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Section 1: DEF 14A (DEF 14A)


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

o   Preliminary Proxy Statement
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý   Definitive Proxy Statement
o   Definitive Additional Materials
o   Soliciting Material under §240.14a-12

THE HOWARD HUGHES CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

ý

 

No fee required.

o

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
         
    (2)   Aggregate number of securities to which transaction applies:
         
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
         
    (4)   Proposed maximum aggregate value of transaction:
         
    (5)   Total fee paid:
         

o

 

Fee paid previously with preliminary materials.

o

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
    (1)   Amount Previously Paid:
         
    (2)   Form, Schedule or Registration Statement No.:
         
    (3)   Filing Party:
         
    (4)   Date Filed:
         

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    GRAPHIC    

 

 

One Galleria Tower
13355 Noel Road, 22nd Floor
Dallas, Texas 75240

 

 
         
GRAPHIC   Letter from Our Chairman   GRAPHIC
    Dear Fellow Stockholders:    

 

 

You are cordially invited to attend the 2020 Annual Meeting of Stockholders (the "Annual Meeting") of The Howard Hughes Corporation. We will hold the meeting at 9:00 a.m. Eastern Time, on Thursday, May 14, 2020. The Annual Meeting will be completely virtual. Enclosed you will find a notice setting forth the items that we expect to address during the meeting and our Proxy Statement.

 

 

 

 

I would like to personally thank you for your continued investment in The Howard Hughes Corporation. We look forward to welcoming many of you to our annual meeting. It is important that your shares be voted at the meeting in accordance with your preference. Your vote is important to us. Even if you do not plan to attend the meeting in person, we hope that your votes will be represented at the meeting by filling out, signing, dating and returning your proxy card or voting by using the available internet or telephone voting procedures.

 

 

 


 

 

 

 

Sincerely,

 

 

 

 

 

 

GRAPHIC

 

 
        William A. Ackman
Chairman of the Board of Directors
   
    April 3, 2020

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GRAPHIC

One Galleria Tower
13355 Noel Road, 22nd Floor
Dallas, Texas 75240

GRAPHIC   Notice of 2020 Annual Meeting of Stockholders

  GRAPHIC
GRAPHIC Thursday,
May 14, 2020
GRAPHIC 9:00 a.m., Eastern Time GRAPHIC Participate
Via The Internet

The Howard Hughes Corporation will hold its 2020 Annual Meeting of Stockholders (the "Annual Meeting") on Thursday, May 14, 2020 at 9:00 a.m. Eastern Time. The Annual Meeting will be a completely virtual meeting of stockholders. You may attend the meeting, submit questions, and vote your shares electronically during the meeting via live webcast by visiting www.virtualshareholdermeeting.com/HHC2020. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice of Internet Availability of Proxy Materials or proxy card to enter the Annual Meeting. The proxy materials were either made available to you over the Internet or mailed to you beginning on or about April 3, 2020.

ITEMS OF BUSINESS

1   Election to our Board of Directors of the 9 director nominees named in the attached Proxy Statement for a one-year term
2   An advisory vote to approve executive compensation (Say-on-Pay)
3   Approval of The Howard Hughes Corporation 2020 Equity Incentive Plan
4   Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2020
5   Transaction of such other business as may properly come before our 2020 Annual Meeting of Stockholders

RECORD DATE

LOGO   The record date for the determination of the stockholders entitled to vote at our 2020 Annual Meeting of Stockholders, or any adjournments or postponements thereof, was the close of business on March 18, 2020.

Your vote is important to us. Please exercise your stockholder right to vote.


 

 

By Order of the Board of Directors,

 

 

GRAPHIC
    Peter F. Riley
Senior Executive Vice President, Secretary
and General Counsel

April 3, 2020


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Important Notice Regarding the Availability of Proxy Materials for our Annual Meeting
to Be Held on May 14, 2020

         
         

Our Proxy Statement, 2019 Annual Report to Stockholders and other materials are
available on our website at www.proxyvote.com


GRAPHIC

Table of Contents

GRAPHIC

PROXY SUMMARY

  1

2020 Annual Meeting Information

  1

Matters to be Voted on at our 2020 Annual Meeting

  1

Director Nominees

  2

Director Diversity

  2

Governance Highlights

  3

Executive Compensation Highlights

  4

HHSustainability

  5

PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2020

  6

Questions and Answers Regarding this Proxy Statement and the Annual Meeting

  6

MATTERS RELATED TO CORPORATE GOVERNANCE, BOARD STRUCTURE, DIRECTOR COMPENSATION AND STOCK OWNERSHIP

  11

Corporate Governance

  11

Risk Management

  12

Director Independence

  13

Director Nominations

  13

Qualifications

  13

Stockholder Recommendations

  13

Stockholder Engagement

  14

Communications with the Board

  14

Codes of Business Conduct and Ethics

  14

THE BOARD, ITS COMMITTEES AND ITS COMPENSATION

  15

The Board

  15

Board Committees

  15

Audit

  16

Compensation

  16

Nominating and Corporate Governance

  17

Risk

  17

Commitment of our Board – 2019

  17

Board and Committee Evaluations

  18

Evaluations – A Multi-Step Process

  18

2019 Director Compensation

  18

Stock Ownership Guidelines

  19

SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS

  20

Directors and Executive Officers

  20

Five Percent Holders

  23

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

  24

 

 

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

  24

 

 

 

RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS

  25

Related Party Transactions Policy

  25

Transactions in Connection with the Spin-Off

  25

Registration Rights Agreement

  26

Transactions after the Spin-Off

  26

Weinreb Warrant

  26

Herlitz Warrant

  26

O'Reilly Warrant

  26

Condominium Unit Upgrades

  26

Sale of Gulfstream G450 Jet

  27

 

 

 

PROPOSAL NO. 1 – ELECTION OF DIRECTORS

  28

 

 

 

PROPOSAL NO. 2 – ADVISORY VOTE ON EXECUTIVE COMPENSATION

  33

 

 

 

PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

  34

Burn Rate

  35

Summary of the 2020 Incentive Plan

  35

PROPOSAL NO. 4 – RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2020

  41

Relationship with Independent Registered Public Accounting Firm

  41

Independent Registered Accounting Firm Fees

  42

Pre-Approval Policies and Procedures

  42

AUDIT COMMITTEE REPORT

  43

 

 

 

EXECUTIVE OFFICERS

  45

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

  49

Executive Compensation

  49

Executive Summary

  49

Financial and Operational Highlights

  50

Financial Results Under Incentive Plans

  51

2019 Compensation Highlights

  51

Compensation and Governance Best Practices

  53

Compensation Philosophy and Objectives

  54

Key Elements of Executive Compensation Program

  59

 

 

 

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

  73

 

 

 

EXECUTIVE COMPENSATION

  74

Summary Compensation Table

  74

2019 Grants of Plan-Based Awards

  77

Employment Agreements with the NEOs

  78

Paul Layne

  78

David O'Reilly

  80

Peter F. Riley

  81

Saul Scherl

  83

Simon Treacy

  84

David Weinreb

  85

Grant Herlitz

  88

Employment Agreements – Definitions

  91

Outstanding Equity Awards at Fiscal Year-End

  92

2019 Option Exercises and Stock Vested

  93

Nonqualified Deferred Compensation

  94

Potential Payments Upon Termination or Change in Control

  94

Pay Ratio Disclosure

  96

EQUITY COMPENSATION PLAN INFORMATION

  98

 

 

 

STOCKHOLDER PROPOSALS FOR 2021 ANNUAL MEETING OF STOCKHOLDERS

  99

 

 

 

OTHER MATTERS

  99

 

 

 
ANNEX A  

 

 

 
ANNEX B  

 

 

 
ANNEX C  

 

 

 
APPENDIX A   A-1

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GRAPHIC

Proxy Summary

GRAPHIC

This summary highlights certain information from our Proxy Statement for the 2020 Annual Meeting of Stockholders. You should read the entire Proxy Statement carefully before voting.

2020 ANNUAL MEETING INFORMATION

GRAPHIC Thursday,
May 14, 2020
GRAPHIC 9:00 a.m., Eastern Time
GRAPHIC Record date
March 18, 2020
GRAPHIC Participate Via the Internet
To attend the virtual meeting, visit
www.virtualshareholdermeeting.com/HHC2020
   

GRAPHIC     For additional information about our Annual Meeting, see "Questions and Answers Regarding This Proxy Statement and The Annual Meeting."

   

MATTERS TO BE VOTED ON AT OUR 2020 ANNUAL MEETING

 

 

Proposal

  Board Recommendation

Page

1

 

Election of directors

 

 FOR
each director nominee

 

28

2   Advisory vote to approve executive compensation (Say-on-Pay)  

 FOR

  33
3   Approval of The Howard Hughes Corporation 2020 Equity Incentive Plan  

 FOR

  34
4   Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2020  

 FOR

  41

Proxy Statement for the 2020 Annual Meeting of Stockholders   /  1


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PROXY SUMMARY

DIRECTOR NOMINEES

          Committee Memberships  

Name

Age Director
Since

Independent Principal Occupation Audit Compensation Nominating
& Corporate
Governance


Risk Other Current
Public
Company
Boards

William
Ackman

53 2010
GRAPHIC

Chief Executive Officer and Portfolio Manager of Pershing Square Capital Management, L.P.   GRAPHIC    

None

Adam
Flatto

57 2010

Chief Executive Officer and President of The Georgetown Company     GRAPHIC  

None

Jeffrey
Furber

61 2010

Chief Executive Officer of AEW Capital Management, L.P. and Chairman of AEW Europe     GRAPHIC  

Stag
Industrial, Inc.

Beth
Kaplan

62 2017

Managing Partner of Axcel Partners, LLC GRAPHIC     GRAPHIC

Meredith
Corporation

               

Crocs, Inc.

Paul
Layne

62 2019

Chief Executive Officer of The Howard Hughes Corporation        

None

Allen
Model

74 2010

Treasurer and Vice Chairman of Overseas Strategic Consulting, Ltd. GRAPHIC   GRAPHIC GRAPHIC

None

R. Scot
Sellers

63 2010

Former Chief Executive Officer of Archstone   GRAPHIC GRAPHIC GRAPHIC

None

Steven
Shepsman

67 2010

Executive Managing Director of New World Realty Advisors GRAPHIC   GRAPHIC   GRAPHIC GRAPHIC

Spirit MTA
REIT

Mary Ann Tighe

71 2011

Chief Executive Officer of CBRE's New York Tri-State Region   GRAPHIC    

None

                   

Meetings in 2019: 9

    13 7 4 4

 

GRAPHIC   Chair   GRAPHIC   Member   GRAPHIC   Financial Expert   GRAPHIC   Chairman of the Board

Director Diversity

GRAPHIC

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PROXY SUMMARY

GRAPHIC

GRAPHIC


GRAPHIC   See "Proposal No. 1 – Election of Directors" for more information.

GOVERNANCE HIGHLIGHTS

The Board of Directors (the "Board") and management believe that good corporate governance promotes accountability to stockholders, enhances investor confidence in The Howard Hughes Corporation (the "Company") and supports long-term value creation. The Company has implemented and fostered a culture of good corporate governance, which includes the following:


None of our director nominees serve on an excessive number of boards

Each committee of the Board has a published charter that is reviewed annually

A majority of executive pay is tied to performance-based and long-term equity incentives




Each committee of the Board is 100% comprised of independent directors

The Board follows Corporate Governance Guidelines




The Board and each of its committees meet regularly and frequently without management present

 

GRAPHIC   See "Matters Related to Corporate Governance, Board Structure, Director Compensation and Stock Ownership" for more information.

Proxy Statement for the 2020 Annual Meeting of Stockholders   /  3


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PROXY SUMMARY

EXECUTIVE COMPENSATION HIGHLIGHTS

The Compensation Committee of the Board seeks to align the executive compensation program with the Company's business strategy to attract, retain and engage the talent we need to compete in our industry,

and to align management with stockholders' interests. The table below highlights key aspects of our executive compensation program and practices.

A compensation recovery policy designed to prevent misconduct by any executive officers

No single-trigger change-in-control for severance pay and benefits

Five-year vesting period for the performance-based component of long-term equity awards

A substantial portion of our long-term equity awards contain meaningful performance hurdles to achieve full vesting


Non-employee directors and executive officers are subject to stock ownership guidelines


No tax gross-ups in executive employment agreements or incentive plan


A general prohibition against short sales; investing in publicly traded options; hedging; pledging and margin accounts; and limit orders, in each case, involving Company securities

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PROXY SUMMARY

HHSUSTAINABILITY

Inheriting the visionary legacy of our namesake, we have an unrelenting focus on building for the future.

With our commitment to creating long-term value, we recognize our responsibility and role in managing risks related to real estate's impact on the environment and society, as well as in helping provide solutions to the emerging challenges facing us today.

In 2017 we embarked on a portfolio-wide Sustainability Program to develop formalized policies, programs, metrics and measures to assess and accelerate our Environmental, Social and Governance ("ESG") performance. By prioritizing sustainability, it is our hope

to enhance the quality of living for our stakeholders, lessen our company's environmental footprint and decrease operational expenses through a number of sustainability-related initiatives.

We have memorialized our stewardship and commitment to sustainability with our second ESG Review which we posted on our website in December 2019. The review outlines how we will continue to integrate ESG values and policies into our business. To learn more about how we track and measure our success in this area, please visit:

https://www.howardhughes.com/hhsustainability.

GRAPHIC

Proxy Statement for the 2020 Annual Meeting of Stockholders  /  5


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GRAPHIC

Proxy Statement for Annual Meeting of Stockholders to Be Held on May 14, 2020

GRAPHIC

QUESTIONS AND ANSWERS REGARDING THIS PROXY STATEMENT AND THE ANNUAL MEETING

GRAPHIC   Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

GRAPHIC

 

Pursuant to rules adopted by the Securities and Exchange Commission (the "SEC"), the Company has elected to provide access to its proxy materials over the internet or, upon your request, through the mail. These materials are being provided in connection with the solicitation of proxies by the Board for use at the Company's 2020 annual meeting of stockholders or any postponement or adjournment thereof (the "Annual Meeting"). Accordingly, the Company sent a Notice of Internet Availability of Proxy Materials (the "Notice") on or about April 3, 2020 to stockholders entitled to notice of, and to vote at, the meeting.

All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. The Company encourages stockholders to take advantage of the availability of the proxy materials on the Internet.

You are invited to attend the Annual Meeting and are requested to vote on the proposals described in this Proxy Statement. The Annual Meeting will be completely virtual. You may attend the meeting, submit questions, and vote your shares electronically during the meeting via live webcast by visiting www.virtualshareholdermeeting.com/HHC2020. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice of Internet Availability of Proxy Materials or proxy card to enter the Annual Meeting. We recommend that you log in at least 15 minutes before the meeting to ensure you are logged in when the meeting starts.


GRAPHIC

 

How can I get electronic access to the proxy materials?

GRAPHIC

  The Notice will provide you with instructions regarding how to:

view the Company's proxy materials for the Annual Meeting on the internet; and

instruct the Company to send future proxy materials to you electronically by email.

The Company's proxy materials are also available on the Company's website at www.howardhughes.com under the Investors tab.

If you previously elected to access your proxy materials over the internet, you will not receive a Notice or printed proxy materials in the mail. Instead you have received an email with a link to the proxy materials and voting instructions.

Choosing to receive future proxy materials by email will save the Company the cost of printing and mailing documents to you, which should result in lower costs associated with the Annual Meeting. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect until you terminate it.

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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2020

GRAPHIC   What is included in the proxy materials?
GRAPHIC   The proxy materials include:

the Company's Notice of the Annual Meeting;

this Proxy Statement for the Annual Meeting; and.

the Company's 2019 Annual Report to Stockholders.

If you requested printed versions of these materials by mail, the proxy materials will also include a proxy card (for stockholders of record) or a voting instruction form (for beneficial owners) for the Annual Meeting.

GRAPHIC   Who is entitled to vote at the Annual Meeting?
GRAPHIC   Holders of Company common stock at the close of business on March 18, 2020 are entitled to receive notice of, and to vote their shares at, the Annual Meeting. On March 18, 2020, there were 42,795,030 shares of Company common stock outstanding and entitled to vote at the Annual Meeting. Each share of common stock is entitled to one vote on each matter properly brought before the Annual Meeting.

If your shares are registered in your name with the Company's transfer agent, Computershare Trust Company, N.A., you are considered a "stockholder of record." If your shares are held in an account with a broker, bank or other nominee, you are considered the "beneficial owner." As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares.

GRAPHIC   How do I vote?
GRAPHIC   How to Vote
    Your vote is important. Please vote as soon as possible by one of the methods shown below.

 

 

GRAPHIC

At the Annual Meeting

 

If you are a stockholder of record, you may vote your shares electronically during the meeting via live webcast by visiting www.virtualshareholdermeeting.com/HHC2020. You will need the 16-digit control number that is printed in the box marked by the arrow on your Notice of Internet Availability of Proxy Materials or proxy card to enter the Annual Meeting.

 

 

GRAPHIC

By telephone

 

All stockholders of record may vote their shares by calling 1-800-690-6903 toll-free. Submit your vote by telephone until 11:59 p.m. ET on May 13, 2020. Have your proxy card available and follow the instructions provided by the recorded message to vote your shares. If you are a beneficial owners of shares, you may vote your shares by telephone by following the instructions send to you by your broker, bank or other record holder.

 

 

GRAPHIC

By Internet

 

All stockholders of record may vote their shares online at www.proxyvote.com. Use the Internet to transmit your voting instructions until 11:59 p.m. ET on May 13, 2020. Have your proxy card available and follow the instructions on the website to vote your shares. If you are a beneficial owner of shares, you may vote your shares online by following the instructions sent to you by your broker, bank or other record holder.

 

 

GRAPHIC

By mail

 

If you are a stockholder of record, you may request from us, by following the instructions on your Notice or in the email that you received, printed copies of the proxy materials, which will include a proxy card

If you are a beneficial owner of shares, you may vote your shares by mail by following the instructions sent to you by your broker, bank or other record holder.

Proxy Statement for the 2020 Annual Meeting of Stockholders   /  7


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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2020


 

 

Internet and telephone voting for stockholders of record will be available 24 hours a day, and will close at 11:59 p.m. Eastern Time on May 13, 2020. The availability of internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank or other holder of record. You should follow the voting instructions in the materials provided to you by your broker, bank or other holder of record. If you vote on the internet or by telephone, you do not have to return a proxy card or voting instruction form. If you are located outside the U.S. and Canada, please use the internet or mail voting procedures. Your vote is important. Your timely response may save us the expense of attempting to contact you again.
GRAPHIC   What is householding and how does this affect me?

