The Howard Hughes Annual Report 2011

Plain-text annual report

A CORPORATION BUILT ON AN EXTRAORDINARY LEGACY WITH ASSETS COAST-TO-COAST-TO-COAST. MASTER PLANNED COMMUNITIES THE WOODLANDS OPERATING PROPERTIES • Bridgeland - Houston, TX • Maryland - Columbia, MD • Summerlin - Las Vegas, NV • The Woodlands - Houston, TX •4 Waterway •20/25 Waterway •1400 Woodloch Forest Drive (Equity Investment) •2201 Lake Woodlands Drive •9303 New Trails •Stewart Title (Equity Investment) •The Club at Carlton Woods •The Millennium Apartments (Equity Investment) •The Woodlands Resort and Conference Center •The Woodlands / Sarofim (Equity Investment) •U.S. Oncology Garage •Waterway Square Garage •Waterway Square Retail HHC OPERATING PROPERTIES STRATEGIC DEVELOPMENTS •110 N. Wacker Drive - Chicago, IL •Arizona 2 Note •Columbia Office Properties - Columbia, MD •Cottonwood Square - Salt Lake City, UT •Golf Courses at Summerlin and TPC Las Vegas •Hexalon (Equity Investment) •Landmark Mall - Alexandria, VA •Park West - Peoria, AZ •Rio West - Gallup, NM •Riverwalk - New Orleans, LA •South Street Seaport - New York, NY •Summerlin Hospital Medical Center (Equity Investment) •Ward Centers - Honolulu, HI •3 Waterway - The Woodlands, TX •Ala Moana Tower - Honolulu, HI •Alameda Plaza - Pocatello, ID •AllenTowne - Allen, TX •The Bridges at Mint Hill - Charlotte, NC •Century Plaza - Birmingham, AL •Circle T Ranch and Power Center - Dallas-Fort Worth, TX (Equity Investment) •Columbia Parcel D - Columbia, MD •Cottonwood Mall - Salt Lake City, UT •Elk Grove Promenade - Sacramento, CA •Fashion Show Air Rights - Las Vegas, NV •Kendall Town Center - Miami, FL •Lakemoor (Volo) Land - Chicago, IL •Maui Ranch Land - Maui, HI •Redlands Mall & Promenade - Redlands, CA •The Shops at Summerlin - Las Vegas, NV •The Village at Redlands - Redlands, CA •West Windsor - Princeton, NJ FEBRUARY 29, 2012 TO THE SHAREHOLDERS OF THE HOWARD HUGHES CORPORATION FROM THE CHIEF EXECUTIVE OFFICER: In our first full year as a company, The Howard Hughes Corporation made impor tant strides in moving our assets closer to the point at which they can generate maximum potential value. We hired talented people, formed strategic joint ventures and made a substantial acquisition. These initiatives have positioned our company to create meaningful long-term value for our shareholders and our financial statements are beginning to reflect these effor ts. We star ted 2011 with the foundation of a great team, and have since hired a few more key professionals in order to complete our executive roster. It was critical to find experienced talent who shared our core values. Our people are passionate, committed to excellence, and immersed in a culture that treats the company’s money as if it were their own. We found these values and more in our Chief Financial Officer, Andy Richardson, our General Counsel, Peter Riley, and in the development executives who joined our team this past year. These industr y veterans bring decades of experience and a track record of success working for prominent real estate companies across the countr y. In 2011, we formed joint venture par tnerships on three assets: Ala Moana Tower, Parcel D at Columbia Town Center and The Bridges at Mint Hill. In each case, we par tnered with local developers who have strong reputations and a histor y of successful projects. Leveraging each group’s local knowledge and development exper tise has already helped to accelerate our business plans for these assets. The highlight of 2011, which I will discuss in greater detail below, was completing our acquisition of Morgan Stanley’s 47.5% economic interest in The Woodlands Master Planned Community (“MPC”) located in Houston, TX. The Woodlands is one of the most successful large-scale MPC’s in the U.S, comprising over 28,000 acres, 97,000 residents and 1,700 employers. To learn more about this vibrant community visit www.thewoodlands.com. The Woodlands is now a wholly owned subsidiar y of The Howard Hughes Corporation, and we are confident that this acquisition will create significant shor t and long-term value for our shareholders. SETTING THE TABLE Before telling you about our class of 2011 executive hires, I wanted to reiterate the outstanding job the entire Howard Hughes team has done to advance the company’s goals in 2011. I am personally grateful for all of their hard work and inspired by the way they have embraced the oppor tunity and challenges of being a new company. Grant Herlitz, President of the company and my par tner for the past 12 years, has worked by my side to provide exceptional leadership in bringing together the diverse talent within the company and in driving results. Grant’s analytical skills and detailed knowledge of all our assets has been invaluable in guiding our development and asset management teams as they move forward with pre-development activities. Among his responsibilities, he is working closely with The Woodlands leadership team to har vest the many oppor tunities on the horizon from this strategic investment. Grant’s passion for our company, our people and the example he sets for excellence in ever ything he does embodies the core values of our company. Our Chief Financial Officer, Andy Richardson, has done an exceptional job of leading the accounting team since joining us in March of 2011. Andy also fully embraced our owner’s mentality by making a substantial, long-term personal investment in the company. Andy was formerly CFO and Treasurer of Nor thStar Realty Finance Corp. (NYSE: NRF), a publicly traded commercial real estate finance company focused on investment in real estate loans, fixed income securities and net-leased real estate proper ties. Andy’s track record and public company experience are great assets to our growing company. Peter Riley joined us as General Counsel in May. However, his involvement with the company dates back to its inception where he was outside counsel representing our interests during the company’s formation and emergence. Peter brings with him over 30 years of experience working in both the public and private sector. A par tner at K&L Gates LLP since 2004, Peter placed a significant focus on the tax aspects of fund formation, joint ventures and the acquisition, disposition, operation and financing of real estate assets. Prior to earning his law degree, Mr. Riley worked for Amerada Hess Corporation (NYSE:AHC) where he became Chief Financial Officer of its Abu Dhabi subsidiar y. Andy and Peter played critical roles in executing our acquisition and transition of The Woodlands. They also work alongside Grant and me in negotiating and forming our joint venture par tnerships. They have shown an ability to execute on difficult tasks in shor t time frames and we are excited about the chemistr y of our senior executive team. RIVERWALK, NEW ORLEANS, LA ELK GROVE PROMENADE, SACRAMENTO, CA On the development side of the business, we began expanding our bench in May when we hired John Dewolf to run the Nor theast region. John brings over 30 years of real estate experience to the team, which includes time spent with The Limited, The Disney Stores, Inc., Woolwor th Corporation, New York & Company, and New England Development. John is responsible for our projects in Columbia, Mar yland, Alexandria, Virginia, and Princeton, New Jersey. He is also playing a critical role in the redevelopment of the South Street Seapor t. Beyond these specific assets, John’s unique blend of retail and development exper tise has brought valuable perspective to our por tfolio of strategic developments. Mark Bulmash also joined the company in May, and is overseeing the Central and Southeast region, which includes projects in Charlotte, Miami, Birmingham, New Orleans and Dallas. Mark is an impressive retail veteran who spent time at the Taubman Company, Related Companies, and most recently Forest City Enterprises where he oversaw all commercial development east of the Mississippi. Mark brings an analytical perspective and experience steering large projects through the entire development cycle. The third member of our development triumvirate, Chris Curr y, is not a new hire, but an established member of the team who played a vital role in guiding the company into existence. Chris oversees our Western region, which currently spans Salt Lake City, Phoenix, Las Vegas, Sacramento and Honolulu. Chris has over twenty years of retail and mixed-use development experience, including time spent at Westfield and Forest City Enterprises where he oversaw the redevelopment of regional shopping centers as well as ground up development of projects throughout the West. Chris is based in our Los Angeles office and epitomizes the passion of the Howard Hughes culture. Our most recent addition to this seasoned group of developers is John Simon, Executive Vice President of Strategic Planning. John has over 35 years of experience in vir tually ever y aspect of real estate development, spending a majority of that time at the Taubman Company. At Taubman, John was Senior Vice President and Managing Director and, for 10 years, he oversaw all development activities. John worked on over 40 major projects including overseeing the unprecedented task of opening four regional centers in the same year totaling over $1 billion in project costs. All projects were opened on time and within budget. I have great confidence that John, Mark, Chris and John will accelerate our development pipeline, from New York to Hawaii, and create meaningful value across the por tfolio. While on the topic of people, I want to thank our Board of Directors. Their involvement as a resource to management in strategic decisions has led to a collaborative environment where we engage in spirited debates and ultimately determine how to best optimize the value of our assets. They act like owners because they are owners, and you can take great comfor t in knowing your money is in the hands of people whose interests are aligned with yours. This past year also brought changes to the make-up of our board. David Ar thur moved on to focus on his role as President and Chief Executive Officer of Brookfield Real Estate Oppor tunity Fund. We thank David for his wise counsel during the vital launch phase of the company. Concurrently, we welcomed two new members to our board: Mar y Ann Tighe, currently Chief Executive Officer of CBRE’s New York Tri-State Region and Bur ton M. Tansky, currently Non-Executive Chairman of The Neiman Marcus Group and its former Chief Executive Officer. Mar y Ann has been credited with transforming New York’s skyline during her 26 years in the real estate industr y. She has been responsible for over 77 million square feet of commercial transactions, and her deals have anchored more than 9.2 million square feet of new construction in the New York region. Bur t was Chief Executive Officer and President of The Neiman Marcus Group Inc. from May 2004 to October 2010. Prior to May 2004, Mr. Tansky ser ved in several executive roles at Neiman Marcus and ser ved as the Chairman and Chief Executive Officer of Bergdorf Goodman from 1990 to 1994. Previously, Bur t ser ved as the President of Saks Fifth Avenue. We will benefit tremendously from Mar y Ann’s and Bur t’s exper tise as we fine tune the strategic plans for the company and work to maximize the value of our assets. MASTER PLANNED COMMUNITIES Our master planned community business consists of the ownership, development and sale of proper ty at four MPC’s: Bridgeland in Houston, Summerlin in Las Vegas, various MPC’s in the Mar yland region and The Woodlands in Houston. Nationally housing statistics show a slow recover y, but these statistics fail to show the divergent directions of local housing markets. In this regard, our company benefits from a diversity of geography that mitigates our exposure to the health of any one local economy. In Houston, the energy industr y continues to fuel economic growth, making it one of the strongest housing markets in the countr y. Our Bridgeland MPC had a record year and finished the year ranked 4th in Houston and 13th nationally in MPC residential land sales. Since construction star ted in 2004, our predecessors invested over $300 million into this asset. We are poised to begin har vesting those investments as major competitors run out of residential lots to sell and our on-site team, led by Peter Houghton, continues to deliver a great community to our customers. If you are SUMMERLIN MASTER PLANNED COMMUNITY, LAS VEGAS, NV looking for a home in western Houston then please visit www.bridgeland.com. Fur ther fueling Bridgeland’s growth, a new beltway, commonly known as Grand Parkway, is under construction and is scheduled to be complete by 2014. This freeway will link Interstate 10 to Interstate 45, bisect Bridgeland and open up oppor tunities to develop commercial land in our planned Town Center. It will also create a direct link from Bridgeland to The Woodlands, shor tening a sixty- minute drive to twenty-five minutes. Near term, we expect 2012 to be another year of record sales, after our 2011 revenues and average price per acre exceeded the 2007 “top of the market levels” previously established at Bridgeland. The following graph demonstrates steady performance of land sales revenue over the last six years. We will continue to look for ways to enhance the performance of Bridgeland through its association with The Woodlands brand and leverage our resources at The Woodlands to help guide the strategic direction of the asset. In Las Vegas, the housing market is lagging the national recover y, but the economy is seeing continuing improvement especially in the leisure and hospitality sector. The local housing market continues to suffer from substantial distressed inventor y, tight lender underwriting, underwater borrowers unable to trade up or down and weakened demand for new homes. In 2011, the total number of new home closings was the lowest in 23 years at 3,894 units. Our Summerlin MPC has not been immune to these impacts, and as expected, cer tain home builders did not close on lot takedowns. Through this challenging year, Kevin Orrock and his team have done a commendable job of managing this MPC for the company. Kevin is currently the Chairman of the Las Vegas Chamber of Commerce. This position within the Las Vegas community brings additional gravitas to our effor ts. We do not know when this market will recover, but recognize that we control the largest piece of land in a land constrained market, with vir tually no debt. We will continue to stay the course until the market returns, and long term, we believe that Summerlin’s future is ver y bright. Go to www. summerlin.com for more information on this dynamic community. Within Summerlin, we are focused on one of our key strategic projects, Summerlin Centre. This project is widely acknowledged in the industr y as one of the best regional shopping center sites in the countr y. It is also an oppor tunity to launch the downtown development for our Summerlin MPC, which will spur demand, grow market share and enhance the value of the 7,000 acres of land remaining to be sold in Summerlin. During 2011, we spent a considerable amount of time re- planning the 400 acre downtown. We expect that during 2012, we will be in a position to announce a date on which construction should star t and a targeted opening date for the center. In Columbia, Mar yland we are transitioning from a traditional master planned community to focus on the redevelopment of Columbia Town Center. This November we took an impor tant step in launching the Town Center redevelopment when we announced a joint venture agreement with Kettler and Orchard Development to develop the first phase of the Columbia Town Center Master Plan, which at full build out will include up to 13 million square feet of mixed-use development. This first phase includes approximately 375 units and is targeted to be completed by the end of 2013. Our par tners, Kettler and Orchard are highly regarded in the greater Washington D.C. metro region with a successful histor y in developing high-end residential products. Columbia Town Center has strong potential for continued multifamily development, which we plan to pursue as we build a new high-density urban neighborhood in the hear t of Jim Rouse’s original master planned community. In this process, John Dewolf will continue working with the local community to deliver a vision that will make us proud. As mentioned above, the headline of 2011 for our master planned community business was our acquisition of Morgan Stanley’s 47.5% economic interest in The Woodlands for $117.5 million, including the assumption of $297 million in debt. A simple analysis of this investment based solely on The Woodland’s histor y of land sales builds a convincing case that this acquisition will be ver y profitable for the company. The char t that follows shows actual residential and commercial land sale revenues and average price per acre in The Woodlands over the last ten years. This ten year track record of steady revenues through one of the worst recessions of the last centur y demonstrates the stability of Houston and The Woodlands’ submarket. Fur thermore, average residential lot selling prices are above 2005 levels and increasing. As of December 31, 2011, The Woodlands had approximately 1,164 acres of unsold residential land, representing approximately 3,669 lots, and approximately 961 acres of unsold land for commercial use, of which 36 acres are categorized as institutional land. Assuming land sales alone and no ver tical development, we anticipate that we will run out of residential lots for sale in 2017 and commercial land in 2022. The following paragraphs outline the value proposition for the acquisition of The Woodlands. This is impor tant for two reasons. First, it outlines to you the future potential profitability of the asset. HOWARD HUGHES DURING A TICKER TAPE PARADE UP BROADWAY, NEW YORK, NY, 1938 Second, it allows you a glimpse into the way we view our investments and the reasons for this acquisition and potentially others. The value proposition is a sum of the par t’s value but does not take into account the following: (i) future ver tical development oppor tunities, (ii) existing and future joint venture agreements, (iii) a change in density of uses and (iv) the time value of money. Based on an average 2011 residential lot price of $88,987 and an average uninflated cost to deliver of $23,848 per lot, we anticipate $65,139 in average net cash per lot on the remaining 3,669 lots, for total proceeds from residential lot sales alone of $239.0 million. With respect to the commercial land, we have three classes: 69 acres in The Woodlands Town Center, 856 acres outside of the Town Center and 36 acres of institutional land. Obviously, there is a wide divergence in land values given their proximity to The Town Center, which is the most valuable land. Without giving away too much competitive information, suffice it to say that average land prices for the remaining commercial land approximates $13.66 per square foot or $572 million. Based on the above land pricing, the total gross proceeds to be derived from the sale of the remaining residential and commercial land in The Woodlands is expected to be approximately $811 million in the aggregate. Our income-producing operating proper ties, including our newest office building 3 Waterway have a current NOI of approximately $16.3 million and a stabilized NOI estimated to be $29.2 million. Valuing the operating proper ties using stabilized NOI and a cap rate of 7% yields a value net of completion costs of $365 million, which brings the combined gross asset value of the acquired land and operating proper ties to approximately $1.176 billion. As mentioned above, an example of the additional value potential not included in the analysis is value created through ver tical development. While this is harder to price than land sales, The Woodlands has an established histor y of developing commercial assets in its Town Center. As of the four th quar ter of 2011, the vacancy rates for Class A office and multifamily were at less than five percent. We will break ground on 3 Waterway Square, a 232,774 square foot office building in The Woodlands Town Center in March 2012. The total project cost will be approximately $50 million (exclusive of the land cost and existing parking garage). It is currently 67% pre-leased, with another 15% of the space in active discussions. It will take approximately 15 months to deliver, and is anticipated to have a stabilized NOI of approximately $6.0 million. At a 7% cap rate, the value of this building is wor th approximately $85.7 million, creating $35.7 million of value for the company. 3 Waterway is a great example of how a change in density can increase value. Originally designed as a nine stor y office building, we quickly realized that demand was outpacing supply. We subsequently increased the size of the building by two floors representing 45,000 square feet. At stabilization, this will create an additional $7 million in value net of completion costs. If we extrapolate this across the entire commercial land available for sale, you can quickly see how a change in density can magnify the outcome. In the coming 18 months we plan to break ground on 800 multi-family units. Following that, we have plans for nearly 2.1 million square feet of Class A office space, another 150 multi-family units, 900 condominium units, 328,000 square feet of retail space and 300 hotel rooms. It is impor tant to recognize that this total does not account for the time value of money. This is dependent on determining an appropriate discount rate, which is directly correlated with risk. The greatest risk for any MPC is at inception where hundreds of millions of dollars are expended prior to collecting any revenue. When looking at an MPC from inception, a 15% to 20% discount rate range would be appropriate; however, once initial infrastructure is invested and a track record of performance has been established, as is the case with The Woodlands, a much lower discount rate is justified. In addition, as we sell land, it stands to reason that in a growing vibrant community, the remaining land will continue to appreciate in value. As we continue to build in the legacy communities of Summerlin, Bridgeland and The Woodlands, it is clear that our remaining land holdings will increase in value. This is a cyclical business and we know we cannot count on linear growth. However, we are confident that staying the course will deliver meaningful value both in current operating income and in the residual value of our assets. I hope by this point I have communicated the magnitude of this acquisition, but I’m not done yet! In studying this investment it was clear that we would also be acquiring an established team of professionals who were underutilized in the former ownership structure. Co-Presidents Alex Sutton and Tim Welbes have 18 and 27 years respectively at The Woodlands, and we have already begun to see the impact that the their experience and vision will have on the balance of our por tfolio. As mentioned above, we believe the association of The Woodlands brand with Bridgeland and the ability to tap into The Woodlands team for strategic planning will create additional upside at Bridgeland. Finally, the construction of a new 385-acre ExxonMobil campus immediately south of The Woodlands Town Center is anticipated to hold a total of approximately 8,000 employees by the end of 2015, and an undetermined number of additional employees at full build-out, which will only fur ther supplement strong demand for office, retail and residential product in The Woodlands and Bridgeland. WATERWAY SQUARE, THE WOODLANDS, HOUSTON, TX OPERATING ASSETS The requirement to maintain flexibility for future redevelopment of our major assets like Ward Centers, South Street Seapor t and Landmark Mall constrains our ability to execute long-term leases and is causing these proper ties to perform below their potential. In the face of these constraints, we still managed to deliver $51.1 million of NOI in 2011 from our operating assets. This was accomplished with hard work from our asset management, leasing and operations teams who preser ved income by aggressively managing costs and increasing specialty income revenues. We took advantage of capital market oppor tunities to extend existing debt, lower borrowing costs and fund additional development by completing approximately $377 million of financings in 2011. This included a $250 million financing for Ward Centers that will save the company approximately $3.6 million in annual interest charges, create flexibility for phased development of the master plan and fund up to $38 million of future development expenditures. We also closed a $29 million refinancing of our mor tgage debt on 110 N. Wacker, which matched our new debt maturity with the lease expiration date. At The Woodlands we completed a $55 million financing for 4 Waterway and 9303 New Trails office buildings and in Januar y 2012 closed a $43.3 million construction financing of 3 Waterway Square, the 232,774 square foot office building mentioned earlier. As a company it is our philosophy to be disciplined about the way we use leverage. From the outset, both Grant and I knew that managing this company would require low leverage, and it is with this in mind that we structure the various components of debt at the company. We believe that each development must stand on its own. We have therefore to date ensured that the leverage we have be in silos and that to the extent possible, we maintain its non-recourse nature. STRATEGIC DEVELOPMENTS Senior management has spent the last year assessing the feasibility of each strategic development and prioritizing those oppor tunities with the greatest potential. We entered into joint venture par tnerships with strong local developers at Ala Moana Tower, Bridges at Mint Hill and, as discussed above, Parcel D at Columbia Town Center. In Honolulu, we par tnered with local developers The MacNaughton Group and Kobayashi Group to pursue the development of Ala Moana Tower, a luxur y condo tower above the Nordstrom parking garage at Ala Moana Center. In recent years, MacNaughton and Kobayashi teamed up to develop Hokua, a luxur y condo tower directly adjacent to Victoria Ward. Completed in 2006, Hokua is widely recognized as the best high-rise condo address in Honolulu with units currently reselling for $1,200 - $1,300 per square foot. With their strong knowledge of the Hawaii market and experience developing first-class condominium towers, MacNaughton and Kobayashi are ideal par tners to work with to maximize the value of this development oppor tunity. In Charlotte, we teamed with local developer Childress Klein Proper ties to pursue development oppor tunities for The Bridges at Mint Hill. This 210-acre parcel is currently zoned for approximately 1.3 million square feet of retail, hotel and commercial development, and is positioned in the COLUMBIA PARCEL D, COLUMBIA, MD underser ved southeast corner of the Charlotte metropolitan area. Par tnering with Childress Klein enables us to build from their knowledge in the local market, joins two proper ties that each company separately owned, aligns our interests and positions the project to be the most attractive retail development site in the Charlotte area. Childress Klein Proper ties is one of the largest real estate development, investment and management companies in the Southeastern U.S. with owned real estate assets in excess of $1 billion. During 2011, we leveraged the resources of the company by entering into these joint ventures. We expect that we will continue to use these arrangements where appropriate. Before making this decision, each development is viewed by assessing our available resources, the regulator y environment in that market, the leverage required to move forward and our experience with that product type. Joint venture structures provide the following advantages. First, the par tners we choose will be able to navigate the local markets with expediency. Second, we mitigate our risk and preser ve cash by essentially selling our land at the fair market value and contributing it to the venture. Third, the debt that is taken on by the joint venture insulates the balance sheet of the company. By doing all of this, we reduce risk, accelerate the business plan and still maintain upside potential. Granted, we no longer have all of the pie. However, in such cases we believe the gain on the upside is not wor th the risk for continuing to go it alone. While classified as operating proper ties, Ward Centers and the South Street Seapor t represent substantial redevelopment oppor tunities that are at the top of our priority list. At Ward Centers, we continue to make progress with our master plan strategy. The oppor tunity for residential and retail development at Ward is the most exciting development oppor tunity in the state of Hawaii. However, developing over 9 million square feet of potential mixed-use development requires thoughtful planning to maximize the long-term value of this asset while preser ving in-place income that suppor ts the company today. We expect to make substantial progress in 2012 as details of our phasing strategy cr ystallize and we begin implementing our plan to commence the redevelopment. At South Street Seapor t, in lower Manhattan, we reached a critical milestone in December 2011 when we executed a non-binding Letter of Intent with the New York City Economic Development Corporation that will enable us to pursue redevelopment plans. The letter of intent describes the terms of future amendments to the lease, which must be finalized by June 30, 2012. We believe the redevelopment of Pier 17 holds significant potential to create a dynamic destination in lower Manhattan for both local residents and tourists that will reshape the identity of the area and significantly enhance the value of this currently underutilized proper ty. THE FUTURE OF HOWARD HUGHES In assessing the potential of each proper ty, it is clear that a majority of the company’s value lies in a handful of assets. Accordingly, our team is sharply focused on maximizing the potential value of these key assets while monitoring oppor tunities to selectively monetize those less impactful assets at appropriate timing and pricing. We recognize that we will never be able to fully predict what might go wrong or when another recession might strike. We also recognize that down markets don’t last forever. Our asset base is THE SEAPORT, NEW YORK, NY geographically diverse, but concentrated in some of the nation’s most desirable markets. We also own a broad range of proper ty types and an unmatched pipeline with over 20 million square feet of ver tical development oppor tunities not including the millions of square feet of potential ver tical oppor tunities in our MPC’s. This diversity of location and asset class affords us valuable flexibility to focus on those market and product specific oppor tunities that make sense at any given time in an economic cycle. As oppor tunities materialize, we expect capital requirements to be substantial. Where appropriate, we will seek joint venture capital or operating par tners. In my experience there is no shor tage of capital for a great oppor tunity, and our por tfolio is full of unique real estate oppor tunities in the best markets in the countr y. In the year ahead, you can expect us to balance the need for thoughtful planning with a sense of urgency to move projects forward as fast as possible. We are driven and inspired by our belief in a common purpose to create timeless places and memorable experiences. Delivering superior results in this regard will maximize long-term value for our shareholders. The Howard Hughes name is synonymous with the relentless pursuit of achievement. We are inspired by that legacy and are systematically and strategically positioning our por tfolio. While we are at the star t of a long journey together, we look forward to continuing to earn your trust as we confront the many challenges ahead. I stated this in last year’s shareholder letter, and I believe that it is still an authentic description of the character of our growing organization. With exceptional people, irreplaceable assets, and a collective commitment to excellence, The Howard Hughes Corporation is well positioned for success. DAVID R. WEINREB CHIEF EXECUTIVE OFFICER HOWARD HUGHES | PROPERTY COLLECTION HOWARD HUGHES | PROPERTY COLLECTIONMASTER PLANNED COMMUNITIES Summerlin Las Vegas, NV Total Acres 22,500 Remaining Acres 6,771 Current Population 100,000 Anticipated Completion Date 2039 is a 22,500-acre master-planned community Summerlin located approximately eight miles west of downtown Las Vegas. The community is home to nine golf courses, 26 public and private schools, numerous houses of worship, 150 parks, over 150 miles of trails, business centers, shopping centers and medical facilities. Planned for 80,000+ homes and 200,000+ residents, Summerlin is currently home to 100,000 residents living in 40,000 homes, ranging from apartments to multi-million dollar custom homes. With nearly 7,000 remaining saleable acres, Summerlin is projected to have a 30- year remaining build-out. Summerlin has received numerous awards throughout its two-decade history. The community consistently ranks as one of the country’s top 10 best-selling master planned communities. • • • Summerlin is adjacent to Red Rock Canyon National Conservation Area, the most treasured natural landmark in southern Nevada and world-renowned as a hiking and rock- climbing destination. Summerlin is a multi-generational and fully integrated community. Since its inception in the early 1990s, Summerlin has consistently ranked in the Robert Charles Lesser annual poll of Top Ten Master Planned Communities. Both an early prototype as well as a template for future master planned communities, Summerlin is on the western rim of the Las Vegas Valley offering the best of two worlds: suburban living with all the amenities that create a superior quality of life; and accessibility to world-class dining, shopping and dazzling entertainment on the Las Vegas Strip. MASTER PLANNED MASTER PLANNED COMMUNITIES 80,000 ACRES 300,000+ RESIDENTS 14,000+ UNDEVELOPED ACRES is an 11,400-acre master-planned community Bridgeland located approximately 27 miles west of downtown Houston. The master plan includes four residential villages, a 900-acre town center and over 3,000 acres dedicated to lakes, trails, parks and open spaces. Bridgeland Houston, TX Total Acres 11,400 Remaining Acres 5,023 Current Population 4,750 Anticipated Completion Date 2036 Planned for 20,000+ homes and 65,000+ residents, Bridgeland is currently home to 5,000 residents living in 1,500 homes, ranging in price from $180,000 to $750,000. With more than 5,000 acres remaining, Bridgeland is projected to have a 25-year build-out. Bridgeland has received numerous accolades throughout its short history including, most recently, The National Association of Home Builder’s 2009 “Master Planned Community of the Year” award. Bridgeland ranks #4 in total annual homes started among Houston MPCs and 13th in the country. • The Grand Parkway, a four-lane road linking Bridgeland to I-10 and US 290 began construction last year and is scheduled for completion in 2014. • Multiple recreation facilities will be located throughout the community including swimming pools, community centers, ball fields, tennis courts and 60 miles of trails for pedestrian and bicycle connectivity. • Bridgeland has made a commitment to providing lifelong learning facilities and is one of only a few communities in the nation to develop a comprehensive education plan for its residents. MASTER PLANNED MASTER PLANNED COMMUNITIES Maryland Columbia, MD The Maryland Master Planned Communities (MPC) are comprised of 16,450 acres southwest of the Washington-Baltimore Area. The land holdings include four projects: Emerson, Gateway, Columbia Town Center and Fairwood. Total Acres 16,450 Remaining Acres 202 Current Population 104,700 Anticipated Completion Date 2035 Much of the future value and densities are concentrated in Columbia Town Center, where income for one in five households exceeds $150,000, more than triple the national average. The Columbia Town Center Master Plan allows for up to 13 million square feet of mixed-use development, including up to 5,500 residential units, one million square feet of retail, five million square feet of commercial office space, and 640 hotel rooms. • Columbia is located within Howard County, which in 2011 was ranked as the nation’s fifth richest county by Forbes Magazine. • Howard County has been one of Maryland’s fastest growing regions, increasing in population by 34% in the last decade; currently at 293,000 residents. • Fort Meade/NSA located within 10 miles of Columbia Town Center now has nearly 62,000 base-related jobs, which represents an increase of 16,000 jobs since 2007 driven primarily by BRAC and the location of the U.S. Cyber Command on Fort Meade, with another 22,000 jobs projected in the near term. MASTER PLANNED MASTER PLANNED COMMUNITIES 80,000 ACRES 300,000+ RESIDENTS 14,000+ UNDEVELOPED ACRES Located north of Houston, The Woodlands comprises over 28,000 acres, 97,000 residents, and 1,700 employers. The Woodlands is one of the most successful large-scale master planned communities in the U.S. Currently, The Woodlands is the 2nd ranked MPC by home starts in the nation and 1st in Houston. The Woodlands Houston, TX Total Acres 28,400 As of December 31, 2011, The Woodlands had approximately 1,164 acres of unsold residential land, representing approximately 3,669 lots, and approximately 961 acres of unsold land designated for commercial use. Remaining Acres 2,125 Current Population 101,000 Anticipated Completion Date 2022 The Woodlands also has full or partial ownership interests in commercial properties which total approximately 434,328 square feet of office space, 203,282 square feet of retail and service space, and 865 rental apartment units. In addition, The Woodlands owns and operates a 440-room resort and conference center, and two golf courses with full clubhouse amenities. • • • Scattered throughout The Woodlands are many sparkling lakes and ponds. Lake Woodlands is the largest at 200 acres, and is a favorite of sculling enthusiasts and kayakers. The Woodlands was one of the nation’s first sustainable communities, with a current total of over 6,000 acres of green space protected in 121 parks, seven golf courses, and plentiful greenbelts and forest preserves. The Woodlands Town Center, home of The Woodlands Waterway®, is a downtown in the forest with major shopping, upscale urban residences, entertainment and a thriving 24/7 business environment. MASTER PLANNED OPERATING PROPERTIES OVER 3,600,000 SF TODAY 15,000,000 SF OF FUTURE DEVELOPMENT Ward Centers Honolulu, HI Ward Centers is a collection of retail, industrial and office assets of varying age, size and quality on 60 acres of fee simple land located between downtown Honolulu and Waikiki. Anchors include Nordstrom Rack, Consolidated Theaters, Sports Authority and Ross. In June 2011, a 714-stall parking structure was completed along with a retail shell at Ward Village Shops with a new TJ Maxx. On September 29, 2011, the property was refinanced. The loan provides $38 million of additional capital for the initial development of Victoria Ward. In January 2009, the Hawaii Community Development Authority approved a 15- year master plan, which includes a mixed-use development encompassing up to 9.3 million square feet with flexibility to develop a maximum of 7.6 million square feet of residential, five million square feet of retail and four million square feet of office, commercial and other uses. The Seaport New York, NY The Seaport is comprised of three historic buildings and one pavilion shopping building on the East River in Lower Manhattan. The vision is to revitalize Pier 17 balancing the pier’s iconic waterfront location with its unique ability to provide a much needed community anchor for the rapidly growing residential population in Lower Manhattan. The ultimate objective is to create an unparalleled New York experience that is compelling to residents, local workers and visitors. The development plan features the complete transformation of Pier 17, including enhanced and increased open space on the pier as well as the building’s roof, and retail space filled with destination stores, restaurants and neighborhood shops. The design is contemporary yet draws from the site’s history as a bustling marketplace and renowned maritime port. OPERATING PROPERTIESOPERATING PROPERTIESOPERATING PROPERTIES OVER 3,600,000 SF TODAY 15,000,000 SF OF FUTURE DEVELOPMENT The Columbia Office Properties portfolio is comprised of five office buildings, two parking decks, and a music venue in the heart of downtown Columbia, MD. The office portfolio includes The Columbia Association Building, The Columbia Exhibit Building, The Ridgley Building, The Columbia Regional Office Building, and The American City Building (Master Leasehold). The portfolio has a vacancy of approximately 11% and represents a range of office product, most of which have exceeded their useful lives. The previously mentioned music venue, Merriweather Post Pavilion, is located at the center of the Downtown Columbia redevelopment and is to be renovated as a part of the overall rezoning plan. Columbia Office Buildings Columbia, MD Cottonwood Square is a 77,000 square foot grocery-anchored shopping center located within the Salt Lake City MSA. The 41,612 square foot anchor is subleased via Super Valu/Albertsons. The in-line space is 52.5% occupied. The property sits on a ground lease, which has been extended for an additional five years, through January 2017. Eight additional ground lease options remain for a total of 40 years. Cottonwood Square Salt Lake City, UT OPERATING PROPERTIESOPERATING PROPERTIESOPERATING PROPERTIES OVER 3,600,000 SF TODAY 15,000,000 SF OF FUTURE DEVELOPMENT Rio West Gallup, NM Rio West Mall is a two anchor, 330,000 square foot enclosed mall located in Gallup, NM. Anchors include JCPenney and Bealls. In-line tenancy totals 151,944 square feet and is 79% occupied with national, regional and local tenants catering to middle-income consumers. Rio West also includes approximately 170,000 square feet of outparcels and is subject to a ground lease, which expires in 2079. Gallup, NM is located approximately two hours west of Albuquerque and two hours east of Flagstaff, AZ. Rio West is the only mall in the trade area, which is surrounded by several Native American reservations with a population of over 190,000 people. Riverwalk New Orleans, LA Riverwalk Marketplace is a three-level tourist-driven enclosed mall with a tenant base comprised largely of local businesses selling New Orleans themed products to tourists and conventioneers. Opened in 1986, the property is well located, directly adjacent to the 1,600-room Hilton Riverside Hotel, New Orleans Convention Center, and the newly expanded Julia Street Cruise Terminal. New Orleans hosted 8.75 million visitors spending $5.5 billion during 2011. Tourist activity is now approaching pre-Katrina levels. Riverwalk captures the nearby cruise ship city visitors, projected to be one million passengers in 2012, providing a captive market for retailers. OPERATING PROPERTIESOPERATING PROPERTIESOPERATING PROPERTIES OVER 3,600,000 SF TODAY 15,000,000 SF OF FUTURE DEVELOPMENT Landmark Mall is located at the intersection of Interstate 395 and Duke Street, just across the Potomac River from Washington, D.C. The Property is anchored by Sears and Macy’s. In February 2009, the Alexandria City Council approved the Landmark/Van Dorn Corridor Small Area Plan, allowing for up to 5.5 million square feet of new mixed-use density to be located on the site. Landmark Mall is well situated on I-395, between The Pentagon and Fort Belvoir, immediately across from Mark Center, a newly developed 2 million SF office complex occupied by Washington Headquarters Service (a component of DOD reorganization). Landmark Mall Alexandria, VA Located in downtown Chicago, 110 N. Wacker has served as GGP’s headquarters since the mid-1990’s. HHC owns 99% of the building and a leasehold interest in the land with a joint venture partner. The ground lease has a fixed rent per year for the entire 99-year term and expires on March 31, 2055. 110 N. Wacker Chicago, IL Park West is a 250,000 square foot open-air lifestyle center located at Loop 101 and Northern Ave. in the Phoenix suburb of Peoria, AZ. Anchored by a 64,129 square foot Harkins Theater, Park West includes 162,250 square feet of in-line shopping (47% occupied) and 22,789 square feet of outparcel restaurants (100% occupied). Park West is located in a strong middle-income trade area approximately one mile northwest of the Arizona Cardinals football stadium and the Phoenix Coyote’s hockey arena. Park West Peoria, AZ OPERATING PROPERTIESOPERATING PROPERTIESSTRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE Ala Moana Tower Condo Project Honolulu, HI HHC owns the air rights above the Nordstrom parking structure at GGP’s Ala Moana Center. The structure was engineered to accommodate a residential tower above it and includes 469 dedicated parking stalls to serve the proposed tower. On May 20, 2011, HHC executed a letter of intent with local developers, The MacNaughton Group and Kobayashi Group, to jointly develop the residential tower. The parties executed joint venture documents on October 11, 2011. Recently, the JV selected an architecture firm with substantial high-rise residential experience to redesign the tower. Cottonwood Mall Salt Lake City, UT The original mall was built in 1962 and largely demolished in early 2008 with a 200,000 square foot Macy’s remaining. The proposed mixed-use development includes 617,000 square feet of retail, 226,000 square feet of office and 614 residential units. The property lies within an approved redevelopment area and the tax increment financing that was previously approved has been extended. Leasing efforts are underway to procure anchor tenants in order to determine feasibility of moving forward with redevelopment of the site. STRATEGIC STRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE The Shops at Summerlin Las Vegas, NV The Shops at Summerlin is located at the intersection of Interstate 215 and W. Sahara Avenue, 9 miles west of the Las Vegas Strip. Original plans called for a 1.5 million square foot shopping center anchored by Nordstrom, Dillard’s and Macy’s. A grading permit was issued in April 2008 and construction stopped in late October 2008. HHC spent 2011 focusing on strategic planning initiatives with the objective of maximizing the long- term value of both The Shops at Summerlin and remaining residential land totaling 7,000 acres at the Summerlin MPC. This included analyzing the long-term market demand for residential and commercial development within the MPC, a focused retail market demand study and a review of master planning options for The Shops at Summerlin. The retail market demand study for the shopping center concluded that the local population is currently being under served. As a result, over $1.5 billion of retail sales are currently “leaking” out of Summerlin. Additionally, the study estimated that building the regional shopping center would add between a 5-10% premium to the remaining single-family lots to be sold within the MPC. Elk Grove Promenade is located 17 miles southeast of downtown Sacramento. The 1.1 million square foot, partially constructed lifestyle center has been dormant since construction halted in 2008. The mall was to be anchored by a cinema and three department stores; Macy’s, JC Penney’s and Target. Elk Grove was once one of the U.S.’s fastest growing cities, but its growth stalled during the recession with the collapse of the housing market. In May 2011, the City of Elk Grove and Sacramento County accepted the Major Roads Improvement project. The project included the completion of major roadways, a sewer lift station and miles of utility lines. Other key milestones completed in 2011 include the extension of building permits and the Development Agreement. Elk Grove Promenade Sacramento, CA STRATEGIC STRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE Bridges at Mint Hill Charlotte, NC The Bridges at Mint Hill is located at the intersection of Interstate 485 and Lawyers Rd., which is prime placement in the underserved southeast corner of the thriving Charlotte metropolitan area. The parcel is approximately 210 acres and is currently zoned for approximately 1,300,000 square feet of retail, hotel and commercial development. Construction at the Bridges at Mint Hill began in 2008, but was delayed due to changing market conditions. In September 2011, HHC announced it was partnering with Childress Klein to pursue development opportunities for the Bridges at Mint Hill and to realize the potential of the development. Fashion Show Air Rights Las Vegas, NV HHC owns the air rights above The Fashion Show Mall in Las Vegas. The Fashion Show Mall is located at the heart of The Strip across the street from The Wynn Las Vegas and the Encore. Anchored by Nordstrom, Neiman Marcus, Saks Fifth Avenue, Macy’s, Bloomingdale’s Home and Dillard’s, the Fashion Show Mall features nearly 1.9 million square feet. Conceptual plans exist for a Fashion Show Resort Casino, which include a 2, 650-room hotel with over 300,000 square feet of convention/banquet space and a second boutique hotel with 700 luxury suites. The project also includes the construction of over 5,000 parking spaces to support the new project and the mall. STRATEGIC STRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE Century Plaza is located on the eastern side of Birmingham, AL, on U.S. Route 78 near Interstate 20, across from the Eastwood Village (formerly Eastwood Mall). Situated on 62.73 acres, the mall opened in 1975 and over the years was anchored by Sears, Rich’s/ Macy’s, Belk, and JCPenney. In May 2009, the mall was closed. The only active uses on the site are a 16,000 square foot Aldi grocery store that is operating on an outparcel and a BMW motorcycle sales and service center that Sears is subleasing in their former auto care building. Although a regional mall is no longer the highest and best use, the site enjoys a convenient location adjacent to Interstate 20. The redevelopment of neighboring Eastwood Mall into a Wal‐Mart anchored center indicates that Century Plaza may still be a viable retail location for big box retailers. Century Plaza Birmingham, AL West Windsor is a former Wyeth Agricultural Research & Development Campus on Quakerbridge Road and U.S. Route One near Princeton, New Jersey. The land is comprised of two large parcels on Quakerbridge Road that are bisected by Clarksville Meadows Road and a third smaller parcel. The approximate 352 acres north of Clarksville holds the former Wyeth Campus and the 300 acres south of Clarksville is largely vacant land. The third parcel (approximately six acres) is separated from the balance of the land by an adjacent rail line. Across Quakerbridge Road is the Quaker Bridge Mall, a two-level, 1.1 million square foot regional shopping center. The mall is anchored by JCP, Macy’s, Lord & Taylor, and Sears. The property opened in 1975 and has over 120 stores. West Windsor Princeton, NJ STRATEGIC STRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE Kendall Town Center Kendall, FL Kendall Town Center is part of a 158 acre site located approximately 18 miles southwest of downtown Miami. A portion of the land was sold to Baptist Hospital for the development of a 282,000 square foot hospital and 62,600 square foot medical office building, which opened in April 2011. Other parcels were sold and are expected to include the development of a 120 room hotel with ancillary office and retail and a senior housing component. The remaining 70-acre parcel is entitled for 621,300 square feet of retail, 60,000 square feet of office and 50,000 square feet of community center. All current infrastructure requirements, including a pump station, transit center and private drive have been funded and are nearly complete. Redlands Mall and Promenade Redlands, CA Redlands Promenade is a development site located in the Inland Empire at the intersection of Eureka Street and Interstate 10, less than a mile from the Redlands Mall. The Redlands Promenade is entitled as a two phased, 160,000 square foot development. Construction drawings have been submitted to the city. STRATEGIC STRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE Circle T Ranch, located in the Dallas/Fort Worth metroplex, is a 2,500 acre master-planned community developed by Hillwood, which includes 800 acres dedicated to corporate campuses, office parks and 700 acres dedicated to open space and golf courses. HHC is a 50% joint venture partner with Hillwood on the development of two retail sites. Power Center Site – The 150 acre power center site is located at the intersection of Highway 170 and Highway 377. This site is planned to be developed into a 1.1 million square foot power center Mall Site – The mall site is 120 acres and is located at the intersection of Highway 114 and Highway 170. The site was planned as a super regional mall consisting of 1.2 to 1.6 million square feet of retail, including a cinema in a streetscape atmosphere. Circle T Ranch and Circle T Power Center Dallas–Fort Worth, TX AllenTowne is located at the intersection of Highway 121 and U.S. Highway 75 in Allen, Texas, 27 miles north of downtown Dallas. When purchased, AllenTowne was to be developed into a one million square foot development with residential, office, retail and hotel components. The Allen Economic Development Corporation aggressively works to attract businesses to Allen. Agricultural property tax exemptions are in place for most of the property, significantly reducing carrying costs. AllenTowne Allen, TX STRATEGIC STRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE Columbia Parcel D Columbia, MD HHC has a joint venture agreement with Kettler/Orchard to develop approximately 375 Class A residential units and over 14,000 square feet of retail space at downtown Columbia, Parcel D. The development is the first project to be executed under the 2010 approved downtown Columbia redevelopment plan that allows for up to 13 million square feet of net new density to be comprised of 5,500 residential units, five million square feet of office, one million square feet of retail, and up to 640 hotel rooms. Alameda Plaza Pocatello, ID Alameda Plaza is a 1972-vintage, 190,000 square foot community center located at the intersection of Yellowstone Ave. and Alameda Road. STRATEGIC STRATEGIC DEVELOPMENTS 21,000,000+ SF OF FUTURE DEVELOPMENT AN UNPARALLELED DEVELOPMENT PIPELINE 3 waterway square The Woodlands, TX perspective view 1 HHC began construction on 3 Waterway Square in March 2012, an 11-story Class A january 23, 2012 office building in The Woodlands Commercial District. 