Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

hhc_Current_Folio_10Q

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2017

 

or

 

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

 

Commission file number 001-34856

 

THE HOWARD HUGHES CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

36-4673192

(State or other jurisdiction of

(I.R.S. employer

incorporation or organization)

identification number)

 

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

(Address of principal executive offices, including zip code)

 

(214) 741-7744

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes    ☐ 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).

☒ Yes    ☐ No

 

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

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

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

Smaller reporting company ☐

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

☐ Yes    ☒ No

 

The number of shares of common stock, $0.01 par value, outstanding as of October 27, 2017 was 43,253,764

 

 

 


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

INDEX

 

 

 

 

 

 

 

 

 

PAGE

NUMBER

 

 

 

 

PART I FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1:

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets
as of September 30, 2017 and December 31, 2016

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 2017 and 2016

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income
for the three and nine months ended September 30, 2017 and 2016

5

 

 

 

 

 

 

Condensed Consolidated Statements of Equity
for the nine months ended September 30, 2017 and 2016

6

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2017 and 2016

7

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

 

 

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

 

 

 

 

 

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

70

 

 

 

 

 

Item 4:

Controls and Procedures

71

 

 

 

 

PART II  OTHER INFORMATION 

71

 

 

 

 

 

Item 1:

Legal Proceedings

71

 

 

 

 

 

Item 1A:

Risk Factors

71

 

 

 

 

 

Item 2:

Unregistered Sales of Equity Securities And Use Of Proceeds

71

 

 

 

 

 

Item 3:

Default Upon Senior Securities

72

 

 

 

 

 

Item 4:

Mine Safety Disclosures

72

 

 

 

 

 

Item 5:

Other Information

72

 

 

 

 

 

Item 6:

Exhibits

72

 

 

 

 

 

EXHIBIT INDEX

73

 

 

 

 

SIGNATURE

74

 

 

 

 

2


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

UNAUDITED

A

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

(In thousands, except share amounts)

 

2017

 

2016

Assets:

    

 

 

 

 

 

Investment in real estate:

 

 

 

 

 

 

Master Planned Community assets

 

$

1,667,496

 

$

1,669,561

Buildings and equipment

 

 

2,155,071

 

 

2,027,363

Less: accumulated depreciation

 

 

(303,887)

 

 

(245,814)

Land

 

 

314,383

 

 

320,936

Developments

 

 

1,124,079

 

 

961,980

Net property and equipment

 

 

4,957,142

 

 

4,734,026

Investment in Real Estate and Other Affiliates

 

 

89,155

 

 

76,376

Net investment in real estate

 

 

5,046,297

 

 

4,810,402

Cash and cash equivalents

 

 

601,934

 

 

665,510

Accounts receivable, net 

 

 

9,654

 

 

10,038

Municipal Utility District receivables, net

 

 

193,100

 

 

150,385

Deferred expenses, net

 

 

76,692

 

 

64,531

Prepaid expenses and other assets, net

 

 

796,019

 

 

666,516

Total assets

 

$

6,723,696

 

$

6,367,382

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Mortgages, notes and loans payable

 

$

2,993,448

 

$

2,690,747

Deferred tax liabilities

 

 

237,013

 

 

200,945

Warrant liabilities

 

 

 —

 

 

332,170

Accounts payable and accrued expenses

 

 

462,853

 

 

572,010

Total liabilities

 

 

3,693,314

 

 

3,795,872

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

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

 

 

 —

 

 

 —

Common stock: $.01 par value; 150,000,000 shares authorized, 43,222,932 shares

issued and 43,206,550 outstanding as of September 30, 2017 and 39,802,064 shares

issued and 39,790,003 outstanding as of December 31, 2016

 

 

433

 

 

398

Additional paid-in capital

 

 

3,295,586

 

 

2,853,269

Accumulated deficit

 

 

(258,629)

 

 

(277,912)

Accumulated other comprehensive loss

 

 

(9,017)

 

 

(6,786)

Treasury stock, at cost, 16,382 shares as of September 30, 2017 and 12,061 shares as of December 31, 2016, respectively

 

 

(1,763)

 

 

(1,231)

Total stockholders' equity

 

 

3,026,610

 

 

2,567,738

Noncontrolling interests

 

 

3,772

 

 

3,772

Total equity

 

 

3,030,382

 

 

2,571,510

Total liabilities and equity

 

$

6,723,696

 

$

6,367,382

 

See Notes to Condensed Consolidated Financial Statements.

