# Howard Hughes Holdings Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Howard Hughes Holdings Inc.](/companies/hhh.md) (CIK 1981792)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 16:06 ET
- Period: 2023-09-30
- Accession: 0001628280-23-037021
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1981792/000162828023037021/hhh-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1981792/000162828023037021/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $268.7m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $688.3m | us-gaap:Revenues |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$627.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$611.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $38.6m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $110.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$144.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | −$161.4m | us-gaap:IncomeTaxExpenseBenefit |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$10.97 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$11.83 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$10.97 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$11.83 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 49,616,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 49,551,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$359.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $491.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $9.37bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $6.34bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $2.96bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 87,688 characters.

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 in The Howard Hughes Corporation audited annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (SEC) on February 27, 2023 (the Annual Report). All references to numbered Notes are to specific notes to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.

| Index | Page |
| --- | ---: |
| Forward-looking Information | 35 |
| Overview | 37 |
| Results of Operations | 39 |
| Operating Assets | 40 |
| Master Planned Communities | 43 |
| Seaport | 47 |
| Strategic Developments | 51 |
| Corporate Income, Expenses, and Other Items | 53 |
| Liquidity and Capital Resources | 54 |

### HHH 2023 FORM 10-Q \| 34

**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 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.

Forward-looking statements include:

- accelerated growth in our core Master Planned Communities (MPC) assets
- expected performance of our stabilized, income-producing properties and the performance and stabilization timing of properties that we have recently placed into service or are under construction
- forecasts of our future economic performance
- expected benefits of our derivative instruments and mortgage activity over time
- expected capital required for our operations and development opportunities for our properties
- anticipated benefits of our holding company structure
- anticipated effects of the proposed spinoff of Seaport Entertainment, a newly formed division comprising our entertainment-related assets in New York and Las Vegas—including the Seaport in Lower Manhattan and the Las Vegas Aviators® Triple-A Minor League Baseball team, as well as the Company’s ownership stake in Jean-Georges Restaurants and its 80% interest in the air rights above the Fashion Show Mall (Seaport Entertainment)
- impact of technology on our operations and business
- expected performance of our segments
- expected commencement and completion for property developments and timing of sales or rentals of certain properties
- estimates of our future liquidity, development opportunities, development spending and management plans
- the potential impact of a resurgence of the COVID-19 pandemic on our business, our tenants and the economy in general, and our ability to accurately assess and predict such impacts on the financial condition, results of operations, cash flows, and performance of our Company
- descriptions of assumptions underlying or relating to any of the foregoing.

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 cyclical nature of residential and commercial building and changes in economic, real estate, or other conditions
- macroeconomic conditions such as volatility in capital markets, and a prolonged recession in the national economy, including any adverse business or economic conditions in the homebuilding, condominium-development, retail and office sectors
- our inability to obtain operating and development capital, including our inability to obtain or refinance debt capital from lenders and the capital markets
- rising interest rates and inflation
- the availability of debt and equity capital
- 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 complete the proposed spinoff of Seaport Entertainment on the timing contemplated by us (or that, if completed, the separation of the Seaport Entertainment from the Company will have the anticipated effect on each of the two separated entities)
- our ability to successfully identify, acquire, develop and/or manage properties on terms that are favorable to us
- potential increases in real estate construction costs, including construction cost increases as the result of natural disasters or trade disputes and tariffs on goods imported in the United States
- potential defaults by purchasers on their obligations to purchase our condominiums

**MANAGEMENT’S DISCUSSION AND ANALYSIS** Table of Contents

- extreme weather conditions or climate change, including natural disasters, that may cause property damage or interrupt business
- the impact of water and electricity shortages on our business, financial condition, and results of operations
- contamination of our properties by hazardous or toxic substances
- terrorist activity, acts of violence, or breaches of our data security
- losses that are not insured or that exceed the applicable insurance limits
- our ability to lease new or redeveloped space
- 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
- increased 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
- fluctuations in regional and local economies, the impact of rising interest rates on residential housing and condominium markets, local real estate conditions, and competition from competing retail properties and the internet
- inherent risks related to disruption of information technology networks and related systems, including cyber security attacks
- our ability to attract and retain key personnel
- our ability to collect rent and attract tenants
- our ability to manage and service our debt and comply with related debt covenants, restrictions, and limitations, including our $750,000,000 5.375% Senior Notes due 2028, $650,000,000 4.125% Senior Notes due 2029 and $650,000,000 4.375% Senior Notes due 2031, contain restrictions that may limit our ability to operate our business
- our directors’ involvement or interests in other businesses, including real estate activities and investments
- 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
- our dependence on the operations and funds of our subsidiaries, including The Howard Hughes Corporation
- the impact of a resurgence of the COVID-19 pandemic on our business, our tenants and the economy in general, including as described above
- catastrophic events or geo-political conditions, such as international armed conflicts, the COVID-19 pandemic and resurgence of different variants that may disrupt our business
- 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 the 2022 Annual Report of our subsidiary, The Howard Hughes Corporation (2022 Annual Report). The risk factors contained in the 2022 Annual Report are updated 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.

**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 MPCs spanning approximately 101,000 gross acres, as well as operating properties, strategic developments, and other unique assets across seven 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 Developments, and Seaport. We create a unique and continuous value-creation cycle through 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 who build and sell homes to new residents. New homeowners create demand for commercial developments, such as retail, office, 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 accounting principles generally accepted in the United States (GAAP), we use certain non-GAAP performance measures, such as NOI. See the Operating Assets and Seaport sections below for the reconciliation of this GAAP to non-GAAP financial measure and a statement indicating why management believes the non-GAAP financial measure provides useful information for investors. Changes for monetary amounts between periods presented are calculated based on the amounts in thousands of dollars stated in our consolidated financial statements, and then rounded to the nearest million. Therefore, certain changes may not recalculate based on the amounts rounded to the nearest million.

**New Holding Company Structure** On July 17, 2023, The Howard Hughes Corporation (HHC) announced that its Board of Directors authorized the creation of a holding company structure. The Company believes that the reorganization will promote the growth of its businesses by providing additional flexibility to fund future investment opportunities and to segregate assets and related liabilities in separate subsidiaries. On August 11, 2023, upon the consummation of the transaction, Howard Hughes Holdings Inc. (HHH or the Company), the new holding company, replaced HHC as the public company trading on the New York Stock Exchange under the ticker symbol "HHH."

**Seaport Entertainment** On October 5, 2023, HHH announced the intent to form a new division, Seaport Entertainment, that is expected to include the Company’s entertainment-related assets in New York and Las Vegas, including the Seaport in Lower Manhattan and the Las Vegas Aviators Triple-A Minor League Baseball team, as well as the Company’s ownership stake in Jean-Georges Restaurants and its 80% interest in the air rights above the Fashion Show Mall in Las Vegas.

HHH is establishing Seaport Entertainment with the intention of completing its spinoff as an independent, publicly traded company in 2024, but there can be no assurance regarding the ultimate timing of the spinoff or that the spinoff will ultimately occur. The planned separation of Seaport Entertainment from Howard Hughes will refine the identity of HHH as a pure-play real estate company focused solely on its portfolio of acclaimed master planned communities and allow the new company, Seaport Entertainment, to operate independently as an entertainment-focused enterprise.

**MANAGEMENT’S DISCUSSION AND ANALYSIS OVERVIEW** Table of Contents

### Third Quarter 2023 Highlights

### Comparison of the three months ended September 30, 2023, to the three months ended September 30, 2022

### Total Company

- Net income attributable to common stockholders decreased to a net loss of $544.2 million for the current quarter, including an after-tax impairment of $555.0 million related to the Seaport. This compares to net income of $108.1 million for the prior-year period. Excluding the after-tax impairment, the year-over-year reduction was primarily attributed to the timing of condo sales as the prior-year period included the delivery of Kō'ula in Ward Village.
- We continue to maintain a strong liquidity position with $491.7 million of cash and cash equivalents, $1.1 billion of undrawn lender commitment available to be drawn for property development and limited near-term debt maturities.

