Benefit (provision) for income taxes	(2,618)	7,760	(7,703)	4,344
Reduction in tax indemnity receivable	(2,873)		(11,655)
Equity in earnings from Real Estate Affiliates	310	166	3,432	7,787
Investment in Real Estate Affiliate basis adjustment		(6,053)		(6,053)
Net income (loss)	(50,192)	165,024	(126,724)	116,528
Unallocated amount to segment
Reconciliation of REP EBT to GAAP net income (loss)
General and administrative	(9,339)	(8,673)	(25,896)	(21,156)
Corporate interest income	2,315	2,616	6,814	7,309
Warrant liability gain (loss)	(64,303)	169,897	(162,724)	100,762
Benefit (provision) for income taxes	(2,618)	7,760	(7,703)	4,344
Reduction in tax indemnity receivable	(2,873)		(11,655)
Equity in earnings from Real Estate Affiliates	310	166	3,432	7,787
Investment in Real Estate Affiliate basis adjustment		(6,053)		(6,053)
Corporate depreciation	(204)	(165)	(506)	(193)
Net income (loss)	(50,192)	165,024	(126,724)	116,528
Segment Basis
Reconciliation of REP EBT to GAAP net income (loss)
Real estate property EBT	26,830	(358)	74,946	36,225
Real Estate Affiliates
Reconciliation of REP EBT to GAAP net income (loss)
Real estate property EBT	(310)	(166)	(3,432)	(12,497)
Consolidated Properties
Reconciliation of REP EBT to GAAP net income (loss)
Real estate property EBT	$ 26,520	$ (524)	$ 71,514	$ 23,728

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BASIS OF PRESENTATION AND ORGANIZATION (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2011 Salaries and overhead costs relating to land development activities	Sep. 30, 2011 Salaries and overhead costs relating to land development activities	Sep. 30, 2011 Master Planned Community operations	Sep. 30, 2011 Master Planned Community operations	Dec. 31, 2011 Deferred income taxes	Dec. 31, 2011 Accounts payable and accrued expenses
Prior period reclassification
Amount of prior period reclassification	$ 1.5	$ 4.0	$ (1.5)	$ (4.0)	$ 4.7	$ (4.7)

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2012

COMMITMENTS AND CONTINGENCIES.

COMMITMENTS AND CONTINGENCIES

NOTE 13COMMITMENTS 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 had outstanding letters of credit and surety bonds of $34.5 million as of September 30, 2012 and $41.6 million as of December 31, 2011. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

On June 29, 2012, we entered into an agreement to amend and restate the South Street Seaport ground lease with the City of New York according to the terms described in a non-binding letter of intent, dated December 12, 2011 between the New York City Economic Development Corporation and us. The agreement allows for the redevelopment of Pier 17 (“Renovation Project”). The restated ground lease will become effective when we meet certain milestones, the most important of which is the commencement of construction by June 30, 2013. Following commencement of construction of the Renovation Project, annual ground rent will be fixed at $1.2 million with an escalation of 3.00% annually and we will be entitled to a total $1.5 million rent credit, to be taken monthly over a 30-month period.  We also must provide a completion guarantee to New York City for the Renovation Project. We agreed to pay approximately $1.1 million of esplanade maintenance costs over a five-year period.  The initial esplanade payment of $210,000 per year escalates annually at CPI for the duration of the lease.

See Note 10 for additional contingencies related to our uncertain tax positions.

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BASIS OF PRESENTATION AND ORGANIZATION (Details 2) (The Woodlands)	1 Months Ended
	Jul. 31, 2011
The Woodlands
Acquisition
Percentage of economic interest acquired	47.50%

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SEGMENTS

9 Months Ended

Sep. 30, 2012

SEGMENTS

SEGMENTS

NOTE 15SEGMENTS

We have three business segments which offer different products and services. Our three segments are managed separately because each requires different operating strategies or management expertise and are reflective of management’s operating philosophies and methods. In addition, our segments or assets within such segment could change in the future as development of certain properties commences or other operational or management changes occur. We do not distinguish or group our combined operations on a geographic basis.  Furthermore, all operations are within the United States and no customer or tenant comprises more than 10% of revenues. Our reportable segments are as follows:

·Master Planned Communities (“MPCs”) — 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.

·Operating Assets — includes retail and office properties, a multi-family property, The Woodlands Resort and Conference Center and other real estate investments. These assets are currently generating revenues, and we believe there is an opportunity to redevelop or reposition many of these assets to improve operating performance.

·Strategic Developments — includes all properties held for development and redevelopment which are not currently operating (primarily retail and other interests in real estate at such locations), and our one residential condominium project located in Natick (Boston), Massachusetts, in which the remaining units were sold during the first six months of 2012.

The assets included in each segment as of September 30, 2012, are contained in the following chart:

[See the EDGAR documents for referenced chart details.]

As more fully discussed in Note 4, on July 1, 2011, we acquired our partner’s interest in The Woodlands. We now own 100% of The Woodlands and consolidate its operations. As such, The Woodlands operating results for historical periods when this investment was a Real Estate Affiliate are now analyzed internally on a non-GAAP consolidation basis by management in order to provide management comparability between periods for analyzing operating results.

As our segments are managed separately, different operating measures are utilized to assess operating results and allocate resources among the segments. The one common operating measure used to assess operating results for the business segments is Real Estate Property Earnings Before Taxes (“REP EBT”) which represents the operating revenues of the properties less property operating expenses and adjustments for interest, as further described below. Management believes that REP EBT provides useful information about the operating performance for all of our assets, projects and properties.

REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate interest income and depreciation expense, provision for income taxes, warrant liability gain (loss). We present REP 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) to calculate REP EBT is appropriate to provide additional information to investors because REP EBT excludes certain non-recurring and non-cash items, which we believe are not indicative of our core operating performance. REP EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss) as it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

Segment operating results are as follows:

	Three Months Ended September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	40,218		$	—		$	40,218
Builder price participation	1,867			—			1,867
Minimum rents	130			—			130
Other land revenues	6,385			—			6,385
Other rental and property revenues	(7		)	—			(7		)
Total revenues	48,593			—			48,593
Cost of sales - land	21,439			—			21,439
Land sales operations	8,209			—			8,209
Land sales real estate and business taxes	1,751			—			1,751
Depreciation and amortization	64			—			64
Interest income	(49		)	—			(49		)
Interest expense (1)	(3,638		)	—			(3,638		)
Total expenses	27,776			—			27,776
MPC EBT	20,817			—			20,817
Operating Assets
Minimum rents	22,788			—			22,788
Tenant recoveries	6,030			—			6,030
Resort and conference center revenues	8,328			—			8,328
Other rental and property revenues	4,342			—			4,342
Total revenues	41,488			—			41,488
Rental property real estate taxes	2,934			—			2,934
Rental property maintenance costs	2,126			—			2,126
Resort and conference center operations	6,965			—			6,965
Other property operating costs	14,853			—			14,853
Provision for doubtful accounts	237			—			237
Depreciation and amortization	6,440			—			6,440
Interest income	(48		)	—			(48		)
Interest expense	4,313			—			4,313
Equity in Earnings from Real Estate Affiliates	—			(310		)	(310		)
Total expenses	37,820			(310		)	37,510
Operating Assets EBT	3,668			310			3,978
Strategic Developments
Minimum rents	217			—			217
Tenant recoveries	35			—			35
Other rental and property revenues	4,482			—			4,482
Total revenues	4,734			—			4,734
Condominium sales operations	(24		)	—			(24		)
Real estate taxes	640			—			640
Rental property maintenance costs	137			—			137
Other property operating costs	2,080			—			2,080
Provision for doubtful accounts	3			—			3
Depreciation and amortization	56			—			56
Interest expense	(193		)	—			(193		)
Total expenses	2,699			—			2,699
Strategic Developments EBT	2,035			—			2,035
REP EBT	$	26,520		$	310		$	26,830

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

	Three Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	34,152		—			$	34,152
Builder price participation	1,233			—			1,233
Minimum rents	122			—			122
Other land revenues	5,597			—			5,597
Total revenues	41,104			—			41,104
Cost of sales - land	27,033			—			27,033
Land sales operations	8,430			—			8,430
Land sales real estate and business taxes	2,059			—			2,059
Depreciation and amortization	23			—			23
Interest income	(70		)	—			(70		)
Interest expense (1)	(3,808		)	—			(3,808		)
Total expenses	33,667			—			33,667
MPC EBT	7,437			—			7,437
Operating Assets
Minimum rents	19,072			—			19,072
Tenant recoveries	5,387			—			5,387
Resort and conference center revenues	7,200			—			7,200
Other rental and property revenues	4,593			—			4,593
Total revenues	36,252			—			36,252
Rental property real estate taxes	2,829			—			2,829
Rental property maintenance costs	2,016			—			2,016
Resort and conference center operations	6,352			—			6,352
Other property operating costs	14,249			—			14,249
Recovery of doubtful accounts	(136		)	—			(136		)
Depreciation and amortization	6,961			—			6,961
Interest income	(46		)	—			(46		)
Interest expense	4,050			—			4,050
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates	—			(166		)	(166		)
Total expenses	47,580			(166		)	47,414
Operating Assets EBT	(11,328		)	166			(11,162		)
Strategic Developments
Minimum rents	209			—			209
Tenant recoveries	11			—			11
Condominium unit sales	9,071			—			9,071
Other land revenues	(60		)	—			(60		)
Other rental and property revenues	86			—			86
Total revenues	9,317			—			9,317
Condominium unit cost of sales	5,470			—			5,470
Condominium sales operations	245			—			245
Real estate taxes	(819		)	—			(819		)
Rental property maintenance costs	139			—			139
Other property operating costs	712			—			712
Recovery of doubtful accounts	(5		)	—			(5		)
Depreciation and amortization	59			—			59
Interest expense	149			—			149
Total expenses	5,950			—			5,950
Strategic Developments EBT	3,367			—			3,367
REP EBT	$	(524	)	$	166		$	(358	)

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

	Nine Months Ended September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	120,235		—			$	120,235
Builder price participation	4,208			—			4,208
Minimum rents	384			—			384
Other land revenues	13,401			—			13,401
Other rental and property revenues	28			—			28
Total revenues	138,256			—			138,256
Cost of sales - land	63,096			—			63,096
Land sales operations	25,382			—			25,382
Land sales real estate and business taxes	5,533			—			5,533
Depreciation and amortization	67			—			67
Interest income	(179		)	—			(179		)
Interest expense (1)	(10,709		)	—			(10,709		)
Total expenses	83,190			—			83,190
MPC EBT	55,066			—			55,066
Operating Assets
Minimum rents	61,532			—			61,532
Tenant recoveries	17,817			—			17,817
Resort and conference center revenues	29,954			—			29,954
Other rental and property revenues	15,307			—			15,307
Total revenues	124,610			—			124,610
Rental property real estate taxes	8,160			—			8,160
Rental property maintenance costs	5,851			—			5,851
Resort and conference center operations	21,750			—			21,750
Other property operating costs	43,274			—			43,274
Provision for doubtful accounts	386			—			386
Depreciation and amortization	16,969			—			16,969
Interest income	(134		)	—			(134		)
Interest expense	11,373			—			11,373
Equity in Earnings from Real Estate Affiliates (2)	—			(3,432		)	(3,432		)
Total expenses	107,629			(3,432		)	104,197
Operating Assets EBT	16,981			3,432			20,413
Strategic Developments
Minimum rents	693			—			693
Tenant recoveries	115			—			115
Condominium unit sales	267			—			267
Other land revenues	32			—			32
Other rental and property revenues	4,544			—			4,544
Total revenues	5,651			—			5,651
Condominium unit cost of sales	96			—			96
Condominium sales operations	47			—			47
Real estate taxes	2,423			—			2,423
Rental property maintenance costs	453			—			453
Other property operating costs	3,032			—			3,032
Recovery of doubtful accounts	(101		)	—			(101		)
Depreciation and amortization	173			—			173
Interest expense	61			—			61
Total expenses	6,184			—			6,184
Strategic Developments EBT	(533		)	—			(533		)
REP EBT	$	71,514		$	3,432		$	74,946