GRAPHIC

 

We have adopted a procedure approved by the SEC called "householding." Under this procedure, registered stockholders, who have the same address and last name and who receive paper copies of the proxy materials in the mail, will receive only one copy of our proxy materials. This consolidated method of delivery will continue unless one or more of these stockholders notifies us that they would like to receive individual copies of proxy materials. This procedure reduces our printing costs and postage fees. If a stockholder of record residing at such address wishes to receive separate proxy materials in the future, he or she may contact The Howard Hughes Corporation, One Galleria Tower, 13355 Noel Road, 22nd Floor, Dallas, Texas 75240, Attention: Investor Relations.

GRAPHIC

 

What can I do if I change my mind after I submit my proxy?

GRAPHIC

  If you are a stockholder of record, you can revoke your proxy prior to the completion of voting at the Annual Meeting by:

delivering written notice revoking your proxy to the Corporate Secretary at the Company's address set forth above;

timely delivering a new, later-dated proxy using one of the methods described above; or

voting in person at the Annual Meeting.

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank or other nominee. You may also vote in person at the Annual Meeting if you obtain a legal proxy from your broker, bank or other nominee.


GRAPHIC

 

What shares are included in my proxy?

GRAPHIC

 

If you are a stockholder of record, you will receive one proxy card for all of your shares that are registered in your name with the Company's transfer agent. If you are a beneficial owner of shares, the voting instructions you receive from your broker, bank or other nominee will indicate the number of shares of Company common stock held by them on your behalf. If you received more than one proxy card or voting instructions, then your shares are likely registered in more than one name with the Company's transfer agent and/or held in more than one account with your broker, bank or other nominee. Please complete, sign, date and return each proxy card and/or voting instructions to ensure that all of your shares are voted.

GRAPHIC

 

What happens if I do not give specific voting instructions?

GRAPHIC

 

All properly executed proxies, unless revoked as described above, will be voted at the Annual Meeting in accordance with your instructions. If a properly executed proxy gives no specific instructions, then the proxy holders will vote your shares in the manner recommended by the Board on all matters presented in this Proxy Statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.

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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2020


 

 

If you are a beneficial owner of shares and do not provide your broker, bank or other nominee with specific voting instructions, then under the rules of the New York Stock Exchange (the "NYSE"), they may only vote on matters for which they have discretionary power to vote. If your broker, bank or other nominee does not receive instructions from you on how to vote your shares and they do not have discretion to vote on the matter, then the broker, bank or other nominee will inform the inspector of election that it does not have the authority to vote on the matter with respect to your shares.

Your broker, bank or other nominee will not be permitted to vote on your behalf on the election of directors; the advisory vote on executive compensation; the vote to approve The Howard Hughes Corporation 2020 Equity Incentive Plan; and other matters to be considered at the Annual Meeting, unless you provide specific instructions by completing and returning a properly executed proxy or following the instructions provided to you to vote your shares. For your vote to be counted, you need to communicate your voting decisions to your broker, bank or other nominee before the date of the Annual Meeting.


GRAPHIC

 

What constitutes a quorum?

GRAPHIC

 

A majority of the outstanding shares of common stock must be present, in person or by proxy, to constitute a quorum at the Annual Meeting.

Abstentions and "broker non-votes" are counted as present and entitled to vote for purposes of determining a quorum. A "broker non-vote" occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for that particular matter and has not received voting instructions from the beneficial owner.


GRAPHIC

 

Who can attend the Annual Meeting?

GRAPHIC

 

The Annual Meeting is open to all holders of the Company's common stock.

Proxy Statement for the 2020 Annual Meeting of Stockholders   /  9


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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14, 2020

GRAPHIC   What will the stockholders vote on at the Annual Meeting, what are the voting requirements for each of the matters to be voted on at the Annual Meeting and what are the Board's voting recommendations?

GRAPHIC

 

 

Proposal

  Vote Necessary to
Approve Proposal


Broker
Discretionary
Voting
Allowed?




Treatment of
Abstentions and
Broker Non-Votes



Board
Recommendation
1   Election of directors   Each director nominee must receive the affirmative vote of a majority of the votes cast with respect to the nominee, excluding abstentions   No   No effect  

 FOR
each director nominee

2   Advisory vote to approve executive compensation (Say-on-Pay)   Affirmative vote of a majority of the shares present, in person or by proxy, at the Annual Meeting and entitled to vote on the matter   No   Abstentions have the effect of a vote cast against the matter and broker non-votes have no effect  

 FOR

3   Approval of The Howard Hughes Corporation 2020 Equity Incentive Plan   Affirmative vote of a majority of the shares present, in person or by proxy, at the Annual Meeting and entitled to vote on the matter   No   Abstentions have the effect of a vote cast against the matter and broker non-votes have no effect  

 FOR

4   Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2020   Affirmative vote of a majority of the votes cast   Yes   No effect  

 FOR

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GRAPHIC

Matters Related to Corporate Governance, Board Structure, Director Compensation and Stock Ownership

GRAPHIC

CORPORATE GOVERNANCE

The Board has adopted the following policies to serve as the governing framework of the Company:

The Company's corporate governance guidelines, codes of business conduct and ethics and committee charters are available on the Company's website at www.howardhughes.com under the Investors tab. You may also obtain a copy of these policies upon written request to the Company's Corporate Secretary at its principal executive office.

The Board periodically reviews its corporate governance policies and practices. Based on these reviews, the Board may adopt changes to policies and practices that are in the best interests of the Company and as appropriate to comply with any new SEC or NYSE corporate governance requirements.

The Board may, at its discretion, elect a Chairman of the Board from among the directors. If at any time the

Chairman of the Board is a current or former executive officer of the Company, or for any reason is not an independent director, a presiding director will be selected by the independent directors from among the directors who are not current or former executive officers of the Company and are otherwise independent. The Board adopted this structure to promote decision-making and governance that are independent of the Company's management and to better perform the Board's monitoring and evaluation functions. The positions of Chairman of the Board and Chief Executive Officer are held by different individuals. The Chairman of the Board, William Ackman, is not a member of Company management.

The Board has established a policy that its non-management directors meet in executive session, without members of management present at least four times per year; provided, however, that any non-management director may request additional executive sessions of the non-management directors at any time, if and when necessary, to discuss any matter of concern. The Chairman of the Board or presiding director presides over each executive session. The Board policy provides that if the Board includes non-management directors that are not independent, at least one executive session each year will include only independent directors.

The Company believes that the foregoing policies and practices, when combined with the Company's other governance policies and procedures, provide an appropriate framework for oversight, discussion and evaluation of decisions and direction from the Board.

Proxy Statement for the 2020 Annual Meeting of Stockholders  /  11


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MATTERS RELATED TO CORPORATE GOVERNANCE, BOARD STRUCTURE, DIRECTOR COMPENSATION AND STOCK OWNERSHIP

Foundation in Sound Governance Practices


Regular executive sessions of independent directors

Annual Board and committee evaluations

Directors may contact any employee of our Company directly, and the Board and its committees may engage independent advisors at their sole discretion

Annual elections of directors (i.e., no staggered board)

A general prohibition against short sales; investing in publicly traded options; hedging; pledging and margin accounts; and limit orders, in each case, involving Company securities


 


Majority voting with resignation policy for directors in uncontested elections


Executive Compensation Recoupment Policy


Stockholders holding at least 15% of our outstanding shares of common stock can call a special meeting of stockholders


Director and executive stock ownership requirements


 

 

 
 

RISK MANAGEMENT

The Board views risk management as one of its primary responsibilities. A fundamental part of risk management is not only understanding the risks that the Company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. Our Board is responsible for overseeing the risk management of our Company, which is carried out by the full Board as well as at each of its committees and, in particular, the Risk Committee.

BOARD RISK MANAGEMENT OVERSIGHT INCLUDES:

RISK COMMITTEE RISK MANAGEMENT OVERSIGHT INCLUDES:

AUDIT COMMITTEE RISK MANAGEMENT OVERSIGHT INCLUDES:

COMPENSATION COMMITTEE RISK MANAGEMENT OVERSIGHT INCLUDES:

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE RISK MANAGEMENT OVERSIGHT INCLUDES:

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MATTERS RELATED TO CORPORATE GOVERNANCE, BOARD STRUCTURE, DIRECTOR COMPENSATION AND STOCK OWNERSHIP

DIRECTOR INDEPENDENCE

NYSE corporate governance guidelines require that at least a majority of the members of the Board meet the NYSE criteria for independence. The Board has determined that each of its non-management directors, which include Mr. Ackman, Mr. Flatto, Mr. Furber,

Ms. Kaplan, Mr. Model, Mr. Sellers, Mr. Shepsman and Ms. Tighe, is independent under the NYSE independence standards. Mr. Layne is not independent because he is the Chief Executive Officer of the Company.

DIRECTOR NOMINATIONS

Qualifications

The Nominating and Corporate Governance Committee considers a number of factors in its evaluation of director candidates. These factors include their specific experience, qualifications, attributes and skills in light of the Company's business. The Nominating and Corporate Governance Committee is also responsible for recommending the nomination of those incumbent directors it deems appropriate for reelection to the Board and, if applicable, reappointment to any committees of the Board on which such director serves.

While the Nominating and Corporate Governance Committee has not established specific criteria relating to a candidate's age, education, experience level or skills, qualified candidates are expected to have strong business expertise and, in particular, experiences and expertise with regard to real estate development and management, retail, marketing, capital markets, technology, financial reporting, risk management, ESG and/or business strategy. Under our Diversity Policy, the Nominating and Corporate Governance Committee also considers the independence of the nominee, availability for service to the Company (including any potential conflicts of interest), age of the incumbent directors on the Board, diversity and the Board's anticipated needs with regard to director expertise. With regard to diversity, the Nominating and Corporate Governance Committee is committed to considering candidates for the Board regardless of gender, ethnicity and national origin.

Stockholder Recommendations

The Nominating and Corporate Governance Committee will consider recommendations of potential candidates from stockholders based on the same criteria as a candidate identified by the Nominating and Corporate Governance Committee.

To recommend a candidate, a stockholder must provide notice to the Company. The notice must include the following:

GRAPHIC   For information regarding when notice must be received to be considered timely, see "Stockholder Proposals for 2021 Annual Meeting of Stockholders."

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MATTERS RELATED TO CORPORATE GOVERNANCE, BOARD STRUCTURE, DIRECTOR COMPENSATION AND STOCK OWNERSHIP

STOCKHOLDER ENGAGEMENT

We believe that strong corporate governance should include year-round engagement with our stockholders. Through our investor outreach program, we solicit feedback on our executive compensation program, corporate governance and disclosure practices, and

we respond to questions regarding our programs, policies and goals. We share the feedback we receive with our Board of Directors and Compensation Committee.

COMMUNICATIONS WITH THE BOARD

Any stockholder or other interested party may communicate with the Board, any Board committee, the non-management directors or any individual director. All written communications must identify the recipient and the author and be sent by certified mail to the Company's principal executive offices at:

The Howard Hughes Corporation
One Galleria Tower
13355 Noel Road, 22nd Floor
Dallas, Texas 75240
Attention: Corporate Secretary

The Corporate Secretary will act as agent for the directors in facilitating these communications.

CODES OF BUSINESS CONDUCT AND ETHICS

The Company has adopted a code of business conduct and ethics applicable to the Company's directors and a code of business conduct and ethics applicable to the Company's officers and other employees. The purpose of these codes is to, among other things, affirm the Company's commitment to the highest standards of business conduct and ethics, integrity and attendant compliance reporting in accordance with all applicable

laws. The codes set forth a common set of values and standards to which all of the Company's directors, officers and employees are expected to adhere. The Company will post information regarding any amendment to, or waiver from, its codes of business conduct and ethics on its website under the Investors tab as required by applicable law.

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GRAPHIC

The Board, its Committees and its Compensation

GRAPHIC

THE BOARD

Eight of our directors are non-management directors. Under the Company's amended and restated bylaws, the Board may select one of its members to be Chairman of the Board. William Ackman is the Chairman of the Board.

Under the Company's corporate governance guidelines, Board members are expected to devote the time reasonably necessary to discharge their responsibilities and to prepare for and, to the extent reasonably practicable, attend and participate in all meetings of the Board and the committees on which they serve. Each director is expected to attend the annual meeting of stockholders. The Board held a total of nine meetings in 2019. All directors attended 75% or more of the meetings of the Board and of the

committees on which they served during 2019. All the directors attended our 2019 annual meeting of stockholders.

Our individual Board members have varied expertise and bring extensive professional experience both within and outside the real estate industry. This provides our Board with a vast collective skill set which is advantageous to the Board's oversight of our Company. While the industry-specific expertise possessed by certain of our Board members is essential, we also benefit from the viewpoints of our directors with expertise outside of the real estate industry. These varied perspectives expand the Board's ability to provide relevant guidance to our business.

BOARD COMMITTEES

Our Board has four standing committees: Audit, Compensation, Nominating and Corporate Governance and Risk. The specific membership of each committee allows us to take advantage of our directors' diverse skill sets, which enables deep focus on committee matters.

Each of our committees:

Operates pursuant to a written charter (available on our website at www.howardhughes.com under the "Investors" tab)
Reviews its charter annually

Evaluates its performance annually

The Company's reputation is of critical importance. In fulfilling their duties and responsibilities, each of our standing committees and our Board consider the potential effect of any matter on our reputation.

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THE BOARD, ITS COMMITTEES AND ITS COMPENSATION

AUDIT

Meetings in 2019: 13
All Independent

Steven Shepsman  GRAPHIC GRAPHIC

Beth Kaplan

Allen Model


 

Key Skills and Experiences Represented

Audit, tax, accounting

Preparation or oversight of financial statements

Compliance

Risk management

Key Responsibilities

Pre-approving auditing services, internal control-related services and permitted non-audit services to be performed for the Company by the independent registered public accounting firm

Reviewing and discussing with management and the independent registered public accounting firm financial statement and disclosure matters

Reviewing the findings and recommendations of the Company's independent registered public accounting firm and management's response to the recommendations of that firm

Reviewing and discussing with management and the independent registered public accounting firm the Company's significant financial and accounting risk exposure

Overseeing the internal audit function

Overseeing compliance with applicable legal and regulatory requirements as it relates to financial reporting

Establishing "whistleblower" procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters









Each member of the Audit Committee has the ability to read and understand fundamental financial statements. The Board has determined that Mr. Shepsman meets the requirements of an "audit committee financial expert" as defined by the rules of the Securities Exchange Act of 1934 (the "Exchange Act").


COMPENSATION

Meetings in 2019: 7
All Independent

R. Scot Sellers  GRAPHIC

William Ackman

Burton Tansky (prior to retirement from the Board)

Mary Ann Tighe


 

Key Skills and Experiences Represented

Setting executive compensation

Evaluating executive and Company-wide compensation programs

Human capital management

Key Responsibilities

Evaluating the performance of and determining the compensation for the Company's executive officers, including its Chief Executive Officer

Reviewing, approving and recommending to the Board the Company's annual and long-term incentive plans and programs

Reviewing and approving employment and other contracts relating to compensation with the Company's executive officers

Reviewing director compensation policies, objectives and programs and approving the form and amount of director compensation

Reviewing with management and approving the Compensation Discussion and Analysis to be included in the Company's proxy statement













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THE BOARD, ITS COMMITTEES AND ITS COMPENSATION

NOMINATING AND CORPORATE GOVERNANCE

Meetings in 2019: 4
All Independent

Jeffrey Furber  GRAPHIC

Adam Flatto

Allen Model

R. Scot Sellers

Steven Shepsman


 

Key Skills and Experiences Represented

Corporate governance

Current and prior public company board service

Key Responsibilities

Developing and recommending corporate governance guidelines applicable to the Board and the Company's employees

Developing criteria and qualifications for directors to be used in identifying, reviewing and selecting director candidates

Identifying and recommending individuals qualified to be directors

Reviewing relationships between directors, the Company and members of management and recommending to the Board whether directors are independent

Recommending committee composition and assignments














RISK

Meetings in 2019: 4
All Independent

Allen Model  GRAPHIC

Beth Kaplan

R. Scot Sellers

Steven Shepsman


 

Key Skills and Experiences Represented

Understanding of how risk is undertaken, mitigated and controlled

Real estate operating experience

Key Responsibilities

Assessing and evaluating critical risks

Approving the Company's enterprise-wide, risk management framework

Reviewing policies and procedures established and implemented by management to understand general enterprise and related business risk inherent in the Company's business

Providing strategic consultation and input to management to assist management in evaluating policies and practices that provide the framework to ensure operational efficiency and necessary controls for operational and other risks

Identifying which risks should be elevated to the full Board for assessment

Overseeing the delegation of risk-related responsibilities to each Board Committee










Commitment of Our Board – 2019


2019 Meetings  

Board

    9  

Audit

    13  

Compensation

    7  

Nominating and Corporate Governance

    4  

Risk

    4  

Executive Sessions of Independent Directors without Management

    6  

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THE BOARD, ITS COMMITTEES AND ITS COMPENSATION

BOARD AND COMMITTEE EVALUATIONS

We recognize the critical role that the Board and committee evaluations play in ensuring the effective functioning of our Board. It is important to take stock of Board, committee and director performance, and to solicit and act upon feedback from each member of our Board. To this end, our Nominating and Corporate Governance Committee is responsible for evaluating the performance of our Board annually, and each of our Board's committees also conducts an annual self-evaluation.

Evaluations – A Multi-Step Process

The Nominating and Corporate Governance Committee periodically reviews the format of the Board and committee evaluation process to ensure that actionable feedback is solicited on the operation of the Board and director performance.

Questionnaire

  Evaluation questionnaire provides director feedback on an unattributed basis

One-on-One Discussions

  Every third year, the Nominating and Corporate Governance Committee engages an independent third party to conduct one-on-one discussions with each director to solicit additional feedback and provide individual feedback

Board Summary

  Summary of Board and committee evaluation results provided to the full Board

Feedback Incorporated

  Policies and practices updated as appropriate as a result of director feedback

2019 DIRECTOR COMPENSATION

ANNUAL COMPENSATION

The table below summarizes the Company's non-employee director compensation program.



