Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIGICANT ACCOUNTING POLICIES

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination and Basis of Presentation

The accompanying financial statements for the year ended December 31, 2011 and the balance sheet as of December 31, 2010 reflects the consolidation of the HHC Businesses with HHC, as of such date, with all intercompany balances and transactions between the HHC Businesses eliminated. The accompanying combined financial statements for the periods prior to the Separation have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) on a carve-out basis from the consolidated financial statements of GGP using the historical results of operations and basis of the assets and liabilities of the transferred businesses and including allocations from GGP. This presentation incorporates the same principles used when preparing consolidated financial statements, including elimination of intercompany transactions. The presentation also includes the accounts of the HHC Businesses in which we have a controlling interest. The noncontrolling equity holders’ share of the assets, liabilities and operations are reflected in noncontrolling interests within permanent equity. All intercompany balances and transactions between the HHC Businesses have been eliminated. Accordingly, the statements of income (loss) and comprehensive income (loss), equity and cash flows presented for the year ended December 31, 2010 reflect the aggregate of operations, changes in cash flows and equity on a carved-out basis for the period from January 1, 2010 through November 9, 2010 and on a consolidated basis for the period from November 10, 2010 through December 31, 2010.

We were formed for the purpose of receiving, via a tax-free distribution, certain assets and assuming certain liabilities of our predecessors pursuant to the Plan. We conducted no business and had no separate material assets or liabilities until the Separation was consummated. No previous historical financial statements for the HHC Businesses have been prepared and, accordingly, our combined financial statements for periods prior to November 9, 2010 are derived from the books and records of GGP and were carved-out from GGP at a carrying value reflective of the historical cost in GGP records. Our historical financial results reflect allocations for certain corporate expenses which include, but are not limited to, costs related to property management, human resources, security, payroll and benefits, legal, corporate communications, information services and restructuring and reorganizations. Costs of the services, which were approximately $8.4 million and $9.9 million for 2010 and 2009, respectively that were allocated or charged to us were based on either actual costs incurred or a proportion of costs estimated to be applicable to us based on a number of factors, most significantly our percentage of GGP’s adjusted revenue and assets and the number of properties. We believe these allocations are reasonable; however, these results do not reflect what our expenses would have been had we been operating as a separate, stand-alone public company. In addition, the HHC Businesses were operated as subsidiaries of GGP, which operates as a real estate investment trust (“REIT”). We operate as a taxable corporation. The carved out combined financial information included in the 2010 and the 2009 financial statements are not indicative of the results of operations, financial position or cash flows that would have been obtained if we had been an independent, stand-alone entity during the periods shown or of our future performance as an independent, stand-alone entity.

On July 1, 2011, we acquired our partner’s economic interest in TWCPC Holdings, L.P., (“The Woodlands Commercial”), The Woodlands Operating Company, L.P. (“The Woodlands Operating”) and The Woodlands Land Development Company, L.P. (“The Woodlands MPC”, and together with The Woodlands Commercial and The Woodlands Operating, “The Woodlands”), located near Houston, Texas. As a result of the acquisition, we now consolidate The Woodlands’ operations in our consolidated financial statements. Prior to such acquisition, we accounted for The Woodlands using the equity method.

In 2011, certain amounts in the December 31, 2010 consolidated balance sheet were reclassified to conform to the current period presentation. We reclassified our Municpial Utility Districts receivables of $28.1 million to a separate line item from prepaid expenses and other assets. We also reclassed the cost of in-place leases of $6.1 million from buildings and equipment as well as the related in-place lease accumulated amortization of $4.5 million from accumulated depreciation to prepaid expenses and other assets.

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

Investment in Real Estate

Real estate assets are stated at cost less any provisions for impairments. Construction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties are capitalized. Real estate taxes and interest costs incurred during development and construction periods are also capitalized. Capitalized interest costs are based on qualified expenditures and interest rates in place during the construction period.