### Operating Assets

- Operating Assets NOI totaled $60.7 million in the current quarter, a $2.1 million increase compared to $58.7 million in the prior-year period. Excluding dispositions, Operating Assets NOI increased $2.7 million.
- Multi-family NOI increased $2.1 million, primarily due to continued lease-up at our newer properties, Marlow in Downtown Columbia and Starling at Bridgeland, and rent growth across our portfolio.
- Office NOI increased $0.8 million, primarily due to continued lease-up activity and abatement expirations at various properties in The Woodlands, most notably at 9950 Woodloch Forest and Lake Front North. These increases were partially offset by tenant vacancies at various properties in Downtown Columbia and initial operating losses from 1700 Pavilion in Summerlin.
- Retail NOI increased $0.5 million with modest improvements in all regions.

### MPC

- MPC Earnings Before Tax (EBT) totaled $84.8 million in the current quarter, a $9.4 million increase compared to $75.4 million in the prior-year period.
- The increase in EBT was primarily due to higher residential land sales, net of costs, at Summerlin and Bridgeland, partially offset by lower residential land sales at The Woodlands Hills.

### Seaport

- During the third quarter of 2023, the Company recorded an impairment charge related to the Seaport segment. Refer to Note 4 - *Impairment* for additional information.
- Seaport NOI totaled a loss of $0.9 million in the current quarter, a $2.5 million decrease compared to income of $1.6 million in the prior-year period. This change was primarily due to the absence of certain restaurant concepts, fewer private events, and poor weather conditions in the current year, and COVID-related recoveries in the prior year, partially offset by an increase in rental revenue at the Tin Building.
- Seaport NOI excludes the impact of the Company’s equity ownership interest in the Tin Building by Jean-Georges managed business. Tin Building by Jean-Georges NOI was a loss of $8.1 million in the current quarter and a loss of $11.4 million in the prior-year period. This includes Tin Building rental expense which commenced in the third quarter of 2022. See Seaport segment discussion for additional detail.

### Strategic Developments

- Strategic Developments EBT totaled $0.7 million in the current quarter, a $123.4 million decrease compared to $124.1 million in the prior-year period.
- The decrease in EBT was primarily attributable to a $119.9 million decrease in profits from condominium sales. We closed on 16 units at ‘A‘ali‘i and 10 units at Kō'ula during the current quarter, compared to 398 units at Kō'ula and 6 units at ‘A‘ali‘i during the prior-year period. The lower volume of condominium closings in 2023 is expected as our completed towers are almost 100.0% sold and the next tower, Victoria Place, is not scheduled for completion until 2024.
- During the current quarter, the final units at ‘A‘ali‘i and all but one of the remaining units at Kō'ula were sold. The final remaining unit at Kō'ula was sold subsequent to quarter end, resulting in our six completed towers being 100.0% sold.
- As of September 30, 2023, 97.8% of the units at our three towers under construction, Victoria Place, The Park Ward Village, and Ulana Ward Village, are under contract, with Victoria Place and Ulana Ward Village being 100% sold.
- Commenced construction on 1 Riva Row, a 268-unit luxury high rise multi-family development in The Woodlands, and a 67,000-square-foot retail center in Downtown Summerlin, which will be anchored by a new Whole Foods Market.

### RESULTS OF OPERATIONS

### Comparison of the nine months ended September 30, 2023, to the nine months ended September 30, 2022

Net income attributable to common stockholders decreased $717.9 million to a loss of $586.1 million for the nine months ended September 30, 2023, compared to the prior-year period.

- Seaport EBT decreased $733.4 million, primarily due to a $709.5 million impairment charge related to the Seaport segment recognized in the current period. Excluding the impact of the impairment, Seaport EBT decreased $23.9 million due to an increase in equity losses primarily related to operating losses for the Tin Building by Jean-Georges which opened in the third quarter of 2022, an increase in depreciation expense related to the opening of the Tin Building landlord asset in the third quarter of 2022, and a decrease in total revenues, net of operating costs primarily due to fewer private events, the absence of certain restaurant concepts, and poor weather conditions in the current year and COVID-related recoveries at the Fulton Market Building in the prior year, partially offset by an increase in rental revenue driven by the opening of the Tin Building.
- Strategic Developments EBT decreased $145.6 million primarily attributable to a decrease in net condominium sales due to the timing of condominium closings and recent pricing reductions at ‘A‘ali‘i and Kō'ula to facilitate the close-out of remaining units, as well as additional remediation expenditures at Waiea.
- Operating Assets EBT decreased $31.3 million primarily due to an increase in interest expense primarily due to new financings secured by our operating assets and higher interest on variable-rate debt, a decrease in equity earnings related to the change in value of derivative instruments of certain equity investments and the sale of 110 North Wacker in the first quarter of 2022, and an increase in depreciation expense and real estate taxes. These decreases were offset by an increase in gain on sale of real estate primarily related to the sale of two self-storage properties in The Woodlands.
- MPC EBT decreased $4.2 million primarily due to lower residential and commercial land sales, net of costs, at Summerlin due to the timing of superpad sales in the current year, and lower residential land sales at The Woodlands Hills, partially offset by higher commercial and residential land sales at Bridgeland, higher residential land sales at Aria Isle in The Woodlands, and higher equity earnings at The Summit.
- These decreases were partially offset by a $197.4 million decrease in net expenses related to Corporate income, expenses, and other items primarily due to a decrease in income tax expense.

Refer to the Third Quarter 2023 Highlights section above for information on the variances for the three months ended September 30, 2023.

See segment discussions for more detail about the changes described above.

### Operating Assets

**Segment EBT** Segment EBT for Operating Assets is presented below:

| Operating Assets Segment EBT thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental revenue | **$99,843** | $91,916 | $7,927 | **$289,914** | $283,804 | $6,110 |
| Other land, rental, and property revenues | **17,031** | 17,577 | (546) | **49,312** | 43,938 | 5,374 |
| **Total revenues** | **116,874** | 109,493 | 7,381 | **339,226** | 327,742 | 11,484 |
| Operating costs | **(40,016)** | (37,429) | (2,587) | **(115,591)** | (107,319) | (8,272) |
| Rental property real estate taxes | **(14,369)** | (11,395) | (2,974) | **(43,278)** | (38,634) | (4,644) |
| (Provision for) recovery of doubtful accounts | **(1,401)** | (170) | (1,231) | **1,032** | (1,005) | 2,037 |
| **Total operating expenses** | **(55,786)** | (48,994) | (6,792) | **(157,837)** | (146,958) | (10,879) |
| **Segment operating income (loss)** | **61,088** | 60,499 | 589 | **181,389** | 180,784 | 605 |
| Depreciation and amortization | **(43,127)** | (37,714) | (5,413) | **(123,637)** | (115,143) | (8,494) |
| Interest income (expense), net | **(31,884)** | (23,340) | (8,544) | **(91,080)** | (64,776) | (26,304) |
| Other income (loss), net | **(244)** | 421 | (665) | **1,998** | (57) | 2,055 |
| Equity in earnings (losses) from unconsolidated ventures | **1,364** | 4,132 | (2,768) | **5,311** | 21,898 | (16,587) |
| Gain (loss) on sale or disposal of real estate and other assets, net | **16,050** | — | 16,050 | **20,764** | 4,018 | 16,746 |
| Gain (loss) on extinguishment of debt | **—** | — | — | **—** | (645) | 645 |
| **Segment EBT** | **$3,247** | $3,998 | $(751) | **$(5,255)** | $26,079 | $(31,334) |

### For the three months ended September 30, 2023:

Operating Assets segment EBT decreased $0.8 million compared to the prior-year period primarily due to the following:

- Interest expense increased $8.5 million primarily due to new financings secured by our Operating assets.
- Depreciation expense increased $5.4 million primarily related to new assets placed in service since the beginning of the third quarter of 2022.
- Real estate taxes increased $3.0 million primarily due to increases in estimated property valuations in the Houston region.
- Equity earnings decreased $2.8 million primarily as a result of a decrease related to the change in value of certain derivative instruments.

These decreases to EBT were partially offset by the following:

- Gain on sale of real estate of $16.1 million related to the sale of two self-storage properties in The Woodlands in the third quarter of 2023.
- Total revenues, net of operating costs increased $4.8 million primarily due to increased leasing activity across the portfolio of existing and newly completed properties, partially offset by decreases related to the sales of Creekside Park Village and Lake Woodlands Crossing in 2022, as well as increased insurance costs in 2023.