3 Waterway is situated at the corner of Lake Robbins Drive and Woodloch Forest Drive in the heart of The Waterway Square District and was designed by Elkus Manfredi of Boston, MA. The building will be completed in May 2014 at a $51.4 million estimated cost to build (excluding estimated land value and garage allocation). As of March 31, 2012 over 70% of the building has been pre-leased. 3 Waterway Square Houston, TX Located 35 miles northwest of Chicago, Volo is a 2.8 square mile town with approximately 200 residents. The land was assumed by GGP through the Homart acquisition and currently has no utilities to the site, but is located near two planned regional centers. Lakemoor (Volo) Land Lakemoor, IL STRATEGIC THE WOODLANDS OPERATING PROPERTIES OVER 1,200,000 SF > 4 WATERWAY > THE MILLENNIUM APARTMENTS > 20/25 WATERWAY > THE WOODLANDS RESORT > 1400 WOODLOCH FOREST DRIVE AND CONFERENCE CENTER > 2201 LAKE WOODLANDS DRIVE > THE WOODLANDS/SAROFIM > 9303 NEW TRAILS > U.S. ONCOLOGY GARAGE > STEWART TITLE > WATERWAY SQUARE GARAGE > THE CLUB AT CARLTON WOODS > WATERWAY SQUARE RETAIL THE WOODLANDS Directors William A. Ackman Chairman of the Board Adam R. Flatto Jeffrey D. Furber Gary A. Krow Allen J. Model R. Scot Sellers Steven H. Shepsman Burton M. Tansky Mary Ann Tighe David R. Weinreb Corporate Officers David R. Weinreb Chief Executive Officer Grant D. Herlitz President Andrew C. Richardson Chief Financial Officer Peter F. Riley General Counsel Headquarters One Galleria Tower, 13355 Noel Road, 22nd floor Dallas, Texas 75240 Phone: 214-741-7744 Fax: 214-741-3021 Registrar and Transfer Agent Computershare 480 Washington Boulevard Jersey City, New Jersey 07310-1900 Phone 866-354-3668 Independent Registered Public Accounting Firm Deloitte & Touche LLP JPMorgan Chase Tower 2200 Ross Avenue, Suite 1600 Dallas, Texas 75201-6778 Annual Meeting The Company’s Annual Meeting of Stockholders is scheduled for 9:00 a.m., June 11, 2012 The Westin Galleria Dallas 13340 Dallas Parkway Dallas, Texas 75240 Forward-Looking Statements: Certain statements contained herein may be, within the meaning of the federal securities laws, “forward-looking statements,” which are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. See the “Cautionary Statement Regarding Forward- Looking Statements” in the Company’s Annual Report on Form 10-K delivered herewith. THE WOODLANDSTable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K(MARK ONE)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2011or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-34856 The Howard Hughes Corporation(Exact name of registrant as specified in its charter) Delaware 36-4673192(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification Number)13355 Noel Road, 22nd Floor, Dallas, Texas 75240(Address of principal executive offices) (Zip Code)(214) 741-7744(Registrant’s telephone number, including area code)Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on Which Registered:Common Stock, $.01 par value New York Stock ExchangeSecurities Registered Pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. YES x NO ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). YES x NO ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer ¨Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO xAs of June 30, 2011, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $2.4 billion basedon the closing sale price as reported on the New York Stock Exchange.As of February 24, 2012, there were 37,945,707 shares of the registrant’s common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Proxy Statement relating to its 2012 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, 13 and 14 ofPart III of this Annual Report of Form 10-K. The registrant intends to file this Proxy Statement with the Securities and Exchange Commission within 120 daysof the end of the fiscal year to which this Annual Report on Form 10-K relates. Table of ContentsTABLE OF CONTENTS Item No. Page Number Part I 1. Business 2 1A. Risk Factors 19 1B. Unresolved Staff Comments 29 2. Properties 29 3. Legal Proceedings 31 4. Mine Safety Disclosure 31 Part II 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 6. Selected Financial Data 34 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36 7A. Quantitative and Qualitative Disclosures About Market Risk 60 8. Financial Statements and Supplementary Data 61 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 61 9A. Controls and Procedures 61 9B. Other Information 63 Part III 10. Directors, Executive Officers and Corporate Governance 63 11. Executive Compensation 63 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 63 13. Certain Relationships and Related Transactions, and Director Independence 63 14. Principal Accountant Fees and Services 63 Part IV 15. Exhibits and Financial Statement Schedules 64 iTable of ContentsCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-lookingstatements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, futureperformance and business. You can identify forward-looking statements by the fact that they do not relate strictly to current or historical facts. Thesestatements may include words such as “anticipate,” “estimate,” “expect,” “project,” “forecast,” “plan,” “intend,” “believe,” “may,” “should,” “would,”“likely” and other words of similar expression. Forward-looking statements should not be relied upon. They give our expectations about the future and are notguarantees. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance andachievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. Theseforward-looking statements present our estimates and assumptions only as of the date of this Annual Report on Form 10-K. Except as may be required by law,we undertake no obligation to modify or revise any forward-looking statements to reflect events or circumstances occurring after the date of this report.Factors that could cause actual results to differ materially from those expressed or implied by forward-looking statements include: • our history of losses; • our inability to obtain operating and development capital; • a prolonged recession in the national economy and adverse economic conditions in the retail sector; • our inability to compete effectively; • our directors may be involved or have 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 desirablestrategic partners; • potential conflicts with GGP (as defined below) arising from agreements with GGP with respect to certain of our assets; • risks associated with our spin-off from GGP not qualifying as a tax-free distribution for U.S. federal income tax purposes; • substantial stockholders having influence over us, whose interests may be adverse to ours or other stockholders; and • the other risks described in Item 1A. “Risk Factors.” 1Table of ContentsPART IThroughout this Annual Report on Form 10-K, references to the “Company,” “we” and “our” refer to The Howard Hughes Corporation and its consolidatedsubsidiaries, unless the context requires otherwise.ITEM 1. BUSINESSOVERVIEWThe Howard Hughes Corporation’s mission is to be the preeminent developer and operator of master planned communities and mixed use properties. We createtimeless places and memorable experiences that inspire people while driving sustainable, long-term growth and value for our shareholders. We specialize in thedevelopment of master planned communities and ownership, management and the redevelopment or repositioning of real estate assets currently generatingrevenues, also called operating assets as well as other strategic real estate opportunities in the form of entitled and unentitled land and other development rights,also called strategic developments. We are headquartered in Dallas, Texas and our assets are located across the United States.Unlike most real estate companies which are limited in their activities because they have elected to be taxed as a real estate investment trust, we have norestrictions on our operating activities or types of services that we can offer. We believe our structure provides the greatest flexibility for maximizing the value ofour real estate portfolio. As of December 31, 2011, our consolidated debt equaled approximately 17.9% of our total assets and we had $227.6 million of cashon hand.Our master planned communities have won numerous awards for, among other things, design and community contribution. We expect the competitiveposition and desirable locations of our assets (which collectively comprise millions of square feet and thousands of acres of developable land), combined withtheir operations and long-term opportunity through entitlements, land and home site sales and project developments will drive our long-term growth.We are pursuing development opportunities for a number of our assets that were previously postponed due to lack of liquidity resulting from deterioratingeconomic conditions, the credit market collapse and the bankruptcy filing of our predecessors, we are also developing plans for other assets for which planshad not yet been developed.We currently operate our business in three segments: Master Planned Communities, Operating Assets and Strategic Developments. Financial information abouteach of our segments is presented in Note 15 to our audited financial statements included elsewhere in this Annual Report on Form 10-K.We were incorporated in Delaware in 2010 to receive certain assets and liabilities of GGP, Inc., formerly known as General Growth Properties, Inc. (“GGP” andcollectively with its subsidies, our “predecessors”) in connection with our predecessors’ emergence from bankruptcy. We completed our spin-off from GGP onNovember 9, 2010.Overview of Business SegmentsMaster Planned Communities. Our Master Planned Communities segment primarily consists of the development and sale of residential and commercialland, primarily in large-scale projects. After acquiring our partner’s 47.5% economic interest in The Woodlands Operating Company, L.P. and subsidiaries,TWCPC Holdings, LP and subsidiaries and TWLDC Holdings, L.P. and subsidiaries (collectively “The Woodlands”) on July 1, 2011, we now wholly ownour four master planned communities (The Woodlands, Summerlin, Bridgeland and Maryland). Our master planned community in Maryland includes fourseparate communities that are collectively referred to as the “Maryland Communities.”Our Master Planned Communities include over 14,000 acres of land remaining to be sold. Residential sales, which are made primarily to home builders,include standard and custom parcels as well as high density (e.g., condominium, town homes and apartments) parcels designated for detached and attachedsingle- and multi- 2Table of Contentsfamily homes, ranging from entry-level to luxury homes. Commercial sales include land parcels designated for retail, office, resort, services and other for-profit activities, as well as those parcels designated for use by government, schools and other not-for-profit entities.Operating Assets. Our Operating Assets segment contains 26 properties and investments, consisting primarily of commercial mixed-use, retail and officeproperties that currently are generating revenue. The assets include nine mixed use and retail properties, six office properties (one of which includes severalindividual buildings), a resort and conference center, a 36-hole golf and country club, six equity investments and three other operating assets. We believe thatthere are opportunities to redevelop or reposition many of these assets, primarily the retail properties, to increase operating performance. These opportunitieswill require new capital investment and vary in complexity and scale. The redevelopment opportunities range from minimal disruption to the property to thepartial or full demolition of existing structures for new construction. Beginning with the consolidation of The Woodlands in 2011, this segment also includesthe commercial properties located at The Woodlands, which consist primarily of newly-constructed or stabilized office, retail and golf properties, and a resortand conference center.Strategic Developments. Our Strategic Developments segment is made up of near, medium and long-term development projects for 19 of our real estateproperties. We believe most of these 19 assets will require substantial future development to achieve their highest and best use. We are in various stages ofcreating or executing strategic plans for many of these assets based on market conditions and availability of capital. In addition to the permitting and approvalprocess attendant to almost all large-scale real estate developments of this nature, we will likely need to obtain financing to realize a development plan for one ormore of these assets.The chart below presents our assets by reportable segment. 3Table of ContentsMaster Planned CommunitiesOur Master Planned Communities segment consists of the development and sale of residential and commercial land, primarily in large-scale projects in andaround Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland. Summerlin and the Maryland Communities are additionally divided into regions orprojects as described below in each of the separate community narratives. Revenues are derived primarily from the sale of finished lots and undeveloped padsto both residential and commercial developers. Additional revenues are earned through participations with builders in their sales of finished homes tohomebuyers. Revenues and net income are affected by factors such as: (1) the availability to purchasers of construction and permanent mortgage financing atacceptable interest rates; (2) consumer and business confidence; (3) regional economic conditions in the areas surrounding the projects; (4) employment levels;(5) levels of homebuilder inventory; (6) other factors generally affecting the homebuilder business and sales of residential properties; (7) availability ofsaleable land for particular uses; and (8) our decisions to sell, develop or retain land.Our Master Planned Communities are located in geographic markets which are experiencing different rates of recovery following the housing market declinethat started in 2007. Our communities in Houston, Texas, have benefited from companies relocating to Houston and the expansion of energy sector companies.The Las Vegas, Nevada market is recovering more slowly and our Summerlin master planned community is experiencing more variability in sales pace andvolume compared to our Houston communities. As a business venture, development of master planned communities requires expertise in large-scale, long-range land use planning, residential and commercial real estate development, sales and other special skills. The development of our large scale master plannedcommunities requires decades of investment and a continual focus on the changing market dynamics surrounding these communities. We believe that the long-term value of our master planned communities remains strong because of their competitive and dominant positioning, our expertise and flexibility in land useplanning and the fact that we have substantially completed the entitlement process within our communities.The following table summarizes our master planned communities as of December 31, 2011: Remaining Saleable Acres(b) Community Location Ownership(%) TotalGrossAcres(a) PeopleLiving inCommunity(Approx.No.) Residential(c) Commercial(d) Total OtherAcres RemainingSaleableResidentialLots(c) ProjectedCommunitySell-OutDate Summerlin Las Vegas, NV 100.0 22,500 100,000 5,880 891 6,771 — 38,684 2039 Bridgeland Houston, TX 100.0 11,400 4,750 3,797 1,226 5,023 — 18,900 2036 Maryland Columbia Howard County 100.0 14,200 100,000 — — — 35(e) 2018(g) Gateway Howard County 100.0 630 — — 121 121 — 2017 Emerson Howard County 100.0 520 2,200 2 68 70 — 28 2017 Fairwood Prince George’sCounty 100.0 1,100 2,500 — 11 11 24 2013 The Woodlands Houston, TX 100.0(f) 28,400 101,000 1,164 961 2,125 — 3,669 2022 Total 78,750 310,450 10,843 3,278 14,121 59 61,281 (a)Encompasses all of the land located within the borders of the master planned community, including parcels already sold, saleable parcels and non-saleable areas, such as roads, parks and recreation andconservation areas.(b)Includes only parcels that are intended for sale or joint venture. The mix of intended use, as well as the amount of remaining saleable acres, are primarily based on assumptions regarding entitlements and zoning ofthe remaining project and are likely to change over time as the master plan is refined. Remaining saleable acres are estimates.(c)Includes standard, custom and high density residential land parcels. Standard residential lots are designed for detached and attached single- and multi-family homes, of a broad range, from entry-level to luxuryhomes. At Summerlin and The Woodlands, we have designated certain residential parcels as custom lots as their premium price reflects their larger size and other distinguishing features – such as being within agated community, having golf course access, or being located at higher elevations. High density residential includes townhomes, apartments and condominiums. Reflected are the remaining residential acres and lotsassociated with those acres.(d)Designated for retail, office, resort, services and other for-profit activities, as well as those parcels allocated for use by government, schools, houses of worship and other not-for-profit entities. 4Table of Contents(e)Reflects the number of net developable acres in raw land and subdivided land parcel available for new development, but which we currently intend to hold. During 2011, we contributed approximately 4.2 acres(Columbia Parcel D) to a joint venture to construct an apartment building on the site.(f)Prior to July 1, 2011 our economic ownership interest was 52.5%. On July 1, 2011, we acquired the remaining 47.5% of the economic ownership of The Woodlands from our partner.(g)We currently intend to develop this land surrounding the Columbia Town Center. The data represents our estimated redevelopment completion date.Summerlin (Las Vegas, Nevada)Spanning the western rim of the Las Vegas Valley and located approximately nine miles from downtown Las Vegas, our 22,500 acre Summerlin masterplanned community is comprised of planned and developed villages and offers suburban living with accessibility to the Las Vegas Strip. For much of its 20-year history, Summerlin has consistently ranked in the Robert Charles Lesser annual poll of Top Ten Master Planned Communities in the nation. With 26public and private schools, five institutions of higher learning, nine golf courses, and cultural facilities, Summerlin is a fully integrated community. The firstresidents moved into their homes in 1991. As of December 31, 2011, there were approximately 40,000 homes occupied by approximately 100,000 residents.Summerlin is comprised of hundreds of neighborhoods located in 19 developed villages with nearly 150 neighborhood and village parks, all connected by a150-mile long trail system. Summerlin is located adjacent to Red Rock Canyon National Conservation Area, a landmark in southern Nevada, which hasbecome a world-class hiking and rock climbing destination and is in close proximity to our Shops at Summerlin Centre development site. Red Rock CasinoResort & Spa, which is adjacent to our site, receives more than one million visitors annually. Summerlin contains approximately 1.7 million square feet ofdeveloped retail space, 3.2 million square feet of developed office space and three hotel properties containing approximately 1,400 hotel rooms, as well as healthand medical centers, including Summerlin Hospital and the Nevada Cancer Institute.Summerlin is divided into three separate regions or projects known as Summerlin North, Summerlin West and Summerlin South. Summerlin North is fullydeveloped. In Summerlin South, we are entitled to develop 740 acres of commercial property with no square footage restrictions, 354 acres of which are ownedby third parties or already committed to commercial development. We also have entitlements for an additional 19,000 units yet to be developed in SummerlinSouth. In Summerlin West, we are entitled to develop 5.85 million square feet of commercial space on up to 508 acres of which 100,000 square feet havealready been developed through the construction of a grocery store anchored shopping center. We are also entitled to develop 30,000 residential units inSummerlin West, approximately 25,000 of which remain to be developed. Summerlin does not currently utilize all of its remaining entitlements for residentialunits. The total residential units reflected in the chart on page 4 represents Summerlin’s best estimate of the units that will be developed on its remaining land,based on economic conditions now and expected in the future; however, market forces could change these assumptions. As of December 31, 2011, Summerlinhad approximately 5,880 residential acres and 891 commercial acres remaining to be sold. Summerlin’s population upon completion of the project is expectedto be approximately 220,000 residents.Bridgeland (Houston, Texas)Bridgeland is a master planned community near Houston, Texas consisting of approximately 11,400 acres, and was voted by The National Association ofHome Builders as the “Master Planned Community of the Year” in 2009. The first residents moved into their homes in June 2006. There were approximately1,375 homes occupied by approximately 4,750 residents as of December 31, 2011. Bridgeland’s conceptual plan includes four villages – Lakeland Village,Parkland Village, Prairieland Village and Creekland Village – plus a town center mixed-use district and a carefully designed network of trails totaling over 60miles that will provide pedestrian connectivity to distinct residential villages and neighborhoods and recreational, educational, cultural, employment, retail,religious and other offerings. Bridgeland’s first five neighborhoods are located in Lakeland Village. These neighborhoods offer a unique home buyingexperience that includes two convenient model home parks showcasing 18 models by ten of Houston’s top builders. Bridgeland has many home sites thatenjoy views of 5Table of Contentswater, buried power lines to maximize the views of open space and water, fiber-optic technology, brick-lined terrace walkways and brick, stone and timberarchitecture. The prices of the homes range from approximately $170,000 to more than $1.0 million. Lakeland Village is approximately 60% completed. TheLakeland Activity Center, the first of several planned activity complexes to be constructed as development progresses and more residents move to Bridgeland,opened in May 2007. The complex is anchored by a 6,000 square foot community center and features a water park with three swimming pools, two lightedtennis courts and a state-of-the-art fitness room. A grand promenade wrapping around Lake Bridgeland offers a boat dock, canoes, kayaks, sailboats andpaddleboats. Bridgeland is expected to feature more than 3,000 acres of waterways, lakes, trails, parks and open spaces, as well as an expansive town centerwith room for employment, retail, educational and entertainment facilities.Bridgeland’s conceptual plan includes a 900-acre town center mixed-use district. The conceptual plan contemplates that the town center will be located adjacentto the expansion of State Highway 99 (the “Grand Parkway”), which is an approved 180 mile circumferential highway traversing seven counties andproviding access to southwest, west, northwest, north and northeast Houston. Segment E of the Grand Parkway will be a 15-mile four-lane controlled accesstoll road with intermittent frontage roads from Interstate 10 to Highway 290 through Harris County. Segment E will provide direct access to the portion ofBridgeland designated for the town center. Construction on Segment E began in October 2011 and is estimated to be completed by the end of 2013 or beginningof 2014.We anticipate that the Bridgeland community will eventually accommodate more than 20,000 homes and 65,000 residents, and we believe that it is poised to beone of the top master planned communities in the nation. As more fully described below, we are leveraging the 37 years of master planned communitydevelopment experience of The Woodlands organization to develop and market Bridgeland. As of December 31, 2011, Bridgeland had approximately 3,797residential acres and 1,226 commercial acres remaining to be sold.Maryland CommunitiesOur Maryland communities consist of four distinct projects: • Columbia; • Gateway; • Emerson; and • Fairwood.ColumbiaColumbia, located in Howard County, Maryland, is an internationally recognized model of a successful master planned community developed in the 1960’s.As of December 31, 2011, Columbia was home to approximately 100,000 people. Columbia’s full range of housing options is located in ten distinct, self-contained villages. Each village is comprised of several neighborhoods, a shopping center and community and recreational facilities. In Columbia TownCenter’s downtown, 1.6 million square feet of office space is located close to shopping, restaurants and entertainment venues.In 2005, the U.S. Government enacted the Base Alignment and Closure Act (“BRAC”) resulting in the relocation of governmental agencies to the 5,000 acreFort Meade military base. Fort Meade is located approximately 11 miles from the Columbia Town Center. According to published reports, Fort Meade is thelargest single employer of Howard County residents, with more than 10,000 employed, and directly or indirectly supports approximately 170,000 jobs in theregion. Since 2005, Fort Meade’s workforce has expanded from 34,000 to 56,000 employees, with BRAC accounting for just 5,800 of the 22,000 newpositions. Recent news reports estimate that the relocation of military personnel due to BRAC created demand for 1.3 million square feet of new space to FortMeade, and some estimates indicate that another 5.6 million square feet of space may be developed 6Table of Contentsin the future, including growth of the Cyber Command headquarters. By 2015, the overall workforce on the base is expected to exceed 65,000 primarilybecause of the base’s role in cyber security and protecting the U.S.’s information technology assets from foreign threats. Between 2007 and 2015, 8,800 newjob holders and 5,500 new households are expected to come into Howard County because of the Fort Meade growth.We own approximately 35 net acres of land in Columbia which we expect to develop. The land currently consists of raw land and subdivided land parcelsreadily available for new development. During 2011, we contributed over four acres of land to the Columbia Parcel D joint venture. We are developing a 375unit apartment building on this land with a local partner as more fully described under Strategic Developments. In addition, we own five office propertiescomprising 300,000 square feet collectively referred to as the Columbia Office Properties as more fully described under Operating Assets as well as surface andstructured parking and dedicated open space. We believe there is a significant opportunity to redevelop this portion of the master planned community in thefuture. During 2010, we received entitlements to develop up to 5,500 new residential units, approximately one million square feet of retail, approximately fivemillion square feet of commercial office space and 640 hotel rooms.In November 2010, we entered into development agreements with GGP that provide for the division of properties between our Company and GGP in an areawithin the mall ring road adjacent to The Mall in Columbia which is owned by GGP. The development agreements contain the key terms, conditions,responsibilities and obligations with respect to the future development of this area within the greater Downtown Columbia Redevelopment District. Theagreements designate us as the preferred residential and commercial developer, and provide us with a five-year right of first offer and a subsequent six-monthpurchase option to acquire seven office buildings and associated parking lots, totaling approximately 22 acres.GatewayGateway is a 630-acre premier master planned corporate community located in a high traffic area in Howard County, Maryland. Gateway offers quality officespace in a campus setting with approximately 121 commercial acres remaining to be sold as of December 31, 2011.EmersonEmerson is a substantially completed master planned community located in Howard County, Maryland and consists of approximately 520 acres. The firstresidents moved into their homes in 2002. There were approximately 975 homes occupied by approximately 2,200 residents as of December 31, 2011.Emerson offers a wide assortment of single-family and townhome housing opportunities by some of the region’s top homebuilders, and is located in one ofMaryland’s top-performing public school districts. As of December 31, 2011, we had approximately two residential acres and 68 commercial acres remainingto be sold. The remaining land is fully entitled for build-out, subject to meeting local requirements for subdivision and land development permits. In addition,28 of our townhouse lots are under contract for approximately $3.9 million to builders and scheduled to close in stages through 2012. As of December 31,2011, we have sold 58 townhouse lots for an aggregate price of $7.3 million.FairwoodFairwood is a fully developed master planned community located in Prince George’s County, Maryland, consisting of approximately 1,100 acres. As ofDecember 31, 2011, 11 commercial acres were available for sale. The first residents moved into their single-family homes in 2002. There were approximately1,100 homes occupied by approximately 2,500 residents on December 31, 2011. Fairwood consists of single-family and townhouse lots, as well asundedicated open space and two historic houses. In addition to the commercial acres remaining to be sold, we own a few undedicated open space parcels, and24 acres of unsubdivided land which cannot be developed as long as the nearby airport is operating. 7Table of ContentsThe Woodlands (Houston, Texas)The Woodlands is a mixed-use master planned community situated 27 miles north of Houston and consists of 28,400 acres. The Woodlands is a self-contained community that integrates recreational amenities, residential neighborhoods, commercial office space, retail shops and entertainment venues. Homesite sales began in 1974. As of December 31, 2011, we estimated that there were approximately 38,000 homes occupied by approximately 101,000 residentsand more than 1,755 businesses providing employment for approximately 49,960 people.Approximately 28% of The Woodlands is dedicated to green space, including parks, pathways, open spaces, golf courses and forest preserves. Thepopulation of The Woodlands is projected to be approximately 130,000 by 2020. The Woodlands has full or partial ownership interests in commercialproperties totaling 434,328 square feet of office space, 203,282 square feet of retail and service space and 865 rental apartment units. We also own and operatea 440 room resort and conference center facility and a 36-hole golf and country club. These commercial properties are more fully described under OperatingAssets. As of December 31, 2011, The Woodlands had approximately 1,164 acres of unsold residential land, representing approximately 3,669 lots, andapproximately 961 acres of unsold land for commercial use.The Woodlands includes a waterway, outdoor art and an open-air performance pavilion, a resort and conference center, a luxury hotel and convention center,educational opportunities for all ages, hospitals and health care facilities and office space. The Fountains at Waterway Square located on The WoodlandsWaterway connects the projects to the community via a water taxi system serving The Woodlands Town Center area.On July 1, 2011, we acquired our former partner’s 47.5% economic interest in The Woodlands and now own 100% of the master planned community. Afterthe acquisition of our partner’s interest, we consolidated management of Bridgeland and The Woodlands. Our strategy is to leverage The Woodlands’ 37-plusyears of master planned community development experience to replicate the success of The Woodlands at Bridgeland, which is in the early stages of itsdevelopment life cycle.Operating AssetsWe own 26 assets consisting of nine retail properties, six office properties, a resort and conference center, an exclusive golf and country club, six equityinvestments in commercial properties and three other assets currently generating revenues. We believe, based on a variety of factors, that there are opportunitiesto redevelop or reposition several of these assets, primarily the retail properties, to improve their operating performance. These factors include, but are notlimited to the following: (1) existing and forecasted demographics surrounding the property; (2) competition related to existing and/or alternative uses;(3) existing entitlements of the property and our ability to change them, compatibility of the physical site with proposed uses; and (4) environmentalconsiderations, traffic patterns and access to the properties. We believe that, subject to obtaining all necessary consents and approvals, these assets have thepotential for future growth by means of an improved tenant mix, additional gross leasable area (“GLA”), or repositioning of the asset for alternative use. Ourretail operating assets include approximately 2.7 million total square feet of GLA in the aggregate. Redevelopment plans for these assets may include office,retail or residential space, shopping centers, movie theaters, parking complexes and open space. Any future redevelopment will require the receipt of permits,licenses, consents and waivers from various parties and may include a reclassification of the asset to the Strategic Developments segment.Retail Operating AssetsWard Centers (Honolulu, Hawaii)Ward Centers is comprised of approximately 60 acres situated along Ala Moana Beach Park and is within one mile of Waikiki and downtown Honolulu. It isalso a ten minute walk from Ala Moana Center, Hawaii’s largest shopping center. Ward Centers currently includes a 630,000 square foot shopping districtcontaining six specialty centers and over 135 unique shops, a variety of restaurants and an entertainment center which includes a 16 8Table of Contentsscreen movie theater. In January 2009, the Hawaii Community Development Authority (“HCDA”) approved a 15-year master plan, which entitles us todevelop a mixed-use development encompassing a maximum of 9.3 million square feet, including up to 7.6 million square feet of residential. In January 2011,we executed a development agreement with the HCDA.During 2011, we completed a 722 stall parking deck that is expected to facilitate the leasing of additional space at Ward Centers and restarted construction ofapproximately 65,000 square feet of retail space adjacent to the garage. A tenant has already leased and taken possession of approximately 36,000 square feetof this new space. Ward Centers also includes approximately 374,000 square foot of industrial and office properties.In September 2011, we entered into a $250.0 million credit facility to support the redevelopment plan for Ward Centers. The loan initially funded $212.5million to refinance three existing mortgage loans and for closing costs. Prior to December 31, 2011, we borrowed an additional $7.5 million to fund capitalexpenditures at the property.South Street Seaport (New York, New York)South Street Seaport is comprised of two landmarked historic buildings, one non-historic structure and one pavilion shopping mall located on Pier 17 on theEast River in Manhattan. We also lease 24,000 square feet for sublet to retailers at the base of an adjacent 1.1 million square foot office tower. All of theproperty except the office tower retail space is subject to a lease with the City of New York. The total property includes 301,086 square feet of space,substantially all of which is retail.During December 2011, we entered into a letter of intent with the New York City Economic Development Corporation which enables us to pursueredevelopment plans for the South Street Seaport. The City of New York is the lessor and the letter of intent describes the business terms of futureamendments to the lease, the first of which must be finalized by June 30, 2012. The amendments to the lease will be effective upon achievement of certaindevelopment milestones, but generally become effective after all approvals have been obtained to begin construction. Once they are finalized, lease amendmentswill, among other things, eliminate any supplemental or participation rent the City of New York would be entitled to under the existing lease. Certain of theamendments also will permit us, subject to obtaining necessary approvals from other constituencies, to renovate the Pier 17 building. We will assume all Pier17 maintenance obligations as part of the amendment to permit the Pier 17 renovation. The letter of intent also sets several milestones for the Pier 17renovation, including a construction commencement date for Pier 17 no later than June 30, 2013. We agreed to pay approximately $1.1 million of themaintenance costs for the East River Esplanade maintenance, which is part of the South Street Seaport, over a five-year period as consideration for enteringinto the letter of intent. This obligation will continue to exist regardless of whether the lease is amended. Please refer to Note 14 of the audited financialstatements for more information regarding the letter of intent.Landmark Mall (Alexandria, Virginia)Currently anchored by Macy’s and Sears, Landmark Mall is an 879,262 square foot shopping mall located in affluent Alexandria, Virginia. This mall islocated just nine miles west of Washington, D.C. and the Pentagon, and is within approximately one mile of public rail service on D.C.’s metro blue line.Following a re-zoning effort that allows for the development of up to 5.5 million square feet, Landmark Mall has the potential to be developed into a dynamicdestination for shopping, dining, working and living. Any redevelopment of Landmark Mall will be dependent upon the Company reaching agreements withexisting anchor tenants.Park West (Peoria, Arizona)Park West is a 249,168 square foot open-air shopping, dining and entertainment destination in Peoria, Arizona. Park West is approximately one milenorthwest of the Arizona Cardinals’ football stadium and the Phoenix Coyote’s hockey arena. Park West has an additional 100,000 square feet of availabledevelopment rights as permitted for retail, restaurant and hotel uses. 9Table of ContentsRio West Mall (Gallup, New Mexico)Rio West Mall is located in Gallup, New Mexico. This 514,023 square foot shopping center is the only enclosed regional shopping center within a 125 mileradius, and is easily accessed from I-40 and historic Route 66.Riverwalk Marketplace (New Orleans, Louisiana)Riverwalk Marketplace is located along the Mississippi River in downtown New Orleans. The 193,874 square foot shopping center is comprised of more than100 local and national retail shops, restaurants and entertainment venues. It is adjacent to the New Orleans Memorial Convention Center and the AudubonAquarium of the Americas.Cottonwood Square (Salt Lake City, Utah)Cottonwood Square is a 77,079 square foot community center located in Salt Lake City, Utah. The center is located in a high traffic area and sits across fromour Cottonwood Mall, providing an opportunity for development synergies.20 & 25 Waterway Avenue (The Woodlands, Texas)20 & 25 Waterway Avenue are two retail properties located in The Waterway Square commercial district in The Woodlands Town Center. The properties total49,972 square feet and were completed in 2009 and 2007, respectively.Waterway Garage Retail (The Woodlands, Texas)Waterway Garage Retail is attached to The Waterway Square Garage located within The Woodlands Town Center. The property totals 21,260 square feet andwas completed in 2011 is currently available for lease.Office Operating Assets110 N. Wacker (Chicago, Illinois)We own a 99% joint venture interest in an entity that has a ground leasehold interest in the land underlying a 226,000 square foot office building located at110 N. Wacker Drive in downtown Chicago. The ground lease expires in 2055 and the building is 100% leased to a subsidiary of GGP through October2019. GGP has several options to extend their lease through the duration of the ground lease. We have the right to terminate GGP’s lease with six months’ noticefollowing the expiration of the initial term in 2019.We receive 100% of the annual lease payments made by the subsidiary of GGP. The amount totals approximately $6.1 million. As part of our joint ventureagreement, we remit a monthly payment of $31,250 to our partner through May 1, 2013.Columbia Office Properties (Columbia, Maryland)We own four office buildings and are a master tenant of a fifth office building. The office building ground lease has a 2020 initial expiration and a 2060 finalexpiration date, including market renewal options. The buildings comprise approximately 300,000 square feet in the heart of downtown Columbia including:(1) American City Building (master tenant); (2) the Columbia Association Building; (3) the Columbia Exhibit Building; (4) the Ridgley Building; and (5) theColumbia Regional Building. This group also contains the Merriweather Post Pavilion, an outdoor amphitheater and concert venue. Both the ColumbiaRegional Building and Merriweather Post Pavilion were designed by Frank Gehry. Columbia, Maryland is located 14 miles from the Baltimore Beltway and17 miles from the Washington Beltway. 10Table of Contents4 Waterway Square (The Woodlands, Texas)4 Waterway Square is a nine-story Class A office building located within The Woodlands Town Center. The property totals 218,551 square feet and wascompleted in 2010.9303 New Trails (The Woodlands, Texas)9303 New Trails is a four-story Class B office building located within the Research Forest district of The Woodlands. The property totals 97,705 square feetand was completed in 2008.1400 Woodloch Forest Drive (The Woodlands, Texas)1400 Woodloch Forest Drive is a five-story Class B office building located at the entrance to The Woodlands Town Center. The property totals 95,667 squarefeet and was completed in 1981.2201 Lake Woodlands Drive (The Woodlands, Texas)2201 Lake Woodlands Drive is a two-story Class C office building located in the East Shore commercial district of The Woodlands. The property totals24,024 square feet and was completed in 1994.Resort and Conference Center and Country Club Operating AssetsThe Woodlands Resort & Conference Center (The Woodlands, Texas)The Woodlands Resort and Conference Center is located approximately two miles south of The Woodlands Town Center. The property operates 440 hotelrooms, has 60,000 square feet of meeting space and the latest phase was completed in 2002. For the year ended December 31, 2011, the property generatedrevenue per available room of $95.73.The Club at Carlton Woods (The Woodlands, Texas)The Club at Carlton Woods is located within one of the most exclusive communities in The Woodlands. It contains an 18-hole Jack Nicklaus Signature GolfCourse and an 18-hole Tom Fazio Championship Course, in addition to two clubhouses, spa, tennis, and fitness facilities.Equity Investments and Other Operating AssetsWaterway Square Garage (The Woodlands, Texas)The wholly owned Waterway Square Garage, located within The Woodlands Town Center, is a five-story parking garage that contains 1,942 parking spacesand 21,260 square foot of retail space. The garage was completed in 2009 and the retail space is classified under our Operating Assets segment.The Millennium Waterway Apartments (The Woodlands, Texas)We have an 83.55% economic interest in a 393-unit apartment building located within The Woodlands Town Center. The property was completed in 2010 as apartnership with The Dinerstein Companies. We account for our interest in The Millennium Waterway Apartments as a non-consolidated investment using theequity method.Forest View/Timbermill Apartments (The Woodlands, Texas)Forest View apartments is a 216 unit, multi-family rental community developed in 1994 under the Federal Low-income Housing Tax Credit Program(“FLHTCP”). Timbermill apartments is a 256 unit multi-family rental community developed in 1993 under the FLHTCP. We have 50% cash flow interest inthese investments as well as receive a five percent management fee. These investments are under contract for sale, and we expect to receive proceeds in theamount of $8.6M. 11Table of ContentsInterest in Head Acquisition (Hexalon)We own 100% of the ownership interests in Hexalon Real Estate, LLC (“Hexalon”). Hexalon owns a 1.42% interest in Head Acquisition, LP, a joint venturebetween GGP, Simon Property Group, L.P. and Westfield Group. The partnership owns certain retail mall interests. Hexalon receives a quarterly preferredinterest distribution from Head Acquisition, L.P. which totaled approximately $321,000 in 2011. The entity possesses significant tax attributes that we couldutilize to reduce future taxable income. These attributes are expected to reduce our tax liability by approximately $75.5 million (net of a valuation allowance asof December 31, 2011), subject to potential offset provided in the Tax Matters Agreement between us and GGP. Our annual taxable income will determine howour tax liability is reduced each year. This tax attribute carries over indefinitely until it is fully utilized.Woodlands Sarofim #1 Limited (The Woodlands, Texas)We own a 20% interest in three office/industrial buildings located in The Woodlands Research Forest district within The Woodlands. The portfolio contains132,050 square feet and various phases were constructed between the late 1980’s and 2002.Interest in Summerlin Hospital Medical Center (Las Vegas, Nevada)We have an indirect ownership interest of approximately 6.8% in the Summerlin Hospital Medical Center. This property is a 450-bed hospital located on a 32-acre medical campus near Las Vegas. Summerlin Hospital Medical Center is located in our Summerlin master planned community. It is an acute care facilitywith adjoining outpatient services for surgery, laboratory and radiology, as well as two medical office buildings. The hospital completed a major renovation in2009 that expanded the hospital to 450 beds (from 281 beds) and added a new six-story patient tower, an expanded emergency room, a four-story, 80,000square foot medical office building and a 600-space parking garage.The property’s majority owner and operator is a subsidiary of Universal Health Services, Inc. (“UHS”), one of the largest healthcare management companiesin the nation. UHS and our predecessors formed a joint venture to build and manage the hospital. Our predecessors contributed the land and UHS providedthe funds to build the hospital. The ownership structure entitles us to a pro rata share of the cumulative undistributed profit in the hospital. We typicallyreceive a distribution one time per year during the first quarter. During 2011, we received a $3.9 million distribution, of which approximately $2.0 millionwas related to 2010 and $1.9 million was deferred from prior years due to the renovation and expansion of the hospital noted above.Interest in Stewart Title (The Woodlands, Texas)We own a 50% interest in Stewart Title, a company located in The Woodlands which handles a majority of the residential and commercial land sale closingsfor The Woodlands.Note Approximating Office Lease PaymentsWe receive payments approximating the capital lease revenue that GGP receives from the Arizona 2 Office in Phoenix, Arizona. These payments totalapproximately $6.9 million per year through the end of 2015 and are recorded as interest income and principal amortization. The underlying real propertyinterests in the Arizona 2 Office will continue to be owned by GGP, and we will not own or obtain any real property interest therein or have any rights to receivepayments after 2015. The right to receive these payments is in the form of a promissory note issued by a subsidiary of GGP.Participation Interest in Golf Courses at Summerlin and TPC Las Vegas, located in the Summerlin Master Planned Community (Las Vegas,Nevada)We are entitled to receive residual payments from the Professional Golfers’ Association of America (the “PGA”) with respect to two golf courses, the TPCSummerlin and the TPC Las Vegas, through October 31, 2021. We 12Table of Contentsreceive 75% of the net operating profits and 90% of all profits from membership sales at TPC Summerlin until such time as the original investment in thecourses of $23.5 million has been recouped, which is projected to occur no sooner than 2015. As of December 31, 2011, the remaining balance on ourinvestment is approximately $6.6 million, approximately $4.3 million greater than our $2.3 million net book value at December 31, 2011. Once we havereceived payments from the PGA totaling $23.5 million, we are entitled to receive 20% of all net operating profits from the two courses through October 31,2021, the termination date of the agreement with the PGA. The TPC Summerlin is an 18-hole private championship course designed by golf course architectBobby Weed with player consultant Fuzzy Zoeller. TPC Las Vegas is an 18-hole public championship course designed by golf course architect Bobby Weedwith player consultant Raymond Floyd. These courses represent the only two golf courses in Nevada that are owned and operated by the PGA Tour.Strategic DevelopmentsOur Strategic Developments segment is made up of near, medium and long-term real estate properties and development projects. At present, we believe theseassets will require substantial future development to achieve their highest and best use. We are in the process of creating strategic plans for each of these assetsbased on market conditions and availability of capital. The new plans may differ significantly from our predecessors. To be able to realize a development planfor any of these assets, in addition to the permitting and approval process attendant to almost all large-scale real estate developments of this nature, we willlikely need to obtain financing.The following table summarizes our strategic development projects as of December 31, 2011: Asset Location GLA Size (Acres) Net Book Value,December 31, 2011(Millions) AcquisitionYear Ala Moana Condo Project Honolulu, HI — — $22.9 2002 Bridges at Mint Hill Charlotte, NC — 162 12.6 2007 Columbia Parcel D Columbia, MD — 4 3.0 — 3 Waterway Square Houston, TX 232,774(a) 0.825 0.2 2012 Alameda Plaza Pocatello, ID 190,341 22 2.3 2002 AllenTowne Allen, TX — 238 25.4 2006 Century Plaza Birmingham, AL 169,072 63 4.5 1997 Circle T Ranch and Power Center Dallas/Ft. Worth, TX — 279 18.0 2005 Cottonwood Mall Holladay, UT 6,600 54 19.6 2002 Elk Grove Promenade Elk Grove, CA — 100 5.5 2003 Fashion Show Air Rights Las Vegas, NV — — — 2004 Kendall Town Center Kendall, FL — 75 17.5 2004 Lakemoor (Volo) Land Lakemoor, IL — 40 0.3 1995 Maui Ranch Land Maui, HI — 10 — 2002 Nouvelle at Natick Natick, MA — — 0.1 2007 Redlands Promenade Redlands, CA — 10 2.8 2004 The Shops at Summerlin Centre Las Vegas, NV — 106 35.8 2004 Village at Redlands Redlands, CA — 5 6.8 2004 West Windsor West Windsor, NJ — 658 20.7 2004 Total 598,787 1,827 $198.0 (a)3 Waterway Square development was announced in October 2011. After the announcement, the building size was increased to 232,774 square feet from192,000 square feet due to strong market demand. Construction is expected to begin during the first quarter 2012. 