Pre-development costs, that generally include legal and professional fees and other directly-related third-party costs associated with specific development properties, are capitalized as part of the property being developed. In the event that management no longer has the ability or intent to complete a development, the costs previously capitalized are expensed (see also our impairment policies below).

Tenant improvements relating to our operating assets, either paid directly or in the form of construction allowances paid to tenants, are capitalized and depreciated over the shorter of their economic lives or the lease term. Maintenance and repairs are charged to expense when incurred. Expenditures for significant improvements are capitalized.

Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives:

Asset Type	Years
Buildings and improvements		40-45
Equipment, tenant improvements and fixtures		5-10

Acquisitions of Properties

We account for business combinations in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business combination. Our consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition. On July 1, 2011, we completed the acquisition of The Woodlands (See Note 3).

Investments in Real Estate Affiliates

We account for investments in joint ventures where we own a non-controlling participating interest 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. Under the equity method, the cost of our investment is adjusted for our share of the equity in earnings (losses) of such Real Estate Affiliates from the date of acquisition and reduced by distributions received. 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. We generally also share in the profit and losses, cash flows and other matters relating to our Real Estate Affiliates in accordance with our respective ownership percentages. Differences between the carrying amount of our investment in the Real Estate Affiliates and our share of the underlying equity of such Real Estate Affiliates are amortized over lives ranging from five to forty-five years. For cost method investments, we recognize earnings to the extent of distributions received from such investments.

Impairment

The generally accepted accounting principles related to accounting for the impairment or disposal of long-lived assets require that if impairment indicators exist and the undiscounted cash flows expected to be generated by an asset 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. We review our real estate assets (including those held by our Real Estate Affiliates) for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Impairment indicators for our assets, regions or projects within our Master Planned Communities segment are assessed separately and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs or cancellation rates, and projected losses on expected future sales. Master Planned Community assets have extended life cycles that may last 20 to 40 years and have few long-term contractual cash flows. Further for sale portions of master planned community assets generally have minimal to no residual values because of their liquidating characteristics. Master planned community development periods often occur through several economic cycles. Subjective factors such as the expected timing of property development and sales, optimal development density and sales strategy impact the timing and amount of expected future cash flows and fair value.

Impairment indicators for our Operating Assets segment are assessed separately for each property and include, but are not limited to, significant decreases in net operating income, significant decreases in occupancy or low occupancy and significant net operating losses.

Impairment indicators for our Strategic Developments segment are assessed separately for each property and include, but are not limited to, significant decreases in comparable property sale prices.

Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development, and developments in progress are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, development costs, market factors and sustainability of development projects.

If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cash flow. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, pricing, development costs, sales pace and capitalization rates, and estimated holding periods for the applicable assets. Although the estimated fair value of certain assets may be exceeded by the carrying amount, a real estate asset is only considered to be impaired when its carrying amount is not expected to be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary, the excess of the carrying amount of the asset over its estimated fair value is expensed to operations. In addition, the impairment provision is allocated proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset or, for Master Planned Communities, is expensed as a cost of sales when land is sold. Assets that have been impaired will in the future have lower depreciation and cost of sale expenses, but the impairment will have no impact on cash flow.

With respect to our investment in the Real Estate Affiliates, a series of operating losses of an asset or other factors may indicate that a decrease in value has occurred which is other-than-temporary. The 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. Accordingly, in addition to the property-specific impairment analysis that we perform on the investment properties, land held for development and sale and developments in progress owned by such joint ventures (as part of our investment property impairment process described above), we also considered the ownership and distribution preferences and limitations and rights to sell and repurchase our ownership interests.

Cash and Cash Equivalents

Highly-liquid investments with maturities at dates of purchase of three months or less are classified as cash equivalents.

Notes Receivable

Notes receivable includes amounts due from builders for previous sold lots, primarily at our Maryland master planned community and a note from GGP received at the Effective Date in connection with the Plan. This GGP note, also known as the Arizona II lease, has a balance of $25.2 million as of December 31, 2011. The GGP note carries an interest rate of 4.41%, and cash payments under the note are approximately $6.9 million per year through the end of 2015.