### For the nine months ended September 30, 2023:

Operating Assets segment EBT decreased $31.3 million compared to the prior-year period primarily due to the following:

- Interest expense increased $26.3 million primarily due to new financings secured by our operating assets and higher interest rates on variable-rate debt.
- Equity earnings decreased $16.6 million primarily as a result of a $9.6 million decrease related to the change in value of certain derivative instruments and a $4.9 million decrease related to the sale of 110 North Wacker in the first quarter of 2022. This decrease is due to the release of our share of accumulated other comprehensive income related to 110 North Wacker’s derivative instruments upon the sale in 2022.
- Depreciation expense increased $8.5 million primarily related to new assets placed in service since the beginning of the third quarter of 2022.
- Real estate taxes increased $4.6 million primarily due to new assets placed in service and increases in estimated property valuations in the Houston region.

These decreases to EBT were partially offset by the following:

- Gain on sale of real estate increased $16.7 million due to the sales of two self-storage properties in The Woodlands and certain properties in Ward Village in 2023, compared to the sale of Outlet Collection at Riverwalk in 2022.
- Total revenues, net of operating costs increased $3.2 million primarily due to increased leasing activity across our portfolio of existing and newly completed properties as well as one-time lease termination fees received in 2023. These increases were partially offset by decreases related to the COVID-related tenant recoveries at Ward Village in the prior year, the closure of two Ward Village retail centers to make way for The Park Ward Village and Ulana Ward Village condominiums, the sales of Creekside Park Village and Lake Woodlands Crossing in 2022, and increased insurance costs in 2023.

**Net Operating Income** 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.

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 income (loss); 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 unconsolidated ventures.

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 reflects the revenues and expenses directly associated with owning and operating real estate properties. 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 rental and occupancy rates, tenant mix, and operating costs have on our operating results, gross margins, and investment returns.

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 thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total Operating Assets segment EBT | **$3,247** | $3,998 | $(751) | **$(5,255)** | $26,079 | $(31,334) |
| Add back: |  |  |  |  |  |  |
| Depreciation and amortization | **43,127** | 37,714 | 5,413 | **123,637** | 115,143 | 8,494 |
| Interest (income) expense, net | **31,884** | 23,340 | 8,544 | **91,080** | 64,776 | 26,304 |
| Equity in (earnings) losses from unconsolidated ventures | **(1,364)** | (4,132) | 2,768 | **(5,311)** | (21,898) | 16,587 |
| (Gain) loss on sale or disposal of real estate and other assets, net | **(16,050)** | — | (16,050) | **(20,764)** | (4,018) | (16,746) |
| (Gain) loss on extinguishment of debt | **—** | — | — | **—** | 645 | (645) |
| Impact of straight-line rent | **(470)** | (1,744) | 1,274 | **(2,664)** | (7,283) | 4,619 |
| Other | **336** | (519) | 855 | **420** | (312) | 732 |
| **Operating Assets NOI** | **$60,710** | $58,657 | $2,053 | **$181,143** | $173,132 | $8,011 |

The table below presents Operating Assets NOI by property type:

| Operating Assets NOI by Property Type thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Office | **$29,326** | $28,540 | $786 | **$90,720** | $83,338 | $7,382 |
| Retail | **12,783** | 12,293 | 490 | **39,904** | 38,447 | 1,457 |
| Multi-family | **13,817** | 11,725 | 2,092 | **39,512** | 34,710 | 4,802 |
| Other | **4,615** | 5,316 | (701) | **10,308** | 12,762 | (2,454) |
| Dispositions | **169** | 783 | (614) | **699** | 3,875 | (3,176) |
| **Operating Assets NOI** | **$60,710** | $58,657 | $2,053 | **$181,143** | $173,132 | $8,011 |

### HHH 2023 FORM 10-Q \| 41

### For the three months ended September 30, 2023:

Operating Assets NOI increased $2.1 million compared to the prior-year period primarily due to the following:

- Multi-family NOI increased $2.1 million primarily driven by continued lease-up at our newer properties, Marlow in Downtown Columbia and Starling at Bridgeland, and rent growth at our properties in The Woodlands, partially offset by initial operating losses at Tanager Echo in Summerlin.
- Office NOI increased $0.8 million primarily driven by continued lease-up activity and abatement expirations at various properties in The Woodlands, most notably at 9950 Woodloch Forest and Lake Front North. These increases were partially offset by tenant vacancies at various properties in Downtown Columbia and initial operating losses from 1700 Pavilion in Summerlin.
- Retail NOI increased $0.5 million with modest improvements in all regions.

These increases to NOI were partially offset by the following:

- NOI decrease of $0.6 million primarily related to the retail asset dispositions of Creekside Village Green and Lake Woodlands Crossing in 2022 and two self-storage properties in The Woodlands in 2023.

### For the nine months ended September 30, 2023:

Operating Assets NOI increased $8.0 million compared to the prior-year period primarily due to the following:

- Office NOI increased $7.4 million primarily due to one-time lease termination fees, continued lease-up activity, and abatement expirations at various properties in The Woodlands, most notably at 9950 Woodloch Forest and Lake Front North, partially offset by decreases related to rent abatements at 3 Waterway Square, lower occupancy at One Hughes Landing and various properties in Downtown Columbia, and initial operating losses from 1700 Pavilion in Summerlin.
- Multi-family NOI increased $4.8 million primarily driven by winter weather-related insurance recoveries, continued lease-up at our newer properties, Marlow in Downtown Columbia and Starling at Bridgeland, and rent growth across our portfolio.
- Retail NOI increased $1.5 million primarily driven by tenant upgrades and retail sales growth in Downtown Summerlin, as well as increased leasing in The Woodlands, partially offset by COVID-related tenant recoveries at Ward Village in the prior year, as well as the closure of two Ward Village retail centers to make way for The Park Ward Village condominiums.
- These increases were partially offset by a $3.2 million decrease related to the retail asset dispositions of Creekside Village Green, Lake Woodlands Crossing, and Outlet Collection at Riverwalk in 2022 and two self-storage properties in The Woodlands in 2023.

### Master Planned Communities

**Segment EBT** Segment EBT for MPC Assets is presented below:

| MPC Segment EBT thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Master Planned Community land sales (a) | **$75,378** | $52,585 | $22,793 | **$177,045** | $199,032 | $(21,987) |
| Other land, rental, and property revenues | **4,574** | 6,751 | (2,177) | **13,315** | 16,139 | (2,824) |
| Builder price participation (b) | **15,847** | 18,852 | (3,005) | **45,763** | 51,819 | (6,056) |
| **Total revenues** | **95,799** | 78,188 | 17,611 | **236,123** | 266,990 | (30,867) |
| Master Planned Communities cost of sales | **(28,264)** | (19,355) | (8,909) | **(66,134)** | (75,304) | 9,170 |
| Operating costs | **(12,975)** | (11,700) | (1,275) | **(37,534)** | (37,783) | 249 |
| **Total operating expenses** | **(41,239)** | (31,055) | (10,184) | **(103,668)** | (113,087) | 9,419 |
| **Segment operating income (loss)** | **54,560** | 47,133 | 7,427 | **132,455** | 153,903 | (21,448) |
| Depreciation and amortization | **(103)** | (104) | 1 | **(316)** | (286) | (30) |
| Interest income (expense), net | **16,031** | 13,492 | 2,539 | **49,004** | 35,697 | 13,307 |
| Other income (loss), net | **—** | — | — | **(103)** | 23 | (126) |
| Equity in earnings (losses) from unconsolidated ventures | **14,310** | 14,862 | (552) | **21,056** | 16,990 | 4,066 |
| **Segment EBT** | **$84,798** | $75,383 | $9,415 | **$202,096** | $206,327 | $(4,231) |

(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 land sales that do not yet meet the recognition criteria.

(b) Builder price participation revenue is earned when a developer that acquired land from Howard Hughes develops and sells a home to an end user at a price higher than a predetermined breakpoint. The excess over the breakpoint is shared between Howard Hughes and the developer at the time of closing on the sale of the home based on a previously agreed-upon percentage. This revenue fluctuates based upon the number and the prices of homes closed that qualify for builder price participation payments.