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $2.4 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

	Nine Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	75,692		46,773			$	122,465
Builder price participation	2,351			1,108			3,459
Minimum rents	739			14			753
Other land revenues	9,093			3,924			13,017
Total revenues	87,875			51,819			139,694
Cost of sales - land	51,907			23,932			75,839
Land sales operations	16,343			8,439			24,782
Land sales real estate and business taxes	5,110			899			6,009
Depreciation and amortization	23			46			69
Interest income	(70		)	(364		)	(434		)
Interest expense (1)	(8,936		)	(2,370		)	(11,306		)
Total expenses	64,377			30,582			94,959
Venture partner share of The Woodlands EBT				(10,088		)	(10,088		)
MPC EBT	23,498			11,149			34,647
Operating Assets
Minimum rents	51,701			2,803			54,504
Tenant recoveries	14,391			1,061			15,452
Resort and conference center revenues	7,200			19,106			26,306
Other rental and property revenues	8,034			6,992			15,026
Total revenues	81,326			29,962			111,288
Rental property real estate taxes	7,167			972			8,139
Rental property maintenance costs	4,807			477			5,284
Resort and conference center operations	6,352			13,904			20,256
Other property operating costs	31,716			9,060			40,776
Provision for (recovery of) doubtful accounts	317			(9		)	308
Depreciation and amortization	13,200			3,968			17,168
Interest income	(79		)	(2		)	(81		)
Interest expense	9,143			2,316			11,459
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates (2)	—			(3,139		)	(3,139		)
Total expenses	83,928			27,547			111,475
Venture partner share of The Woodlands EBT				(1,067		)	(1,067		)
Operating Assets EBT	(2,602		)	1,348			(1,254		)
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
Other land revenue	—			—			—
Total revenues	21,395			—			21,395
Condominium unit cost of sales	13,722			—			13,722
Condominium sales operations	860			—			860
Real estate taxes	626			—			626
Rental property maintenance costs	471			—			471
Other property operating costs	2,697			—			2,697
Recovery of doubtful accounts	(143		)	—			(143		)
Provision for impairment	—			—			—
Depreciation and amortization	176			—			176
Interest expense	154			—			154
Total expenses	18,563			—			18,563
Strategic Developments EBT	2,832			—			2,832
REP EBT	$	23,728		$	12,497		$	36,225

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $3.9 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

The following reconciles REP EBT to GAAP-basis income (loss):

Reconciliation of REP EBT to GAAP-net	Three Months Ended September 30,						Nine Months Ended September 30,
income (loss)	2012			2011			2012			2011
	(In thousands)						(In thousands)
Real estate property EBT:
Segment basis	$	26,830		$	(358	)	$	74,946		$	36,225
Real Estate Affiliates	(310		)	(166		)	(3,432		)	(12,497		)
	26,520			(524		)	71,514			23,728
General and administrative	(9,339		)	(8,673		)	(25,896		)	(21,156		)
Corporate interest income	2,315			2,616			6,814			7,309
Warrant liability gain (loss)	(64,303		)	169,897			(162,724		)	100,762
Benefit (provision) for income taxes	(2,618		)	7,760			(7,703		)	4,344
Reduction in tax indemnity receivable	(2,873		)	—			(11,655		)	—
Equity in earnings from Real Estate Affiliates	310			166			3,432			7,787
Investment in Real Estate Affiliate basis adjustment	—			(6,053		)	—			(6,053		)
Corporate depreciation	(204		)	(165		)	(506		)	(193		)
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528

The following reconciles segment revenue to GAAP-basis consolidated and combined revenues:

Reconciliation of Segment Basis Revenues to	Three Months Ended September 30,				Nine Months Ended September 30,
GAAP Revenues	2012		2011		2012		2011
	(In thousands)				(In thousands)
Master Planned Communities - Total Segment	$	48,593	$	41,104	$	138,256	$	139,694
Operating Assets - Total Segment	41,488		36,252		124,610		111,288
Strategic Developments - Total Segment	4,734		9,317		5,651		21,395
Total Segment revenues	94,815		86,673		268,517		272,377
Less: The Woodlands Partnerships revenues	—		—		—		(81,781		)
Total revenues - GAAP basis	$	94,815	$	86,673	$	268,517	$	190,596

The assets by segment and the reconciliation of total segment assets to the total assets in the consolidated balance sheets at September 30, 2012 and December 31, 2011 are summarized as follows:

	September 30,		December 31,
	2012		2011
	(In thousands)
Master Planned Communities	$	1,787,034	$	1,778,515
Operating Assets	950,665		869,186
Strategic Developments	217,217		189,807
Total segment assets	2,954,916		2,837,508
Corporate and other	569,154		557,641
Total assets	$	3,524,070	$	3,395,149

XML

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total		Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Noncontrolling Interests in Consolidated Ventures
Balance at Dec. 31, 2010	$ 2,179,107		$ 379	$ 2,708,036	$ (528,505)	$ (1,627)	$ 824
Balance (in shares) at Dec. 31, 2010			37,904,506
Increase (Decrease) in Stockholders' Equity
Net income (loss)	116,528				115,751		777
Adjustment to noncontrolling interests	3,700						3,700
Acquisitions	(248)						(248)
Interest rate swaps, net of tax $212 and $1,100 for nine months ended September 30, 2012 and 2011, respectively	(2,772)	[1]				(2,772)
Stock plan activity	2,500			2,500
Stock plan activity (in shares)			37,601
Balance at Sep. 30, 2011	2,298,815		379	2,710,536	(412,754)	(4,399)	5,053
Balance (in shares) at Sep. 30, 2011			37,942,107
Balance at Dec. 31, 2011	2,329,599		379	2,711,109	(381,325)	(5,578)	5,014
Balance (in shares) at Dec. 31, 2011			37,945,707
Increase (Decrease) in Stockholders' Equity
Net income (loss)	(126,724)				(127,361)		637
Interest rate swaps, net of tax $212 and $1,100 for nine months ended September 30, 2012 and 2011, respectively	(3,115)	[1]				(3,115)
Capitalized swap interest, net of tax $523	(897)	[2]				(897)
Stock plan activity	3,149			3,149
Stock plan activity (in shares)			27,933
Balance at Sep. 30, 2012	$ 2,202,012		$ 379	$ 2,714,258	$ (508,686)	$ (9,590)	$ 5,651
Balance (in shares) at Sep. 30, 2012			37,973,640

[1] Net of deferred taxes of $1.1 million during both the three and nine months ended September 30, 2011. Net of deferred taxes of $ 0.1 million and $ 0.2 million during the three and nine months ended September 30, 2012, respectively.

[2] Net of deferred taxes of $ 0.2 million and $0.5 million during the three and nine months ended September 30, 2012, respectively.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued	0	0
Common stock, par value (in dollars per shares)	$ 0.01	$ 0.01
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	37,973,640	37,945,707
Common stock, shares outstanding	37,973,640	37,945,707

XML

MORTGAGES, NOTES AND LOANS PAYABLE

9 Months Ended

Sep. 30, 2012

MORTGAGES, NOTES AND LOANS PAYABLE.

MORTGAGES, NOTES AND LOANS PAYABLE

NOTE 8MORTGAGES, NOTES AND LOANS PAYABLE

Mortgages, notes and loans payable are summarized as follows:

	September 30,		December 31,
	2012		2011
	(In thousands)
Fixed-rate debt:
Collateralized mortgages, notes and loans payable	$	159,098	$	83,164
Special Improvement District bonds	50,928		55,213
Variable-rate debt:
Collateralized mortgages, notes and loans payable	473,778		468,100
Total mortgages, notes and loans payable	$	683,804	$	606,477

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

				Maximum		Carrying Value
	Final Maturity (a)	Interest Rate		Facility Amount		September 30, 2012		December 31, 2011
						(In thousands)
110 N. Wacker (b)	October 2019	5.21	%			$	29,000	$	29,000
70 Columbia Corporate Center	August 2017	4.25	%			16,037		—
Other Financing Arrangements	July 2015	—				754		—
Bridgeland
Land Loan (d)	June 2022	5.50	%			18,066		—
Development Loan (e)	June 2015	5.00	%	$	30,000	2,757		—
Various mortgage notes	—	—				—		20,604
Bridgeland Total						20,823		20,604
Special Improvement District bonds
Summerlin South - S108	December 2016	5.95	%			1,183		1,302
Summerlin South - S124	December 2019	5.95	%			342		378
Summerlin South - S128	December 2020	7.30	%			825		862
Summerlin South - S128C	December 2030	6.05	%			5,847		5,956
Summerlin South - S132	December 2020	6.00	%			5,067		5,378
Summerlin South - S151	June 2025	6.00	%			11,064		12,293
Summerlin West - S808	April 2021	5.71	%			—		682
Summerlin West - S809	April 2023	6.65	%			—		1,000
Summerlin West - S810	April 2031	7.13	%			22,185		22,770
The Shops at Summerlin Centre - S128	December 2030	6.05	%			3,765		3,829
The Shops at Summerlin Centre - S108	December 2016	5.95	%			650		713
SID Payable to Nevada Cancer Institute	December 2019	5.95	%			—		50
Special Improvement District bonds Total						50,928		55,213
The Woodlands
Master Credit Facility (f)	March 2015	5.00	%	$	270,000	176,704		183,000
Resort and Conference Center (g)	October 2013	6.00	%			36,100		36,100
2201 Lake Woodlands Drive	November 2016	5.25	%			—		4,803
Weiner Tract	January 2013	6.25	%			—		1,479
Land in Montgomery Co.	December 2012	6.00	%			—		649
Land in Harris Co.	January 2013	6.00	%			—		381
Capital lease obligation	—	2.84	%			67		147
CVS	upon sale	3.25	%			—		101
4 Waterway Square	December 2023	4.88	%			40,359		41,000
9303 New Trails	December 2023	4.88	%			13,781		14,000
3 Waterway Square (h)	January 2017	3.25	%	$	43,295	217		—
20/25 Waterway	May 2022	4.79	%			14,450		—
Millennium Waterway Apartments (i)	June 2022	3.75	%			55,584		—
The Woodlands Total						337,262		281,660
Ward Centers (j)	September 2016	3.40	%	$	250,000	229,000		220,000
						$	683,804	$	606,477

(a)Maturity date includes any extension option periods which are within our control.