Deferred Expenses

Deferred expenses consist principally of financing fees and leasing costs and commissions. Deferred financing fees are amortized to interest expense using the effective interest method (or other methods which approximate the effective interest method) over the terms of the respective financing agreements. Deferred leasing costs and commissions are amortized using the straight-line method over periods that approximate the related lease terms. Deferred expenses in our consolidated balance sheets are shown at cost, net of accumulated amortization, of $5.7 million as of December 31, 2011 and $6.6 million as of December 31, 2010.

Sponsor and Management Warrants

On the Effective Date, we issued warrants to purchase 8.0 million shares of our common stock to certain of the sponsors of the Plan (the “Sponsors Warrants”) with an estimated initial value of approximately $69.5 million. The initial exercise price for the warrants of $50.00 per share is subject to adjustment for future stock dividends, splits or reverse splits of our common stock or certain other events. Approximately 6.1 million warrants are currently exercisable without restriction 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 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 $102.6 million fair value for the Sponsors Warrants and estimated $25.2 million fair value for the Management Warrants as of December 31, 2011, have been recorded as a liability because the holders of these warrants could require HHC to settle such warrants in cash upon a change of control. The fair values were estimated using an option pricing model and level 3 inputs due to the unavailability of comparable market data. Changes in the fair value of the Sponsors Warrants and the Management Warrants are recognized in earnings and, accordingly, warrant liability gains reflecting decreases in value of approximately $101.6 million were recognized for the year ended December 31, 2011.

Revenue Recognition and Related Matters

Rental Revenue

Operating property revenue consists of minimum rent, percentage rent in lieu of fixed minimum rent, overage rent and tenant recoveries.

Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases and include base minimum rent and percentage rent in lieu of fixed minimum rent. Percentage rent in lieu of fixed minimum rent recognized from tenants for the years ended December 31, 2011, 2010 and 2009 was $3.9 million, $3.9 million and $3.0 million, respectively, and is included in minimum rents in our financial statements. Minimum rent revenues also include amortization related to above and below-market tenant leases on acquired properties.

Straight-line rent receivables, which represent the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases, of $3.3 million as of December 31, 2011 and $2.0 million as of December 31, 2010, are included in Accounts receivable, net in our financial statements.

Overage rent is recognized on an accrual basis once tenant sales exceed contractual thresholds contained in the lease and is calculated by multiplying the tenant sales in excess of the minimum amount by a percentage defined in the lease. Overage rent of approximately $3.0 million, $3.4 million, and $2.7 million for 2011, 2010 and 2009, respectively is included in other rental and property revenues.

Recoveries from tenants are stipulated in the leases and are generally computed based upon a formula related to real estate taxes, insurance and other real estate operating expenses and are generally recognized as revenues in the period the related costs are incurred.

We provide an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible. Such allowances are reviewed periodically based on our recovery experience. This analysis considers the long-term nature of our leases, as a certain portion of the straight-line rent currently recognizable will not be billed to the tenant until future periods. Our experience relative to unbilled deferred rent receivable is that a certain portion of the amounts recorded as straight-line rental revenue are never collected from (or billed to) tenants due to early lease terminations. For that portion of the otherwise recognizable deferred rent that is not deemed to be probable of collection, an allowance for doubtful accounts has been provided. Accounts receivable in our consolidated and combined balance sheets are shown net of an allowance for doubtful accounts of $14.4 million as of December 31, 2011 and $16.3 million as of December 31, 2010. The following table summarizes the changes in allowance for doubtful accounts:

	2011			2010			2009
				(In thousands)
Balance as of January 1	$	16,277		$	16,812		$	21,712
Provision*		—			1,782			2,539
Write-offs		(1,829	)		(2,317	)		(7,439	)
Balance as of December 31	$	14,448		$	16,277		$	16,812

* Collection of significantly aged receivables previously reserved resulted in no provision in 2011.