Total  

Board Service:

     

Annual retainer

  $220,000  

Committee Service:

     

Annual Audit Committee Chair Retainer

  $30,000  

Annual Audit Committee Member Retainer

  $15,000  

Annual Compensation Committee Chair Retainer

  $15,000  

Annual Compensation Committee Member Retainer

  $5,000  

Annual N&CG Committee Chair Retainer

  $12,500  

Annual N&CG Committee Member Retainer

  $5,000  

Annual Risk Committee Chair Retainer

  $12,500  

Annual Risk Committee Member Retainer

  $5,000  

Under our director compensation program, the annual retainer for Board service is payable $145,000 in restricted stock and $75,000 in cash. A director may elect to receive up to all of his or her cash retainer in restricted stock.

The Company also reimburses directors for all expenses incurred in attending Board and Board committee meetings. A director who is, or becomes, an employee of the Company does not receive additional compensation for serving as a director.

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THE BOARD, ITS COMMITTEES AND ITS COMPENSATION

DIRECTOR COMPENSATION TABLE

The table below sets forth the compensation earned by each of the Company's directors during 2019.

Name(1)





Fees Earned or Paid
in Cash
($)(2)





Stock Awards(3)
($)



Total
($)
 

William Ackman(4)

             

Adam Flatto

    80,000     145,000     225,000  

Jeffrey Furber

    87,500     145,000     232,500  

Beth Kaplan

    132,500     145,000     277,500  

Allen Model

    126,250     145,000     271,250  

R. Scot Sellers

    100,000     145,000     245,000  

Steven Shepsman

    115,000     145,000     260,000  

Burton Tansky(5)

    2,500         2,500  

Mary Ann Tighe

    80,000     145,000     225,000  
(1)
Mr. Weinreb, a former director and former Chief Executive Officer of the Company, and Paul Layne, a director and Chief Executive Officer of the Company, are not included in this table because they are/were employees of the Company and receive/received no additional compensation for their service as a director. The compensation earned by Mr. Weinreb and Mr. Layne as employees of the Company during 2019 is shown in "Executive Compensation – Summary Compensation Table".

(2)
Ms. Kaplan, Ms. Tighe, Mr. Furber, Mr. Model and Mr. Sellers elected to receive $75,000 of their annual cash retainer in restricted stock.

(3)
Represents the aggregate grant date fair value of restricted stock granted to the Company's non-management directors. The dollar amounts were computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation, and exclude the effect of estimated forfeitures. As of December 31, 2019, the number of shares of restricted stock held by each of the non-management directors was as follows: Mr. Flatto (1,432), Mr. Furber (2,173), Ms. Kaplan (2,173), Mr. Model (2,173), Mr. Sellers (2,173), Mr. Shepsman (1,432) and Ms. Tighe (2,173). The numbers in this column do not include annual cash retainers that certain directors elected to take in restricted stock. The grant date fair value of the restricted stock granted to Ms. Kaplan, Ms. Tighe, Mr. Furber, Mr. Model and Mr. Sellers, including restricted stock that was received in lieu of annual retainer fees, was $220,000.

(4)
Mr. Ackman waived all compensation relating to his service as a director of the Company and has not been awarded any equity compensation.

(5)
Mr. Tansky retired from the Board on May 16, 2019 and did not receive any restricted stock.

STOCK OWNERSHIP GUIDELINES

The stock ownership guidelines for non-management directors and officers were adopted to align their interests with those of the Company's stockholders and strengthen the Company's commitment to sound corporate governance. The stock ownership guidelines provide that (a) each non-management director that was a member of the Board prior to May 14, 2013 is required to own shares of Company common stock with a value equal to five times the original annual retainer ($112,000) for Board service within five years of the date of appointment, and (b) each non-management director appointed after May 14, 2013 is required to

own shares of Company common stock with a value equal to five times the annual retainer for Board service in effect on May 14, 2013 ($165,000) within five years of the date of appointment. In determining whether a director has met the minimum stock ownership guidelines, shares of common stock of the Company and restricted stock of the Company will be, in each case, valued based upon the closing price of Company's common stock on the applicable determination date. As of March 31, 2020, each director was compliant with the stock ownership guidelines.

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GRAPHIC

Security Ownership of Management and Certain Beneficial Holders

GRAPHIC

The tables below provide information regarding the beneficial ownership of the Company's common stock as of March 31, 2020, by:

The table below lists the number and percentage of shares beneficially owned based on 55,063,251 shares of common stock outstanding as of March 31, 2020. Beneficial ownership is determined in accordance with SEC rules and regulations. Unless otherwise indicated and subject to community property laws where applicable, the Company believes each stockholder named in the table below has sole voting and investment power with respect to the shares indicated as beneficially owned.

DIRECTORS AND EXECUTIVE OFFICERS

Name of Beneficial Owner

Amount and Nature of
Beneficial Ownership


Percentage

William Ackman(1)

16,386,835 29.8 %

Adam Flatto(2)(3)

20,574 *

Jeffrey Furber(3)

21,383 *

Beth Kaplan(3)

3,582 *

Allen Model(3)

21,297 *

R. Scot Sellers(3)

39,394 *

Steven Shepsman(3)(4)

14,878 *

Mary Ann Tighe(3)(5)

33,689 *

Paul Layne(6)

77,550 *

David O'Reilly(7)

29,865 *

Peter Riley(8)

56,675 *

Saul Scherl(9)

25,562 *

Simon Treacy(10)

6,272 *

David R. Weinreb(11)

3,316,636 5.8 %

Grant Herlitz(12)

304,097 *

All directors and executive officers as a group (20 persons)(13)

20,396,801 35.7 %
*
Less than 1%.

(1)
Includes 4,189,446 shares underlying forward purchase contracts beneficially owned by Pershing Square Capital Management, L.P., a Delaware limited partnership ("Pershing Square"), PS Management GP, LLC, a Delaware limited liability company ("PS Management"), and Mr. Ackman. Mr. Ackman, who is a director of the Company, may be deemed to be the beneficial owner of the 16,386,835 shares by virtue of his position as Chief Executive Officer of Pershing Square, the investment advisor to the Pershing Square Funds (as defined below) and as managing member of PS Management, the general partner of

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Security Ownership of Management and Certain Beneficial Holders

(2)
Includes 3,000 shares that are held by AF Services Money Purchase Plan. Mr. Flatto may be deemed to be the beneficial owner of such shares by virtue of his interest in the plan.

(3)
Includes shares of restricted stock for which the following directors have sole voting power, but no dispositive power: Mr. Flatto (1,432), Mr. Furber (2,173), Ms. Kaplan (2,173), Mr. Model (2,173), Mr. Sellers (2,173), Mr. Shepsman (1,432) and Ms. Tighe (2,173). These shares of restricted stock will vest on May 14, 2020.

(4)
Includes 9,005 shares held by Sam De Realty II, L.P. ("Sam De Realty"), a limited partnership for which Mr. Shepsman is the general partner. By virtue of his position as general partner of Sam De Realty, Mr. Shepsman may be deemed to be the beneficial owner of such shares.

(5)
Includes 19,495 shares that were purchased by Ms. Tighe's husband. By virtue of this relationship, Ms. Tighe may be deemed to be the beneficial owner of such shares.

(6)
Includes: (a) 1,086 shares of time-based restricted stock and 1,087 shares of performance-based restricted stock granted to Mr. Layne in February 2016 for which he has sole voting power, but no dispositive power; (b) 514 shares of time-based restricted stock and 1,287 shares of performance-based restricted stock granted to Mr. Layne in February 2017 for which he has sole voting power, but no dispositive power; (c) 739 shares of time-based restricted stock and 1,232 shares of performance-based restricted stock granted to Mr. Layne in February 2018 for which he has sole voting power, but no dispositive power; (d) 1,388 shares of time-based restricted stock and 1,737 shares of performance-based restricted stock granted to Mr. Layne in February 2019 for which he has sole voting power, but no dispositive power; (e) 4,581 shares of time-based restricted stock and 4,582 shares of performance-based restricted stock granted to Mr. Layne in February 2020 for which he has sole voting power, but no dispositive power; and (f) 40,179 options that are currently exercisable.

(7)
Includes: (a) 2,956 shares of time-based restricted stock and 4,927 shares of performance-based restricted stock granted to Mr.O'Reilly in February 2018 for which he has sole voting power, but no dispositive power; (b) 4,168 shares of time-based restricted stock and 5,210 shares of performance-based restricted stock granted to Mr. O'Reilly in February 2019 for which he has sole voting power, but no dispositive power; and (c) 5,258 shares of time-based restricted stock and 5,259 shares of performance-based restricted stock granted to Mr. O'Reilly in February 2020 for which he has sole voting power, but no dispositive power.

(8)
Includes: (a) 4,075 shares of time-based restricted stock and 4,076 shares of performance-based restricted stock granted to Mr. Riley in February 2016 for which he has sole voting power, but no dispositive power; (b) 1,716 shares of time-based restricted stock and 4,290 shares of performance-based restricted stock granted to Mr. Riley in February 2017 for which he has sole voting power, but no dispositive power; (c) 10,000 shares of time-based restricted stock granted to Mr. Riley in November 2017 in connection with entering into his new employment agreement with the Company of which he has sole voting, but no dispositive power; (d) 1,970 shares of time-based restricted stock and 3,285 shares of performance-based restricted stock granted to Mr. Riley in February 2018 for which he has sole voting power, but no dispositive power; (e) 2,778 shares of time-based restricted stock and 3,473 shares of performance-based restricted stock granted to Mr. Riley in February 2019 for which he has sole voting power, but no dispositive power; and (f) 3,187 shares of time-based restricted stock and 3,187 shares of performance-based restricted stock granted to Mr. Riley in February 2020 for which he has sole voting power, but no dispositive power.

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS

(9)
Includes: (a) 857 shares of time-based restricted stock and 2,145 of performance-based restricted stock granted to Mr. Scherl in February 2017 for which he has sole voting power, but no dispositive power; (b) 1,231 shares of time-based restricted stock and 2,053 shares of performance-based restricted stock granted to Mr.Scherl in February 2018 for which he has sole voting power, but no dispositive power; (c) 1,736 shares of time-based restricted stock and 2,171 shares of performance-based restricted stock granted to Mr. Scherl in February 2019 for which he has sole voting power, but no dispositive power; (d) 8,020 shares of time-based restricted stock granted to Mr. Scherl in February 2019 in connection with his new compensation package for which he has sole voting, but no dispositive power; and (e) 2,390 shares of time-based restricted stock and 2,390 shares of performance-based restricted stock granted to Mr. Scherl in February 2020 for which he has sole voting power, but no dispositive power.

(10)
As of the date of Mr. Treacy's separation from the Company. Following Mr. Treacy's separation from the Company, all of his unvested equity awards from prior years were cancelled.

(11)
Includes: (a) 25,738 shares of performance-based restricted stock granted to Mr. Weinreb in August 2017 in connection with entering into his new employment agreement with the Company for which he has sole voting power, but no dispositive power; (b) 24,636 shares of performance-based restricted stock granted to Mr. Weinreb in February 2018 for which he has sole voting power, but no dispositive power; (c) 26,050 shares of performance-based restricted stock granted to Mr. Weinreb in February 2019 for which he has sole voting power, but no dispositive power; and (d) 1,965,409 shares of common stock issuable upon exercise of a warrant. The percentage beneficially owned is based on 44,760,439 shares of common stock which would be outstanding if Mr. Weinreb exercised the warrant.

(12)
Includes: (a) 13,041 shares of performance-based restricted stock granted to Mr. Herlitz in February 2016 for which he has sole voting power, but no dispositive power; (b) 10,295 shares of performance-based restricted stock granted to Mr. Herlitz in February 2017 for which he has sole voting power, but no dispositive power; (c) 10,779 shares of performance-based restricted stock granted to Mr. Herlitz in February 2018 for which he has sole voting power, but no dispositive power; (d) 11,397 shares of performance-based restricted stock granted to Mr. Herlitz in February 2019 for which he has sole voting power, but no dispositive power; (e) 93,275 shares indirectly held by Mr. Herlitz through a family limited partnership; (f) 13 shares held indirectly by his daughter; and (g) 87,951 shares of common stock issuable upon exercise of a warrant.

(13)
The percentage beneficially owned is based on 57,116,611 shares of common stock outstanding which would be outstanding if each of Messrs. Weinreb and Herlitz exercised their warrants.

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL HOLDERS

In October 2016, Mr. O'Reilly purchased a warrant from the Company to acquire 50,125 shares in exchange for a fair market value purchase price of $1 million. The purchase price of the warrant and the number of shares issuable upon exercise was determined by the Board based upon the advice of Houlihan Lokey, an independent third party valuation adviser. The exercise price of the warrant and the shares underlying the warrant is $112.08, which was the closing trading price of the Company's common stock on the NYSE on October 6, 2016.

The warrant fully vested at the time of purchase. In accordance with Rule 13d-3 of the Exchange Act, the shares of Company common stock underlying the warrant issued to Mr. O'Reilly in 2016 are not included in the table above because the warrant is not exercisable within 60 days of the date of the information provided in the table.

FIVE PERCENT HOLDERS

The following table sets forth information regarding the number and percentage of shares of common stock held by all persons and entities, other than directors and officers of the Company, known by the Company to beneficially own 5% or more of the Company's outstanding common stock. The information regarding beneficial ownership of common stock by each entity

identified below is included in reliance on a report filed by the entity with the SEC, except that the percentage is based upon the Company's calculations made in reliance upon the number of shares reported to be beneficially owned by the entity in such report and the number of shares of common stock outstanding on March 31, 2020.

Name and Address of Beneficial Owner

Amount and Nature of
Beneficial Ownership


Percent

Pershing Square(1)
    787 Eleventh Avenue, 9th Floor
    New York, New York 10019

16,386,835 29.8 %

The Vanguard Group(2)
    100 Vanguard Boulevard
    Malvern, Pennsylvania 19355

5,977,727 10.9 %

Caledonia (Private) Investments Pty Limited(3)
    Level 10, 131 Macquarie Street
    Sydney, NSW, 2000, Australia

2,385,692 4.3 %

Principal Global Investors, LLC(4)
    801 Grand Avenue
    Des Moines, lowa 50392

2,231,477 4.1 %
(1)
According to a Schedule 13D/A filed by (i) Pershing Square, (ii) PS Management and (iii) William Ackman (collectively, the "Pershing Reporting Persons") with the SEC on March 31, 2020 and a Form 4 filed by the Pershing Reporting Persons with the SEC on March 31, 2020. The Pershing Reporting Persons share voting and investment power with respect to 16,386,835 of these shares. The number also includes 4,189,446 shares underlying forward purchase contracts owned by the Pershing Square Funds. None of the forward purchase contracts give the Reporting Persons direct or indirect voting, investment or dispositive control over any securities of the Company or requires the counterparty thereto to acquire, hold, vote or dispose of any securities of the Company.

(2)
According to a Schedule 13G/A filed by The Vanguard Group, Inc. ("Vanguard") with the SEC on February 11, 2020. Vanguard has sole voting power with respect to 22,151 shares of our common stock, shared voting power with respect to 8,747 shares of our common stock, sole dispositive power with respect to 5,952,033 shares of our common stock and shared dispositive power with respect to 25,694 shares of our common stock.

(3)
According to a Schedule 13G filed by Caledonia (Private) Investments Pty Limited ("Caledonia") with the SEC on February 14, 2020. Caledonia has sole voting power and sole dispositive power with respect to 2,385,692 shares of our common stock.

(4)
According to a Schedule 13G filed by Principal Global Investors, LLC ("Principal") with the SEC on February 14, 2020. Principal has shared voting power with respect to 2,231,477 shares of our common stock and shared dispositive power with respect to 2,231,477 shares of our common stock.

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GRAPHIC

Section 16(a) Beneficial Ownership Reporting Compliance

GRAPHIC

Compliance with Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of its equity securities, to file reports of ownership and changes in ownership with the SEC. These reporting persons are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the Company, the Company believes that during 2019 all Section 16(a) filing requirements applicable to its directors, executive officers and greater than 10% stockholders were in compliance with Section 16(a).

GRAPHIC Compensation Committee Interlocks and Insider Participation GRAPHIC

 

Messrs. Ackman, Sellers and Tansky (prior to his retirement) and Ms. Tighe served on the compensation committee in 2019. None of the members of the Compensation Committee are or have been an officer or an employee of the Company. In addition, during 2019, none of the Company's

executive officers served on the board of directors or compensation committee (or committee performing equivalent functions) of any other company that had one or more executive officers serving on the Board or the Company's compensation committee.

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GRAPHIC

Related Party Transactions and Certain Relationships

GRAPHIC

RELATED PARTY TRANSACTIONS POLICY

The Company has adopted a written policy relating to the approval of related party transactions. Under this policy, the Audit Committee reviews certain financial transactions, arrangements and relationships between the Company and any of the following related parties to determine whether any such transaction, arrangement or relationship is a related party transaction:

Audit Committee review is required for any financial transaction, arrangement or relationship that:

The Audit Committee reviews each such transaction, arrangement or relationship to determine whether a related party has, has had or expects to have a direct or indirect material interest. Following its review, the Audit Committee will take such action as it deems necessary and appropriate under the circumstances, including approving, disapproving, ratifying, cancelling or recommending to management how to proceed if it determines a related party has a direct or indirect material interest in a transaction, arrangement or relationship with the Company. Any member of the Audit Committee who is a related party with respect to a transaction under review is not permitted to participate in the discussions or evaluations of the transaction; however, the Audit Committee member will provide all material information concerning the transaction to the Audit Committee. The Audit Committee reports its action with respect to any related party transaction to the Board.

TRANSACTIONS IN CONNECTION WITH THE SPIN-OFF

Pursuant to the plan of reorganization of General Growth Properties, Inc. ("GGP"), GGP entered into agreements with each of certain affiliates of Brookfield Asset Management ("Brookfield"), Fairholme Fund and Fairholme Focused Income Fund (collectively, "Fairholme") and Pershing Square pursuant to which these entities purchased an aggregate of $250.0 million of Company common stock at the effective time of the spin-off. At the effective time of the spin-off, the Company also entered into (a) warrant agreements, registration rights agreements and stockholders agreements with each of Brookfield, Fairholme and Pershing Square, (b) a registration rights agreement with General Trust Company and (c) a standstill agreement with Pershing Square. The agreements between the Company and Fairholme terminated in 2012 after the Company purchased its

outstanding warrants. The agreements between Brookfield and the Company terminated in 2013 after Brookfield disposed of all of its shares of the Company. The agreement between General Trust Company and the Company terminated in 2015 after General Trust Company disposed of all of its shares of the Company. The stockholder agreement and standstill agreement between Pershing Square and the Company each automatically terminated in 2018 after Pershing Square's beneficial ownership fell below the minimum thresholds set forth in the agreements. The key terms of the registration rights agreement between Pershing Square and the Company that remains effective are summarized below. See "Security Ownership of Management and Certain Beneficial Holders—Five Percent Holders" for the current beneficial ownership of Company common stock held by Pershing Square.