(b)Loan has a stated interest rate of one-month LIBOR + 2.25%. The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate through maturity.

(c)The loan was refinanced during the second quarter of 2012.

(d)Loan is for ten year term. First five years interest is fixed at 5.50% and for second five years interest rate is floating based on three-month LIBOR +2.75%.

(e)Revolving development loan provides for a maximum of $30.0 million outstanding balance at any time with all draws not to exceed $140.0 million. The loan bears interest at three-month LIBOR + 3.25% and has a 5.00% minimum rate.

(f)Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor.

(g)Loan currently bears interest at one-month LIBOR + 5.00% and has a 1.00% LIBOR floor. The rate increases by 0.5% every six months after March 23, 2012 until maturity.

(h)Loan bears interest at one-month LIBOR + 2.65%.

(i)Loan payments are interest only until June 2017, then monthly principal and interest payment of $257,418 with unpaid balance due at maturity.

(j)Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.80% fixed rate through maturity.

The weighted average interest rate on our mortgages, notes and loans payable was 4.52% and 4.68% as of September 30, 2012 and December 31, 2011, respectively.

Mortgages, Notes and Loans Payable

As of September 30, 2012, we had $683.8 million of mortgages, notes and loans payable. Approximately $337.3 million of the debt included in the table above 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 loans which are recourse to the partnerships that directly own The Woodlands operations, and a $7.0 million parent guarantee associated with the 110 N. Wacker mortgage, which is more fully discussed below.

The Woodlands Master Credit Facility is a $270.0 million facility consisting of a $170.0 million term loan and a $100.0 million revolving credit line (together, the “TWL Facility”). As of September 30, 2012, the TWL Facility had an outstanding balance of $176.7 million. The TWL Facility bears interest at one-month LIBOR plus 4.00% with a 1.00% 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 or covenants 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.  We have not distributed and do not currently intend to distribute cash from The Woodlands; therefore, this distribution provision has had no impact on us. As of September 30, 2012, leverage was approximately 37.90%. There was $11.0 million of undrawn and available borrowing capacity under the TWL Facility based on the collateral underlying the facility and covenants as of September 30, 2012. The TWL Facility also requires mandatory principal amortization payments during its initial term and during the extension period, if exercised.  Repayments of $25.0 million and $30.0 million are required on March 29, 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.

On August 15, 2012, we assumed a $16.0 million loan as part of the acquisition of 70 CCC. The non-recourse, interest only promissory note matures on August 31, 2017, has a fixed rate of 4.25% and is secured by the property. Please refer to Note 4 — Acquisitions and Dispositions for description of the acquisition.

The Woodlands Resort and Conference Center loan has a $36.1 million outstanding balance as of September 30, 2012. The maturity date has been extended to December 2012 and may be further extended to October 2013 at our option. The loan bears interest at one-month LIBOR plus 5.00% as of September 30, 2012 and has a 1.00% LIBOR floor. The rate began to increase by 0.50% every six months after March 23, 2012 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.

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

On May 31, 2012, as part of our acquisition of the partner’s interest in Millennium Waterway Apartments, we consolidated a $55.6 million non-recourse first mortgage loan. The proceeds from the mortgage were used to refinance the joint venture’s existing debt and to fund our acquisition of the partner’s interest in the property. The loan matures on June 1, 2022 and has a fixed interest rate of 3.75%. Payments are interest only until June 2017, then monthly principal and interest payments of $257,418 with the unpaid principal balance due at maturity.

On April 26, 2012, we closed on a 10-year, fixed rate loan with interest at 4.79% secured by 20/25 Waterway Avenue. The proceeds from the loan were $13.6 million.

On February 2, 2012, we secured non-recourse financing totaling $43.3 million for the construction of 3 Waterway Square, an eleven-story, 232,021-square foot office building in The Woodlands. The loan matures on January 31, 2015 and has two, one-year extension options. The loan bears interest at LIBOR plus 2.65%.

On December 5, 2011, we secured a $41.0 million loan for 4 Waterway Square and a $14.0 million loan for 9303 New Trails. The non-recourse mortgages mature on December 11, 2023 and have fixed interest rates of 4.88%.

On September 30, 2011, we closed on a $250.0 million first mortgage financing secured by the Ward Centers in Honolulu, HI, 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 3.80% fixed rate for the term of the loan. The loan had a weighted-average interest rate of 3.40% as of September 30, 2012. 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% debt yield to draw additional loan proceeds under the facility. The loan also permits partial repayment during its term in connection with property releases for development. On September 17, 2012, we drew an additional $9.0 million on the loan. As a result, the unused portion of this mortgage is $21.0 million as of September 30, 2012.

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

As of September 30, 2012, $1.1 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledged as collateral for our mortgages, notes and loans payable.

Special Improvement District Bonds

The Summerlin master planned community uses Special Improvement District bonds to finance certain common infrastructure improvements.  These bonds are issued by the municipalities and, although unrated, are secured by the assessments on the land.  The majority of proceeds from each bond issued is held in a construction escrow and disbursed to us as infrastructure projects are completed, inspected by the municipalities and approved for reimbursement. Accordingly, the Special Improvement District bonds have been classified as debt. The Summerlin Master Planned Community pays the debt service on the bonds semi-annually. However, our residential land sales contracts provide for the reimbursement of the principal amounts included in these debt service payments. In addition, as Summerlin sells land, the purchasers assume a proportionate share of the bond obligation.

As of September 30, 2012, we were in compliance with all of the financial covenants related to our debt agreements.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 05, 2012
Document and Entity Information
Entity Registrant Name	Howard Hughes Corp
Entity Central Index Key	0001498828
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		37,973,640
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

XML

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2012

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 9DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are primarily exposed to interest rate risks related to our variable interest debt, and we seek to manage this risk by utilizing interest rate derivatives. Our objectives in using interest rate derivatives are to add stability to interest costs by reducing our exposure to interest rate movements. To accomplish this objective and predictability, we use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company 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. The outstanding derivatives at September 30, 2012 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, 2012, the amount of ineffectiveness recorded in earnings was insignificant.

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

As of September 30, 2012, we had gross notional amounts of $172.0 million for interest rate swaps and a $100.0 million interest rate cap that were designated as cash flow hedges of interest rate risk. The fair value of the interest rate cap derivative was insignificant.

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

	September 30,		December 31,
	2012		2011
	(In thousands)
Interest Rate Swaps	$	7,724	$	4,367
Total derivatives designated as hedging instruments	$	7,724	$	4,367

The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Statements of Operations:

	Three months ended September 30,							Three months ended September 30,
	2012			2011				2012			2011
Cash Flow Hedges	Amount of (Loss) Recognized in OCI			Amount of Gain (Loss) Recognized in OCI			Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of (Loss) Reclassified from AOCI into Earnings			Amount of Gain or (Loss) Reclassified from AOCI into Earnings
	(In thousands)							(In thousands)
Interest Rate Swaps	$	(1,466	)	$	(1,834	)	Interest Expense	$	(512	)	$	(205	)
	$	(1,466	)	$	(1,834	)		$	(512	)	$	(205	)

	Nine months ended September 30,							Nine months ended September 30,
	2012			2011				2012			2011
Cash Flow Hedges	Amount of (Loss) Recognized in OCI			Amount of Gain (Loss) Recognized in OCI			Location of Gain (Loss) Reclassified from AOCI into Earnings	Amount of (Loss) Reclassified from AOCI into Earnings			Amount of Gain or (Loss) Reclassified from AOCI into Earnings
	(In thousands)							(In thousands)
Interest Rate Swaps	$	(4,627	)	$	(2,582	)	Interest Expense	$	(1,512	)	$	(316	)
	$	(4,627	)	$	(2,582	)		$	(1,512	)	$	(316	)

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:
Master Planned Community land sales	$ 40,218	$ 34,152	$ 120,235	$ 75,692
Builder price participation	1,867	1,233	4,208	2,351
Minimum rents	23,135	19,403	62,609	53,098
Tenant recoveries	6,065	5,398	17,932	14,537
Condominium unit sales		9,071	267	19,495
Resort and conference center revenues	8,328	7,200	29,954	7,200
Other land revenues	6,385	5,537	13,433	9,093
Other rental and property revenues	8,817	4,679	19,879	9,130
Total revenues	94,815	86,673	268,517	190,596
Expenses:
Master Planned Community cost of sales	21,439	27,033	63,096	51,907
Master Planned Community operations	9,936	10,734	30,962	22,313
Rental property real estate taxes	3,574	2,010	10,583	7,793
Rental property maintenance costs	2,263	2,155	6,304	5,278
Other property operating costs	16,933	14,961	46,306	34,413
Condominium unit cost of sales		5,470	96	13,722
Resort and conference center operations	6,965	6,352	21,750	6,352
Provision for (recovery of) doubtful accounts	240	(141)	285	174
General and administrative	9,339	8,673	25,896	21,156
Depreciation and amortization	6,764	7,208	17,715	13,592
Total expenses	77,453	84,455	222,993	176,700
Operating income	17,362	2,218	45,524	13,896
Interest income	2,375	2,341	7,048	7,097
Interest expense	(445)		(646)
Early extinguishment of debt		(11,305)		(11,305)
Warrant liability gain (loss)	(64,303)	169,897	(162,724)	100,762
Reduction in tax indemnity receivable	(2,873)		(11,655)
Investment in Real Estate Affiliate basis adjustment		(6,053)		(6,053)
Equity in earnings from Real Estate Affiliates	310	166	3,432	7,787
Income (loss) before taxes	(47,574)	157,264	(119,021)	112,184
Provision (benefit) for income taxes	2,618	(7,760)	7,703	(4,344)
Net income (loss)	(50,192)	165,024	(126,724)	116,528
Net income (loss) attributable to noncontrolling interests	781	(729)	(637)	(777)
Net income (loss) attributable to common stockholders	$ (49,411)	$ 164,295	$ (127,361)	$ 115,751
Basic income (loss) per share: (in dollars per share)	$ (1.30)	$ 4.33	$ (3.36)	$ 3.05
Diluted income (loss) per share: (in dollars per share)	$ (1.30)	$ (0.14)	$ (3.36)	$ 0.38

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2012

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 3        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 any potentially dilutive common shares. The dilutive effect of options and non-vested stock issued under stock-based compensation plans is computed using the “treasury stock” method. The dilutive effect of the Sponsors Warrants and Management Warrants is computed using the if-converted method. Gains, if any, 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.