Resort and Conference Center Revenue

Revenue for the resort and conference center is recognized as services are performed and primarily represents room rentals and food and beverage sales.

Land and Condominium Sales Revenue

Revenues from land sales are recognized using the full accrual method if various criteria provided by GAAP relating to the terms of the transactions and our subsequent involvement with the land sold are met. Revenues relating to transactions that do not meet the established criteria are deferred and recognized when the criteria are met or using the installment or cost recovery methods. Revenue related to builder participation rights is recognized when collected.

Cost of land sales is determined as a specified percentage of land sales revenues recognized for each community development project. These cost ratios are based on actual costs incurred and estimates of future development costs and sales revenues to completion of each project. The ratios are reviewed regularly and revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or development plans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. For certain parcels of land, however, the specific identification method is used to determine the cost of sales including acquired parcels that we do not intend to develop or for which development was complete at the date of acquisition. Expenditures in our MPC business to develop land for sale are classified as an operating activity under real estate acquisition and development expenditures in our consolidated and combined statements of cash flows.

Nouvelle at Natick is a 215 unit residential condominium project, located in Natick, Massachusetts. Pursuant to the Plan, only the unsold units at Nouvelle at Natick on the Effective Date were distributed to us and no deferred revenue or sales proceeds from unit closings prior to the Effective Date were allocated to us. As of December 31, 2011, two units were unsold at Nouvelle at Natick. Income related to unit sales subsequent to the Effective Date is accounted for on a unit-by-unit full accrual method.

Income Taxes

Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the deferred tax provision. There are events or circumstances that could occur in the future that could limit the benefit of deferred tax assets. In addition, we recognize and report interest and penalties, if necessary, related to uncertain tax positions within our provision for income tax expense.

In many of our Master Planned Communities, gains with respect to sales of land for commercial use are reported for tax purposes on the percentage of completion method. Under the percentage of completion method, a gain is recognized for tax purposes as costs are incurred in satisfaction of contractual obligations. The method used for determining the percentage complete for income tax purposes is different than that used for financial statement purposes. In addition, gains with respect to sales of land for single family residences are reported for tax purposes under the completed contract method. Under the completed contract method, a gain is recognized for tax purposes when 95% of the costs of our contractual obligations are incurred or the contractual obligation is transferred.

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutive common shares. The dilutive effect of options and nonvested stock issued under stock-based compensation plans is computed using the “treasury stock” method. The dilutive effect of the Sponsors Warrants and Management Warrants is computed using the if-converted method. Gains associated with the Sponsors Warrants and Management Warrants are excluded from the numerator in computing diluted earnings per share because inclusion of such gains in the computation would be anti-dilutive.

In connection with the Separation on November 9, 2010, GGP distributed to its stockholders 32.5 million shares of our common stock and approximately 5.25 million shares were purchased by certain investors sponsoring the Plan. This share amount is used in the calculation of basic and diluted EPS for the year ended December 31, 2010 and 2009 as our common stock was not traded prior to November 9, 2010 and there were no dilutive securities in the prior periods.

Information related to our EPS calculations is summarized as follows:

	Years Ended December 31,
	2011			2010			2009
(In thousands, except per share amounts)
Basic EPS:
Numerator:
Income (loss) from continuing operations	$	148,470		$	(69,230	)	$	(702,877	)
Net income attributable to noncontrolling interest		(1,290	)		(201	)		204
Income (loss) attributable to common stockholders		147,180			(69,431	)		(702,673	)
Discontinued operations - net of tax		—			—			(939	)
Net income (loss) attributable to common stockholders	$	147,180		$	(69,431	)	$	(703,612	)
Denominator:
Weighted average number of common shares outstanding - basic		37,908			37,726			37,716
Diluted EPS:
Numerator:
Net income (loss) attributable to common stockholders	$	147,180		$	(69,431	)	$	(703,612	)
Less: warrant liability gain		101,584			—			—
Adjusted net income (loss) available to common stockholders	$	45,596		$	(69,431	)	$	(703,612	)
Denominator:
Weighted average number of common shares outstanding - basic		37,908			37,726			37,716
Restricted stock and stock options		—			—			—
Warrants		1,074			—			—
Weighted average number of common shares outstanding - diluted		38,982			37,726			37,716
Basic Earnings (Loss) Per Share
Income (loss) from continuing operations attributable to common stockholders	$	3.88		$	(1.84	)	$	(18.64	)
Discontinued operations attributable to common stockholders		—			—			(0.02	)
Net income (loss) attributable to common stockholders	$	3.88		$	(1.84	)	$	(18.66	)
Diluted Earnings (Loss) Per Share
Income (loss) from continuing operations attributable to common stockholders	$	1.17		$	(1.84	)	$	(18.64	)
Discontinued operations attributable to common stockholders		—			—			(0.02	)
Net income (loss) attributable to common stockholders	$	1.17		$	(1.84	)	$	(18.66	)

Stock options of 715,137 and restricted stock of 42,553 as of December 31, 2011 and 10,683,726 sponsor and management warrants outstanding as of December 31, 2010 were not included in the computation of diluted EPS above because to do so would have been anti-dilutive.

Stock Plans

We apply the provisions ASC 718 (“Stock Compensation”) in our accounting and reporting for stock-based compensation. ASC 718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. All unvested options outstanding under our option plans have grant prices equal to the market price of the Company’s stock on the dates of grant. Compensation cost for restricted stock is determined based on the fair market value of the our stock at the date of grant.

Fair Value Measurements

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

			December 31, 2011 Fair Value Measurements Using								December 31, 2010 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)
Assets:
Interest rate swap	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Liabilities
Warrants		127,764		—		—		127,764		227,348		—		—		227,348
Interest rate swaps		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. 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):

	December 31
	2011			2010
	(In thousands)
Beginning of year	$	227,348		$	—
Warrant liability loss (gain)		(101,584	)		140,900
Purchases		2,000			86,448
End of year	$	127,764		$	227,348

The following tables summarize our assets and liabilities that were measured at fair value on a non-recurring basis as a result of the properties being impaired:

2011	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 Year Ended December 31, 2011
						(In thousands)
Investment in Real Estate Affiliates	$	128,764	(a)	$	—	$	—	$	128,764	(a)	$	6,053	(b)

(a) Represents the fair value of our previously held equity investment in The Woodlands as of the acquisition date. The fair value was derived from the fair value of the assets and liabilities acquired in The Woodlands acquisition, which is further discussed in Note 3. As of the acquisition date, The Woodlands financial condition and results of operations were consolidated.

(b) Represents the loss on remeasurement of our previously held equity investment in The Woodlands.

2010	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 - Year Ended December 31, 2010
					(In thousands)
Master Planned Communities:
Maryland - Columbia (a)	$	34,823	$	—	$	—	$	34,823	$	(56,798	)
Maryland - Gateway (a)		1,649		—		—		1,649		(2,613	)
Summerlin South (a)		203,325		—		—		203,325		(345,920	)
Operating Assets:
Landmark Mall (b)		23,750		—		—		23,750		(24,434	)
Riverwalk Marketplace (c)		10,179		—		—		10,179		(55,975	)
Strategic Developments:
Century Plaza Mall (b)		4,500		—		—		4,500		(12,899	)
Nouvelle at Natick (a)		13,413		—		—		13,413		(4,135	)
Total investments in real estate	$	291,639	$	—	$	—	$	291,639	$	(502,774	)
Debt
Fair value of emerged entity mortgage debt (d)	$	65,753	$	—	$	—	$	65,753	$	2,749
Total liabilities	$	65,753	$	—	$	—	$	65,753	$	2,749

(a) The fair value was calculated based on a discounted cash flow analysis using a property specific discount rate of 20.0%.