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RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS

Registration Rights Agreement

In November 2010, the Company entered into a registration rights agreement with Pershing Square with respect to Company common stock held by Pershing Square. The agreement with Pershing Square requires the Company to maintain a shelf registration statement covering the shares held by Pershing Square. Additionally, Pershing Square may require the Company to:

The Company has agreed to pay all expenses, other than underwriting discounts and commissions, in connection with the registration rights agreement, including legal and accounting fees incurred by the Company, printing costs and the fees of one law firm for the selling stockholder. Additionally, the Company has agreed to indemnify these stockholders against certain liabilities, including liabilities under the federal securities laws.

TRANSACTIONS AFTER THE SPIN-OFF

Weinreb Warrant

In June 2017, the Company granted Mr. Weinreb, the Company's former Chief Executive Officer, a warrant to acquire 1,965,409 shares in exchange for a fair market value purchase price of $50.0 million. The purchase price of the warrant and the number of shares issuable upon exercise was determined by the Board based upon the advice of Houlihan Lokey, an independent third party valuation adviser, and the warrant grant was approved by stockholders at the Company's annual meeting on May 18, 2017. The exercise price of the warrant is $124.64, which was the closing trading price of the Company's common stock on the NYSE on June 15, 2017. The warrant became exercisable on October 21, 2019 in connection with Mr. Weinreb's separation from the Company.

Herlitz Warrant

In October 2017, the Company granted Mr. Herlitz, the Company's former President, a warrant to acquire 87,951 shares in exchange for a fair market value purchase price of $2 million. The purchase price of the warrant and the number of shares issuable upon exercise was determined by the Board based upon the advice of Houlihan Lokey, an independent third party valuation adviser, and the warrant grant was approved by stockholders at the Company's annual meeting on May 18, 2017. The exercise price of the warrant is $117.01, which was the closing trading price of the Company's common stock on the NYSE on October 3, 2017. The warrant became exercisable on October 21, 2019 in connection with Mr. Herlitz's separation from the Company.

O'Reilly Warrant

In October 2016, Mr. O'Reilly, the Company's Chief Financial Officer, purchased a warrant from the Company to acquire 50,125 shares in exchange for a fair market value purchase price of $1 million. The purchase price of the warrant and the number of shares issuable upon exercise was determined by the Board based upon the advice of Houlihan Lokey, an independent third party valuation adviser. The exercise price of the warrant is $112.08, which was the closing trading price of the Company's common stock on the NYSE on October 6, 2016.

Condominium Unit Upgrades

On December 7, 2013, Mr. Weinreb, then a director and Chief Executive Officer of the Company, entered into purchase agreements to acquire two condominium units at the Company's Waiea Tower located at Ward Village. The purchase prices for the units were $3,439,200 and $3,963,300 and were at arm's-length on the same terms for similar units offered at the time. Mr. Weinreb intended to combine the two units into a single unit. The Audit Committee reviewed the transaction at the time and determined that there was no conflict of interest.

In 2019, Mr. Weinreb decided to purchase upgrades to his unfinished combined unit through an amended purchase agreement. The amended purchase agreement provides that Mr. Weinreb must bear the risk for potential unit upgrade price increases and pay a

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fee equal to 3% of the total costs of the unit upgrades to cover overhead costs. The Audit Committee reviewed the terms of the amended purchase agreement and determined that they were fair to the Company. Obligations still remain outstanding under the amended purchase agreement and the costs are indeterminable at this time.

Sale of Gulfstream G450 Jet

On December 2, 2019, the Company sold its Gulfstream G450 to Mr. Weinreb on an as-is basis for a purchase price of $9.125 million, which was below the appraisal of $10.0 million received from an aircraft

broker. The Audit Committee reviewed the transaction for fairness and determined that it was in the Company's best interest to sell the aircraft to Mr. Weinreb for an amount less than the estimated appraisal because it would likely take at least six months to find another buyer and the Company would have had to pay for the six-month holding costs for hangar space, interest and amortization expenses. The costs would have amounted to approximately $1.3 million. In addition, the Company would have had to pay an additional amount of approximately $390,000 for maintenance/repairs if it were to have sold the aircraft to another party.

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GRAPHIC

Proposal No. 1 – Election of Directors

GRAPHIC

The Company's bylaws provide that the number of directors will be determined by the Board from time to time. Currently, the Board consists of nine directors.

Each director nominee identified below is an incumbent director whose nomination to serve on the Board was recommended by the Nominating and Corporate Governance Committee and approved by the Board. The director nominees, if elected, will serve until the 2021 annual meeting of stockholders or until their earlier resignation or removal. Each of the director nominees has indicated a willingness to serve as a director if elected.

The primary qualities and characteristics nominees to the Board should possess are strong business

expertise and, in particular, experiences and expertise with regard to real estate development and management, capital markets, retail, marketing, technology, financial reporting, risk management, business strategy and ESG. All nine of the nominees possess these attributes. The specific experiences, qualifications, attributes and skills of each individual which led to his or her nomination are included in the individual discussions below.

The directors will be elected by the affirmative vote of a majority of votes cast "for" or "against" the election of that nominee.


 

 

 

GRAPHIC

  WILLIAM A. ACKMAN

Age 53

Chairman and independent director since November 2010

Committees

Compensation

Background

William A. Ackman has served as Chairman of the Board since November 2010. Mr. Ackman is the founder, chief executive officer and portfolio manager of Pershing Square Capital Management, L.P., an SEC registered investment adviser founded in 2003. From June 2009 to March 2010, Mr. Ackman served as a director of General Growth Properties, Inc. Mr. Ackman served as a director of Justice Holdings Limited from April 2011 to June 2012 and as a director of J.C. Penney Company, Inc. from February 2011 to August 2013. Mr. Ackman served as a director of Canadian Pacific Railway Ltd. from May 2012 to September 2016, Bausch Health Companies Inc. from 2016 to May 2017 and Valeant Pharmaceuticals International, Inc. from March 2016 to May 2017. Mr. Ackman is a member of the Investors Advisory Committee on Financial Markets for the Federal

Reserve Bank of New York, a member of the Board of Trustees at The Rockefeller University and a member of the Board of Dean's Advisors of the Harvard Business School.

Qualifications

Mr. Ackman's management experience, his prior service on boards of directors of public companies and his investments in real estate-related public and private companies give him valuable insight that can be applied to the Company and benefit of the Board.

GRAPHIC

  ADAM FLATTO

Age 57

Independent director since
November 2010

Committees

Nominating and Corporate Governance

Background

Adam Flatto has served as a director since November 2010. Mr. Flatto is the President and Chief Executive Officer of The Georgetown Company, a privately-held

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real estate investment and development company based in New York City. Mr. Flatto has been with The Georgetown Company since 1990 and during that time has been involved with the development, acquisition and ownership of over 20 million square feet of commercial and residential real estate projects throughout the United States. These have included a wide array of projects ranging from large-scale office buildings, movie studios, retail shopping malls, arenas, hotels, apartment buildings, mixed-use master planned communities and others. Mr. Flatto is a trustee and board member of several civic and cultural institutions. He is Co-Chairman of the Park Avenue Armory and Co-Chairman of the Robin Hood Housing Advisory Board. He is also a trustee of the Wexner Center for the Arts.

Qualifications

Mr. Flatto's extensive real estate development and management experience provides the Board with key insight into operations and strategic planning matters.

GRAPHIC

  JEFFREY FURBER

Age 61

Independent director since
November 2010

Committees

Nominating and Corporate Governance (Chair)

Background

Jeffrey Furber has served as a director since November 2010. Mr. Furber is the Chief Executive Officer of AEW Capital Management, L.P. ("AEW") and Chairman of AEW Europe. Mr. Furber joined AEW in 1997. AEW provides real estate investment management services to investors worldwide. AEW and its affiliates manage $75 billion of real estate assets and securities in North America, Europe and Asia on behalf of many of the world's leading institutional and private investors. Mr. Furber has oversight responsibility for all of AEW's operating business units in the United States, Europe and Asia and chairs AEW's Management Committee. He is also a member of AEW's Investment Committees and Investment Policy Groups in North America, Europe and Asia. Since April 2011, Mr. Furber has served as a director and a member of the Compensation and Nominating and Corporate Governance Committees of Stag Industrial, Inc., a publicly traded company. Prior to

1997, Mr. Furber served as managing director of Winthrop Financial Associates, a subsidiary of Apollo Advisors, and as president of Winthrop Management.

Qualifications

Mr. Furber has extensive experience overseeing financial investments in the real estate industry and has held leadership roles within his firm and industry groups alike. His investment and management experience enable him to provide the Board with key insight into real estate matters.

Other current public company boards

Stag Industrial

GRAPHIC

  BETH KAPLAN

Age 62

Independent director since
December 2017

Committees

Audit

Risk

Background

Beth Kaplan was appointed to the Board in December 2017. Ms. Kaplan is the Managing Member of Axcel Partners, LLC, a venture capital firm investing in early stage and growth companies founded and led by women. Ms. Kaplan has served as a director and member of the Compensation Committee and Nominating and Corporate Governance Committee of Crocs, Inc. since January 2020 and as a director and a member of the Audit and Finance Committees of Meredith Corporation since January 2017. Both Crocs, Inc. and Meredith Corporation are publicly traded companies. Ms. Kaplan also serves as the Chairman of the Board of Framebridge, an early stage disrupter in the home design space, and as a member of the Wharton Board of Overseers. Ms. Kaplan served as President and COO at Rent the Runway from 2013 to 2015, and continues to serve on its board. She also served as President and Chief Merchandising and Marketing Officer from 2008 to 2011, and as a director, of General Nutrition Centers, Inc. ("GNC"), where she played an integral role in the company's 2011 initial public offering. Prior to GNC, Ms. Kaplan served as Executive Vice President and General Manager at Bath & Body Works; Executive Vice President of Marketing and Merchandising at Rite Aid Drugstores;

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and President and General Manager of the U.S. Cosmetics and Fragrance division at Procter & Gamble.

Qualifications

Ms. Kaplan's valuable industry experience leading top female brands enables her to provide the Board with key insight into operational, marketing and digital matters.

Other current public company boards

Meredith Corporation

GRAPHIC

  PAUL LAYNE

Age 62

Director Since
October 2019

Committees

None

Background

Paul Layne has served as a director and Chief Executive Officer since October 2019. Mr. Layne joined the Company in 2012 and previously served as its President, Central Region. For more than 35 years, Mr. Layne has been a vital leader in Houston's commercial real estate community as well as in national real estate. Prior to joining the Company, Mr. Layne was Executive Vice President at Brookfield Properties Corporation, overseeing a 9.7 million square-foot portfolio in Houston's Central Business District. He was responsible for all of the region's activities including leasing, operations, property management, legal, accounting, development and construction as well as being a member of Brookfield's global partnership task force. Mr. Layne received a B.S. in management from the University of Houston and attended South Texas College of Law.

Qualifications

Mr. Layne's extensive experience in the real estate industry, as well as his executive leadership experience, make him particularly suited to provide guidance to the Board and serve as a bridge between the Board and our executive officers.

GRAPHIC

  ALLEN MODEL

Age 74

Independent director since
November 2010

Committees

Audit

Nominating and Corporate Governance

Risk (Chair)

Background

Allen Model has served as a director since November 2010. Mr. Model is the Co-Founder of Overseas Strategic Consulting, Ltd. ("OSC") and served as Treasurer and Managing Director of OSC from 1992 until his retirement from those positions in November 2010, at which time he continued to hold a passive interest in OSC and the title of "Founder Emeritus." In the spring of 2017, he resumed an active role as Treasurer and Vice Chairman of OSC. OSC is an international consulting firm that provides public information services to clients worldwide, including the United States Agency for International Development, The World Bank, The Asian Development Bank and host governments. Since 1988, Mr. Model has also been a private investor for Model Entities, which manages personal and family portfolios. Mr. Model currently serves as a director of Q'ligent, a private company that provides software management tools for broadcasting companies. Mr. Model served as a director from October 2010 to April 2017 for NetBoss Technologies, Inc., a company that provides software management tools for telecommunications companies; and served as a director of Anchor Health Properties, a real estate partnership that develops medically related properties, from 1990 until 2015, and Sinewave Energy Technologies, Inc., a company that produced energy saving devices in lighting space, from 1994 until 2011. Mr. Model served as a director of three publicly-traded companies: Blue Ridge Real Estate Company, a land development company, from 1975 to 2002; Big Boulder Corp., a land development company linked to Blue Ridge, from 1975 to 2002; and MetroWest Bank, from 1990 to 2001, in each case serving on (among others) the Audit Committee.

Qualifications

Mr. Model's consulting and investment experience as well as his service on boards of directors of both public and private companies provide him with knowledge in corporate strategy and investment expertise that will benefit the Board.

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GRAPHIC

  R. SCOT SELLERS

Age 63

Independent director since
November 2010

Committees

Compensation (Chair)

Nominating and Corporate Governance

Risk

Background

R. Scot Sellers has served as a director since November 2010. Mr. Sellers served as Chief Executive Officer of Archstone, one of the world's largest apartment companies, from January 1997 until February 2013, and prior to that was Archstone's Chief Investment Officer since 1995. Under his leadership, Archstone moved from being a mid-sized owner of apartments in secondary and tertiary cities, to becoming the largest publicly traded owner of urban high rise apartments in the nation's premier cities. During his 36-plus year career in the apartment business, Mr. Sellers has been responsible for the development, acquisition and operation of over $40 billion of apartment communities in over 50 different cities across the United States. Mr. Sellers served as the Chairman of the National Association of Real Estate Investment Trusts from November 2005 to November 2006. Since June 2013, Mr. Sellers has served on the International Board of Directors of Habitat for Humanity. Mr. Sellers also serves on the Board of Directors of The Irvine Company and Inspirato LLC.

Qualifications

Mr. Sellers' extensive experience in the real estate industry, which coincided with the broad growth of Archstone, and his service on industry committees provide him with insight into operations, development and growth of the real estate industry and make him particularly suited to provide guidance to the Board.

GRAPHIC

  STEVEN SHEPSMAN

Age 67

Independent director since
November 2010

Committees

Audit (Chair)

Nominating and Corporate Governance

Risk

Background

Steven Shepsman, has served as a director since November 2010. Mr. Shepsman is an executive managing director and founder of New World Realty Advisors, a real estate investment and advisory firm specializing in real estate restructurings, development and finance. Mr. Shepsman has been with New World Realty Advisors since 2009. From May 2018 through December 2019, Mr. Shepsman served as a director of Spirit MTA REIT, a publicly traded real estate investment trust. Upon its election to convert to a non-traded liquidating trust, Mr. Shepsman became a Liquidating Trustee. Previously, as a principal in a real estate fund, Mr. Shepsman had oversight responsibility for the fund's due diligence and acquisition of investment platforms, and with subsequent asset acquisitions, financings and dispositions. Mr. Shepsman served as a director of Rouse Properties, Inc. from January 2012 to May 2013. Earlier in his career, Mr. Shepsman was a managing partner of Kenneth Leventhal and Company and of Ernst & Young's Real Estate Practice. Mr. Shepsman is a trustee of The University of Buffalo Foundation and a member of the Dean's Advisory Council for its School of Management.

Qualifications

Mr. Shepsman's extensive professional accounting and financial expertise, including in the real estate industry, enable him to provide key contributions to the Board on financial, accounting, corporate governance and strategic matters.

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GRAPHIC

  MARY ANN TIGHE

Age 71

Independent director since
October 2011

Committees

Compensation

Background

Mary Ann Tighe has served as a director since October 2011. Ms. Tighe has been credited with transforming New York's skyline during her more than 35 years in the real estate industry. Ms. Tighe has been the Chief Executive Officer of CBRE's New York Tri-State Region since 2002, a region of 2,500 employees, and served as a director of CBRE in 2013. Ms. Tighe's deals have anchored more than 14.4 million square feet of new construction in the New York region. From January 2010 through December

2012, Ms. Tighe served as Chair of the Real Estate Board of New York, the first woman to hold this position in its 114-year history and the first broker in 30 years. Ms. Tighe began her real estate career as a broker at the Edward S. Gordon Company, ultimately rising to the position of Vice Chairman of Insignia/ESG, where she was regularly recognized as being among the firm's top producers. Prior to entering the real estate field, Ms. Tighe served as a Vice President of the American Broadcasting Companies, where she launched the A&E cable channel. Ms. Tighe was also formerly the Deputy Chairman of the National Endowment for the Arts, Arts Advisor to Vice President Walter Mondale, and a staff member of the Smithsonian Institution.

Qualifications

Ms. Tighe's extensive experience with commercial real estate transactions enables her to provide the Board with key insight into the real estate matters.

 

  The Board recommends a vote FOR each of the nine director nominees listed above.

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GRAPHIC

Proposal No. 2 – Advisory Vote on Executive Compensation

GRAPHIC

The Company believes that its compensation policies and procedures are centered on a pay-for-performance culture and are strongly aligned with the long-term interests of its stockholders. This advisory, non-binding, stockholder vote, as required under Section 14A of the Exchange Act and commonly known as "say-on-pay" gives you, as a stockholder, the opportunity to vote for or against the Company's executive compensation program as disclosed under the heading "Compensation Discussion and Analysis" of this Proxy Statement. The next advisory vote on executive compensation will occur at the 2021 Annual Meeting of Stockholders.

The vote on this proposal is not intended to address any specific element of compensation. The vote relates to the compensation of the Company's named executive officers ("NEOs"), as disclosed under the heading "Compensation Discussion and Analysis" and "Executive Compensation" in this Proxy Statement disclosed pursuant to the compensation disclosure rules of the SEC. Highlights of our executive compensation program and practices include the following:

Our board is asking stockholders to approve a non-binding advisory vote on the following resolution:

 

  The Board recommends a vote FOR the approval of our executive compensation.

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GRAPHIC

PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

GRAPHIC

The Board is asking stockholders to approve the material terms of The Howard Hughes Corporation 2020 Equity Incentive Plan (the "2020 Incentive Plan"). The purpose of the 2020 Incentive Plan is to provide a means for the Company to attract, retain, and motivate officers, employees, non-employee directors, and consultants providing services to the Company or any of its subsidiaries or affiliates and to promote the success of the Company's business by providing the participants in the 2020 Incentive Plan with appropriate incentives. The Company's current equity incentive plan, The Howard Hughes Corporation Amended and Restated 2010 Incentive Plan (the "2010 Plan"), will expire by its terms on November 8, 2020. As of March 23, 2020, there were 1,740,237 shares of the Company's common stock available for issuance under the 2010 Plan, none of which may be subject to new awards under the 2010 Plan following its termination. The 2020 Incentive Plan is intended to replace the 2010 Plan and, therefore, if our stockholders approve the 2020 Incentive Plan at the 2020 Annual Meeting, the Company will not make any further grants under the 2010 Plan following the date of the 2020 Annual Meeting.