Information related to our EPS calculations is summarized as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands, except per share amounts)
Basic EPS:
Numerator:
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528
Net income (loss) attributable to noncontrolling interests	781			(729		)	(637		)	(777		)
Net income (loss) attributable to common stockholders	$	(49,411	)	$	164,295		$	(127,361	)	$	115,751
Denominator:
Weighted average basic common shares outstanding	37,916			37,912			37,909			37,907
Diluted EPS:
Numerator:
Net income (loss) attributable to common stockholders	$	(49,411	)	$	164,295		$	(127,361	)	$	115,751
Less: Warrant liability gain	—			(169,897		)	—			(100,762		)
Adjusted net income (loss) available to common stockholders	$	(49,411	)	$	(5,602	)	$	(127,361	)	$	14,989
Denominator:
Weighted average basic common shares outstanding	37,916			37,912			37,909			37,907
Restricted stock and stock options	—			—			—			5
Warrants	—			843			—			1,585
Weighted average diluted common shares oustanding	37,916			38,755			37,909			39,497
Basic earnings (loss) per share:	$	(1.30	)	$	4.33		$	(3.36	)	$	3.05
Diluted earnings (loss) per share:	$	(1.30	)	$	(0.14	)	$	(3.36	)	$	0.38

The diluted EPS computations for the three and nine months ended September 30, 2012 exclude 843,962 stock options, 57,933 shares of restricted stock, 8,000,000 shares of common stock underlying the Sponsor Warrants and 2,862,687 shares of common stock underlying the Management Warrants because their inclusion would have been anti-dilutive.

Additionally, the diluted EPS computation for the three months ended September 30, 2011 excludes 692,362 stock options and 38,953 shares of restricted stock because their inclusion would have been anti-dilutive. The diluted EPS computation for the nine months ended September 30, 2011 excludes 692,362 stock options because their inclusion would have been anti-dilutive.

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SPONSORS AND MANAGEMENT WARRANTS

9 Months Ended

Sep. 30, 2012

SPONSORS AND MANAGEMENT WARRANTS

SPONSORS AND MANAGEMENT WARRANTS

NOTE 2        SPONSORS AND MANAGEMENT WARRANTS

On November 9, 2010 (the “Effective Date”), we issued warrants to purchase 8.0 million shares of our common stock to certain of the sponsors (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 and the number of shares of common stock underlying each warrant are subject to adjustment for future stock dividends, splits or reverse splits of our common stock or certain other events. 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 are subsequently exercisable without notice any time thereafter. The Sponsors Warrants expire on November 9, 2017.

In November 2010 and February 2011, we 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 which may be adjusted pursuant to a net settlement option were issued pursuant to such agreements at fair value in exchange for a combined total of approximately $19.0 million in cash from such executives at the commencement of their respective employment. Mr. Weinreb and Mr. Herlitz’s warrants have exercise prices of $42.23 per share and Mr. Richardson’s warrant has an exercise price of $54.50 per share. Generally, the Management Warrants become exercisable in November 2016 and expire by February 2018.

The estimated $230.2 million fair value for the Sponsors Warrants and estimated $60.3 million fair value for the Management Warrants as of September 30, 2012, have been recorded as liabilities because the holders of these warrants could require us to settle such warrants in cash upon a change of control. The fair values were estimated using an option pricing model and Level 3 inputs due to the unavailability of comparable market data. The estimated fair values for the Sponsor Warrants and Management Warrants were $102.6 million and $25.2 million, respectively, as of December 31, 2011. Increases (loss) and decreases (gain) in the fair value of the Sponsors Warrants and the Management Warrants are recognized in earnings.

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TRANSACTIONS RELATED TO THE SPINOFF FROM GGP AND RELATED PARTIES

9 Months Ended

Sep. 30, 2012

TRANSACTIONS RELATED TO THE SPINOFF FROM GGP AND RELATED PARTIES

TRANSACTIONS RELATED TO THE SPINOFF FROM GGP AND RELATED PARTIES

NOTE 14TRANSACTIONS RELATED TO THE SPINOFF  FROM GGP AND RELATED PARTIES

Prior to the Effective Date, we entered into a Transition Services Agreement (the “TSA”) whereby GGP agreed to provide to us, on a transitional basis, certain specified services on an interim basis for various terms not exceeding 24 months following the Spinoff, subject to our right of earlier termination. Concurrently, we entered into a Reverse Transition Services Agreement (“RTSA”) whereby we agreed to provide GGP with certain income tax and accounting support services, also subject to earlier termination prior to its scheduled expiration of November 9, 2013. We incurred $0.4 million of expenses related to the TSA, and we received negligible reimbursements under the RTSA for the nine months ended September 30, 2011. No services have been provided under the TSA and RTSA for the nine months ended September 30, 2012, and we do not expect to provide or incur any services in the future. On November 9, 2010, we entered in to a Tax Matters Agreement with GGP. For a discussion of the Tax Matters Agreement, please refer to Note 10 — Income Taxes.

In January 2011, we entered into a Transition Agreement with TPMC Realty Services Group, Inc. (“TPMC”). David Weinreb, a director and our CEO, is the sole equity owner and the chief executive officer of TPMC, and Grant Herlitz, our president, is the president of TPMC. The Transition Agreement provided for, among other things, certain mutual transactions and services that facilitated the continuity of Company management, the net value of which were not material for the nine months ended September 30, 2011. Additionally, reflected in our general and administrative expense for the nine months ended September 30, 2011 are reimbursements to TPMC of $0.9 million related to Mr. Weinreb’s employment agreement with us. We also entered into a lease agreement for 3,253 square feet of office space in Los Angeles, California with an affiliate of TPMC, which commenced on May 1, 2011. Annual rental expense relating to the lease is approximately $111,965 per year and the lease expires in July 2016.

On January 31, 2011, we terminated a Management Services Agreement with Brookfield Advisors LP. Pursuant to the agreement which was executed on August 6, 2010, Brookfield Advisors LP provided us services that included strategic advice, project development oversight, financial planning, financing consultation, internal controls expertise and community and investor relations. This agreement provided for payments to Brookfield Advisors LP of $0.5 million per month.

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INCOME TAXES

9 Months Ended

Sep. 30, 2012

INCOME TAXES

INCOME TAXES

NOTE 10INCOME TAXES

Several of our subsidiaries are involved in a dispute with the IRS relating to years in which those subsidiaries were owned by GGP, and in connection therewith General Growth Properties (“GGP”) has provided us with an indemnity against certain potential tax liabilities. 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”), 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 (“MPC Taxes”), in an amount up to $303.8 million, plus interest and penalties related to these amounts (the “Indemnity Cap”) so long as GGP controls the action in the Tax Court related to the dispute with the IRS as described below.  We recorded the Tax Indemnity receivable at the Indemnity Cap amount as of the spinoff date. The unrecognized tax benefits and related accrued interest recorded through September 30, 2012 are primarily related to the taxes that are the subject of the Tax Indemnity. We have recorded interest income receivable on the Tax Indemnity receivable in the amounts of $34.0 million and $28.0 million as of September 30, 2012 and December 31, 2011, respectively.

The timing of the utilization of the tax assets attributable to indemnified and non-indemnified gains results in changes to the Tax Indemnity receivable and is dependent on numerous future events, such as the timing of recognition of indemnified and non-indemnified gains, the amount of each type of gain recognized in each year, the use of specific deductions and the ultimate amount of indemnified gains recognized. These non-cash changes could be material to our financial statements.  Resolution of the Tax Court case noted below could also result in changes to the master planned community deferred gains and the timing of utilization of the tax assets, both of which could result in changes to the Tax Indemnity receivable.  We record the Tax Indemnity receivable based on the amounts indemnified which are determined in accordance with the provisions set forth in ASC 740 (Income Taxes).

During the three and nine months ended September 30, 2012, the reduction in tax indemnity receivable of $2.9 million and $11.7 million, respectively, related to our utilization of tax assets that contractually limit the amount we can receive pursuant to the Tax Matters Agreement and changes to our deferred tax liability for the MPC Taxes.

On May 6, 2011, GGP filed Tax Court petitions on behalf of the two former taxable REIT subsidiaries of GGP seeking a redetermination of federal income tax for the years 2007 and 2008. The petitions seek to overturn determinations by the IRS that the taxpayers were liable for combined deficiencies totaling $144.1 million. 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. The litigation is currently scheduled for trial in November 2012.

Unrecognized tax benefits recorded pursuant to uncertain tax positions were $101.0 million as of September 30, 2012 and $101.4 as of December 31, 2011, excluding interest, of which this entire amount would not impact our effective tax rate. Accrued interest related to these unrecognized tax benefits amounted to $34.5 million as of September 30, 2012 and $28.5 million as of December 31, 2011. We recognized an increase in interest expense related to the unrecognized tax benefits of $2.1 million and $6.0 million for the three and nine months ended September 30, 2012, respectively. A significant amount of the unrecognized tax benefits recorded in the financial statements are related to the tax court litigation and are expected to be resolved within the next twelve months.

We file a consolidated corporate tax return which includes all of our subsidiaries with the exception of Victoria Ward, Limited (“Ward”, substantially all of which is owned by us). Ward elected to be taxed as a REIT, commencing with the taxable year beginning January 1, 2002.  Ward has satisfied the REIT distribution requirements for 2011, and presently we intend to continue to operate Ward as a REIT.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 6FAIR 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,” our assets and liabilities that are measured at fair value on a recurring basis.

	September 30, 2012								December 31, 2011
	Fair Value Measurements Using								Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)								(In thousands)
Liabilities
Warrants	$	290,488	$	—	$	—	$	290,488	$	127,764	$	—	$	—	$	127,764
Interest rate swaps	7,724		—		7,724		—		4,367		—		4,367		—

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 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 and includes consideration of counterparty credit risk. The variable cash receipts are based on an expectation of future interest rates derived from observable market interest rate curves.

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

	2012		2011
	(In thousands)
Balance as of December 31,	$	127,764	$	227,348
Warrant liability (gain) loss	162,724		(100,762		)
Purchases	—		2,000
Balance as of September 30,	$	290,488	$	128,586

The significant unobservable input used in the fair value measurement of our warrants designated as Level 3 as of September 30, 2012 is as follows:

	Fair Value		Valuation Technique	Unobservable Input	Range/ Average
	(In thousands)
Warrants	$	290,488	Option Pricing Valuation Model	Expected Volatility (a)	27%-28% (28%)

(a) Based on the asset volatility of comparable companies.

The expected volatility in the table above is a significant unobservable input used to estimate the fair value of our warrant liabilities. An increase in expected volatility would increase the fair value of the liability, while a decrease in expected volatility would decrease the fair value of the liability.

The following tables summarize our assets and liabilities that were measured at fair value on a non-recurring basis:

	Total Fair Value Measurement		Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Loss (Gain) Three and Nine Months Ended September 30, 2012
	(In thousands)
Investment in Real Estate Affiliates	$	22,405	$	22,405	(a)	$	—	$	—	$	—

(a)We measured our equity interest in Millennium Waterway Apartments based on our purchase of our partner’s 23.5% economic interest in Millennium Waterway Apartments. We used Level 1 inputs for the cash payment.

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

	September 30, 2012				December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Assets:
Notes receivable, net	$	28,677	$	28,677	$	35,354	$	35,354
Tax indemnity receivable, including interest	326,150		(c)		331,771		(c)
Liabilities:
Fixed-rate debt	$	159,098	$	160,689	$	83,164	$	85,047
Variable-rate debt (a)	473,778		473,778		468,100		468,100
SID bonds (b)	50,928		50,928		55,213		55,213
Total mortgages, notes and loans payable	683,804		685,395		606,477		608,360

(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.