The following table presents MPC segment EBT by MPC:

| MPC Segment EBT by MPC thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Bridgeland | **$22,535** | $15,910 | $6,625 | **$76,850** | $52,139 | $24,711 |
| Columbia (a) | **—** | (738) | 738 | **—** | (1,095) | 1,095 |
| Summerlin | **62,052** | 58,141 | 3,911 | **116,996** | 152,331 | (35,335) |
| Teravalis (b) | **(788)** | (646) | (142) | **(2,754)** | (968) | (1,786) |
| The Woodlands | **(745)** | (1,769) | 1,024 | **4,613** | (9,969) | 14,582 |
| The Woodlands Hills | **1,744** | 4,485 | (2,741) | **6,391** | 13,889 | (7,498) |
| **Segment EBT** | **$84,798** | $75,383 | $9,415 | **$202,096** | $206,327 | $(4,231) |
| Floreo (c) | **$(1,039)** | $(842) | $(197) | **$(2,949)** | $(1,291) | $(1,658) |

(a) Columbia MPC land development is complete and the sale of remaining land or development of additional commercial assets will occur as the market dictates. As such, the remaining Columbia land was transferred to the Strategic Developments segment in the first quarter of 2023.

(b) As of September 30, 2023, the Company owns an 88.0% interest and consolidates Teravalis. Teravalis EBT also includes the Company’s 50% interest in Floreo, which is accounted for under the equity method. For additional detail, refer to Note 2 - *Investments in Unconsolidated Ventures* and Note 3 - *Acquisitions and Dispositions* in the Condensed Consolidated Financial Statements.

(c) This represents 100% of Floreo EBT and is presented for informational purposes.

### For the three months ended September 30, 2023:

MPC Segment EBT increased $9.4 million compared to the prior-year period primarily due to the following:

Bridgeland EBT increased $6.6 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales increased $7.1 million primarily due to the following activity:
- increase in residential acres sold, with 38.4 acres sold at an average price of $566,000 per acre in the third quarter of 2023, compared to 20.8 acres sold at an average price of $520,000 per acre in the prior-year period
- decrease in commercial acres sold, with 12.5 acres sold at an average price of $262,000 per acre in the third quarter of 2023, compared to 16.6 acres sold at an average price of $436,000 per acre in the prior-year period

Summerlin EBT increased $3.9 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales increased $7.4 million primarily due to the following activity:
- increase in superpad acres sold, with 39.2 acres sold at an average price of $1.3 million per acre in the third quarter of 2023, compared to 23.0 acres sold at an average price of $1.2 million per acre in the prior-year period. Superpad sales, which typically include large 10- to 25-acre parcels, are based on current homebuilder demand and can vary from quarter to quarter. With new home sales rising year-to-date and increased demand for new acreage, we expect a material increase in superpad sales in the fourth quarter of 2023.
- Builder price participation decreased $2.3 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for HHH participation revenue in the current quarter. This reflects price moderation from all-time highs in 2022.
- Other land, rental, and property revenues decreased $1.7 million primarily due to lower deposit forfeitures in the current quarter.

The Woodlands EBT increased $1.0 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales increased $1.9 million primarily due to the following activity:
- increase in residential acres sold, with 1.5 acres sold in Aria Isle, an exclusive gated community, at an average price of $2.6 million per acre in the third quarter of 2023, compared to no residential land sales in the prior-year period

The Woodlands Hills EBT decreased $2.7 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales decreased $2.5 million primarily due to the following activity:
- decrease in residential acres sold partially offset by an increase in price per acre, with 5.2 acres sold at an average price of $440,000 per acre in the third quarter of 2023, compared to 15.4 acres sold at an average price of $412,000 per acre in the prior-year period

### For the nine months ended September 30, 2023:

MPC Segment EBT decreased $4.2 million compared to the prior-year period primarily due to the following:

Summerlin EBT decreased $35.3 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales decreased $39.6 million primarily due to the following activity:
- decrease in superpad acres sold partially offset by an increase in price per acre, with 39.2 acres sold at an average price of $1.3 million for the nine months ended September 30, 2023, compared to 70.8 acres sold at an average price of $1.1 million per acre in the prior-year period. Superpad sales, which typically include large 10- to 25-acre parcels, are based on current homebuilder demand and can vary from quarter to quarter. With new home sales rising year-to-date and increased demand for new acreage, we expect a material increase in superpad sales in the fourth quarter of 2023.
- decrease in commercial acres sold, with no acres sold for the nine months ended September 30, 2023, compared to 16.6 acres sold at an average price of $1.6 million per acre in the prior-year period
- decrease in custom lots sold, with one lot sold at a price of $2.0 million for the nine months ended September 30, 2023, compared to four lots sold at a price of $2.2 million per lot in the prior-year period
- Builder price participation decreased $3.8 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for HHH participation revenue in the current period. This reflects price moderation from all-time highs in 2022.
- Equity earnings increased $4.9 million at The Summit due to increased land and clubhouse unit sales in the nine months ended September 30, 2023, compared to the prior-year period.

The Woodlands Hills EBT decreased $7.5 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales decreased $6.5 million primarily due to the following activity:
- decrease in residential acres sold partially offset by an increase in price per acre, with 20.6 acres sold at an average price of $422,000 per acre for the nine months ended September 30, 2023, compared to 46.5 acres sold at an average price of $378,000 per acre in the prior-year period
- decrease in commercial acres sold, with no acres sold for the nine months ended September 30, 2023, compared to 8.0 acres sold at an average price of $175,000 per acre in the prior-year period
- Builder price participation decreased $1.2 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for HHH participation revenue in the current period. This reflects price moderation from all-time highs in 2022.

Bridgeland EBT increased $24.7 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales increased $20.5 million primarily due to the following activity:
- increase in commercial acres sold, with 121.3 acres sold at an average price of $249,000 per acre for the nine months ended September 30, 2023, compared to 26.4 acres sold at an average price of $371,000 per acre in the prior-year period
- increase in residential acres sold, with 99.7 acres sold at an average price of $555,000 per acre for the nine months ended September 30, 2023, compared to 95.9 acres sold at an average price of $537,000 per acre in the prior-year period

The Woodlands EBT increased $14.6 million compared to the prior-year period.

- MPC sales, net of MPC cost of sales increased $12.8 million primarily due to the following activity:
- increase in residential acres sold, with 8.7 acres sold in Aria Isle, an exclusive gated community, at an average price of $2.6 million per acre for the nine months ended September 30, 2023, compared to no acres sold in the prior-year period
- increase in commercial acres sold, with 2.1 acres sold at an average price of $819,000 per acre for the nine months ended September 30, 2023, compared to no acres sold in the prior-year period
- Operating costs decreased $3.8 million due to higher legal fees in the prior year, primarily related to the flood litigation.
- Builder price participation decreased $1.3 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for HHH participation revenue in the current period. This reflects price moderation from all-time highs in 2022.

**MPC Net Contribution** 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 Special Improvement District (SID) bonds and Municipal Utility District (MUD) receivables, reduced by MPC development expenditures, land acquisitions, and Equity in earnings from unconsolidated ventures, 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:

| MPC Net Contribution thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| MPC Segment EBT | **$84,798** | $75,383 | $9,415 | **$202,096** | $206,327 | $(4,231) |
| Plus: |  |  |  |  |  |  |
| Master Planned Communities cost of sales | **28,264** | 19,355 | 8,909 | **66,134** | 75,304 | (9,170) |
| Depreciation and amortization | **103** | 104 | (1) | **316** | 286 | 30 |
| MUD and SID bonds collections, net (a) | **4,237** | 4,987 | (750) | **7,585** | 38,728 | (31,143) |
| Distributions from unconsolidated ventures | **600** | — | 600 | **10,050** | — | 10,050 |
| Less: |  |  |  |  |  |  |
| MPC development expenditures | **(83,634)** | (114,729) | 31,095 | **(256,214)** | (286,178) | 29,964 |
| Equity in (earnings) losses from unconsolidated ventures | **(14,310)** | (14,862) | 552 | **(21,056)** | (16,990) | (4,066) |
| **MPC Net Contribution** | **$20,058** | $(29,762) | $49,820 | **$8,911** | $17,477 | $(8,566) |

(a) SID collections are shown net of SID transfers to buyers in the respective periods.

