HOWARD HUGHES HOLDINGS INC. The following discussion and analysis by management should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes included in this quarterly report on Form 10-Q (the Quarterly Report) and inThe Howard Hughes Corporation's (HHC or the Company) annual report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission (SEC) onFebruary 28, 2022 (the Annual Report). All references to numbered Notes are to specific notes to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report. IndexPage Forward -looking Information 32 Overview 34 Results of Operations 38 Operating Assets 39 Master Planned Communities 40 Seaport 43 Strategic Developments 46 Corporate Income, Expenses and Other Items 48 Liquidity and Capital Resources 49 HHC 2022 FORM 10-Q | 31
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MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents
FORWARD-LOOKING INFORMATION
Certain statements contained in or incorporated by reference into this Quarterly
Report, including, without limitation, those related to our future operations
and those related to our expectations concerning the impact of the ongoing
coronavirus pandemic (COVID-19) on our future operations and balance sheet,
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All statements other than
statements of historical fact included in this Quarterly Report are
forward-looking statements and may include words such as "anticipate,"
"believe," "estimate," "expect," "forecast," "intend," "likely," "may," "plan,"
"project," "realize," "should," "transform," "would," and other statements of
similar expression.
These forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause our actual results, performance or
achievements, or industry results, to differ materially from any predictions of
future results, performance or achievements that we express or imply in this
Quarterly Report or in the information incorporated herein by reference.
Currently, one of the most significant factors is the unknown future adverse
impact of COVID-19 on our financial condition, results of operations, cash flows
and performance, on our industry, and on the global economy and financial
markets. The extent to which COVID-19 will continue to impact us depends on
future developments that remain uncertain and cannot be predicted with
confidence, including the scope and duration of the pandemic, actions taken by
governments and authorities to contain or mitigate the impact of the virus, the
speed of distribution and effectiveness of vaccines, the impact of ongoing and
future mutations of the virus, and the short and long-term economic and consumer
behavior impact caused by the pandemic. In addition, you should interpret many
of the risks identified below and set forth in our 2021 Annual Report on Form
10-K (2021 Annual Report), as being heightened as a result of the ongoing and
numerous adverse impacts of COVID-19.
Some of the risks, uncertainties and other important factors that may affect
future results or cause actual results to differ materially from those expressed
or implied by forward-looking statements include:
-the impact of the ongoing COVID-19 pandemic on our business, our tenants and
the economy in general, including as described above;
-a prolonged recession in the national economy, including any adverse business
or economic conditions in the homebuilding, condominium development, retail and
office sectors;
-potential changes in the financial markets, interest rates and inflation;
-our continuing ability to obtain operating and development capital on favorable
terms, or at all;
-our ability to compete effectively, including the potential impact of
heightened competition for tenants and potential decreases in occupancy at our
properties;
-our ability to successfully dispose of non-core assets on terms favorable to
us;
-our ability to lease new or redeveloped space;
-our ability to successfully identify, acquire, develop and/or manage properties
on terms that are favorable to us;
-our ability to obtain the necessary governmental permits for the development of
our properties and necessary regulatory approvals pursuant to an extensive
entitlement process involving multiple and overlapping regulatory jurisdictions,
which often require discretionary action by local governments;
-potential increases in real estate construction costs, including construction
cost increases as the result of trade disputes and tariffs on goods imported in
the United States ;
-impact of construction costs exceeding our original estimates, delays or
overruns, claims for construction defects, or other factors affecting our
ability to develop, redevelop or construct our properties;
-regulation of the portion of our business that is dedicated to the formation
and sale of condominiums, including regulatory filings to state agencies,
additional entitlement processes and requirements to transfer control to a
condominium association's board of directors in certain situations;
-potential defaults by purchasers on their obligations to purchase our
condominiums;
-fluctuations in regional and local economies, the residential housing and
condominium markets, local real estate conditions, and competition from
competing retail properties and the internet;
-extreme weather conditions or climate change, including natural disasters, that
may cause property damage or interrupt business;
-contamination of our properties by hazardous or toxic substances
-terrorist activity, acts of violence, or breaches of our data security, as well
as losses that are not insured or exceed the applicable insurance limits;
-our inability to control certain of our properties due to the joint ownership
of such property and our inability to successfully attract desirable strategic
partners;
-catastrophic events or geo-political conditions, such as the COVID-19 pandemic
and resurgence of different variants, issues with the global supply chain, the
recent invasion by Russia of Ukraine and any further escalation of hostilities
which may impact the global energy supply, that may disrupt our business;
HHC 2022 FORM 10-Q | 32
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MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents
-inherent risks related to disruption of information technology networks and
related systems, including cyber security attacks;
-our ability to attract and retain key personnel; and
-other risks and uncertainties described herein, as well as those risks and
uncertainties discussed from time to time in our other reports and other public
filings with the SEC .
Although we presently believe that the plans, expectations and anticipated
results expressed in or suggested by the forward-looking statements contained in
or incorporated by reference into this Quarterly Report are reasonable, all
forward-looking statements are inherently subjective, uncertain and subject to
change, as they involve substantial risks and uncertainties, including those
beyond our control. New factors emerge from time to time, and it is not possible
for us to predict the nature, or assess the potential impact, of each new factor
on our business. Given these uncertainties, we caution you not to place undue
reliance on these forward-looking statements. We undertake no obligation to
update or revise any of our forward-looking statements for events or
circumstances that arise after the statement is made, except as otherwise may be
required by law.
The above list of risks and uncertainties is only a summary of some of the most
important factors and is not intended to be exhaustive. Additional information
regarding risk factors that may affect us is included in our 2021 Annual Report.
The risk factors contained in our 2021 Annual Report are updated by us from time
to time in Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other
filings that we make with the SEC .
HHC 2022 FORM 10-Q | 33
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW Table of Contents
OVERVIEW
Description of Business
Our award-winning assets include one of the nation's largest portfolios of
master planned communities (MPCs) spanning approximately 118,000 gross acres, as
well as operating properties, strategic developments, and other unique assets
across 9 states from New York to Hawai'i. We create some of the most
sought-after communities in the country by curating an environment tailored to
meet the needs of our residents and tenants. Our unique business model allows us
to drive outsized risk-adjusted returns while maintaining a sharp focus on
sustainability to ensure our communities are equipped with the resources to last
several decades.
We operate through four business segments: Operating Assets, MPCs, Strategic
Development and Seaport. We create a unique and continuous value-creation cycle
through our operational and financial synergies associated with our three
primary business segments of Operating Assets, MPCs and Strategic Developments.
In our MPC segment, we plan, develop and manage small cities and large-scale,
mixed-use communities, in markets with strong long-term growth fundamentals.