(b) Due to the uncertain repayment terms of the Special Improvement District (“SID”) bonds, the carrying value approximates fair value.

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

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

The fair value of debt in the table above was estimated based on a discounted future cash payment model using Level 2 inputs which includes risk premiums for loans of comparable quality and a risk free rate derived from the current London Interbank Offered Rate (“LIBOR) or U.S. Treasury obligation interest rates. The discount rates reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assuming that the debt is outstanding through maturity.

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

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SEGMENTS (Details 4) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Reconciliation of Segment Basis Revenues to GAAP Revenues
Total segment revenues	$ 94,815	$ 86,673	$ 268,517	$ 272,377
Less: The Woodlands revenues				(81,781)
Total revenues	94,815	86,673	268,517	190,596
Master Planned Communities
Reconciliation of Segment Basis Revenues to GAAP Revenues
Total segment revenues	48,593	41,104	138,256	139,694
Operating Assets
Reconciliation of Segment Basis Revenues to GAAP Revenues
Total segment revenues	41,488	36,252	124,610	111,288
Strategic Developments
Reconciliation of Segment Basis Revenues to GAAP Revenues
Total segment revenues	$ 4,734	$ 9,317	$ 5,651	$ 21,395

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ACQUISITIONS AND DISPOSITIONS

9 Months Ended

Sep. 30, 2012

ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS AND DISPOSITIONS

NOTE 4        ACQUISITIONS AND DISPOSITIONS

On August 15, 2012, we acquired 70 Columbia Corporate Center (“70 CCC”), a 169,590 square foot Class A office building located in the Columbia, Maryland town center by assuming a promissory note which encumbered the property and providing a participation right to the lender for 30% of the appreciation in the market value of the building less our preferred return. The promissory note bears interest at 4.25% and matures on August 31, 2017. The building was approximately 23.7% leased at closing. Simultaneous with the closing of the transaction, we executed a lease for 76,308 square feet that will increase occupancy to approximately 68.7% when the tenants take possession which is estimated to occur in March 2013. As part of the transaction, we deposited approximately $5.0 million into an escrow account for capital expenditures, tenant improvements and leasing commissions at the property. We are entitled to a 10% cumulative preferred return, after debt service, on our invested capital in the property. Cash flow is then split pro-rata based on our original contributed equity of $5.0 million plus any additional equity contributed and the loan amount. Excess proceeds from a capital event, after repayment of outstanding debt and the preferred return will be split 30% to the lender and 70% to us. The acquisition was recorded at fair value of $17.5 million and consists of land and a building that was valued as if it were vacant and the “as-if-vacant” value was allocated between the land and building. The “as-if-vacant” value was derived by estimating the value of the 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 that we would incur to achieve stabilized cash flow if the property were vacant. The fair value of the liabilities assumed was determined using a discounted cash flow analysis. 70 CCC is included in our Operating segment.

On July 6, 2012, we sold 11.5 acres including 104,705 square feet of mostly vacant retail space in Pocatello, ID (Alameda Plaza) for $4.5 million. Our net earnings recognized on the sale was $2.0 million. As the sale of certain development assets is an integral part of our business strategy, we recognize the proceeds as revenue in the condensed consolidated statements of operations.

On May 31, 2012, we acquired our partner’s interest in the 393-unit Millennium Waterway Apartments for $6.9 million, following the funding of a $55.6 million ten-year non-recourse mortgage bearing a 3.75% interest rate. Total assets of $78.6 million and liabilities of $56.4 million, including the recently funded loan, were consolidated into our financial statements at fair value as of the acquisition date. Prior to the acquisition, we accounted for our investment in Millennium Waterway Apartments under the equity method. We now own 100% of this stabilized Class A multi-family property located in The Woodlands Town Center. Included in the condensed consolidated statements of operations are revenues of $1.9 million and $2.5 million and net earnings of $0.6 million and $0.9 million since the acquisition date, for the three and nine months ended September 30, 2012, respectively. In conjunction with this acquisition, we entered into a new joint venture with the partner to construct a 314-unit Class A multi-family property. Please refer to Note 7 — Real Estate Affiliates for information about the new joint venture.

On July 1, 2011, we acquired 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”) for $117.5 million. The Woodlands is located near Houston, Texas.  As a result of the acquisition, we now consolidate The Woodlands operations into our financial statements: therefore, our condensed consolidated financial statements are not comparable for the nine months ended September 30, 2011.

Please refer to Note 15 — Segments for a presentation of the results as if we consolidated The Woodlands for all periods presented. Prior to such acquisition, we accounted for The Woodlands using the equity method. Our acquisition of The Woodlands net assets resulted in a $3.9 million after-tax loss on the re-measurement 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 Condensed Consolidated Statements of Operations. Included in the Condensed Consolidated Statement of Operations for the three months and nine months ended September 30, 2011, 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 was prepared as if The Woodlands’ acquisition had occurred as of the beginning of such period:

	Nine Months Ended September 30, 2011
	(In thousands)
Total revenues	$	276,240
Net income (loss) attributable to common shareholders	112,393

Pro forma adjustments were made for: (1) purchase accounting, including (a) depreciation for the step-up in basis for net property and equipment, (b) amortization of in-place and above/below market leases, (c) land cost of sales increase for step-up in land basis for finished lots acquired and sold and (d) amortization of deferred financing costs, prepaid commissions and deferred profits which were eliminated and (2) adjustments for interest expense which is capitalizable in accordance with our 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.

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IMPAIRMENT

9 Months Ended

Sep. 30, 2012

IMPAIRMENT

IMPAIRMENT

NOTE 5        IMPAIRMENT

We review our real estate assets, including operating assets, land held for development and sale and developments in progress, for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Generally accepted accounting principles require that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carrying amount of such asset to its 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.

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

There were no impairment charges recorded during the three or nine months ended September 30, 2012 or 2011.

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REAL ESTATE AFFILIATES

9 Months Ended

Sep. 30, 2012

REAL ESTATE AFFILIATES

REAL ESTATE AFFILIATES

NOTE 7REAL ESTATE AFFILIATES

In the ordinary course of business, we enter into partnerships or joint ventures primarily for the development and operations of real estate assets which are referred to as real estate affiliates. These partnerships or joint ventures are typically characterized by a non-controlling ownership interest with decision making and distribution of expected gains and losses being proportionate to the ownership interest.  We account for these partnerships and joint ventures in accordance with ASC 810, as amended (“ASC 810”).

In accordance with ASC 810, we assess our partnerships or joint ventures at inception to determine if any meet the qualifications of a variable interest entity (“VIE”). We consider a partnership or joint venture to be a VIE if: (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity); or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, we reassess our initial determination of whether the partnership or joint venture is a VIE. We also perform a qualitative assessment of each VIE to determine if we are the primary beneficiary, as required by ASC 810.

We account for investments in joint ventures deemed to be variable interest entities for which we are not considered to be the primary beneficiary using the equity method, and investments in joint ventures where we have virtually no influence on the joint venture’s operating and financial policies, on the cost method. Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets, liabilities and funding obligations are shared in accordance with our ownership percentages.

On October 11, 2011, we entered into a joint venture with two local developers and formed HHMK Development, LLC to explore the development of a luxury condominium tower at the Ala Moana Center, Honolulu, HI. On June 14, 2012, we formed another 50:50 joint venture, KR Holdings, LLC (“KR Holdings”), with the same partner. The initial capital contribution which is due at closing for the construction loan will include our interest in the condominium declaration and air rights for the condominium tower and cash from our partner. We anticipate the construction loan to close in June 2013. We determined that KR Holdings is a VIE, and that we are not the primary beneficiary. Accordingly, we account for our investment in KR Holdings using the equity method. On September 17, 2012, KR Holdings closed on two $20.0 million non-recourse mezzanine loan commitments with List Island Properties, LLC and A & B Properties, Inc. These loans have a blended interest rate of 12%, must be drawn in full at the construction loan closing date and mature on April 30, 2018 with the option to extend for one year. In addition to the mezzanine loans, A & B Properties and List Island Properties, LLC, both have a back-end profit interest in KR Holdings, LLC, which entitles them to receive a share of the profits after we get a return of our capital plus a 13% preferred return on our capital. LIST Co., Ltd, the parent of List Island Properties, LLC, will serve as an exclusive representative for buyers in Japan for the residences. Three million dollars of the $40.0 million provided by the mezzanine lenders may be drawn and used to fund the pre-development costs of the venture. Per the terms of the mezzanine loans, the venture is not required to repay this $3.0 million if the construction loan fails to close or the project fails to go forward. Of the committed pre-development costs, $2.0 million has been funded as of September 30, 2012 and is non-interest bearing.

On May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC (“Millennium Phase II”), with the same partner from Millennium Waterway Apartments as discussed in Note 4 for the construction of a 314-unit Class A multi-family complex in The Woodlands Town Center. Our partner is the managing member of Millennium Phase II.  As the managing member, our partner controls, directs, manages and administers the affairs of Millennium Phase II. Millennium Phase II is a variable interest entity, and although we have the majority ownership interest in the joint venture, we determined that we are not the primary beneficiary because our partner has the power to direct activities that most significantly impact the economic performance of the joint venture (81.43%). On July 5, 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres of land valued at $15.5 million to the joint venture, our partner’s contribution of $3.0 million in cash, and by a construction loan in the amount of $37.7 million which is guaranteed by our partner. The development of Millennium Phase II further expands our multi-family portfolio in The Woodlands Town Center.

On October 30, 2012, we funded $4.5 million in cash to the Bridges at Mint Hill joint venture in accordance with the venture’s operating agreement. The cash was used to repay a mortgage secured by land to be contributed by our partner. As a result, our ownership percentage increased to 90.5% from 79.0%, and we now have the ability to direct the significant economic activities of the entity; therefore, we will begin consolidating this joint venture in the fourth quarter of 2012.

The Bridges at Mint Hill, LLC, HHMK Development, LLC, KR Holdings, LLC, Millennium Woodlands Phase II, LLC and the Parcel D Development, LLC joint venture entities included in the table below are VIEs. The aggregate carrying value of the unconsolidated VIEs was $7.9 million and $3.2 million as of September 30, 2012 and December 31, 2011, respectively, and was classified as Investments in Real Estate Affiliates in the Condensed Consolidated Balance Sheet. Because these joint ventures are in the pre-development stage, there were no earnings for the three and nine months ended September 30, 2012. Our maximum exposure to loss as a result of these investments is limited to the aggregate carrying value of the investment as we have not provided any guarantees on behalf of these VIEs.