 

 

3


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

UNAUDITED

A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(In thousands, except per share amounts)

    

2017

    

2016

    

2017

    

2016

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Condominium rights and unit sales

 

$

113,852

 

$

115,407

 

$

342,208

 

$

362,613

Master Planned Community land sales

 

 

54,906

 

 

44,128

 

 

177,531

 

 

147,168

Minimum rents

 

 

44,654

 

 

44,910

 

 

136,053

 

 

128,255

Tenant recoveries

 

 

11,586

 

 

11,657

 

 

34,627

 

 

33,108

Hospitality revenues

 

 

17,776

 

 

14,088

 

 

57,190

 

 

46,126

Builder price participation

 

 

5,472

 

 

4,483

 

 

14,613

 

 

15,631

Other land revenues

 

 

4,561

 

 

4,053

 

 

19,606

 

 

12,225

Other rental and property revenues

 

 

5,929

 

 

3,538

 

 

17,309

 

 

11,335

Total revenues

 

 

258,736

 

 

242,264

 

 

799,137

 

 

756,461

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Condominium rights and unit cost of sales

 

 

86,531

 

 

83,218

 

 

253,209

 

 

237,759

Master Planned Community cost of sales

 

 

29,043

 

 

21,432

 

 

88,288

 

 

66,128

Master Planned Community operations

 

 

8,180

 

 

10,674

 

 

24,881

 

 

30,454

Other property operating costs

 

 

21,354

 

 

16,535

 

 

60,153

 

 

47,513

Rental property real estate taxes

 

 

7,678

 

 

7,033

 

 

21,765

 

 

21,110

Rental property maintenance costs

 

 

3,380

 

 

3,332

 

 

10,016

 

 

9,217

Hospitality operating costs

 

 

13,525

 

 

12,662

 

 

41,534

 

 

37,379

Provision for doubtful accounts

 

 

448

 

 

1,940

 

 

1,728

 

 

4,629

Demolition costs

 

 

175

 

 

256

 

 

303

 

 

1,218

Development-related marketing costs

 

 

5,866

 

 

4,716

 

 

14,787

 

 

15,586

General and administrative

 

 

22,362

 

 

21,128

 

 

63,423

 

 

61,505

Depreciation and amortization

 

 

35,899

 

 

23,322

 

 

96,193

 

 

71,246

Total expenses

 

 

234,441

 

 

206,248

 

 

676,280

 

 

603,744

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income before other items

 

 

24,295

 

 

36,016

 

 

122,857

 

 

152,717

 

 

 

 

 

 

 

 

 

 

 

 

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

Provision for impairment

 

 

 —

 

 

(35,734)

 

 

 —

 

 

(35,734)

Gains on sales of properties

 

 

237

 

 

70

 

 

32,452

 

 

140,549

Other (loss) income, net

 

 

(160)

 

 

432

 

 

750

 

 

9,858

Total other

 

 

77

 

 

(35,232)

 

 

33,202

 

 

114,673

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

24,372

 

 

784

 

 

156,059

 

 

267,390

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,764

 

 

196

 

 

3,171

 

 

900

Interest expense

 

 

(17,241)

 

 

(16,102)

 

 

(49,547)

 

 

(48,628)

Loss on redemption of senior notes due 2021

 

 

 —

 

 

 —

 

 

(46,410)

 

 

 —

Warrant liability loss

 

 

 —

 

 

(7,300)

 

 

(43,443)

 

 

(21,630)

Gain on acquisition of joint venture partner's interest

 

 

 —

 

 

27,087

 

 

5,490

 

 

27,087

Equity in earnings from Real Estate and Other Affiliates

 

 

7,467

 

 

13,493

 

 

25,821

 

 

35,700

Income before taxes

 

 

16,362

 

 

18,158

 

 

51,141

 

 

260,819

Provision for income taxes

 

 

5,846

 

 

10,162

 

 

31,846

 

 

102,088

Net income

 

 

10,516

 

 

7,996

 

 

19,295

 

 

158,731

Net income attributable to noncontrolling interests

 

 

(12)

 

 

(23)

 

 

(12)

 

 

(23)

Net income attributable to common stockholders

 

$

10,504

 

$

7,973

 

$

19,283

 

$

158,708

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

$

0.25

 

$

0.20

 

$

0.47

 

$

4.02

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

$

0.24

 

$

0.19

 

$

0.45

 

$

3.72

See Notes to Condensed Consolidated Financial Statements.