The 2020 Incentive Plan includes features that are consistent with our "pay for performance" philosophy and the alignment of our compensation program with stockholder interests, including:

The Board believes that a reserve of 1,350,000 shares of the Company's common stock available for issuance under the 2020 Incentive Plan would provide sufficient shares for the Company's equity-based compensation needs for approximately five years following stockholder approval. This estimate is based on our average "burn rate" over the past three years, as more fully described below. The reserve may be sufficient for a longer or shorter period of time, depending on our future equity grant needs, which are related to factors such as our employee population, future award forfeitures and cancellations, the Company's acquisition activity, the Company's stock price, and our retentive needs in a competitive compensation environment.

As described in detail in the "Compensation Discussion and Analysis" section of this Proxy Statement, equity compensation is an integral feature of our total compensation program, and provides employees with long-term exposure to our performance and aligns the interests of our employees with those of our stockholders. If our stockholders do not approve the 2020 Incentive Plan, our future ability to issue appropriate equity compensation to hire and retain talent will be significantly limited, which could have an adverse impact on our ability to retain our workforce and, ultimately, on our business. Additionally, replacing equity compensation with cash-settled awards could increase compensation expense and contribute to greater volatility in our reported earnings. Under current accounting rules, the Company would be required to mark-to-market any cash-settled awards that are indexed to the value of the Company's common stock. This would cause fluctuations in our results and, if the Company's stock price appreciates, an increase in employee compensation expense.

We are asking stockholders to approve the material terms of the 2020 Incentive Plan. A summary of the material terms of the 2020 Incentive Plan is set forth below. The complete text of the 2020 Incentive Plan is provided in Appendix A to this proxy statement, and our summary of the 2020 Incentive Plan is qualified in its entirety by reference to the full text and provisions of the 2020 Incentive Plan in Appendix A.

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PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

BURN RATE

The "burn rate," or share utilization rate, related to our use of equity compensation awards for the last three fiscal years is shown in the table below:

Fiscal Year

  Awards
Granted(1)


Diluted
Weighted
Average
Number of
Shares of
Common
Stock
Outstanding(2)








Burn Rate

2019

  257,645   43,356,000   0.59%

2018

  407,332   43,250,000   0.94%

2017

  235,708   43,120,000   0.55%
(1)
Includes stock options, time-based restricted stock, and performance-based restricted stock.

(2)
As stated in the Company's Annual Report on Form 10-K for the fiscal years ending December 31, 2019 and December 31, 2018.

The potential dilution resulting from issuing all of the 1,350,000 shares of the Company's common stock available for issuance under the 2020 Incentive Plan, if approved, would be 2.5%, based on our common stock outstanding as of March 31, 2020 (55,063,251 shares).

SUMMARY OF THE 2020 INCENTIVE PLAN

Administration

The 2020 Incentive Plan is administered by the Compensation Committee of our Board (the "Compensation Committee"). The authority of the Compensation Committee includes, among other things, selecting award recipients, establishing award terms and conditions, granting awards, construing any ambiguous provision of the 2020 Incentive Plan or in any award agreement issued thereunder, and adopting modifications and amendments to the 2020 Incentive Plan or any award agreement, subject to the terms of the 2020 Incentive Plan. The Board may also exercise the full power to administer the 2020 Incentive Plan in its discretion.

The Compensation Committee may, subject to applicable law, delegate to one or more of its members or one or more executive officers of the Company such administrative duties or powers as it may deem advisable.

Eligibility

Subject to the terms of the 2020 Incentive Plan, the Compensation Committee may grant awards to any of our employees, directors or any consultant who provides services to us, but incentive stock options may be granted only to our employees. Currently, approximately 600 persons are eligible to receive awards under the 2020 Incentive Plan.

Shares Available for Grants

If the 2020 Incentive Plan is approved by our stockholders, 1,350,000 shares of our common stock are authorized under the 2020 Incentive Plan, subject to adjustment as provided therein (the "Absolute Share Limit"). These shares may be shares of original issuance or treasury shares or a combination of the foregoing. Shares of our common stock issued under any plan assumed by the Company in any corporate transaction will not count against the Absolute Share Limit, nor will any awards granted in substitution for outstanding awards previously granted by an entity directly or indirectly acquired by the Company or with which the Company combines.

If any award expires, is forfeited, canceled or otherwise terminated without the issuance of shares of our common stock, or is otherwise settled for cash, the shares subject to that award, to the extent of the forfeiture, cancellation, expiration, termination or settlement for cash, will again be available for granting of awards under the 2020 Incentive Plan. However, any shares (i) withheld or tendered in payment of an applicable exercise price, grant price, strike price, or taxes relating to any award, or (ii) repurchased by the Company using proceeds from exercise of a stock option, shall be deemed to constitute shares issued to the applicable participant and will not be again available for awards under the 2020 Incentive Plan. In addition, the gross number of shares underlying a stock-settled Stock Appreciation Right shall reduce the Absolute Share Limit when such Stock Appreciation Right is settled in shares.

Director Award Limits

The aggregate awards granted under the 2020 Incentive Plan to any non-employee director during any fiscal year shall not exceed a total value of $675,000 (calculated based on the grant date fair value of such awards for financial reporting purposes). Substitute awards as described above are not counted for purposes of this limitation.

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PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

Minimum Vesting Requirement

A number of shares equal to no more than 5% of the Absolute Share Limit (as adjusted under the 2020 Incentive Plan) shall be subject to awards with vesting conditions that lapse over a period of less than one year. However, an award to a non-employee director may be granted on or promptly following the Company's annual meeting of stockholders in a given year that vests upon the Company's annual meeting of stockholders in the following year and that occurs at least 50 weeks following such preceding meeting without counting against this limitation.

Types of Awards

The 2020 Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. The Compensation Committee may condition the grant of any award under the 2020 Incentive Plan, or the vesting or exercisability of any such award, on one or more conditions as the Compensation Committee determines (including, without limitation, a requirement that a participant provide continuous services to the Company and its affiliates for a specified period of time and/or that certain subjective or objective performance goals are satisfied). The principal terms and features of the various forms of awards are set forth below:

Stock Options.    Stock options entitle the participant to purchase shares of our common stock at a price not less than the fair market value per share on the grant date. Stock options may be incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options. The Compensation Committee may establish procedures through which the exercise price is payable in cash or by check, by a cashless broker-assisted exercise, by the transfer to the Company of shares of our common stock owned by the participant, by the Company withholding shares of our common stock otherwise deliverable to the participant upon the exercise of the stock option, by a combination of these payment methods, or by any other method that the Compensation Committee may approve. No stock option will be exercisable more than 10 years after the grant date.

Stock Appreciation Rights.    A stock appreciation right is a right to receive from the Company an amount equal to the fair market value of the underlying share on the date of exercise less the grant price (or strike price)

of the stock appreciation right. The amount payable by the Company upon the exercise of a stock appreciation right may be paid in cash, shares of our common stock, other property or any combination thereof.

Stock appreciation rights can be tandem (i.e., granted with stock options to provide an alternative to the exercise of the option rights) or freestanding. Tandem appreciation rights may only be exercised at a time when the related option right is exercisable, and require that the related stock option be surrendered for cancellation. No stock appreciation right will be exercisable more than 10 years after the grant date.

Restricted Stock.    A grant of restricted stock constitutes an immediate transfer to the participant of the ownership of shares of our common stock. Restricted stock generally entitles the holder to voting and dividend rights. However, these rights are generally subject to satisfaction of the same vesting conditions as the underlying restricted stock. While restricted stock remains unvested, the transferability of the restricted stock may be prohibited or restricted in the manner and to the extent prescribed by the Compensation Committee on the grant date.

Grants of restricted stock may require that any or all dividends or other distributions paid during the period of the vesting restrictions be automatically deferred and reinvested in additional shares of restricted stock or paid in cash, which may be subject to the same restrictions as the underlying award.

Restricted Stock Units.    A grant of restricted stock units constitutes an unfunded and unsecured promise to deliver shares of our common stock, cash, other securities, or other property, subject to any vesting restrictions established by the Compensation Committee at the time of grant. Unless otherwise determined by the Compensation Committee in an award agreement, restricted stock units do not entitle the holder to any rights or privileges as a stockholder (e.g., voting or dividend rights with respect to the underlying shares of common stock).

Other Stock-Based Awards.    The Compensation Committee may grant to any participant other awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of our common stock. These awards may include, without limitation, deferred stock units and other phantom awards.

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PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

Adjustments

In the event of any corporate transaction or event involving the Company or any of its affiliates, such as a merger, consolidation, reorganization, recapitalization, separation, stock dividend, stock split, reverse stock split, split up, spin-off, combination of shares, exchange of shares, dividend in kind, amalgamation, or similar corporate event or transaction (including, without limitation, a "change of control"), that the Compensation Committee determines, in its sole discretion, could result in dilution or enlargement of the rights intended to be granted to, or available for, participants, the Compensation Committee shall substitute or adjust, as it deems equitable in its sole discretion: (i) the number and kind of shares or other property that may be issued under the 2020 Incentive Plan (including the number of shares reserved for issuance under the plan) or under particular forms of awards, (ii) the number and kind of shares or other property subject to outstanding awards, (iii) the exercise price, grant price, strike price or purchase price applicable to outstanding awards, (iv) the annual director award limit, and/or (v) other value determinations applicable to the 2020 Incentive Plan or outstanding awards.

Change of Control

Upon the occurrence of a "change of control" (as defined in the 2020 Incentive Plan), unless otherwise stated in an award agreement or an applicable employment agreement the Compensation Committee shall make one or more of the following adjustments to the terms and conditions of outstanding awards:

However, any options and stock appreciation rights with an exercise price, grant price, or strike price as applicable that is equal to or greater than the per share value to be paid in the transaction to the holders of the Company's

common shares (or, if no such consideration is paid, the fair market value of a share at the time of such transaction) shall be canceled for no consideration.

In addition, except as otherwise provided in an applicable employment agreement or award agreement, any unvested portion of such continued, assumed, or substituted awards shall vest in full upon a participant's termination without "cause" (as defined in the 2020 Incentive Plan) that occurs within twelve (12) months following the consummation of the "change of control" transaction, with any applicable performance metrics deemed achieved at a level established by the Compensation Committee in its sole discretion prior to such consummation.

Non-Transferability of Awards

Unless otherwise determined by the Compensation Committee, awards under the 2020 Incentive Plan are generally not assignable or transferable by participants except in the event of death, subject to the applicable laws of descent and distribution. An award exercisable after the death of a participant may be exercised by the participant's heirs, legatees, personal representatives or distributees, subject to the Compensation Committee's being furnished with a written notice of such transfer and a copy of evidence deemed necessary by the Compensation Committee to establish the validity of such transfer.

Dividends and Dividend Equivalents

The Compensation Committee in its sole discretion may provide as part of an award dividends or dividend equivalents, on such terms and conditions as may be determined by the Compensation Committee in its sole discretion consistent with the following: (i) any dividends payable in respect of restricted stock awards that remain subject to vesting conditions shall be retained by the Company and delivered to the participant within 15 days following the date on which such restrictions on such restricted stock awards lapse and, if such restricted stock is forfeited, the participant shall have no right to such dividends and (ii) the extent provided in an award agreement, dividends attributable to any other type of award shall be distributed to the participant in cash or, in the sole discretion of the Compensation Committee, in shares of our common stock having a fair market value equal to the amount of such dividends, upon the settlement of such award and, if such award is forfeited, the participant shall have no right to such dividends.

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PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

Clawback/Repayment

All awards are subject to reduction, cancellation, forfeiture, or recoupment to the extent necessary to comply with (i) any clawback, forfeiture, or other similar policy adopted by the Board or the Compensation Committee and as in effect from time to time and (ii) applicable law. Unless otherwise determined by the Compensation Committee, to the extent that a participant receives any amount in excess of the amount that the participant should otherwise have received under the terms of the award for any reason (including, without limitation, by reason of a financial restatement, mistake in calculations, or other administrative error), the participant will be required to repay the Company any such excess amount.

Detrimental Activity

If a participant has engaged in any "detrimental activity," as defined in the 2020 Incentive Plan, as determined by the Compensation Committee, the Compensation Committee may, in its sole discretion, provide for one or more of the following: (i) cancellation of any or all of such participant's outstanding awards or (ii) forfeiture and repayment to the Company on any gain realized on the vesting, exercise, or settlement of any awards previously granted to such participant.

Amendment and Termination

The Compensation Committee may at any time amend, alter, suspend, discontinue or terminate the 2020 Incentive Plan, in whole or in part, or any award granted thereunder. Except as necessary to comply with applicable law, no amendment may materially diminish the rights of any participant with respect to an outstanding award without his or her consent.

In addition, except in connection with certain corporate transactions or a "change of control," the Compensation Committee may not alter the 2020 Incentive Plan without stockholder approval if: (i) the approval is necessary to comply with applicable law; (ii) the action increases the shares of our common stock available for issuance under the 2020 Incentive Plan; (iii) the action materially increases certain benefits under the 2020 Incentive Plan or changes its eligibility requirements; or (iv) the action (x) reduces the exercise price of outstanding stock options or grant price/strike price of outstanding stock appreciation rights, (y) cancels outstanding stock options or stock appreciation rights in exchange for cash, other awards or stock options or stock appreciation rights with an exercise price or grant price/strike price, as applicable,

that is less than the exercise price of the original stock options or grant price/strike price of the original stock appreciation rights, as applicable, in each case with greater intrinsic value (if any) than the canceled option or stock appreciation right, or (z) results in a "repricing" for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which our common stock is listed or quoted.

No grant will be made under the 2020 Incentive Plan after May 14, 2030, but all grants made on or prior to that date (or the earlier termination thereof) will continue in effect subject to the terms of the applicable award agreement and the 2020 Incentive Plan.

Material U.S. Federal Income Tax Consequences Related to Awards Granted under the 2020 Incentive Plan

The following is a brief summary of certain material U.S. federal income tax consequences related to awards under the 2020 Incentive Plan. This summary is not intended to be complete and does not purport to cover federal employment tax or other federal tax consequences, or any state, local, or non-U.S. taxes.

Tax Consequences to Participants

Incentive Stock Options.    No income generally will be recognized by a participant upon the grant or exercise of an incentive stock option. The exercise of an incentive stock option, however, may result in alternative minimum tax liability. If shares of our common stock are issued to the participant pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such participant within two years after the date of grant or within one year after the transfer of such shares to the participant, then upon sale of such shares, any amount realized in excess of the exercise price will be taxed to the participant as a long-term capital gain and any loss sustained will be a long-term capital loss.

If shares of our common stock acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of either holding period described above, the participant generally will recognize ordinary income in the year of disposition in an amount equal to the excess, if any, of the market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.

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PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

Non-Qualified Stock Options.    In general, no income will be recognized by a participant at the time a non-qualified stock option is granted. Upon exercise of a non-qualified stock option, ordinary income will be recognized by the participant in an amount equal to the difference between the exercise price and the market value of the shares, if unrestricted, on the date of exercise. At the time of sale of shares acquired pursuant to the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.

Stock Appreciation Rights.    No income will be recognized by a participant in connection with the grant of a stock appreciation right. When the stock appreciation right is exercised, the participant generally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the market value of any unrestricted shares of our common stock received on the exercise.

Restricted Stock.    The recipient of restricted stock generally will be subject to tax at ordinary income rates on the market value of the restricted stock (reduced by any amount paid by the participant for such restricted stock) at such time as the shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code. However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of grant of the shares will have taxable ordinary income on the date of grant of the shares equal to the excess of the market value of such shares (determined without regard to any such restrictions) over the purchase price, if any, of such restricted stock.

Restricted Stock Units.    A participant does not recognize taxable income at the time a restricted stock unit is granted. When the restricted stock unit vests and is settled for cash or shares of our common stock, the participant generally will be required to recognize ordinary income equal to the fair market value of the shares (or the amount of cash received) on the date of vesting. Any gain or loss recognized upon a subsequent sale or exchange of any shares received in settlement of a restricted stock unit will generally be treated as a capital gain or loss to the participant.

Tax Consequences to the Company

To the extent that a participant recognizes ordinary income in the circumstances described above, the Company will generally be entitled to a corresponding

deduction, subject to applicable limitations under the Code (including Section 162(m) of the Code). The Company is not entitled to a corresponding deduction where a participant recognizes capital gain (or loss) in the circumstances described above.

Section 409A of the Code

Certain types of awards under the 2020 Incentive Plan may constitute, or provide for, a deferral of compensation subject to Section 409A of the Code. Unless certain requirements set forth in Section 409A of the Code are complied with, holders of such awards may be taxed earlier than would otherwise be the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional 20% penalty tax (and, potentially, certain interest, penalties and additional state taxes). To the extent applicable, the 2020 Incentive Plan and awards granted under the 2020 Incentive Plan are intended to be structured and interpreted in a manner intended to either comply with or be exempt from Section 409A of the Code and the Department of Treasury regulations and other interpretive guidance that may be issued under Section 409A of the Code. To the extent determined necessary or appropriate by the Compensation Committee, the 2020 Incentive Plan and applicable award agreements may be amended to further comply with Section 409A of the Code or to exempt the applicable awards from Section 409A of the Code.

New Plan Benefits

Because benefits under the 2020 Incentive Plan are at the discretion of the Compensation Committee, it is not possible to determine the value of benefits that will be received by participants in the 2020 Incentive Plan with respect to any awards made in the future. Benefits under the 2020 Incentive Plan, however, will be subject in any event to the limits described under "—Director Award Limits" above.

Vote Required for Approval

Approval of the 2020 Incentive Plan requires the affirmative vote of a majority of the shares present, in person or by proxy, at the Annual Meeting and entitled to vote on the matter. In accordance with NYSE rules, abstentions will be treated as a vote against approval of the 2020 Incentive Plan. Assuming a valid quorum is otherwise established, broker non-votes will have no effect on the outcome of any vote on the proposal to approve the 2020 Incentive Plan.