(b) The fair value is based on estimated sales value.

(c) The fair value was calculated based on a discounted cash flow analysis using a property specific discount rate and a residual capitalization rate of 8.5% for both computations.

(d) The fair value of debt relates to properties that emerged from bankruptcy in 2010.

2009	Total Fair Value Measurement		Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)		Total (Loss) Gain - Year Ended December 31, 2009
					(In thousands)
Master Planned Communities:
Maryland - Fairwood	$	12,629	$	—	$	12,629	$	—	$	(52,767	)
Operating Assets:
Landmark Mall (a)		49,501		—		—		49,501		(27,323	)
Strategic Developments:
The Bridges at Mint Hill		14,100		—		14,100		—		(16,636	)
Elk Grove Promenade		21,900		—		21,900		—		(175,280	)
The Shops at Summerlin Center		46,300		—		46,300		—		(176,141	)
Kendall Town Center (b)		13,931		—		—		13,931		(35,089	)
AllenTowne		25,900		—		25,900		—		(29,063	)
Cottonwood Mall (a)		21,500		—		—		21,500		(50,768	)
Princeton Land East, LLC		8,802		—		8,802		—		(8,904	)
Princeton Land LLC		11,948		—		11,948		—		(13,356	)
Village at Redlands		7,545		—		—		7,545		(5,537	)
Redlands Promenade		6,727		—		—		6,727		(6,667	)
Nouvelle at Natick (b)		64,661		—		—		64,661		(55,923	)
Total investments in real estate	$	305,444	$	—	$	141,579	$	163,865	$	(653,454	)
Debt
Fair value of emerged entity mortgage debt (c)	$	134,089	$	—	$	—	$	134,089	$	11,723
Total liabilities	$	134,089	$	—	$	—	$	134,089	$	11,723

(a) The fair value was calculated based on a discounted cash flow analysis using a property specific discount rate ranging from 9.25% to 12.00% and residual capitalization rates ranging from 8.50% to 11.50%.

(b) The fair value is based on estimated sales value.

(c) The fair value of debt relates to two properties that emerged from bankruptcy in 2009.

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

	December 31, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
			(In thousands)
Fixed-rate debt	$	83,164	$	85,047	$	191,037	$	202,897
Variable-rate debt (a)		468,100		468,100		65,518		65,629
SID bonds (b)		55,213		55,213		62,105		62,105
Total	$	606,477	$	608,360	$	318,660	$	330,631

(a) As more fully described in Note 7, $172.0 million of variable-rate debt entered into during 2011 has been swapped to a fixed rate for the term of the related debt.

(b) Due to the uncertain repayment terms of special improvement district “SID” bonds, the carrying value approximates fair value.

The fair value of debt in the table above was estimated based on quoted market prices for publicly traded debt, recent financing transactions, estimates of the fair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, the current London Interbank Offered Rate (“LIBOR”), a widely quoted market interest rate which is frequently the index used to determine the rate at which we borrow funds, U.S. Treasury obligation interest rates and on the discounted estimated future cash payments to be made on such debt. The discount rates reflect our judgment as to what the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assume that the debt is outstanding through maturity. We have utilized available market information or present value techniques to estimate the amounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do not acknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated fair value of any of such debt could be realized by immediate settlement of the obligation.

The carrying amounts of cash and cash equivalents and accounts receivable approximate fair value because of the short-term maturity of these instruments. The carrying amounts of notes and Municipal Utility Districts receivables are carried at net realizable value which approximates fair value because of their short-term nature.