13Table of ContentsAla Moana Tower Condo Project (Honolulu, Hawaii)We own the rights to develop a residential condominium tower over a parking structure at Ala Moana Center in Honolulu, Hawaii pursuant to a condominiumproperty regime declaration. The declaration permits the construction of a first-class residential tower with approximately 18 stories, and requires, among otherthings, that the scope of work for the residential tower project will include certain street-level and sewer improvements. The plans and specifications for theresidential tower project will be subject to GGP’s review and reasonable approval per the declaration.During October 2011, our Company and two local developers formed a joint venture to explore the development of the luxury condominium tower. We and anentity jointly owned by the two development partners each own 50% of the venture. Unanimous consent of the partners is required for all major decisions andthe partners will equally fund all pre-development costs relating to the project. The venture is responsible for all pre-development activities, as well as forobtaining construction financing for the project. The venture also intends to raise third party capital to fund up to 80% of the equity required for the project.Our partner’s joint venture entity has committed to contribute at least 10% of the required equity and we will obtain a 10% equity interest in the venture inexchange for our contribution of the condominium rights. We have retained the right to sell the condominium rights any time prior to obtaining a commitmentfrom third party equity investors to fund up to 80% of the required equity capital. In the event we sell the condominium rights to a third party prior tocompleting the third-party equity raise, our partners would be entitled to 20% of the net sale proceeds in excess of the sum of $47.5 million, and the actualamount of pre-development costs incurred prior to such sale. Our book value of the Ala Moana condominium rights was $22.9 million as of December 31,2011.Bridges at Mint Hill (Charlotte, North Carolina)This property consists of vacant land located southeast of Charlotte, North Carolina, in the middle of some of the fastest growing areas in the Charlotteregion. The parcel is approximately 162 acres and consists of 120 developable acres and is currently zoned for approximately 997,000 square feet of retail,hotel and commercial development. The land is divided by a small stream known as Goose Creek. The current zoning plan contemplates connecting the tworesulting parcels with two bridges over the creek. Development will require construction of internal roadways, connecting bridges, expansion of roads and aninstallation of a force main (offsite) and pump station (onsite) for sewer utility. The Mint Hill parcel is adjacent to a 52-acre parcel owned by a Charlotte-basedregional developer. The developer’s parcel has been approved for up to 270,000 square feet of space and is expected to be anchored by three to five junior boxretailers.During 2011, we entered into a joint venture with the owner of land adjacent to our property to develop a shopping center on our properties. The parties haveagreed to contribute their respective properties free of any encumbrances to the venture by October 31, 2012. Our partner’s land is currently encumbered by a$4.5 million mortgage. If the appraised fair market value of our partner’s land as of the contribution date is equal to or greater than $4.5 million and themortgage has not been repaid, then we will be required to contribute $4.5 million cash to the venture (in addition to our land) to repay the mortgage. If theappraised fair market value is less than $4.5 million, then we must contribute the greater of $3.0 million or the appraised fair market value of the land. Ourpartner would then be required to contribute cash equal to the difference between the outstanding mortgage amount and our cash contribution, and in no eventmore than $1.5 million. Our initial ownership in the venture is 79.0%, and our ownership percentage could increase to 90.5% if we are required to make the$4.5 million cash contribution. Please refer to Note 6 of our audited financial statements included elsewhere in this Annual Report on Form 10-K for moreinformation regarding this joint venture.The joint venture entity entered into a development agreement with an affiliate of our partner, and both our partner and the Company will act as leasing agentsfor the project. We will fund the venture’s capital needs for operating expenses and development costs. Such amounts will be senior to the initial contributedcapital and will accrue at 12% per annum compounded return. 14Table of Contents3 Waterway Square (The Woodlands, Texas)In late October 2011, we announced the construction of a new nine-story, 192,000 square foot office building that will be located in The Woodlands TownCenter adjacent to the 4 Waterway Square office building. Subsequent to the announcement of the 3 Waterway Square office building, due to high demand forClass A office space in The Woodlands, the building size was recently increased to eleven stories and will now total 232,774 square feet. Approximately67.0% of the space has been leased as of February 17, 2012, and average net base rent for the first year is expected to be in excess of $26.00 per square foot.The building is expected to cost approximately $51.4 million to construct (excluding our estimated land value and pre-existing garage allocation). We closed ona $43.3 million non-recourse construction loan for 3 Waterway Square in the first quarter of 2012.Alameda Plaza (Pocatello, Idaho)Alameda Plaza is located in Pocatello, Idaho at the intersection of Yellowstone Park Highway and Alameda Road. The 22-acre site contains 190,341 square feetof mostly vacant retail space. We are exploring a potential sale of this asset.AllenTowne (Allen, Texas)AllenTowne consists of 238 acres located at the high-traffic intersection of Highway 121 and U.S. Highway 75 in Allen, Texas, 27 miles northeast ofdowntown Dallas. We are considering plans to best position the property for the opportunities presented by evolving market conditions.Century Plaza (Birmingham, Alabama)Century Plaza is located on the eastern side of Birmingham, Alabama, on U.S. Route 78 (Crestwood Blvd.) near Interstate 20, across from Eastwood Village.In May 2009, the mall was shuttered. The site consists of approximately 63 acres with 750,000 of GLA.Columbia Parcel D (Columbia, Maryland)In October 2011, we entered into a joint venture with a local developer to construct an approximate 375 unit Class A apartment building with approximately10,000 square feet of ground floor retail space in downtown Columbia, Maryland. We contributed its 4.2 acre site, having a $3.0 million book value, to thejoint venture. The transaction values the Company’s land at $53,500 per to-be-constructed unit, or $20.1 million, based on 375 units. The Company and itspartner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions. We are responsible for obtaining certainentitlements for the project, and our partner will provide construction and property management services, including the funding and oversight of pre-development activities and obtaining construction financing. Our partner, with limited exceptions, is required to cover any project cost overruns and to provideall guarantees or other recourse obligations as may be required under the construction financing. At any time after the stabilization of the property, either us orour partner may offer to sell the project to an unrelated third party, subject to the other party’s right of first refusal. When the venture closes on the constructionloan and upon completion of certain other conditions, including obtaining all of the necessary entitlements, completed site development and construction plans,and an approved project budget, the partner will be required to contribute cash to the venture which, after valuing the our contributed land at $53,500 per unitand considering total expected project costs less financing proceeds, will enable the venture to make a cash distribution to the us to equalize the partners’capital accounts. We have the right to purchase its partner’s equity interest in the venture for $10.00 if the conditions noted above have not been met byOctober 27, 2013, so long as such failure was not caused by us. 15Table of ContentsCircle T Ranch and Circle T Power Center (Dallas-Fort Worth, Texas)Located at the intersection of Texas highways 114 and 170, Circle T Ranch is 20 miles north of downtown Fort Worth, in Westlake, Texas. The property isapproximately 279 total acres on two parcels. The Circle T Ranch parcel contains 128 acres while the Circle T Power Center parcel contains 151 acres. Wehave a 50% joint venture ownership interest with a local developer.Cottonwood Mall (Holladay, Utah)Located 7.5 miles from downtown Salt Lake City, in the city of Holladay, Utah, Cottonwood Mall is a unique infill development opportunity. In 2008, workbegan on a complete redevelopment of the 54-acre site, but development was delayed due to the changing economic environment. The original mall wascompletely demolished with the exception of Macy’s which continues to operate as a stand-alone store on the site. The project is entitled for 575,000 square feetof retail, 195,000 square feet of office and 614 residential units. We are exploring the feasibility of a mixed-use development and are soliciting retailer interestin the site.Kendall Town Center (Kendall, Florida)Kendall Town Center is part of a 158-acre site located at the intersection of North Kendall Drive and SW 158th, approximately 20 miles southwest ofdowntown Miami. A 31 acre parcel was sold to Baptist Hospital in March 2008, and a 282,000 square foot hospital with 133 beds, along with a 62,000square foot medical office building, opened in 2011. In 2011, we sold 5 acres and 18 acres in 2009.Those parcels are expected to include a 120 room hotelwith ancillary office and retail, office space and a senior housing development. We own the remaining 75 acres, which are currently entitled for 621,300square feet of retail, 60,000 square feet of office space, and a 50,000 square foot community center.Elk Grove Promenade (Elk Grove, California)Elk Grove Promenade was originally planned as a 1.1 million square foot outdoor shopping center on approximately 100 acres. Construction of the site beganin 2007, but was delayed due to changing economic conditions. Located approximately 17 miles southeast of Sacramento, the location affords easy access andvisibility from State Highway 99 at Grant Line Road. Plans for the site are being evaluated in light of evolving market conditions.Fashion Show Air Rights (Las Vegas, Nevada)We entered into a binding set of core principles with GGP pursuant to which we will have the right to acquire for nominal consideration an 80% ownershipinterest in the air rights above the portions of Fashion Show Mall located on the Las Vegas Strip. This right is contingent upon the satisfaction of a number ofconditions and will not become effective unless and until the existing loans and guaranties of Fashion Show Mall and The Shoppes at the Palazzo are satisfiedin full, which is currently expected to occur with the scheduled repayment in May 2017.Lakemoor (Volo) Land (Lakemoor, Illinois)This 40-acre vacant land parcel is located on Route 12 which is located 50 miles north of Chicago in a growing suburb. The project has no utilities in place,but is located near two planned regional centers.Maui Ranch Land (Maui, Hawaii)This site consists of two, non-adjacent, ten-acre undeveloped land-locked parcels located near the Kula Forest Preserve on the island of Maui, Hawaii. Theland currently is zoned for native vegetation. There is no ground right of way access to the land and there is no infrastructure or utilities currently in thesurrounding area. Accordingly, only a nominal value was ascribed to these parcels when they were acquired by our predecessors in conjunction with thepurchase of Ward Centers. 16Table of ContentsNouvelle at Natick Condominium (Natick, Massachusetts)Nouvelle at Natick is a full service luxury condominium community comprised of 215 residences located in the Natick Collection in the Boston suburb ofNatick, Massachusetts. Nouvelle at Natick’s amenities include a 4,000 square foot private club, a 2,800 square foot fitness center and a 1.2-acre rooftopgarden with winding boardwalks, native grasses, flowers and trees. During 2011, 57 units were sold for $22.1 million. Two units remain for sale as ofDecember 31, 2011.Redlands Promenade (Redlands, California)Redlands Promenade is a ten acre site located at Eureka and the I-10 freeway off ramp in Redlands, California. The project is entitled for 125,000 square feetof retail development.The Shops at Summerlin Centre (Las Vegas, Nevada)Construction of The Shops at Summerlin Centre began in 2008, but was delayed due to changing market conditions. The development project fronts Interstate215 between Sahara Drive and Charleston Boulevard approximately nine miles west of the Las Vegas Strip. Originally planned for approximately 1.5 millionsquare feet of retail and office development, the 106 acre parcel is part of a 1,300 acre mixed-use town center for the Summerlin Master Planned Community.The project has the potential to be developed with retail, office, hotel and multifamily residential. We are evaluating alternative designs for a mixed use projecton this site that should incorporate many of the infrastructure improvements made by our former parent. We are also soliciting anchor and in-line retailerinterest in the project.Village at Redlands (Redlands, California)The Redlands Mall is a single-level, 174,787 square foot enclosed shopping center at the intersection of Redlands Boulevard and Orange Street. Currentlyanchored by CVS, Denny’s and Union Bank, the site is located in downtown Redlands two blocks south of the Redlands Promenade site. The interior portionof the mall closed in September 2010. Originally envisioned as a mixed-use retail and residential redevelopment, plans for the future of Redlands Mall are beingevaluated in light of evolving market conditions.West Windsor (West Windsor, New Jersey)West Windsor is a former Wyeth Agricultural Research & Development Campus on Quakerbridge Road and U.S. Route One near Princeton, New Jersey. Theland consists of 658 total acres comprised of two large parcels which are bisected by Clarksville Meadows Road and a third smaller parcel. Zoning,environmental and other development factors are currently being addressed in conjunction with a feasibility study of the site.CompetitionThe nature and extent of the competition we face depends on the type of property involved. With respect to our master planned communities, we compete withother landholders and residential and commercial property developers in the development of properties within Las Vegas, Nevada and Houston, Texas and theBaltimore/Washington, D.C. markets. Significant factors which we believe allow us to compete effectively in this business include: • the size and scope of our master planned communities; • the recreational and cultural amenities available within the communities; • the commercial centers in the communities, including those retail properties that we own and/or operate or may develop; • our relationships with homebuilders; • our level of debt relative to total assets; and • the proximity of our developments to major metropolitan areas. 17Table of ContentsWe primarily compete for retail and office tenants within our Operating Assets. We believe the principal factors that retailers consider in making their leasingdecisions include: (1) consumer demographics; (2) quality, design and location of properties; (3) neighboring real estate projects that have been developed byour predecessors or that we, in the future, may develop; (4) diversity of retailers and anchor tenants at shopping center locations; (5) management andoperational expertise; and (6) rental rates.With respect to malls and development projects, our direct competitors include other commercial property developers, retail mall development and operatingcompanies and other owners of retail real estate that engage in similar businesses. With respect to our mixed-use development projects, we also will be requiredto compete for financing.Environmental MattersUnder various federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxicsubstances on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence ofsuch hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or thefailure to promptly remediate such substances, may adversely affect the owner’s ability to sell such real estate or to borrow using such real estate as collateral.In connection with our ownership and operation of our properties, we, or the relevant joint venture through which the property is owned, may be potentiallyliable for such costs.Substantially all of our properties have been subject to Phase I environmental assessments, which are intended to evaluate the environmental condition of thesurveyed and surrounding properties. Phase I environmental assessments typically include a historical review, a public records review, a site visit andinterviews, but do not include soil sampling or subsurface investigations. To date, the assessments have not revealed any known environmental liability thatwe believe would have a material adverse effect on our overall business, financial condition or results of operations. Nevertheless, it is possible that theseassessments do not reveal all environmental liabilities or that the conditions have changed since the assessments were prepared (typically at the time theproperty was purchased or developed). Moreover, no assurances can be given that future laws, ordinances or regulations will not impose any materialenvironmental liability on us, or the current environmental condition of our properties will not be adversely affected by tenants and occupants of theproperties, by the condition of properties in the vicinity of our properties (such as the presence on such properties of underground storage tanks) or by thirdparties unrelated to us.Future development opportunities may require additional capital and other expenditures to comply with federal, state and local statutes and regulations relatingto the protection of the environment. In addition, there is a risk when redeveloping sites, that we might encounter previously unknown issues that requireremediation or residual contamination warranting special handling or disposal, which could affect the speed of redevelopment. In addition, whereredevelopment involves renovating or demolishing existing facilities, we may be required to undertake abatement and/or the removal and disposal of buildingmaterials or other remediation or cleanup activities that contain hazardous materials. We may not have sufficient liquidity to comply with such statutes andregulations or to address such conditions and may be required to halt or defer such development projects. We cannot predict with any certainty the magnitudeof any such expenditures or the long-range effect, if any, on our operations. Compliance with such laws has not had a material adverse effect on ourpredecessors’ operating results or competitive position in the past, but could have such an effect on our operating results or competitive position in the future.EmployeesAs of December 31, 2011, we had approximately 835 employees. 18Table of ContentsAvailable InformationWe maintain an internet website at www.howardhughes.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available and may be accessed free of charge through the Investors section of our internet website under the SECFilings subsection, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. Our internet website and included orlinked information on the website are not intended to be incorporated into this Annual Report on Form 10-K.ITEM 1A. RISK FACTORSThe risks and uncertainties described below are those that we deem currently to be material, and do not represent all of the risks that we face.Additional risks and uncertainties not presently known to us or that we currently do not consider material may in the future become material andimpair our business operations. If any of the following risks actually occur, our business could be materially harmed, and our financial condition andresults of operations could be materially and adversely affected. Our business, prospects, financial condition or results of operations could bematerially and adversely affected by the following:Risks Related to our BusinessWe have a history of losses and may not be profitable in the future.Prior to November 9, 2010, our historical combined financial data was carved-out from the financial information of GGP. This data shows that had we been astand-alone company, we would have had a history of losses. We cannot assure you that we will achieve sustained profitability going forward. For the yearsended December 31, 2010 and 2009, we incurred losses from continuing operations of $69.2 million and $702.9 million, respectively. The losses fromcontinuing operations subsequent to our spin-off from GGP were primarily due to significant impairment losses due to revised operating strategies by the newmanagement team for certain of our assets and warrant liability expenses related to our sponsors and new management team. In addition, for the years endedDecember 31, 2010 and 2009, net cash used in operating activities was $67.9 million and $17.9 million, respectively, whereas for the year endedDecember 31, 2011, cash provided by operations was $86.5 million. If we cannot improve our profitability or generate positive cash flow from our operatingactivities, the trading value of our common stock may decline.We have minimal operating history as an independent company upon which investors can evaluate our performance, and accordingly, ourprospects must be considered in light of the risks that any newly independent public company encounters.We have a limited operating history as an independent public company. There can be no assurance that we will be able to successfully implement our businessplan. Further, at this early stage of our operation, we face certain risks and uncertainties frequently encountered by new companies in an intensely competitiveindustry. Our prospects must be considered in light of these risks.We may face potential difficulties in obtaining operating and development capital.The successful execution of our business strategy will require us to obtain substantial amounts of operating and development capital. Sources of such capitalcould include bank borrowings, public and private offerings of debt or equity, or sale of certain assets and joint ventures with one or more third parties. Inrecent years, it has been difficult for companies with substantial profitable operating histories to source capital for real estate development and acquisitionprojects, as well as basic working capital needs. Although the capital markets have shown signs of improving, we may be unable to obtain financing in thefuture and financing we are able to secure may only be available on unfavorable terms. 19Table of ContentsA prolonged recession in the national economy, or a further downturn in national or regional economic conditions, could adversely impact ourbusiness.The collapse of the housing market, together with the crisis in the credit markets, have resulted in prolonged high unemployment, a lower gross domesticproduct and reduced consumer spending. During such times, potential customers often defer or avoid real estate purchases due to the substantial costsinvolved, causing land and other real estate prices to significantly decline. Significantly tighter lending standards for borrowers are also having a significantnegative effect on demand. A record number of homes are in foreclosure and forced sales by homeowners under distressed economic conditions aresignificantly contributing to the high levels of inventories of lots available for sale in some of our master planned communities.The housing market and the demand from builders for lots vary depending on location. Projected lot sales used in our feasibility analysis may not be met. Inaddition, the success of our master planned communities business is heavily dependent on local housing markets in Las Vegas, Nevada, Houston, Texas andBaltimore, Maryland/Washington, D.C., which in turn are dependent on the health and growth of the economies and availability of credit in these regions.We do not know how long the downturn in the residential and commercial real estate markets will last or when real estate markets will return to more stableand predictable conditions. High unemployment, lack of consumer confidence and other adverse conditions in the current economic environment couldsignificantly delay a recovery in real estate markets. Our business may suffer until market conditions improve. If market conditions were to worsen, thedemand for our real estate products could further decline, negatively impacting our earnings, cash flow and liquidity. A prolonged low growth or recessionaryperiod could have a material adverse effect on our business, results of operations and financial condition.We may be unable to develop and expand our properties in our Strategic Developments segment.Our business objective in our Strategic Developments segment is to develop and redevelop our properties, which we may be unable to do if we do not have orcannot obtain sufficient capital to proceed with planned development, redevelopment or expansion activities. In addition, the construction costs of a project,including labor and materials may exceed original estimates or available financings. We may be unable to obtain anchor store, mortgage lender and propertypartner approvals that are required for any such development, redevelopment or expansion. We may abandon redevelopment or expansion activities alreadyunder way that we are unable to complete, which may result in charge-offs of costs previously capitalized. In addition, if redevelopment, expansion orreinvestment projects are unsuccessful, the investment in such projects may not be fully recoverable from future operations or sale resulting in impairmentcharges.Development of properties in our Strategic Developments segment entails a lengthy, uncertain and costly entitlement process.Approval to develop real property entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requiresdiscretionary action by local governments. This process is often political and uncertain. Real estate projects must generally comply with local landdevelopment regulations and may need to comply with state and federal regulations. The process to comply with these regulations is usually lengthy andcostly, may not result in the approvals we seek, and can be expected to materially affect our Strategic Developments segment activities.Our Master Planned Communities segment is highly dependent on homebuilders.We are highly dependent on our relationships with homebuilders to purchase lots at our master planned communities. Our business will be adversely affectedif homebuilders do not view our master planned communities as desirable locations for homebuilding operations. Also, some homebuilders may be unwillingor unable to close on previously committed lot purchases. As a result, we may sell fewer lots and may have lower sales revenues, which could have an adverseeffect on our financial position and results of operations. 20Table of ContentsOur results of operations in our Operating Assets and Strategic Developments segments are subject to significant fluctuation by various factorsthat are beyond our control.Our results of operations in our Operating Assets and Strategic Developments segments are subject to significant fluctuations by various factors that arebeyond our control. Fluctuations in these factors may decrease or eliminate the income generated by a property, and include: • the regional and local economy, which may be negatively impacted by plant closings, material relocation by residents industry slowdowns,increased unemployment, lack of availability of consumer credit, levels of consumer debt, housing market conditions, adverse weatherconditions, natural disasters and other factors; • local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the availability andcreditworthiness of current and prospective tenants; • perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property; • the convenience and quality of competing retail properties and other retailing options such as the internet; • our ability to lease space, collect rent and attract new tenants; and • tenant rental rates, which may decline for a variety of reasons, including the impact of co-tenancy provisions in lease agreements with certaintenants.A decline in our results of operations in our Operating Assets and Strategic Developments segments could have a negative impact on the trading price of ourcommon stock.The Houston, Texas economy is highly dependent on the energy sectorThe greater Houston area is home to a large amount of energy companies. A decline in the prices of oil and natural gas could have a significant negative effecton the performance of energy companies and may lead to layoffs. A decrease in economic activity and increased unemployment levels in Houston maynegatively affect The Woodlands and Bridgeland by decreasing demand for housing and commercial space.Significant competition could have an adverse effect on our business.The nature and extent of the competition we face depends on the type of property involved. With respect to our master planned communities, we compete withother landholders and residential and commercial property developers in the development of properties within the Las Vegas, Nevada, Houston, Texas andBaltimore/Washington, D.C. markets. A number of residential and commercial developers, some with greater financial and other resources, compete with us inseeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability toattract purchasers and sell residential and commercial real estate, sell undeveloped rural land, attract and retain experienced real estate development personnel,or obtain construction materials and labor. These competitive conditions can make it difficult to sell land at desirable prices and can adversely affectoperations, financial condition or results of operations.There are numerous shopping facilities that compete with our operating retail properties in attracting retailers to lease space. In addition, retailers at theseproperties face continued competition from other retailers, including retailers at other regional shopping centers, outlet malls and other discount shoppingcenters, discount shopping clubs, catalog companies, internet sales and telemarketing. Competition of this type could adversely affect our results of operationsand financial condition.In addition, we will compete with other major real estate investors with significant capital for attractive investment and development opportunities. Thesecompetitors include REITs, investment banking firms and private institutional investors. 21Table of ContentsOur business model includes entering into joint venture arrangements with strategic partners. This model may not be successful and ourbusiness could be adversely affected if we are not able to successfully attract desirable strategic partners or complete agreements with strategicpartners or if our strategic partners fail to satisfy their obligations to the joint venture.We currently have and intend to enter into further joint venture partnerships. These joint venture partners may bring local market knowledge andrelationships, development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or other competitiveassets. In the future, we may not have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners whowant to conduct business in the locations where our properties are located, and who have the assets, reputation or other characteristics that would optimize ourdevelopment opportunities.While we generally participate in making decisions for our jointly owned properties and assets, we might not always have the same objectives as the partner inrelation to a particular asset, and we might not be able to formally resolve any issues that arise. In addition, actions by a partner may subject property ownedby the joint venture to liabilities greater than those contemplated by the joint venture agreements or have other adverse consequences. We cannot control theultimate outcome of any decision made, which may be detrimental to our interests. Some of our interests, such as the Summerlin Medical Hospital Center, arecontrolled entirely by our partners.The bankruptcy of one of the other investors in any of our properties could materially and adversely affect the relevant property or properties. If this occurred,we would be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in most cases, entail priornotice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or might want to take. If therelevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy of one of the other investorsmight result in our ultimate liability for a greater portion of those obligations than would otherwise be required.If the recoverable values of our remaining inventory of real estate assets were to drop below the book value of those properties, we would berequired to write-down the book value of those properties, which would have an adverse effect on our balance sheet and our earnings.Adverse market conditions, in certain circumstances, may require the book value of real estate assets to be decreased, often referred to as a “write-down” or“impairment.” A write-down of an asset would decrease the value of the asset on our balance sheet and would reduce our earnings for the period in which thewrite-down is recorded.Although we did not record any impairment charges in 2011, we recorded impairment charges of $503.4 million and $680.3 million for the years endedDecember 31, 2010 and 2009, respectively. If market conditions were to continue to deteriorate, and the recoverable values for our real estate inventory andother project land were to fall below the book value of these assets, we could be required to take additional write-downs of the book value of those assets andsuch write-downs could be material.Indebtedness could have an adverse impact on our financial condition and operating flexibility.As of December 31, 2011, our consolidated debt was approximately $606.5 million, of which $7.0 million is recourse. Our share of the debt of our RealEstate Affiliates is $43.7 million. Our indebtedness, particularly if increased over time, could have important consequences, including: • limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of businessstrategy or other purposes; • limiting our ability to use operating cash flow in other areas of the business or to pay dividends; • increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly given thatcertain indebtedness bears interest at variable rates; 22Table of Contents • limiting our ability to capitalize on business opportunities, reinvest in and develop their properties, and to react to competitive pressures andadverse changes in government regulation; • limiting our ability, or increasing the costs, to refinance indebtedness; and • giving secured lenders the ability to foreclose on assets.The derivative instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated withinterest rates.We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest rate swap agreements. There cannot beany assurance that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging of thesetransactions will not result in losses. Our policy is to use derivatives only to hedge interest rate risks related to our borrowings, not for speculative or tradingpurposes, and to enter into contracts only with major financial institutions based on their credit ratings and other factors. These hedging arrangements, whichcould include a number of counterparties, may expose us to additional risks, including failure of any of our counterparties to perform under these contracts,and may involve extensive costs, such as transaction fees or breakage costs, if we terminate them. Failure to hedge effectively against interest rate changes maymaterially adversely affect our results of operations.In addition, hedging instruments involve risks because the business failure of a hedging counterparty with whom we entered into a hedging transaction willmost likely result in the counterparty’s default on its obligation to pay. Further, the credit quality of the counterparty owing money on the hedge may bedowngraded to such an extent that it impacts our ability to sell or assign our side of the hedging transaction.Changes in our income tax estimates could affect our profitability.In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on ourinterpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of itemsfor tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets.Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state taxauthorities, and changes in tax laws and rates. To the extent adjustments are required in any given period, we include the adjustments in the tax provision inour financial statements. These adjustments could materially impact our financial position, cash flow and results of operations.We may not realize the value of our tax assets.We have tax assets. Certain provisions of the Internal Revenue Code could limit our ability to fully utilize the tax assets if there were to experience a “change ofcontrol”. If such an event were to occur, the cash flow benefits we might otherwise have would be eliminated.Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business andreputation to suffer.In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of ourtenants and business partners and personally identifiable information of our employees, in on our networks. The secure processing, maintenance andtransmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerableto attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and theinformation stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legalclaims or proceedings and liability under laws that protect the privacy of personal information, which could adversely affect our business. 23Table of ContentsSome of our directors are involved in other businesses including real estate activities and public and/or private investments and, therefore, mayhave competing or conflicting interests with us.Certain of our directors have and may in the future have interests in other real estate business activities, and may have control or influence over these activitiesor may serve as investment advisors, directors or officers. These interests and activities, and any duties to third parties arising from such interests andactivities, could divert the attention of such directors from our operations. Additionally, certain of our directors are engaged in investment and other activities inwhich they may learn of real estate and other related opportunities in their non-director capacities. Our Code of Business Conduct and Ethics applicable to ourdirectors expressly provides, as permitted by Section 122(17) of the Delaware General Corporation Law (the “DGCL”), that our non-employee directors are notobligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even ifthe opportunities are complementary to or in competition with our businesses. Accordingly, we have no expectation that we will be able to learn of or participatein such opportunities. If any potential business opportunity is expressly presented to a director exclusively in his or her director capacity, the director will notbe permitted to pursue the opportunity, directly or indirectly through a controlled affiliate in which the director has an ownership interest, without the approvalof the independent members of our board of directors.We are a holding company and depend on our subsidiaries for cash.We are a holding company, with no operations of our own. In general, we rely on our subsidiaries for cash and our operations are conducted almost entirelythrough our subsidiaries. Our ability to generate cash to pay our operating expenses is dependent on the earnings of and the receipt of funds from subsidiariesthrough dividends, distributions or intercompany loans. The ability of our subsidiaries to pay dividends or to make distributions or other payments to us willdepend on their respective operating results and may be restricted by, among other things, the laws of their respective jurisdiction of organization, regulatoryrequirements, agreements entered into by those operating subsidiaries and the covenants of any existing or future outstanding indebtedness that we or oursubsidiaries may incur. For example, the credit agreements entered into by certain of our subsidiaries for The Woodlands contain restrictions on their ability topay dividends and make distributions.We may face potential successor liability.We may be subject to successor liability based on previous actions of our predecessors. Such liability may arise in a number of circumstances, such as: (1) ifa creditor of our predecessors did not receive proper notice of the pendency of the GGP bankruptcy proceedings or the deadline for filing claims; (2) the injurygiving rise to, or source of, a creditor’s claim did not manifest itself in time for the creditor to file the creditor’s claim; (3) a creditor did not timely file thecreditor’s claim in such bankruptcy case due to excusable neglect; (4) we are found liable for our predecessors’ tax liabilities under a federal and/or state theoryof successor liability; or (5) the order of confirmation for the GGP bankruptcy plan is found to be procured by fraud. If we should become subject to suchsuccessor liability, it could materially adversely affect our business, financial condition and results of operations.Ineffective internal controls could impact the Company’s business and results of operations.Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of humanerror, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect to thepreparation and fair presentation of financial statements. If we fail to maintain the adequacy of its internal controls, including any failure to implementrequired new or improved controls, or if the Company experiences difficulties in their implementation, the Company’s business and operating results could beharmed and the Company could fail to meet its financial reporting obligations. 24Table of ContentsPossible terrorist activity or other acts of violence could adversely affect our financial condition and results of operations.Future terrorist attacks in the United States or other acts of violence may result in declining economic activity, which could harm the demand for goods andservices offered by tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease inretail demand could make it difficult to renew or re-lease properties at lease rates equal to or above historical rates. Terrorist activities or violence also coulddirectly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or of insurance generally, mightbe lower or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. To the extent thattenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under theirexisting leases. These acts might erode business and consumer confidence and spending and might result in increased volatility in national and internationalfinancial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of new or redevelopedproperties, and limit access to capital or increase the cost of capital.Some of our properties are subject to potential natural or other disasters.A number of our properties are located in areas which are subject to natural or other disasters, including hurricanes, floods, earthquakes and oil spills. Someof our properties are located in coastal regions, and would therefore be affected by increases in sea levels, the frequency or severity of hurricanes and tropicalstorms, or environmental disasters, whether such events are caused by global climate changes or other factors.Some potential losses are not insured.We carry comprehensive liability, fire, flood, earthquake, terrorism, extended coverage and rental loss insurance on all of our properties. We believe the policyspecifications and insured limits of these policies are adequate and appropriate. There are some types of losses, including lease and other contract claims,which generally are not insured. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital invested in aproperty, as well as the anticipated future revenue from the property. If this happens, we might remain obligated for any mortgage debt or other financialobligations related to the property.We may be subject to potential costs to comply with environmental laws.Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate andclean up hazardous or toxic substances released at a property and may be held liable to a governmental entity or to third parties for property damage orpersonal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination. These laws often impose liabilitywithout regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxic substances. The presence ofcontamination or the failure to remediate contamination may adversely affect the owner’s ability to sell or lease real estate or to borrow using the real estate ascollateral. Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event ofdemolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopments, and also govern emissions of and exposure toasbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with our ownership,operation and management of certain properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks orrelated claims.There is a risk of investor influence over our company that may be adverse to our best interests and those of our other stockholders.M.B. Capital Partners and certain of its affiliates (collectively, “M.B. Capital”), Pershing Square Capital Management, L.P. (“Pershing Square”) andBrookfield Retail Holdings LLC (“Brookfield”) beneficially own 11.2%, 9.4% and 6.4%, respectively, of our outstanding common stock (excluding sharesissuable upon the 25Table of Contentsexercise of warrants). Under the terms of our stockholder agreements, Pershing Square currently has the ability to designate three members of our board ofdirectors, and Brookfield currently has the ability to designate one member. As of December 31, 2011, there is no Brookfield designee on our board ofdirectors.Although Pershing Square has entered into a standstill agreement to limit its influence over us, the concentration of ownership of our outstanding commonstock held by M.B. Capital, Pershing Square, Brookfield and other substantial stockholders may make some transactions more difficult or impossiblewithout the support of these stockholders, or more likely with the support of these stockholders. The interests of our substantial stockholders could conflictwith or differ from the interests of our other stockholders. For example, the concentration of ownership held by M.B. Capital, Pershing Square andBrookfield, even if these stockholders are not acting in a coordinated manner, could allow M.B. Capital, Pershing Square and Brookfield to influence ourpolicies and strategy and could delay, defer or prevent a change of control or impede a merger, takeover or other business combination that may otherwise befavorable to us and our other stockholders.Certain of our directors have interests in GGP that may be adverse to our interests, limiting how we conduct business with GGP.Pershing Square holds material economic interests in GGP. Accordingly, we expect that a number of our directors may have, or appear to have, conflictinginterests relating to us and GGP. It may be important for us to do business with GGP in the future or to supplement or amend the initial agreements between usand the reorganized GGP as circumstances change. Actual or perceived conflicts of interest may decrease the effectiveness of our board of directors in dealingwith GGP. For example, directors with helpful expertise may be required or decide to recuse themselves from deliberation or voting on matters involving GGP,and certain transactions in our best interests may not be pursued at all because of the risk of an appearance of a conflict or other considerations.Risks Related to Spin-off.We may be required to pay substantial U.S. federal income taxes related to certain prior sales of assets in our Master Planned Communitiessegment.In connection with the spin-off, GGP has agreed to indemnify us from and against 93.75% of any losses, claims, damages, liabilities and reasonable expensesto which we become subject, in each case solely to the extent attributable to certain taxes related to sales of certain assets in our Master Planned Communitiessegment prior to March 31, 2010, in an amount equal to a maximum of $303.8 million, plus applicable interest. We will be responsible for the remainder ofany such taxes. GGP may not have sufficient cash to reimburse us for its share of these taxes described above. We have ongoing IRS audits related to theforegoing taxes that, whether resolved by litigation or otherwise, could impact the timing of the items subject to indemnification by GGP. In addition, if the IRSwere successful in litigation with respect to such audits, we may be required to change our method of tax accounting for certain transactions, which couldaffect the timing of our future tax payments, increasing our tax payments in the short term relative to our current tax cost projections.If the spin-off does not qualify as a tax-free distribution under Section 355 of the Internal Revenue Code, then GGP and its subsidiaries may berequired to pay substantial U.S. federal income taxes, and we may be obligated to indemnify GGP and its subsidiaries for such taxes.In connection with our spin-off, GGP received a private letter ruling from the IRS to the effect that the spin-off transactions qualified as tax-free to GGP and itssubsidiaries for U.S. federal income tax purposes. A private letter ruling from the IRS generally is binding on the IRS. Such IRS ruling does not establish thatthe spin-off satisfied every requirement for a tax-free spinoff, and the parties have relied solely on the advice of counsel for comfort that such additionalrequirements are satisfied.The IRS ruling is based on, among other things, certain representations and assumptions as to factual matters made by GGP. The failure of any factualrepresentation or assumption to be true, correct and complete in all 26Table of Contentsmaterial respects could adversely affect the validity of the IRS ruling at the time of and subsequent to the spin-off. In addition, the IRS ruling is based oncurrent law and cannot be relied upon if current law changes with retroactive effect. If the spin-off were to be treated as taxable, GGP and holders of GGP’scommon stock may be faced with significant tax liability with respect to the spin-off.We entered into a Tax Matters Agreement with GGP, pursuant to which GGP may be held liable for the cost of the failure of the spin-off to qualify as a tax-freedistribution if GGP caused such failure, whether by an action taken before or after the spin-off. If we caused such failure, whether by an action taken beforeor after the spin-off, we could be liable for such costs. If the cause for the failure cannot be determined or was not caused by a single party, then we and GGPwill share such liability based on relative market capitalization. Moreover, although we have agreed to share certain tax liabilities with GGP, we may be liableat law to a taxing authority for some of these tax liabilities and, if GGP were to default on their obligations to us, we would be responsible for the entire amountof these liabilities.In connection with the spin-off we entered into several agreements with GGP with respect to certain of our assets and we may have conflicts withGGP which could adversely affect our business.We may have economic or business interests that are divergent from GGPs in relation to a particular asset, and we may have disagreements with GGP withrespect to how these assets are managed and developed in the future.Risks Related to Our Common StockThe trading price of our common stock may fluctuate widely.We cannot predict the prices at which our common stock may trade. The market price of our common stock may fluctuate widely, depending upon manyfactors, some of which may be beyond our control, including: • our quarterly or annual earnings, or those of other comparable companies; • actual or anticipated fluctuations in our operating results and other factors related to our business; • announcements by us or our competitors of significant acquisitions or dispositions; • the failure of securities analysts to cover our common stock; • changes in earnings estimates by securities analysts or our ability to meet those estimates; • the operating and stock price performance of other comparable companies; • our ability to implement our business strategy; • our tax payments; • our ability to raise capital; • overall market fluctuations; and • general economic conditions.Further, M.B. Capital, Pershing Square and Brookfield may hold their investments for an extended period of time, thereby decreasing the number of sharesavailable in the market and creating artificially low supply for, and trading prices of our common stock. If one or more of these principal holders sell asignificant amount of our common stock, it could decrease the price of our common stock.Provisions in our certificate of incorporation, our by-laws, Delaware law, stockholder rights agreement and certain other agreements may preventor delay an acquisition of us, which could decrease the trading price of our common stock.Our certificate of incorporation and bylaws contain the following limitations: • the inability of our stockholders to act by written consent; 27Table of Contents • restrictions on the ability of stockholders to call a special meeting without 15% of more of the voting power of the issued and outstanding sharesentitled to vote generally in the election of our directors; • rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings; and • the right of our board of directors to issue preferred stock without stockholder approval.Additionally, our certificate of incorporation imposes certain restrictions on the direct or indirect transferability of our securities to assist in the preservation ofour valuable tax attributes (generally consisting of (1) approximately $400 million of suspended federal income tax deductions and (2) a relatively high federalincome tax basis in our assets), including, subject to certain exceptions, that until such time as our board of directors determines that it is no longer in our bestinterests to continue to impose such restrictions (i) no person or entity may acquire or accumulate the Threshold Percentage (as defined below) or more (asdetermined under tax law principles governing the application of section 382 of the Internal Revenue Code) of our securities, and (ii) no person owning directlyor indirectly (as determined under such tax law principles) on the date of our spin-off, after giving effect to the spin-off plan, the Threshold Percentage or moreof our securities may acquire additional securities of ours. Notwithstanding the restrictions in our certificate of incorporation, no assurance can be givenregarding our ability to preserve our tax attributes. Threshold Percentage means, in the case of (i) our common stock, 4.99% of the number of outstandingshares of our common stock and (ii) any other class of our equity, 4.99% of each such class.We have also implemented a so-called poison pill by adopting our stockholders rights agreement. The poison pill assists in the preservation of our valuable taxattributes by significantly increasing the costs that would be incurred by an unwanted third party acquirer if such party owns or announces its intent tocommence a tender offer for the Threshold Percentage or more of our securities. The stockholder rights agreement will automatically terminate if not approvedby our stockholders at our 2012 Annual Meeting of Stockholders and otherwise expires on March 14, 2015. All of these provisions could limit the price thatinvestors might be willing to pay in the future for shares of our common stock.There may be dilution of our common stock from the exercise of outstanding warrants, which may materially adversely affect the market price ofour common stock and negatively impact a holder’s investments.The exercise of some or all of the outstanding warrants to purchase shares of our common stock would materially dilute the ownership interest of our existingstockholders. Likewise, any additional issuances of common stock, through The Howard Hughes Corporation 2010 Equity Incentive Plan or otherwise, willdilute the ownership interests of our existing stockholders. Any sales in the public market of such additional common stock could adversely affect prevailingmarket prices of the outstanding shares of our common stock. In addition, the existence of our outstanding warrants may encourage short selling or arbitragetrading activity by market participants because the exercise of our warrants could depress the price of our common stock.Additional issuances and sales of our capital stock or securities convertible into or exchangeable for our capital stock, or the perception that suchissuances and sales could occur, may cause prevailing market prices for our common stock to decline and may adversely affect our ability to raiseadditional capital in the financial markets at a favorable time and price.Brookfield is subject to restrictions on its ability to sell our common stock and its warrants to acquire our common stock. After these restrictions expire,shares held by Brookfield may be sold in the public markets. The price of our common stock may drop significantly when such restrictions expire. Inaddition, certain of our substantial stockholders, including Brookfield and Pershing Square, have the right to purchase the number of our shares as necessaryto allow the stockholder to maintain its proportionate ownership interests on a fully diluted basis, for so long as the stockholder beneficially owns at least 5%of our outstanding common stock on a fully-diluted basis. 