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PROPOSAL NO. 3 – APPROVAL OF THE COMPANY'S 2020 EQUITY INCENTIVE PLAN

Recommendation of the Board

The Board unanimously recommends a vote FOR the approval of the 2020 Incentive Plan. The Board believes it is in the best interests of the Company and its stockholders to enable the Company to implement incentive compensation arrangements that are able to appropriately incentivize and retain our employees,

consultants, and non-employee directors, and align the interests of participants with the interests of our stockholders. If our stockholders do not approve the 2020 Incentive Plan, our future ability to issue appropriate equity compensation to hire and retain talent will be significantly limited, which could have an adverse impact on our ability to retain our workforce and, ultimately, on our business.

 

  The Board unanimously recommends that stockholders vote FOR approval of the 2020 Incentive Plan.

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GRAPHIC

Proposal No. 4 – Ratification of the Appointment of Ernst & Young LLP
as the Company's Independent Registered Public Accounting Firm for Fiscal 2020

GRAPHIC

The Audit Committee has selected Ernst & Young LLP ("EY") as the Company's independent registered public accounting firm for fiscal 2020. SEC regulations and the NYSE corporate governance standards require that the Company's independent registered public accounting firm be engaged, retained and supervised by the Audit Committee. Although approval or ratification by stockholders of such engagement is not required, the Company is seeking the stockholders'

ratification of the Audit Committee's selection of EY because we believe that allowing stockholders to express their view on the matter is good corporate governance. Any failure of the stockholders to ratify the Audit Committee's selection of EY as the Company's independent registered public accounting firm would be considered by the Audit Committee in determining whether to engage EY.

  The Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for fiscal 2020.    

RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company's independent registered public accounting firm. As described above, the Audit Committee has selected EY as the Company's independent registered public accounting firm for fiscal 2020.

A representative of EY is expected to be present at the Annual Meeting and will be given the opportunity to make a statement if they so desire and to respond to appropriate questions from stockholders.

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PROPOSAL NO. 4 – RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2020

INDEPENDENT REGISTERED ACCOUNTING FIRM FEES

The following table presents fees incurred for professional services rendered by EY, the Company's independent registered public accounting firm for the

fiscal years ended December 31, 2019 and December 31, 2018.

December 31,

2019

2018

Audit Fees(1)

$ 2,357,500 $ 2,495,000

Audit-Related Fees(2)

$ 170,000 $ 105,000

Tax Fees(3)

$ 5,150 $ 44,554

All Other Fees

Total Fees(4)

$ 2,532,650 $ 2,644,554
(1)
Includes fees and expenses incurred for services related to the annual audit of the consolidated financial statements, required statutory audits, reviews of the Company's quarterly reports on Form 10-Q, the registered public accounting firm's report on the Company's internal control over financial reporting, as required under Section 404 of the Sarbanes-Oxley Act of 2002, comfort letters and consents during the respective periods.

(2)
Includes fees for the audits of the December 31, 2019 and 2018 financial statements of DLV/HHPI Summerlin, LLC, Discovery Property Company, LLC, and 110 N. Wacker Development LLC, all joint ventures of the Company.

(3)
Includes fees for services related to tax compliance, tax advice and tax planning.

PRE-APPROVAL POLICIES AND PROCEDURES

The Audit Committee's policy is to require the pre-approval of all audit and non-audit services provided to the Company by its independent registered public accounting firm (except for items exempt from pre-approval requirements under applicable laws and

rules) to assure that the provision of such services does not impair the firm's independence. All audit and non-audit services were pre-approved by our Audit Committee in accordance with the pre-approval requirements set forth in its charter.

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GRAPHIC

Audit Committee Report

GRAPHIC

The Audit Committee is comprised entirely of independent directors (as defined for members of an audit committee in SEC rules and the NYSE listing standards) and assists the Board in a number of duties. These duties include oversight of the following matters: the integrity of the Company's financial statements; compliance with legal and certain regulatory requirements; the performance of the internal audit function; and the financial reporting process. In addition, the Audit Committee is directly responsible for the appointment, compensation (including negotiation and approval of the audit fee), retention and oversight of the Company's independent registered public accounting firm. The Audit Committee appointed EY as its independent registered public accounting firm for fiscal 2020. The Audit Committee operates pursuant to a written charter adopted by the Board and reviewed annually by the Audit Committee. A copy of the charter is available on our website at www.howardhughes.com under the Investors tab. The Audit Committee has the resources and authority it deems appropriate to discharge its responsibilities.

The Audit Committee has engaged EY to serve as the Company's independent accounting firm since 2013. In accordance with SEC rules, the lead audit partner on the Company engagement serves no more than five consecutive years in that role. The current lead partner was appointed in 2018. The Audit Committee and management have direct input into the selection of the lead audit partner. The Audit Committee periodically considers whether the annual audit of the Company's financial statements should be conducted by another firm.

In determining whether to reappoint EY as the Company's independent registered public accounting firm for 2020, subject to stockholder ratification, the Audit Committee took into consideration a number of factors. These factors included:

Based on this evaluation, the Audit Committee believes that it is in the best interest of the Company and our stockholders to retain EY as our independent registered public accounting firm for fiscal 2020.

Each member of the Audit Committee is considered financially literate, as defined by the NYSE, and the Board has determined that Mr. Shepsman has the necessary experience to qualify as an "audit committee financial expert" under SEC rules. As determined by the SEC, a person designated as an audit committee financial expert will not be deemed an "expert" for purposes of the federal securities laws. In addition, this designation does not impose on a person any duties, obligations or liabilities that are greater than those otherwise imposed on the person as a member of the Audit Committee and the Board, and does not affect the duties, obligations or liabilities of the Board.

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AUDIT COMMITTEE REPORT

Management is responsible for the Company's system of internal control over financial reporting and for preparing its consolidated financial statements. EY was responsible for performing independent audits of the Company's internal control over financial reporting as of December 31, 2019 and its consolidated financial statements as of December 31, 2019 and for the year then ended, both in accordance with the standards of the PCAOB, and to issue reports thereon. The Audit Committee is responsible for overseeing management's conduct of the financial reporting process and system of internal control.

The Audit Committee reviewed and discussed with both management and EY the results of the independent audits of the Company's internal control over financial reporting as of December 31, 2019 and its consolidated financial statements as of December 31, 2019 and for the year ended prior to their issuance. During 2019, management advised the Audit Committee that the set of financial statements had been prepared in accordance with accounting principles generally accepted in the United States of America, and reviewed significant accounting and disclosure matters with the Audit Committee. This included discussion with EY of matters required to be discussed by Statement on Auditing Standards No. 16, as amended, as adopted by the PCAOB and SEC

Regulation S-X Rule 2-07, Communication with Audit Committees, as currently in effect, including the quality of the Company's accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. The Audit Committee also discussed with its independent registered public accounting firm matters relating to its independence and received the written disclosures and letter from EY required by the applicable requirements of PCAOB regarding the independent accountant's communications with the Audit Committee concerning independence.

Taking all of these reviews and discussions into account, all of the Audit Committee members, whose names are listed below, recommended to the Board that it approve the inclusion of the Company's audited financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for filing with the SEC.

Members of the Audit Committee

Steven Shepsman, Chair
Beth Kaplan
Allen Model

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GRAPHIC

Executive Officers

GRAPHIC

The following table sets forth certain information with respect to the Company's current executive officers:


GRAPHIC

 

PAUL LAYNE

CHIEF EXECUTIVE OFFICER
AND A DIRECTOR

Age 62

Background

Paul Layne has served as a director and Chief Executive Officer since October 2019. Mr. Layne joined the Company in 2012 and previously served as its President, Central Region. For more than 35 years, Mr. Layne has been a vital leader in Houston's commercial real estate community as well as in national real estate. Prior to joining the Company, Mr. Layne was Executive Vice President at Brookfield Properties Corporation, overseeing a 9.7 million square-foot portfolio in Houston's Central Business District. He was responsible for all of the region's activities including leasing, operations, property management, legal, accounting, development and construction as well as being a member of Brookfield's global partnership task force. Mr. Layne received a B.S. in Management from the University of Houston and attended South Texas College of Law.

Qualifications

Mr. Layne's extensive experience in the real estate industry, as well as his executive leadership experience, make him particularly suited to provide guidance to the Board and serve as a bridge between the Board and our executive officers.


GRAPHIC

 

DAVID O'REILLY

CHIEF FINANCIAL OFFICER

Age 45

Background

David O'Reilly joined the Company in October 2016 as the Chief Financial Officer. He is responsible for managing the company's investment and financial strategy, working with the executive team to unlock meaningful long-term value across the company's portfolio.

Prior to joining the Company, Mr. O'Reilly served as Executive Vice President, Chief Investment Officer of Parkway Properties, Inc., a NYSE-traded real estate investment trust focused on office properties. He served in the position from November 2011 through October 2014 and was appointed Chief Financial Officer in August 2012. He also served as the company's Interim Chief Financial Officer from May 2012 through August 2012. Previously, Mr. O'Reilly served as Executive Vice President of Banyan Street Capital and as Director of Capital Markets for Eola Capital LLC. He served in the investment banking industry as Senior Vice President of Barclays Capital Inc. and in a similar capacity for Lehman Brothers. During his career, Mr. O'Reilly has been involved in a broad range of financial advisory and merger and acquisition activities, including leveraged buyouts, initial public offerings and single asset and pooled CMBS transactions. Mr. O'Reilly currently serves as a director of Kite Realty Group Trust.

Mr. O'Reilly graduated from Tufts University with a B.S. in Civil Engineering and received his M.B.A. from Columbia University.

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EXECUTIVE OFFICERS


GRAPHIC

 

PETER RILEY

SENIOR EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL

Age 64

Background

Peter Riley serves as Senior Executive Vice President, Secretary and General Counsel and joined the Company in May 2011. Mr. Riley is responsible for overseeing all legal matters for the Company. Mr. Riley has over 30 years of experience, working in both the public and private sector. Mr. Riley was a partner at K&L Gates LLP between 2004 and 2011 with a significant focus on the tax aspects of fund formation, joint ventures and the acquisition, disposition, operation and financing of real estate assets. Previously, Mr. Riley led the tax department at Kelly, Hart and Hallman, and was Senior Tax Counsel at Simpson Thacher and Bartlett.

Before earning his law degree, Mr. Riley worked for Amerada Hess Corporation (NYSE: AHC) where he became Chief Financial Officer of its Abu Dhabi subsidiary. Mr. Riley received his L.L.M. in Taxation from New York University School of Law, his J.D. from Boston College Law School and his B.B.A. from The University of Notre Dame.


GRAPHIC

 

SAUL SCHERL

PRESIDENT, NEW YORK TRI-STATE REGION

Age 54

Background

Saul Scherl serves as President, New York Tri-State Region and joined the Company in December 2015. Mr. Scherl is responsible for overseeing the Company's New York Tri-State Region, which notably includes the Seaport District that is currently undergoing redevelopment.

Mr. Scherl has more than 20 years of retail, residential, hospitality and mixed-use real estate experience. Additionally, he is both a licensed attorney and CPA. Prior to joining The Howard Hughes Corporation, he was a Principal at Blackpoint Partners where he managed the company's real estate assets as well as mergers and acquisitions. Previously, he served in a similar capacity at Loeb Partners Realty as the Managing Director and with Nomura Asset Capital, where he was responsible for liquidating the company's multi-billion-dollar real estate portfolio. Earlier in his career, Mr. Scherl was with Piper Rudnick and Shaw Pittman as well as Arthur Young and Company. Throughout his career, he has been involved in a broad range of acquisitions, dispositions, redevelopments and financings for real estate properties across the U.S.

Mr. Scherl graduated from Emory University with a B.B.A. in Accounting and received his J.D. from George Washington University.

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EXECUTIVE OFFICERS


GRAPHIC

 

KEVIN ORROCK

PRESIDENT, SUMMERLIN

Age 69

Background

Kevin Orrock serves as President, Summerlin. Mr. Orrock's long-term career with the Company began more than 40 years ago and he helped shape Summerlin from its inception more than 25 years ago. He brings to the Company a deep understanding of the Summerlin community and the development process as well as a keen business and financial acumen that has contributed to Summerlin's ongoing success as one of Southern Nevada's premier community for more than two decades.

Mr. Orrock began his career with the company when he joined the accounting department at the famed Desert Inn Hotel in Las Vegas in 1974, then owned by Summa Corporation, predecessor to the Company. He held numerous accounting and finance positions before being named Treasurer in 1991. As President of Summerlin, Mr. Orrock oversees all functions of the Summerlin community, which led the nation in home sales for more than a decade during the 1990s and early 2000s.

Mr. Orrock earned a B.A. in Business Administration from Wittenberg University and an M.B.A from the University of Nevada Las Vegas. Active in the community, Mr. Orrock is past chair of the Las Vegas Chamber of Commerce and serves on the executive board of Las Vegas Economic Global Alliance. He is a member of the advisory board of directors for University of Nevada Las Vegas Foundation and the Lee College of Business.


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GREG FITCHITT

PRESIDENT, COLUMBIA

Age 50

Greg Fitchitt is President, Columbia and joined the Company in 2013. He leads the development efforts for the 14-million-square-foot, mixed-use plan to transform Downtown Columbia into the Center of Culture and Commerce for central Maryland.

Mr. Fitchitt has over 20 years of real estate experience including development, planning, entitlements, community and government relations, leasing, and design and construction management. Before joining HHC in 2013, Mr. Fitchitt completed nine shopping center redevelopments in Washington State and Southern California. Mr. Fitchitt led the development of Westfield UTC in La Jolla, CA, obtaining entitlements for a $1.0 billion LEED-ND Gold mixed-use revitalization and completing the $180 million first phase in 2012. Together the Westfield projects completed under his direction represented over $500 million in investment.

Mr. Fitchitt holds a M.B.A. from UCLA and a B.A. in Philosophy from Pomona College. Mr. Fitchitt chairs the Downtown Columbia Partnership board, and serves on the Greater Baltimore Committee's Board of Directors, and the ULI Transit Oriented Development Council for the ULI Baltimore and Washington District Councils. He also previously served for five years on the Howard County Chamber Board of Directors and for ten years on the boards of non-profit affordable housing developers in California.

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EXECUTIVE OFFICERS


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JIM CARMAN

PRESIDENT, HOUSTON REGION

Age 42

Background

Jim Carman is President of the Houston Region. Previously, he served as Senior Vice President of MPC Commercial Development. He joined the company in August 2012 to oversee vertical development on projects located within The Woodlands and Bridgeland, both master planned communities in the Houston area. Mr. Carman was responsible for leading multiple teams in the development of the first phase of Hughes Landing, Houston's premier mixed-use urban center on Lake Woodlands, taking the 66-acre project from conception to completion within three years.

Prior to joining the Company, Mr. Carman worked on mixed-use developments in Las Vegas, including Tivoli Village at Queensridge as well as projects located within the 70-acre Hughes Center. Previously, Mr. Carman served as Project Manager for the Ritz-Carlton, Grand Cayman, a $500 million resort complex consisting of seven restaurants, 365 keys, 85 luxury condominiums, and a golf course designed by Greg Norman. Before moving overseas to manage the Ritz-Carlton project, he worked with The Haskell Company, a design-build contractor based in Jacksonville, Florida. Mr. Carman was part of the joint-venture team that constructed the Adrienne Arsht Center for the Performing Arts, a $370 million performance complex in the heart of downtown Miami.

Mr. Carman received his Bachelor of Science in Civil Engineering as well as Master of Engineering in Construction from Texas A&M University.


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DOUG JOHNSTONE

REGIONAL PRESIDENT, HAWAII

Age 37

Background

Doug Johnstone is Regional President, Hawai'i. He is responsible for leading the development, sales and operations of Ward Village, a 60-acre master planned community in the heart of Honolulu.

Doug was recruited in 2012 to join the Ward Village team, where he most recently served as Senior Vice President of Development, playing a key leadership role in all aspects of entitlement, project management, construction, sales, and financing, and was responsible for implementing the mixed-use developments that comprise Ward Village.

Prior to joining the Company, Doug managed value-add redevelopment efforts for the $3 billion commercial real estate portfolio of Kamehameha Schools-Bishop Estate. Before that, he served as Vice President of the Los Angeles-based boutique firm Cyburt Hall Partners, focused on opportunistic investments and developments with institutional joint venture partners.

Born and raised in Honolulu, Doug attended Stanford University, where he obtained a Bachelor's degree in Economics with honors. He has always maintained a deep commitment to the local community, serving as a board member of several local nonprofits including the U.S.S. Missouri Memorial Foundation, Outrigger Duke Kahanamoku Foundation, and HomeAidHawai'i.

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Compensation Discussion and Analysis

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EXECUTIVE COMPENSATION

This Compensation Discussion and Analysis provides information on our executive compensation program and the amounts shown in the executive compensation tables that follow. In this proxy statement, the term "NEOs" means Named Executive Officers. The seven executive officers listed below are our NEOs for fiscal 2019. Following the previously announced review of strategic alternatives, we announced that we will execute a transformation plan, led by new executive leadership, comprised of three pillars: (1) a $45-$50 million reduction in annual overhead expenses; (2) the sale of approximately $2 billion of non-core assets; and (3) accelerated growth in our master planned community assets.

In connection with the transformation plan, Paul Layne was promoted to Chief Executive Officer on October 21, 2019, and entered into a new employment agreement with the Company (as further described under "Employment Agreements with the NEOs—Paul Layne"). On the same date, Mr. Weinreb and Mr. Herlitz stepped down from their roles as Chief Executive Officer and President of the Company, respectively. In connection with their respective terminations of employment, each of Mr. Weinreb and Mr. Herlitz entered into a Separation and Release Agreement with the Company, pursuant to which each of Mr. Weinreb and Mr. Herlitz were entitled to certain payments and benefits, and entered into a mutual release of claims with the Company. For further information regarding Mr. Weinreb's and Mr. Herlitz's separation payments and benefits, please refer to the "All Other Compensation" column of the Summary Compensation Table and the discussion under "Employment Agreements with the NEOs—David Weinreb —Separation Agreement "—Grant Herlitz—Separation Agreement," and "Severance and Change in Control Benefits—David Weinreb" and "—Grant Herlitz".

In addition to the resignations of Messrs. Weinreb and Herlitz, Mr. Treacy stepped down from his role as President, Hawaii on February 5, 2020. The Company and Mr. Treacy agreed to treat his separation from employment as a separation without "cause" under The Howard Hughes Management Co., LLC Separation Benefits Plan. Mr. Treacy became eligible to receive severance benefits under that plan upon his execution of a release of claims in favor of the Company. For further information, please refer to the discussion under "Severance and Change in Control Benefits—Simon Treacy".