This business focuses on the horizontal development of residential land. The
improved acreage is then sold to homebuilders that build and sell homes to new
residents. New homeowners create demand for commercial developments, such as
retail, office, self-storage and hospitality offerings. We build these
commercial properties through Strategic Developments at the appropriate time
using the cash flow harvested from the sale of land to homebuilders, which helps
mitigate development risk. Once the commercial developments are completed, the
assets transition to Operating Assets, which increase recurring Net Operating
Income (NOI), further funding our Strategic Developments. New office, retail and
other commercial amenities make our MPC residential land more appealing to
buyers and increase the velocity of land sales at premiums that typically exceed
the broader market. This increased demand for residential land generates more
cash flow from MPCs, thus continuing the value-creation cycle. Our fourth
business segment, the Seaport, is one of the few multi-block districts largely
under private management by a single owner in New York City . This historic
waterfront area is being revitalized and enhanced into a mixed-use neighborhood
featuring unique culinary and entertainment offerings.
In addition to the required presentations using GAAP, we use certain non-GAAP
performance measures, such as earnings before taxes (EBT) and NOI. See the
Earnings Before Taxes, Operating Assets and Seaport sections below for the
reconciliation of GAAP to non-GAAP financial measures and a statement indicating
why management believes the non-GAAP financial measure provides useful
information for investors.
COVID-19 Pandemic The outbreak of COVID-19 resulted in a negative impact on our
financial performance in 2020, particularly in our Operating Asset and Seaport
segments. However, we saw significant performance improvement during the second
half of the 2020 that continued through 2021, with full-year 2021 segment
results equaling or exceeding pre-pandemic levels for the majority of our
segments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW Table of Contents
First Quarter 2022 Highlights
Comparison of the three months ended
Total Company -Net income attributable to common stockholders increased to$2.1 million , or$0.04 per diluted share, for the three months endedMarch 31, 2022 , compared to loss of$66.6 million , or$(1.20) per diluted share, for the three months endedMarch 31, 2021 . -We continue to maintain a strong liquidity position with$688.0 million of cash and cash equivalents and available capacity of$85 million on the revolver portion of our credit facilities as ofMarch 31, 2022 , with limited near-term debt maturities. -OnMarch 1, 2022 , the Company acquired a 25% interest inJean-Georges Restaurants for$45.0 million and paid$10.0 million for the option to acquire up to an additional 20% interest inJean-Georges Restaurants throughMarch 2026 . -OnMarch 30, 2022 , the Company completed the sale of its ownership interest in 110 North Wacker for net proceeds of$168.9 million on a net investment of$12.7 million . Capital and Financing Activities -InJanuary 2022 , the Company closed on a$49.8 million non-recourse, interest-only financing of One Merriweather. The loan bears interest at 3.525% with maturity inFebruary 2032 . Proceeds from this financing and additional payments using cash on hand were used to repay$74.5 million on the Senior Secured Credit Facility in the first quarter. -InJanuary 2022 , the Company closed on a$25.6 million non-recourse, interest-only financing of Two Merriweather which was previously unencumbered. The loan bears interest at 3.825% with maturity inFebruary 2032 . -InFebruary 2022 , the Company closed on a$40.8 million non-recourse financing of Two Summerlin which was previously unencumbered. The loan bears interest at SOFR plus 1.75% with an initial maturity ofFebruary 2027 and two one-year extension options. Concurrent with the funding of the loan, the Company entered into an interest rate swap agreement with a notional amount equal to the principal amount of the loan and an interest rate of 3.425%. -Repurchased 1,750,668 shares of common stock funded with$170.7 million of cash on hand at an average price of$97.49 per share. Operating Assets -Operating Assets NOI totaled$50.5 million in the current quarter, a$6.4 million or 14% increase compared to$44.1 million in the prior-year period. -Multi-family NOI increased$5.4 million compared to the prior-year period, primarily due to lease-up at our newer properties, including The Lane at Waterway, Two Lakes Edge, and Creekside ParkThe Grove in The Woodlands andJuniper Apartments inDowntown Columbia that are all at or near full occupancy. -Retail NOI increased$1.5 million compared to the prior-year period, primarily due to improved rent collections of 90.4% compared to 77.5% in the prior-year period. -Office NOI decrease$0.7 million compared to the prior-year period, largely due to abatements on recent lease renewals and certain lease expirations in The Woodlands that have since been backfilled with new tenants subsequent to the end of the first quarter. This was offset by increased NOI inDowntown Columbia following the expiration of rent abatements at 6100 Merriweather.
MPC
-MPC EBT totaled$59.7 million in the current quarter, a$3.7 million or 6% decrease compared to$63.4 million in the prior-year period. -The decrease in EBT was primarily due to lower Equity in earnings (losses) from real estate and other affiliates at The Summit due to the impact of fewer unit closings in the first quarter of 2022 as compared to the same period in 2021, partially offset by higher land sales revenues at Summerlin and Bridgeland and higher builder price participation primarily at Summerlin due to more eligible home closings in 2022. -The increase in land sales revenues primarily related to higher commercial land sales at Summerlin due to the sale of 16.6 acres of institutional land for approximately$26 million in 2022, compared to no institutional land sales in the first quarter of 2021, and an increase in acres sold and price per acre at Bridgeland. HHC 2022 FORM 10-Q | 35
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW Table of Contents
Seaport
-Seaport NOI totaled a loss of $5.7 million in the current quarter, a
$1.5 million or 35% decrease compared to a loss of $4.2 million in the
prior-year period, primarily due to a decrease in our managed businesses, while
our landlord entities and events, sponsorships and catering business remained
relatively flat.
-Managed Business NOI decreased $2.0 million compared to the prior-year period.
While activity increased for the quarter due to recovery from the COVID-19
pandemic and new restaurant concepts launched in 2021 including Mister Dips,
Carne Mare and seasonal pop-ups, expenses outpaced revenues, due to increases in
food and beverage costs, and increases in labor costs due to a strategic
decision to maintain staffing levels to ensure workforce retention heading into
the summer season and the Tin Building opening.
Strategic Developments
-Strategic Developments EBT totaled $5.4 million in the current quarter, a
$27.4 million increase compared to a loss of $21.9 million in the prior-year
period.
-The increase in EBT was primarily attributable to a prior-year accrual of
$20.5 million related to defect remediation at Waiea, and the timing of
condominium closings.
-We continued to experience strong condominium unit sales in Ward Village ,
evidenced by the 37 condominium units we contracted to sell during the first
quarter of 2022 at our towers that are completed or under construction.
-Victoria Place , which began construction in February 2021 , accounted for two of
the units contracted during the quarter and was 99.7% presold as of March 31,
2022 . Subsequent to quarter end, we contracted the remaining unit, resulting in
Victoria Place being completed sold.
-The Park Ward Village , our eighth condominium project at Ward Village , began
public sales in July 2021 and as of March 31, 2022 , we have entered into
contracts for 483 units, representing 88.6% of total units.
-Our ninth condominium project, Ulana Ward Village , was announced in 2021, with
all units designated as workforce housing units offered to local residents who
meet certain maximum income and net worth requirements. In March 2022 , the
Company advanced the lottery for local residents. As of May 5, 2022 , we have
entered into contracts for 576 units, representing 82.8% of total units.