28Table of ContentsIn most circumstances, stockholders will not be entitled to vote on whether or not additional capital stock or securities convertible into or exchangeable for ourcapital stock is issued. In addition, depending on the terms and pricing of an additional offering of common stock or securities convertible into orexchangeable for our capital stock, and the value of our properties, stockholders may experience dilution in both the book value and the market value of theirshares. ITEM 1B.UNRESOLVED STAFF COMMENTSNone. ITEM 2.PROPERTIESOur principal executive offices are located in Dallas, Texas where we lease approximately 21,710 square feet under an arrangement that expires in 2021. Wealso maintain offices at certain of our properties as well as in Houston, Texas and in Los Angeles, California. We believe our present facilities are sufficient tosupport our operations.Our Master Planned Communities and our Strategic Developments assets are described above in Item 1. Business “Overview of Business Segments”. Thetables below summarize certain metrics of the properties within our Operating Assets segment as of December 31, 2011. Leases with our tenants at our realproperty retail operating asset locations within our Operating Assets segment generally include base rent and common area maintenance charges: Year Ended December 31, 2011 Property Location ExistingGrossLeasableArea Size(Acres) Net BookValue,December 31,2011(Millions) AverageAnnualTenantSales perSquareFoot(a) Mall andOtherRental NOI(000)(b) AverageSum ofRent andRecoverableCommonAreaCosts perSquareFoot(c) OccupancyCost(d) NOIMargin(e) AcquisitionYear Ward Centers Honolulu, HI 1,004,781(f) 60 $348.8 $542 $21,481 $62 11.4% 54.1% 2002 South Street Seaport New York, NY 301,086(g) 11 5.9 530 5,650 68 12.8% 32.5% 2004 Landmark Mall Alexandria, VA 440,325(h) 22 23.8 276 737 35 12.7% 15.0% 2004 Park West Peoria, AZ 249,168 48 79.6 291 576 23 7.9% 18.1% 2006 Rio West Gallup, NM 333,077(g)(i) 50 11.0 169 1,319 20 11.8% 39.0% 1981(j) Riverwalk Marketplace New Orleans, LA 193,874(g) 11 12.0 252 418 37 14.7% 6.7% 2004 Cottonwood Square Salt Lake City, UT (k) 77,079(l) 21 5.1 n.a. 380 n.a. n.a. 64.0% 2002 20/25 Waterway Avenue The Woodlands, TX 49,972 1 12.2 385 1,310 44 11.4% 68.3% 2011 Waterway Garage Retail The Woodlands, TX (m) 21,260(n) — 9.4 n.a. 7 n.a. n.a. 10.2% 2011 Total 2,670,622 224 $507.8 $31,878 (a)Average Annual Tenant Sales per Square Foot includes only inline tenants and excludes anchors, outparcels and specialty leasing tenants. The calculation is the sum of all comparable sales for the year endingDecember 31, 2011 for tenants that are contractually obligated to submit sales data, divided by the comparable square footage for the same period. We include in our calculations of comparable sales andcomparable square footage, properties that have been owned and operated for the entire time during the twelve month period and exclude properties at which significant physical or merchandising changes have beenmade. Inline Tenants are defined as any tenant operating under a lease agreement that is less than 30,000 square feet and whereby the landlord maintains or operates the building for the leasehold premises.(b)Mall and Other Rental NOI includes mall and other rental revenue and expenses according to U.S. GAAP, excluding straight-line rent, market lease amortization, depreciation and other amortization expense. (SeeOperating Asset NOI and EBT table under the Operating Assets Segment in Item 7)(c)Average Sum of Rent and Recoverable Common Area Costs per Square Foot is calculated as the sum of total rent and tenant recoveries for the year ending December 31, 2011 for the tenant base used to calculate(h) Average Annual Tenant Sales per Square Foot, divided by the total square footage occupied by the above mentioned tenant base.(d)Occupancy Cost is calculated by dividing (c) Average Sum of Rent and Recoverable Common Area Costs per Square Foot by (a) Average Annual Tenant Sales per Square Foot. 29Table of Contents(e)NOI Margin is calculated by dividing NOI by total contractual and other property revenue.(f)Excludes 153,928 square feet related to ground leases of which we are the lessor.(g)All of the project is on a ground lease where we are the ground lessee.(h)Excludes 438,937 square feet in project that is owned and occupied by Sears and Macy’s.(i)Excludes 180,946 square feet of outparcel improvements in project currently owned by tenant.(j)Reflects the year that Rio West Mall opened.(k)Cottonwood Square is not required to report tenant sales.(l)41,612 square feet of the Existing Gross Leasable Area is part of a ground lease where we are the ground lessee. This space is currently leased but not occupied. The ground lease payments are paid by the currentlessee directly to the ground lessor.(m)Property opened July 1, 2011. Property has one retail tenant and is not required to report sales data.(n)Ground floor retail space attached to the Waterway Square Garage.The following table summarizes certain metrics of our Operating Assets other than retail Operating Assets as of December 31, 2011: Asset EconomicOwnership % PropertyType Sqr. Feet /Keys % Leased Year Complete Net BookValue,December 31,2011(Millions) 4 Waterway Square 100% Office 218,551 98.8% 2010 $59.0 9303 New Trails 100% Office 97,705 100.0% 2008 14.5 2201 Lake Woodlands Drive 100% Office 24,024 100.0% 1994 4.0 1400 Woodloch Forest 100% Office 95,667 98.1% 1981 11.6 110 N. Wacker (Chicago, IL) 100% Office 226,000 100.0% 1957 23.6 Columbia Office Properties (a) 100% Office 300,000 89.3% 1969/1972 29.5 The Woodlands Resort & Conf. Center 100% Hotel 440 keys — 2002 47.8 The Woodlands Parking Garages 100% Garage 2,988 spaces — 2008/2009 3.3 The Club at Carlton Woods 100% Country Club 36 holes — 2001 14.6 Arizona 2 Office Lease 100% Note — — — n.a. Millennium Waterway Apartments 84% Apartments 393 keys 95.0% 2010 22.0 Forest View / Timbermill Apartments 50% Apartments 472 keys 94.5% 1993/1995 11.7 Stewart Title of Montgomery Company 50% Title Company — — — 3.6 Woodlands Sarofim #1 Ltd. 20% Industrial 132,050 93.0% late 1980s 2.5 Summerlin Hospital Medical Center 7% Hospital — — 1997 4.1 Head Acquisition (Hexalon) 1% Retail — — 2002 5.4 Golf Courses at Summerlin and TPC Las Vegas Participation Golf — — — 2.3 Total Net Book Value $259.5 (a)% Leased is computed based on the weighted average square feet of each office building. At December 31, 2011 the occupancies of each building were asfollows: American City Building – 99.2%; Columbia Association Building – 100%; Columbia Exhibit Building – 100%; Ridgely Building – 39.4%;Columbia Regional Building – 100%. 30Table of ContentsThe following table sets forth the occupancy rates, for each of the last five years for our wholly owned retail and office Operating Assets: Occupancy as ofDecember 31, 2011 Annual Weighted Average Occupancy Rates(a) 2011 2010 2009 2008 2007 Retail: Ward Centers (b) (c) 83.0% 86.5% 86.6% 85.9% 88.4% 90.7% South Street Seaport 90.6% 89.7% 89.7% 91.3% 92.6% 91.9% Landmark Mall (d) 76.5% 73.7% 76.0% 85.5% 87.9% 80.6% Park West (e) 64.9% 64.6% 62.5% 63.6% 85.4% 59.9% Rio West 93.3% 90.8% 91.8% 92.4% 96.3% 92.5% Riverwalk Marketplace 91.1% 89.9% 87.9% 84.5% 69.3% 53.5% Cottonwood Square (f) 79.8% 73.8% 78.2% 73.8% 91.6% 95.7% 20/25 Waterway Avenue Retail (g) 97.5% 91.7% 64.2% 51.8% 75.1% 49.6% Waterway Garage Retail (h) 19.3% 19.3% n.a. n.a. n.a. n.a. Office: 4 Waterway Square Office (i) 98.8% 59.8% 25.7% n.a. n.a. n.a. 9303 New Trails Office (j) 100.0% 78.8% 73.8% 52.4% 29.4% n.a. 1400 Woodloch Forest 98.1% 78.3% 94.2% 100.0% 98.8% 99.5% 110 N. Wacker 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Columbia Office Properties (k) 89.3% 89.3% 89.9% 89.9% 89.9% 96.5% 2201 Lake Woodlands Drive (l) 100.0% 100.0% 100.0% 100.0% n.a. n.a. n.a. – not available (a)Occupancy rates represent the weighted average occupancy for the year divided by total GLA.(b)In prior years 871,200 square feet of Maui ranch land had been included in the calculation of Annual Weighted Average Occupancy Rates. Theoccupancy rates reflected in this table have been adjusted to now exclude the above mentioned Maui ranch land as part of the calculation for all years.(c)Excludes 153,928 square feet related to ground leases of which we are the lessor.(d)Loss of permanent and specialty tenants in 2010 due to potential redevelopment. Excludes 438,937 square feet of anchor owned improvements as well as120,000 square feet of anchor space that is leased but not occupied.(e)Partially opened in 2007, the 2008 occupancy rate reflects a lower GLA due to the timing of space added on-line. Full GLA was achieved in 2009.(f)Includes 41,612 square feet of retail space leased through March 2013 that is currently unoccupied.(g)25 Waterway opened in February 2007 and 20 Waterway opened in May 2009.(h)Waterway Garage Retail Opened in July 2011.(i)4 Waterway Square opened in January 2010.(j)From January 1, 2010 through October 15, 2011, 9,969 square feet, representing 10.2% of total GLA, was occupied by The Woodlands. FromOctober 15, 2011 through January 2012, when The Woodlands moved out of the space, The Woodlands’ occupancy at this property was reduced to5,914 square feet, or 6.1% of total GLA.(k)Average Weighted Average Occupancy Rates are computed based on the weighted average square feet of each office building. At December 31, 2011 theoccupancies of each building were as follows: American City Building – 99.2%; Columbia Association Building – 100%; Columbia Exhibit Building –100%; Ridgely Building – 39.4%; Columbia Regional Building – 100%.(l)The Woodlands acquired 2201 Lake Woodlands Drive in late 2008.ITEM 3. LEGAL PROCEEDINGSIn the ordinary course of our business, we are from time to time involved in legal proceedings related to the ownership and operations of our properties. Neitherwe nor any of our Real Estate Affiliates is currently involved in any legal or administrative proceedings that we believe are likely to have a materially adverseeffect on our business, results of operations or financial condition.ITEM 4. MINE SAFETY DISCLOSURENot applicable. 31Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESMarket Prices of Common StockThe following table shows the high and low sales prices of the Company’s common stock on the New York Stock Exchange (the “NYSE”), as reported in theconsolidated transaction reporting system for each quarter of fiscal 2011 and the fourth quarter of 2010. Prior to our spin-off in November 2010, there was nopublic market for our common stock. The Company’s common stock is traded on the NYSE under the symbol “HHC”. Common StockPrice Range Dividends High Low PerShare Year Ended December 31, 2011 Fourth Quarter $49.67 $35.51 $— Third Quarter $66.42 $41.53 $— Second Quarter $76.83 $56.86 $— First Quarter $71.94 $49.00 $— Year Ended December 31, 2010 Fourth Quarter $56.25 $31.00 $— (Since November 5, 2010) Number of Holders of RecordAs of February 15, 2012, there were 2,630 shareholders of record of the Company’s common stock.No dividends have been declared or paid in 2011 or 2010. Any future determination related to our dividend policy will be made at the discretion of our boardof directors and will depend on a number of factors, including future earnings, capital requirements, financial condition and future prospects and otherfactors the board of directors may deem relevant. 32Table of ContentsPerformance GraphThe following performance graph compares the monthly dollar change in the cumulative shareholder return on the Company’s common stock with thecumulative total returns of the NYSE Composite Index and the group of companies in the Morningstar Real Estate – General Index. The graph was prepared onthe following assumptions: • $100 was invested on November 5, 2010 in the Company’s common stock, the NYSE Composite Index and the Morningstar Real Estate –General Index. • Dividends have been reinvested subsequent to the initial investment. 33Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe following table sets forth the selected consolidated and combined financial and other data of our business for the most recent five years. We were formed in2010 to receive certain assets and liabilities of our predecessors in connection with their emergence from bankruptcy. We did not conduct any business and didnot have any material assets or liabilities until our spin-off was completed on November 9, 2010.Our selected historical data for 2011 presented in accordance with generally accepted accounting principles is not comparable to prior periods due to theacquisition of our partner’s 47.5% economic interest in The Woodlands on July 1, 2011. As of the acquisition date, we consolidated The Woodlands’financial results. Prior to the acquisition, we accounted for our investment using the equity method.The selected historical financial data as of December 31, 2011 and 2010 and for the years ended December 31, 2011, 2010, and 2009 has been derived fromour audited consolidated and combined financial statements, which are included elsewhere in this Annual Report on Form 10-K. The selected historicalcombined financial data as of and for the year ended December 31, 2008 was derived from our audited combined financial statements which are not includedin this Annual Report on Form 10-K. The selected historical combined financial statements as of December 31, 2007 and for the year ended December 31,2007 were derived from our unaudited combined financial statements which are not included in this Annual Report on Form 10-K. Our spin-off did not changethe carrying value of our assets and liabilities with the exception of our debt which was recorded at fair value. Operations for 2010 are presented as theaggregation of the combined results from January 1, 2010 to November 9, 2010 and the consolidated results from November 10, 2010 to December 31, 2010.Prior to the spin-off, our combined financial statements were carved out from the financial books and records of GGP at a carrying value reflective ofhistorical cost in GGP’s records. Our historical financial results for these periods reflect allocations for certain corporate costs, and we believe such allocationsare reasonable. Such results do not reflect what our expenses would have been had the Company been operating as a separate stand-alone publicly tradedcompany. The historical combined financial information presented for periods prior to our separation from GGP will not be indicative of the results ofoperations, financial position or cash flows that would have been obtained if we had been an independent, stand-alone entity during such periods.The historical results set forth below do not indicate results expected for any future periods. The selected financial data set forth below are qualified in theirentirety by, and should be read in conjunction with, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andour financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. 34Table of Contents Year Ended December 31, 2011 2010 2009 2008 2007 (In thousands, except per share amounts) Operating Data: Revenues $275,691 $142,719 $136,348 $172,507 $260,498 Depreciation and amortization (16,782) (16,563) (19,841) (18,421) (22,995) Provisions for impairment — (503,356) (680,349) (52,511) (125,879) Other property operating costs (231,444) (134,667) (128,833) (141,392) (196,121) Interest (expense) income, net 9,876 (2,053) 712 1,105 1,504 Early extinguishment of debt (11,305) — — — — Reorganization items — (57,282) (6,674) — — Warrant liability gain (loss) 101,584 (140,900) — — — Benefit from (provision for) income taxes 18,325 633,459 23,969 (2,703) 10,643 Investment in real estate affiliate basis adjustment (6,053) — — — — Equity in income (loss) of Real Estate Affiliates 8,578 9,413 (28,209) 23,506 68,451 Income (loss) from continuing operations 148,470 (69,230) (702,877) (17,909) (3,899) Discontinued operations-loss on dispositions — — (939) — — Net income (loss) 148,470 (69,230) (703,816) (17,909) (3,899) Allocation to noncontrolling interests (1,290) (201) 204 (100) (101) Net income (loss) attributable to common stockholders $147,180 $(69,431) $(703,612) $(18,009) $(4,000) Basic Earnings (Loss) Per Share: Continuing operations $3.88 $(1.84) $(18.64) $(0.48) $(0.11) Discontinued operations — — (0.02) — — Total basic income (loss) per share $3.88 $(1.84) $(18.66) $(0.48) $(0.11) Diluted Earnings (Loss) Per Share: Continuing operations $1.17 $(1.84) $(18.64) $(0.48) $(0.11) Discontinued operations — — (0.02) — — Total diluted income (loss) per share $1.17 $(1.84) $(18.66) $(0.48) $(0.11) Cash dividends per common share $— $— $— $— $— Cash Flow Data: Operating activities $86,508 $(67,899) $(17,870) $(50,699) $(52,041) Investing activities (39,680) (111,829) (21,432) (300,201) (146,208) Financing activities (103,944) 461,206 37,543 348,424 183,073 As of December 31, 2011 2010 2009 2008 2007 (In thousands) Balance Sheet Data: Investments in real estate-cost $2,653,215 $2,311,520 $2,822,692 $3,367,032 $2,924,611 Total assets 3,395,149 3,022,707 2,905,227 3,443,956 3,024,827 Total debt 606,477 318,660 342,833 358,467 373,036 Total equity 2,329,599 2,179,107 1,503,520 1,985,815 1,610,672 35Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in thisAnnual Report on Form 10-K. This discussion contains forward-looking statements that involve risks, uncertainties, assumptions and other factors,including those described in Part I, “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K. These factors could cause our actualresults in 2012 and beyond to differ materially from those expressed in, or implied by, those forward-looking statements. You are cautioned not toplace undue reliance on this information which speaks only as of the date of this report. We are not obligated to update this information, whether as aresult of new information, future events or otherwise, except to the extent we are required to do so in connection with our obligation to file periodicreports with the SEC.All references to numbered Notes are to specific footnotes to our Consolidated and Combined Financial Statements included in this Annual Report onForm 10-K and which descriptions are incorporated into the applicable response by reference. The following discussion should be read inconjunctions with such Consolidated and Combined Financial Statements and related Notes.OverviewThe Howard Hughes Corporation’s mission is to be the preeminent developer and operator of master planned communities and mixed-use properties. We createtimeless places and memorable experiences that inspire people while driving sustainable, long-term growth and value for our shareholders. We specialize in thedevelopment of master planned communities, the redevelopment or repositioning of real estate assets currently generating revenues, also called operating assets,and other strategic real estate opportunities in the form of entitled and unentitled land and other development rights. Our assets are located across the UnitedStates. We expect to drive income and growth through entitlements, land and home site sales and project developments. We are focused on maximizing valuefrom our assets, and we continue to develop and refine business plans to achieve that goal.We operate our business in three segments: master planned communities (“MPC’s”), Operating Assets and Strategic Developments. Unlike real estatecompanies that are limited in their activities because they have elected to be taxed as real estate investment trusts, we have no restrictions on our operatingactivities or types of services that we can offer, which we believe provides us with flexibility for maximizing the value of our real estate portfolio.Master Planned Community development has a significant impact to our business. The cash flows and earnings from the business can be much more variablethan from our operating assets because the MPC business generates revenues from land sales rather than recurring contractual revenues from operating leases.We believe many of our assets require re-positioning to maximize their value. In addition, we are pursuing development opportunities for a number of ourassets that were previously postponed due to lack of liquidity resulting from deteriorating economic conditions, the credit market collapse and the bankruptcyfiling of our predecessors. We are also developing plans for other assets for which no formal plans had been previously developed.The development and re-development process for each specific asset can be complex and take from several months to several years prior to the commencementof actual construction. Each local market must be studied, the highest and best use of the land and improvements determined, entitlements and permitsobtained, architectural designs made, construction drawings and plans completed, tenant commitments secured, and sources of capital committed. Duringthis period, these activities generally have very little impact on our financial statements relative to the activity and effort involved in the pre-developmentprocess.During 2011, we assessed our assets to identify the best repositioning opportunities, conducted pre-development activities for many of those opportunities and,in certain cases, partnered with local developers to conduct 36Table of Contentsdevelopment activities for the related asset. We are also in the process of creating development plans for several of our assets, determining how to finance theirre-development or completion and how to maximize their long term value potential. In addition, we implemented leasing strategies that preserve the flexibility tore-develop operating assets that currently generate cash flows and are re-development candidates, such as Ward Centers, the South Street Seaport andRiverwalk Marketplace. To preserve flexibility, we frequently do not sign long term leases or we otherwise require provisions allowing us to terminate the leasesprior to their expiration. These restrictions are typically unattractive to retailers and may negatively impact our rental revenues during this period.Significant operating and development milestones achieved during 2011 include the following: • We generated a $32.3 million increase in MPC land sales revenue for 2011, a 25% increase compared to 2010 (on a “same store basis” assumingThe Woodlands was consolidated by us during both periods); • We acquired our former partner’s 47.5% economic interest in The Woodlands. The transaction enabled us to internalize and leverage TheWoodlands’ well-regarded master planned community development team, access attractive commercial development activities in The Woodlands’Town Center and control of unsold residential and commercial land and cash flowing commercial real estate assets; • We accelerated lot sales and realized price increases at Bridgeland. Lot sales and average price per lot for 2011 increased by 10% to 318 lots and1.9% to $53,000 per lot, respectively, compared with 2010; • We closed on new or renewal leases totaling 258,480 square feet of space, excluding leases with terms of one year or less, for certain of our retailoperating properties, while maintaining the flexibility to redevelop these properties; • We completed leasing of 4 Waterway Square, a 218,551 square foot office building in The Woodlands. Average net rent per square foot is$25.36; • We pre-leased over 67.0% of 3 Waterway Square, a 232,774 square foot office building that will be constructed in 2012 at average net rents persquare foot of $26.16 and at a total cost to build estimated to be $51.4 million (exclusive of land value and pre-existing garage allocation); • We completed a 722 stall parking garage at Ward Centers and delivered a 35,744 square foot adjacent retail shell to a new tenant; • We entered into a letter of intent with the Economic Development Corporation of the City of New York to modify the ground lease to permit theredevelopment of Pier 17 and the option to pursue a mixed use development of the uplands area of South Street Seaport; • We partnered with a local development team to explore the construction of an approximately 210 unit condominium tower above the NordstromParking garage at Ala Moana Center in Honolulu, HI. We equally own the venture with our partner. The venture values our condominium rights at$47.5 million, which is a 107.4% premium to our $22.9 million book value at December 31, 2011; • We entered into a joint venture with a local developer to construct an approximate 375 unit Class A apartment building with 10,000 square feet ofretail space on a 4.2 acre site we own at the Columbia Town Center. This site is named Columbia Parcel D. We equally own the venture with ourpartner. The venture values our land at approximately $20.1 million, which is a 570.0% premium to our aggregate $3.0 million book value atDecember 31, 2011; • We formed a joint venture and entered into a development agreement with the owner of land adjacent to our Bridges at Mint Hill site to exploredevelopment of a shopping center on our combined properties. The project is entitled for 1.2 million square feet of retail development; and • We closed on an aggregate $334.0 million of non-recourse mortgage financings generating approximately $73.6 million of liquidity and futureborrowing capacity. This amount includes a $250.0 million financing for Ward Centers which repaid three separate securitized mortgages totaling 37Table of Contents approximately $208.7 million. This new five-year financing will provide flexibility to redevelop Ward Centers in phases and also created $37.5million of excess proceeds capacity that can be drawn down and reinvested into the property, subject to cash flow coverage tests. We obtained a$55.0 million first mortgage loan which refinanced approximately $13.1 million of mortgage debt and is secured by the 4 Waterway Square and9303 New Trails office buildings. The excess proceeds were used to repay credit facility debt and for working capital. We also refinanced $29.0million of mortgage debt secured by the 110 N. Wacker office building with a $29.0 million mortgage maturing in 2019.Results of OperationsOur revenues primarily are derived from the sale of individual lots at our master planned communities to home builders and from tenants at our operatingassets in the form of fixed minimum rents, overage rent and recoveries of operating expenses.The Woodlands operating results for historical periods when this investment was a Real Estate Affiliate are now presented on a consolidated basis for thepurposes of this Management Discussion and Analysis and segment reporting, in order to provide comparability between periods for analyzing operatingresults. We continue to reconcile the segment presentation to reported EBT (as defined below). Our other Real Estate Affiliates, including equity investmentsowned by The Woodlands, primarily represent entities that are accounted for using the equity or cost method as appropriate.We use a number of operating measures for assessing operating performance of our communities, assets, properties and projects within our segments, some ofwhich may not be common among all three of our segments. We believe that investors may find some operating measures more useful than others whenseparately evaluating each segment. One common operating measure used to assess operating results for our business segments is real estate property earningsbefore taxes (“EBT”). Management believes that EBT provides useful information about our operating performance.We define EBT as net income (loss) from continuing operations excluding general and administrative expenses, corporate interest income and depreciationexpense, investment in real estate basis adjustment, benefit from income taxes, warrant liability gain (loss), reorganization items and the effects of thepreviously mentioned items within our equity in earnings (loss) from Real Estate Affiliates. We present EBT because we use this measure, among others,internally to assess the core operating performance of our assets. We also present this measure because we believe certain investors use it as a measure of acompany’s historical operating performance. We believe that the inclusion of certain adjustments to net income (loss) from continuing operations to calculateEBT is appropriate to provide additional information to investors because EBT therefore excludes certain non-recurring and non-cash items, includingreorganization items related to the bankruptcy, which we believe are not indicative of our core operating performance.EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss) from continuingoperations, as it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported underGAAP. Some of the limitations of this metric are that it: • does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments; • does not reflect income taxes that we may be required to pay; • does not reflect any cash requirements for replacement of depreciated or amortized assets or that these assets have different useful lives; and • does not reflect limitations on, or costs related to, transferring earnings from our Real Estate Affiliates to us. 38Table of ContentsSee Note 15 of our audited financial statements for additional information about our segments and a reconciliation of EBT to net income (loss) attributable tocommon stockholders.Operating Assets Net Operating IncomeWe believe that net operating income (“NOI”) is a useful supplemental measure of the performance of our Operating Assets. We define NOI as property specificrevenues (rental income, tenant recoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses)and excluding the operations of properties held for disposition. NOI also excludes straight line rents, market lease amortization, impairments, depreciation,ground rent and other amortization expense.Because NOI excludes general and administrative expenses, interest expense, impairments, depreciation and amortization, gains and losses from propertydispositions, allocations to non-controlling interests, reorganization items, strategic initiatives, provision for income taxes, discontinued operations andextraordinary items, the Company believes that it provides a performance measure that, when compared year over year, reflects the revenues and expensesdirectly associated with owning and operating real estate properties and the impact on operations from trends in occupancy rates, rental rates, and operatingcosts. The Company uses NOI to evaluate its operating performance on a property-by-property basis because NOI allows the Company to evaluate the impactthat factors such as lease structure, lease rates and tenant base, which vary by property, have on the Company’s operating results, gross margins andinvestment returns.In addition, we believe that NOI provides useful information to the investors about the performance of our Operating Assets. However, due to the exclusionsnoted above, NOI should only be used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP operatingincome (loss) or net income (loss) available to common stockholders. For reference, and as an aid in understanding our computation of NOI, a reconciliationof NOI to EBT has been presented in the Operating Assets segment discussion below and a reconciliation of EBT to consolidated operating income (loss) fromcontinuing operations as computed in accordance with GAAP has been presented in Note 15.Year Ended December 31, 2011, 2010 and 2009Master Planned Communities SegmentMPC revenues vary between years based on economic conditions and several factors such as location, development density and commercial or residential use,among others. Reported GAAP earnings results may differ significantly from actual cash flows generated principally because cost of sales for GAAP purposesis a reduction from earnings and is derived from margins calculated using carrying values, projected future improvements and other capitalized costs inrelation to future land sale revenues. Carrying values generally represent acquisition costs and improvements incurred by us and our predecessors in priorperiods and may also have been previously written down through impairment charges. Expenditures for improvements in the current period are capitalized andtherefore generally would not be reflected in the income statement in the current year. 39Table of ContentsMPC Sales Summary Land Sales Acres Sold Number of Lots/Units Price per acre Price per lot Year Ended December 31, 2011 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009 ($ in thousands) Residential Land Sales Columbia Single family - detached $1,480 $2,400 $500 1.4 1.9 1.0 7 12 4 $1,040 $1,275 $531 $211 $200 $125 Townhomes 5,538 3,031 3,006 1.8 1.7 2.0 39 29 33 — — — 142 105 91 High/mid apartments — — 3,125 — — 8.0 — — 164 — — 379 — — 19 Single family - detached (Fairwood) — — 15,000 — — 239.0 — — 636 — — 63 — — 24 Bridgeland Single family - detached 16,707 15,123 10,239 63.2 58.2 41.0 318 289 204 265 259 251 53 52 50 Summerlin Single family - detached 30,247 8,909 — 83.5 17.0 — 419 95 — 362 519 — 72 94 — Custom lots 679 2,253 550 1.0 1.9 — 2 4 1 694 1,204 1,618 340 563 550 The Woodlands Single family - detached 76,362 66,272 47,917 210.4 181.3 135.0 826 737 557 363 366 354 92 90 86 Single family - attached 1,235 1,063 — 3.0 3.5 — 46 52 — 409 304 — 27 20 — Subtotal 132,248 99,051 80,337 364.3 265.5 426.0 1,657 1,218 1,599 Commercial Land Sales Summerlin Retail — — 4,564 — — 4.0 — — — — — 1,047 — — — Not-for-profit 3,616 — — 16.1 — — — — — 225 — — — — — Bridgeland Not-for-profit — 1,600 741 — 20.0 15.0 — — — — 80 50 — — — The Woodlands Office and other 6,213 10,597 3,603 14.0 21.3 49.0 — — — 449 497 74 — — — Apartments and assisted living 1,839 4,879 7,150 5.0 12.5 19.0 — — — 348 392 370 — — — Retail 6,365 5,843 674 12.0 20.2 3.0 — — — 547 290 261 — — — Hotel — 2,331 3,379 — 3.2 5.0 — — — — 719 672 — — — Subtotal 18,033 25,250 20,111 47.1 77.2 95.0 Total acreage sales revenue 150,281 124,301 100,448 Deferred revenue (481) 3,994 (3,409) Deferred revenue - Woodlands 6,161 — — Special Improvement District revenue 5,420 749 248 Total segment Land sale revenues 161,381 129,044 97,287 Less: Real Estate Affiliates land sales revenue (47,879) (90,986) (62,724) Total land sales revenue - GAAP basis $113,502 $38,058 $34,563 40Table of ContentsTotal segment land sales have increased to $161.4 million for the year ended December 31, 2011 from $129.0 million and $97.3 million for the years endedDecember 31, 2010 and 2009, respectively. Revenues for Bridgeland, Summerlin and The Woodlands have increased each year since 2009. Columbia isnearly sold out, and has just 202 remaining saleable acres as of December 31, 2011. Excluding a $15.0 million land sale transaction during 2009,Columbia’s sales have also increased each year since 2009.In 2011, we sold 364 residential acres compared to 266 and 426 in 2010 and 2009, respectively. Acres sold in 2009 include the bulk sale of 239 acres at ourFairwood project in Columbia. This transaction represented nearly all of the remaining saleable land at Fairwood. These acreage sales representedapproximately 1,657 lot sales for 2011, compared to 1,218 and 963 (excluding Fairwood) for the years ended December 31, 2010 and 2009, respectively. Lotsales from The Woodlands and Bridgeland communities from 2009 to 2011 represent 85.1% of all MPC lot sales during that three year time period. During2011, residential lot sales for The Woodlands and Bridgeland increased 10.5% and 10.0%, respectively, over 2010, while residential lot sales in 2010increased by 41.7% and 41.6%, respectively, over 2009. In 2011, The Woodlands’ average lot prices increased by 4.3% to $88,986 and Bridgeland’s averageprice per lot increased by 1.9% to $53,000 over this same period. The Woodlands’ average lot price decreased by 8.0% for the year ended December 31, 2010compared to 2009, and Bridgeland’s average lot prices increased by 4.3% during the same period.Commercial land sales at The Woodlands decreased by 39.0% to $14.4 million for 2011 compared to 2010 while commercial sales in 2010 increased by59.7% as compared to 2009. The decrease principally reflects a change in strategy for The Woodlands since we acquired a controlling interest in 2011. Inprior years, ownership favored generating cash from commercial land sales to deliver dividends to the parent companies. We believe that the commercial land,especially within and surrounding The Woodlands Town Center, is poised for strategic growth and we may develop and hold properties in this desirable area.We believe that through controlling a greater share of the commercial development within The Woodlands, we can better serve our customers and generatepremium rents by doing so.Bridgeland had no commercial land sales during 2011. We expect minimal commercial sales until new home sales generate a critical mass of demand for localcommercial retail, office and lodging properties.The Houston, Texas area has benefitted from a strong energy sector. According to the Bureau of Labor Statistics (“BLS”), the area’s unemployment rate at theend of 2011 was approximately 7.6%, nearly one percentage point lower than the 8.5% national average. ExxonMobil is constructing a large corporate campuson a 400 acre site just south of The Woodlands. The site is expected to include approximately 20 buildings, representing 3 million square feet of space.According to several reports, ExxonMobil expects to begin relocating employees into this new location starting in 2014 and ending in 2015. We believe that thedirect and indirect jobs related to this relocation will have a significantly positive impact on The Woodlands and Bridgeland due to increased housing demand,as well as commercial space needs for companies servicing ExxonMobil. As of December 31, 2011 The Woodlands has approximately 3,669 residential lotsremaining, which represents approximately six years of expected future sales. Bridgeland, which is in its early stages of development, has approximately18,900 lots remaining to be developed, representing an estimated 25 years of expected future sales.Our acquisition of our partner’s interest in The Woodlands has allowed us to integrate The Woodland’s operations into our company. We also consolidated themanagement teams of The Woodlands and Bridgeland and expect that we can leverage The Woodlands’ 37-plus years of development experience toBridgeland’s benefit.Residential land sales at our Summerlin community improved to $30.9 million for the year ended December 31, 2011, compared to $11.2 million and $0.6million for the years ended December 31, 2010 and 2009, respectively. The Las Vegas residential market continues to be challenging. According to the BLS,the Las Vegas, NV area unemployment rate was approximately 12.5% at the end of 2011, four percentage points higher than the national average. New homeclosings in the overall market were down approximately 30% in 2011 compared to 2010 and 41Table of Contentsincreased 2% in 2010 compared to 2009. The increase from 2009 to 2010 was caused primarily by the federal tax incentive for first-time homebuyers. Thehousing market has been burdened by foreclosures, short-sales, downward price pressures and a significant percentage of the population in their currenthomes having negative equity. A total of 3,894 home closings were recorded in 2011, the lowest in 23 years, down from its peak of nearly 39,000 units in2005. Additionally, the median price for a new home was $212,250 in 2011, down from over $330,000 at the top of the market. Due to uncertain localeconomic conditions and the continued challenging housing market, it remains difficult to predict homebuilder demand. From September to December 2011,we had two builders that did not close on contracts representing $18.8 million of potential revenues for 212 lots in 2011, and $4.8 million of potentialrevenues representing 56 lots in 2012. The builders forfeited approximately $1.8 million of deposits to us for not closing on the lots.In early 2012 builder activity at Summerlin has begun to increase. Year to date through February 28, 2012, Summerlin has entered into residential lot salecontracts with four homebuilders for 153 lots and two superpad sites representing approximately $22.5 million of revenues if all of the sales are completed.Approximately $21.2 million of the sales are scheduled to occur in 2012, with the remaining $1.3 million scheduled for 2013.Major Items of Revenues and Expenses Year Ended December 31, 2011 2010 2009 (In thousands) Master Planned Communities (*) Land sales $161,382 $129,044 $97,287 Builder price participation 4,924 6,901 8,976 Other land sale revenues 17,732 15,186 15,520 Total revenues 184,038 151,131 121,783 Cost of sales - land 94,040 73,133 51,235 Land sales operations 36,505 45,192 47,460 Provisions for impairments — 405,331 52,766 Depreciation and amortization 48 128 146 Interest, net (3,562) (7,094) (4,522) Total expenses 127,031 516,690 147,085 Venture partner share of The Woodlands EBT (6,202) (14,434) (8,837) MPC EBT $50,805 $(379,993) $(34,139) (*)Our master planned communities segment includes revenues and expenses related to The Woodlands at 100%. On July 1, 2011, we acquired ourpartner’s equity interest. As a result of the acquisition, we now consolidate The Woodlands operations. Prior to the acquisition, The Woodlands wasaccounted for using the equity method. For a detailed breakdown of EBT, refer to Note 15.Land sales increased $32.3 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The increase for the year endedDecember 31, 2010 as compared to 2009 was $31.8 million. These year to year increases were due to factors described more fully above.Builder price participation represents the contractual percentage we collect from builder home settlements. Generally the percentage ranges from one to twopercent of the home price, but can vary by contract and by community. Builder price participation has declined in each year as home settlements have slowedin Summerlin and home sales in Bridgeland and Summerlin are at lower price points producing lower builder price participation. The decline is also impactedby a change in strategy at The Woodlands. During 2010 land sales contracts were restructured to eliminate price participation in exchange for a greater fixed lotsale price. Participation amounts collected at lot closing are considered to be a part of land sales revenue.Other revenue for the year ended December 31, 2011 is $17.7 million. It is comprised of $5.2 million of ground maintenance revenue and $3.2 million ofenergy easement fees from The Woodlands. Also included are $2.6 million of home owner’s association fees and $1.8 million of income from contract defaultsfrom Summerlin and 42Table of Contents$0.8 million in revenue recognized as a result of a reduction in a contingent purchase price obligation to a former owner at Bridgeland. The balance is made upof several income items from all of our communities. Some of these items are transfer fees, advertising fees, ground rent and interest income.Other revenue for the year ended December 31, 2011 increased $2.5 million as compared to 2010 primarily because of the $1.8 million collected from contractdefaults from Summerlin and $0.8 million of revenue recognized as a result of a reduction in a contingent purchase price obligation at Bridgeland. These itemswere not present in 2010. The amount for the year ended December 31, 2010 as compared to 2009 is consistent.Land sales margins were 41.7%, 43.3% and 47.3% for the periods ended December 31, 2011, 2010 and 2009, respectively. The decrease in the 2011 margin ascompared to 2010 was principally caused by higher cost percentage attributed to The Woodlands sales in the third and fourth quarters of 2011. The majorityof The Woodlands third and fourth quarter cost of sales reflected the finished lots at the fair value established in connection with our July 1, 2011 acquisitionof our partner’s interest. Once the approximately 577 acquired finished lots are sold, The Woodlands margins are expected to return to levels approximating44.0%. Also, Summerlin sales, which have a lower margin than Bridgeland and The Woodlands, comprised a larger portion of total sales for 2011 than in2010. The decline in the margins from 2009 to 2010 was due to the majority of our sales occurring in Bridgeland, Columbia and The Woodlands in 2009.Summerlin sold one custom lot and one commercial lot in 2009. Costs of land sales is based on carrying values of the lots sold and varies by communitybased on historical purchase price of the land and improvements made, and to be made, by us, less any impairment charges previously recorded on the land.Land sales operations costs decreased $8.7 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010, and decreased$2.3 million for the year ended December 31, 2010 as compared to 2009. The decrease in 2011 as compared to 2010 is principally due to approximately $6.6million of real estate tax savings in our Summerlin project as a result of a successful tax appeal, in addition to approximately $2.6 million of reduced net legalcosts related to development matters in our Summerlin and Bridgeland communities. During 2011, we collected approximately $0.8 million of settlementswhich reduced our overall net legal costs. The decrease in land sales operations costs from 2009 to 2010 is primarily related to management efforts to reducepayroll and overhead costs, marketing and other land related costs during a sluggish economy.Master Planned Communities recorded impairment charges of $345.9 million for Summerlin South and $59.4 million for Columbia and Gateway in 2010,and $52.8 million for Fairwood in 2009. There were no impairment charges in 2011. The detail of these impairment charges are described below.Interest, net reflects the amount of interest that is capitalized at the project level. The decrease is related to lower company interest costs for the year endedDecember 31, 2011 due to our current debt structure as compared to our Predecessors for the years ended December 31, 2010 and 2009.In addition to EBT for the Master Planned Communities, management believes that certain investors measure the value of the assets in this segment based ontheir annual contribution to liquidity and capital available for investment. Accordingly, the following table sets forth MPC Net Contribution for the yearsended 2011, 2010 and 2009. MPC Net Contribution is defined as MPC EBT, plus MPC cost of sales, provisions for impairment and depreciation andamortization, and reduced by MPC development and acquisition expenditures. 43Table of ContentsMPC Net Contribution Year Ended December 31, 2011 2010 2009 (In thousands) MPC EBT (*) $50,805 $(379,993) $(34,139) Plus: Cost of sales - land 82,672 49,504 40,163 Provisions for impairments — 405,331 52,766 Depreciation and amortization 26 75 92 Less: MPC land/residential development and acquisitions expenditures 89,169 57,138 61,226 MPC Net Contribution $44,334 $17,779 $(2,344) (*)Our master planned communities segment includes revenues and expenses related to The Woodlands Partnerships. On July 2, 2011, we acquired ourpartner’s equity interest. As a result of the acquisition, we now consolidate The Woodlands’ operations into our consolidated financial statements. Priorto such acquisitions, we accounted for The Woodlands using the equity method. For a detailed breakdown of EBT, refer to Note 15.The improvement in MPC Net Contribution during 2011 compared to 2010 and 2009 is primarily attributable to increased land sales and the results of effortsto reduce operational costs. Although MPC Net Contribution can be computed from GAAP elements of income and cash flows, it is not a GAAP basedoperational metric and should not be used to measure operating performance of the MPC assets as a substitute for GAAP measures of such performance. Areconciliation of EBT to consolidated operating income (loss) from continuing operations as computed in accordance with GAAP has been presented in Note15.Operating Assets SegmentWe view NOI as an important measure of the operating performance of our Operating Assets. These assets typically generate rental revenues sufficient to covertheir operating costs, and variances between years in net operating income typically results from changes in rental rates, occupancy, tenant mix and operatingexpenses. 