Below is a summary of our Investments in Real Estate Affiliates:

	Economic/ Legal Ownership				Carrying Value				Share of Earnings/Dividends
	September 30,		December 31,		September 30,		December 31,		Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011		2012		2011		2012			2011		2012		2011
	(In percentages)				(In thousands)				(In thousands)
The Woodlands (a)					$	—	$	—	$	—		$	—	$	—	$	3,727
Bridges at Mint Hill, LLC (b)	79.00	%	79.00	%	673		180		—			—		—		—
Circle T	50.00	%	50.00	%	9,004		9,004		—			—		—		—
Forest View Apartments (c) (d)	—		50.00	%	—		5,358		—			1		2		1
HHMK Development, LLC	50.00	%	50.00	%	947		—		—			—		—		—
KR Holdings, LLC	50.00	%	—		—		—		—			—		—		—
Millennium Waterway Apartments (e)	100.00	%	83.55	%	—		21,998		—			14		406		14
Millennium Woodlands Phase II, LLC	81.43	%	—		2,190		—		—			—		—		—
Parcel D Development, LLC	50.00	%	50.00	%	4,084		2,990		—			—		—		—
Stewart Title (c)	50.00	%	50.00	%	3,758		3,643		324			85		640		85
Timbermill Apartments (c) (d)	—		50.00	%	—		3,988		—			1		2		1
Woodlands Sarofim #1 (c)	20.00	%	20.00	%	2,462		2,456		(14		)	30		6		30
Other investments					300		—		—			—		—		—
					23,418		49,617		310			131		1,056		3,858
Cost basis investments (f)					12,744		12,978		—			35		2,376		3,929
Total					$	36,162	$	62,595	$	310		$	166	$	3,432	$	7,787

(a)As of July 1, 2011, The Woodlands is consolidated and no longer a Real Estate Affiliate (Refer to Note 4). Prior to July 1, 2011, we owned 52.5% economic interest in The Woodlands.

(b)Ownership percentage as of October 30, 2012 is 90.50%

(c)Equity investment consolidated into our financial statements as part of the acquisition of our partner’s economic interest in The Woodlands on July 1, 2011.

(d)On April 19, 2012, the joint ventures owning the Forest View and Timbermill Apartments completed their sale to a third party. Our share of the distributable cash, after repayment of debt and transaction expenses, was $8.6 million.

(e)On May 31, 2012, we acquired our partner’s interest for $6.9 million and consolidated this property.

(f)Includes dividends received from Summerlin Hospital Medical Center.

As of September 30, 2012, approximately $9.1 million of indebtedness was secured by the properties owned by our Real Estate Affiliates in which our share was approximately $2.5 million (KR Holdings, LLC - $1.0 million; Millennium Woodlands Phase II - $0.1 million; and Woodlands Sarofim #1 - $1.4 million) based upon our economic ownership. The debt is non-recourse to us.

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SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2012

SEGMENTS

Schedule of segment operating results

	Three Months Ended September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	40,218		$	—		$	40,218
Builder price participation	1,867			—			1,867
Minimum rents	130			—			130
Other land revenues	6,385			—			6,385
Other rental and property revenues	(7		)	—			(7		)
Total revenues	48,593			—			48,593
Cost of sales - land	21,439			—			21,439
Land sales operations	8,209			—			8,209
Land sales real estate and business taxes	1,751			—			1,751
Depreciation and amortization	64			—			64
Interest income	(49		)	—			(49		)
Interest expense (1)	(3,638		)	—			(3,638		)
Total expenses	27,776			—			27,776
MPC EBT	20,817			—			20,817
Operating Assets
Minimum rents	22,788			—			22,788
Tenant recoveries	6,030			—			6,030
Resort and conference center revenues	8,328			—			8,328
Other rental and property revenues	4,342			—			4,342
Total revenues	41,488			—			41,488
Rental property real estate taxes	2,934			—			2,934
Rental property maintenance costs	2,126			—			2,126
Resort and conference center operations	6,965			—			6,965
Other property operating costs	14,853			—			14,853
Provision for doubtful accounts	237			—			237
Depreciation and amortization	6,440			—			6,440
Interest income	(48		)	—			(48		)
Interest expense	4,313			—			4,313
Equity in Earnings from Real Estate Affiliates	—			(310		)	(310		)
Total expenses	37,820			(310		)	37,510
Operating Assets EBT	3,668			310			3,978
Strategic Developments
Minimum rents	217			—			217
Tenant recoveries	35			—			35
Other rental and property revenues	4,482			—			4,482
Total revenues	4,734			—			4,734
Condominium sales operations	(24		)	—			(24		)
Real estate taxes	640			—			640
Rental property maintenance costs	137			—			137
Other property operating costs	2,080			—			2,080
Provision for doubtful accounts	3			—			3
Depreciation and amortization	56			—			56
Interest expense	(193		)	—			(193		)
Total expenses	2,699			—			2,699
Strategic Developments EBT	2,035			—			2,035
REP EBT	$	26,520		$	310		$	26,830

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

	Three Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	34,152		—			$	34,152
Builder price participation	1,233			—			1,233
Minimum rents	122			—			122
Other land revenues	5,597			—			5,597
Total revenues	41,104			—			41,104
Cost of sales - land	27,033			—			27,033
Land sales operations	8,430			—			8,430
Land sales real estate and business taxes	2,059			—			2,059
Depreciation and amortization	23			—			23
Interest income	(70		)	—			(70		)
Interest expense (1)	(3,808		)	—			(3,808		)
Total expenses	33,667			—			33,667
MPC EBT	7,437			—			7,437
Operating Assets
Minimum rents	19,072			—			19,072
Tenant recoveries	5,387			—			5,387
Resort and conference center revenues	7,200			—			7,200
Other rental and property revenues	4,593			—			4,593
Total revenues	36,252			—			36,252
Rental property real estate taxes	2,829			—			2,829
Rental property maintenance costs	2,016			—			2,016
Resort and conference center operations	6,352			—			6,352
Other property operating costs	14,249			—			14,249
Recovery of doubtful accounts	(136		)	—			(136		)
Depreciation and amortization	6,961			—			6,961
Interest income	(46		)	—			(46		)
Interest expense	4,050			—			4,050
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates	—			(166		)	(166		)
Total expenses	47,580			(166		)	47,414
Operating Assets EBT	(11,328		)	166			(11,162		)
Strategic Developments
Minimum rents	209			—			209
Tenant recoveries	11			—			11
Condominium unit sales	9,071			—			9,071
Other land revenues	(60		)	—			(60		)
Other rental and property revenues	86			—			86
Total revenues	9,317			—			9,317
Condominium unit cost of sales	5,470			—			5,470
Condominium sales operations	245			—			245
Real estate taxes	(819		)	—			(819		)
Rental property maintenance costs	139			—			139
Other property operating costs	712			—			712
Recovery of doubtful accounts	(5		)	—			(5		)
Depreciation and amortization	59			—			59
Interest expense	149			—			149
Total expenses	5,950			—			5,950
Strategic Developments EBT	3,367			—			3,367
REP EBT	$	(524	)	$	166		$	(358	)

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

	Nine Months Ended September 30, 2012
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	120,235		—			$	120,235
Builder price participation	4,208			—			4,208
Minimum rents	384			—			384
Other land revenues	13,401			—			13,401
Other rental and property revenues	28			—			28
Total revenues	138,256			—			138,256
Cost of sales - land	63,096			—			63,096
Land sales operations	25,382			—			25,382
Land sales real estate and business taxes	5,533			—			5,533
Depreciation and amortization	67			—			67
Interest income	(179		)	—			(179		)
Interest expense (1)	(10,709		)	—			(10,709		)
Total expenses	83,190			—			83,190
MPC EBT	55,066			—			55,066
Operating Assets
Minimum rents	61,532			—			61,532
Tenant recoveries	17,817			—			17,817
Resort and conference center revenues	29,954			—			29,954
Other rental and property revenues	15,307			—			15,307
Total revenues	124,610			—			124,610
Rental property real estate taxes	8,160			—			8,160
Rental property maintenance costs	5,851			—			5,851
Resort and conference center operations	21,750			—			21,750
Other property operating costs	43,274			—			43,274
Provision for doubtful accounts	386			—			386
Depreciation and amortization	16,969			—			16,969
Interest income	(134		)	—			(134		)
Interest expense	11,373			—			11,373
Equity in Earnings from Real Estate Affiliates (2)	—			(3,432		)	(3,432		)
Total expenses	107,629			(3,432		)	104,197
Operating Assets EBT	16,981			3,432			20,413
Strategic Developments
Minimum rents	693			—			693
Tenant recoveries	115			—			115
Condominium unit sales	267			—			267
Other land revenues	32			—			32
Other rental and property revenues	4,544			—			4,544
Total revenues	5,651			—			5,651
Condominium unit cost of sales	96			—			96
Condominium sales operations	47			—			47
Real estate taxes	2,423			—			2,423
Rental property maintenance costs	453			—			453
Other property operating costs	3,032			—			3,032
Recovery of doubtful accounts	(101		)	—			(101		)
Depreciation and amortization	173			—			173
Interest expense	61			—			61
Total expenses	6,184			—			6,184
Strategic Developments EBT	(533		)	—			(533		)
REP EBT	$	71,514		$	3,432		$	74,946

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $2.4 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

	Nine Months Ended September 30, 2011
	Consolidated Properties			Real Estate Affiliates			Segment Basis
	(In thousands)
Master Planned Communities
Land sales	$	75,692		46,773			$	122,465
Builder price participation	2,351			1,108			3,459
Minimum rents	739			14			753
Other land revenues	9,093			3,924			13,017
Total revenues	87,875			51,819			139,694
Cost of sales - land	51,907			23,932			75,839
Land sales operations	16,343			8,439			24,782
Land sales real estate and business taxes	5,110			899			6,009
Depreciation and amortization	23			46			69
Interest income	(70		)	(364		)	(434		)
Interest expense (1)	(8,936		)	(2,370		)	(11,306		)
Total expenses	64,377			30,582			94,959
Venture partner share of The Woodlands EBT				(10,088		)	(10,088		)
MPC EBT	23,498			11,149			34,647
Operating Assets
Minimum rents	51,701			2,803			54,504
Tenant recoveries	14,391			1,061			15,452
Resort and conference center revenues	7,200			19,106			26,306
Other rental and property revenues	8,034			6,992			15,026
Total revenues	81,326			29,962			111,288
Rental property real estate taxes	7,167			972			8,139
Rental property maintenance costs	4,807			477			5,284
Resort and conference center operations	6,352			13,904			20,256
Other property operating costs	31,716			9,060			40,776
Provision for (recovery of) doubtful accounts	317			(9		)	308
Depreciation and amortization	13,200			3,968			17,168
Interest income	(79		)	(2		)	(81		)
Interest expense	9,143			2,316			11,459
Early extinguishment of debt	11,305			—			11,305
Equity in Earnings from Real Estate Affiliates (2)	—			(3,139		)	(3,139		)
Total expenses	83,928			27,547			111,475
Venture partner share of The Woodlands EBT				(1,067		)	(1,067		)
Operating Assets EBT	(2,602		)	1,348			(1,254		)
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
Other land revenue	—			—			—
Total revenues	21,395			—			21,395
Condominium unit cost of sales	13,722			—			13,722
Condominium sales operations	860			—			860
Real estate taxes	626			—			626
Rental property maintenance costs	471			—			471
Other property operating costs	2,697			—			2,697
Recovery of doubtful accounts	(143		)	—			(143		)
Provision for impairment	—			—			—
Depreciation and amortization	176			—			176
Interest expense	154			—			154
Total expenses	18,563			—			18,563
Strategic Developments EBT	2,832			—			2,832
REP EBT	$	23,728		$	12,497		$	36,225

(1) Negative interest expense relates to interest capitalized on debt assigned to our Operating Assets Segment.