-We began construction of Creekside Park Medical Plaza , a 33,000 square-foot
multi-tenant medical office building in The Woodlands.
Earnings Before Taxes
In addition to the required presentations using GAAP, we use certain non-GAAP
performance measures, as we believe these measures improve the understanding of
our operational results and make comparisons of operating results among peer
companies more meaningful. Management continually evaluates the usefulness,
relevance, limitations and calculation of our reported non-GAAP performance
measures to determine how best to provide relevant information to the public,
and thus such reported measures could change.
Because our four segments, Operating Assets, MPC, Seaport and Strategic
Developments, are managed separately, we use different operating measures to
assess operating results and allocate resources among them. The one common
operating measure used to assess operating results for our business segments is
earnings before taxes (EBT). EBT, as it relates to each business segment,
represents the revenues less expenses of each segment, including interest
income, interest expense, depreciation and amortization and equity in earnings
of real estate and other affiliates. EBT excludes corporate expenses and other
items that are not allocable to the segments. See discussion herein at Corporate
income, expenses and other items for further details. We present EBT for each
segment because we use this measure, among others, internally to assess the core
operating performance of our assets.
EBT should not be considered an alternative to GAAP net income attributable to
common stockholders or GAAP net income, as it has limitations as an analytical
tool, and should not be considered in isolation, or as a substitute for analysis
of our results as reported under GAAP. Some of the limitations of EBT are that
it does not include the following in our calculations:
-cash expenditures, or future requirements for capital expenditures or
contractual commitments
-corporate general and administrative expenses
-interest expense on our corporate debt
-income taxes that we may be required to pay
-any cash requirements for replacement of fully depreciated or amortized assets
-limitations on, or costs related to, the transfer of earnings from our real
estate and other affiliates to us
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW Table of Contents
A reconciliation between EBT and Net income is presented below:
Operating Strategic
Assets Segment Seaport Developments
thousands (a) MPC Segment Segment Segment Total
Three Months Ended March 31, 2022
Total revenues $ 99,687 $
80,692
(46,615) (36,896) (18,859) (18,077) (120,447)
Segment operating income (loss) 53,072 43,796 (9,483) 2,379 89,764
Depreciation and amortization (38,430) (90) (7,823) (1,332) (47,675)
Interest income (expense), net (20,118) 10,422 (47) 3,989 (5,754)
Other income (loss), net (169) - 350 (485) (304)
Equity in earnings (losses) from real estate
and other affiliates 15,175 5,550 (3,711) 898 17,912
Gain (loss) on sale or disposal of real
estate and other assets, net - - - (9) (9)
Gain (loss) on extinguishment of debt (282) - - - (282)
Segment EBT $ 9,248 $
59,678
(51,481)
Net income (loss) 2,171
Net (income) loss attributable to
noncontrolling interests (49)
Net income (loss) attributable to common
stockholders $ 2,122
Three Months Ended March 31, 2021
Total revenues $ 96,439 $
48,287
(47,234) (23,267) (12,506) (59,623) (142,630)
Segment operating income (loss) 49,205 25,020 (5,053) (21,323) 47,849
Depreciation and amortization (39,651) (72) (6,835) (1,598) (48,156)
Interest income (expense), net (19,000) 10,757 102 1,101 (7,040)
Other income (loss), net (10,098) - (336) - (10,434)
Equity in earnings (losses) from real estate
and other affiliates (11,404) 27,650 (352) (98) 15,796
Gain (loss) on extinguishment of debt (836) - - - (836)
Segment EBT $ (31,784) $
63,355
(65,338)
Net income (loss) (68,159)
Net (income) loss attributable to
noncontrolling interests 1,565
Net income (loss) attributable to common
stockholders $ (66,594)
(a)Total revenues includes hospitality revenues of $7.7 million for the three
months ended March 31, 2021 . Total operating expenses includes hospitality
operating costs of $7.9 million for the three months ended March 31, 2021 . In
September 2021 , the Company completed the sale of its three hospitality
properties.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS Table of Contents
RESULTS OF OPERATIONS
Net income attributable to common stockholders was
For the three months ended
Total segment EBT increased$56.5 million compared to the prior-year period primarily due to the following: -higher Operating Assets EBT primarily due to an increase in equity earnings related to the sale of 110 North Wacker and an increase in Rental revenue primarily due to multi-family properties placed in service leasing up faster than expected and continued increases in collections at our retail portfolio in 2022 -higher Strategic Development EBT primarily attributable to a prior-year accrual of$20.5 million related to defect remediation at Waiea, and timing of condominium closings. The Company closed on 24 units at 'A'ali'i in 2022, compared to 4 units at Waiea and 1 unit at Anaha in 2021. -lower Seaport EBT due to expenses outpacing revenues, primarily due to increased food, beverage and labor costs and a decrease in equity earnings primarily related to pre-opening costs forThe Tin Building by Jean-Georges in 2022 -lower MPC EBT primarily due to lower Equity in earnings (losses) from real estate and other affiliates at The Summit due to the impact of fewer unit closings in the first quarter of 2022, compared to the same period in 2021, partially offset by higher commercial land sales revenues at Summerlin related to the sale of 16.6 acres for approximately$26 million in 2022 and higher builder price participation primarily at Summerlin due to more eligible home closings in 2022 -loss on the settlement of the rate-lock agreement associated with the loans for 1201Lake Robbins andThe Woodlands Warehouse upon repayment inFebruary 2021 , that did not repeat in 2022 Net expenses related to Corporate income, expenses and other items decreased$13.9 million compared to the prior-year period primarily due to the following: -decrease in net expense due to a loss on extinguishment of debt related to the repurchase of the Company's$1.0 billion 5.375% Senior Notes due 2025 during the first quarter of 2021 -decrease in net expense due to lower corporate interest expense, net primarily as a result of the change in value related to derivative instruments, and prepayment penalties and changes in interest related to the repurchase of the$1.0 billion 5.375% Senior Notes in the first quarter of 2021, partially offset by the issuance of$650 million 4.125% Senior Notes and$650 million 4.375% Senior Notes in the first quarter of 2021 -increase in income tax expense, primarily due to an increase in income before income taxes -increase in general and administrative expense primarily attributable to an increase in severance costs related to the former Chief Financial Officer, as well as increases in consulting, and marketing and events expenses
See segment discussions for more detail of the changes described above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS Table of Contents
Operating Assets
The Operating Assets segment consists of retail, office, hospitality and
multi-family properties along with other real estate investments, excluding the
properties located at the Seaport, which are reported in the Seaport segment for
all periods presented.