Named Executive Officer

  Position

Paul Layne

  Chief Executive Officer ("CEO")

David O'Reilly

  Chief Financial Officer ("CFO")

Peter Riley

  Senior Executive Vice President, Secretary and General Counsel

Saul Scherl

  President, New York Tri-State Region

Simon Treacy

  Former President, Hawaii

David Weinreb

  Former Chief Executive Officer

Grant Herlitz

  Former President

EXECUTIVE SUMMARY

Our success depends, in large part, on our ability to successfully attract, motivate and retain a qualified management team. The executive compensation program designed and implemented by the Compensation Committee is intended to attract, retain and motivate the key people necessary to enable us to maximize operational efficiency and profitability over the long term. The Compensation Committee believes that executive compensation should align the interests of our executives and other key employees with those of the Company and its stockholders. Our executive

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Compensation Discussion and Analysis

compensation program also is designed to differentiate compensation based upon individual contribution, performance and experience.

In establishing compensation, the Compensation Committee provides our NEOs with a competitive compensation package, using a holistic evaluation of each element of our NEOs' compensation together with an assessment of each NEO's ownership position in the Company (inclusive of stock, warrants to purchase stock, and equity awards). The Compensation Committee sets compensation in this manner to ensure that our compensation practices do not disadvantage the Company in attracting and retaining executives and other key employees, while also managing a competitive compensation expense structure for the Company.

Stockholders should note that, although the Compensation Committee considers the compensation paid to executives by our peer group companies in making compensation decisions, the Compensation Committee also considers the compensation that real estate private equity firms, private real estate development companies and real estate opportunity funds are paying their executives as it believes that the Company is competing more with these types of organizations for top-tier talent than it is with our peer group companies.

Financial and Operational Highlights

The Company delivered strong results in 2019. We increased operating assets net operating income by 20.2% over 2018 levels to $216.6 million, increased master planned community earnings before taxes by 26.9% over 2018 levels to $257.6 million and contracted to sell 467 condominiums at Ward Village, representing $334.3 million of gross sales. We also completed construction on several projects, including: (i) Las Vegas Ballpark, home of the Las Vegas Aviators, our Triple A baseball team; (ii) 100 Fellowship Drive, a 203,257 square foot build-to-suit project in The Woodlands; (iii) 6100 Merriweather, a 318,545 square foot office building in Columbia; (iv) Tanager Apartments, a 267-unit apartment complex in Downtown Summerlin; and (v) Lakeside Row, a 312-unit multi-family development in Bridgeland. We also made significant progress on our transformation plan by executing sales of three non-core assets, acquiring two Class AAA office towers in The Woodlands and by reducing run-rate overhead expenses that will materialize throughout 2020.

The charts below summarize our growth in key financial metrics from fiscal 2018 to fiscal 2019:


Dollar amounts below are in thousands.


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Operating Assets Net Operating Income ("Operating Assets NOI")

 

Master Planned Community Segment Earnings Before Taxes ("MPC EBT")

*
Annex A includes a reconciliation of non-GAAP Operating Assets NOI to Operating Assets Segment Earnings Before Taxes.

**
Annex A includes a reconciliation of non-GAAP MPC EBT to Net Income.

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Financial Results Under Incentive Plans

The charts below compare fiscal 2019, 2018 and 2017 metrics that the Compensation Committee uses to determine annual incentive payouts and long-term equity incentives. Note that these financial measures differ from the comparable GAAP and Non-GAAP measures reported above and in our financial statements.

NEO PERFORMANCE MEASURES

Dollar amounts below are in thousands.

GRAPHIC   GRAPHIC   GRAPHIC

Annual Contracted
Condominium Sales

 

Operating Assets Net Operating Income*

 

MPC Net Operating Income**
*
Annex B includes a reconciliation of Operating Assets NOI for NEO Goals to Operating Assets NOI.

**
Annex C includes a reconciliation of MPC Net Operating Income to MPC EBT.

2019 Compensation Highlights

Our 2019 financial performance, along with the individual performance of our NEOs, served as key factors in determining compensation for 2019 and executing on other compensation practice initiatives, including as follows:

Compensation Practice

Rationale for Practice

We granted annual long-term equity incentive awards, 50% of which are performance-based (except that Mr. Weinreb, our former CEO, received 100% performance-based equity awards).

Payouts based on interpolation between performance targets for the performance-based equity awards.

Majority of annual compensation for our NEOs is tied to incentive compensation.

 

We tie a significant portion of compensation to long-term performance.

By using linear interpolation rather than the "step" approach for the performance targets for the performance-based equity awards, we are able to achieve finer calibration between pay and performance. Interpolation mitigates the risk that management will act improperly to either increase payout to the next higher step or avoid falling to a lower step.

Our NEOs have an annual performance-based incentive compensation opportunity that is recalibrated each year to ensure alignment with our compensation objectives.

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COMPENSATION DISCUSSION AND ANALYSIS

Prior to the 2019 annual meeting of stockholders, at which approximately 72.3% of the votes cast were in favor of our "say-on-pay" stockholder advisory vote in support of executive compensation, our management engaged with stockholders holding a majority of our outstanding shares to discuss our executive compensation program. We undertook this engagement to inform the Compensation Committee's discussions and better assess stockholder views on our executive compensation program. Although we received positive feedback regarding our use of specific, predetermined financial goals to determine annual incentive payouts, certain stockholders and proxy advisors expressed concerned regarding the dollar value of the CEO's target annual incentive award, which was 5 times base salary, relative to the value of the CEO's annual long-term equity awards.

In connection with the transformation plan and the resulting management changes, the Compensation Committee, in consultation with Meridian Compensation Partners, LLC ("Meridian"), took into account our prior "say-on-pay" stockholder advisory vote results and feedback from our stockholders on our executive compensation program in negotiating Mr. Layne's employment agreement (as further described under "Employment Agreements with the NEOs—Paul Layne") and compensation structure. The Compensation Committee believes that Mr. Layne's employment agreement, including the compensation mix reflected in his base salary, annual bonus target, and annual long-term incentive targeted grant value, reflects our Company's pay for performance philosophy, and together with the changes to our annual bonus program beginning in 2018 (in particular, our annual establishment of specific, predetermined financial goals for key components of our business that substantially drive long-term performance and value creation), provides an attractive and competitive compensation opportunity while appropriately aligning Mr. Layne's incentives with our stockholder's interests. Notably, Mr. Layne's aggregate target compensation is 22% lower than the median of our peer group, and while our Compensation Committee does not specifically target compensation to a benchmark compensation, the Compensation Committee felt that it was important to re-evaluate how our compensation aligned with that of our peers in light of feedback from our stockholders.

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COMPENSATION DISCUSSION AND ANALYSIS

Compensation and Governance Best Practices

The Compensation Committee regularly reviews best practices in governance and executive compensation. The Company's current best practices and policies include the following:

  What We Do

  Align Executive Compensation with Company Performance.

We tie a majority of executive pay to fully at risk, performance-based cash awards and long-term equity awards.

 

Apply Multi-Year Vesting to Equity Incentive Awards.

Under our long-term equity incentive program, time-based awards vest ratably over a five-year period following the date of grant and performance-based awards vest at the end of five years, subject to the satisfaction of total stockholder return thresholds.

 

Provide Double-Trigger Severance Benefits.

In the event of a change of control, equity award vesting is provided to our NEOs only in the event of a qualifying termination following a change of control. Equity awards do not vest solely in connection with a change of control.

 

Allow Clawbacks.

Our Board has adopted a policy regarding recovery of incentive awards for fiscal years for which financial results are later restated, which may include reimbursement of any bonuses paid and recovery of profits received during the applicable period under any equity compensation awards.

 

Impose Stock Ownership Guidelines.

Our Compensation Committee has adopted stock ownership guidelines for our CEO, CFO and Senior Executive Vice President, Secretary and General Counsel, which require such executive officers to accumulate and hold a meaningful level of stock in the Company.

 

Conduct Annual Risk Review.

Our Compensation Committee conducts an annual review of the Company's compensation programs to confirm that there are no compensation-related risks that are reasonably likely to have a material adverse effect on the Company.

 

Retain an Independent Compensation Consultant.

Our Compensation Committee retains an independent compensation consultant to advise on our executive compensation programs.

 

Provide Limited Perquisites.

We provide limited perquisites to our NEOs.

 

Offer Broad-Based Benefits.

Our NEOs are eligible for the same health and retirement benefits as other full-time employees.

 

Use Peer Group Evaluation.

We evaluate our compensation peer groups periodically to align with investor expectations and changes in the Company's business.

 

Conduct an Annual Say-on-Pay Vote.

We conduct an annual say-on-pay vote to better understand investor sentiment of our executive compensation program.

 

  What We Don't Do


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No Excise Tax Gross-Ups.
We do not make tax gross-up payments to executive officers.


GRAPHIC


 


No Supplemental Retirement Benefits.
We do not provide supplemental executive officer retirement benefits.


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No Hedging or Pledging.
We do not permit hedging or pledging of equity by our executive officers or directors.


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No Repricing.
Our equity plan prohibits repricing or the buyout of underwater stock options without stockholder approval.


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No Discount Options.
Our equity plan prohibits granting stock options with a grant price less than fair market value of our common stock on the date of the grant.

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Compensation Philosophy and Objectives

We Strive to Attract, Incentivize and Retain Talented Individuals.

  We pay competitively.

It is imperative that we attract, incentivize and retain individuals in executive positions whose skills, business experience and acumen are critical to the current and long-term success of the Company.

  We pay competitively to provide a target compensation opportunity that will attract, motivate and retain our talented core of executives who drive our success. The compensation program is designed to give the Company a competitive advantage relative to the compensation provided by peer group companies with which we compete for qualified executive talent. The Compensation Committee also seeks to retain executives through the phases of the cycle of the real estate market by keeping compensation competitive during times of growth as well as contraction, reflecting the long-term nature of successful real estate development businesses.

While peer group companies and competitive survey data provide a beginning reference point and inform decisions on the range of compensation opportunities, it is just one of many factors the Compensation Committee considers in setting pay. For example, the Compensation Committee recognizes that real talent competitors for our NEOs include high-paying private real estate development companies, high paying private equity firms and real estate opportunity funds, in addition to our more conventional public company peers.

In particular, the Compensation Committee believes that the mix of Mr. Layne's compensation package – in particular his target annual incentive award of $1,000,000, equal to approximately 133% of his base salary – represents an attractive and competitive compensation opportunity while specifically responding to our investors' concerns regarding the mix of our former CEO's compensation package (specifically, the size of his target annual incentive award relative to his annual long-term equity awards).

Also, several of our peers are REITs whose operations directly compare to our operating assets segment only and not to our master planned community segment or strategic development segment. Ultimately, the Compensation Committee retains flexibility to adjust executive compensation based on our objectives of building our Company and creating stockholder value.

  Retention is a key objective of the compensation program.

  Because the implementation of the Company's business strategy requires long-term commitments on the part of our NEOs, and because competition for top talent is intense in the Company's industry, retention of our talented core of executives is a key objective of the compensation program.

We Pay for Performance.

  We reward attainment of established goals.

We firmly believe that pay should be tied to performance. Superior performance enhances stockholder value and is a fundamental objective of the Company's compensation program.

  The compensation program is designed to reward our NEOs for attaining established goals that require the dedication of their time, effort, skills and business experience to drive the success of the Company and the maximization of stockholder value.

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COMPENSATION DISCUSSION AND ANALYSIS

  Performance-based annual incentive compensation is a key component of our compensation program.

  For fiscal 2019, annual performance is rewarded through annual incentive awards and is based on the Company's operational performance and financial results and the individual NEO's contribution to those results. NEO performance is judged against specific, predetermined financial goals established by the Compensation Committee in the first quarter of the performance year. The predetermined financial goals are based on the Company's annual budget for the performance year, which is approved by the Board. In addition, 25% of the annual incentive award is based a subjective performance evaluation.

We Align Pay to Business Objectives and Long-Term Strategy.

  We grant long-term equity incentive awards under our equity incentive program.

The compensation program is designed to reward and motivate our NEOs' Company-wide performance and, as described below, individual performance in attaining business objectives and maximizing stockholder value. Compensation decisions are based on the principle that the long-term interests of our NEOs should be aligned with those of our stockholders.

  We use equity incentive awards as a recruitment and retention incentive and to align the interests of our NEOs with stockholder interests. In fiscal, 2019, the Compensation Committee granted awards under the annual long-term equity incentive program that was adopted in 2010. (As further described in Proposal 3, the Company is requesting that our stockholders approve at the 2020 Annual Meeting the 2020 Incentive Plan, a new long-term equity incentive plan under which the Company intends to make grants of equity and equity-based compensation following such approval.) Performance is a key component of our long-term equity incentive program.

The Compensation Committee uses absolute cumulative total stockholder return as the sole metric for the performance-based component of the long-term equity awards because it believes that the NEOs should receive value in respect of the performance-based awards only if the Company provides our stockholders with meaningful increases in our stock price and not because the Company outperformed its peers.

NEO PERSONAL INVESTMENT IN HOWARD HUGHES

In addition to aligning the interests of our NEOs with stockholder interests through awards under our annual long-term equity incentive program, Messrs. Layne and O'Reilly are aligned with our stockholders through their substantial personal investment in the Company. Since his appointment as CEO, Mr. Layne has purchased 9,759 shares of our common stock for an aggregate purchase price of approximately $850,000. In 2016, Mr. O'Reilly invested $1 million in the Company to acquire a warrant to purchase 50,125 shares of our common stock at an exercise price of $112.08 per share. Not only does the per share price of our common stock need to exceed the exercise price for the warrant to have value, the per share price of our common stock needs to exceed approximately $132 for the warrant to have enough value to recoup the $1 million that Mr. O'Reilly paid for his warrant. Because Mr. O'Reilly's warrant is generally not exercisable until April 2022, unless there is an intervening change of control or qualifying termination event prior to such date, the "break-even" price encourages Mr. O'Reilly to create significant and sustainable growth in the value of the Company in excess of the incentive provided by our long-term equity incentive award program.

Messrs. Riley and Scherl also have a significant ownership stake in our common stock (through both ownership of unrestricted shares and awards of equity incentive grants), as described above under "—Security Ownership of Management and Certain Beneficial Holders." Messrs. Layne, O'Reilly and Riley are also subject to the stock ownership requirements described below under "Other Components of Compensation—Stock Ownership Guidelines" to further encourage the alignment of their interests with our stockholders.

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ROLES AND RESPONSIBILITIES

Role of Compensation Committee

The Compensation Committee administers our executive compensation programs. The role of the Compensation Committee is to review and approve the compensation paid to our NEOs and certain other executive officers of the Company, and to review the compensation policies and practices for all of our employees to verify that the policies and practices do not create unreasonable risks for the Company.

In establishing compensation for NEOs, the Compensation Committee considers, among other things, recommendations by our CEO and our compensation consultant, and the compensation of similarly situated executives of peer companies. In addition, the Compensation Committee, with the assistance of management, reviews total compensation paid to certain other executive officers annually, including long-term equity awards.

In 2019, the Compensation Committee reviewed the internal evaluations of the NEOs and certain other executive officers, and market data provided by management and our compensation consultant, Meridian. The Compensation Committee believes that NEO compensation for 2019 reflects appropriate allocation of compensation between salary, annual incentive compensation and equity compensation.

The Compensation Committee reviews and approves corporate goals and objectives relevant to the CEO's compensation, evaluates his performance in light of those goals and objectives and determines and approves his compensation level based on this evaluation.

Role of Executive Officers

Our CEO makes compensation recommendations for the other NEOs to the Compensation Committee. Additionally, management provides financial and compensation data to the Compensation Committee for its review in setting compensation and gives guidance as to how the data impacts performance goals set by the Compensation Committee. This data includes:

Role of Compensation Consultant

The scope of Meridian's work includes the following items in connection with 2019 compensation:

Meridian is independent and provides no services directly to the Company and no conflicts of interest exist between the Company and Meridian.

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RISK ASSESSMENT

The Compensation Committee's annual review and approval of the Company's compensation strategy includes a review of compensation-related risk. In this regard, the Compensation Committee annually considers the relationship between the Company's overall compensation policies and practices for employees, including executive officers, and risk, including whether such policies and practices (a) encourage imprudent risk taking, and (b) would be reasonably likely to have a material adverse effect on the Company. Based on this review in 2019, the Compensation Committee concluded that there are no compensation-related risks that are reasonably likely to have a materially adverse effect on the Company.

MARKET REVIEW AND COMPENSATION PEER GROUP

For 2019 NEO performance, the Compensation Committee compared our executive compensation program with competitive market information regarding salary and incentive awards and programs. The purpose of this analysis is to provide a beginning reference point in evaluating the reasonableness and competitiveness of our executive compensation within the real estate development and operating industry and to ensure that our compensation program is generally comparable to companies of similar size and scope of operations.

Market pay levels are obtained from various sources, including published compensation surveys and information taken from SEC filings of 13 public companies recommended by Meridian and approved by the Compensation Committee. The peer group consists of the same companies reviewed in 2018 with the exception of Forest City Realty Trust, Inc., which was removed due to its acquisition by Brookfield Asset Management Inc. The Compensation Committee also considers compensation paid at private real estate and investment companies and larger real estate and hotel companies as additional context, but does not benchmark NEO compensation. The following companies comprised the peer group for purposes of reviewing and considering the 2019 compensation decisions approved for our NEOs:

Peer Group

Beazer Homes USA,  Inc.

 

Kilroy Realty Corporation

 

Taubman Center, Inc.

Camden Property Trust

 

Meritage Homes Corporation

 

Toll Brothers, Inc.

Duke Realty Corporation

 

Mid-America Apartment Communities, Inc.

 

Vail Resorts, Inc.

Federal Realty Investment Trust

 

Pebblebrook Hotel Trust

 

Weingarten Realty Investors

Regency Centers Corporation

       

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COMPENSATION DISCUSSION AND ANALYSIS

The following Three-Year and One-Year Performance Total Stockholder Return tables show where we ranked among the following pure real estate development companies: Meritage Homes Corporation; Toll Brothers, Inc.; and Beazer Homes USA, Inc.

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The Compensation Committee considers the Company total stockholder return ("TSR") and TSR performance relative to other real estate development companies as relevant context in determining compensation levels for our NEOs. Our TSR performance is reflected in the value of each NEOs' long-term incentive compensation. Fifty percent of the restricted stock granted to our NEOs is eligible to cliff-vest after five years only if the Company achieves specified cumulative TSR growth percentages over a five-year period (100% of our former CEO's 2019 equity award was subject to a performance condition). At an 11% cumulative TSR growth rate over a five-year period, only 30% of the restricted stock granted that is subject to performance-based vesting would vest. No restricted stock subject to performance-based vesting would vest if TSR growth rate is below 11% over a five-year period.