4


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

(In thousands)

 

2017

 

2016

   

2017

    

2016

Net income

 

$

10,516

 

$

7,996

 

$

19,295

 

$

158,731

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps (a)

 

 

180

 

 

497

 

 

(2,070)

 

 

(14,876)

Capitalized swap interest expense (b)

 

 

(40)

 

 

154

 

 

(161)

 

 

(163)

Pension adjustment (c)  

 

 

 —

 

 

(317)

 

 

 —

 

 

(890)

Other comprehensive income (loss)

 

 

140

 

 

334

 

 

(2,231)

 

 

(15,929)

Comprehensive income

 

 

10,656

 

 

8,330

 

 

17,064

 

 

142,802

Comprehensive income attributable to noncontrolling interests

 

 

(12)

 

 

(23)

 

 

(12)

 

 

(23)

Comprehensive income attributable to common stockholders

 

$

10,644

 

$

8,307

 

$

17,052

 

$

142,779


(a)

Net of deferred tax expense  of  $0.1 million and $0.2 million for the three months ended September 30, 2017 and 2016, respectively. Amount is net of deferred benefit of $1.3 million and $8.1 million for the nine months ended September 30, 2017 and 2016, respectively.

(b)

The deferred tax impact was immaterial for the three months ended September 30, 2017 and 2016, respectively. Amount is net of deferred tax benefit of $0.1 million for the nine months ended September 30, 2017 and 2016, respectively.

(c)

Net of deferred tax benefit of $0.1 million and $0.5 million for the three and nine months ended September 30, 2016, respectively.

 

See Notes to Condensed Consolidated Financial Statements.

 

 

5


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

 

UNAUDITED

A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

Treasury Stock

 

Noncontrolling

 

Total

(In thousands, except shares)

    

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss)

    

Shares

    

Amount

    

Interests

  

Equity

Balance December 31, 2015

 

39,714,838

 

$

398

 

$

2,847,823

 

$

(480,215)

 

$

(7,889)

 

 -

 

$

 -

 

$

3,772

 

$

2,363,889

Net income

 

 -

 

 

 -

 

 

 -

 

 

158,708

 

 

 -

 

 -

 

 

 -

 

 

23

 

 

158,731

Preferred dividend payment on behalf of subsidiary

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(23)

 

 

(23)

Interest rate swaps, net of tax $8,120

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(14,876)

 

 -

 

 

 -

 

 

 -

 

 

(14,876)

Pension adjustment, net of tax of $543

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(890)

 

 -

 

 

 -

 

 

 -

 

 

(890)

Capitalized swap interest, net of tax $88

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(163)

 

 -

 

 

 -

 

 

 -

 

 

(163)

Stock plan activity

 

136,198

 

 

 -

 

 

8,512

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

8,512

Treasury stock activity

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

(12,061)

 

 

(1,295)

 

 

 -

 

 

(1,295)

Balance, September 30, 2016

 

39,851,036

 

 

398

 

 

2,856,335

 

 

(321,507)

 

 

(23,818)

 

(12,061)

 

 

(1,295)

 

 

3,772

 

 

2,513,885

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2016

 

39,802,064

 

 

398

 

 

2,853,269

 

 

(277,912)

 

 

(6,786)

 

(12,061)

 

 

(1,231)

 

 

3,772

 

 

2,571,510

Net income

 

 -

 

 

 -

 

 

 -

 

 

19,283

 

 

 -

 

 -

 

 

 -

 

 

12

 

 

19,295

Preferred dividend payment on behalf of subsidiary

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

(12)

 

 

(12)

Interest rate swaps, net of tax of $1,409

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,070)

 

 -

 

 

 -

 

 

 -

 

 

(2,070)

Capitalized swap interest, net of tax of $86

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(161)