44Table of ContentsOperating Assets NOI and EBT Year Ended December 31, 2011 2010 2009 (In thousands) Operating Assets Retail Ward Centers $21,481 $22,980 $22,152 South Street Seaport (a) 5,650 4,238(b) 4,862 Rio West Mall (a) 1,319 1,897 2,039 Landmark Mall (a) 737 1,619 2,472 Riverwalk Marketplace (a) 418 579 492 Cottonwood Square 380 484 507 Park West 576 366 138 20/25 Waterway Avenue 1,310 674 387 Waterway Garage Retail 7 — — Total Retail 31,878 32,837 33,049 Office 110 N. Wacker 6,115 6,628 4,988 Columbia Office Properties (c) 2,649 2,657 2,836 4 Waterway Square 1,639 15 (214) 9303 New Trails (d) 742 706 482 1400 Woodloch Forest 649 1,036 554 2201 Lake Woodlands Drive 332 322 308 Total Office 12,126 11,364 8,954 The Woodlands Resort and Conference Center 7,726 4,379 5,302 Total Retail, Office, Resort and Conference Center 51,730 48,580 47,305 The Club at Carlton Woods (5,126) (3,885) (5,348) The Woodlands Parking Garages (1,204) (1,049) (180) The Woodlands Ground leases 403 337 303 Other Properties 1,410 3,396 2,461 Total Other (4,517) (1,201) (2,764) Total Operating Assets NOI 47,213 47,379 44,541 Straight-line lease amortization 918 183 (124) Provisions for impairment — (80,923) (50,964) Early extinguishment of debt (11,305) — — Depreciation and amortization (20,309) (23,461) (26,482) Equity in earnings from Real Estate Affiliates 3,926 (338) 2,172 Interest, net (10,850) (17,179) (14,146) Less: Partners’ share of Operating Assets EBT (91) 1,945 2,864 Operating assets EBT (100% Owned) $9,502 $(72,394) $(42,139) Operating Assets NOI - Equity and Cost Method Investments Millennium Waterway Apartments $2,571 $(157) $(388) Woodlands Sarofim # 1 1,489 1,572 1,490 Stewart Title (title company) 1,069 1,222 1,422 Forest View/Timbermill Apartments 1,826 1,610 1,467 Total NOI - equity investees of December 31, 2011 6,955 4,247 3,991 Adjustments to NOI (e) (3,862) (1,937) (533) Equity Method Investments EBT 3,093 2,310 3,458 Less: Joint Venture Partner’s Share of EBT (3,061) (2,648) (2,573) Equity in earnings from Real Estate Affiliates 32 (338) 885 Distributions from Summerlin Hospital Investment 3,894 — 1,287 Equity in earnings from Real Estate Affiliates $3,926 $(338) $2,172 Company’s Share of Equity Method Investments NOI Millennium Waterway Apartments $2,148 $(131) $(324) Woodlands Sarofim # 1 298 314 298 Stewart Title (title company) 535 611 711 Forest View/Timbermill Apartments 913 805 734 Total NOI - equity investees of December 31, 2011(c) $3,894 $1,599 $1,419 45Table of Contents EconomicOwnership December 31, 2011 Debt Cash (In thousands) Millennium Waterway Apartments 83.55% $47,175 $2,733 Woodlands Sarofim #1 20.00% 7,087 811 Stewart Title (title company) 50.00% — 426 Forest View/Timbermill Apartments 50.00% 5,708 1,258 (a)Straight-line ground rent amortization was excluded from 2010 and 2009 amounts to conform to the 2011 presentation and to be consistent with the exclusion of straight-line revenues.(b)Includes a provision for bad debt of $1.2 million related to a single tenant.(c)Amounts relating to an operating lease in which we are the lessee and the related sublease income totaling $0.1 million and less than $0.1 million for 2010 and 2009, respectively, and which were included inColumbia Operating Properties for 2011, 2010 and 2009, were reclassified to general and administrative expenses to conform to the 2011 presentation.(d)Since November 2009, a portion of The Woodlands’ staff has occupied from approximately 5,900 square feet to almost 10,000 square feet of this building.(e)Adjustments to NOI include straight-line and market lease amortization, depreciation and amortization and non-real estate taxes.Retail PropertiesWard Centers NOI for 2011 decreased by approximately $1.5 million compared to 2010 primarily due to lower rental revenue of $0.6 million (principally as aresult of a bankrupt tenant), higher compensation, legal, travel and other non-recoverable costs of $0.9 million and higher energy costs of $0.5 million. Thesenegative variances were partially offset by lower bad debt expense of $0.7 million due to the collection of aged receivables. The $0.8 million increase in NOI for2010 compared to 2009 is primarily due to new specialty leasing tenants taking occupancy in late 2009 and early 2010.South Street Seaport NOI for 2011 increased by $1.4 million compared to 2010. The increase was primarily the result of new leasing and new kiosk cartrental revenue of approximately $1.4 million in addition to $1.2 million of tenant receivable collections for which a reserve was established in prior years,partially offset by approximately $1.2 million of higher expenses, including $0.4 million higher professional and legal fees in 2011 as compared to 2010.Rio West Mall’s NOI for 2011 decreased by $0.6 million as compared to 2010 primarily due to the bankruptcy of two major tenants, as well as increasedoverhead and property management costs. Some leasing terms were adjusted to a gross rents basis resulting in excess occupancy costs being absorbed by theproperty and not passed on to the tenants.Riverwalk Marketplace’s NOI for 2011 decreased by $0.2 million compared to 2010 primarily due to a one-time tenant settlement of $0.4 million receivedduring 2010. This decrease was partially offset by higher specialty leasing revenues and higher tenant recoveries in 2011.Landmark Mall’s NOI for 2011 decreased by $0.9 million primarily because of increased vacancies and a change from base minimum rents to percent lieufor certain tenants who are having financial difficulties. Occupancy costs for tenants on percent in lieu of rents leases are generally not recoverable, resulting inour absorbing a greater percentage of the property’s operating costs. The $0.9 million decrease in NOI for the year ended December 31, 2010 compared to 2009resulted from one of the mall’s anchor tenants vacating.Park West’s NOI for 2011 improved by $0.2 million over 2010 principally as a result of lower property taxes from lower assessed property values in 2011.This operating asset continues to suffer from a weak market and its occupancy was 64.9% at December 31, 2011. We are focused on attracting tenants whocan drive increased traffic during the day and evening, such as entertainment concepts. If we are unsuccessful at increasing occupancy and traffic, many ofour existing tenants may be unable to continue to occupy their leased spaces because their sales volumes will likely be inadequate to support their operatingcosts. 46Table of Contents20 and 25 Waterway Avenue and Waterway Garage Retail were completed in 2007 and 2009, respectively and are located at The Woodlands. As ofDecember 31, 2011, 20 and 25 Waterway Avenue are 100% leased and are expected to reach stabilized annual NOI of approximately $1.6 million in the firstquarter of 2012.Waterway Garage Retail is 19.3% leased. Before retail properties are fully leased and have stabilized, we do not think yearly comparisons are informative.Office PropertiesAll of the office properties listed in the NOI schedule, except for 110 N. Wacker and the Columbia Office Properties, are located in The Woodlands.110 N. Wacker NOI increased in 2010 primarily due to an increase in the tenant’s rental rate effective in November 2009.4 Waterway Square was completed in 2010 and is 98.9% leased as of December 31, 2011. The asset is expected to reach stabilized annual NOI of$5.5 million in the second quarter of 2012. Before office properties are fully leased and have stabilized, we do not think yearly comparisons are informative.9303 New Trails is 100% leased as of December 31, 2011. The asset is expected to reach stabilized annual NOI of $1.8 million in the second quarter 2012.From November 2009 through January 2012, we occupied a portion of the office space ranging from 5,914 square feet to 9,969 square feet, which represents6.1% and 10.2% respectively, of the total building square footage; however, we moved into another third party owned asset in January 2012.OtherThe Woodlands Resort and Conference Center’s $3.3 million increase in NOI for 2011 compared to 2010 is due primarily to higher overall revenue peravailable room (which is the average daily room rate multiplied by average occupancy), which increased 16.0% to $95.73 compared to $82.52 for the sameperiod in the prior year. Increased business activity and improving economic conditions at The Woodlands and surrounding areas, including highercommercial occupancies, are driving increased revenue and NOI as compared to 2010. Revenue per available room also increased by 6.9% in 2010 from$77.16 in 2009, but the increased revenues were more than offset by higher fixed costs in 2010.The Club at Carlton Woods (the “Club”) is a 36-hole golf and country club at The Woodlands with 565 total members as of December 31, 2011. We estimatethe Club requires approximately 800 members to achieve break-even NOI, and therefore we expect to incur NOI losses into the foreseeable future. The Club’sNOI loss increased by $1.2 million to $5.1 million for the year ended December 31, 2011, however, 2010 NOI includes approximately $1.6 million ofincome relating to inactive lot incentives. The incentives were built into the total sales price of the lots and purchasers of homes at the Club, and the purchasersof such lots receive credit toward membership initiation fees at the Club. They have 60 days after closing on the home purchase to do so. The inactive lotincentive amount represents unused credits that had accumulated over the years. Excluding these credits, 2010 NOI loss would have been $5.4 million.The Club’s revenues and expenses are included in other property and rental revenues, and other property operating costs. Such amounts were $11.4 millionand $16.5 million, respectively, for the year ended December 31, 2011, $9.4 million and $14.9 million, respectively, for the years ended December 31, 2010,and $9.4 million and $14.7 million, respectively, for the year ended December 31, 2009.The Woodlands Parking Garages comprise nearly 3,000 parking spaces in two separate parking structures. The Waterway Square Garage (1,942 spaces) islocated in The Woodlands Town Center and has excess parking 47Table of Contentscapacity for future commercial development. Woodloch Forest garage has approximately 1,000 total spaces with 300 spaces available for future adjacent officedevelopment. Until such development is undertaken, we anticipate the excess capacity to generate losses. NOI decreased by $0.9 million for the year endedDecember 31, 2010 compared to 2009 primarily because the Waterway Square Garage was put into service in the fourth quarter of 2009. Prior to being put intoservice no costs would have been expensed.Partially OwnedThe Millennium Waterway Avenue Apartments are approximately 95.4% leased as of December 31, 2011, and had an average occupancy of 74.6% for 2011.The apartments were in their initial lease-up period during 2011 and we expect these apartments to reach annual NOI of approximately $4.6 million during2012.Major Items of Revenues and Expenses Year Ended December 31, 2011 2010 2009 (In thousands) Operating Assets (*) Minimum rents $72,405 $69,937 $70,267 Resort and conference center revenues 34,850 28,850 29,314 Other rental and property revenues 41,318 41,874 39,281 Total revenues 148,573 140,661 138,862 Rental property real estate taxes 11,924 12,148 11,267 Rental property maintenance costs 6,758 7,225 5,827 Resort and conference center operations 27,012 24,471 23,842 Other property operating costs 54,748 47,491 51,213 Provisions for doubtful accounts — 1,760 2,296 Provisions for impairment — 80,923 50,964 Depreciation and amortization 20,309 23,461 26,482 Interest, net 10,850 17,183 14,146 Early Extinguishment of debt 11,305 — — Equity in Earnings from Real Estate Affiliates (3,926) 338 (2,172) Total expenses 138,980 215,000 183,865 Venture partner share of The Woodlands EBT (91) 1,945 2,864 Operating Assets EBT $9,502 $(72,394) $(42,139) (*)For a detailed breakdown of our Operating Assets segment EBT, refer to Note 15. Such amounts include The Woodlands at 100%.Minimum rents increased $2.5 million in 2011 compared to 2010 primarily due to 4 Waterway Square reaching full stabilization in 2011.Resort and conference center revenues for 2011 are up as discussed above due to a 4.4% increase in the average daily room rate as well as an 11.1% increase inoccupancy as compared to 2010. Resort and conference center operations expenses increased as a result of higher occupancy.Other property operating costs increased $7.3 million to $54.7 million for the year ended December 31, 2011 compared to 2010, and decreased by $3.7million in 2010 compared to the year ended December 31, 2009. These costs generally include recoverable and non-recoverable costs relating to our properties,with the exception of real estate taxes and maintenance costs which are shown separately. The principal reasons for the increase in 48Table of Contents2011 compared to 2010 were, a $0.5 million increase related to certain insurance costs $0.5 million of increased legal costs recorded at our properties, $0.8million of higher utilities costs, and $1.5 million related to increased operating costs at the Club. The $3.7 million decrease in other property operating costsfrom 2009 to 2010 was primarily attributable to lower building lease back rent for The Woodlands of 2.5 million which expired in 2009.Depreciation expense decreased $1.8 million at Riverwalk and $1.1 million at Landmark as a result of impairment charges in prior years offset somewhat byincreased depreciation expense at Ward Centers of $1.3 million, principally relating to putting the new parking garage in service during 2011. Depreciationexpense for The Woodlands’ operating assets decreased by $1.4 million due to the assets being remeasured at fair value as of the date of acquisition. The $3.0million decrease in depreciation expense from 2009 to 2010 is primarily a result of impairment taken during 2009 and 2010.The provision for bad debts in 2010 included $1.2 million relating to a single tenant at South Street Seaport. In 2011, the tenant agreed to a payment planwhich requires payment of current amounts when due and payment of past due balances. As of December 31, 2011 the tenant has substantially complied withthe agreement resulting in a favorable variance for 2011 as compared to 2010.In 2011, interest expense decreased from prior year primarily due to the refinancing at Ward Centers. In 2010, GGP allocated interest expense of $2.7 million toWard Centers as part of their corporate allocations. Additionally, the early extinguishment of debt amount of $11.3 million in 2011 resulted from the debtrefinancing at Ward Centers in the third quarter.We received distributions of $3.9 million from our Summerlin Hospital cost investment in the first quarter of 2011. We did not receive a distribution in 2010.Dividends by Summerlin Hospital are typically made one time per year; however, no dividends were paid in 2010 principally due to a capital project at thehospital. Approximately $2.0 million of the amount received in the first quarter of 2011 relates to calendar year 2010. The remaining $1.9 million relates toperiods prior to 2010 which were deferred pending completion of the capital project.Strategic Developments SegmentOur Strategic Development assets generally require substantial future development to achieve their highest and best use. Most of the properties in this segmentgenerate no revenues. Our expenses relating to these assets are primarily related to carrying costs, such as property taxes and insurance, and other ongoingcosts relating to maintaining the assets in their current condition. If we decide to redevelop a Strategic Development asset, we would expect that, uponcompletion of redevelopment, the asset would be reclassified to the Operating Assets segment and NOI would become an important measure of its operatingperformance. 49Table of ContentsMajor Items of Revenues and Expenses Year Ended December 31, 2011 2010 2009 (In thousands) Strategic Developments (*) Minimum rents $917 $1,015 $1,902 Condominium unit sales 22,067 1,139 — Other rental and property revenues 1,877 363 (2,262) Total revenues 24,861 2,517 (360) Condominium unit cost of sales 14,465 1,000 — Rental and other property operations 6,528 10,540 8,400 Provisions for impairment — 17,101 576,618 Depreciation and amortization 234 212 2,104 Interest, net 323 34 (2,725) Equity in Earnings from Real Estate Affiliates — — 19,046 Total expenses 21,550 28,887 603,443 Strategic Developments EBT $3,311 $(26,370) $(603,803) (*)For a detailed breakdown of our Strategic Developments segment of EBT, refer to Note 15.During 2011, Nouvelle at Natick sold 57 condominium units and there are two remaining for sale as of December 31, 2011. These sales were a significantsource of cash flow for 2011 which will not be replicated in 2012.The increase in other rental and property revenues for 2011 as compared to 2010 is primarily due to the sale of two ancillary parcels of land, aggregatingapproximately 4.6 acres, at the Kendall Town Center property which occurred in the third quarter of 2011. In 2009, Kendall Town Center sold land parcels ata $3.9 million loss. This loss was partially offset by other income from various Strategic Development properties.Rental and other property operations decreased in 2011 as compared to 2010 primarily due to a $1.3 million property tax refund resulting from a tax protestassociated with our Elk Grove development which occurred in the first quarter of 2011. Rental property operations increased $2.1 million in 2010 ascompared to 2009, as certain costs such as overhead that were previously capitalized were expensed as development efforts on all of the properties in ourStrategic Developments segment were postponed. 50Table of ContentsCertain Significant Consolidated and Combined ExpensesThe following table contains certain significant expenses on a consolidated and combined basis that are not otherwise included within the segment analyses.Variances related to income and expenses included in NOI or EBT are explained within the segment variance discussion contained within this Item 7 using thecombined consolidated and proportionate share of our non-consolidated Real Estate Affiliates revenues and expenses associated with the related segment.Significant variances for combined expenses not included in NOI or EBT are described below. Year Ended December 31, (In thousands) 2011 2010 2009 General and administrative $(35,182) $(21,538) $(23,023) Provisions for impairment — (503,356) (680,349) Depreciation and amortization (16,782) (16,563) (19,841) Interest income 9,876 369 1,689 Interest expense — (2,422) (977) Early extinguishment of debt (11,305) — — Warrant liability gain (loss) 101,584 (140,900) — Investment in real estate affiliate basis adjustment (6,053) — — Benefit for income taxes 18,325 633,459 23,969 Equity in earnings from Real Estate Affiliates 8,578 9,413 (28,209) Reorganization items — (57,282) (6,674) We did not become a public company and did not operate as an entity separate from GGP until November 9, 2010; therefore, our 2010 and 2009 financialresults reflect allocations made by GGP for general and administrative expenses based on actual costs incurred, or are based upon our percentage of GGP’stotal assets and revenues. Since our separation from GGP, we have been operating as an independent public company and have been building our organizationto analyze, create and implement development plans for our assets. On July 1, 2011, we consolidated the operations of The Woodlands, increasing ouremployee base from 190 employees to 835 employees at December 31, 2011. For these reasons, we do not believe that current year general and administrativeexpenses are comparable to prior year amounts.Our general and administrative costs for 2011 totaled $35.2 million, of which $5.7 million was attributable to The Woodlands. General and administrativeexpenses of $29.5 million, excluding The Woodlands, increased by $8.0 million over 2010, principally due to infrastructure growth and our becoming anindependent public company on November 9, 2010. Non-equity based compensation costs totaled approximately $18.1 million and non-cash stockcompensation costs totaled $3.2 million for the year ended December 31, 2011. If all corporate personnel employed as of December 31, 2011 and whosecompensation is included in general & administrative expenses had been employed as of January 1, 2011, we estimate our cash compensation costs wouldhave been approximately $22.6 million for 2011. For 2011, our consulting, transitional services, recruiting and temporary staffing costs were approximately$3.0 million. Many of these costs relate to our transition to an independent public company and the building of infrastructure. We expect these costs to besignificantly lower in 2012. Legal, accounting, internal audit and other professional services totaled $5.7 million for 2011. The remaining $5.2 million ofcosts primarily represent occupancy, travel, IT infrastructure and public company costs.Reorganization items under the bankruptcy filings are expense or income items that were incurred or realized as a result of the bankruptcy filings underChapter 11. These items include professional fees and similar types of expenses incurred directly related to the bankruptcy filings, gains or losses resultingfrom activities of the reorganization process, including gains related to recording the mortgage debt at fair value upon emergence from bankruptcy and interestearned on cash accumulated by the debtors. Due to the consummation of the reoganization plan in November 2010, no items were classified as reorganizationitems in 2011. See Note 1 – Reorganization items for additional detail. 51Table of ContentsEmergence initiatives, included in general and administrative costs, for the year ended December 31, 2009 consist of professional fees for restructuring thatwere incurred prior to the filing for protection under the Bankruptcy Code of certain of our subsidiaries. Similar costs incurred after filing for protection underthe Bankruptcy Code are recorded as reorganization items.ImpairmentsWe evaluate our real estate assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not berecoverable. Recoverability in this context means that the expected cumulative undiscounted future cash flows of an asset are less than its carrying value. Therecoverability analysis, as an accounting concept, considers hold periods, but ignores when the future cash flows are expected to be received within that holdperiod and whether we currently expect to receive an above or below market rate of return over our anticipated holding period. If expected cumulativeundiscounted cash flows are less than carrying value, then we are required to record the asset at the lower of its carrying value or fair value. The process forderiving fair value involves discounting the expected future cash flows at a rate of return that we believe an investor would require based on the risk profile ofthe cash flows and returns available in the market for other investments having similar risk. We may also use other inputs such as appraisals and recenttransactions for comparable properties, if appropriate. Book value for assets that have been recently impaired from an accounting perspective may more likelyreflect market value than book values of assets that have not been impaired; consequently, unimpaired assets may be expected to generate above or belowmarket returns relative to their respective book values. The lower book basis resulting from an impairment charge increases reported profitability from theasset in future periods, but has no impact on cash flow. As of December 31, 2011 we evaluated whether impairment indicators existed at all of our assets. Inmost instances, we concluded no impairment indicators were present. When indicators of impairment were present, we reconsidered expected cash flows andconcluded that there were no impairments. We recorded $503.4 million and $680.3 million of impairment charges for the years ended December 31, 2010 and2009, respectively.We are focused on maximizing value for stockholders. To achieve this, we seek to implement strategies that increase the value of an asset, not necessarily theaggregate of its future undiscounted cash flows. As such, a given strategy may result in an accounting impairment charge even though we believe that suchstrategy will maximize the value of the asset.Master Planned Communities ImpairmentsImpairment charges to our master planned communities totaled $405.3 million and $52.8 million for the years ended December 31, 2010 and 2009,respectively. There were no impairments recorded for the year ended December 31, 2011. Large master planned community assets by their nature havecharacteristics that may create a wider range of outcomes in an impairment analysis compared to other types of real estate such as office, retail and industrialfacilities. Unlike operating real estate, master planned community assets have extended life cycles that may last 20 to 40 years and have few long-termcontractual cash flows (such as operating lease revenue). Further, the majority of the master planned community assets generally have minimal to no residualvalues because of their liquidating characteristics and development periods often occur through several economic cycles. Subjective factors such as theexpected timing of property development and sales, optimal development density and sales strategy impact the timing and amount of expected future cashflows and fair value.Our master planned communities comprise thousands of acres that include distinct communities. Our management team may implement developmentstrategies for those communities that are different than those planned by our predecessors. Such strategies vary from those of our predecessors and maywarrant separate impairment evaluation for regions or projects within a single master planned community if we believe the cash flows for those assets areindependent from other regions or projects within the community. Separating master planned communities into multiple entities for impairment testing mayresult in a different accounting conclusion than if the community was evaluated as a whole; however, the accounting has no impact on economic value or fairvalue. 52Table of ContentsOur two remaining developable Summerlin regions (South and West) are separated for impairment testing because their characteristics and future businessplans are distinct. In December 2010, we modified our business plans for Summerlin South based on our expectation to: (1) replace high density product withlow density product; (2) change the strategy from developing and selling finished lots to the sale of undeveloped pads; and (3) reduce saleable acreassumptions for a high-end village having significant topography and development challenges. As a result, projected undiscounted future cash flows forSummerlin South were less than its then carrying value and this asset was impaired as of December 31, 2010. We recorded a $345.9 million pre-tax charge towrite down Summerlin South to its estimated $203.3 million fair value at December 31, 2010.At December 31, 2010, we also recorded $56.8 million and $2.6 million pre-tax impairment charges for the Columbia and Gateway, Maryland properties,respectively. Columbia was written down to a $34.8 million fair value based on a ten-year land sale program for the future mixed-use development of4.9 million square feet. For the year ended December 31, 2009, we recorded a $52.8 million pre-tax impairment charge for the Fairway, Maryland property.Operating Assets ImpairmentsThere were no impairments recorded for the year ended December 31, 2011. Operating property pre-tax impairments within our Operating Assets segmenttotaled $80.4 million and $51.0 million for the years ended December 31, 2010 and 2009, respectively. Riverwalk Marketplace and Landmark properties wereimpaired by $56.0 million and $24.4 million, respectively, and their estimated fair values were $10.2 million and $23.8 million, respectively, as ofDecember 31, 2010. Riverwalk was evaluated based on our current plan to reposition and hold the asset for an 11-year period, and we applied an 8.5%discount rate to the estimated future cash flows and derived a residual value on the leasehold interest using a 8.5% capitalization rate. The Landmark propertyimpairment is based on an appraisal which incorporates many factors including, but not limited to, physical condition, location, demographics and retailmarket condition. For the year ended December 31, 2009, we took a $27.3 million pre-tax impairment charge relating to the Landmark property. We have notyet created a specific re-development plan for this asset.Strategic Developments ImpairmentsThere were no impairments recorded for the year ended December 31, 2011. Strategic Developments properties pre-tax impairments totaled $17.0 million and$600.3 million for the year ended December 31, 2010 and 2009, respectively. Century Plaza Mall (Birmingham, AL) and Nouvelle at Natick (Natick, MA)properties were impaired by $12.9 million and $4.1 million, respectively, and their estimated fair values are $4.5 million and $13.4 million, respectively, asof December 31, 2010. Century Plaza Mall is a vacant property for which we do not currently have a re-development plan, and the impairment is based uponour best estimates utilizing, among other things, a broker’s opinion of value. Nouvelle is a condominium development for which the estimated fair value isbased on discounted cash flow analysis of the remaining units available for sale. The impairments for the year ended December 31, 2009 relate to ten StrategicDevelopment assets. Elk Grove Promenade and The Shops at Summerlin Centre were the largest two impairments at $175.3 million and $176.1 million,respectively.Two regions within our Master Planned Communities had impairment indicators and carrying values in excess of estimated fair value at December 31, 2011.Aggregate undiscounted cash flows for such master planned communities projects significantly exceeded their respective aggregate book values and thereforeno impairment provisions were required with respect to such projects at December 31, 2011. The significant assumptions in our Master Planned Communitiessegment relate to future sales prices of land and future development costs needed to prepare land for sale, over the planned life of the project, which are based,in part, on assumptions regarding sales pace, timing of related development costs, and the impact of inflation and other market factors. With respect tooperating properties within our Operating Assets segment at December 31, 2011, there were three operating properties which had impairment indicators. Theestimated undiscounted cash flows for such operating properties exceeded their book values by 109%. A significant assumption for these operating propertiesis our 53Table of Contentsfuture revenue assumption. The combined book value of the three properties is $115.8 million. A reduction of the estimated undiscounted cash by 10% wouldresult in the impairment of Park West.The decrease in depreciation and amortization for the years ended December 31, 2011 and 2010, primarily resulted from the decrease in the carrying amount ofbuildings and equipment due to the impairment charges recorded in 2010 and 2009.All interest expense for 2011 was capitalized as part of the development costs within the Master Planned Community and Strategic Developments segments inaccordance with our capitalized interest policy. We recognized a loss of $11.3 million during the third quarter of 2011 related to the debt refinancing at WardCenters. The $11.3 million represented the unamortized market rate adjustment as of the date of refinancing. Interest expense increased during the year endedDecember 31, 2010 primarily due to a $1.9 million increase in the amortization of debt market rate adjustments, partially offset by a $0.4 million decrease inthe amortization of deferred finance costs.The increase in the benefit for income taxes for the year ended December 31, 2010 was primarily attributable to the creation of certain deferred tax assets priorto separation from GGP as a result of the transfer of certain of our predecessors’ REIT assets to taxable entities (for more information see Note 9) and adecrease in deferred tax liabilities due to our impairments, partially offset by a significant increase in valuation allowances compared to the year endedDecember 31, 2009.The $37.6 million increase in our equity in income (loss) of Real Estate Affiliates in 2010 was primarily due to the 2009 recognition of $10.6 million ofimpairment on our investment in Circle T as well as the recognition in 2009 by the Circle T venture of impairment of $38.1 million, of which our share was$19.0 million. See Note 6 for additional information on our Real Estate Affiliates.Reorganization items under the bankruptcy filings are expense or income items that were incurred or realized by our predecessors as a result of theirbankruptcy. These items include professional fees and similar types of expenses incurred directly related to the bankruptcy filings, gains or losses resultingfrom activities of the reorganization process, including gains related to recording the mortgage debt at fair value upon emergence from bankruptcy and interestearned on cash accumulated by the our predecessors. See Note 2 – Reorganization Items for additional detail.Our net loss in 2010 reflects our operations prior to and subsequent to the spin-off from GGP. Income for the period prior to the spin-off, as detailed in theaccompanying Statement of Equity, was attributable to GGP and reflects significant income tax benefits from restructuring. For more information see Note 9.The loss subsequent to the spin- off of $528.5 million is primarily attributable to the impairment charges and warrant liability expense described above.Liquidity and Capital ResourcesOur primary sources of cash for 2011 include cash flow from land sales in our Master Planned Communities segment, cash generated from our operatingassets, condominium sales proceeds, net proceeds from asset sales and first mortgage financings secured by our assets. Our primary uses of cash includeworking capital, overhead, debt repayment, property improvements, pre-development and development costs. We believe that our sources of cash, includingexisting cash on hand and available credit, will provide sufficient liquidity to meet our existing contracted obligations, and anticipated ordinary courseoperating expenses for at least the next twelve months. The pursuit of development and re-development opportunities in our Operating Assets and StrategicDevelopments segments are capital intensive and will require significant additional funding. We intend to raise this additional funding with a mix ofconstruction, bridge and long-term financings, by entering into joint venture arrangements and the sale of non-core assets at the appropriate time. 54Table of ContentsThe negative operating cash flows prior to 2011 presented in this Annual Report on Form 10-K primarily were the result of reorganization items of $60.0million and $2.4 million for the years ended December 31, 2010 and 2009, respectively, as well as costs associated with land/residential development andacquisitions expenditures in our Master Planned Communities segment of $57.1 million and $61.2 million for the years ended December 31, 2010 and 2009,respectively. The funds for these expenditures came from GGP and are reflected in our consolidated and combined statement of cash flows in change in GGPinvestment, net.As of December 31, 2011, our consolidated debt was approximately $606.5 million of which approximately $7.0 million is recourse. We have $52.2 millionof required amortization or initial debt maturities in 2012, of which approximately $36.1 million may be extended beyond 2012. In addition, as ofDecember 31, 2011, our share of the debt of our Real Estate Affiliates was approximately $43.7 million.On December 5, 2011, we secured a $55.0 million loan for 4 Waterway Square and 9303 New Trails. Proceeds from the loan were partially used to refinancea $13.1 million mortgage secured by 9303 New Trails. The excess proceeds were used to partially repay the credit facility at The Woodlands and to increasecash. The loan matures on December 11, 2023 and has a fixed interest rate of 4.88%.On September 29, 2011, we closed on a $250.0 million first mortgage financing secured by the Ward Centers in Honolulu, Hawaii, which bears interest atLIBOR plus 2.50%. The loan matures on September 29, 2016, and we entered into an interest rate swap pursuant to which $143.0 million of the principalbalance was fixed at a 3.81% interest rate for the term of the loan. Initial loan proceeds of approximately $212.5 million were used to repay approximately$209.5 million of mortgage debt and to fund closing costs. We were advanced an additional $7.5 million in the fourth quarter of 2011. Also, the loan may bedrawn to a maximum $250.0 million to fund capital expenditures at the property, provided that maximum leverage cannot exceed the lesser of 65% of theproperty’s appraised value and a 10.0% debt yield. At December 31, 2011, the loan had a $220.0 million outstanding balance.In March 2011, The Woodlands refinanced a portion of its debt by entering into a $270.0 million credit facility which matures in 2015 and a $36.1 millionfinancing which has an initial maturity in 2012. At December 31, 2011, there was approximately $34.2 million of undrawn borrowing availability under thecredit facility.The following table summarizes our Net Debt on a segment basis. Net Debt is defined as our share of mortgages, notes and loans payable, at our ownershipshare, reduced by short-term liquidity sources to satisfy obligations such as our ownership share of cash and cash equivalents and Special ImprovementDistrict receivables. Although Net Debt is not a recognized GAAP financial measure, it is readily computable from existing GAAP information and we believe,as with our other non-GAAP measures, that such information is useful to our investors and other users of our financial statements. Segment Basis (a) MasterPlannedCommunities OperatingAssets StrategicDevelopments SegmentTotals Non-SegmentAmounts TotalDecember 31,2011 (In thousands) Mortgages, notes and loans payable $261,688(b) $383,786(c) $4,541 $650,015 $147 $650,162 Less: Cash and cash equivalents (11,902) (74,553)(d) — (86,455) (144,398) (230,853) Special Improvement District receivables (40,579) — — (40,579) — (40,579) Municipal Utility District receivables (83,407) — — (83,407) — (83,407) Net debt $125,800 $309,233 $4,541 $439,574 $(144,251) $295,323 (a)Refer to Note 15 – Segments in the Notes to the Consolidated Financial Statements.(b)Includes $183.0 million Master Credit Facility outstanding balance. 55Table of Contents(c)Includes our $43.7 million share of debt of our Real Estate Affiliates.(d)Includes our $3.3 million share of cash and cash equivalents of our Real Estate Affiliates.Cash flow for the period July 1, 2011 through December 31, 2011 includes the consolidated cash flow of The Woodlands.Cash Flows from Operating ActivitiesNet cash provided by operating activities was $86.5 million for the year ended December 31, 2011, compared to net cash used in operating activities of$67.9 million for the year ended December 31, 2010, and $17.9 million for the year ended December 31, 2009.The approximate $145.5 million increase in cash provided by operating activities for the year ended December 31, 2011 compared to 2010 is primarily aresult of a $75.4 million increase in master planned community land sales and a $20.9 million increase in Natick condominium sales for 2011, as well asapproximately $57.3 million of reorganization items in 2010 which were not incurred in 2011. These items were partially offset by an additional $32.0 millionof real estate acquisition and development expenditures in 2011 compared to 2010. The remaining $24.0 million of the increase in 2011 compared to 2010 isprimarily the result of having six months of commercial property income from The Woodlands in 2011 and several other miscellaneous working capital items.Cash used in operating activities increased by $50.0 million for the year ended December 31, 2010 compared to 2009. The principal cause of the increase incash used relates to a $50.6 million increase in reorganization costs during 2010 compared to 2009.Cash used for real estate acquisition and development expenditures was $90.1 million for the year ended December 31, 2011, $57.1 million for the year endedDecember 31, 2010, and $61.2 million for the year ended December 31, 2009.Net cash provided by certain assets and liabilities, including accounts and notes receivable, prepaid expense and other assets, deferred expenses, and accountspayable and accrued expenses totaled $34.2 million, $17.2 million and $22.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.Cash Flows from Investing ActivitiesNet cash used in investing activities was $39.7 million, $111.8 million and $21.4 million for the years ended December 31, 2011, 2010 and 2009,respectively. Cash used for development of real estate and property expenditures was $44.4 million, $111.8 million and $27.7 million for the years endedDecember 31, 2011, 2010 and 2009, respectively. The 2011 expenditures primarily relate to the 722-space structured garage and land improvements placed inservice in the third quarter. Also, in the third quarter of 2011, we received reimbursements from a municipality of $5.6 million related to our infrastructureimprovements for the Elk Grove Promenade strategic development.Cash Flows from Financing ActivitiesNet cash used in financing activities was $103.9 million for the year ended December 31, 2011. Cash used in financing activities for 2011 includesrepayment of a $96.5 million acquisition note relating to the acquisition of our partner’s interest in The Woodlands. Net cash provided by financing activitieswas $461.2 million for the year ended December 31, 2010 and to $37.5 million for the year ended December 31, 2009.Cash provided by financing activities in 2011 of $304.9 million resulted primarily from $220.0 million of borrowings relating to the Ward Centers mortgagefinancing, the $55.0 million loan for 4 Waterway Square and 9303 New Trails and $29.0 million for the 110 N. Wacker Drive office building mortgagefinancing (See Note 7). 56Table of ContentsPrincipal payments on mortgages, notes and loans payable were $407.0 million, $22.1 million and $10.5 million for the years ended December 31, 2011,2010 and 2009, respectively. We received contributions from GGP of $216.5 million for the year ended December 31, 2010 and $50.9 million for the yearended December 31, 2009. In addition, we issued 5.25 million shares of our common stock and warrants to purchase an additional 8.0 million shares of ourcommon stock for an aggregate price of $250 million.Contractual Cash Obligations and CommitmentsThe following table aggregates our contractual cash obligations and commitments as of December 31, 2011: 2012 2013 2014 2015 2016 Subsequent /Other Total Long-term debt-principal $52,166 $31,896 $35,553 $126,670 $232,639 $127,553 $606,477 Interest payments (a) 27,306 24,096 21,760 17,142 13,240 43,689 147,233 Ground lease payments 5,197 5,187 5,205 5,241 4,965 179,235 205,030 Uncertainty in income taxes, including interest (b) — — — — — 129,939 129,939 Total $84,669 $61,179 $62,518 $149,053 $250,844 $480,416 $1,088,679 (a)Excludes interest expense related to interest payments on special improvements district bonds. Includes obligations under our $270.0 million creditfacility, $250.0 million credit facility at The Woodlands, $250.0 million first mortgage on Ward Centers, $55.0 million secured loan for 4 Water WaySquare and 9303 New Trails and $43.7 million share of debt of our Real Estate Affiliates.(b)The remaining uncertainty in income tax liability for which reasonable estimates about timing of payments cannot be made is disclosed within theSubsequent / Other column.We lease land or buildings at certain properties from third parties. The leases generally provide us with a right of first refusal in the event of a proposed sale ofthe property by the landlord. Rental payments are expensed as incurred and have been, to the extent applicable, straight-lined over the term of the lease.Contractual rental expense, including participation rent, was $3.9 million, $3.5 million and $3.5 million for 2011, 2010 and 2009, respectively. Theamortization of above and below-market ground leases and straight-line rents included in the contractual rent amount, was not significant.Off-Balance Sheet Financing ArrangementsWe do not have any off-balance sheet financing arrangements. We have interests in property owning non-consolidated ventures which have mortgage financing.The financings are non-recourse to us and totaled $60.0 million at December 31, 2011.REIT RequirementsIn order for Victoria Ward, Limited to remain qualified as a REIT for federal and state income tax purposes, Victoria Ward must distribute or pay tax on 100%of its capital gains and distribute at least 90% of its ordinary taxable income to its stockholders, including us. See Note 9 for more detail on this entity’sability to remain qualified as a REIT.SeasonalityRevenues from development, redevelopment or sale of property in our Master Planned Communities segment and Strategic Developments segment are notsubject to seasonal variations. Rental income recognized, including overage rent, is higher during the second half of the year for some of our operating assets.As a result, rental revenue production in the Operating Assets segment is generally highest in the fourth quarter of each year. Additionally, some of the retailproperties in our Operating Assets segment are subject to seasonal variations, with a significant portion of their sales and earnings occurring during the lasttwo months of the year. 57Table of ContentsUse of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates andassumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. For example, significant estimates and assumptions have been made withrespect to the fair value of assets for measuring impairment; valuation of debt of emerged entities; useful lives of assets; capitalization of development andleasing costs; provision for income taxes; recoverable amounts of receivables and deferred taxes; initial valuations and related amortization periods of deferredcosts and intangibles; and cost ratios and completion percentages used for land sales. Actual results could differ from those estimates.Critical Accounting PoliciesCritical accounting policies are those that are both significant to the overall presentation of our financial condition and results of operations and requiremanagement to make difficult, complex or subjective judgments. Our critical accounting policies are those applicable to the following:Impairment – Properties, developments in progress and Master Planned Communities AssetsWe review our real estate assets, including Operating Assets, land held for development and sale and developments in progress, for potential impairmentindicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The preparation of financial statements inconformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptionsaffect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods. Significant estimates and assumptions have been made with respect to impairment of long-lived assets. Actual results could differ from these assumptions and estimates.Impairment indicators for our Master Planned Communities segment are assessed separately for each community and in certain circumstances, regions orprojects within the community, and include, but are not limited to, significant decreases in sales pace and decreasing average selling prices. We also monitorlocal economic conditions and other factors that may relieve demand expectation.Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development, and developmentsin progress are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, developmentcosts, market factors and the feasibility of development projects.Impairment indicators for our Operating Assets segment are assessed separately for each property and include, but are not limited to, significant decreases netoperating income, significant decreases in occupancy or low occupancy and significant net operating losses.Impairment indicators for our Strategic Developments segment are assessed separately for each property and include, but are not limited to, significantdecreases in comparable property sale prices.If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cashflow. Significant assumptions used in the estimation of future undiscounted cash flow include, for the master planned communities, estimates of future lotsales, costs to complete and sales pace, and for properties in our Operating Assets segment and Strategic Developments segment, future market rents, renewalsand capital expenditures. Historical experience in such matters and future economic projections were used to establish such factors. These factors are subject touncertainty. A real estate asset is considered to be impaired when its carrying amount cannot be recovered through estimated future 58Table of Contentsundiscounted cash flows and the carrying value is less than the fair value. To the extent an impairment provision is necessary, the excess of the carryingamount of the asset over its estimated fair value is charged to operations. In addition, the impairment is allocated proportionately to adjust the carrying amountof the asset. The adjusted carrying amount for operating assets, which represents the new cost basis of the asset, is depreciated over the remaining useful lifeof the asset. The adjusted carrying amount for master planned communities is recovered through future land sales.Recoverable amounts of receivables and deferred tax assetsWe make periodic assessments of the collectability of receivables (including those resulting from the difference between rental revenue recognized and rentscurrently due from tenants) and the recoverability of deferred taxes based on a specific review of the risk of loss on specific accounts or amounts. Thereceivable analysis places particular emphasis on past-due accounts and considers the nature and age of the receivables, the payment history and financialcondition of the payee, the basis for any disputes or negotiations with the payee and other information which may impact collectability. For straight-line rentsreceivable, the analysis considers the probability of collection of the unbilled deferred rent receivable given our experience regarding such amounts. For deferredtax assets, an assessment of the recoverability of the tax asset considers the current expiration periods of the prior net operating loss carry-forwards or other taxattributes and our estimated future taxable income generated by deferred tax liabilities. The resulting estimates of any allowance or reserve related to the recoveryof these items is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on such payees.Capitalization of development and leasing costsWe capitalize the costs of development and leasing activities of our properties. These costs are incurred both at the property location and at the regional andcorporate office levels. The amount of capitalization depends, in part, on the identification and justifiable allocation of certain activities to specific projects andleases. Differences in methodologies of cost identification and documentation, as well as differing assumptions as to the time incurred on projects, can yieldsignificant differences in the amounts capitalized and, as a result, the amount of depreciation recognized.Revenue recognition and related mattersRevenues from land sales are recognized using the full accrual method provided that various criteria relating to the terms of the transactions and oursubsequent involvement with the land sold are met. Revenues relating to transactions that do not meet the established criteria are deferred and recognized whenthe criteria are met or using the installment or cost recovery methods, as appropriate, in the circumstances. In addition, in certain land sale transactions, wealso share in a percentage of the builders’ finished home sales revenue, which we term builder’s price participation. For land sale transactions in which we arerequired to perform additional services and incur significant costs after title has passed, revenues and cost of sales are recognized on a percentage ofcompletion basis.Cost ratios for land sales are determined as a specified percentage of land sales revenues recognized for each master planned community project. The costratios used are based on actual costs incurred and estimates of development costs and sales revenues through completion of each project. The ratios arereviewed regularly and revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or development plans,whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. The specific identificationmethod is used to determine cost of sales for certain parcels of land, including acquired parcels we do not intend to develop or for which development iscomplete at the date of acquisition.Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases. Minimum rent revenues also include amounts collected fromtenants to allow the termination of their leases prior to their 59Table of Contentsscheduled termination dates and accretion related to above and below-market tenant leases on acquired properties. Straight-line rents receivable represent thecurrent net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases. Overage rent is recognized on an accrualbasis once tenant sales exceed contractual tenant lease thresholds. Recoveries from tenants are established in the leases or computed based upon a formularelated to real estate taxes, insurance and other shopping center operating expenses and are generally recognized as revenues in the period the related costs areincurred.Purchase Price AllocationUpon the acquisition of real estate properties, we recognize the assets acquired, the liabilities assumed, and any noncontrolling interest as of the acquisitiondate, measured at their fair values. In allocating the purchase price of each of our properties, management makes assumptions and uses various estimates,including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets, discount rates used to determine present values,market rental rates per square foot and the period required to lease the property up to its occupancy at acquisition if it were vacant. Many of these estimates areobtained from independent third party appraisals. However, management is responsible for the source and use of these estimates. A change in these estimatesand assumptions could result in the various categories of our real estate assets and/or related intangibles being overstated or understated which could result inan overstatement or understatement of depreciation and/or amortization expense and/or rental revenue. These variances could be material to our financialstatements.Recently Issued Accounting Pronouncements and DevelopmentsNew accounting pronouncements have been issued which impact or could impact the prior, current or subsequent years. See Note 2 for additional informationabout new accounting pronouncements.InflationRevenue from our Operating Assets may be impacted by inflation. In addition, materials and labor costs relating to our development activities maysignificantly increase in an inflationary environment. Finally, inflation poses a risk to us due to the possibility of future increases in interest rates in thecontext of loan refinancings.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are subject to interest rate risk with respect to our fixed-rate financing in that changes in interest rates will impact the fair value of our fixed-rate financingand with respect to our floating rate financings in that increases in interest rates could adversely affect cash flow. As of December 31, 2011, we had $468.1million of variable-rate debt outstanding of which $172.0 million has been swapped to a fixed-rate. Annual interest expense would increase approximately $3.0million for every 1% increase in interest rates on this balance. Generally, our interest expense is capitalizable; therefore, the impact on our Statement of Income(Loss) is expected to be minimal. For additional information concerning our debt, and management’s estimation process to arrive at a fair value of our debt asrequired by GAAP, reference is made to Item 7, the Liquidity and Capital Resources discussion above and to Notes 2 and 7. We seek to manage a portion ofour floating rate interest exposure by using interest rates swaps and caps.The following table summarizes principal cash flows on our debt obligations and related weighted-average interest rates by expected maturity dates as ofDecember 31, 2011: Contractual Maturity Date 2012 2013 2014 2015 2016 Thereafter Total (In thousands) Mortgages, notes and loans payable $52,166 $31,896 $35,553 $126,670 $232,639 $127,553 $606,477 Weighted - average interest rate 4.61% 4.57% 4.52% 4.33% 5.72% 5.74% 60Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAInformation with respect to this Item is set forth beginning page F-1.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls and ProceduresWe maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to provide reasonable assurance thatinformation required to be disclosed in our reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principalfinancial 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 principalexecutive officer and our principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and proceduresas of December 31, 2011, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial andaccounting officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.Internal Controls over Financial ReportingThere have been no changes in our internal controls during our most recently completed fiscal quarter that have materially affected or are reasonably likely tomaterially affect our internal control over financial reporting.In making its assessment of the changes in internal controls over financial reporting as of December 31, 2011, our management excluded the evaluation of thedisclosure controls and procedures at The Woodlands due to our acquisition of the remaining interest from our former partner on July 1, 2011.Management’s Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining a system of internal control over financial reporting designed to provide reasonable assurance thattransactions are executed in accordance with management authorization and that such transactions are properly recorded and reported in the financialstatements, and that records are maintained so as to permit preparation of the financial statements in accordance with U.S. generally accepted accountingprinciples. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our evaluation of andconclusion on the effectiveness of internal control over financial reporting as of December 31, 2011 did not include the internal controls for the acquisition ofThe Woodlands, because of the timing of the acquisition, which was completed in July 2011. As of December 31, 2011, this entity constituted approximately$581.1 million of total assets, $84.6 million of revenues and $2.1 million of pre-tax income for the year then ended. In 2012, we will expand our evaluation ofthe effectiveness of the internal controls over financial reporting to include The Woodlands. Management has assessed the effectiveness of the Company’sinternal control over financial reporting utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in InternalControl – Integrated Framework. Management concluded, based on its assessment, that The Howard Hughes Corporation’s internal control over financialreporting was effective as of December 31, 2011. Deloitte & Touche LLP, an independent registered public accounting firm, has audited the Company’sinternal control over financial reporting as of December 31, 2011 , as stated in their report which is included in this Annual Report on Form 10-K. 61Table of ContentsAttestation Report of the Independent Registered Public Accounting FirmREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofThe Howard Hughes CorporationWe have audited the internal control over financial reporting of The Howard Hughes Corporation and subsidiaries (the “Company”) as of December 31, 2011,based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control overfinancial reporting at The Woodlands Operating Company, L.P. and subsidiaries, TWCPC Holdings, LP and subsidiaries and TWLDC Holdings, L.P. andsubsidiaries (collectively “The Woodlands”), which were acquired on July 1, 2011 and whose financial statements constitute 18.8% and 17.1% of net andtotal assets, respectively, 30.7% of revenues, and 1.6% of pre-tax income of the consolidated financial statement amounts as of and for the year endedDecember 31, 2011. Accordingly, our audit did not include the internal control over financial reporting at The Woodlands. The Company’s management isresponsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on theCompany’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sassets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on thecriteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedule as of and for the year ended December 31, 2011 of the Company and our report dated February 29, 2012expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding theallocations of certain operating expenses from General Growth properties, Inc included in the Company’s combined financial statements prior to November 9,2010./s/ Deloitte & Touche LLPDallas, TexasFebruary 29, 2012 62Table of ContentsITEM 9B. OTHER INFORMATIONNone.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by Item 10 is incorporated by reference to the relevant information included in our proxy statement for our 2012 Annual Meeting ofStockholders.ITEM 11. EXECUTIVE COMPENSATIONThe information required by Item 11 is incorporated by reference to the relevant information included in our proxy statement for our 2012 Annual Meeting ofStockholders.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information required by Item 12 is incorporated by reference to the relevant information included in our proxy statement for our 2012 Annual Meeting ofStockholders.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information required by Item 13 is incorporated by reference to the relevant information included in our proxy statement for our 2012 Annual Meeting ofStockholders.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by Item 14 is incorporated by reference to the relevant information included in our proxy statement for our 2012 Annual Meeting ofStockholders. 63Table of ContentsPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)Financial Statements and Financial Statement Schedules.The consolidated and combined financial statements and schedule listed in the accompanying Index to Consolidated and Combined FinancialStatements and Consolidated and Combined Financial Statement Schedule are filed as part of this Annual Report. (b)Exhibits. (c)Separate financial statements. 64Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized. THE HOWARD HUGHES CORPORATION /s/ David R. Weinreb David R. Weinreb Chief Executive Officer February 29, 2012Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant andin the capacities and on the dates indicated. Signature Title Date*William Ackman Chairman of the Board and Director February 29, 2012/s/ David R. WeinrebDavid R. Weinreb Director and Chief Executive Officer(Principal Executive Officer) February 29, 2012/s/ Andrew C. Richardson Chief Financial Officer (PrincipalFinancial and Accounting Officer) February 29, 2012Andrew C. Richardson * Director February 29, 2012Adam Flatto * Director February 29, 2012Jeffrey Furber * Director February 29, 2012Gary Krow * Director February 29, 2012Allen Model * Director February 29, 2012R. Scot Sellers * Director February 29, 2012Steven Shepsman * Director February 29, 2012Burton M. Tansky * Director February 29, 2012Mary Ann Tighe */s/ David R. WeinrebDavid R. WeinrebAttorney-in-fact 65Table of ContentsTHE HOWARD HUGHES CORPORATIONINDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTSAND CONSOLIDATED AND COMBINED FINANCIAL STATEMENT SCHEDULE PageNumber Consolidated and Combined Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2011 and 2010 F-3 Consolidated and Combined Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 2011,2010 and 2009 F-4 Consolidated and Combined Statements of Equity for the years ended December 31, 2011, 2010 and 2009 F-5 Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009 F-6 Notes to Consolidated and Combined Financial Statements: Note 1 Organization F-8 Note 2 Summary of Significant Accounting Policies F-8 Note 3 Acquisition F-21 Note 4 Impairment F-23 Note 5 Intangibles F-25 Note 6 Real Estate Affiliates F-26 Note 7 Mortgages, Notes and Loans Payable F-28 Note 8 Derivative Instruments and Hedging Activities F-31 Note 9 Income Taxes F-32 Note 10 Rentals under Operating Leases F-36 Note 11 Transactions with GGP and other Related Party Disclosures F-36 Note 12 Stock Based Plans F-37 Note 13 Other Assets and Liabilities F-40 Note 14 Commitments and Contingencies F-41 Note 15 Segments F-42 Note 16 Quarterly Financial Information (Unaudited) F-48 Consolidated Financial Statement Schedule Schedule III – Real Estate and Accumulated Depreciation F-49 F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofThe Howard Hughes CorporationWe have audited the accompanying consolidated balance sheets of The Howard Hughes Corporation and subsidiaries (the “Company”) as of December 31,2011 and 2010, and the related consolidated and combined statements of income (loss) and comprehensive income (loss), equity, and cash flows for each ofthe three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These financialstatements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financialstatements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial position of The Howard HughesCorporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in theperiod ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, suchfinancial statement schedule, when considered in relation to the basic consolidated and combined financial statements taken as a whole, presents fairly, in allmaterial respects, the information set forth therein.As discussed in Note 2 to the financial statements, the combined financial statements of certain entities that were transferred from General Growth Properties,Inc. to the Company on November 9, 2010 (the “HHC Businesses”) include allocations of certain operating expenses from General Growth Properties, Inc.until the entities were transferred to the Company on November 9, 2010. These costs may not be reflective of the actual level of costs which would have beenincurred had the HHC Businesses operated as an independent, stand-alone entity separate from General Growth Properties, Inc.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal controlover financial reporting as of December 31, 2011, based on the criteria established in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated February 29, 2012 expressed an unqualified opinion on the Company’s internalcontrol over financial reporting./s/ Deloitte & Touche LLPDallas, TexasFebruary 29, 2012 F-2Table of ContentsTHE HOWARD HUGHES CORPORATIONCONSOLIDATED BALANCE SHEETS December 31, 2011 2010 (In thousands,except share amounts) Assets: Investment in real estate: Master Planned Community assets $1,600,074 $1,350,648 Land 236,363 180,976 Buildings and equipment 556,786 336,950 Less: accumulated depreciation (92,494) (78,931) Developments in progress 195,034 293,403 Net property and equipment 2,495,763 2,083,046 Investment in Real Estate Affiliates 64,958 149,543 Net investment in real estate 2,560,721 2,232,589 Cash and cash equivalents 227,566 284,682 Accounts receivable, net 15,644 8,154 Municipal Utility District receivables 86,599 28,103 Notes receivable, net 35,354 38,954 Tax indemnity receivable, including interest 331,771 323,525 Deferred expenses, net 10,338 6,619 Prepaid expenses and other assets 127,156 100,081 Total assets $3,395,149 $3,022,707 Liabilities: Mortgages, notes and loans payable $606,477 $318,660 Deferred tax liabilities 75,966 78,680 Warrant liabilities 127,764 227,348 Uncertain tax position liability 129,939 140,076 Accounts payable and accrued expenses 125,404 78,836 Total liabilities 1,065,550 843,600 Commitments and Contingencies (see Note 14 ) Equity: Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued — — Common stock: $.01 par value; 150,000,000 shares authorized, 37,945,707 shares issued and outstanding as ofDecember 31, 2011 and 37,904,506 shares issued and outstanding as of December 31, 2010 379 379 Additional paid-in capital 2,711,109 2,708,036 Accumulated deficit (381,325) (528,505) Accumulated other comprehensive loss (5,578) (1,627) Total stockholders’ equity 2,324,585 2,178,283 Noncontrolling interests 5,014 824 Total equity 2,329,599 2,179,107 Total liabilities and equity $3,395,149 $3,022,707 The accompanying notes are an integral part of these consolidated and combined financial statements. F-3Table of ContentsTHE HOWARD HUGHES CORPORATIONCONSOLIDATED AND COMBINED STATEMENTS OF INCOME (LOSS)AND COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2011(Consolidated) 2010(Combined) 2009(Combined) (In thousands, except per share amounts) Revenues: Master Planned Community land sales $113,502 $38,058 $34,563 Builder price participation 3,816 4,124 5,687 Minimum rents 71,178 66,926 65,653 Tenant recoveries 19,368 18,567 19,642 Condominium unit sales 22,067 1,139 — Resort and conference center revenues 15,744 — — Other land revenues 14,141 5,384 5,747 Other rental and property revenues 15,875 8,521 5,056 Total revenues 275,691 142,719 136,348 Expenses: Master Planned Community cost of sales 70,108 23,388 22,020 Master Planned Community operations 28,270 29,041 27,042 Rental property real estate taxes 11,571 14,530 13,813 Rental property maintenance costs 7,493 6,495 5,586 Condominium unit cost of sales 14,465 1,000 — Resort and conference center operations 13,108 — — Other property operating costs 51,247 36,893 34,810 Provision for doubtful accounts — 1,782 2,539 General and administrative 35,182 21,538 23,023 Provisions for impairment — 503,356 680,349 Depreciation and amortization 16,782 16,563 19,841 Total expenses 248,226 654,586 829,023 Operating income (loss) 27,465 (511,867) (692,675) Interest income 9,876 369 1,689 Interest expense — (2,422) (977) Early extinguishment of debt (11,305) — — Warrant liability gain (loss) 101,584 (140,900) — Investment in real estate affiliate basis adjustment (6,053) — — Equity in earnings (loss) from Real Estate Affiliates 8,578 9,413 (28,209) Income (loss) before taxes and reorganization items 130,145 (645,407) (720,172) Benefit from income taxes 18,325 633,459 23,969 Reorganization items — (57,282) (6,674) Net income (loss) from continuing operations 148,470 (69,230) (702,877) Discontinued operations - loss on dispositions — — (939) Net income (loss) 148,470 (69,230) (703,816) Net (income) loss attributable to noncontrolling interests (1,290) (201) 204 Net income (loss) attributable to common stockholders $147,180 $(69,431) (703,612) Basic Earnings (Loss) Per Share: Continuing operations $3.88 $(1.84) $(18.64) Discontinued operations — — (0.02) Total basic earnings (loss) per share $3.88 $(1.84) $(18.66) Diluted Earnings (Loss) Per Share: Continuing operations $1.17 $(1.84) $(18.64) Discontinued operations — — (0.02) Total diluted earnings (loss) per share $1.17 $(1.84) $(18.66) Comprehensive Income (Loss), Net of Tax: Net income (loss) $148,470 $(69,230) $(703,816) Other comprehensive income (loss): Interest rate swap (3,351) — — Capitalized swap interest (600) — — Pension plan adjustment — 117 1,182 Other comprehensive income (loss) (3,951) 117 1,182 Comprehensive income (loss) 144,519 (69,113) (702,634) Comprehensive (income) loss attributable to noncontrolling interests (1,290) (201) 204 Comprehensive income (loss) attributable to common stockholders $143,229 $(69,314) $(702,430) The accompanying notes are an integral part of these consolidated and combined financial statements. F-4Table of ContentsTHE HOWARD HUGHES CORPORATIONCONSOLIDATED AND COMBINED STATEMENTS OF EQUITY (In thousands, except shares) Shares CommonStock AdditionalPaid-InCapital AccumulatedDeficit GGPEquity AccumulatedOtherComprehensiveIncome (Loss) NoncontrollingInterests inConsolidatedVentures TotalEquity Balance, January 1, 2009 — $— $— $— $1,986,938 $(2,926) $1,803 $1,985,815 Net loss — — — (703,612) (204) (703,816) Distributions to noncontrollinginterests — — — — — (699) (699) Other comprehensive income — — — — 1,182 — 1,182 Contributions from GGP, net — — — 221,038 — — 221,038 Balance, December 31, 2009 — $— $— $— $1,504,364 $(1,744) $900 $1,503,520 Net income (loss) — — (528,505) 459,074 — 201 (69,230) Distributions to noncontrollinginterests — — — — — (277) (277) Other comprehensive income — — — — 117 — 117 Issuance of common stock 37,896,259 379 182,284 — — — — 182,663 Issuance of restricted stock, net ofexpense 8,247 — 85 — — — — 85 Contributions from GGP prior to theSeparation — — — 562,229 — — 562,229 Transfer from GGP on Effective Date — 2,525,667 — (2,525,667) — — — Balance, December 31, 2010 37,904,506 $379 $2,708,036 $(528,505) $— $(1,627) $824 $2,179,107 Net income — — 147,180 — — 1,290 148,470 Adjustment to noncontrolling interests — — — — — 3,700 3,700 Acquisitions — — — — — (777) (777) Preferred dividend payment on behalfof subsidiary — — — — — (23) (23) Interest rate swaps, net of tax $1,016 — — — — (3,351) — (3,351) Capitalized swap interest, net of tax$358 — — — — (600) — (600) Stock plan activity 41,201 — 3,073 — — — — 3,073 Balance, December 31, 2011 37,945,707 $379 $2,711,109 $(381,325) $— $(5,578) $5,014 $2,329,599 The accompanying notes are an integral part of these consolidated and combined financial statements. F-5Table of ContentsTHE HOWARD HUGHES CORPORATIONCONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS Year ended December 31, 2011(Consolidated) 2010(Combined) 2009(Combined) (In thousands) Cash Flows from Operating Activities: Net income (loss) $148,470 $(69,230) $(703,816) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Equity in (earnings) loss from Real Estate Affiliates, net of distributions (4,410) (9,413) 29,615 Investment in Real Estate Affiliate basis adjustment 6,053 — — Provision for doubtful accounts — 1,782 2,539 Depreciation 14,012 14,582 17,145 Amortization 2,770 1,981 2,696 Amortization of deferred financing costs and debt market rate adjustments 1,771 1,260 978 Amortization of intangibles other than in-place leases 297 174 220 Straight-line rent amortization (1,060) (151) (49) Deferred income taxes including tax restructuring benefit (19,200) (636,117) (23,120) Restricted stock and stock option amortization 3,073 — — Warrant liability gain (loss) (101,584) 140,900 — Loss on dispositions — — 939 Provisions for impairment — 503,356 680,349 Real estate acquisition and development expenditures (90,078) (57,138) (61,226) Master Planned Community and condominium cost of sales 79,844 24,388 22,019 Reorganization items - finance costs related to emerged entities — 1,311 2,158 Non-cash reorganization items — (2,724) (11,835) Net changes *: Accounts and notes receivable 27,500 534 (2,487) Prepaid expenses and other assets 2,036 18,686 24,867 Deferred expenses 404 (2,110) (1,850) Accounts payable and accrued expenses 19,502 112 1,941 Other, net (2,892) (82) 1,047 Cash provided by (used in) operating activities 86,508 (67,899) (17,870) Cash Flows from Investing Activities: Cash acquired from The Woodlands acquisition, net of cash consideration 5,493 — — Real estate and property expenditures (44,380) (111,832) (27,738) Reimbursement for infrastructure improvements from municipality 5,560 — — Proceeds from dispositions 1,429 — — Proceeds from sales of investment properties — — 6,392 Investments in Real Estate Affiliates — 3 (288) Change in restricted cash (7,782) — 202 Cash used in investing activities (39,680) (111,829) (21,432) Cash Flows from Financing Activities: Change in GGP investment, net — 216,518 50,865 Proceeds from issuance of mortgages, notes and loans payable 304,911 — — Principal payments on mortgages, notes and loans payable (407,027) (22,109) (10,465) Finance costs related to emerged entities — (1,311) (2,158) Cash distributions paid to preferred stockholders of Victoria Ward, Ltd. — — (12) Deferred financing costs (3,828) — — Proceeds from issuance of common stock and warrants to Plan Sponsors — 251,385 — Proceeds from issuance of management warrants 2,000 17,000 — Distributions to noncontrolling interests — (277) (687) Cash (used in) provided by financing activities (103,944) 461,206 37,543 Net change in cash and cash equivalents (57,116) 281,478 (1,759) Cash and cash equivalents at beginning of year 284,682 3,204 4,963 Cash and cash equivalents at end of year $227,566 $284,682 $3,204 F-6Table of ContentsTHE HOWARD HUGHES CORPORATION Year ended December 31, 2011(Consolidated) 2010(Combined) 2009(Combined) (In thousands) Supplemental Disclosure of Cash Flow Information: Interest paid $22,158 $21,225 $48,100 Interest capitalized 24,062 19,139 46,976 Reorganization items paid — 60,007 2,384 Non-Cash Investing and Financing Transactions: Reduction in investments in Real Estate Affiliates due to The Woodlands acquisition (128,764) — — MPC land contributed to Real Estate Affiliate 2,990 — — Special Improvement District bond transfers associated with land sales 4,430 1,254 — Change in accrued liability expenditures included in accounts payable and accruedexpenses — (89,514) (15,222) Change in Contingent Stock Agreement liability — (15,000) 178,130 Contribution of tax indemnity receivable plus interest from GGP — 323,525 — Settlement/conversion to equity of intercompany payables to GGP — 37,328 — Contribution to note receivable from GGP — 31,386 — Other non-cash GGP equity transactions — (46,528) 2,612 Recognition of note payable in conjunction with land held for development and sale — — 6,520 Acquisition note related to The Woodlands (See Note 3) 96,500 — Debt assumed from The Woodlands’ acquisition (See Note 3) 296,695 — Prepetition liabilities funded by GGP 3,241 — Mortgage debt market rate adjustment related to emerged entities — 2,749 11,723 (*)As a result of The Woodlands acquisition and consolidation, changes in certain accounts cannot be derived from the balance sheet because these changesare non-cash related. (See Note 3)The accompanying notes are an integral part of these consolidated and combined financial statements. F-7Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE 1ORGANIZATIONGeneralThe Howard Hughes Corporation’s (“HHC” or the “Company”) mission is to be the preeminent developer and operator of Master Planned Communities andmixed-use properties. We create timeless places and memorable experiences that inspire people while driving sustainable, long-term growth and value for ourshareholders. We specialize in the development of master planned communities, and ownership, management, and the development or repositioning of realestate assets currently generating revenues, also called operating assets, as well as other strategic real estate opportunities in the form of entitled and unentitledland and other development rights, also called strategic developments. We are a Delaware corporation that was formed on July 1, 2010 to hold, after receipt viaa tax-free distribution, certain assets of General Growth Properties, Inc. (“GGP”) and certain of its subsidiaries (collectively, the “Predecessors”) pursuant totheir plans of reorganization (the “Plan”) under Chapter 11 of the United States Code (“Chapter 11”). Pursuant to the Plan, certain of the assets and liabilitiesof the Predecessors (the “HHC Businesses”) were transferred to us and our common stock was distributed to the holders of GGP’s common stock andcommon units (the “Separation”) on a pro-rata basis (approximately 32.5 million shares of our common stock) on GGP’s date of emergence from bankruptcy,November 9, 2010 (the “Effective Date”). Also as part of the Plan, approximately 5.25 million shares of our common stock and 8.0 million warrants werepurchased by certain of the investors sponsoring the Plan for $250.0 million. Unless the context otherwise requires, references to “we,” “us” and “our” refer toHHC and its subsidiaries. NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Combination and Basis of PresentationThe accompanying financial statements for the year ended December 31, 2011 and the balance sheet as of December 31, 2010 reflects the consolidation of theHHC Businesses with HHC, as of such date, with all intercompany balances and transactions between the HHC Businesses eliminated. The accompanyingcombined financial statements for the periods prior to the Separation have been prepared in accordance with accounting principles generally accepted in theUnited States (“GAAP”) on a carve-out basis from the consolidated financial statements of GGP using the historical results of operations and basis of theassets and liabilities of the transferred businesses and including allocations from GGP. This presentation incorporates the same principles used whenpreparing consolidated financial statements, including elimination of intercompany transactions. The presentation also includes the accounts of the HHCBusinesses in which we have a controlling interest. The noncontrolling equity holders’ share of the assets, liabilities and operations are reflected innoncontrolling interests within permanent equity. All intercompany balances and transactions between the HHC Businesses have been eliminated. Accordingly,the statements of income (loss) and comprehensive income (loss), equity and cash flows presented for the year ended December 31, 2010 reflect the aggregate ofoperations, changes in cash flows and equity on a carved-out basis for the period from January 1, 2010 through November 9, 2010 and on a consolidatedbasis for the period from November 10, 2010 through December 31, 2010.We were formed for the purpose of receiving, via a tax-free distribution, certain assets and assuming certain liabilities of our predecessors pursuant to the Plan.We conducted no business and had no separate material assets or liabilities until the Separation was consummated. No previous historical financial statementsfor the HHC Businesses have been prepared and, accordingly, our combined financial statements for periods prior to November 9, 2010 are derived from thebooks and records of GGP and were carved-out from GGP at a carrying value reflective of the historical cost in GGP records. Our historical financial resultsreflect allocations for certain corporate expenses which include, but are not limited to, costs related to property management, human resources, security,payroll and benefits, legal, corporate communications, information services and restructuring and reorganizations. Costs of the services, which wereapproximately $8.4 million and $9.9 million for 2010 and F-8Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 2009, respectively that were allocated or charged to us were based on either actual costs incurred or a proportion of costs estimated to be applicable to us basedon a number of factors, most significantly our percentage of GGP’s adjusted revenue and assets and the number of properties. We believe these allocations arereasonable; however, these results do not reflect what our expenses would have been had we been operating as a separate, stand-alone public company. Inaddition, the HHC Businesses were operated as subsidiaries of GGP, which operates as a real estate investment trust (“REIT”). We operate as a taxablecorporation. The carved out combined financial information included in the 2010 and the 2009 financial statements are not indicative of the results ofoperations, financial position or cash flows that would have been obtained if we had been an independent, stand-alone entity during the periods shown or ofour future performance as an independent, stand-alone entity.On July 1, 2011, we acquired our partner’s economic interest in TWCPC Holdings, L.P., (“The Woodlands Commercial”), The Woodlands OperatingCompany, L.P. (“The Woodlands Operating”) and The Woodlands Land Development Company, L.P. (“The Woodlands MPC”, and together with TheWoodlands Commercial and The Woodlands Operating, “The Woodlands”), located near Houston, Texas. As a result of the acquisition, we now consolidateThe Woodlands’ operations in our consolidated financial statements. Prior to such acquisition, we accounted for The Woodlands using the equity method.In 2011, certain amounts in the December 31, 2010 consolidated balance sheet were reclassified to conform to the current period presentation. We reclassifiedour Municpial Utility Districts receivables of $28.1 million to a separate line item from prepaid expenses and other assets. We also reclassed the cost of in-place leases of $6.1 million from buildings and equipment as well as the related in-place lease accumulated amortization of $4.5 million from accumulateddepreciation to prepaid expenses and other assets.Management has evaluated all material events occurring subsequent to the date of the consolidated financial statements up to the date and time this AnnualReport is filed.Investment in Real EstateReal estate assets are stated at cost less any provisions for impairments. Construction and improvement costs incurred in connection with the development ofnew properties or the redevelopment of existing properties are capitalized. Real estate taxes and interest costs incurred during development and constructionperiods are also capitalized. Capitalized interest costs are based on qualified expenditures and interest rates in place during the construction period.Pre-development costs, that generally include legal and professional fees and other directly-related third-party costs associated with specific developmentproperties, are capitalized as part of the property being developed. In the event that management no longer has the ability or intent to complete a development,the costs previously capitalized are expensed (see also our impairment policies below).Tenant improvements relating to our operating assets, either paid directly or in the form of construction allowances paid to tenants, are capitalized anddepreciated over the shorter of their economic lives or the lease term. Maintenance and repairs are charged to expense when incurred. Expenditures forsignificant improvements are capitalized.Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives: Asset Type Years Buildings and improvements 40-45 Equipment, tenant improvements and fixtures 5-10 F-9Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Acquisitions of PropertiesWe account for business combinations in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The acquisitionmethod of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business combination. Ourconsolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition. On July 1, 2011, wecompleted the acquisition of The Woodlands (See Note 3).Investments in Real Estate AffiliatesWe account for investments in joint ventures where we own a non-controlling participating interest using the equity method and investments in joint ventureswhere we have virtually no influence on the joint venture’s operating and financial policies, on the cost method. Under the equity method, the cost of ourinvestment is adjusted for our share of the equity in earnings (losses) of such Real Estate Affiliates from the date of acquisition and reduced by distributionsreceived. Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets, liabilities and funding obligations are shared inaccordance with our ownership percentages. We generally also share in the profit and losses, cash flows and other matters relating to our Real Estate Affiliatesin accordance with our respective ownership percentages. Differences between the carrying amount of our investment in the Real Estate Affiliates and our shareof the underlying equity of such Real Estate Affiliates are amortized over lives ranging from five to forty-five years. For cost method investments, we recognizeearnings to the extent of distributions received from such investments.ImpairmentThe generally accepted accounting principles related to accounting for the impairment or disposal of long-lived assets require that if impairment indicators existand the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to writedown the carrying amount of such asset to its fair value. The impairment analysis does not consider the timing of future cash flows and whether the asset isexpected to earn an above or below market rate of return. We review our real estate assets (including those held by our Real Estate Affiliates) for potentialimpairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.Impairment indicators for our assets, regions or projects within our Master Planned Communities segment are assessed separately and include, but are notlimited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs orcancellation rates, and projected losses on expected future sales. Master Planned Community assets have extended life cycles that may last 20 to 40 years andhave few long-term contractual cash flows. Further for sale portions of master planned community assets generally have minimal to no residual values becauseof their liquidating characteristics. Master planned community development periods often occur through several economic cycles. Subjective factors such asthe expected timing of property development and sales, optimal development density and sales strategy impact the timing and amount of expected future cashflows and fair value.Impairment indicators for our Operating Assets segment are assessed separately for each property and include, but are not limited to, significant decreases innet operating income, significant decreases in occupancy or low occupancy and significant net operating losses.Impairment indicators for our Strategic Developments segment are assessed separately for each property and include, but are not limited to, significantdecreases in comparable property sale prices. F-10Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Impairment indicators for pre-development costs, which are typically costs incurred during the beginning stages of a potential development, and developmentsin progress are assessed by project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, developmentcosts, market factors and sustainability of development projects.If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscounted cashflow. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projectedtrends in rental, occupancy, pricing, development costs, sales pace and capitalization rates, and estimated holding periods for the applicable assets. Althoughthe estimated fair value of certain assets may be exceeded by the carrying amount, a real estate asset is only considered to be impaired when its carryingamount is not expected to be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary, the excess of thecarrying amount of the asset over its estimated fair value is expensed to operations. In addition, the impairment provision is allocated proportionately to adjustthe carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful lifeof the asset or, for Master Planned Communities, is expensed as a cost of sales when land is sold. Assets that have been impaired will in the future have lowerdepreciation and cost of sale expenses, but the impairment will have no impact on cash flow.With respect to our investment in the Real Estate Affiliates, a series of operating losses of an asset or other factors may indicate that a decrease in value hasoccurred which is other-than-temporary. The investment in each of the Real Estate Affiliates is evaluated periodically and as deemed necessary forrecoverability and valuation declines that are other-than-temporary. If the decrease in value of our investment in a Real Estate Affiliate is deemed to be other-than-temporary, our investment in such Real Estate Affiliate is reduced to its estimated fair value. Accordingly, in addition to the property-specific impairmentanalysis that we perform on the investment properties, land held for development and sale and developments in progress owned by such joint ventures (as partof our investment property impairment process described above), we also considered the ownership and distribution preferences and limitations and rights tosell and repurchase our ownership interests.Cash and Cash EquivalentsHighly-liquid investments with maturities at dates of purchase of three months or less are classified as cash equivalents.Notes ReceivableNotes receivable includes amounts due from builders for previous sold lots, primarily at our Maryland master planned community and a note from GGPreceived at the Effective Date in connection with the Plan. This GGP note, also known as the Arizona II lease, has a balance of $25.2 million as ofDecember 31, 2011. The GGP note carries an interest rate of 4.41%, and cash payments under the note are approximately $6.9 million per year through theend of 2015.Deferred ExpensesDeferred expenses consist principally of financing fees and leasing costs and commissions. Deferred financing fees are amortized to interest expense using theeffective interest method (or other methods which approximate the effective interest method) over the terms of the respective financing agreements. Deferredleasing costs and commissions are amortized using the straight-line method over periods that approximate the related lease terms. F-11Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Deferred expenses in our consolidated balance sheets are shown at cost, net of accumulated amortization, of $5.7 million as of December 31, 2011 and $6.6million as of December 31, 2010.Sponsor and Management WarrantsOn the Effective Date, we issued warrants to purchase 8.0 million shares of our common stock to certain of the sponsors of the Plan (the “SponsorsWarrants”) with an estimated initial value of approximately $69.5 million. The initial exercise price for the warrants of $50.00 per share is subject toadjustment for future stock dividends, splits or reverse splits of our common stock or certain other events. Approximately 6.1 million warrants are currentlyexercisable without restriction and approximately 1.9 million warrants are exercisable upon 90 days prior notice for the first 6.5 years after issuance and aresubsequently exercisable without notice any time thereafter. The Sponsors Warrants expire on November 9, 2017.In November 2010 and February 2011, we entered into certain warrant agreements (the “Management Warrants”) with David R. Weinreb, our Chief ExecutiveOfficer, Grant Herlitz, our President, and Andrew C. Richardson, our Chief Financial Officer, in each case prior to his appointment to such position. TheManagement Warrants representing 2,862,687 underlying shares were issued pursuant to such agreements at fair value in exchange for a combined total ofapproximately $19.0 million in cash from such executives at the commencement of their respective employment. Mr. Weinreb and Mr. Herlitz’s warrants haveexercise prices of $42.23 per share and Mr. Richardson's warrant has an exercise price of $54.50 per share. Generally, the Management Warrants becomeexercisable in November 2016 and expire by February 2018.The estimated $102.6 million fair value for the Sponsors Warrants and estimated $25.2 million fair value for the Management Warrants as of December 31,2011, have been recorded as a liability because the holders of these warrants could require HHC to settle such warrants in cash upon a change of control. Thefair values were estimated using an option pricing model and level 3 inputs due to the unavailability of comparable market data. Changes in the fair value ofthe Sponsors Warrants and the Management Warrants are recognized in earnings and, accordingly, warrant liability gains reflecting decreases in value ofapproximately $101.6 million were recognized for the year ended December 31, 2011.Revenue Recognition and Related MattersRental RevenueOperating property revenue consists of minimum rent, percentage rent in lieu of fixed minimum rent, overage rent and tenant recoveries.Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases and include base minimum rent and percentage rent in lieu offixed minimum rent. Percentage rent in lieu of fixed minimum rent recognized from tenants for the years ended December 31, 2011, 2010 and 2009 was $3.9million, $3.9 million and $3.0 million, respectively, and is included in minimum rents in our financial statements. Minimum rent revenues also includeamortization related to above and below-market tenant leases on acquired properties.Straight-line rent receivables, which represent the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of theleases, of $3.3 million as of December 31, 2011 and $2.0 million as of December 31, 2010, are included in Accounts receivable, net in our financialstatements.Overage rent is recognized on an accrual basis once tenant sales exceed contractual thresholds contained in the lease and is calculated by multiplying the tenantsales in excess of the minimum amount by a percentage defined F-12Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS in the lease. Overage rent of approximately $3.0 million, $3.4 million, and $2.7 million for 2011, 2010 and 2009, respectively is included in other rental andproperty revenues.Recoveries from tenants are stipulated in the leases and are generally computed based upon a formula related to real estate taxes, insurance and other real estateoperating expenses and are generally recognized as revenues in the period the related costs are incurred.We provide an allowance for doubtful accounts against the portion of accounts receivable, including straight-line rents, which is estimated to be uncollectible.Such allowances are reviewed periodically based on our recovery experience. This analysis considers the long-term nature of our leases, as a certain portion ofthe straight-line rent currently recognizable will not be billed to the tenant until future periods. Our experience relative to unbilled deferred rent receivable is thata certain portion of the amounts recorded as straight-line rental revenue are never collected from (or billed to) tenants due to early lease terminations. For thatportion of the otherwise recognizable deferred rent that is not deemed to be probable of collection, an allowance for doubtful accounts has been provided.Accounts receivable in our consolidated and combined balance sheets are shown net of an allowance for doubtful accounts of $14.4 million as ofDecember 31, 2011 and $16.3 million as of December 31, 2010. The following table summarizes the changes in allowance for doubtful accounts: 2011 2010 2009 (In thousands) Balance as of January 1 $16,277 $16,812 $21,712 Provision* — 1,782 2,539 Write-offs (1,829) (2,317) (7,439) Balance as of December 31 $14,448 $16,277 $16,812 *Collection of significantly aged receivables previously reserved resulted in no provision in 2011.Resort and Conference Center RevenueRevenue for the resort and conference center is recognized as services are performed and primarily represents room rentals and food and beverage sales.Land and Condominium Sales RevenueRevenues from land sales are recognized using the full accrual method if various criteria provided by GAAP relating to the terms of the transactions and oursubsequent involvement with the land sold are met. Revenues relating to transactions that do not meet the established criteria are deferred and recognized whenthe criteria are met or using the installment or cost recovery methods. Revenue related to builder participation rights is recognized when collected.Cost of land sales is determined as a specified percentage of land sales revenues recognized for each community development project. These cost ratios arebased on actual costs incurred and estimates of future development costs and sales revenues to completion of each project. The ratios are reviewed regularlyand revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or development plans, whether due to changesin market conditions or other factors, could result in changes to the cost ratio used for a specific project. For certain parcels of land, however, the specificidentification method is used to determine the cost of sales including acquired parcels that we do not intend to develop or for which development was completeat the date of acquisition. Expenditures in our MPC business to develop land for sale are classified as an F-13Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS operating activity under real estate acquisition and development expenditures in our consolidated and combined statements of cash flows.Nouvelle at Natick is a 215 unit residential condominium project, located in Natick, Massachusetts. Pursuant to the Plan, only the unsold units at Nouvelleat Natick on the Effective Date were distributed to us and no deferred revenue or sales proceeds from unit closings prior to the Effective Date were allocated tous. As of December 31, 2011, two units were unsold at Nouvelle at Natick. Income related to unit sales subsequent to the Effective Date is accounted for on aunit-by-unit full accrual method.Income TaxesDeferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future taxconsequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determinedbased on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect for the year in which thedifferences are expected to reverse. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance isprovided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuationallowance that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, isincluded in the deferred tax provision. There are events or circumstances that could occur in the future that could limit the benefit of deferred tax assets. Inaddition, we recognize and report interest and penalties, if necessary, related to uncertain tax positions within our provision for income tax expense.In many of our Master Planned Communities, gains with respect to sales of land for commercial use are reported for tax purposes on the percentage ofcompletion method. Under the percentage of completion method, a gain is recognized for tax purposes as costs are incurred in satisfaction of contractualobligations. The method used for determining the percentage complete for income tax purposes is different than that used for financial statement purposes. Inaddition, gains with respect to sales of land for single family residences are reported for tax purposes under the completed contract method. Under thecompleted contract method, a gain is recognized for tax purposes when 95% of the costs of our contractual obligations are incurred or the contractualobligation is transferred.Earnings Per ShareBasic earnings per share (“EPS”) is computed by dividing net income available to common stockholders by the weighted-average number of common sharesoutstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects of all potentially dilutivecommon shares. The dilutive effect of options and nonvested stock issued under stock-based compensation plans is computed using the “treasury stock”method. The dilutive effect of the Sponsors Warrants and Management Warrants is computed using the if-converted method. Gains associated with theSponsors Warrants and Management Warrants are excluded from the numerator in computing diluted earnings per share because inclusion of such gains inthe computation would be anti-dilutive.In connection with the Separation on November 9, 2010, GGP distributed to its stockholders 32.5 million shares of our common stock and approximately5.25 million shares were purchased by certain investors sponsoring the Plan. This share amount is used in the calculation of basic and diluted EPS for theyear ended December 31, 2010 and 2009 as our common stock was not traded prior to November 9, 2010 and there were no dilutive securities in the priorperiods. F-14Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Information related to our EPS calculations is summarized as follows: Years Ended December 31, 2011 2010 2009 (In thousands, except per share amounts) Basic EPS: Numerator: Income (loss) from continuing operations $148,470 $(69,230) $(702,877) Net income attributable to noncontrolling interest (1,290) (201) 204 Income (loss) attributable to common stockholders 147,180 (69,431) (702,673) Discontinued operations - net of tax — — (939) Net income (loss) attributable to common stockholders $147,180 $(69,431) $(703,612) Denominator: Weighted average number of common shares outstanding - basic 37,908 37,726 37,716 Diluted EPS: Numerator: Net income (loss) attributable to common stockholders $147,180 $(69,431) $(703,612) Less: warrant liability gain 101,584 — — Adjusted net income (loss) available to common stockholders $45,596 $(69,431) $(703,612) Denominator: Weighted average number of common shares outstanding - basic 37,908 37,726 37,716 Restricted stock and stock options — — — Warrants 1,074 — — Weighted average number of common shares outstanding - diluted 38,982 37,726 37,716 Basic Earnings (Loss) Per Share Income (loss) from continuing operations attributable to common stockholders $3.88 $(1.84) $(18.64) Discontinued operations attributable to common stockholders — — (0.02) Net income (loss) attributable to common stockholders $3.88 $(1.84) $(18.66) Diluted Earnings (Loss) Per Share Income (loss) from continuing operations attributable to common stockholders $1.17 $(1.84) $(18.64) Discontinued operations attributable to common stockholders — — (0.02) Net income (loss) attributable to common stockholders $1.17 $(1.84) $(18.66) Stock options of 715,137 and restricted stock of 42,553 as of December 31, 2011 and 10,683,726 sponsor and management warrants outstanding as ofDecember 31, 2010 were not included in the computation of diluted EPS above because to do so would have been anti-dilutive.Stock PlansWe apply the provisions ASC 718 (“Stock Compensation”) in our accounting and reporting for stock-based compensation. ASC 718 requires all share-basedpayments to employees, including grants of employee stock F-15Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS options, to be recognized in the income statement based on their fair values. All unvested options outstanding under our option plans have grant prices equal tothe market price of the Company’s stock on the dates of grant. Compensation cost for restricted stock is determined based on the fair market value of the ourstock at the date of grant.Fair Value MeasurementsThe following table presents, for each of the fair value hierarchy levels required under ASC 820, “Fair Value Measurement,” our assets and liabilities that aremeasured at fair value on a recurring basis. December 31, 2011Fair Value Measurements Using December 31, 2010Fair Value Measurements Using Total QuotedPrices inActiveMarketsforIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total QuotedPrices inActiveMarketsforIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) (In thousands) (In thousands) Assets: Interest rate swap $— $— $— $— $— $— $— $— Liabilities Warrants 127,764 — — 127,764 227,348 — — 227,348 Interest rate swaps 4,367 — 4,367 — — — — — The valuation of warrants is based on an option pricing valuation model. The inputs to the model include the fair value of the stock related to the warrants,exercise price of the warrants, term, expected volatility, risk-free interest rate and dividend yield.The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and thediscounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observable marketinterest rate curves.The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level3): December 31 2011 2010 (In thousands) Beginning of year $227,348 $— Warrant liability loss (gain) (101,584) 140,900 Purchases 2,000 86,448 End of year $127,764 $227,348 F-16Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The following tables summarize our assets and liabilities that were measured at fair value on a non-recurring basis as a result of the properties being impaired: 2011 Total FairValueMeasurement Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3) Total LossYear EndedDecember 31, 2011 (In thousands) Investment in Real Estate Affiliates $128,764 (a) $— $— $128,764 (a) $6,053 (b) (a)Represents the fair value of our previously held equity investment in The Woodlands as of the acquisition date. The fair value was derived from the fairvalue of the assets and liabilities acquired in The Woodlands acquisition, which is further discussed in Note 3. As of the acquisition date, TheWoodlands financial condition and results of operations were consolidated. (b)Represents the loss on remeasurement of our previously held equity investment in The Woodlands. 