Segment EBT Segment EBT for Operating Assets is presented below:
Operating Assets Segment EBT Three Months Ended March 31, thousands 2022 2021 $ Change Rental Revenue$ 93,606 $ 83,499 $ 10,107 Other land, rental and property revenues 6,081 12,940 (6,859) Total revenues 99,687 96,439 3,248 Operating costs (31,635) (35,143) 3,508 Rental property real estate taxes (14,159) (12,722) (1,437) (Provision for) recovery of doubtful accounts (821) 631 (1,452) Total operating expenses (46,615) (47,234) 619 Segment operating income (loss) 53,072 49,205 3,867 Depreciation and amortization (38,430) (39,651) 1,221 Interest income (expense), net (20,118) (19,000) (1,118) Other income (loss), net (169) (10,098) 9,929
Equity in earnings (losses) from real estate and other affiliates
15,175 (11,404) 26,579
Gain (loss) on extinguishment of debt (282) (836) 554
Segment EBT $ 9,248 $ (31,784) $ 41,032 For the three months ended
Operating Assets segment EBT increased$41.0 million compared to the prior-year period primarily due to the following: -increase in equity earnings from the recognition of income upon the sale of 110 North Wacker primarily due to the release of our share of AOCI related to the Venture's derivative instruments and income from other equity investments in the first quarter of 2022, compared to losses incurred at 110 North Wacker in 2021 during the lease-up period -increase in Rental revenue primarily due to increased lease-up at our multi-family properties in The Woodlands andColumbia and improved collections at our retail properties -loss in Other income (expense), net related to a$10.0 million loss on the settlement of the rate-lock agreement upon repayment of our outstanding loans for 1201Lake Robbins andThe Woodlands Warehouse inFebruary 2021 -decrease in Other land, rental and property revenues, completely offset by a decrease in Operating costs, primarily due to the sale of our hospitality properties in The Woodlands in the third quarter of 2021 Net Operating Income We believe that NOI is a useful supplemental measure of the performance of our Operating Assets and Seaport segments because it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in rental and occupancy rates and operating costs as variances between years in NOI typically result from changes in rental rates, occupancy, tenant mix and operating expenses. We define NOI as operating revenues (rental income, tenant recoveries and other revenue) less operating expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI excludes straight-line rents and amortization of tenant incentives, net; interest expense, net; ground rent amortization; demolition costs; other (loss) income; amortization; depreciation; development-related marketing cost; gain on sale or disposal of real estate and other assets, net; provision for impairment and equity in earnings from real estate and other affiliates. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that property-specific factors such as lease structure, lease rates and tenant base have on our operating results, gross margins and investment returns. HHC 2022 FORM 10-Q | 39 --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS Table of Contents
Although we believe that NOI provides useful information to investors about the
performance of our Operating Assets and Seaport segments, due to the exclusions
noted above, NOI should only be used as an additional measure of the financial
performance of such assets and not as an alternative to GAAP net income. A
reconciliation of Operating Assets segment EBT to Operating Assets NOI is
presented in the table below. Refer to the Seaport section for a reconciliation
of Seaport segment EBT to Seaport NOI.
Operating Assets NOI Three Months Ended March 31,
thousands 2022 2021 $ Change
Total Operating Assets segment EBT $ 9,248 $ (31,784) $ 41,032
Add back:
Depreciation and amortization 38,430 39,651 (1,221)
Interest (income) expense, net 20,118 19,000 1,118
Equity in (earnings) losses from real estate and other affiliates
(15,175) 11,404 (26,579)
(Gain) loss on extinguishment of debt 282 836 (554)
Impact of straight-line rent (2,438) (5,107) 2,669
Other 49 10,139 (10,090)
Operating Assets NOI $ 50,514 $ 44,139 $ 6,375 The below table presents Operating Assets NOI by property type:
Operating Assets NOI by Property Type Three Months Ended March 31,
thousands 2022 2021 $ Change
Office $ 25,118 $ 25,832 $ (714)
Retail 13,477 12,003 1,474
Multi-family 11,142 5,735 5,407
Other 789 816 (27)
Dispositions (12) (247) 235
Operating Assets NOI $ 50,514 $ 44,139 $ 6,375 For the three months ended
Operating Assets NOI increased$6.4 million compared to the prior-year period primarily due to the following: -increase at our multi-family properties primarily related to the lease-up ofJuniper Apartments , Two Lakes Edge,Creekside Park the Grove and The Lane at Waterway -increase at our retail properties primarily due to improved collections inWard Village Master Planned Communities Douglas Ranch Acquisition InOctober 2021 , the Company announced the acquisition ofDouglas Ranch , a new large-scale master planned community in theWest Valley ofPhoenix, Arizona . The Company closed on the all-cash purchase of approximately 33,810 acres for a purchase price of$541.0 million . Simultaneous with this land acquisition, the Company closed on the acquisition of a 50% interest inTrillium Development Holding Company, LLC (Trillium), for$59.0 million . Trillium owns approximately 3,029 acres of land in the greaterPhoenix, Arizona area. In total, the Douglas Ranch MPC encompasses almost 37,000 fully-entitled, "shovel-ready" acres and is poised for growth with in-place entitlements for 100,000 residential homes and 55 million square feet of commercial development. For additional detail, refer to Note 2 - Investment in Real Estate and Other Affiliates and Note 3 - Acquisitions and Dispositions in the Condensed Consolidated Financial Statements. HHC 2022 FORM 10-Q | 40 --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS Table of Contents
Segment EBT Segment EBT for MPC Assets is presented below:
MPC Segment EBT Three Months Ended March 31, thousands 2022 2021 $ Change Master Planned Community land sales (a)$ 61,468 $ 37,477 $ 23,991 Other land, rental and property revenues 4,728 4,016 712 Builder price participation (b) 14,496 6,794 7,702 Total revenues 80,692 48,287 32,405 Master Planned Communities cost of sales (24,686) (15,651) (9,035) Operating costs (12,210) (7,616) (4,594) Total operating expenses (36,896) (23,267) (13,629) Segment operating income (loss) 43,796 25,020 18,776 Depreciation and amortization (90) (72) (18) Interest income (expense), net 10,422 10,757 (335) Equity in earnings (losses) from real estate and other affiliates 5,550 27,650 (22,100) Segment EBT$ 59,678 $ 63,355 $ (3,677) (a)MPC land sales include deferred revenue from land sales closed in a previous period that met criteria for recognition in the current period and excludes amounts deferred from current period lands sales that do not yet meet the recognition criteria. (b)Builder price participation revenue is based on an agreed-upon percentage of the sales price of homes closed relative to the base lot price that was paid by the homebuilders to us. This revenue fluctuates based upon the number and the prices of homes closed that qualify for builder price participation payments.