MPC Net Contribution increased $49.8 million for the three months ended September 30, 2023, and decreased $8.6 million for the nine months ended September 30, 2023 compared to the same periods in 2022, primarily due to lower MPC development expenditures and higher MPC land sales for the three months ended September 30, 2023, and lower MUD and SID bond collections, net and MPC land sales, partially offset by a decrease in MPC development expenditures and an increase in distributions from unconsolidated ventures, net of equity in earnings from unconsolidated ventures for the nine months ended September 30, 2023 compared to the same periods in 2022.

**MPC Land Inventory** The following table summarizes MPC land inventory activity for the nine months ended September 30, 2023:

| thousands | Bridgeland | Columbia (a) | Summerlin | Teravalis | The Woodlands | The Woodlands Hills | Total MPC |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| **Balance December 31, 2022** | $538,924 | $16,625 | $1,014,511 | $544,546 | $185,356 | $111,564 | $2,411,526 |
| Development expenditures (b) | 129,092 | — | 103,430 | 105 | 3,689 | 19,898 | 256,214 |
| MPC Cost of sales | (29,921) | — | (20,134) | — | (11,911) | (4,168) | (66,134) |
| MUD reimbursable costs (c) | (89,908) | — | — | — | (1,166) | (17,203) | (108,277) |
| Transfer to Strategic Development and Operating Assets Segments | (2,756) | (16,625) | — | — | (3,226) | — | (22,607) |
| Other | (2,649) | — | (1,108) | 18 | 490 | 5,024 | 1,775 |
| **Balance September 30, 2023** | $542,782 | $— | $1,096,699 | $544,669 | $173,232 | $115,115 | $2,472,497 |

(a) Columbia MPC land development is complete and the sale of remaining land or development of additional commercial assets will occur as the market dictates. As such, the remaining Columbia land was transferred to the Strategic Developments segment in the first quarter of 2023.

(b) Development expenditures are inclusive of capitalized interest and property taxes.

(c) MUD reimbursable costs represent land development expenditures transferred to MUD Receivables.

### Seaport

**Seaport Entertainment** On October 5, 2023, HHH announced the intent to form a new division, Seaport Entertainment, that is expected to include all of the assets in the Seaport segment, as well as the Las Vegas Aviators Triple-A Minor League Baseball team and our 80% interest in the air rights above the Fashion Show Mall in Las Vegas. HHH is establishing Seaport Entertainment with the intention of completing its spinoff as an independent, publicly traded company in 2024, but there can be no assurance regarding the ultimate timing of the spinoff or that the spinoff will ultimately occur.

**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. 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 or stabilization date for the Seaport.

Due to the range of asset types discussed above, we categorize the businesses in the Seaport segment into the following groups: Landlord Operations, Managed Businesses, the Tin Building, and Events and Sponsorships.

**Landlord Operations** Landlord Operations represent physical real estate in the Historic District and Pier 17 that 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 in the Historic District and Pier 17 that the Company owns, either wholly or through partnerships with third parties, and operates, including license and management agreements. These businesses include, among others, The Fulton, Mister Dips, Carne Mare, and Malibu Farm. The Fulton and Malibu Farm are managed by Creative Culinary Management Company, LLC (CCMC), a Jean-Georges company, and Mister Dips and Carne Mare are managed by Seaport F&B LLC, an Andrew 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 day-to-day operations and accounting for food and beverage operations.

The Company owns a 25% interest in Jean-Georges Restaurants, which currently operates over 40 restaurant and hospitality offerings around the world. This ownership interest is reported in accordance with the equity method.

In the fourth quarter of 2023, we plan to expand our Managed Businesses portfolio with the launch of The Lawn Club, a new concept that will transform over 20,000 square feet of the Fulton 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.

**Tin Building** The Tin Building includes both landlord operations and managed business. The Company owns 100% of the Tin Building, which was completed and placed in service during the third quarter of 2022. The Company leased 100% of the space to the Tin Building by Jean-Georges joint venture, a managed business in which the Company has an equity ownership interest and reports its ownership interest in accordance with the equity method. Based on capital contribution and distribution provisions for the Tin Building by Jean-Georges, the Company currently recognizes all of the economic interest in the venture. The Company recognizes lease payments from the Tin Building by Jean-Georges in Rental revenue and recognizes its share of the offsetting rent expense in Equity earnings. As the Company currently recognizes 100% of operating income or losses from the Tin Building by Jean-Georges, the Tin Building lease has no net impact to Seaport EBT. However, Seaport NOI is impacted by the Rental revenue related to the Tin Building lease payments, as equity earnings are excluded from NOI by definition.

The Tin Building by Jean-Georges opened in late September 2022, with an expanded focus on experiences including in-person dining, retail shopping, and delivery and is managed by CCMC, a Jean-Georges company.

**Events and Sponsorships** Our events and sponsorships 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 CCMC.

The 2023 summer concert series, which began in May 2023 and ran through the end of October 2023, included 60 shows and sold over 194,000 tickets to date, representing over 93% of available ticket inventory. We hosted 19 concerts and welcomed approximately 58,000 guests in the second quarter of 2023, and hosted 39 concerts and welcomed approximately 113,000 guests in the third quarter of 2023.

**250 Water Street** In 2021, the Company received the necessary approvals for its 250 Water Street development project, which includes a mixed-use development with affordable and market-rate apartments, community-oriented spaces, and office space. In May 2021, the Company received approval from the New York City Landmarks Preservation Commission (LPC) on its proposed design for the 250 Water Street site. The Company received final approvals in December 2021 through the New York City Uniform Land Use Review Procedure known as ULURP, which allowed 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 HHH extension options, at the discretion of HHH, for an additional 48 years from its current expiration in 2072 until 2120. We received a building foundation permit from the New York City Department of Buildings and began initial foundation work and remediation in the second quarter of 2022. Remediation of the site as a volunteer of the New York State Brownfield Cleanup program is approximately 80% complete and is expected to be finished in 2023. Various lawsuits have been filed challenging the governmental approval of our development project. For additional information regarding these lawsuits, see Note 9 - *Commitments and Contingencies.*

**Segment EBT** Segment EBT for Seaport is presented below:

| Seaport Segment EBT thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental revenue (a) | **$5,213** | $5,001 | $212 | **$16,231** | $12,277 | $3,954 |
| Other land, rental, and property revenues | **24,277** | 27,500 | (3,223) | **47,960** | 57,776 | (9,816) |
| **Total revenues** | **29,490** | 32,501 | (3,011) | **64,191** | 70,053 | (5,862) |
| Operating costs | **(33,084)** | (31,295) | (1,789) | **(78,341)** | (77,377) | (964) |
| Rental property real estate taxes | **(174)** | (173) | (1) | **(511)** | (719) | 208 |
| (Provision for) recovery of doubtful accounts | **(45)** | 64 | (109) | **(32)** | (1,233) | 1,201 |
| **Total operating expenses** | **(33,303)** | (31,404) | (1,899) | **(78,884)** | (79,329) | 445 |
| **Segment operating income (loss)** | **(3,813)** | 1,097 | (4,910) | **(14,693)** | (9,276) | (5,417) |
| Depreciation and amortization | **(10,808)** | (9,651) | (1,157) | **(31,804)** | (25,194) | (6,610) |
| Interest income (expense), net | **1,358** | 1,731 | (373) | **3,855** | 3,003 | 852 |
| Other income (loss), net | **313** | (18) | 331 | **(1,287)** | 289 | (1,576) |
| Equity in earnings (losses) from unconsolidated ventures (a) | **(46,619)** | (11,273) | (35,346) | **(68,335)** | (20,223) | (48,112) |
| Gain (loss) on extinguishment of debt | **(48)** | — | (48) | **(48)** | — | (48) |
| Provision for impairment | **(672,492)** | — | (672,492) | **(672,492)** | — | (672,492) |
| **Segment EBT** | **$(732,109)** | $(18,114) | $(713,995) | **$(784,804)** | $(51,401) | $(733,403) |

(a) Lease payments for the Tin Building included in Rental revenue and offset in Equity losses were $2.8 million for the three months ended September 30, 2023, and $8.5 million for the nine months ended September 30, 2023. No rental payments were made during the first or second quarter of 2022 as the lease had not yet commenced. Refer to the Tin Building discussion above for additional detail.