Municipal Utility Districts (“MUD”)

In Houston, Texas, certain development costs are reimbursable through the creation of MUDs (and Water Control and Improvement Districts), which are separate political subdivisions authorized by Article 16, Section 59 of the Texas Constitution and governed by the Texas Commission on Environmental Quality (“TCEQ”). MUDs are formed to provide municipal water, waste water, drainage services, recreational facilities and roads to those areas where they are currently unavailable through the regular city services. Typically, the developer advances funds for the creation of the facilities, which must be designed, bid and constructed in accordance with the City of Houston and TCEQ requirements. The developer initiates the MUD process by filing the applications for the formation of the MUD, and once the applications have been approved, a board of directors is elected for the MUD and given the authority to issue ad valorem tax bonds and the authority to tax residents. The MUD Board authorizes and approves all MUD development contracts and pay estimates. MUD bond sale proceeds are used to reimburse the developer for its construction costs, including interest, and MUD taxes are used to pay the debt service on the bonds and the operating expenses of the MUD. We estimate the costs we believe will be eligible for reimbursement (MUD receivable), and we have not incurred any debt relating to the MUDs.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivables and deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets and goodwill, fair value of warrants and debt and cost ratios and completion percentages used for land sales. Actual results could differ from these and other estimates.

Reorganization Items

Reorganization items are expense or income items that were incurred or realized by certain of our subsidiaries as a result of the Chapter 11 Cases and are presented separately in the Consolidated and Combined Statements of Income (Loss) and Comprehensive Income (Loss). These items include professional fees and similar types of expenses and gains and interest earned on cash accumulated by certain of our subsidiaries, all as a result of the Chapter 11 Cases. Reorganization items specific to the HHC Businesses were allocated to us and reflected in our combined financial statements and in the table presented below.

The key employee incentive program (the “KEIP”) was intended to retain certain key employees of GGP during the pendency of the Chapter 11 Cases and provided for payment (in two installments) to these GGP employees upon successful emergence from bankruptcy. The first KEIP payment was made by GGP on November 12, 2010. As certain of these employees became our employees on the Effective Date, a portion of the KEIP was deemed to relate to us and therefore, we recognized our KEIP expense in the period from the date the KEIP was approved by the Bankruptcy Court (October 2009) to the Effective Date, in reorganization items on the Combined Statements of Income (Loss) and Comprehensive Income (Loss) in the amount of $13.5 million for the year ended December 31, 2010.

Reorganization items are as follows:

	December 31,
Reorganization Items	2010			2009
	(In thousands)
Gains on liabilities subject to compromise - vendors (a)	$	(791	)	$	(99	)
Gains on liabilities subject to compromise, net - mortgage debt (b)		(2,749	)		(11,723	)
Interest income (c)		(16	)		(4	)
U.S. Trustee fees		571			226
Restructuring costs (d)		60,267			18,274
Total reorganization items	$	57,282		$	6,674

(a) This amount includes gains from repudiation, rejection or termination of contracts or guarantee of obligations. Such gains reflect agreements reached with certain critical vendors, which were authorized by the Bankruptcy Court and for which payments on an installment basis began in July 2009.

(b) Such net gains include the Fair Value adjustments of mortgage debt relating to entities that emerged from bankruptcy.

(c) Interest income primarily reflects amounts earned on cash accumulated as a result of our Chapter 11 Cases.

(d) Restructuring costs primarily include professional fees incurred related to the bankruptcy filings, our allocated share of the KEIP payment, finance costs incurred by debtors upon emergence from bankruptcy and any associated write-off of unamortized deferred finance costs.

Recently Issued Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued a new standard which changes the requirements for presenting comprehensive income in the financial statements. The new standard eliminates the option to present other comprehensive income (“OCI”) in the statement of stockholders’ equity and instead requires net income, components of OCI, and total comprehensive income to be presented in one continuous statement or two separate but consecutive statements. HHC had elected to present OCI in one continuous statement in its previous filings and accordingly, the effective date of this standard will not have an effect on our results of operations, financial position, or cash flows in our consolidated financial statements.

In May 2011, the FASB issued “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The standard revises guidance for fair value measurement and expands the disclosure requirements. It is effective for fiscal years beginning after December 15, 2011. We are currently evaluating the impact that the adoption of this standard will have on our Consolidated Financial Statements.