(2) Includes the $3.9 million cash distribution from Summerlin Hospital Medical Center which is a Real Estate Affiliate accounted for using the cost method as described above.

Schedule of reconciliation of REP EBT to GAAP-basis income (loss)

Reconciliation of REP EBT to GAAP-net	Three Months Ended September 30,						Nine Months Ended September 30,
income (loss)	2012			2011			2012			2011
	(In thousands)						(In thousands)
Real estate property EBT:
Segment basis	$	26,830		$	(358	)	$	74,946		$	36,225
Real Estate Affiliates	(310		)	(166		)	(3,432		)	(12,497		)
	26,520			(524		)	71,514			23,728
General and administrative	(9,339		)	(8,673		)	(25,896		)	(21,156		)
Corporate interest income	2,315			2,616			6,814			7,309
Warrant liability gain (loss)	(64,303		)	169,897			(162,724		)	100,762
Benefit (provision) for income taxes	(2,618		)	7,760			(7,703		)	4,344
Reduction in tax indemnity receivable	(2,873		)	—			(11,655		)	—
Equity in earnings from Real Estate Affiliates	310			166			3,432			7,787
Investment in Real Estate Affiliate basis adjustment	—			(6,053		)	—			(6,053		)
Corporate depreciation	(204		)	(165		)	(506		)	(193		)
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528

Schedule of reconciliation of segment revenue to GAAP-basis consolidated and combined revenues

Reconciliation of Segment Basis Revenues to	Three Months Ended September 30,				Nine Months Ended September 30,
GAAP Revenues	2012		2011		2012		2011
	(In thousands)				(In thousands)
Master Planned Communities - Total Segment	$	48,593	$	41,104	$	138,256	$	139,694
Operating Assets - Total Segment	41,488		36,252		124,610		111,288
Strategic Developments - Total Segment	4,734		9,317		5,651		21,395
Total Segment revenues	94,815		86,673		268,517		272,377
Less: The Woodlands Partnerships revenues	—		—		—		(81,781		)
Total revenues - GAAP basis	$	94,815	$	86,673	$	268,517	$	190,596

Summary of assets by segment and the reconciliation of total segment assets to the total assets in the consolidated balance sheet

	September 30,		December 31,
	2012		2011
	(In thousands)
Master Planned Communities	$	1,787,034	$	1,778,515
Operating Assets	950,665		869,186
Strategic Developments	217,217		189,807
Total segment assets	2,954,916		2,837,508
Corporate and other	569,154		557,641
Total assets	$	3,524,070	$	3,395,149

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INCOME TAXES (Details) (USD $)	3 Months Ended	9 Months Ended			9 Months Ended				9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Dec. 31, 2011	May 06, 2011 subsidiary	Sep. 30, 2012 GGP	Dec. 31, 2011 GGP	Oct. 20, 2011 GGP subsidiary	May 06, 2011 GGP	Sep. 30, 2012 GGP Maximum
Income taxes
Percentage of certain taxes indemnified by related party					93.75%
Amount of certain taxes indemnified by related party									$ 303,800,000
Amount of interest income receivable on the Tax Indemnity receivable					34,000,000	28,000,000
Amount of combined deficiencies determined by the IRS sought to be overturned by the petition filed								144,100,000
Number of former taxable REIT subsidiaries subject to litigation for which motion is filed to consolidate cases				2			2
Reduction in tax indemnity receivable	2,873,000	11,655,000
Unrecognized tax benefits, excluding interest	101,000,000	101,000,000	101,400,000
Accrued interest related to unrecognized tax benefits	34,500,000	34,500,000	28,500,000
Increase in interest expense related to unrecognized tax benefits	$ 2,100,000	$ 6,000,000

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OTHER ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2012

OTHER ASSETS AND LIABILITIES

OTHER ASSETS AND LIABILITIES

NOTE 12OTHER ASSETS AND LIABILITIES

Prepaid Expenses and Other Assets

The following table summarizes the significant components of prepaid expenses and other assets.

	September 30,		December 31,
	2012		2011
	(In thousands)
Special Improvement District receivable	$	41,402	$	40,580
Other receivables	2,818		4,181
Federal income tax receivable	5,401		5,393
Prepaid expenses	7,209		6,507
Below-market ground leases	20,426		20,680
Security and escrow deposits	12,944		17,266
Above-market tenant leases	1,042		1,014
Uncertain tax position asset	12,070		11,935
In-place leases	13,713		11,865
Intangibles	3,714		3,074
Other	4,013		4,661
	$	124,752	$	127,156

Accounts Payable and Accrued Expenses

The following table summarizes the significant components of accounts payable and accrued expenses.

	September 30,		December 31,
	2012		2011
	(In thousands)
Construction payable	$	11,470	$	8,923
Accounts payable and accrued expenses	38,998		45,078
Membership deposits	19,091		16,033
Above-market ground leases	2,629		2,748
Deferred gains/income	8,112		5,739
Accrued interest	2,218		2,747
Accrued real estate taxes	8,916		3,439
Tenant and other deposits	7,882		5,966
Insurance reserve	6,015		4,728
Accrued payroll and other employee liabilities	10,205		9,658
Interest rate swaps	7,724		4,367
Other	13,500		15,978
	$	136,760	$	125,404

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2012

EARNINGS PER SHARE

Summary of information related to EPS calculations

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In thousands, except per share amounts)
Basic EPS:
Numerator:
Net income (loss)	$	(50,192	)	$	165,024		$	(126,724	)	$	116,528
Net income (loss) attributable to noncontrolling interests	781			(729		)	(637		)	(777		)
Net income (loss) attributable to common stockholders	$	(49,411	)	$	164,295		$	(127,361	)	$	115,751
Denominator:
Weighted average basic common shares outstanding	37,916			37,912			37,909			37,907
Diluted EPS:
Numerator:
Net income (loss) attributable to common stockholders	$	(49,411	)	$	164,295		$	(127,361	)	$	115,751
Less: Warrant liability gain	—			(169,897		)	—			(100,762		)
Adjusted net income (loss) available to common stockholders	$	(49,411	)	$	(5,602	)	$	(127,361	)	$	14,989
Denominator:
Weighted average basic common shares outstanding	37,916			37,912			37,909			37,907
Restricted stock and stock options	—			—			—			5
Warrants	—			843			—			1,585
Weighted average diluted common shares oustanding	37,916			38,755			37,909			39,497
Basic earnings (loss) per share:	$	(1.30	)	$	4.33		$	(3.36	)	$	3.05
Diluted earnings (loss) per share:	$	(1.30	)	$	(0.14	)	$	(3.36	)	$	0.38

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Details 2) (Derivatives designated as hedging instruments, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair value of derivative instruments
Derivative liabilities	$ 7,724	$ 4,367
Interest Rate Swaps
Fair value of derivative instruments
Derivative liabilities	$ 7,724	$ 4,367

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ACQUISITIONS AND DISPOSITIONS (Details 2) (Site in Pocatello, Idaho (Alameda Plaza), USD $) In Millions, unless otherwise specified	1 Months Ended
	Jul. 31, 2012 sqft Acres
Site in Pocatello, Idaho (Alameda Plaza)
Income Statement Balance Sheet and Additional Disclosures by Disposal Groups Including Discontinued Operations
Area of site sold (in acres)	11.5
Area of vacant retail space sold (in square feet)	104,705
Proceeds from sale of vacant retail space	$ 4.5
Net earnings recognized on the sale	$ 2.0

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2012		Sep. 30, 2011		Sep. 30, 2012		Sep. 30, 2011
Comprehensive income (loss), net of tax:
Net income (loss)	$ (50,192)		$ 165,024		$ (126,724)		$ 116,528
Other comprehensive income (loss):
Interest rate swaps	(954)	[1]	(2,024)	[1]	(3,115)	[1]	(2,772)	[1]
Capitalized swap interest	(328)	[2]			(897)	[2]
Other comprehensive loss	(1,282)		(2,024)		(4,012)		(2,772)
Comprehensive income (loss)	(51,474)		163,000		(130,736)		113,756
Comprehensive income (loss) attributable to noncontrolling interests	781		(729)		(637)		(777)
Comprehensive income (loss) attributable to common stockholders	$ (50,693)		$ 162,271		$ (131,373)		$ 112,979

[1] Net of deferred taxes of $1.1 million during both the three and nine months ended September 30, 2011. Net of deferred taxes of $ 0.1 million and $ 0.2 million during the three and nine months ended September 30, 2012, respectively.

[2] Net of deferred taxes of $ 0.2 million and $0.5 million during the three and nine months ended September 30, 2012, respectively.

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BASIS OF PRESENTATION AND ORGANIZATION

9 Months Ended

Sep. 30, 2012

BASIS OF PRESENTATION AND ORGANIZATION

BASIS OF PRESENTATION AND ORGANIZATION

NOTE 1        BASIS OF PRESENTATION AND ORGANIZATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as issued by the Securities Exchange Commission (the “SEC”). Such condensed consolidated financial statements do not include all of the information and disclosures required by GAAP for complete financial statements. In addition, readers of this Quarterly Report on Form 10-Q (“Quarterly Report”) should refer to The Howard Hughes Corporation’s (“HHC” or the “Company”) audited Consolidated Financial Statements for the year ended December 31, 2011 which are included in the Company’s Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2011. 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. We have made certain reclassifications in 2011 to conform to the 2012 presentation. In 2011, we reclassified $4.7 million of deferred income taxes from accounts payable and accrued expenses on the Condensed Consolidated Statements of Cash Flows to conform to the 2012 presentation. We reclassified certain salaries and overhead costs relating to land development activities for The Woodlands from general and administrative expenses to Master Planned Community operations of $1.5 million and $4.0 million related to the three and nine months ended September 30, 2011, respectively. In addition, we reclassified operating costs related to the Columbia office properties from general and administrative expenses to other property costs. The results for the interim period ended September 30, 2012 and 2011 are not necessarily indicative of the results to be expected for the full fiscal year.

As more fully described in Note 4, on July 1, 2011, we acquired our partner’s 47.5% economic interest in The Woodlands not previously owned by us. As a result of this acquisition, beginning on July 1, 2011, we consolidated the financial results of The Woodlands which were previously accounted for under the equity method. Our condensed consolidated statements of operations and cash flows for the nine months ended September 30, 2012 are not comparable to the same period in 2011 due to the consolidation of The Woodlands.

Management has evaluated all material events occurring subsequent to the date of the condensed consolidated financial statements up to the date and time this Quarterly Report is filed.