### For the three months ended September 30, 2023:

Seaport segment EBT decreased $714.0 million compared to the prior-year periods primarily due to the following:

- Provision for impairment includes $672.5 million and Equity losses includes $37.0 million related to the Seaport impairment recognized in the current period. Refer to Note 4 - *Impairment* for additional information.
- Total revenues, net of Operating costs decreased $4.8 million primarily due to the absence of certain restaurant concepts in the current year, fewer private events, and poor weather conditions.
- Depreciation expense increased $1.2 million primarily related to the Tin Building, which was completed and placed in service in the third quarter of 2022.

These decreases to EBT were partially offset by the following:

- Equity losses decreased $1.7 million, excluding the impact of the $37.0 million impairment charge above, primarily related to the Tin Building by Jean-Georges, which opened in the third quarter of 2022, as operational improvements and changes to the operating model began to be realized.

### For the nine months ended September 30, 2023:

Seaport segment EBT decreased $733.4 million compared to the prior-year periods primarily due to the following:

- Provision for impairment and Equity losses include the Seaport impairment recognized in the current period, as discussed above.
- Equity losses increased $11.1 million, excluding the impact of the $37.0 million impairment charge above, primarily due to operating losses for the Tin Building by Jean-Georges, which opened in the third quarter of 2022.
- Depreciation expense increased $6.6 million primarily related to the Tin Building, which was completed and placed in service in the third quarter of 2022.
- Total revenues, net of Operating costs decreased $6.8 million primarily due to the absence of certain restaurant concepts, fewer private events, and poor weather conditions in the current year, as well as COVID-related recoveries at the Fulton Market Building in the prior year, partially offset by an increase in rental revenue driven by the opening of the Tin Building.

**Net Operating Income** A reconciliation of Seaport segment EBT to Seaport NOI is presented below:

| Seaport NOI thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total Seaport segment EBT | **$(732,109)** | $(18,114) | $(713,995) | **$(784,804)** | $(51,401) | $(733,403) |
| Add back: |  |  |  |  |  |  |
| Depreciation and amortization | **10,808** | 9,651 | 1,157 | **31,804** | 25,194 | 6,610 |
| Interest (income) expense, net | **(1,358)** | (1,731) | 373 | **(3,855)** | (3,003) | (852) |
| Equity in (earnings) losses from unconsolidated ventures | **46,619** | 11,273 | 35,346 | **68,335** | 20,223 | 48,112 |
| (Gain) loss on extinguishment of debt | **48** | — | 48 | **48** | — | 48 |
| Impact of straight-line rent | **435** | (185) | 620 | **1,567** | 1,519 | 48 |
| Other (income) loss, net | **2,163** | 674 | 1,489 | **5,480** | 2,610 | 2,870 |
| Provision for impairment | **672,492** | — | 672,492 | **672,492** | — | 672,492 |
| **Seaport NOI** | **$(902)** | $1,568 | $(2,470) | **$(8,933)** | $(4,858) | $(4,075) |

The Seaport, including Managed Businesses, Events and Sponsorships, and the Tin Building, is approximately 67% 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.

The table below presents Seaport NOI by category:

| Seaport NOI by Category thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Landlord Operations | **$(6,242)** | $(4,335) | $(1,907) | **$(15,292)** | $(10,260) | $(5,032) |
| Landlord Operations - Multi-family | **15** | 22 | (7) | **76** | 96 | (20) |
| Managed Businesses | **644** | 1,010 | (366) | **(1,942)** | 149 | (2,091) |
| Tin Building | **2,286** | 1,612 | 674 | **7,061** | 1,612 | 5,449 |
| Events and Sponsorships | **2,395** | 3,259 | (864) | **1,164** | 3,545 | (2,381) |
| **Seaport NOI** | **$(902)** | $1,568 | $(2,470) | **$(8,933)** | $(4,858) | $(4,075) |

Seaport NOI decreased $2.5 million for the three months ended September 30, 2023 and $4.1 million for the nine months ended September 30, 2023. The decreases in Landlord Operations NOI are primarily due to increased marketing costs, insurance expense, and tax expense. The decrease in the nine months ended September 30, 2023 is also due to COVID-related recoveries at the Fulton Market Building in the prior year. The decreases in Managed Businesses and Events and Sponsorships NOI are due to the absence of certain restaurant concepts, fewer private events, and lower revenues across our restaurant portfolio related to poor weather conditions in the current year. These decreases were partially offset by an increase in Tin Building NOI resulting from the opening of the Tin Building in the third quarter of 2022.

Tin Building in the table above represents NOI from our landlord business and, as defined, excludes the impact of the Company’s equity ownership interest in the Tin Building by Jean-Georges managed business which opened in the third quarter of 2022. The table below presents the above NOI related to the Tin Building, which primarily represents lease payments from the Tin Building by Jean-Georges, as well as the Company’s share of NOI related to its investment in the Tin Building by Jean-Georges, which primarily represents the operations of the Tin Building marketplace and includes rent expense paid to the Company.

| thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Tin Building | **$2,286** | $1,612 | $674 | **$7,061** | $1,612 | $5,449 |
| Tin Building by Jean-Georges | **(8,074)** | (11,366) | 3,292 | **(26,867)** | (20,565) | (6,302) |
| **Total** | **$(5,788)** | $(9,754) | $3,966 | **$(19,806)** | $(18,953) | $(853) |

Tin Building by Jean-Georges NOI losses during 2022 relate to costs incurred prior to the marketplace opening in the third quarter of 2022 and elevated operating losses during the early months of operation. In 2023, the Tin Building by Jean-Georges was open seven days per week, with strong foot traffic and sales. However, operating losses remained elevated in 2023, as the Company continues to refine the operating model during the marketplace’s first year in operations, and the Seaport experienced poor weather conditions throughout the year.

### 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.

**Segment EBT** Segment EBT for Strategic Developments is presented below:

| Strategic Developments Segment EBT thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Condominium rights and unit sales | **$25,962** | $418,645 | $(392,683) | **$46,915** | $459,681 | $(412,766) |
| Rental revenue | **136** | — | 136 | **250** | — | 250 |
| Other land, rental, and property revenues | **383** | 708 | (325) | **1,514** | 1,974 | (460) |
| **Total revenues** | **26,481** | 419,353 | (392,872) | **48,679** | 461,655 | (412,976) |
| Condominium rights and unit cost of sales | **(22,537)** | (295,300) | 272,763 | **(56,390)** | (329,026) | 272,636 |
| Operating costs | **(6,364)** | (4,665) | (1,699) | **(17,160)** | (14,284) | (2,876) |
| Rental property real estate taxes | **(719)** | (550) | (169) | **(2,470)** | (961) | (1,509) |
| **Total operating expenses** | **(29,620)** | (300,515) | 270,895 | **(76,020)** | (344,271) | 268,251 |
| **Segment operating income (loss)** | **(3,139)** | 118,838 | (121,977) | **(27,341)** | 117,384 | (144,725) |
| Depreciation and amortization | **(962)** | (1,406) | 444 | **(2,848)** | (4,083) | 1,235 |
| Interest income (expense), net | **4,412** | 5,817 | (1,405) | **11,917** | 12,334 | (417) |
| Other income (loss), net | **81** | 900 | (819) | **158** | 1,361 | (1,203) |
| Equity in earnings (losses) from unconsolidated ventures | **59** | (13) | 72 | **94** | 863 | (769) |
| Gain (loss) on sale or disposal of real estate and other assets, net | **236** | — | 236 | **236** | (9) | 245 |
| **Segment EBT** | **$687** | $124,136 | $(123,449) | **$(17,784)** | $127,850 | $(145,634) |

### For the three months ended September 30, 2023:

Strategic Developments segment EBT decreased $123.4 million compared to the prior-year period primarily due to the following:

- Condominium sales, net of cost of sales decreased $119.9 million due to the timing of condominium closings, including the completion of Kō'ula in the third quarter of 2022, and pricing reductions in 2023 at ‘A‘ali‘i and Kō'ula to facilitate the close-out of remaining units. We closed on 16 units at ‘A‘ali‘i and 10 units at Kō'ula during the third quarter of 2023, compared to 398 units at Kō'ula and 6 units at ‘A‘ali‘i during the prior-year period. The lower volume of condominium closings in 2023 is expected as our completed towers are almost 100.0% sold and the next tower, Victoria Place, is not scheduled for completion until 2024.