For the three months ended
MPC segment EBT decreased$3.7 million compared to the prior-year period due to the following: -lower Equity in earnings (losses) from real estate and other affiliates at The Summit due to fewer unit closings in the first quarter of 2022, compared to the prior-year period, primarily due to inventory availability and timing of custom lot sales -higher MPC land sales, net of associated MPC cost of sales, primarily related to higher commercial land sales at Summerlin due to the sale of 16.6 acres of institutional land for approximately$26 million in 2022, compared to no institutional land sales in the first quarter of 2021, partially offset by fewer custom lots sold in the first quarter of 2022 Additional highlights for the period included: -Bridgeland experienced an increase in acres sold, with 31.3 acres sold at a price of$495,000 per acre for the first quarter of 2022, compared to 27.6 acres sold at a price of$459,000 per acre for the same period in 2021 MPC Net Contribution In addition to MPC segment EBT, MPC Net Contribution is a non-GAAP financial measure derived from EBT, adjusted for certain items as discussed below. Management uses this measure because it captures current period performance through the velocity of sales, as well as current period development expenditures based upon demand at our MPCs, which varies depending upon the stage of the MPCs development lifecycle, and the overall economic environment. MPC Net Contribution is defined as MPC segment EBT, plus MPC cost of sales, Depreciation and amortization, and net collections from SID bonds and MUD receivables, reduced by MPC development expenditures, land acquisitions and Equity in earnings from real estate and other affiliates, net of distributions. MPC Net Contribution is not a GAAP-based operational metric and should not be used to measure operating performance of the MPC assets as a substitute for GAAP measures of such performance nor should it be used as a comparison metric with other comparable businesses. A reconciliation of segment EBT to MPC Net Contribution is presented below. HHC 2022 FORM 10-Q | 41 --------------------------------------------------------------------------------
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The following table sets forth the MPC Net Contribution:
MPC Net Contribution Three Months Ended March 31, thousands 2022 2021 $ Change MPC Segment EBT$ 59,678 $ 63,355 $ (3,677) Plus: Master Planned Communities cost of sales 24,686 15,651 9,035 Depreciation and amortization 90 72 18 MUD and SID bonds collections, net (a) 21,759 2,894 18,865 Distributions from real estate and other affiliates - 1,144 (1,144) Less: MPC development expenditures (78,883) (52,980) (25,903) Equity in (earnings) losses in real estate and other affiliates (5,550) (27,650) 22,100 MPC Net Contribution$ 21,780 $ 2,486 $ 19,294
(a)SID collections are shown net of SID transfers to buyers in the respective periods.
MPC Net Contribution increased$19.3 million for the three months endedMarch 31, 2022 , compared to the same period in 2021, primarily due to an increase in MUD and SID bond collections, net. The following table sets forth MPC land inventory activity for the three months endedMarch 31, 2022 : The Woodlands thousands Bridgeland Columbia Douglas Ranch Summerlin The Woodlands Hills Total MPC Balance December 31, 2021$ 520,154 $ 16,625 $ 510,541 $ 931,723 $ 187,419 $ 116,306 $ 2,282,768 Development expenditures (a) 36,842 - 123 34,228 2,729 4,961 78,883 MPC Cost of sales (5,146) - - (17,852) - (1,688) (24,686) MUD reimbursable costs (b) (29,427) - - - (21) (2,447) (31,895) Other (c) 1,352 - - 6,287 419 369 8,427 Balance March 31, 2022$ 523,775 $ 16,625 $ 510,664 $ 954,386 $ 190,546 $ 117,501 $ 2,313,497 (a)Development expenditures are inclusive of capitalized interest and property taxes. (b)MUD reimbursable costs represent land development expenditures transferred to MUD Receivables. (c)Primarily consists of changes in accrued development expenditures payable. HHC 2022 FORM 10-Q | 42 --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS Table of Contents
Seaport
General The Seaport is part non-stabilized operating asset, part development
project and part operating business. As such, the Seaport has a greater range of
possible outcomes than our other projects. The greater uncertainty is largely
the result of: (i) seasonality; (ii) potential sponsorship revenue; (iii)
potential event revenue; and (iv) business operating risks from various start-up
businesses. We operate and own, either directly, through license agreements or
in joint ventures, many of the tenants in the Seaport, and as a result, the
revenues and expenses of these businesses, as well as the underlying market
conditions affecting these types of businesses, will directly impact the NOI of
the Seaport. This is in contrast to our other retail properties where we
primarily receive lease payments and are not as directly impacted by the
operating performance of the underlying businesses. This causes the financial
results and eventual stabilized yield of the Seaport to be less predictable than
our other operating real estate assets with traditional lease structures.
Further, as we open new operating businesses, either owned entirely or in
partnership with third parties, we expect to incur pre-opening expenses and
operating losses until those businesses stabilize, which likely will not happen
until the Seaport reaches its critical mass of offerings. Given the factors and
uncertainties listed above, we do not currently provide guidance on our expected
NOI yield and stabilization date for the Seaport. As we move closer to opening a
critical mass of offerings at the Seaport, we will re-establish goals for yield
on costs and stabilization dates when the uncertainties and range of possible
outcomes are clearer.
Construction on the core and shell of the
Due to the range of asset types discussed above, we categorize the businesses in the Seaport segment into three groups: landlord operations, managed businesses, and events and sponsorships.
Landlord Operations Landlord operations represent physical real estate we have developed and own, and is inclusive of our office, retail and multi-family properties.
Managed Businesses Managed businesses represent retail and food and beverage businesses that HHC owns, either wholly or through partnerships with third parties, and operates, including license and management agreements. Our managed businesses include, among others, TheFulton , The Greens, Mister Dips,Carne Mare ,Malibu Farm , SsämBar and The Tin Building by Jean-Georges which is expected to open in the second quarter of 2022.The Tin Building by Jean-Georges, TheFulton ,The Greens and Malibu Farm are managed byCreative Culinary Management Company, LLC , a Jean-Georges company, and Mister Dips andCarne Mare are managed bySeaport F&B LLC , anAndrew Carmellini company. These management companies are responsible for employment and supervision of all employees providing services for the food and beverage operations and restaurant as well as the day-to-day operations and accounting for the food and beverage operations.
In March of 2022, the Company paid
In late 2022, we plan to expand our managed business portfolio with the launch ofThe Lawn Club , a new concept that will transform 20,000 square feet of theFulton Market Building into an immersive indoor and outdoor experience that includes an extensive indoor grass area, a stylish clubhouse bar and a wide variety of lawn games. We also expect to launch a new restaurant concept byJosh Eden andWylie Dufresne at1 Fulton Street featuring an all-day menu with many specialty to-go items and an expansive outdoor café in the fall of 2022.
Events and Sponsorships Our events and sponsorship businesses include our
concert series, event catering, private events and sponsorships. Food and
beverage operations associated with concert concessions and catering are
operated under management agreements with
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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250 Water Street In October 2020 , we announced our comprehensive proposal for
the redevelopment of 250 Water Street , which includes the transformation of this
underutilized full-block surface parking lot into a mixed-use development that
would include affordable and market rate apartments, community-oriented spaces
and office space. This project, which includes approximately 547,000 zoning
square feet, presents a unique opportunity at the Seaport to redevelop this site
into a vibrant mixed-use asset, provide long-term viability to the South Street
Seaport Museum and deliver much-needed affordable housing and economic stimulus
to the area. In May 2021 , we received approval from the New York City Landmarks
Preservation Commission (LPC) on our proposed design for the 250 Water Street
and in September 2021 , the New York State Supreme Court dismissed on procedural
grounds a lawsuit challenging the LPC approval. We received final approvals in
December 2021 through the New York City Uniform Land Use Review Procedure known
as ULURP, which will allow the necessary transfer of development rights to the
parking lot site. Also in December 2021 , an amendment to the Seaport ground
lease was executed giving the Company extension options, at the discretion of
the Company, for an additional 48 years from its current expiration in 2072
until 2120. We expect to begin remediation of the site through the New York
State Brownfield Cleanup program and break ground on the development in the
second quarter of 2022. In February 2022 , an additional lawsuit was filed
challenging the land use approvals previously granted to the Company under the
ULURP for the redevelopment and construction of 250 Water Street . The Company is
vigorously contesting the matter as it believes that these claims are without
merit.