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SEGMENTS (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segments reporting
Land sales	$ 40,218	$ 34,152	$ 120,235	$ 75,692
Builder price participation	1,867	1,233	4,208	2,351
Minimum rents	23,135	19,403	62,609	53,098
Tenant recoveries	6,065	5,398	17,932	14,537
Condominium unit sales		9,071	267	19,495
Other land revenues	6,385	5,537	13,433	9,093
Resort and conference center revenues	8,328	7,200	29,954	7,200
Other rental and property revenues	8,817	4,679	19,879	9,130
Total revenues	94,815	86,673	268,517	190,596
Cost of sales - land	21,439	27,033	63,096	51,907
Condominium unit cost of sales		5,470	96	13,722
Master Planned Community operations	9,936	10,734	30,962	22,313
Rental property real estate taxes	3,574	2,010	10,583	7,793
Rental property maintenance costs	2,263	2,155	6,304	5,278
Resort and conference center operations	6,965	6,352	21,750	6,352
Other property operating costs	16,933	14,961	46,306	34,413
Provision for (recovery of) doubtful accounts	240	(141)	285	174
Depreciation and amortization	6,764	7,208	17,715	13,592
Interest income	(2,375)	(2,341)	(7,048)	(7,097)
Interest expense	445		646
Early extinguishment of debt		11,305		11,305
Equity in Earnings from Real Estate Affiliates	(310)	(166)	(3,432)	(7,787)
Segment Basis
Segments reporting
REP EBT	26,830	(358)	74,946	36,225
Segment Basis | Master Planned Communities
Segments reporting
Land sales	40,218	34,152	120,235	122,465
Builder price participation	1,867	1,233	4,208	3,459
Minimum rents	130	122	384	753
Other land revenues	6,385	5,597	13,401	13,017
Other rental and property revenues	(7)		28
Total revenues	48,593	41,104	138,256	139,694
Cost of sales - land	21,439	27,033	63,096	75,839
Land sales operations	8,209	8,430	25,382	24,782
Land sales real estate and business taxes	1,751	2,059	5,533	6,009
Depreciation and amortization	64	23	67	69
Interest income	(49)	(70)	(179)	(434)
Interest expense	(3,638)	(3,808)	(10,709)	(11,306)
Total expenses	27,776	33,667	83,190	94,959
Venture partner share of The Woodlands EBT				(10,088)
REP EBT	20,817	7,437	55,066	34,647
Segment Basis | Operating Assets
Segments reporting
Minimum rents	22,788	19,072	61,532	54,504
Tenant recoveries	6,030	5,387	17,817	15,452
Resort and conference center revenues	8,328	7,200	29,954	26,306
Other rental and property revenues	4,342	4,593	15,307	15,026
Total revenues	41,488	36,252	124,610	111,288
Rental property real estate taxes	2,934	2,829	8,160	8,139
Rental property maintenance costs	2,126	2,016	5,851	5,284
Resort and conference center operations	6,965	6,352	21,750	20,256
Other property operating costs	14,853	14,249	43,274	40,776
Provision for (recovery of) doubtful accounts	237	(136)	386	308
Depreciation and amortization	6,440	6,961	16,969	17,168
Interest income	(48)	(46)	(134)	(81)
Interest expense	4,313	4,050	11,373	11,459
Early extinguishment of debt		11,305		11,305
Equity in Earnings from Real Estate Affiliates	(310)	(166)	(3,432)	(3,139)
Total expenses	37,510	47,414	104,197	111,475
Venture partner share of The Woodlands EBT				(1,067)
REP EBT	3,978	(11,162)	20,413	(1,254)
Segment Basis | Strategic Developments
Segments reporting
Minimum rents	217	209	693	658
Tenant recoveries	35	11	115	146
Condominium unit sales		9,071	267	19,495
Other land revenues		(60)	32
Other rental and property revenues	4,482	86	4,544	1,096
Total revenues	4,734	9,317	5,651	21,395
Condominium unit cost of sales		5,470	96	13,722
Condominium sales operations	(24)	245	47	860
Rental property real estate taxes	640	(819)	2,423	626
Rental property maintenance costs	137	139	453	471
Other property operating costs	2,080	712	3,032	2,697
Provision for (recovery of) doubtful accounts	3	(5)	(101)	(143)
Depreciation and amortization	56	59	173	176
Interest expense	(193)	149	61	154
Total expenses	2,699	5,950	6,184	18,563
REP EBT	2,035	3,367	(533)	2,832
Consolidated Properties
Segments reporting
REP EBT	26,520	(524)	71,514	23,728
Consolidated Properties | Master Planned Communities
Segments reporting
Land sales	40,218	34,152	120,235	75,692
Builder price participation	1,867	1,233	4,208	2,351
Minimum rents	130	122	384	739
Other land revenues	6,385	5,597	13,401	9,093
Other rental and property revenues	(7)		28
Total revenues	48,593	41,104	138,256	87,875
Cost of sales - land	21,439	27,033	63,096	51,907
Land sales operations	8,209	8,430	25,382	16,343
Land sales real estate and business taxes	1,751	2,059	5,533	5,110
Depreciation and amortization	64	23	67	23
Interest income	(49)	(70)	(179)	(70)
Interest expense	(3,638)	(3,808)	(10,709)	(8,936)
Total expenses	27,776	33,667	83,190	64,377
REP EBT	20,817	7,437	55,066	23,498
Consolidated Properties | Operating Assets
Segments reporting
Minimum rents	22,788	19,072	61,532	51,701
Tenant recoveries	6,030	5,387	17,817	14,391
Resort and conference center revenues	8,328	7,200	29,954	7,200
Other rental and property revenues	4,342	4,593	15,307	8,034
Total revenues	41,488	36,252	124,610	81,326
Rental property real estate taxes	2,934	2,829	8,160	7,167
Rental property maintenance costs	2,126	2,016	5,851	4,807
Resort and conference center operations	6,965	6,352	21,750	6,352
Other property operating costs	14,853	14,249	43,274	31,716
Provision for (recovery of) doubtful accounts	237	(136)	386	317
Depreciation and amortization	6,440	6,961	16,969	13,200
Interest income	(48)	(46)	(134)	(79)
Interest expense	4,313	4,050	11,373	9,143
Early extinguishment of debt		11,305		11,305
Total expenses	37,820	47,580	107,629	83,928
REP EBT	3,668	(11,328)	16,981	(2,602)
Consolidated Properties | Strategic Developments
Segments reporting
Minimum rents	217	209	693	658
Tenant recoveries	35	11	115	146
Condominium unit sales		9,071	267	19,495
Other land revenues		(60)	32
Other rental and property revenues	4,482	86	4,544	1,096
Total revenues	4,734	9,317	5,651	21,395
Condominium unit cost of sales		5,470	96	13,722
Condominium sales operations	(24)	245	47	860
Rental property real estate taxes	640	(819)	2,423	626
Rental property maintenance costs	137	139	453	471
Other property operating costs	2,080	712	3,032	2,697
Provision for (recovery of) doubtful accounts	3	(5)	(101)	(143)
Depreciation and amortization	56	59	173	176
Interest expense	(193)	149	61	154
Total expenses	2,699	5,950	6,184	18,563
REP EBT	2,035	3,367	(533)	2,832
Real Estate Affiliates
Segments reporting
REP EBT	310	166	3,432	12,497
Real Estate Affiliates | Master Planned Communities
Segments reporting
Land sales				46,773
Builder price participation				1,108
Minimum rents				14
Other land revenues				3,924
Total revenues				51,819
Cost of sales - land				23,932
Land sales operations				8,439
Land sales real estate and business taxes				899
Depreciation and amortization				46
Interest income				(364)
Interest expense				(2,370)
Total expenses				30,582
Venture partner share of The Woodlands EBT				(10,088)
REP EBT				11,149
Real Estate Affiliates | Operating Assets
Segments reporting
Minimum rents				2,803
Tenant recoveries				1,061
Resort and conference center revenues				19,106
Other rental and property revenues				6,992
Total revenues				29,962
Rental property real estate taxes				972
Rental property maintenance costs				477
Resort and conference center operations				13,904
Other property operating costs				9,060
Provision for (recovery of) doubtful accounts				(9)
Depreciation and amortization				3,968
Interest income				(2)
Interest expense				2,316
Equity in Earnings from Real Estate Affiliates	(310)	(166)	(3,432)	(3,139)
Total expenses	(310)	(166)	(3,432)	27,547
Venture partner share of The Woodlands EBT				(1,067)
REP EBT	$ 310	$ 166	$ 3,432	$ 1,348

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ACQUISITIONS AND DISPOSITIONS (Tables)

9 Months Ended

Sep. 30, 2012

ACQUISITIONS AND DISPOSITIONS

Schedule of pro forma information

	Nine Months Ended September 30, 2011
	(In thousands)
Total revenues	$	276,240
Net income (loss) attributable to common shareholders	112,393

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EARNINGS PER SHARE (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic EPS, Numerator:
Net income (loss)	$ (50,192)	$ 165,024	$ (126,724)	$ 116,528
Net income (loss) attributable to noncontrolling interests	781	(729)	(637)	(777)
Net income (loss) attributable to common stockholders	(49,411)	164,295	(127,361)	115,751
Denominator:
Weighted average basic common shares outstanding	37,916	37,912	37,909	37,907
Diluted EPS, Numerator:
Net income (loss) attributable to common stockholders	(49,411)	164,295	(127,361)	115,751
Less: Warrant liability gain		(169,897)		(100,762)
Adjusted net income (loss) available to common stockholders	$ (49,411)	$ (5,602)	$ (127,361)	$ 14,989
Denominator:
Weighted average basic common shares outstanding	37,916	37,912	37,909	37,907
Restricted stock and stock options (in shares)				5
Warrants (in shares)		843		1,585
Weighted average diluted common shares outstanding	37,916	38,755	37,909	39,497
Basic income (loss) per share: (in dollars per share)	$ (1.30)	$ 4.33	$ (3.36)	$ 3.05
Diluted income (loss) per share: (in dollars per share)	$ (1.30)	$ (0.14)	$ (3.36)	$ 0.38

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STOCK-BASED PLANS

9 Months Ended

Sep. 30, 2012

STOCK-BASED PLANS

STOCK-BASED PLANS

NOTE 11STOCK-BASED PLANS

Stock Options

Our stock based plans are described, and informational disclosures provided, in the notes to the Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2011. The following table summarizes our stock option plan activity for the nine months ended September 30, 2012:

	Stock Options		Weighted Average Exercise Price
Stock Options Outstanding at December 31, 2011	712,640		$	57.72
Granted	165,000		63.38
Forfeited	(36,200	)	58.56
Stock Options Outstanding at September 30, 2012	841,440		$	58.79

Options granted vest ratably over five years, expire ten years after the grant date and generally do not become exercisable until 2017 due to their restriction on exercise until after the five-year anniversary of grant date.

Restricted Stock

During the second quarter of 2012, we granted 14,900 shares of restricted stock shares at a share price of $67.11. The restrictions on the shares generally lapse in 2017. In addition, shares of restricted stock shares totaling 13,033 at a share price of $60.15 were awarded to certain non-employee directors as part of an annual retainer for their services during the second quarter of 2012. Likewise, 8,953 of restricted stock shares at a share price $65.04 were awarded during the second quarter of 2011. The restrictions on the shares granted in 2011 have lapsed and the restrictions on the shares granted in 2012 will generally lapse in the second quarter of 2013. As of September 30, 2012, there were 57,933 shares of restricted stock outstanding.