 

 -

 

 

 -

 

 

 -

 

 

(161)

Stock plan activity

 

368,415

 

 

 4

 

 

16,735

 

 

 -

 

 

 -

 

(4,321)

 

 

(532)

 

 

 -

 

 

16,207

Exercise of warrants

 

3,052,453

 

 

31

 

 

375,582

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

375,613

Issuance of management warrants

 

 -

 

 

 -

 

 

50,000

 

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

50,000

Balance, September 30, 2017

 

43,222,932

 

$

433

 

$

3,295,586

 

$

(258,629)

 

$

(9,017)

 

(16,382)

 

$

(1,763)

 

$

3,772

 

$

3,030,382

 

See Notes to Condensed Consolidated Financial Statements.

 

 

6


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

UNAUDITED

A

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

(In thousands)

    

2017

    

2016

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

19,295

 

$

158,731

Adjustments to reconcile net income to cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

84,083

 

 

60,834

Amortization

 

 

12,110

 

 

10,412

Amortization of deferred financing costs

 

 

4,306

 

 

5,385

Amortization of intangibles other than in-place leases

 

 

(1,071)

 

 

(1,333)

Straight-line rent amortization

 

 

(6,625)

 

 

(6,668)

Deferred income taxes

 

 

33,484

 

 

102,088

Restricted stock and stock option amortization

 

 

4,954

 

 

6,324

Gains on sales of properties

 

 

(32,452)

 

 

(140,549)

Gain on acquisition of joint venture partner's interest

 

 

(5,490)

 

 

(27,087)

Warrant liability loss

 

 

43,443

 

 

21,630

Loss on redemption of senior notes due 2021

 

 

46,410

 

 

 —

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

 

 

(20,200)

 

 

(21,952)

Provision for doubtful accounts

 

 

1,728

 

 

4,629

Master Planned Community land acquisitions

 

 

(1,415)

 

 

(69)

Master Planned Community development expenditures

 

 

(136,745)

 

 

(106,501)

Master Planned Community cost of sales

 

 

78,424

 

 

60,600

Condominium development expenditures

 

 

(293,183)

 

 

(245,547)

Condominium rights and unit cost of sales

 

 

253,209

 

 

237,759

Provision for impairment

 

 

 

 

35,734

Percentage of completion revenue recognition from sale of condominium rights and unit sales

 

 

(342,208)

 

 

(362,613)

Net changes:

 

 

 

 

 

 

Accounts receivable

 

 

1,602

 

 

(33)

Prepaid expenses and other assets

 

 

(11,143)

 

 

(753)

Condominium deposits received

 

 

250,352

 

 

440,076

Deferred expenses

 

 

(11,215)

 

 

(3,349)

Accounts payable and accrued expenses

 

 

(36,607)

 

 

(19,019)

Condominium deposits held in escrow

 

 

(250,352)

 

 

(440,076)

Condominium deposits released from escrow

 

 

187,540

 

 

17,574

Other, net

 

 

245

 

 

(4,510)

Cash used in operating activities

 

 

(127,521)

 

 

(218,283)

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Property and equipment expenditures

 

 

(5,936)

 

 

(8,649)

Operating property improvements

 

 

(12,591)

 

 

(12,184)

Property developments and redevelopments

 

 

(258,850)

 

 

(301,843)

Acquisition of partner's interest in Las Vegas 51s

 

 

(15,404)

 

 

 —

Proceeds for reimbursement of development costs

 

 

11,165

 

 

4,945

Proceeds from sales of properties

 

 

36,560

 

 

378,257

Proceeds from insurance claims

 

 

 —

 

 

3,107

Acquisition of partner's interest in Millennium Six Pines Apartments (net of cash acquired)

 

 

 

 

(3,105)

Distributions from Real Estate and Other Affiliates

 

 

 —

 

 

16,550

Note issued to Real Estate Affiliate

 

 

 —

 

 

(25,000)

Proceeds from repayment of note to Real Estate Affiliate

 

 

 —

 

 

25,000

Investments in Real Estate and Other Affiliates, net

 

 

(3,579)

 

 

(10,947)

Change in restricted cash

 

 

(3,854)

 

 

(215)

Cash (used in) provided by investing activities

 