### For the nine months ended September 30, 2023:

Strategic Developments segment EBT decreased $145.6 million compared to the prior-year period primarily due to the following:

- Condominium sales, net of cost of sales decreased $126.7 million, excluding the change in remediation costs of $13.4 million discussed below, due to the timing of condominium closings. We closed on 31 units at ‘A‘ali‘i and 15 units at Kō'ula during the nine months ended September 30, 2023, compared to 398 units at Kō'ula, 49 units at ‘A‘ali‘i, and 1 unit at Waiea during the prior-year period.
- Condominium cost of sales increased $13.4 million due to charges related to the defect remediation accrual at Waiea. We charged $16.1 million in 2023, related to additional anticipated costs, compared to $2.7 million charged in 2022.

**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.

***Completed Condominiums*** As of September 30, 2023, our six completed towers were almost 100.0% sold with only one unit remaining at Kō'ula, which was sold subsequent to quarter end. Ae\`o, Ke Kilohana, Anaha, Waiea, and ‘A‘ali‘i are completely sold.

***Condominiums Under Construction*** As of September 30, 2023, 97.8% of the units at our three towers under construction, Victoria Place, The Park Ward Village, and Ulana Ward Village, are under contract. We launched public presales of our seventh condominium project, Victoria Place, in December 2019 and broke ground in February 2021. Victoria Place will be a 40-story, 349-unit condominium project that will consist of one-, two- and three-bedroom residences. As of the second quarter of 2022, Victoria Place was 100.0% presold.

We launched public sales of our eighth condominium project, The Park Ward Village, in July 2021 and broke ground in December 2022. The Park Ward Village will be a 41-story, 545-unit condominium project and will include studio, one-, two- and three-bedroom residences. As of September 30, 2023, we have entered into contracts for 510 units, representing 93.6% of total units.

In 2021, we announced plans for our ninth condominium project, Ulana Ward Village, and broke ground in January 2023. This mixed-use residence 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. As of the third quarter of 2023, Ulana is 100.0% presold.

***Predevelopment Condominiums*** In September 2022, we launched public sales of our tenth condominium project, Kalae. This will be a 38-story, 329-unit condominium project and will consist of one-, two- and three-bedroom residences. As of September 30, 2023, we have entered into contracts for 280 units, representing 85.1% of total units.

The following provides further detail for Ward Village as of September 30, 2023:

| Completed |  | Units Closed | Units Under Contract | Total Units | Total % of Units Closed or Under Contract | Total % of Residential Square Feet Closed or Under Contract | Completion Date |
| --- | --- | ---: | ---: | ---: | ---: | ---: | --- |
| Waiea | (a) | 177 | — | 177 | 100.0% | 100.0% | 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 | (a) | 750 | — | 750 | 100.0% | 100.0% | Q4 2021 |
| Kō'ula | (b) | 564 | — | 565 | 99.8% | 99.9% | Q3 2022 |
| **Under construction** |  |  |  |  |  |  |  |
| Victoria Place |  | — | 349 | 349 | 100.0% | 100.0% | Q3 2024 |
| The Park Ward Village | (c) | — | 510 | 545 | 93.6% | 94.2% | 2025 |
| Ulana Ward Village | (d) | — | 696 | 696 | 100.0% | 100.0% | 2025 |
| **Predevelopment** |  |  |  |  |  |  |  |
| Kalae | (e) | — | 280 | 329 | 85.1% | 88.5% | 2026 |

(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 53% leased.

(c) There will be approximately 26,800 square feet of retail space as part of this project.

(d) There will be approximately 32,100 square feet of retail space as part of this project.

(e) There will be approximately 2,000 square feet of retail space as part of this project.

### 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:

| thousands | Three Months Ended September 30, 2023 | 2022 | $ Change | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Corporate income | **$15** | $14 | $1 | **$45** | $43 | $2 |
| General and administrative | **(21,601)** | (19,471) | (2,130) | **(65,371)** | (60,874) | (4,497) |
| Corporate interest expense, net | **(20,740)** | (21,078) | 338 | **(67,519)** | (64,948) | (2,571) |
| Corporate other income (loss), net | **23** | 701 | (678) | **2,781** | 881 | 1,900 |
| Corporate depreciation and amortization | **(974)** | (1,140) | 166 | **(2,599)** | (2,878) | 279 |
| Other | **(2,225)** | (2,902) | 677 | **(8,885)** | (7,985) | (900) |
| Income tax (expense) benefit | **144,744** | (33,858) | 178,602 | **161,392** | (41,822) | 203,214 |
| Total Corporate income, expenses and other items | **$99,242** | $(77,734) | $176,976 | **$19,844** | $(177,583) | $197,427 |

### For the three months ended September 30, 2023:

Corporate income, expenses, and other items was favorably impacted compared to the prior-year period by the following:

- Income tax expense decreased $178.6 million primarily due to a decrease in Income before income taxes. Refer to Note 10 - *Income Taxes* for additional information.

Corporate income, expenses, and other items was unfavorably impacted compared to the prior-year period by the following:

- General and administrative expenses increased $2.1 million primarily attributable to an increase in compensation and other expenses.

### For the nine months ended September 30, 2023:

Corporate income, expenses, and other items was favorably impacted compared to the prior-year period by the following:

- Income tax expense decreased $203.2 million primarily due to a decrease in Income before income taxes. Refer to Note 10 - *Income Taxes* for additional information.
- Corporate other income increased $1.9 million primarily related to the receipt of insurance proceeds.

Corporate income, expenses, and other items was unfavorably impacted compared to the prior-year period by the following:

- General and administrative expenses increased $4.5 million primarily attributable to an increase in compensation and other expenses.
- Corporate interest expense, net increased $2.6 million primarily due to the change in value related to derivative instruments, partially offset by higher interest income due to rising interest rates. Refer to Note 8 - *Derivative Instruments and Hedging Activities* for additional information on derivative instruments.

|  |  |
| --- | --- |
| **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. In 2023, we entered into new borrowings of $115.0 million (excluding undrawn amounts on new construction loans), drew $244.3 million on existing mortgages, made repayments on mortgages of $110.8 million, and drew an additional $200.0 million on the Secured Bridgeland Notes. As of September 30, 2023, we have $1.1 billion of undrawn lender commitment available to be drawn for property development, subject to certain restrictions.

### Cash Flows

| thousands | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash provided by (used in) operating activities | **$(359,740)** | $215,504 |
| Cash provided by (used in) investing activities | **(253,741)** | (155,825) |
| Cash provided by (used in) financing activities | **450,342** | (350,008) |

**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 2023. Operating cash continued to be utilized in 2023 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 $359.7 million for the nine months ended September 30, 2023, and net cash provided in operating activities was $215.5 million for the nine months ended September 30, 2022. The $575.2 million net increase in cash used in operating activities was primarily due to a $585.8 million increase in net cash used associated with our condominiums, a $30.8 million increase in interest payments, and a $28.1 million decrease in MUD receivable collections, partially offset by a $30.0 million decrease in MPC development expenditures and a $20.0 million decrease in income tax payments.

**Investing Activities** Net cash used in investing activities was $253.7 million for the nine months ended September 30, 2023, and net cash used in investing activities was $155.8 million for the nine months ended September 30, 2022. The $97.9 million increase in net cash used in investing activities was primarily due to a $197.1 million decrease in distributions from unconsolidated ventures, primarily related to distributions received from the sale of the Company’s ownership interest in 110 North Wacker in the first quarter of 2022, which resulted 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 decrease in cash used related to investments in unconsolidated ventures of $48.3 million, primarily attributable to the Company’s investment in Jean-Georges Restaurants in the first quarter of 2022, and an $65.6 million decrease in property development and redevelopment expenditures.

**Financing Activities** Net cash provided by financing activities was $450.3 million for nine months ended September 30, 2023, and net cash used in financing activities was $350.0 million for nine months ended September 30, 2022. The change in financing activities of $800.4 million was primarily due to a decrease in cash used related to principal payments on mortgages, notes, and loans payable of $423.6 million and repurchases of common shares of $403.9 million in 2022 with no similar activity in 2023. These decreases in cash used were partially offset by a decrease in proceeds from mortgages, notes, and loans payable of $16.9 million.