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COMPENSATION DISCUSSION AND ANALYSIS

EMPLOYMENT AGREEMENTS

Each of Messrs. Layne, O'Reilly and Riley have employment agreements with the Company. These agreements provide for a minimum annual base salary, target annual incentive compensation under plans approved by the Compensation Committee, as well as severance and other benefits. The Compensation Committee approved the terms of the employment agreements based upon (a) its assessment of the terms necessary to retain highly qualified executives, and (b) arm's length negotiations with each of these executives. For a description of the material terms of these employment agreements, see "Executive Compensation – Employment Agreements with the NEOs."

Key Elements of Executive Compensation Program

The following table outlines certain information regarding the key elements of our executive program:

Element


Form

Objectives and Basis

Base Salary

  Cash  

Attract and retain highly qualified executives to drive our success

Annual Incentive

  Cash  

Drive Company and segment results

Compensation

     

Actual payout determined by the Compensation Committee based on the achievement of specific financial and operational goals and objectives established by the Compensation Committee during the first quarter of each calendar year

Long-Term Equity

  Restricted Stock (time-based  

Drive Company performance

Incentive

  and performance-based vesting)  

Align interests of executives with those of our stockholders

     

Retain executives through long-term vesting

     

Provide stockholder aligned wealth accumulation opportunities

Deferred Compensation

  401(k) plan, non-qualified deferred compensation plan  

Provide tax-deferred methods for general savings and retirement

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We also provide other general benefits and limited perquisites, which are described below.

2019 ANNUAL COMPENSATION MIX

Consistent with the Compensation Committee's compensation philosophy and objectives, the following sets forth the 2019 compensation decisions that were approved for our NEOs as a result of Company and individual performance achievements and the total mix of variable compensation paid or granted to NEOs as reflected in the Summary Compensation Table under the header "Executive Compensation" and elsewhere in this Proxy Statement.

  Key Responsibilities   2019 Annual Compensation Mix*


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  Paul Layne

  Chief Executive

  Officer


 

Our CEO is responsible for managing our business operations and overseeing the senior members of our management team. He leads the implementation of corporate strategy and is the primary liaison between our Board and the management of our firm. He also serves as the primary public figure of the Company.

Key 2019 Performance Achievements

Successful transition to the CEO role in a short period of time without significant disruption to our operations.

Integrally involved with the development and execution of the Company's transformation plan.

Continued the development of the Company's vision for The Woodlands, Bridgeland and The Woodlands Hills

Led the acquisition of two Class AAA office towers in The Woodlands

Led the Company's development and leasing efforts for 110 North Wacker.


 

LOGO

  Compensation Decisions    

      Base Salary   $543,269    

      Annual Bonus   $840,000    

      Long-Term Equity Incentive   $297,711    

  *   Mr. Layne's base salary was prorated between $500,000, his base salary prior to his promotion to CEO on October 21, 2019, and $750,000, his base salary as CEO. For more information, see "Employment Agreements with the NEOs  –  Paul Layne"    

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  Key Responsibilities   2019 Annual Compensation Mix


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  David O'Reilly

  Chief Financial Officer


 

Our CFO is responsible for managing the Company's overall financial position, including our cash flow and liquidity profile. He is also responsible for financial analysis and reporting, as well as our information technology function. He is our primary liaison to our investors.

Key 2019 Performance Achievements

Integrally involved with the development and execution of the Company's transformation plan.

Integrally involved in subjects of critical significance to the Company, including cash flow, capital liquidity and reputational matters.

Led the acquisition financing of two Class AAA office towers in The Woodlands

Continued to refine our investor communication and relations strategy.


 

LOGO

  Compensation Decisions    

  Base Salary   $500,000    

  Annual Incentive Compensation   $990,000    

  Long-Term Equity Incentive   $893,307    

 

    Key Responsibilities   2019 Annual Compensation Mix


GRAPHIC
  Peter F. Riley

  Senior Executive Vice
President, Secretary
and General Counsel


 

Our Senior Executive Vice President, Secretary and General Counsel manages business and legal aspects of complex transactions, particularly in the negotiation of critical contracts. He participates in the development of corporate policies, procedures and programs, and provides counsel and guidance on legal matters.

Key 2019 Performance Achievements

Continued to lead the Company's Legal Department in drafting, negotiating and finalizing contracts on a timely basis.

Continued to excel by providing the Company with sound legal advice and strategies.


 

LOGO
  Compensation Decisions    
  Base Salary   $550,000    
  Annual Incentive Compensation   $800,000    
  Long-Term Equity Incentive   $595,481    

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  Key Responsibilities   2019 Annual Compensation Mix*



GRAPHIC



  Saul Scherl

  President, New York

  Tri-State Region


 

Our President, New York Tri-State Region is primarily responsible for overseeing the Seaport District, which notably includes Pier 17, the Tin Building and 250 Water Street.

Key 2019 Performance Achievements

Oversaw the successful completion and opening of The Fulton by Jean-Georges and Malibu Farm

Completed and delivered the Nike office space and Pier 17 office lobby.

Increased the number of shows of the Summer Concert Series from 20 to 42.

Continued to make significant progress on the design, operation and functionality of the Tin Building. [REVISE PIE CHART TO ROUND TO $1,522,107 for long-term equity]


 

LOGO

  Compensation Decisions    

      Base Salary   $600,000    

      Annual Bonus   $600,000    

      Long-term Equity Incentive   $372,125    

      Past-Performance Equity Award   $1,149,982    

  *   Mr. Scherl does not participate in the other NEOs' annual incentive compensation program. For more information, see "2019 Annual Compensation  –  Annual Incentive Compensation." Note also that the Past-Performance Equity Award was a one-time award in 2019, which was outside of the Company's annual equity grant program. Excluding the Past-Performance Equity Award from Mr. Scherl's 2019 compensation, approximately 61% of Mr. Scherl's compensation was variable compensation.    

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Fiscal Year 2019 CEO Total At-Risk Compensation Mix

GRAPHIC   GRAPHIC

BASE SALARY

The annual base salary for each NEO is set forth in his employment agreement (with the exception of Messrs. Scherl and Treacy, who do not have an employment agreement with us). Any increases in base salary are expected to be determined on the basis of scope of responsibilities, level of experience and sustained performance with the Company, as well as internal and market comparisons. In setting base salaries for the NEOs, the Compensation Committee seeks to provide a reasonable level of fixed compensation that is competitive with base salaries for comparable positions at similar companies. The base salaries of our NEOs as of December 31, 2018 and 2019 were as follows:

Name


Title                                     

2018 Base Salary
($)


2019 Base Salary
($)


Base Salary
Change

Paul Layne

  Chief Executive Officer   500,000   750,000   $250,000*

David O'Reilly

  Chief Financial Officer   500,000   500,000   No Change

Peter F. Riley

  Senior Executive Vice President, Secretary and General Counsel   550,000   550,000   No Change

Saul Scherl

  President, New York Tri-State Region   500,000   600,000   $100,000**

Simon Treacy

  Former President, Hawaii   500,000   500,000   No Change

David Weinreb

  Former Chief Executive Officer   1,000,000   1,000,000   No Change

Grant Herlitz

  Former President   750,000   750,000   No Change
*
Mr. Layne's base salary increased effective October 21, 2019 in connection with his promotion to Chief Executive Officer. For more information see "Employment Agreements with the NEOs—Paul Layne."

**
The Company increased Mr. Scherl's salary in 2019 following a total review of Mr. Scherl's compensation to keep Mr Scherl's total compensation package competitive and attractive. For more information see "Employment Agreements with the NEOs—Saul Scherl."

ANNUAL INCENTIVE COMPENSATION

The Compensation Committee believes that annual incentive compensation is a key element of the total compensation for our NEOs. The Compensation Committee also believes that placing a significant portion of

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executive compensation at risk each year, subject to the results of established performance measures and objectives, appropriately motivates the NEOs to achieve the Company's financial and operational objectives, thereby enhancing stockholder value.

The employment agreements for our NEOs (other than for Messrs. Scherl and Treacy) provide that each officer is eligible to receive an annual incentive award. The amount of each annual incentive award is within a range set forth in the applicable NEO's employment agreement and is determined by the Compensation Committee based on the achievement of specific goals and objectives established by the Compensation Committee during the first quarter of each calendar year. For 2019, Mr. Layne's employment agreement provides that he is eligible to participate in the Company's general annual incentive plan, in which all corporate employees are eligible to participate. Mr. Layne's employment agreement further provides that his annual incentive award for fiscal 2019 shall be prorated between $1,000,000, the target bonus amount in his employment agreement, and $460,000, the target bonus in effect prior to the effective date of his employment agreement. Beginning in 2020, Mr. Layne will be eligible to receive an annual incentive award within a range set forth in his employment agreement determined by the Compensation Committee (at least 80% of his target bonus, but no more than 120% of his target bonus) based on the achievement of specific goals and objectives established by the Compensation Committee during the first quarter of each calendar year. Messrs. Scherl and Treacy do not have employment agreements and instead participate in the Company's general annual incentive plan. The annual incentive compensation opportunity for Messrs. O'Reilly and Riley is set forth below.

David O'Reilly

Peter F. Riley

The annual incentive awards for the eligible NEOs are contingent upon the achievement of an objective minimum financial performance measure (the "Overall Goal") and the results of the Compensation Committee's evaluation of the achievement of other operational and real estate development objectives (as further described below). If the Company achieves the Overall Goal, then a bonus pool for the eligible NEOs is available for distribution in accordance with the threshold, target and maximum annual incentive awards set forth in their employment agreements as described above and the Compensation Committee's evaluation of Company and NEO performance as described in further detail below.

The Compensation Committee established the Overall Goal for the 2019 annual incentive compensation plan of at least $500 million of consolidated gross revenues. The Company's consolidated gross revenues for 2019 were approximately $1.3 billion, which substantially exceeded the $500 million Overall Goal, and a bonus pool was therefore available for distribution to the eligible NEOs. The Compensation Committee selected consolidated gross revenues as the Overall Goal because it believes that our revenues are a strong indicator of the growth and performance of the Company in this stage of its development; however, achievement of the Overall Goal is only the threshold for availability of the eligible NEOs' bonus pool. It is not the sole factor in determining NEO annual incentive payouts. If the Overall Goal is achieved, the Compensation Committee determines actual annual incentive payouts based primarily on the specific, predetermined financial and operational goals that it approves in the first quarter of each year within the framework of the eligible NEOs' employment agreements. The Compensation Committee also uses subjective evaluations as a component of its review of NEO performance.

As the Company and its businesses have evolved, the Compensation Committee has increasingly evaluated NEO performance for purposes of annual incentive compensation payouts against specific, predetermined financial and

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operational goals. For fiscal 2019, annual incentive payouts were equally based on the achievement of the following objective performance goals, plus a subjective evaluation of NEO performance:

We chose these measures because we believe that they motivate our NEOs to drive Company growth and to execute on our business plan.

To reflect performance above or below performance targets, the goals above have sliding scales that provide for annual incentive payouts greater than the target level if results are greater than target performance (up to a maximum payout of 140% of the target bonus for Messrs. O'Reilly and Riley) or less than target bonus if results are lower than the performance target (down to a threshold of 60% of target bonus for Messrs. O'Reilly and Riley) below which the annual incentive payout would equal the threshold bonus amount set forth in each NEO contract.

The fiscal 2019 performance targets were designed to be challenging and were set at levels above fiscal 2018 performance targets for Operating Assets NOI and MPC NOI. The Company's actual performance exceeded all of the performance targets.

The actual results for the annual contracted condominium sales target are as follows:

PERFORMANCE MEASURE

THRESHOLD

TARGET

MAXIMUM

ACTUAL

POTENTIAL
PAYOUT

Annual Contracted Condominium Sales (O'Reilly and Riley)

$ 198,037,810 $ 330,063,017 $ 462,088,224 $ 334,312,409 101 %

The actual results for the Operating Assets NOI target are as follows:

PERFORMANCE MEASURE(1)

THRESHOLD

TARGET

MAXIMUM

ACTUAL

POTENTIAL
PAYOUT

Operating Assets NOI (O'Reilly and Riley)

$ 126,515,913 $ 210,859,855 $ 295,203,797 $ 214,135,624 102 %
(1)
Operating Assets NOI exclude the Seaport District segment. The components of Operating Assets NOI include the following: (i) net operating income from retail operations; (ii) net operating income from office operations; (iii) net operating income from multifamily operations; (iv) net operating income from hospitality operations; and (v) net operating income from other operations. See Annex B for a reconciliation of the Operating Assets NOI for NEO Goals to Operating Assets NOI.

The actual results for the MPC NOI target are as follows:

PERFORMANCE MEASURE

THRESHOLD

TARGET

MAXIMUM

ACTUAL

POTENTIAL
PAYOUT

MPC NOI (O'Reilly and Riley)

$ 99,128,281 $ 165,213,801 $ 231,299,321 $ 192,679,604 117 %

Before determining the actual annual incentive payouts for the NEOs other than Messrs. Scherl and Treacy, the Compensation Committee also considered each NEO's individual performance. The Compensation Committee generally judged the individual performance of each NEO taking into consideration the performance highlights of each NEO as described in "2019 Annual Compensation Mix." In evaluating individual NEO performance, the Compensation Committee did not apply any formula or performance target.

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After the end of fiscal 2019, the Compensation Committee determined the extent to which the performance goals were achieved. The tables below show the fiscal 2019 payout levels for Messrs. O'Reilly and Riley. The Compensation Committee determined that performances above target level for the objective performance goals were not significant enough to warrant payment above the target level for the objective performance goals of Mr. O'Reilly and the target level for the objective performance goals and subjective evaluation of Mr. Riley. The Compensation Committee determined that Mr. O'Reilly's integral involvement with the development and execution of the Company's transformation plan warranted payment at the maximum level for his subjective evaluation. The Compensation Committee elected to pay annual incentives as disclosed in the "Non-Equity Incentive Compensation Plan" column of the Summary Compensation Table. Mr. O'Reilly received an annual incentive payout of $990,000 and Mr. Riley received an annual incentive payout of $800,000.

O'Reilly

Threshold

Target

Maximum

Payout
Level


Bonus
Payout($)

Annual Contracted Condominium Sales

$ 135,000 $ 225,000 $ 315,000 Target $ 225,000

Operating Assets NOI

$ 135,000 $ 225,000 $ 315,000 Target $ 225,000

MPC NOI

$ 135,000 $ 225,000 $ 315,000 Target $ 225,000

Subjective

$ 135,000 $ 225,000 $ 315,000 Maximum $ 315,000

TOTAL

        $ 990,000

 

Riley

Threshold

Target

Maximum

Payout
Level


Bonus
Payout($)

Annual Contracted Condominium Sales

$ 120,000 $ 200,000 $ 280,000 Target $ 200,000

Operating Assets NOI

$ 120,000 $ 200,000 $ 280,000 Target $ 200,000

MPC NOI

$ 120,000 $ 200,000 $ 280,000 Target $ 200,000

Subjective

$ 120,000 $ 200,000 $ 280,000 Target $ 200,000

TOTAL

        $ 800,000

Pursuant to his employment agreement, Mr. Layne was eligible to receive a bonus payout prorated between $1,000,000, the target bonus amount in his employment agreement, and $460,000, the target bonus in effect prior to the effective date of his employment agreement. This prorated target amount equaled approximately $566,520. Due to Mr. Layne's superior performance, including his: (1) successful transition to the CEO role in a short period of time without significant disruption to our operations; (2) integral involvement with the development and execution of the Company's transformation plan; and (3) his leadership in connection with the Company's acquisition of two class AAA office buildings in The Woodlands, the Compensation Committee decided to award Mr. Layne an annual bonus of $840,000 for 2019 performance, which was $273,480 greater than the prorated target amount.

Messrs. Scherl and Treacy do not have employment agreements with the Company and do not participate in the annual cash bonus pool as described above. Messrs. Scherl and Treacy participate in the Company's general annual incentive plan in which all corporate employees are eligible. Their annual cash bonuses are based upon their performance against objective and subjective performance goals that were established by Grant Herlitz (the former President of the Company) in consultation with each of Mr. Scherl and Mr. Treacy. The cash bonus amount is ratified by the Compensation Committee upon recommendation from the CEO.

Messrs. Weinreb's and Herlitz's annual bonuses in respect of fiscal 2019 were paid out at the target level, consistent with their separation agreements and prior employment agreements with us. For further information regarding Mr. Weinreb's and Mr. Herlitz's separation payments and benefits, please refer to the "All Other Compensation" column of the Summary Compensation Table and the discussion under "Employment Agreements with the NEOs—David Weinreb—Separation Agreement," "— Grant Herlitz—Separation Agreement," and "Severance and Change in Control Benefits—David Weinreb" and "—Grant Herlitz".

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LONG-TERM EQUITY INCENTIVE

The 2010 Incentive Plan is designed to attract, retain and motivate officers, employees, non-management directors and consultants of the Company and its subsidiaries, as well as promote the success of the Company's business by providing participants with appropriate incentives. (As further described in Proposal 3, the Company is requesting that our stockholders approve at the 2020 Annual Meeting the 2020 Equity Incentive Plan, a new long-term equity incentive plan under which the Company intends to make grants of equity and equity-based compensation following such approval.)

The Company believes that restricted stock grants provide a long-term equity opportunity that is both competitive in the real estate industry and serves as a retention tool. In addition, 50% of the restricted stock granted to each NEO (and 100% of the restricted stock granted to Mr. Weinreb, our former CEO) is eligible to cliff-vest after five years only upon the achievement of specified cumulative total stockholder return growth percentages over the same period. At an 11% cumulative total stockholder return growth over a five-year period, only 30% of the restricted stock granted that is subject to performance based vesting would vest. No restricted stock subject to performance-based vesting would vest if TSR growth rate is below 11% over a five-year period. The 11% minimum cumulative total stockholder return is a challenging target. The Company believes that the long-term vesting component of the restricted stock aligns management's interest with the long-term performance of the Company.

Restricted stock granted in 2019 is based on fiscal 2018 performance. Based on the actual achievement of the 2018 goals described below (which were approved by the Compensation Committee in the first quarter of 2018) and the Compensation Committee's overall evaluation of the individual 2018 performance of each eligible NEO, the Compensation Committee determined that each of Messrs. Weinreb, Herlitz, O'Reilly, and Riley should receive a long-term equity incentive in an amount equal to the target amounts set forth in their employment agreements.

Performance Measure (2018)


Target
($)


Actual
($)


Target Exceeded

Cumulative Contracted Condominium Sales

1,941,500,000 2,043,936,983