Impact of COVID-19 In response to the COVID-19 pandemic, we closed the Seaport
in March 2020 and cancelled our 2020 Seaport summer concert series. Many
businesses were able to resume operations, on a limited basis, in the third
quarter of 2020. Most restrictions were lifted in June of 2021; however, many
businesses at the Seaport continued to operate at reduced levels through the
third quarter of 2021, primarily due to labor shortages. All venues were open
and operating at close to full capacity during the fourth quarter of 2021;
however, operations were negatively impacted by the rise of the Omicron variant
in the beginning of 2022 before returning to normal in March 2022 . As of March
31, 2022 , all businesses were open and operating at close to full capacity.
Segment EBT Segment EBT for Seaport is presented below:
Seaport Segment EBT Three Months Ended March 31, thousands 2022 2021 $ Change Rental Revenue$ 1,503 $ 2,228 $ (725) Other land, rental and property revenues 7,873 5,225 2,648 Total revenues 9,376 7,453 1,923 Operating costs (18,502) (12,159) (6,343) Rental property real estate taxes (334) (294) (40) (Provision for) recovery of doubtful accounts (23) (53) 30 Total operating expenses (18,859) (12,506) (6,353) Segment operating income (loss) (9,483) (5,053) (4,430) Depreciation and amortization (7,823) (6,835) (988) Interest income (expense), net (47) 102 (149) Other income (loss), net 350 (336) 686 Equity in earnings (losses) from real estate and other affiliates (3,711) (352) (3,359) Segment EBT$ (20,714) $ (12,474) $ (8,240)
For the three months ended
Seaport segment EBT decreased$8.2 million compared to the prior-year period primarily due to the following: -increase in revenues as a result of increased activity attributable to recovery from the COVID-19 pandemic as well as the launch of new restaurant concepts in 2021 including Mister Dips,Carne Mare and seasonal pop-ups, despite temporary impacts of the Omicron variant in early 2022 -increase in segment operating expenses, disproportionate to the increases in revenue, related to increases in food and beverage costs, and increases in labor costs due to a strategic decision to maintain staffing levels to ensure workforce retention heading into the summer season and theTin Building opening -decrease in equity earnings primarily related to pre-opening costs forThe Tin Building by Jean-Georges in 2022 HHC 2022 FORM 10-Q | 44 --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
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Net Operating Income A reconciliation of Seaport segment EBT to Seaport NOI is presented below:
Seaport NOI Three Months Ended March 31, thousands 2022 2021 $ Change Total Seaport segment EBT$ (20,714) $ (12,474) $ (8,240) Add back: Depreciation and amortization 7,823 6,835 988 Interest (income) expense, net 47 (102) 149
Equity in (earnings) losses from real estate and other affiliates
3,711 352 3,359
Impact of straight-line rent 1,888 404 1,484
Other (income) loss, net 1,503 741 762
Seaport NOI $ (5,742) $ (4,244) $ (1,498)
Including managed businesses, events, sponsorships, catering and the Tin
Building , the Seaport is approximately 60% leased. We may continue to incur
operating expenses in excess of rental revenues while the remaining available
space is in lease-up, as the Seaport continues to move toward its critical mass
of offerings and until the economy recovers from the economic impact of the
COVID-19 pandemic.
The below table presents Seaport NOI by category:
Seaport NOI by Category Three Months Ended March 31, thousands 2022 2021 $ Change Landlord Operations - Historic District & Pier 17$ (2,855) $ (3,240) $ 385 Multi-family (132) 92 (224) Managed Businesses - Historic District & Pier 17 (2,630) (660) (1,970) Events, Sponsorships & Catering Business (125) (436) 311 Seaport NOI$ (5,742) $ (4,244) $ (1,498) Managed Business NOI decreased$2.0 million compared to the prior-year period. While activity increased for the quarter due to recovery from the COVID-19 pandemic and new restaurant concepts launched in 2021 including Mister Dips,Carne Mare and seasonal pop-ups, expenses outpaced revenues, due to increases in food and beverage costs, and increases in labor costs due to a strategic decision to maintain staffing levels to ensure workforce retention heading into the summer season and theTin Building opening. HHC 2022 FORM 10-Q | 45 --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS Table of Contents
Strategic Developments
Our Strategic Developments assets generally require substantial future
development to maximize their value. Other than our condominium properties, most
of the properties and projects in this segment do not generate revenues. Our
expenses relating to these assets are primarily related to costs associated with
constructing the assets, selling condominiums, marketing costs associated with
our Strategic Developments, carrying costs including, but not limited to,
property taxes and insurance, and other ongoing costs relating to maintaining
the assets in their current condition. If we decide to redevelop or develop a
Strategic Developments asset, we would expect that with the exception of the
residential portion of our condominium projects, upon completion of development,
the asset would likely be reclassified to Operating Assets when the asset is
placed into service and NOI would become a meaningful measure of its operating
performance. All development costs discussed herein are exclusive of land costs.
Segment EBT Segment EBT for Strategic Developments is presented below:
Three Months Ended
Strategic Developments Segment EBT March 31,
thousands 2022 2021 $ Change
Condominium rights and unit sales
- 88 (88)
Other land, rental and property revenues 840 1,045 (205)
Total revenues Condominium rights and unit cost of sales (14,180) (54,968) 40,788 Operating costs (3,208) (3,680) 472 Rental property real estate taxes (689) (975) 286 Total operating expenses (18,077) (59,623) 41,546 Segment operating income (loss) 2,379 (21,323) 23,702 Depreciation and amortization (1,332) (1,598) 266 Interest income (expense), net 3,989 1,101 2,888 Other income (loss), net (485) - (485)
Equity in earnings (losses) from real estate and other affiliates
898 (98) 996
Gain (loss) on sale or disposal of real estate and other
assets, net (9) - (9)
Segment EBT $ 5,440 $ (21,918) $ 27,358 For the three months ended
Strategic Developments segment EBT increased$27.4 million compared to the prior-year period primarily due to the following: -decrease in Condominium rights and unit cost of sales primarily attributable to a prior-year accrual of$20.5 million related to defect remediation at Waiea -increase in Condominium rights and unit sales, net of costs of sales, of$2.7 million driven by the timing of condominium closings. The Company closed on 24 units at 'A'ali'i during the three months endedMarch 31, 2022 , compared to four units at Waiea and one unit at Anaha during the three months endedMarch 31, 2021 . Ward Village Condominium revenue is recognized when construction of the condominium tower is complete and unit sales close, leading to variability in revenue recognized between periods. We closed on 24 condominium inventory units during the three months endedMarch 31, 2022 , compared to 5 condominium unit closings during the three months endedMarch 31, 2021 . Overall progress at our condominium projects remains strong, as evidenced by the contract activity discussed below. Completed Condominiums As ofMarch 31, 2022 , our five completed towers are 97.3% sold with only 2 units remaining at Waiea and 55 units remaining at 'A'ali'i. Ae'o, Ke Kilohana and Anaha are completely sold. HHC 2022 FORM 10-Q | 46 --------------------------------------------------------------------------------
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Under-Construction Condominiums As of March 31, 2022 , our two under-construction
towers are 94.6% sold. K?'ula is a 41-story, 565-unit, mixed-use condominium
project that will consist of studio, one-, two- and three-bedroom residences. As
of March 31, 2022 , K?'ula is 91.5% presold. We began construction on Victoria
Place , our seventh condominium tower, in February 2021 . Victoria Place is
a 40-story, 349-unit condominium project that will consist of one-, two- and
three-bedroom residences. As of March 31, 2022 , Victoria Place is 99.7% presold.