 

(252,489)

 

 

65,916

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from mortgages, notes and loans payable

 

 

1,433,437

 

 

422,661

Principal payments on mortgages, notes and loans payable

 

 

(1,130,337)

 

 

(62,996)

Premium paid to redeem 2021 senior notes

 

 

(39,966)

 

 

 —

Preferred dividend payment on behalf of REIT subsidiary

 

 

(12)

 

 

(23)

Special Improvement District bond funds released from (held in) escrow

 

 

6,099

 

 

6,258

Deferred financing costs

 

 

(13,305)

 

 

(4,678)

Taxes paid on stock options exercised and restricted stock vested

 

 

(9,201)

 

 

(1,295)

Stock options exercised

 

 

19,719

 

 

180

Issuance of management warrants

 

 

50,000

 

 

 —

Cash provided by financing activities

 

 

316,434

 

 

360,107

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

 (63,576)

 

 

207,740

Cash and cash equivalents at beginning of period

 

 

665,510

 

 

445,301

Cash and cash equivalents at end of period

 

$

601,934

 

$

653,041

 

7


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

UNAUDITED

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

2017

    

2016

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Interest paid

 

$

110,034

 

$

77,666

Interest capitalized

 

 

55,895

 

 

46,198

Income taxes paid

 

 

(12,419)

 

 

6,234

 

 

 

 

 

 

 

Non-Cash Transactions:

 

 

 

 

 

 

Exercise of Sponsor and Management Warrants

 

 

375,613

 

 

 —

Special Improvement District bond transfers associated with land sales

 

 

9,864

 

 

5,528

Accrued interest on construction loan borrowing

 

 

4,978

 

 

3,748

Capitalized stock compensation

 

 

584

 

 

2,008

Acquisition of Las Vegas 51s

 

 

 

 

 

 

Building

 

 

87

 

 

 —

Developments

 

 

65

 

 

 —

Accounts receivable

 

 

633

 

 

 —

Other assets

 

 

33,313

 

 

 —

Other liabilities

 

 

(2,294)

 

 

 —

Acquisition of Millennium Six Pines Apartments

 

 

 

 

 

 

Land

 

 

 —

 

 

(11,225)

Building

 

 

 —

 

 

(54,492)

Other assets

 

 

 —

 

 

(1,261)

Mortgage, notes and loans payable

 

 

 —

 

 

37,700

Other liabilities

 

 

 —

 

 

(913)

 

See Notes to Condensed Consolidated Financial Statements.

 

 

8


 

Table of Contents

THE HOWARD HUGHES CORPORATION

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

NOTE 1 BASIS OF PRESENTATION AND ORGANIZATION

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), with intercompany transactions between consolidated subsidiaries eliminated. In accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as issued by the Securities and Exchange Commission (the “SEC”), these Condensed Consolidated Financial Statements do not include all of the information and disclosures required by GAAP for complete financial statements. Readers of this Quarterly Report on Form 10-Q (“Quarterly Report”) should refer to The Howard Hughes Corporation’s (“HHC” or the “Company”) audited Consolidated Financial Statements, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Annual Report”), filed on February 23, 2017 with the SEC. Certain amounts in 2016 have been reclassified to conform to the 2017 presentation. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial position, results of operations, comprehensive income (loss), cash flows and equity for the interim periods have been included. The results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017 and future years.

 

Management has evaluated for disclosure or recognition all material events occurring subsequent to the date of the Condensed Consolidated Financial Statements up to the date and time this Quarterly Report was filed.

 

NOTE 2 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

The following is a summary of recently issued and other notable accounting pronouncements which relate to our business.

 

In August 2017, the Financial Accounting Standards Board’s (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities to enable entities to better portray the economic results of their risk management activities in its financial statements. The ASU expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk and eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The ASU also eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2018. The new standard must be adopted using a modified retrospective approach with early adoption permitted. We are currently evaluating the potential impact of this ASU on our consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting to provide clarity and reduce the diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation–Stock Compensation. Stakeholders observed that the definition of the term “modification” is broad and that its interpretation results in diversity in practice. The ASU states that when an entity concludes that a change is not substantive, then modification accounting does not apply. The effective date of the standard is for fiscal periods, and interim peri