### Short- and Long-Term Liquidity

**Short-Term Liquidity** In the next 12 months, we expect our primary sources of cash to include cash flow from 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 and other strategic pre-development and development costs, MPC land development costs, and debt principal payments and debt service 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 beyond those sources listed above would be raised with a mix of construction, bridge, and long-term financings, by entering into joint venture arrangements, 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 the City of New York for the redevelopment of the Tin Building, as well as the Hawai‘i Community Development Authority for reserve condominium units at Ward Village. The Company received the necessary approvals from the New York City Economic Development Corporation to relinquish the Tin Building guarantee in early 2023.

**Contractual Cash Obligations and Commitments** The following table aggregates our contractual cash obligations and commitments as of September 30, 2023:

| thousands | Remaining in 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgages, notes, and loans payable | $40,836 | $182,000 | $488,567 | $909,186 | $298,587 | $3,328,358 | $5,247,534 |
| Interest payments (a) | 76,567 | 294,471 | 254,828 | 209,552 | 155,984 | 385,593 | 1,376,995 |
| Ground lease commitments (b) | 939 | 2,883 | 2,937 | 2,992 | 3,049 | 243,050 | 255,850 |
| Total | $118,342 | $479,354 | $746,332 | $1,121,730 | $457,620 | $3,957,001 | $6,880,379 |

(a) Interest is based on the borrowings that are presently outstanding and current floating interest rates.

(b) Primarily relates to a $248.2 million Seaport ground lease which has an initial expiration date of December 31, 2072, and is subject to extension options through December 31, 2120. Future cash payments are not inclusive of extension options. The remaining $7.7 million in ground lease commitments relates to Kewalo Basin Harbor.

**Debt** As of September 30, 2023, the Company had $5.2 billion of outstanding debt, $1.1 billion of undrawn lender commitment available to be drawn for property development, subject to certain restrictions. Refer to Note 6 - *Mortgages, Notes, and Loans Payable, Net* in the Condensed Consolidated Financial Statements. Our proportionate share of the debt of our unconsolidated ventures totaled $128.6 million as of September 30, 2023. All of this indebtedness is without recourse to the Company, with the exception of the collateral maintenance obligation for Floreo. See Note 9 - *Commitments and Contingencies* for additional information related to the Company’s collateral maintenance obligation.

***Debt Compliance*** As of September 30, 2023, the Company was in compliance with all property-level debt covenants with the exception of six property-level debt instruments. As a result, the excess net cash flow after debt service from the underlying properties became restricted. While the restricted cash could not be used for general corporate purposes, it could be used to fund operations of the underlying assets and did not have a material impact on the Company’s liquidity or its ability to operate these assets.

As of September 30, 2023, the Company was in compliance with all guarantor debt covenants tested as of the last day of each fiscal quarter with the exception of the leverage ratio covenant for an $11.0 million property-level debt instrument. As of September 30, 2023, the Company failed to satisfy the leverage ratio due to the Seaport impairment discussed in Note 4 - *Impairment*. The financial institution waived the failure.

***Net Debt*** The following table summarizes our net debt on a segment basis as of September 30, 2023. Net debt is defined as Mortgages, notes, and loans payable, net, including our ownership share of debt of our unconsolidated ventures, 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.

| thousands | Operating Assets | Master Planned Communities | Seaport | Strategic Developments | Segment Totals | Non-Segment Amounts | September 30, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgages, notes, and loans payable, net | $2,320,639 | $525,659 | $112,792 | $207,877 | $3,166,967 | $2,029,033 | $5,196,000 |
| Mortgages, notes, and loans payable of unconsolidated ventures | 90,599 | 37,919 | 84 | — | 128,602 | — | 128,602 |
| Less: |  |  |  |  |  |  |  |
| Cash and cash equivalents | (11,088) | (106,653) | (6,680) | (5,551) | (129,972) | (361,707) | (491,679) |
| Cash and cash equivalents of unconsolidated ventures | (1,389) | (14,596) | (8,119) | (7,146) | (31,250) | — | (31,250) |
| Special Improvement District receivables | — | (59,433) | — | — | (59,433) | — | (59,433) |
| Municipal Utility District receivables, net | — | (591,128) | — | (2,856) | (593,984) | — | (593,984) |
| TIF receivable | — | — | — | (3,001) | (3,001) | — | (3,001) |
| Net Debt | $2,398,761 | $(208,232) | $98,077 | $189,323 | $2,477,929 | $1,667,326 | $4,145,255 |

### HHH 2023 FORM 10-Q \| 56

**MARKET RISK AND CONTROLS AND PROCEDURES** Table of Contents

## Market risk

As filed, 1,994 characters.

We are subject to interest rate risk with respect to our variable-rate financings in that increases in interest rates would cause our payments under such financings to increase. With respect to fixed-rate financings, increases in interest rates could make it more difficult to refinance such debt when it becomes due. As properties are placed into service and become stabilized, we typically refinance the variable-rate debt with long-term fixed-rate debt.

The Company uses derivative instruments to manage its interest rate risk, primarily through the use of interest rate swaps, caps, and collars. The Company had $1.6 billion of variable-rate debt outstanding at September 30, 2023, of which $275.8 million was swapped to a fixed rate through the use of interest rate swaps and $394.8 million had interest rate cap contracts in place. Additionally, the interest rate caps and collars are on construction loans and mortgages with undrawn loan commitment of $75.3 million as of September 30, 2023, which will be covered by the interest rate cap and collar contracts upon drawing. Refer to Note 8 - *Derivative Instruments and Hedging Activities* in our Condensed Consolidated Financial Statements for additional information.

As of September 30, 2023, annual interest costs would increase approximately $9.8 million for every 1.00% increase in floating interest rates. The Company is focused on prudently limiting exposure to potentially higher interest rates based upon market dynamics and general expected financing activity. Generally, a significant portion of our interest expense is capitalized due to the level of assets we currently have under development; therefore, the impact of a change in our interest rate on our Condensed Consolidated Statements of Operations would be less than the total change in interest costs, but we would incur higher cash payments and the development costs of our assets would be higher, resulting in greater depreciation or cost of sales in later years.

## Controls and procedures

As filed, 1,541 characters.

### DISCLOSURE CONTROLS AND PROCEDURES

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

As required by SEC rules, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

### CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

**OTHER INFORMATION** Table of Contents

## Risk factors

As filed, 2,208 characters.

### RISKS RELATED TO THE COMPANY’S HOLDING COMPANY STRUCTURE

There are no material changes to the risk factors previously disclosed in The Howard Hughes Corporation’s 2022 Annual Report, with the exception of the additional risk factors discussed below:

**The Company is dependent on the operations and funds of its subsidiaries, including The Howard Hughes Corporation.**

The Company has no business operations of its own, and the Company’s only significant assets are the outstanding equity interests of its subsidiaries, including The Howard Hughes Corporation (HHC). As a result, the Company relies on cash flows from its subsidiaries, including HHC, to meet its financial obligations, including to service any debt obligations that the Company may incur from time to time in the future. Legal and contractual restrictions in agreements governing future indebtedness of any of the Company’s subsidiaries, as well as the financial condition and future operating requirements of any such subsidiaries, in each case, including HHC, may limit such subsidiaries’ ability to distribute cash to the Company. If HHC or any of the Company’s other subsidiaries is limited in its ability to distribute cash to the Company, or if the earnings or other available assets of the Company’s subsidiaries are not sufficient to pay distributions or make loans to the Company in the amounts or at the times necessary for the Company to meet its financial obligations, then the Company’s business, financial condition, cash flows, results of operations, and reputation may be materially adversely affected.

**The Company may not obtain the anticipated benefits of the holding company structure.**

The anticipated benefits of the holding company structure may not be obtained by the Company if circumstances prevent the Company from taking advantage of the strategic and business opportunities that it expects the structure may afford it. As a result, the Company may incur costs associated with the holding company structure without realizing the anticipated benefits, which could adversely affect the Company’s business, financial condition, cash flows, and results of operations.

**OTHER INFORMATION** Table of Contents

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-037021. Last ingested by Listed: Nov 5, 2026, 18:15 ET. No prices; not investment advice.