Subsequent to quarter end, we contracted the remaining unit, resulting in
Victoria Place being completely sold.
Predevelopment Condominiums We launched public sales of our eighth condominium
project in July 2021 . The Park Ward Village will be a 41-story, 545-unit
condominium project located at Ward Avenue and Auahi Street , and adjacent to
Victoria Ward Park . The project will consist of studio, one-, two- and
three-bedroom residences, with the units ranging from approximately 400 square
feet to 1,500 square feet. As of March 31, 2022 , we have entered into contracts
for 483 of the 545 units, representing 88.6% of total units. This strong sales
activity continued after quarter end, and as of May 5, 2022 , we have entered
into contracts for 487 units, representing 89.4% of total units. The Park Ward
Village is Ward Village's fastest-selling tower since inception, surpassing
Victoria Place which held the previous record.
In 2021, HHC announced plans for our ninth condominium project, Ulana Ward
Village . This mixed-use residence will be adjacent to the new Ka La?i o
Kukulu?e?o public park and will consist of 696 studio, one-, two- and
three-bedroom units. All units are designated as workforce housing units and are
being offered to local residents who meet certain maximum income and net worth
requirements. In March 2022 , the Company advanced the lottery for local
residents. As of May 5, 2022 , we have entered into contracts for 576 units,
representing 82.8% of total units.
The following provides further detail for Ward Village as of March 31, 2022 :
Total % of Units Total % of Residential
Closed or Under Square Feet Closed or
Units Closed Units Under Contract Total Units Contract Under Contract Completion Date
Completed
Waiea (a) 175 - 177 98.9 % 99.0 % Q4 2016
Anaha (a) 317 - 317 100.0 % 100.0 % Q4 2017
Ae'o (a) 465 - 465 100.0 % 100.0 % Q4 2018
Ke Kilohana (a) 423 - 423 100.0 % 100.0 % Q2 2019
'A'ali'i (b) 687 8 750 92.7 % 89.3 % Q4 2021
Under construction
K?'ula (c) - 517 565 91.5 % 93.0 % Q3 2022
Victoria Place - 348 349 99.7 % 99.8 % 2024
Predevelopment
The Park Ward Village (d) - 483 545 88.6 % 89.9 % 2025
(a)The retail portions of these projects are 100% leased and have been placed in
service.
(b)The retail portion of this project has been placed in service and is 79%
leased.
(c)There will be approximately 36,800 square feet of retail space as part of
this project.
(d)There will be approximately 26,800 square feet of retail space as part of
this project.
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Corporate Income, Expenses and Other Items
The following table contains certain corporate related and other items not
related to segment activities and that are not otherwise included within the
segment analyses. Variances related to income and expenses included in NOI or
EBT are explained within the previous segment discussions. Significant variances
for consolidated items not included in NOI or EBT are described below:
Three Months Ended March
31,
thousands 2022 2021 $ Change
Corporate income
(25,891) (21,766) (4,125)
Corporate interest expense, net (21,660) (27,129) 5,469
Gain (loss) on extinguishment of debt - (35,079) 35,079
Corporate other income (loss), net 83 126 (43)
Corporate depreciation and amortization (918) (1,152) 234
Other (2,409) (1,644) (765)
Income tax (expense) benefit (701) 21,205 (21,906)
Total Corporate income, expenses and other items
For the three months ended
Corporate income, expenses and other items was favorably impacted compared to the prior-year period by the following: -loss on extinguishment of debt of$35.1 million due to the repurchase of the Company's$1.0 billion 5.375% Senior Notes due 2025 in the first quarter of 2021 -decrease in corporate interest expense, net primarily due to the change in value related to derivative instruments and prepayment penalties and changes in interest related to the repurchase of the$1.0 billion 5.375% Senior Notes in the first quarter of 2021 and the issuance of$650 million 4.125% Senior Notes and$650 million 4.375% Senior Notes in the first quarter of 2021. Refer to Note 8 - Derivative Instruments and Hedging Activities for additional information on derivative instruments. Corporate income, expenses and other items was unfavorably impacted compared to the prior-year period by the following: -increase in income tax expense primarily due to an increase in income before income taxes. Refer to Note 10 - Income Taxes for additional information. -increase in general and administrative expenses primarily attributable to an increase in severance costs related to the former Chief Financial Officer, as well as increases in consulting, and marketing and events expenses HHC 2022 FORM 10-Q | 48 --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
We continue to maintain a strong balance sheet and ensure we maintain the
financial flexibility and liquidity necessary to fund future growth. With the
sale of the Company's ownership interest in 110 North Wacker for net proceeds to
the Company of $168.9 million in the first quarter of 2022, we have
substantially completed the sales of our remaining non-core assets. Since the
fourth quarter of 2019, we have completed the sales of fourteen non-core assets
generating approximately $569.9 million of net proceeds after debt repayment.
In
InMarch 2022 , the Board authorized an additional$250.0 million of share repurchases. Under this program, the Company repurchased$17.3 million in the first quarter of 2022 and an additional$109.0 million throughMay 3, 2022 . All purchases were funded with cash on hand. Cash Flows Three Months Ended March 31, thousands 2022 2021 Cash provided by (used in) operating activities$ (100,760) $ (84,742) Cash provided by (used in) investing activities 33,859 (56,985) Cash provided by (used in) financing activities (96,216) 73,058 Operating Activities Each segment's relative contribution to our cash flows from operating activities will likely vary significantly from year to year given the changing nature of our development focus. Other than our condominium properties, most of the properties and projects in our Strategic Developments segment do not generate revenues and the cash flows and earnings may vary. Condominium deposits received from contracted units offset by other various cash uses related to condominium development and sales activities are a substantial portion of our operating activities in 2022. Operating cash continued to be utilized in 2022 to fund ongoing development expenditures in our Strategic Developments, Seaport and MPC segments, consistent with prior years. The cash flows and earnings from the MPC business may fluctuate more than from our operating assets because the MPC business generates revenues from land sales rather than recurring contractual revenues from operating leases. MPC land sales are a substantial portion of our cash flows from operating activities and are partially offset by development costs associated with the land sales business and acquisitions of land that is intended to ultimately be developed and sold. Net cash used in operating activities was$100.8 million for the three months endedMarch 31, 2022 , and$84.7 million for the three months endedMarch 31, 2021 . The$16.0 million net increase in cash used in operating activities was primarily due to an increase of$25.9 million in cash used pertaining to master planned community development expenditures and a decrease of$19.2 million in cash provided by the return of an interest rate lock deposit in the first quarter of 2021 associated with a debt instrument. The impact of these items was partially offset by a$17.4 million increase in MUD receivable collections and an$8.9 million increase in net cash associated with our condominiums. Investing Activities Net cash provided by investing activities was$33.9 million for the three months endedMarch 31, 2022 , compared to net cash used in investing activities of$57.0 million for the three months endedMarch 31, 2021 . The$90.8 million net increase in cash provided by investing activities was primarily the result of a$204.1 million increase in distributions from real estate and other affiliates related to the sale of the Company's ownership interest in 110 North Wacker, resulting in a net increase to the Company's liquidity of$168.9 million after the payment of transaction costs and distributions to our partner. This increase was partially offset by a$48.0 million increase in property development and redevelopment expenditures, and a net$69.0 million increase in investments in real estate and other affiliates, primarily attributable to the Company's investment inJean-Georges Restaurants during the three months endedMarch 31, 2022 . HHC 2022 FORM 10-Q | 49 -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents LIQUIDITY AND CAPITAL RESOURCES Financing Activities Net cash used in financing activities was$96.2 million for three months endedMarch 31, 2022 , and net cash provided by financing activities was$73.1 million for three months endedMarch 31, 2021 . The net increase in cash used in financing activities of$169.3 million was primarily due to repurchases of common shares of$179.3 million . In addition, proceeds from mortgages, notes and loans payable decreased by$1.23 billion , partially offset by a decrease in principal payments on mortgages, notes and loans payable of$1.19 billion , primarily due to significant financing activity in 2021.
Short- and Long-Term Liquidity
Short-Term Liquidity In the next twelve months, we expect our primary sources of cash to include cash flow from condominium closings, MPC land sales, cash generated from our Operating assets, first mortgage financings secured by our assets and deposits from condominium sales (which are restricted to funding construction of the related developments). We expect our primary uses of cash to include condominium pre-development and development costs, debt principal payments and debt service costs and MPC land development costs. We believe that our sources of cash, including existing cash on hand, will provide sufficient liquidity to meet our existing obligations and anticipated ordinary course operating expenses for at least the next 12 months. Long-Term Liquidity The development and redevelopment opportunities in Strategic Developments, Seaport and Operating Assets are capital intensive and will require significant additional funding, if and when pursued. Any additional funding would be raised with a mix of construction, bridge and long-term financings, by entering into joint venture arrangements, the sale of non-core assets at the appropriate time, as well as future equity raises. We cannot provide assurance that financing arrangements for our properties will be on favorable terms or occur at all, which could have a negative impact on our liquidity and capital resources. In addition, we typically must provide completion guarantees to lenders in connection with their financing for our projects. We also provided completion guarantees to theCity of New York for the redevelopment of theTin Building , as well as the Hawai'iCommunity Development Authority for reserve condominium units atWard Village . Debt Total outstanding debt was$4.7 billion as ofMarch 31, 2022 . Refer to Note 6 - Mortgages, Notes and Loans Payable, Net in the Condensed Consolidated Financial Statements. Our proportionate share of the debt of our real estate and other affiliates totaled$100.5 million as ofMarch 31, 2022 . All of this indebtedness is without recourse to the Company. Debt Compliance As ofMarch 31, 2022 , the Company did not meet the debt service coverage ratios for theTwo Hughes Landing and4 Waterway Square loans, which did not have a material impact on the Company's liquidity. Net Debt The following table summarizes our net debt on a segment basis as ofMarch 31, 2022 . Net debt is defined as Mortgages, notes and loans payable, net, including our ownership share of debt of our Real estate and other affiliates, reduced by liquidity sources to satisfy such obligations such as our ownership share of Cash and cash equivalents and SID, MUD and TIF receivables. Although net debt is a non-GAAP financial measure, we believe that such information is useful to our investors and other users of our financial statements as net debt and its components are important indicators of our overall liquidity, capital structure and financial position. However, it should not be used as an alternative to our debt calculated in accordance with GAAP. Operating Master Planned Strategic Non-Segment thousands Assets Communities Seaport Developments Segment Totals Amounts March 31, 2022 Mortgages, notes and loans payable, net$ 1,972,688 $ 339,077 $ 99,705 $ 240,281 $ 2,651,751 $ 2,023,199 $ 4,674,950 Mortgages, notes and loans payable of real estate and other affiliates 90,385 10,127 - - 100,512 - 100,512 Less: Cash and cash equivalents (242,924) (70,869) (7,103) (13,546) (334,442) (353,595) (688,037) Cash and cash equivalents of real estate and other affiliates (2,566) (47,214) (22,585) (13,919) (86,284) - (86,284)Special Improvement District receivables - (82,413) - - (82,413) - (82,413)Municipal Utility District receivables, net - (409,390) - - (409,390) - (409,390) TIF receivable - - - (1,186) (1,186) - (1,186) Net Debt$ 1,817,583 $ (260,682) $ 70,017 $ 211,630 $ 1,838,548 $ 1,669,604 $ 3,508,152 HHC 2022 FORM 10-Q | 50 -------------------------------------------------------------------------------- Table of
Contents
Contractual Cash Obligations and Commitments The following table aggregates our
contractual cash obligations and commitments as of
Remaining in
thousands 2022 2023 2024 2025 2026 2027 Thereafter Total
Mortgages, notes and loans
payable (a) $ 99,516 $ 473,474 $ 379,492 $ 174,020 $ 367,572 $ 24,113 $ 3,204,365 $ 4,722,552
Interest payments (b) 159,274 221,279 189,595 172,532 160,171 144,053 344,947 1,391,851
Ground lease and other
leasing commitments 3,349 4,521 4,577 4,635 4,695 4,756 270,473 297,006
Total $ 262,139 $ 699,274 $ 573,664 $ 351,187 $ 532,438 $ 172,922 $ 3,819,785 $ 6,411,409
(a)Based on final maturity, inclusive of extension options. In April 2022 , the
Company closed on a $19.5 million financing maturing in April 2026 for 20/25
Waterway Avenue , replacing the existing loan with maturity in May 2022 , with
$4.2 million withheld until the release of upcoming tenant expirations.
(b)Interest is based on the borrowings that are presently outstanding and
current floating interest rates.
HHC 2022 FORM 10-Q | 51--------------------------------------------------------------------------------
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