2010 Total FairValueMeasurement Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) Significant OtherObservableInputs(Level 2) SignificantUnobservable Inputs(Level 3) Total (Loss) Gain -Year EndedDecember 31, 2010 (In thousands) Master Planned Communities: Maryland - Columbia (a) $34,823 $— $— $34,823 $(56,798) Maryland - Gateway (a) 1,649 — — 1,649 (2,613) Summerlin South (a) 203,325 — — 203,325 (345,920) Operating Assets: Landmark Mall (b) 23,750 — — 23,750 (24,434) Riverwalk Marketplace (c) 10,179 — — 10,179 (55,975) Strategic Developments: Century Plaza Mall (b) 4,500 — — 4,500 (12,899) Nouvelle at Natick (a) 13,413 — — 13,413 (4,135) Total investments in real estate $291,639 $— $— $291,639 $(502,774) Debt Fair value of emerged entity mortgage debt (d) $65,753 $— $— $65,753 $2,749 Total liabilities $65,753 $— $— $65,753 $2,749 (a)The fair value was calculated based on a discounted cash flow analysis using a property specific discount rate of 20.0%.(b)The fair value is based on estimated sales value.(c)The fair value was calculated based on a discounted cash flow analysis using a property specific discount rate and a residual capitalization rate of 8.5%for both computations.(d)The fair value of debt relates to properties that emerged from bankruptcy in 2010. F-17Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 2009 Total FairValueMeasurement Active Markets forIdentical Assets(Level 1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3) Total (Loss) Gain -Year EndedDecember 31, 2009 (In thousands) Master Planned Communities: Maryland - Fairwood $12,629 $— $12,629 $— $(52,767) Operating Assets: Landmark Mall (a) 49,501 — — 49,501 (27,323) Strategic Developments: The Bridges at Mint Hill 14,100 — 14,100 — (16,636) Elk Grove Promenade 21,900 — 21,900 — (175,280) The Shops at Summerlin Center 46,300 — 46,300 — (176,141) Kendall Town Center (b) 13,931 — — 13,931 (35,089) AllenTowne 25,900 — 25,900 — (29,063) Cottonwood Mall (a) 21,500 — — 21,500 (50,768) Princeton Land East, LLC 8,802 — 8,802 — (8,904) Princeton Land LLC 11,948 — 11,948 — (13,356) Village at Redlands 7,545 — — 7,545 (5,537) Redlands Promenade 6,727 — — 6,727 (6,667) Nouvelle at Natick (b) 64,661 — — 64,661 (55,923) Total investments in real estate $305,444 $— $141,579 $163,865 $(653,454) Debt Fair value of emerged entity mortgage debt (c) $134,089 $— $— $134,089 $11,723 Total liabilities $134,089 $— $— $134,089 $11,723 (a)The fair value was calculated based on a discounted cash flow analysis using a property specific discount rate ranging from 9.25% to 12.00% andresidual capitalization rates ranging from 8.50% to 11.50%.(b)The fair value is based on estimated sales value.(c)The fair value of debt relates to two properties that emerged from bankruptcy in 2009.The estimated fair values of the Company’s financial instruments that are not measured at fair value on a recurring or non recurring basis are as follows: December 31, 2011 December 31, 2010 CarryingAmount EstimatedFair Value CarryingAmount EstimatedFair Value (In thousands) Fixed-rate debt $83,164 $85,047 $191,037 $202,897 Variable-rate debt (a) 468,100 468,100 65,518 65,629 SID bonds (b) 55,213 55,213 62,105 62,105 Total $606,477 $608,360 $318,660 $330,631 (a)As more fully described in Note 7, $172.0 million of variable-rate debt entered into during 2011 has been swapped to a fixed rate for the term of therelated debt.(b)Due to the uncertain repayment terms of special improvement district “SID” bonds, the carrying value approximates fair value. F-18Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The fair value of debt in the table above was estimated based on quoted market prices for publicly traded debt, recent financing transactions, estimates of thefair value of the property that serves as collateral for such debt, historical risk premiums for loans of comparable quality, the current London InterbankOffered Rate (“LIBOR”), a widely quoted market interest rate which is frequently the index used to determine the rate at which we borrow funds, U.S.Treasury obligation interest rates and on the discounted estimated future cash payments to be made on such debt. The discount rates reflect our judgment as towhat the approximate current lending rates for loans or groups of loans with similar maturities and credit quality would be if credit markets were operatingefficiently and assume that the debt is outstanding through maturity. We have utilized available market information or present value techniques to estimate theamounts required to be disclosed. Since such amounts are estimates that are based on limited available market information for similar transactions and do notacknowledge transfer or other repayment restrictions that may exist in specific loans, it is unlikely that the estimated fair value of any of such debt could berealized by immediate settlement of the obligation.The carrying amounts of cash and cash equivalents and accounts receivable approximate fair value because of the short-term maturity of these instruments.The carrying amounts of notes and Municipal Utility Districts receivables are carried at net realizable value which approximates fair value because of theirshort-term nature.Municipal Utility Districts (“MUD”)In Houston, Texas, certain development costs are reimbursable through the creation of MUDs (and Water Control and Improvement Districts), which areseparate political subdivisions authorized by Article 16, Section 59 of the Texas Constitution and governed by the Texas Commission on EnvironmentalQuality (“TCEQ”). MUDs are formed to provide municipal water, waste water, drainage services, recreational facilities and roads to those areas where theyare currently unavailable through the regular city services. Typically, the developer advances funds for the creation of the facilities, which must be designed,bid and constructed in accordance with the City of Houston and TCEQ requirements. The developer initiates the MUD process by filing the applications forthe formation of the MUD, and once the applications have been approved, a board of directors is elected for the MUD and given the authority to issue advalorem tax bonds and the authority to tax residents. The MUD Board authorizes and approves all MUD development contracts and pay estimates. MUDbond sale proceeds are used to reimburse the developer for its construction costs, including interest, and MUD taxes are used to pay the debt service on thebonds and the operating expenses of the MUD. We estimate the costs we believe will be eligible for reimbursement (MUD receivable), and we have not incurredany debt relating to the MUDs.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates andassumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting periods. Estimates and assumptions have been made with respect to useful lives ofassets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivables and deferred taxes, initial valuationsand related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions, impairment of long-lived assets and goodwill, fairvalue of warrants and debt and cost ratios and completion percentages used for land sales. Actual results could differ from these and other estimates. F-19Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Reorganization ItemsReorganization items are expense or income items that were incurred or realized by certain of our subsidiaries as a result of the Chapter 11 Cases and arepresented separately in the Consolidated and Combined Statements of Income (Loss) and Comprehensive Income (Loss). These items include professional feesand similar types of expenses and gains and interest earned on cash accumulated by certain of our subsidiaries, all as a result of the Chapter 11 Cases.Reorganization items specific to the HHC Businesses were allocated to us and reflected in our combined financial statements and in the table presented below.The key employee incentive program (the “KEIP”) was intended to retain certain key employees of GGP during the pendency of the Chapter 11 Cases andprovided for payment (in two installments) to these GGP employees upon successful emergence from bankruptcy. The first KEIP payment was made by GGPon November 12, 2010. As certain of these employees became our employees on the Effective Date, a portion of the KEIP was deemed to relate to us andtherefore, we recognized our KEIP expense in the period from the date the KEIP was approved by the Bankruptcy Court (October 2009) to the Effective Date,in reorganization items on the Combined Statements of Income (Loss) and Comprehensive Income (Loss) in the amount of $13.5 million for the year endedDecember 31, 2010.Reorganization items are as follows: December 31, Reorganization Items 2010 2009 (In thousands) Gains on liabilities subject to compromise - vendors (a) $(791) $(99) Gains on liabilities subject to compromise, net - mortgage debt (b) (2,749) (11,723) Interest income (c) (16) (4) U.S. Trustee fees 571 226 Restructuring costs (d) 60,267 18,274 Total reorganization items $57,282 $6,674 (a)This amount includes gains from repudiation, rejection or termination of contracts or guarantee of obligations. Such gains reflect agreements reachedwith certain critical vendors, which were authorized by the Bankruptcy Court and for which payments on an installment basis began in July 2009.(b)Such net gains include the Fair Value adjustments of mortgage debt relating to entities that emerged from bankruptcy.(c)Interest income primarily reflects amounts earned on cash accumulated as a result of our Chapter 11 Cases.(d)Restructuring costs primarily include professional fees incurred related to the bankruptcy filings, our allocated share of the KEIP payment, financecosts incurred by debtors upon emergence from bankruptcy and any associated write-off of unamortized deferred finance costs.Recently Issued Accounting PronouncementsIn June 2011, the Financial Accounting Standards Board (“FASB”) issued a new standard which changes the requirements for presenting comprehensiveincome in the financial statements. The new standard eliminates the option to present other comprehensive income (“OCI”) in the statement of stockholders’equity and instead requires net income, components of OCI, and total comprehensive income to be presented in one continuous F-20Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS statement or two separate but consecutive statements. HHC had elected to present OCI in one continuous statement in its previous filings and accordingly, theeffective date of this standard will not have an effect on our results of operations, financial position, or cash flows in our consolidated financial statements.In May 2011, the FASB issued “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” Thestandard revises guidance for fair value measurement and expands the disclosure requirements. It is effective for fiscal years beginning after December 15,2011. We are currently evaluating the impact that the adoption of this standard will have on our Consolidated Financial Statements. NOTE 3ACQUISITIONOn July 1, 2011, we acquired for $117.5 million our partner’s 47.5% economic interest (represented by a 57.5% legal interest) in The Woodlands. We madethe acquisition so that we can control attractive residential and commercial assets and to internalize The Woodlands platform to benefit our MPC business. Asa result of the acquisition, we now consolidate The Woodlands operations and our consolidated financial statements are therefore not comparable to priorperiods. Please refer to Note 16 Segments, for a presentation of the results as if we owned 100% of The Woodlands, for all periods presented.On the acquisition date, The Woodlands had approximately 1,324 acres of unsold residential land, representing approximately 4,395 lots, and approximately962 acres of unsold land for commercial use. The Woodlands also had full or partial ownership interests in commercial properties totaling approximately434,328 square feet of office space, 203,282 square feet of retail and service space, 865 rental apartment units, and also owns and operates a 440-room resortand conference center facility and a 36-hole golf and country club. We paid $20.0 million in cash at closing and the remaining $97.5 million of the purchaseprice was represented by a non-interest bearing promissory note which we repaid from available cash on hand on December 1, 2011. There was no contingentconsideration related to this acquisition.The assets and liabilities of The Woodlands were consolidated into our financial statements at fair value as of the acquisition date according to the followingmethodologies: • The fair value of the Master Planned Community assets which consists of residential and commercial land held for development and sale wasdetermined using a discounted cash flow analysis; • The fair value of the commercial properties acquired, consisting of land and buildings, was determined by valuing the property as if it werevacant, and the “as-if-vacant” value was then allocated between land and buildings. The ”as-if-vacant” values were derived from several sourceswhich primarily included a discounted cash flow analysis using discount and capitalization rates based on recent comparable markettransactions, where available. The buildings are depreciated over the estimated useful life of 40 years using the straight-line method; • The value of above-market and below-market in-place leases for The Woodlands operating assets was based on the present value (using a discountrate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) management’s estimate of current market lease rates, measured over the remaining non-cancelable lease term. We record thefair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustmentto minimum rents over the lease term; • The estimated fair value for in-place leases included an estimate of carrying costs during the expected lease-up periods. In estimating the carryingcosts that would have otherwise been incurred had the F-21Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS leases not been in place, we included such items as real estate taxes, insurance and other operating expenses as well as lost rental revenue duringthe expected lease-up period based on current market conditions; • The fair value for working capital items such as cash, Municipal Utility District receivables, prepaid expenses, accounts payable and accruedexpenses was determined based on the carrying value due to the short term nature of these items; and • The debt assumed was primarily variable rate debt and fixed rate debt with short term maturities; therefore, the fair value was assumed to be thecarrying value.On the acquisition date, we consolidated $587.6 million of assets and $338.6 million of liabilities relating to The Woodlands. Consolidation of TheWoodlands net assets resulted in a $3.9 million after-tax loss on the remeasurement of the carrying value of our existing 52.5% economic interest which had a$134.8 million net book value at June 30, 2011. The loss is recorded in the Investment in real estate affiliate basis adjustment line on our consolidated andcombined statements of Income (Loss) and Comprehensive Income (Loss). For periods prior to July 1, 2011, our investment in The Woodlands was accountedfor using the equity method. This business combination did not represent a significant acquisition of assets under the SEC rules.The following table summarizes amounts recorded for the assets acquired and liabilities assumed at the acquisition date: (In thousands) Master Planned Community Assets $264,889 Land 44,597 Buildings and Equipment 116,061 Investments in Real Estate Affiliates 42,932 Cash 25,492 Accounts receivable 7,548 Notes receivable 3,189 Municipal Utility District receivables 61,700 Other assets 21,150 Total assets 587,558 Mortgages, notes and loans payable (296,695) Accounts payable and accrued expenses (41,900) Noncontrolling interests (3,700) Total liabilities and noncontrolling interests (342,295) Total identifiable net assets $245,263 Included in the consolidated statements of income (loss) and comprehensive income (loss) since the acquisition date are revenues of $84.6 million and netincome of $0.5 million for the six months ended December 31, 2011. The net income includes the impact of purchase accounting adjustments, including a$6.1 million increase in cost of sales to reflect the step-up in basis of finished lot inventory sold during the six months ended December 31, 2011. F-22Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Pro Forma InformationThe following pro forma information for the years ended December 31, 2011 and 2010 was prepared as if The Woodlands acquisition had occurred as of thebeginning of such period: Year Ended December 31, 2011 2010 (In thousands) Total Revenues $357,472 $294,310 Net income (loss) 157,520 (52,081) Pro forma adjustments were made for: (1) purchase accounting, including; (a) depreciation for the step-up in basis for property, plant and equipment;(b) amortization of in-place and above/below market leases; (c) Land Cost of sales increase for step-up in land basis for finished lots acquired and sold; and(d) elimination of amortization of deferred financing costs, prepaid commissions and deferred profits and; (2) adjustments for interest expense which iscapitalizable in accordance with our interest capitalization policy. We applied a 36% effective tax to The Woodlands results in order to compute pro forma netincome (loss).The pro forma information is not necessarily indicative of the results that would have occurred had the acquisition occurred as of the beginning of the periodpresented, nor is it necessarily indicative of future results. NOTE 4IMPAIRMENTGeneralAlthough there were no impairment charges for the year ended December 31, 2011, Park West continues to suffer from a weak market and its occupancy was64.9% at December 31, 2011. We are focused on attracting tenants who can drive increased traffic during the day and evening, such as entertainmentconcepts. If we are unsuccessful at increasing occupancy and traffic, many of our existing tenants may be unable to continue to occupy their leased spacesbecause their sales volume will likely be inadequate to support their operating costs, which would reduce our expected cash flows and result in a significantimpairment. Impairment charges totaled $503.4 million and $680.3 million for the years ended December 31, 2010 and 2009, as presented in the table below.These impairment provisions resulted from an evaluation of impairment indicators for our properties, including considerations of revised strategies andoperating philosophies and, with properties with such indicators, the undiscounted cash flows of the projects as compared to their carrying values. AtDecember 31, 2010, although an additional four regions or projects within our master planned communities segment and four additional operating propertieshad carrying values in excess of estimated fair values based on current occupancy levels, cash flow and use of the property, no additional provisions forimpairment were considered necessary for such projects and properties. These impairment charges are included in provisions for impairment in ourconsolidated and combined statement of income (loss) and comprehensive income (loss) for the years ended December 31, 2010 and 2009.Circle T also recorded impairment charges of $38.1 million for the year ended December 31, 2009 relating to the assets of our non-consolidated Real EstateAffiliates, of which our share was $19.0 million, and which was included in our Equity in income (loss) from Real Estate Affiliates. In addition to theimpairment charges recorded by the Circle T venture, we recorded impairment charges related to our investment in Circle T of $10.6 million for the year endedDecember 31, 2009 to write these investments down to their estimated fair value, with such provisions reflected in our Equity in earnings (loss) from RealEstate Affiliates. No provisions for impairment were recorded for the years ended December 31, 2011 and 2010 related to our investments in Real EstateAffiliates. F-23Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Summary of all impairment provisions: Year EndedDecember 31, Impaired Asset Location Method of Determining Fair Value 2010 2009 (In thousands) Master Planned Communities: Maryland- Gateway Howard County, MD Projected sales price analysis (a) (c) $2,613 $— Maryland- Columbia Columbia, MD Projected sales price analysis (a) (c) 56,798 — Maryland- Fairwood Columbia, MD Projected sales price analysis (a) (c) — 52,767 Summerlin-South Las Vegas, NV Projected sales price analysis (a) (c) 345,920 — 405,331 52,767 Operating Assets: Landmark Alexandria, VA Discounted cash flow analysis (a) (c) 24,434 27,323 Riverwalk Marketplace New Orleans, LA Discounted cash flow analysis (c) 55,975 — Various pre-development costs (b) 514 23,641 80,923 50,964 Strategic Developments: Allen Allen, TX Projected sales price analysis (a) (c) — 29,063 Cottonwood Mall Holladay, UT Comparable property market analysis — 50,768 Kendall Miami, FL Projected sales price analysis (c) — 35,089 West Windsor Princeton, NJ Projected sales price analysis (c) — 22,260 Bridges at Mint Hill Charlotte, NC Projected sales price analysis (b) — 16,636 Elk Grove Promenade Elk Grove, CA Projected sales price analysis (c) — 175,280 The Shops at Summerlin Centre Las Vegas, NV Projected sales price analysis (c) — 176,141 Century Plaza Mall Birmingham, AL Projected sales price analysis (a) (d) 12,899 — Redlands Promenade Redlands, CA Projected sales price analysis (a) (c) — 6,667 Village at Redlands Redlands, CA Projected sales price analysis (a) (b) — 5,537 Nouvelle at Natick Natick, MA Discounted cash flow analysis (c) 4,135 55,923 Various pre-development costs (b) 68 3,254 17,102 576,618 Total provisions for impairment $503,356 $680,349 Real Estate Affiliates (REA): The Shops at Circle T Ranch Dallas, TX Projected sales price analysis (d) $— $17,062 Circle T Power Center Dallas, TX Projected sales price analysis (d) — 21,020 Total provisions for impairment on property held by REA $— $38,082 The Shops at Circle T Ranch Dallas, TX $— $8,531 Circle T Power Center Dallas, TX — 10,510 Total provisions for impairment on property held by REA at share $— $19,041 Impairment of Circle T investment (e) $— $10,600 (a)Projected sales price analysis incorporates available market information and other management assumptions.(b)Related to the write down of various pre-development costs that were determined to be non-recoverable due to the related projects being terminated. F-24Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (c)These impairments were primarily driven by the carrying value of the assets, including costs expected to be incurred, not being recoverable by theprojected sales price of such assets.(d)These impairments were primarily driven by management’s changes in current plans with respect to the property and measured based on the value of theunderlying land, which is based on comparable property market analysis or a projected sales price analysis that incorporates available marketinformation and other management assumptions as these properties are either no longer operational or operating with no or nominal income.(e)Reflected in our equity in earnings (loss) of Real Estate Affiliates. NOTE 5INTANGIBLESIntangible Assets and LiabilitiesThe following table summarizes our intangible assets and liabilities: Gross Asset(Liability) Accumulated(Amortization)/ Accretion NetCarryingAmount (In thousands) As of December 31, 2011 Tenant leases: In-place value $23,586 $(11,721) $11,865 Above-market 2,952 (1,938) 1,014 Below-market (347) 28 (319) Ground leases: Above-market (3,545) 797 (2,748) Below-market 23,096 (2,416) 20,680 As of December 31, 2010 Tenant leases: In-place value $11,824 $(10,221) $1,603 Above-market 1,820 (1,701) 119 Below-market (77) 77 — Ground leases: Above-market (3,545) 638 (2,907) Below-market 23,096 (2,078) 21,018 The increase in tenant lease assets as of December 31, 2011 compared to December 31, 2010 relates to The Woodlands acquisition and consolidation. Weacquired commercial properties with leases in place and a portion of the fair market values of the properties was assigned to the leases.The balances of the in-place value of tenant leases are included in Prepaid expenses and other assets in our Consolidated Balance Sheets. Acquired in-place at-market tenant leases are amortized over periods that approximate the related lease terms. The above-market and below-market tenant and ground leases areincluded in Prepaid expenses and other assets and Accounts payable and accrued expenses as detailed in Note 13. Above and below-market lease values areamortized over the remaining non-cancelable terms of the respective leases.Amortization/accretion of these intangible assets and liabilities decreased our income by $2.0 million in 2011, $0.8 million in 2010 and $0.3 million in 2009.Future amortization is estimated to decrease income by $2.2 million in 2012, $2.1 million in 2013, $1.8 million in 2014, $1.5 million in 2015, $1.1 millionin 2015 and $21.0 million thereafter. F-25Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE 6REAL ESTATE AFFILIATESIn the ordinary course of business, we enter into partnerships or joint ventures primarily for the development and operations of real estate assets. Thesepartnerships or joint ventures are typically characterized by a non-controlling ownership interest with decision making and distribution of expected gains andlosses being proportionate to the ownership interest. We account for these partnerships and joint ventures in accordance with ASC 810.In accordance with ASC 810, as amended, we assess our joint ventures at inception to determine if any meet the qualifications of a variable interest entity(“VIE”). We consider a partnership or joint venture a VIE if: (a) the total equity investment is not sufficient to permit the entity to finance its activities withoutadditional subordinated financial support; (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through votingor other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity); or (c) the voting rightsof the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returnsof the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.Upon the occurrence of certain events outlined in ASC 810, we reassess our initial determination of whether the partnership or joint venture is a VIE. We alsoperform a qualitative assessment of each VIE to determine if we are the primary beneficiary, as required by ASC 810, as amended.We account for investments in joint ventures deemed to be variable interest entities for which we are not considered to be the primary beneficiary using theequity method, and investments in joint ventures where we have virtually no influence on the joint venture’s operating and financial policies, on the costmethod. Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets, liabilities and funding obligations are shared inaccordance with our ownership percentages.The aggregate carrying value of the unconsolidated VIEs was $3.2 million as of December 31, 2011 and was classified as investments in real estate affiliatesin the Consolidated Balance Sheet. We did not participate in any VIEs in 2010. Because these joint ventures are in the pre-development stage there were noearnings for the year ended December 31, 2011. Our maximum exposure to loss as a result of these investments is limited to the aggregate carrying value of theinvestment, as we have not provided any guarantees on behalf of these VIEs.Below is a discussion of our VIEs and the related accounting considerations.Columbia Parcel D Joint VentureOn October 27, 2011, we entered into a joint venture with a local developer to construct a Class A apartment building with ground floor retail space indowntown Columbia, MD. As we and our partner each own 50% of the venture, and unanimous consent of the partners is required for all major decisions, weaccount for our investment in this venture using the equity method.Ala Moana Condominium Development Joint VentureOn October 11, 2011, we entered into a joint venture with two local developers and formed HHMK Development, LLC to explore the development of a luxurycondominium tower at the Ala Moana Center, Honolulu, HI. As we and our partner each own 50% of the venture, and unanimous consent of the partners isrequired for all major decisions, we account for our investment in the venture using the equity method. F-26Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Bridges at Mint Hill Joint VentureOn September 8, 2011, we entered into a joint venture with the owner of land adjacent to our property to jointly develop a shopping center near Charlotte, NC.Our initial ownership in the venture is 79.0%, and our ownership percentage could increase to 90.5% if we are required to make a $4.5 million cashcontribution related to the mortgage secured by our partner. Our partner has consent rights on all major decisions regarding the venture so long as its interest isat least 21.0%.OtherOur interest in Westlake Retail Associates, Ltd (“Circle T Ranch”) and 170 Retail Associates (“Circle T Power Center”), and together with Circle T Ranch,(“Circle T”), located in Dallas/Fort Worth, Texas is held through joint venture entities in which we own non-controlling interest and are unconsolidated andaccounted for on the equity method. Waterway Ave Partners, L.L.C. (“Millennium Waterway Apartments”), FV-93 Limited and Timbermill-94 Limited(“Forest View and Timbermill Apartments”), Woodlands Sarofim #1 Ltd. (“Woodlands Sarofim”) industrial buildings and Stewart Title of MontgomeryCounty, Inc. (“Stewart Title”), all located in The Woodlands and collectively referred to as “The Woodlands Equity Investments”, are reflected in our financialstatements as Real Estate Affiliates and are accounted for on the equity method.As of July 1, 2011, The Woodlands is consolidated and no longer a Real Estate Affiliate and The Woodlands equity method investments are considered RealEstate Affiliates (refer to Note 1). Economic Ownership Carrying Value Share of Earnings December 31, December 31, December 31, 2011 2010 2011 2010 2011 2010 2009 (in percentages) (in thousands) The Woodlands 52.5% $— $131,090 $3,731 $9,417 $149 Circle T 50.00% 50.0% 9,004 9,004 (1) (4) (29,645) Millennium Waterway Apartments 83.55% 21,998 — 682 — — Woodlands Sarofim #1 20.00% 2,456 — 64 — — Stewart Title (title company) 50.00% 3,643 — 204 — — Forest View/ Timbermill Apartments 50.00% 11,709 — 5 — — Bridges at Mint Hill, LLC 79.00% 180 — — — — Parcel D Development, LLC 50.00% 2,990 — — — — HHMK Development, LLC 50.00% — — — — — 51,980 140,094 4,685 9,413 (29,496) Cost basis investments (a) 12,978 9,449 3,893 — 1,287 Investment in Real Estate Affiliates $64,958 $149,543 $8,578 $9,413 $(28,209) (a)Share of Earnings represents dividends received from Summerlin Hospital Medical Center. F-27Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE 7MORTGAGES, NOTES AND LOANS PAYABLEThe following table presents our mortgages, notes, and loans payable by property: Property Maturity InterestRate MaximumFacilityAmount Carrying Value December 31,2011 2010 (In thousands) 110 N. Wacker (a) October 2019 5.21% $29,000 $28,276 Bridgeland Note #1 May 2026 6.50% 15,138 15,757 Note #2 December 2017 6.50% 3,180 3,600 Note #3 June 2033 6.50% 2,053 2,086 Note #4 December 2021 6.50% 233 311 Bridgeland Acquisition — 6,870 Bridgeland Total 20,604 28,624 Special Improvement District Summerlin South - S108 December 2016 5.95% 1,302 1,519 Summerlin South - S124 December 2019 5.95% 378 414 Summerlin South - S128 December 2020 7.30% 862 934 Summerlin South - S128C December 2030 6.05% 5,956 6,164 Summerlin South - S132 December 2020 7.88% 5,378 5,366 Summerlin South - S151 June 2025 6.00% 12,293 15,699 Summerlin West - S808 April 2021 7.75% 682 1,580 Summerlin West - S809 April 2023 6.65% 1,000 2,253 Summerlin West - S810 April 2031 7.13% 22,770 23,316 The Shops at Summerlin Centre - S128 December 2030 6.05% 3,829 4,066 The Shops at Summerlin Centre - S108 December 2016 5.95% 713 793 SID Payable to Nevada Cancer Institute December 2019 5.95% 50 59 Total Special Improvement District bonds 55,213 62,163 The Woodlands (b) Master credit facility (c) March 2015 5.00% $270,000 183,000 — Resort and Conference Center (d) October 2012 5.50% 36,100 — 2201 Lake Woodlands Drive November 2016 5.25% 4,803 — Weiner Tract January 2013 6.25% 1,479 — Land in Montgomery Co. December 2012 6.00% 649 — Land in Harris Co. January 2013 6.00% 381 — Capital lease obligation - — 147 — CVS upon sale 3.25% 101 — 4 Waterway December 2023 4.88% 41,000 — 9303 New Trails December 2023 4.88% 14,000 — The Woodlands Total 281,660 — Ward Centers Victoria Ward — 394 Ward Gateway Center — 80,284 Ward Warehouse — 65,518 Ward Entertainment Center — 29,370 VWL-Ward Centers — 24,031 Victoria Ward (e) September 2016 3.45% $250,000 220,000 — Ward Centers Total 220,000 199,597 $606,477 $318,660 F-28Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (a)Loan has a stated interest rate of one-month LIBOR + 2.25%. The $29.0 million outstanding principal balance is swapped to a 5.21% fixed rate throughmaturity.(b)The Woodlands was a non-consolidated equity investment as of December 31, 2010. Refer to Note 3- Acquisition.(c)Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor.(d)Loan bears interest at one-month LIBOR + 4.00% and has a 1.00% LIBOR floor. The rate increased by 0.5% on September 23, 2011 and increases by0.5% every six months thereafter until maturity.(e)Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.81% fixed ratethrough maturity.The weighted average interest rate on our mortgages, notes and loans payable, inclusive of interest rate hedges but excluding the acquisition note and capitallease obligation, was 4.65% and 5.14% as of December 31, 2011 and December 31, 2010, respectively. The weighted average interest rate on our mortgages,notes and loans payable excluding interest rate hedges was 4.68% and 5.14% as of December 31, 2011 and 2010, respectively.Mortgages, notes and loans payable are summarized as follows: December 31, 2011 2010 (In thousands) Fixed-rate debt: Collateralized mortgages, notes and loans payable $83,164 $191,037 Special Improvement District bonds 55,213 62,105 Variable-rate debt: Collateralized mortgages, notes and loans payable 468,100 65,518 Total mortgages, notes and loans payable $606,477 $318,660 The following table summarizes the contractual obligations relating to our long-term debt as of December 31, 2011: Long-term debtprincipal payments (In thousands) 2012 $52,166 2013 31,896 2014 35,553 2015 126,670 2016 232,639 Subsequent/Other 127,553 Total $606,477 Collateralized Mortgages, Notes and Loans PayableAs of December 31, 2011, we had $606.5 million of collateralized mortgages, notes and loans payable. Approximately $281.7 million of the debt included inthe table above is related to The Woodlands, which was consolidated on July 1, 2011. All of the debt is non-recourse and is secured by the individualproperties as listed in the table above, except for The Woodlands Master Credit Facility and Resort and Conference Center Loan which is recourse to thepartnerships that directly own The Woodlands operations, and a $7.0 million corporate recourse guarantee associated with the 110 N. Wacker mortgage,which is more fully discussed below. The F-29Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Bridgeland MPC loan is secured by approximately 7,182 acres of land within the Bridgeland MPC and a security interest in its Municipal Utility Districtreceivables. In addition, certain of our loans contain provisions which grant the lender a security interest in the operating cash flow of the property thatrepresents the collateral for the loan. Such provisions are not expected to impact our operations in 2012. Certain mortgage notes may be prepaid, but may besubject to a prepayment penalty equal to a yield-maintenance premium, defeasance or a percentage of the loan balance.The Woodlands Master Credit Facility is a $270.0 million facility consisting of a $170.0 million term loan and a $100.0 million revolving credit line (together,the “TWL Facility”). As of December 31, 2011, the TWL Facility had an outstanding balance of $183.0 million. The TWL Facility bears interest at one-month LIBOR plus 4.0% with a 1.0% LIBOR floor, has a March 29, 2014 initial maturity date and a one-year extension at borrower’s option. The TWLFacility also contains certain restrictions or covenants that, among other things, require the maintenance of specified financial ratios, restrict the incurrence ofadditional indebtedness at The Woodlands, and limit distributions from The Woodlands to us. Until The Woodlands leverage, as defined by the creditagreement, is less than a 40.0% loan to value ratio, we must amortize the debt on a dollar for dollar basis for any distributions that we make from TheWoodlands. As of December 31, 2011, leverage was approximately 45.5%. There was $34.2 million of undrawn and available borrowing capacity under theTWL Facility based on the collateral underlying the facility and covenants as of December 31, 2011. The TWL Facility also requires mandatory principalamortization payments during its initial term and during the extension period, if exercised. Repayments of $10.0 million, $25.0 million and $30.0 million arerequired on March 29 of 2012, 2013 and, if extended, 2014, respectively. Furthermore, $10.0 million is due on each of June 29, September 29 andDecember 29, 2014 during the extension period.The Woodlands Resort and Conference Center loan has a $36.1 million outstanding balance as of December 31, 2011, matures on October 30, 2012 and maybe extended for one year at our option. The loan bears interest at one-month LIBOR plus 4.5% as of December 31, 2011 and has a 1.0% LIBOR floor. Theinterest rate increased by 0.5% on September 23, 2011 and increases by 0.5% every six months thereafter until maturity. The loan is secured by a 440 roomsand 40 acre conference center and resort located within The Woodlands, and requires the maintenance of specified financial ratios.On December 5, 2011, we secured a $55.0 million loan for 4 Waterway Square and 9303 New Trails. Proceeds from the loan were partially used to refinancea $13.1 million mortgage secured by 9303 New Trails. The excess proceeds were used to partially repay the credit facility and to increase unrestricted cash.The loan matures in December 2023 and has a fixed interest rate of 4.88%.On September 30, 2011, we closed on a $250.0 million non-recourse first mortgage financing secured by the Ward Centers in Honolulu, Hawaii, that bearsinterest at LIBOR plus 2.50%. The loan matures on September 29, 2016, and $143.0 million of the principal balance was swapped to a 3.81% fixed rate forthe term of the loan. The initial loan proceeds of $212.5 million were used to repay approximately $208.7 million of mortgage debt and to fund closing costs.The loan may be drawn to a maximum $250.0 million to fund capital expenditures at the property, provided that the outstanding principal balance cannotexceed 65% of the property’s appraised value and the borrowers are required to have a minimum 10.0% debt yield in order to draw additional loan proceedsunder the facility. The loan also permits partial repayment during its term in connection with property releases for development. The repayment of threemortgages previously secured by Ward Centers resulted in an $11.3 million pre-tax loss on early repayment of debt. The mortgages had been recorded atdiscounts to their outstanding principal balances because they were recorded at their fair values as part of the reorganization transactions in 2010. The loanhad a $220.0 million outstanding balance as of December 31, 2011. F-30Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS On May 10, 2011, we closed a $29.0 million first mortgage financing secured by our office building located at 110 N. Wacker Drive in Chicago, Illinois andbearing interest at LIBOR plus 2.25%. At closing, the interest rate on the loan was swapped to a 5.21% fixed rate for the term of the loan. The loan matures onOctober 31, 2019 and its term is coterminous with the expiration of the first term of the existing tenant's lease (Note 11). The loan has an interest-only periodthrough April 2015 and, thereafter, amortizes ratably to $12.0 million through maturity. The proceeds from the financing were used to repay the existing$28.2 million mortgage and to pay closing costs and other expenses. We provided a $7.0 million repayment guarantee for the loan, which is reduced on adollar for dollar basis during the amortization period.As of December 31, 2011, $1.1 billion of land, buildings and equipment and developments in progress (before accumulated depreciation) have been pledgedas collateral for our mortgages, notes and loans payable of which $7.0 million is recourse.As of December 31, 2011, we were in compliance with all of the financial covenants related to our debt agreements.Special Improvement Districts BondsThe Summerlin master planned community uses Special Improvement District bonds to finance certain common infrastructure. These bonds are issued bythe municipalities and, although unrated, are secured by the assessments on the land. They are tax exempt for federal income tax purposes. The majority ofproceeds from each bond issued is held in a construction escrow and dispersed to us as infrastructure projects are completed, inspected by the municipalitiesand approved for reimbursement and, accordingly, the Special Improvement District bonds have been classified as a receivable. The Summerlin masterplanned community pays the debt service on the bonds semi-annually, but receives reimbursement of all principal paid from most of the purchasers of itsland; generally, resulting in no gain or loss relating to the Special Improvement District bonds. In addition, as Summerlin sells land, the purchasers assume aproportionate share of the bond obligation.Letters of Credit and Surety BondsWe had outstanding letters of credit and surety bonds of $41.6 million as of December 31, 2011 and $38.7 million as of December 31, 2010. These letters ofcredit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations. NOTE 8DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIESWe are primarily exposed to interest rate risks related to our variable interest debt, and we seek to manage this risk by utilizing interest rate swap and capinstruments to minimize this exposure.Our objectives in using interest rate derivatives are to add stability to interest costs by reducing our exposure to interest rate movements. To accomplish thisobjective and predictability, we primarily use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designatedas cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements withoutexchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty ifinterest rates rise above the strike rate on the contract in exchange for an up-front premium.The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated OtherComprehensive Income (“AOCI”) and is subsequently reclassified into earnings F-31Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS in the period that the hedged forecasted transaction affects earnings. During 2011, such derivatives were used to hedge the variable cash flows associated withexisting variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years endedDecember 31, 2011, the amount of ineffectiveness was immaterial. We did not utilize any derivative instruments for hedging purposes in 2010.Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. Over the next12 months, we estimate that an additional $1.8 million will be reclassified as an increase to interest expense.As of December 31, 2011, we had gross notional amounts of $172.0 million of interest rate swaps and a $100.0 million interest rate cap that were designatedas cash flow hedges of interest risk. The fair value of the interest rate cap derivative was immaterial.The table below presents the fair value of our derivative financial instruments as well as the classification on the Balance Sheet as of December 31, 2011 and2010: As of December 31, 2011 2010 Balance Sheet Location Fair Value Fair Value (In thousands) Interest Rate Swaps Accounts payable and accrued expenses $(4,367) $— Total derivatives designated as hedging instruments $(4,367) $— The table below present the effect of our derivative financial instruments on the Statement of Income (Loss) for the years ended December 31, 2011 and 2010: Year Ended December 31, Location of LossReclassified fromAccumulated OCIinto Earnings Year Ended December 31, 2011 2010 2011 2010 Cash Flow Hedges Amount of (Loss)Recognized in OCI Amount of Gain(Loss) Recognizedin OCI Amount of (Loss)Reclassified fromAccumulated OCIinto Earnings Amount of Gain or(Loss) Reclassifiedfrom AccumulatedOCI into Earnings (In thousands) (In thousands) Interest Rate Swaps $(4,047) $— Interest Expense $(696) $— $(4,047) $— $(696) $— NOTE 9INCOME TAXESWe are taxed as a C corporation after November 9, 2010. One of our consolidated entities, Victoria Ward, Limited (“Ward”, substantially all of which isowned by us) elected to be taxed as a REIT under sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with thetaxable year beginning January 1, 2002. To qualify as a REIT, Ward must meet a number of organizational and operational requirements, includingrequirements to distribute at least 90% of its ordinary taxable income and to distribute to stockholders or pay tax on 100% of capital gains and to meet certainasset and income tests. Ward has satisfied such REIT distribution requirements for 2011 and 2010, and presently we intend to continue to operate Ward as aREIT. As a REIT, Ward is ordinarily not subject to income taxes; however, Ward is required to make annual distributions to its shareholders, and theshareholders are taxed on these distributions. F-32Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS As of December 31, 2011, the bases of Ward included in our Consolidated Financial Statements exceeds the tax bases in Ward by $173.3 million.GGP received a private letter ruling from the Internal Revenue Service (the “IRS”) with respect to the tax effect of the transfer of assets from our predecessors toHHC and to the effect that the distribution of HHC stock to GGP’s shareholders in the separation would qualify as tax-free to GGP and its subsidiaries forU.S. federal income tax purposes. A private letter ruling from the IRS generally is binding on the IRS. The IRS did not rule that the distribution satisfies everyrequirement for a tax-free spin-off, and the parties have relied, and will rely, solely on the advice of counsel for comfort that such additional requirements aresatisfied.The provision for (benefit from) income taxes for the years ended December 31, 2011, 2010 and 2009 was as follows: 2011 2010 2009 (In thousands) Current $936 $2,658 $(849) Deferred (19,261) (636,117) (23,120) Total $(18,325) $(633,459) $(23,969) The 2010 income tax provision includes significant tax amounts recognized immediately prior to the Separation related to assets previously held in REITentities for which no income tax provision was recorded. Upon transfer of the assets to a taxable entity a net tax benefit was recorded to reflect the excess of taxbasis over the book basis of transferred assets. In addition, the 2010 income tax provision also reflects deferred tax benefits recognized after the Separation dueto impairment losses.Income tax expense is computed by applying the Federal corporate tax rate for the years ended December 31, 2011, 2010 and 2009 and is reconciled to theprovision for income taxes as follows: 2011 2010 2009 (In thousands) Tax at statutory rate on earnings from continuing operations before incometaxes $45,099 $(245,942) $(254,653) Increase (decrease) in valuation allowance, net (13,110) 61,649 7,267 State income taxes, net of Federal income tax benefit 2,243 (7,969) (2,728) Tax at statutory rate on REIT entity earnings not subject to Federal incometaxes 1,204 2,193 220,836 Tax expense (benefit) from change in rates, provision adjustments and otherpermanent differences (20,829) (8,811) 257 Non-deductible warrant liability (gain) loss (35,859) 49,315 — Non-taxable interest income (2,990) — — Non-deductible restructuring costs — 17,352 — Tax benefit from tax related restructuring — (509,970) — Expiration of capital loss carryforwards — — 3,726 Uncertain tax position expense, excluding interest 364 1,667 — Uncertain tax position interest, net of Federal income tax benefit 5,553 7,057 1,326 Income tax benefit $(18,325) $(633,459) $(23,969) F-33Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Realization of a deferred tax benefit is dependent upon generating sufficient taxable income in future periods. Our net operating loss carry-forwards arecurrently scheduled to expire in subsequent years through 2032. Some of the net operating loss carry-forward amounts are subject to annual limitations underSection 382 of the Code. This annual limitation under Section 382 is subject to modification if a taxpayer recognizes what are called ‘‘built-in gain items.’’ It ispossible that we could, in the future, experience a change in control pursuant to Section 382 that could put additional limits on the benefit of deferred taxassets.As of December 31, 2011, the amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes are as follows: Amount ExpirationDate (In thousands) Net operating loss carryforwards - Federal $84,687 2024-2032Net operating loss carryforwards - State 225,036 2011-2032Tax credit carryforwards - Federal AMT 1,724 n/aAs of December 31, 2011 and 2010, we had gross deferred tax assets totaling $384.5 million and $367.9 million, and gross deferred tax liabilities of $403.2million and $376.2 million, respectively. We have established a valuation allowance in the amount of $57.3 million and $70.4 million as of December 31,2011 and 2010, respectively, against certain deferred tax assets for which it is more likely than not that such deferred tax assets will not be realized. Deferredtax assets that we believe have only a remote possibility of realization have not been recorded.The tax effects of temporary differences and carryforwards included in the net deferred tax liabilities at December 31, 2011 and 2010 are summarized asfollows: 2011 2010 (In thousands) Property Associated with Master Planned Communities, primarily differences in the tax basis of land assets and treatmentof interest and other costs $(189,147) $(171,351) Operating property, primarily differences in basis of assets and liabilities 226,097 210,587 Deferred income (214,065) (204,828) Interest deduction carryforwards 110,649 122,330 Operating loss and tax credit carryforwards 47,776 34,968 Valuation allowance (57,276) (70,386) Net deferred tax liabilities $(75,966) $(78,680) The deferred tax liability associated with the master planned communities is largely attributable to the difference between the basis and value determined as ofthe date of the acquisition by our predecessors of The Rouse Company (“TRC”) in 2004 adjusted for sales that have occurred since that time. The cash costrelated to this deferred tax liability is dependent upon the sales price of future land sales and the method of accounting used for income tax purposes. Thedeferred tax liability related to deferred income is the difference between the income tax method of accounting and the financial statement method of accountingfor prior sales of land in our Master Planned Communities.Although we believe our tax returns are correct, the final determination of tax examinations and any related litigation could be different than what was reportedon the returns. In our opinion, we have made adequate tax F-34Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS provisions for years subject to examination. Generally, we are currently open to audit under the statute of limitations by the Internal Revenue Service for theyears ending December 31, 2007 through 2011 and are open to audit by state taxing authorities for years ending December 31, 2007 through 2011.Two of our subsidiaries were subject to IRS audit for the years ended December 31, 2008 and 2007. On February 9, 2011, the two subsidiaries receivedstatutory notices of deficiency (“90-day letters”) seeking $144.1 million in additional tax. It is our position that the tax law in question has been properlyapplied and reflected in the 2007 and 2008 returns for these two taxable REIT subsidiaries. We previously provided for the additional taxes sought by the IRS,through our uncertain tax position liability or deferred tax liabilities. Pursuant to the Investment Agreements, GGP has indemnified us from and against93.75% of any and all losses, claims, damages, liabilities and reasonable expenses to which we become subject, in each case solely to the extent directlyattributable to certain taxes related to sales of certain assets in our Master Planned Communities segment prior to March 31, 2010 in an amount up to $303.8million. Under certain circumstances, GGP has also agreed to be responsible for interest or penalties attributable to such MPC Taxes in excess of the $303.8million. We have recorded interest income receivable on the tax indemnity receivable in the amounts of $28.0 million and $19.7 million for the years endedDecember 31, 2011 and 2010, respectively. In addition, we are generally responsible for any liabilities, taxes or other charges that are imposed on GGP as aresult of the Separation failing to qualify for nonrecognition treatment for U.S. federal (and state and local) income tax purposes, if we are the party responsiblefor such failure.On May 6, 2011, GGP filed Tax Court petitions on behalf of the two former taxable REIT subsidiaries of GGP seeking a redetermination of federal income taxfor the years 2007 and 2008. The petitions seek to overturn determinations by the IRS that the taxpayers were liable for combined deficiencies totaling $144.1million. On October 20, 2011, GGP filed a motion in the United States Tax Court to consolidate the cases of the two former taxable REIT subsidiaries of GGPsubject to litigation with the Internal Revenue Service due to the common nature of the cases’ facts and circumstances and the issues being litigated. TheUnited States Tax Court granted the motion to consolidate. The litigation is currently in the discovery phase.We adopted the generally accepted accounting principle related to accounting for uncertainty in income taxes, which prescribes a recognition threshold that a taxposition is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification, interest andpenalties, accounting in interim periods, disclosure and transition issues.We recognize and report interest and penalties, if applicable, within our provision for income tax expense from January 1, 2007 forward. We recognizedpotential interest expense (benefit) related to the unrecognized tax benefits of $8.5 million, $10.9 million and $2.0 million for the years ended December 31,2011, 2010 and 2009, respectively. At December 31, 2011, we had total unrecognized tax benefits of $101.4 million, excluding interest of $28.5 million, ofwhich none would impact our effective tax rate. At December 31, 2010 and 2009, we had total unrecognized tax benefits of $120.8 million and $56.5 million,respectively, excluding interest, of which $0.4 million would impact our effective tax rate. 2011 2010 2009 (In thousands) Unrecognized tax benefits, opening balance $120,816 $56,508 $69,665 Gross increases - tax positions in prior period — 69,168 41 Gross decreases - tax positions in prior periods (19,408) (4,860) (13,198) Unrecognized tax benefits, ending balance $101,408 $120,816 $56,508 F-35Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Based on our assessment of the expected outcome of existing examinations or examinations that may commence, or as a result of the expiration of the statute oflimitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits, excluding accrued interest, for tax positions takenregarding previously filed tax returns will materially change from those recorded at December 31, 2011. A material change in unrecognized tax benefits couldhave a material effect on our statements of income (loss) and comprehensive income (loss). As of December 31, 2011, there is approximately $101.4 million ofunrecognized tax benefits, excluding accrued interest, which due to the reasons above, could significantly increase or decrease during the next twelve months.Earnings and profits, which determine the taxability of dividends to stockholders, differ from net income reported for financial reporting purposes due todifferences for Federal income tax reporting purposes in, among other things, estimated useful lives, depreciable basis of properties and permanent andtemporary differences on the inclusion or deductibility of elements of income and deductibility of expense for such purposes. NOTE 10RENTALS UNDER OPERATING LEASESWe receive rental income from the leasing of retail and other space under operating leases. Such operating leases are with a variety of tenants, the majority ofwhich are national and regional retail chains and local retailers, and our credit risk therefore is concentrated in the retail industry. The minimum future rentalsbased on operating leases of our consolidated properties held as of December 31, 2011 are as follows: Year TotalMinimumRent (In thousands) 2012 $60,108 2013 54,587 2014 45,483 2015 40,086 2016 30,740 Subsequent 98,212 Minimum future rentals exclude amounts which are payable by certain tenants based upon a percentage of their gross sales or as reimbursement of operatingexpenses and amortization of above and below-market tenant leases. NOTE 11TRANSACTIONS WITH GGP AND OTHER RELATED PARTY DISCLOSURESThe accompanying combined financial statements prior to the separation present the operations of the HHC Businesses as carved-out from the consolidatedfinancial statements of GGP. Transactions between the HHC Businesses have been eliminated in the combined presentation. An allocation of certain centralizedGGP costs incurred for activities such as employee benefit programs, property management and asset management functions, centralized treasury, payroll andadministrative functions have been made to the property operating costs of HHC Businesses.Prior to the Effective Date, we entered into a transition services agreement (the “TSA”) whereby GGP agreed to provide to us, on a transitional basis, certainspecified services on an interim basis for various terms not exceeding 24 months following the Separation, subject to our right of earlier termination.Concurrently, we entered into a Reverse Transition Services Agreement (“RTSA”) whereby we agreed to provide GGP with certain income tax and accountingsupport services, also subject to earlier termination prior to its scheduled F-36Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS expiration of November 9, 2013. We incurred $0.4 million and $0.3 million of expenses related to the TSA in each of 2011 and 2010, respectively. For 2011and 2010, we received negligible reimbursements under the RTSA.In addition, GGP is a tenant at our 110 N. Wacker office property. Under the 110 N. Wacker lease agreement, we recognized approximately $6.1 million,$6.1 million and $5.0 million of rental income from GGP and its subsidiaries for the years ended December 31, 2011, 2010 and 2009, respectively.In January 2011, we entered into a Transition Agreement with TPMC Realty Services Group, Inc. (“TPMC”). David Weinreb, a director and our CEO, is thesole equity owner of TPMC and the chief executive officer of TPMC and Grant Herlitz, our president, is the president of TPMC. TPMC was reimbursed atotal of $0.9 million in August 2011 for expenses related to Mr. Weinreb’s employment agreement with us. Such reimbursements are reflected in general andadministrative expense for the year ended December 31, 2011.We also entered into a lease agreement for 3,253 square feet of office space in Los Angeles, California with an affiliate of TPMC, which commenced onMay 1, 2011. Annual rental expenses relating to the lease is approximately $111,965 per year and the lease expires in July 2016.On January 31, 2011, we terminated a Management Services Agreement with Brookfield Advisors LP. Pursuant to the agreement which was executed onAugust 6, 2010. Brookfield Advisors LP provided us services that included strategic advice, project development oversight, financials planning, financingconsultation, internal controls expertise and community and investor relations. This agreement provided for payments to Brookfield Advisors LP of $0.5million per month. NOTE 12STOCK BASED PLANSIncentive Stock PlansOn November 9, 2010, HHC adopted The Howard Hughes Corporation 2010 Equity Incentive Plan (the “Equity Plan”). Pursuant to the Equity Plan,3,698,050 shares of HHC common stock are reserved for issuance. The Equity Plan provides for grants of options, stock appreciation rights, restrictedstock, other stock-based awards and performance-based compensation (collectively, “the Awards”). Directors, employees and consultants of HHC and itssubsidiaries and affiliates are eligible for awards.Prior to the Chapter 11 cases, our predecessors granted qualified and non-qualified stock options and restricted stock to certain GGP officers and keyemployees whose compensation costs related specifically to our assets. Accordingly, an allocation of stock-based compensation costs pertaining to suchemployees has been reflected in our financial statements for periods prior to the Effective Date.All stock plans are administered by the Compensation Committee of the Board of Directors (“Committee”). Option grant amounts are awarded by theCommittee. Options normally extend for ten years and generally become exercisable after five years. Recorded compensation cost for share-based paymentarrangements totaled $3.0 million for 2011.For 2010 and 2009, the GGP stock compensation expense for employees specifically attributed to the HHC Businesses, of approximately $0.6 million and$0.2 million, respectively, has been included in the accompanying financial statements for periods prior to the Effective Date. F-37Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS As of December 31, 2011, there were a maximum of 2,934,610 shares available for future grant under our various stock plans.Stock OptionsPursuant to the Plan, each outstanding option to acquire shares of GGP stock (“Old GGP Options”) was converted into (i) an option to acquire the samenumber of shares of common stock of reorganized GGP (“New GGP Options”) and (ii) a separate option to acquire 0.0983 shares of our common stock foreach existing option for one share of GGP common stock (“HHC Options”). The replacement options are fully vested as of the Effective Date and have thesame terms and conditions as the outstanding GGP options.The exercise price under the Old GGP Options was allocated to the New GGP Options and the HHC options based on the relative market values of the twounderlying stocks. For purposes of such allocation, the volume-weighted price of shares of GGP after its emergence of bankruptcy and HHC during the lastten-day trading period (the “Trading Period”) ending on or before the 60th day after the Effective Date was used. As the date of emergence was November 9,2010, the Trading Period was December 27, 2010 through January 7, 2011. The volume-weighted price of one GGP common share upon emergence frombankruptcy was $15.29 and one HHC common share was $54.13 (that was subsequently adjusted by .0983 to be on a comparable basis), during theTrading Period and, therefore, the exercise prices for the Old GGP Options replaced were allocated in a ratio of approximately 74.15% to GGP and 25.85% toHHC. In addition, we have agreed with GGP that all exercises of GGP replacement options would be settled by, except those of the former top two executiveofficers of GGP whose options were exercised at their termination in December 2010, the employer of the pre-emergence GGP employee at the time of exercise.As of December 31, 2011, the number of shares of common stock issuable upon exercise of the HHC options is insignificant.The following tables summarize stock option activity: Shares WeightedAverageExercisePrice Stock options outstanding at January 1, 2010 $— $— Granted — — Exercised — — Forfeited — — Expired — — Stock options outstanding at December 31, 2010 — — Granted 751,840 57.81 Exercised — — Forfeited (39,200) 59.44 Expired — — Stock options outstanding at December 31, 2011 712,640 57.72 F-38Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Exercise Price Shares Weighted AverageRemainingContractualTerm(in years) $57.77 595,500 9.2 69.75 19,640 9.2 64.41 5,000 9.3 66.27 21,000 9.4 55.81 34,500 9.6 46.49 37,000 9.9 57.72 712,640 9.2 The fair value on the grant date and the significant assumptions used in the Black-Scholes option-pricing model are as follows: 2011 Weighted average grant date fair value $21.31 Weighted-average expected life of options (in years) 7.9 Weighted-average risk-free interest rate 2.9% Weighted-average expected volatility 26% Expected annual dividend per share $— The computation of the expected volatility assumption used in the Black-Scholes calculations is based on the median asset volatility of comparable companiesas of each of the grant dates.The balance of unamortized stock option expense as of December 31, 2011 was $12.6 million, which is expected to be recognized over a weighted-averageperiod of 4.2 years. Expense associated with stock options for the year ended December 31, 2011 which is included in general and administrative expense inthe accompanying Consolidated Statement of Income (Loss), totaled $2.3 million.As of December 31, 2011, there were no options exercisable under the plan.Restricted StockIn 2010, we granted 8,247 shares of restricted stock to certain non-employee directors as part of an annual retainer for their services on the board of directorsand the restrictions on these shares lapsed in June 2011. In 2011, we granted 12,553 shares of restricted stock to certain non-employee directors, as part of anannual retainer for their services on the board of directors. The restrictions on these shares lapsed on June 1, 2012.Restricted stock awards issued under the plan provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsed asestablished by the Committee. Generally, upon termination of employment or directorship, restricted stock units and restricted shares which have not vestedare forfeited. For the year 2011, recognized compensation expense of $0.7 million is included in general and administrative expense related to restricted stockawards. The fair value of restricted stock that vested during 2011 was $0.5 million. The balance of unamortized restricted stock expense as of December 31,2011 was $2.2 million, which is expected to be recognized over a weighted-average period of 3.5 years. F-39Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The following table summarizes restricted stock activity: Shares WeightedAverageGrant DateFair Value Restricted stock outstanding at January 1, 2010 — $— Granted 8,247 41.42 Vested — — Cancelled — — Restricted stock outstanding at December 31, 2010 8,247 41.42 Granted 42,553 $65.18 Vested (6,895) 41.42 Cancelled (1,352) 41.42 Restricted stock outstanding at December 31, 2011 42,553 $65.18 NOTE 13OTHER ASSETS AND LIABILITIESThe following table summarizes the significant components of prepaid expenses and other assets. December 31, 2011 2010 (In thousands) Special Improvement District receivable $40,580 $46,250 Other receivables 4,181 5,352 Federal income tax receivable 5,393 — Prepaid expenses 6,507 2,859 Below-market ground leases (Note 5) 20,680 21,018 Security and escrow deposits 17,266 6,814 Above-market tenant leases (Note 5) 1,014 119 Uncertain tax position asset 11,935 8,945 In-place leases (Note 5) 11,865 1,603 Intangibles 3,074 1,307 Other 4,661 5,814 $127,156 $100,081 The following table summarizes the significant components of accounts payable and accrued expenses. December 31, 2011 2010 (In thousands) Construction payable $8,923 $15,531 Accounts payable and accrued expenses 45,078 29,745 Membership deposits 16,033 — Above-market ground leases (Note 5) 2,748 2,907 Deferred gains/income 5,739 5,631 Accrued interest 2,747 1,633 Accrued real estate taxes 3,439 3,953 Tenant and other deposits 5,966 3,555 Insurance reserve 4,728 4,229 Accrued payroll and other employee liabilities 9,658 3,930 Interest rate swap 4,367 — Other 15,978 7,722 $125,404 $78,836 F-40Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE 14COMMITMENTS AND CONTINGENCIESIn the normal course of business, from time to time, we are involved in legal proceedings relating to the ownership and operations of our properties. In ouropinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on our consolidated financialposition, results of operations or liquidity.We lease land or buildings at certain properties from third parties. Rental payments are expensed as incurred and have, to the extent applicable, been straight-lined over the term of the lease. Contractual rental expense, including participation rent, was $3.9 million, $3.5 million and $3.5 million for 2011, 2010 and2009, respectively. The amortization of above and below-market ground leases and straight-line rents included in the contractual rent amount, was notsignificant.On December 12, 2011, we entered into a Letter of Intent (“LOI”) with the New York City Economic Development Corporation (“EDC”) which will enable usto pursue redevelopment plans for the South Street Seaport. The EDC is the ground lessor and the LOI describes the business terms of future amendments tothe ground lease, the first of which must be finalized by June 30, 2012. During the earlier of the construction period and 30 months, we will be entitled to atotal $1.5 million rent reduction. We also must provide a completion guarantee to New York City for the project. We agreed to pay approximately $1.1 millionof esplanade maintenance costs over a five-year period as consideration for entering into the LOI. This obligation will continue to exist regardless of whether theground lease is amended.In conjunction with GGP’s acquisition of TRC in November 2004, GGP assumed TRC’s obligations under a Contingent Stock Agreement, (the “CSA”). TRCentered into the CSA in 1996 when it acquired The Hughes Corporation (“Hughes”). This acquisition included various assets, including Summerlin (the“CSA Assets”), a development in our Master Planned Communities segment. The CSA provided that the beneficiaries receive a share of the cash flow andincome from the development or sale of the CSA assets and a final payment representing their share of the valuation of the CSA Assets as of December 31,2009. The Plan provided that the final payment and settlement of all other claims under the CSA was an obligation of GGP and was $230.0 million (downfrom the $245.0 million estimate at December 31, 2009), and such amount was distributed by GGP after the Effective Date. Accordingly, during September2010, we reduced our carrying value of the CSA assets, and the related GGP equity, by $15.0 million for this revised estimate.See Note 9 for our obligations related to uncertain tax positions for disclosure of additional contingencies.The following table summarizes the contractual obligations relating to our long-term commitments. 2012 2013 2014 2015 2016 Subsequent /Other Total (In thousands) Long-term debt-principal $52,166 $31,896 $35,553 $126,670 $232,639 $127,553 $606,477 Ground lease payments 5,197 5,187 5,205 5,241 4,965 179,235 205,030 Uncertainty in income taxes, including interest — — — — — 129,939 129,939 Total $57,363 $37,083 $40,758 $131,911 $237,604 $436,727 $941,446 F-41Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE 15SEGMENTSWe have three business segments which offer different products and services. Our three segments are managed separately because each requires differentoperating strategies or management expertise and are reflective of our current management’s operating philosophies and methods. In addition, our currentsegments or assets within such segments could change in the future as development of certain properties commences or other operational or managementchanges occur. We do not distinguish or group our combined operations on a geographic basis which is consistent with how we manage the business. Further,all operations are within the United States and no customer or tenant comprises more than 10% of revenues. Our reportable segments are as follows: • Master Planned Communities – includes the development and sale of land, in large-scale, long-term community development projects in andaround Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland. In prior years this segment included certain commercial properties andother ownership interests owned by The Woodlands. For the years ending December 31, 2011, 2010 and 2009 we have reclassified the operationsof The Woodlands commercial properties and other ownership interests to the Operating Assets segment. Furthermore, for segment reporting, wedisclosed The Woodlands historical financial information at 100% so that operating performance between periods is comparable. • Operating Assets – includes commercial, mixed-use and retail properties currently generating revenues, many of which we believe there is anopportunity to redevelop or reposition the asset to increase operating performance. • Strategic Developments – includes all properties held for development and redevelopment, including the current rental property operations(primarily retail and other interests in real estate at such locations), as well as our one residential condominium project located in Natick (Boston),Massachusetts.As our segments are managed separately, different operating measures are utilized to assess operating results and allocate resources. The one common operatingmeasure used to assess operating results for the business segments is Real Estate Property Earnings Before Taxes (“EBT”) which represents the operatingrevenues of the properties less property operating expenses, as further described below. Management believes that EBT provides useful information about theoperating performance of all of our assets, projects and property.EBT as it relates to our business is defined as net income (loss) from continuing operations excluding general and administrative expenses, corporate interestincome and depreciation expense, investment in real estate basis adjustment, benefit from income taxes, warrant liability gain (loss), reorganization items andthe effects of the previously mentioned items within our equity in earnings (loss) from Real Estate Affiliates. We present EBT because we use this measure,among others, internally to assess the core operating performance of our assets. We also present this measure because we believe certain investors use it as ameasure of a company’s historical operating performance and its ability to service and incur debt. We believe that the inclusion of certain adjustments to netincome (loss) from continuing operations to calculate EBT is appropriate to provide additional information to investors because EBT excludes certain non-recurring and non-cash items, including reorganization items related to the bankruptcy, which we believe are not indicative of our core operating performance.EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss) from continuingoperations, it has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported underGAAP.As more fully discussed in this report, on July 1, 2011, we acquired our partner’s interest in The Woodlands Master planned community, we now own 100%of The Woodlands and consolidate its operations. As such, The Woodlands operating results for historical periods when this investment was a Real EstateAffiliate are now analyzed internally on a non-GAAP consolidation basis by management in order to provide management F-42Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS comparability between periods for analyzing operating results. Segment information presented herein has also been restated for all periods presented to reflectThe Woodlands on a consolidation basis and provide comparability for all periods. Prior to July 1, 2011, we presented the operations of our equity methodReal Estate Affiliates using the non-GAAP proportionate share method for segment reporting purposes. Under this method we presented our share of therevenues and expenses of these Real Estate Affiliates aggregated with the revenues and expenses of consolidated or combined properties. We previously reportedthe proportionate method because our 52.5% economic interest in The Woodlands represented a significant portion of our Master Planned Communitysegment. We now own 100% of The Woodlands and consolidate its operations. Now our segment operating results for the year ended December 31, 2011includes results of The Woodlands from July 1, 2011 to December 31, 2011 under Consolidated Properties and results of The Woodlands from January 1,2011 to June 30, 2011 and for the years ended December 31, 2010 and 2009 under Real Estate Affiliates on a consolidation basis. The remaining Real EstateAffiliates, including equity investments owned by the Woodlands, primarily represent entities that own single assets rather than a large business such as TheWoodlands; therefore, we no longer use the proportionate share method for any Real Estate Affiliates. Rather, we will include the results of our Real EstateAffiliates other than The Woodlands using the equity or cost method, as appropriate.The total cash expenditures for additions to long-lived assets for the Master Planned Communities and condominiums was $90.1 million, $57.1 million and$61.2 million for the years ended December 31, 2011, 2010 and 2009, respectively. Similarly, total cash expenditures for long-lived assets for the OperatingAssets and Strategic Developments segments were $44.4 million, $111.8 million and $27.7 million for the years ended December 31, 2011 2010 and 2009,respectively. F-43Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Segment operating results are as follows: Year Ended December 31, 2011 ConsolidatedProperties Real EstateAffiliates SegmentBasis (In thousands) Master Planned Communities Land sales $113,502 $47,880 $161,382 Builder price participation 3,816 1,108 4,924 Minimum rents 659 14 673 Other land revenues 14,140 2,817 16,957 Other rental and property revenues 102 — 102 Total revenues 132,219 51,819 184,038 Cost of sales - land 70,108 23,932 94,040 Land sales operations 17,776 2,992 20,768 Land sales real estate and business taxes 7,713 1,906 9,619 Rental property real estate taxes 1 — 1 Rental property maintenance costs 412 329 741 Other property operating costs 3,308 2,068 5,376 Provisions for impairment — — — Depreciation and amortization 2 46 48 Interest income (144) (364) (508) Interest expense (*) (10,908) 7,854 (3,054) Total expenses 88,268 38,763 127,031 Venture partner share of The Woodlands EBT — (6,202) (6,202) MPC EBT 43,951 6,854 50,805 Operating Assets Minimum rents 69,602 2,803 72,405 Tenant recoveries 19,193 1,061 20,254 Resort and conference center revenues 15,744 19,106 34,850 Other rental and property revenues 14,072 6,992 21,064 Total revenues 118,611 29,962 148,573 Rental property real estate taxes 10,952 972 11,924 Rental property maintenance costs 6,315 443 6,758 Resort and conference center operations 13,108 13,904 27,012 Other property operating costs 45,576 9,172 54,748 Depreciation and amortization 16,341 3,968 20,309 Interest income (125) (2) (127) Interest expense 10,586 391 10,977 Early extinguishment of debt 11,305 — 11,305 Equity in Earnings from Real Estate Affiliates — (3,926) (3,926) Total expenses 114,058 24,922 138,980 Venture partner share of The Woodlands EBT — (91) (91) Operating Assets EBT 4,553 4,949 9,502 Strategic Developments Minimum rents 917 — 917 Tenant recoveries 130 — 130 Condominium unit sales 22,067 — 22,067 Other rental and property revenues 1,747 — 1,747 Total revenues 24,861 — 24,861 Condominium unit cost of sales 14,465 — 14,465 Real estate taxes 604 — 604 Rental property maintenance costs 671 — 671 Other property operating costs 5,253 — 5,253 Depreciation and amortization 234 — 234 Interest expense 323 — 323 Total expenses 21,550 — 21,550 Strategic Developments EBT 3,311 — 3,311 EBT $51,815 $11,803 $63,618 (*)Negative interest expense amounts relate to interest capitalized on debt assigned to our Operating Assets Segment. F-44Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Year Ended December 31, 2010 ConsolidatedProperties Real EstateAffiliates SegmentBasis (In thousands) Master Planned Communities Land sales $38,058 $90,986 $129,044 Builder price participation 4,124 2,777 6,901 Minimum rents — 27 27 Other land revenues 5,384 8,827 14,211 Other rental and property revenues 948 — 948 Total revenues 48,514 102,617 151,131 Cost of sales - land 23,388 49,745 73,133 CSA participation expense — — — Land sales operations 17,153 5,801 22,954 Land sales real estate and business taxes 11,887 4,882 16,769 Rental property real estate taxes 812 — 812 Rental property maintenance costs — 623 623 Other property operating costs (1) 4,035 4,034 Provisions for impairment 405,331 — 405,331 Depreciation and amortization 17 111 128 Interest income — (824) (824) Interest expense (*) (14,127) 7,857 (6,270) Total expenses 444,460 72,230 516,690 Venture partner share of The Woodlands EBT — (14,434) (14,434) MPC EBT (395,946) 15,953 (379,993) Operating Assets Minimum rents 65,911 4,026 69,937 Tenant recoveries 18,220 1,484 19,704 Resort and conference center revenues — 28,850 28,850 Other rental and property revenues 7,557 14,613 22,170 Total revenues 91,688 48,973 140,661 Rental property real estate taxes 9,963 2,185 12,148 Rental property maintenance costs 5,812 1,413 7,225 Resort and conference center operations — 24,471 24,471 Other property operating costs 30,970 16,521 47,491 Provision for doubtful accounts 1,606 154 1,760 Provisions for impairment 80,923 — 80,923 Depreciation and amortization 16,313 7,148 23,461 Interest income (170) 2 (168) Interest expense 16,515 836 17,351 Equity in Earnings from Real Estate Affiliates — 338 338 Total expenses 161,932 53,068 215,000 Venture partner share of The Woodlands EBT — 1,945 1,945 Operating Assets EBT (70,244) (2,150) (72,394) Strategic Developments Minimum rents 1,015 — 1,015 Tenant recoveries 347 — 347 Condominium unit sales 1,139 — 1,139 Other rental and property revenues 16 — 16 Total revenues 2,517 — 2,517 Condominium unit cost of sales 1,000 — 1,000 Real estate taxes 3,756 — 3,756 Rental property maintenance costs 684 — 684 Other property operating costs 5,925 — 5,925 Provision for doubtful accounts 175 — 175 Provisions for impairment 17,101 — 17,101 Depreciation and amortization 212 — 212 Interest expense 34 — 34 Total expenses 28,887 — 28,887 Strategic Developments EBT (26,370) — (26,370) EBT $(492,560) $13,803 $(478,757) (*)Negative interest expense amounts relate to interest capitalized on debt assigned to our Operating Assets Segment. F-45Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Year Ended December 31, 2009 ConsolidatedProperties Real EstateAffiliates SegmentBasis (In thousands) Master Planned Communities Land sales $34,564 $62,723 $97,287 Builder price participation 5,687 3,289 8,976 Minimum rents — 28 28 Other land revenues 5,747 8,920 14,667 Other rental and property revenues 825 — 825 Total revenues 46,823 74,960 121,783 Cost of sales - land 22,019 34,560 56,579 CSA participation expense (5,344) — (5,344) Land sales operations 15,643 4,504 20,147 Land sales real estate and business taxes 16,743 5,706 22,449 Rental property real estate taxes 811 — 811 Rental property maintenance costs — 643 643 Other property operating costs (1) 3,411 3,410 Provisions for impairment 52,766 — 52,766 Depreciation and amortization 33 113 146 Interest income (9) (1,072) (1,081) Interest expense (*) (11,932) 8,491 (3,441) Total expenses 90,729 56,356 147,085 Venture partner share of The Woodlands EBT — (8,837) (8,837) MPC EBT (43,906) 9,767 (34,139) Operating Assets Minimum rents 63,735 6,532 70,267 Tenant recoveries 18,741 1,054 19,795 Resort and conference center revenues — 29,314 29,314 Other rental and property revenues 7,409 12,077 19,486 Total revenues 89,885 48,977 138,862 Rental property real estate taxes 10,001 1,266 11,267 Rental property maintenance costs 4,653 1,174 5,827 Resort and conference center operations — 23,842 23,842 Other property operating costs 30,697 20,516 51,213 Provision for doubtful accounts 2,189 107 2,296 Provisions for impairment 50,964 — 50,964 Depreciation and amortization 17,687 8,795 26,482 Interest income (1,680) — (1,680) Interest expense 15,634 192 15,826 Equity in Earnings from Real Estate Affiliates — (2,172) (2,172) Total expenses 130,145 53,720 183,865 Venture partner share of The Woodlands EBT — 2,864 2,864 Operating Assets EBT (40,260) (1,879) (42,139) Strategic Developments Minimum rents 1,902 — 1,902 Tenant recoveries 900 — 900 Other rental and property revenues (3,162) — (3,162) Total revenues (360) — (360) Condominium unit cost of sales — — — Real estate taxes 2,973 — 2,973 Rental property maintenance costs 722 — 722 Other property operating costs 4,355 — 4,355 Provision for doubtful accounts 350 — 350 Provisions for impairment 576,618 — 576,618 Depreciation and amortization 2,104 — 2,104 Interest expense (2,725) — (2,725) Equity in Earnings from Real Estate Affiliates — 19,046 19,046 Total expenses 584,397 19,046 603,443 Strategic Developments EBT (584,757) (19,046) (603,803) EBT $(668,923) $(11,158) $(680,081) (*)Negative interest expense amounts relate to interest capitalized on debt assigned to our Operating Assets Segment. F-46Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The following reconciles EBT to GAAP-basis income (loss) from continuing operations: Reconciliation of EBT to GAAP-basis income (loss) fromcontinuing operations Year Ended December 31, 2011 2010 2009 (In thousands) Real estate property EBT: Segment EBT $63,618 $(478,757) $(680,081) Real Estate Affiliates (11,803) (13,803) 11,158 51,815 (492,560) (668,923) General and administrative (35,182) (21,538) (23,023) Interest income 9,607 199 — Warrant liability gain (loss) 101,584 (140,900) — Benefit from income taxes 18,325 633,459 23,969 Equity in Earnings from Real Estate Affiliates 8,578 9,413 (28,209) Investment in real estate affiliates basis adjustment (6,053) — — Reorganization items — (57,282) (6,674) Corporate depreciation (204) (21) (17) Net income (loss) from continuing operations $148,470 $(69,230) $(702,877) The following reconciles segment revenues to GAAP-basis consolidated and combined revenues: Reconciliation of Segment Basis Revenues to GAAP Revenues Year Ended December 31, 2011 2010 2009 (In thousands) Master Planned Communities - Total Segment $184,038 $151,131 $121,783 Operating Assets - Total Segment 148,573 140,661 138,862 Strategic Developments - Total Segment 24,861 2,517 (360) Total Segment revenues 357,472 294,309 260,285 Less: The Woodlands Partnerships revenues, at our ownership share (81,781) (151,590) (123,937) Total revenues - GAAP basis $275,691 $142,719 $136,348 The assets by segment and the reconciliation of total segment assets to the total assets in the combined financial statements at December 31, 2011, 2010 and2009 are summarized as follows: Year Ended December 31, 2011 2010 2009 (In thousands) Master Planned Communities $1,755,797 $1,765,487 $2,196,971 Operating Assets 871,549 812,646 879,736 Strategic Developments 189,807 206,037 248,183 Total segment assets 2,817,153 2,784,170 3,324,890 Corporate and other 577,996 730,741 47,529 Real Estate Affiliates — (492,204) (467,192) Total assets $3,395,149 $3,022,707 $2,905,227 F-47Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS NOTE 16QUARTERLY FINANCIAL INFORMATION (UNAUDITED) 2011 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except for per share amounts) Total revenues (b) $53,101 $50,823 $86,890 $84,877 Operating income 5,990 5,689 2,218 13,568 Net income (loss) from continuing operations (114,487) 65,993 165,024 31,940 Net income (loss) attributable to common stockholders (114,515) 65,973 164,295 31,427 Earnings (loss) per share: Basic (3.02) 1.74 4.33 0.83 Diluted (3.02) 0.22 (0.14) 0.80 Weighted average basic and diluted shares outstanding 37,905 40,870 38,755 38,114 2010 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except for per share amounts) Total revenues $28,790 $30,629 $32,460 $50,840 Operating loss (a) (3,285) (4,670) (618) (503,294) Net loss from continuing operations (a) (20,481) (28,017) (16,183) (4,549) Net loss attributable to common stockholders (20,529) (28,042) (16,230) (4,630) Earnings (loss) per share: Basic (0.54) (0.74) (0.43) (0.12) Diluted (0.54) (0.74) (0.43) (0.12) Weighted average basic and diluted shares outstanding 37,716 37,716 37,716 37,753 (a)Operating loss and loss from continuing operations in the fourth quarter 2010 were significantly impacted by impairment provisions (Note 4) andwarrant liability expense (Note 2).(b)Revenue increases due to the acquisition of The Woodlands. F-48Table of Contents SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2011 Initial Cost (b) Costs CapitalizedSubsequentto Acquisition (c) Gross Amounts atWhich Carried atClose of Period (d) Name of Center Location Encum-brances (a) Land BuildingsandImprove-ments Land BuildingsandImprove-ments Land BuildingsandImprove-ments Total AccumulatedDepreciation (e) Date ofConstruction DateAcquired/Completed (In thousands) (In thousands) (In thousands) Master Planned Communities Summerlin Las Vegas, NV $50,672 $990,179 $— $(94,165) $676 $896,014 $676 $896,690 $147 2004Bridgeland Houston, TX 20,604 257,222 — 134,562 1,556 391,784 1,556 393,340 735 2004Maryland Howard County, MD — 457,552 — (390,893) 123 66,659 123 66,782 20 2004The Woodlands Houston, TX 185,757 264,889 — (19,272) — 245,617 — 245,617 — 2011Total Master PlannedCommunities 257,033 1,969,842 — (369,768) 2,355 1,600,074 2,355 1,602,429 902 Operating Properties Ward Centers Honolulu, HI 220,000 164,007 89,321 (9,491) 139,650 154,516 228,971 383,487 34,593 2002South Street Seaport New York, NY — — 7,884 — (2,454) — 5,430 5,430 380 2004Landmark Mall Alexandria, VA — 28,396 67,235 (19,408) (52,109) 8,988 15,126 24,114 276 2003Park West Peoria, AZ — 16,526 77,548 1 (3,227) 16,527 74,321 90,848 11,264 2008 2006Rio West Gallup, NM — — 19,500 — 8,163 — 27,663 27,663 16,627 1986Riverwalk Marketplace New Orleans, LA — — 94,513 — (82,160) — 12,353 12,353 340 2004Cottonwood Square Salt Lake City, UT — 1,558 4,339 — 315 1,558 4,654 6,212 1,097 200220/25 Waterway Avenue Houston, TX — 2,346 8,871 — 536 2,346 9,407 11,753 167 2011Waterway Garage Retail Houston, TX — 1,342 4,255 — 629 1,342 4,884 6,226 41 20111400 Woodloch Forest Houston, TX — — — 1,570 12,237 1,570 12,237 13,807 3,856 19812201 Lake Woodlands Drive Houston, TX 4,803 3,755 — — — 3,755 — 3,755 — 20114 Waterway Square Houston, TX 41,000 1,430 51,553 396 3,615 1,826 55,168 56,994 878 20119303 New Trails Houston, TX 14,000 1,929 11,915 — 639 1,929 12,554 14,483 145 2011The Club at Carlton Woods Houston, TX — 13,796 457 — 307 13,796 764 14,560 5 2011Woodlands Parking Garages Houston, TX — 5,857 — — — 5,857 — 5,857 55 2011Woodlands Resort andConference Center Houston, TX 36,100 13,258 37,983 — 870 13,258 38,853 52,111 323 2011110 N. Wacker Chicago, IL 29,000 — 29,035 — 5,315 — 34,350 34,350 10,740 1997Columbia Offices Howard County, MD — 1,575 28,447 1,571 7,234 3,146 35,681 38,827 9,686 2004Total Operating Properties 344,903 255,775 532,856 (25,361) 39,560 230,414 572,416 802,830 90,473 F-49Table of Contents Initial Cost (b) Costs CapitalizedSubsequentto Acquisition (c) Gross Amounts atWhich Carried atClose of Period (d) Name of Center Location Encum-brances (a) Land BuildingsandImprove-ments Land BuildingsandImprove-ments Land BuildingsandImprove-ments Total AccumulatedDepreciation (e) Date ofConstruction DateAcquired/Completed (In thousands) (In thousands) (In thousands) Strategic Developments Bridges at Mint Hill Charlotte, NC — — — — 12,450 — 12,450 12,450 — 2007Fashion Show Air Rights Las Vegas, NV — — — — — — — — — 2004Elk Grove Promenade Elk Grove, CA — — — — 5,455 — 5,455 5,455 4 2003Maui Ranch Land Maui, HI — — — — — — — — — 20023 Waterway Square Office Houston, TX — — — — — — — — — 2012The Shops at Summerlin Centre Las Vegas, NV 4,541 — — — 35,767 — 35,767 35,767 — 2004Ala Moana Condo Project Honolulu, HI — — — — 22,856 — 22,856 22,856 — 2002AllenTowne Dallas, TX — 25,575 — (25,575) 25,416 — 25,416 25,416 — 2006Cottonwood Mall Salt Lake City, UT — 7,613 42,987 (4,713) (26,301) 2,900 16,686 19,586 — 2002Kendall Town Center Miami, FL — — — — 17,487 — 17,487 17,487 — 2004West Windsor Princeton, NJ — — — — 20,888 — 20,888 20,888 13 2004Alameda Plaza Pocatello, ID — 740 2,060 — 26 740 2,086 2,826 491 2002Century Plaza Birmingham, AL — 3,164 28,514 (2,350) (24,840) 814 3,674 4,488 17 1997Village at Redlands Redlands, CA — — — 616 6,511 616 6,511 7,127 368 2008 2004Redlands Promenade Redlands, CA — — — — 2,809 — 2,809 2,809 — 2004Lakemoor (Volo) Land Volo, IL — 320 — (326) 327 (6) 327 321 — 1995Nouvelle at Natick Natick, MA — — — — 82 — 82 82 — 2007Total Strategic Development 4,541 37,412 73,561 (32,348) 98,933 5,064 172,494 177,558 893 Corporate general and administrative — 885 1,027 — 3,528 885 4,555 5,440 226 Total HHC $606,477 $2,263,914 $607,444 $(427,477) $144,376 $1,836,437 $751,820 $2,588,257 $92,494 F-50Table of Contents(a)See description of mortgages, notes and other debt payable in Note 7 of Notes to Consolidated Financial Statements.(b)Initial cost for constructed malls is cost at end of first complete calendar year subsequent to opening.(c)For retail and other properties, costs capitalized subsequent to acquisitions is net of cost of disposals or other property(d)The aggregate cost of land, building and improvements for federal income tax purposes is approximately $2.3 billion.(e)Depreciation is computed based upon the following estimated lives: YearsBuilding, improvements and carrying costs 40-45Equipment, tenant improvements and fixtures 5-10 Reconciliation of Real Estate 2011 2010 2009 (In thousands) Balance at beginning of year $2,161,977 $2,680,647 $3,194,141 Change in land 69,110 13,240 179,765 Additions 450,988 116,482 238,020 Impairments — (503,356) (680,349) Dispositions and write-offs (93,818) (145,036) (250,930) Balance at end of year $2,588,257 $2,161,977 $2,680,647 Reconciliation of Accumulated Depreciation 2011 2010 2009 (In thousands) Balance at beginning of year $78,931 $81,180 $94,004 Depreciation Expense 14,012 14,582 17,145 Dispositions and write-offs (449) (16,831) (29,969) Balance at end of year $92,494 $78,931 $81,180 F-51Table of ContentsExhibitNo. Description of Exhibit 2.1 Separation Agreement, dated November 9, 2010, between The Howard Hughes Corporation and General Growth Properties, Inc.(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed November 12, 2010) 2.2 Partnership Interest Purchase Agreement dated as of June 20, 2011 among TWC Commercial Properties, LLC, TWC CommercialProperties, LP, TWC Operating, LLC, TWC Operating, LP, TWC Land Development, LLC, TWC Land Development, LP and MSTWC, Inc., MS/TWC Joint Venture (incorporated by reference to Exhibit 2.1 to the Company’s Current Report in Form 8-K, filed July 5,2011). 3.1 Amended and Restated Certificate of Incorporation of The Howard Hughes Corporation (incorporated by reference to Exhibit 3.1 to theCompany’s Current Report on Form 8-K, filed November 12, 2010) 3.2 Amended and Restated Bylaws of The Howard Hughes Corporation (incorporated by reference to Exhibit 3.2 to the Company’s CurrentReport on Form 8-K, filed November 12, 2010)10.1 Transition Services Agreement, dated November 9, 2010, between The Howard Hughes Corporation, GGP Limited Partnership andGeneral Growth Management, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filedNovember 12, 2010)10.2 Reverse Transition Services Agreement, dated November 9, 2010, between The Howard Hughes Corporation, GGP Limited Partnershipand General Growth Management, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filedNovember 12, 2010)10.3 Employee Matters Agreement, dated November 9, 2010, between The Howard Hughes Corporation, GGP Limited Partnership and GeneralGrowth Management, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed November 12,2010)10.4 Employee Leasing Agreement, dated November 9, 2010, between The Howard Hughes Corporation, GGP Limited Partnership and GeneralGrowth Management, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed November 12,2010)10.5 Tax Matters Agreement, dated November 9, 2010, between The Howard Hughes Corporation and General Growth Properties, Inc.(incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed November 12, 2010)10.6 Surety Bond Indemnity Agreement, dated November 9, 2010, between The Howard Hughes Corporation and General Growth Properties,Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed November 12, 2010)10.7 Form of indemnification agreement for directors and certain executive officers of The Howard Hughes Corporation (incorporated byreference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed November 12, 2010)10.8 Warrant Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Mellon Investor Services LLC (incorporatedby reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed November 12, 2010)10.9 Letter Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Brookfield Retail Holdings LLC (incorporatedby reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed November 12, 2010)10.10 Letter Agreement, dated November 9, 2010, between The Howard Hughes Corporation and The Fairholme Fund and Fairholme FocusedIncome Fund (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K, filed November 12, 2010)Table of ContentsExhibitNo. Description of Exhibit10.11 Letter Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Pershing Square Capital Management, L.P.(incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K, filed November 12, 2010)10.12 Registration Rights Agreement, dated November 9, 2010, between The Howard Hughes Corporation and M.B. Capital Partners, M.B.Capital Partners III and M.B. Capital Units LLC (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, filed November 12, 2010)10.13 Registration Rights Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Brookfield Retail Holdings LLC,Brookfield Retail Holdings II LLC, Brookfield Retail Holdings III LLC, Brookfield Retail Holdings IV-A LLC, Brookfield Retail HoldingsIV-D LLC, Brookfield Retail Holdings V LP and Brookfield US Retail Holdings LLC (incorporated by reference to Exhibit 99.2 to theCompany’s Current Report on Form 8-K, filed November 12, 2010)10.14 Registration Rights Agreement, dated November 9, 2010, between The Howard Hughes Corporation and The Fairholme Fund andFairholme Focused Income Fund (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K, filedNovember 12, 2010)10.15 Registration Rights Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Pershing Square CapitalManagement, L.P., Blackstone Real Estate Partners VI L.P., Blackstone Real Estate Partners (AIV) VI L.P., Blackstone Real EstatePartners VI.F L.P., Blackstone Real Estate Partners VI.TE.1 L.P., Blackstone Real Estate Partners VI.TE.2 L.P., Blackstone Real EstateHoldings VI L.P., and Blackstone GGP Principal Transaction Partners L.P. (incorporated by reference to Exhibit 99.4 to the Company’sCurrent Report on Form 8-K, filed November 12, 2010)10.16 Management Services Agreement, dated August 6, 2010, between The Howard Hughes Corporation and Brookfield Advisors LP(incorporated by reference to Exhibit 10.4 to the Company’s Form 10, filed October 7, 2010), which agreement is no longer in effect, but isfiled as an exhibit to this Annual Report on Form 10-K in accordance with Item 601(b)(10) of Regulation S-K10.17* The Howard Hughes Corporation 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company’s Current Reporton Form 8-K, filed November 12, 2010)10.18* Form of Restricted Stock Agreement for Nonemployee Directors under The Howard Hughes Corporation 2010 Equity Incentive Plan(incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K, filed April 8, 2011)10.19* Non-Qualified Stock Option Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Adam S. Metz(incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K, filed November 12, 2010), which agreement isno longer in effect, but is filed as an exhibit to this Annual Report on Form 10-K in accordance with Item 601(b)(10) of Regulation S-K10.20* Non-Qualified Stock Option Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Thomas Nolan Jr. (inhis capacity as a director) (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K, filed November 12,2010), which agreement is no longer in effect, but is filed as an exhibit to this Annual Report on Form 10-K in accordance withItem 601(b)(10) of Regulation S-K10.21* Non-Qualified Stock Option Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Thomas Nolan Jr. (inhis capacity as an employee) (incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K, filed November12, 2010), which agreement is no longer in effect, but is filed as an exhibit to this Annual Report on Form 10-K in accordance withItem 601(b)(10) of Regulation S-KTable of ContentsExhibitNo. Description of Exhibit10.22* Employment Agreement, dated as of November 22, 2010, between The Howard Hughes Corporation and David R. Weinreb (incorporatedby reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed November 29, 2010)10.23* Warrant Purchase Agreement, dated November 22, 2010, between The Howard Hughes Corporation and David R. Weinreb (incorporatedby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed November 29, 2010)10.24*† Amendment No. 1 to the Warrant Purchase Agreement dated as of August 23, 2011, between The Howard Hughes Corporation and DavidR. Weinreb.10.25* Employment Agreement, dated as of November 22, 2010, between The Howard Hughes Corporation and Grant Herlitz (incorporated byreference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed November 29, 2010)10.26* Warrant Purchase Agreement, dated November 22, 2010, between The Howard Hughes Corporation and Grant Herlitz (incorporated byreference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed November 29, 2010)10.27* Warrant Purchase Agreement, dated February 25, 2011, between The Howard Hughes Corporation and Andrew C. Richardson(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 3, 2011)10.28* Employment Agreement, dated as of February 25, 2011, between The Howard Hughes Corporation and Andrew C. Richardson(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed March 3 2011)10.29 Loan Agreement dated as of September 29, 2011, by and among Victoria Ward, Limited along with certain of Victoria Ward, Limited’ssubsidiaries, as borrowers, Wells Fargo Bank, National Association, as Administrative Agent and lead lender, CIBC, First HawaiianBank, Bank of Hawaii and Central Pacific Bank, as lenders, and Wells Fargo Securities, L.L.C., as Sole Lead Arranger and SoleBookrunner (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed October 4, 2011).10.30† Second Amended and Restated Master Credit Agreement dated as of March 29, 2011, by and among The Woodlands CommercialProperties Company, L.P., The Woodlands Land Development Company, L.P., Keybank National Association, the other lenders that are aparty to the agreement, and the other lending institutions which may become parties to the agreement, Keybank National Association, asAdministrative Agent to the lenders, and Compass Bank, as Syndication Agent.21.1† List of Subsidiaries23.1† Consent of Deloitte & Touche LLP24.1† Power of Attorney31.1† Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2† Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1† Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INS† XBRL Instance Document.101.SCH† XBRL Taxonomy Extension Schema Document.101.CAL† XBRL Taxonomy Extension Calculation Linkbase Document.101.LAB† XBRL Taxonomy Extension Label Linkbase Document.Table of ContentsExhibitNo. Description of Exhibit101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document.101.DEF† XBRL Taxonomy Extension Definition Linkbase Document. *Management contract, compensatory plan or arrangement†Filed herewithAttached is Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated andCombined Statements of Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009, (ii) the ConsolidatedBalance Sheet at December 31, 2011 and 2010, (iii) the Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2011, 2010and 2009, (iv) the Consolidated and Combined Statements of Shareholders’ Equity for the years ended December 31, 2011, 2010 and 2009. Users of thisdata are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus forpurposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, andotherwise is not subject to liability under these sections.In accordance with a continuing hardship exemption, the date by which the interactive data file (required by rule 405(f)(2) of Regulation S-T) is required to besubmitted has been extended to May 10, 2012. Exhibit 10.24EXECUTION VERSIONAMENDMENT NO. 1TO THETHE HOWARD HUGHES CORPORATIONWARRANT PURCHASE AGREEMENTTHE HOWARD HUGHES CORPORATION, a Delaware corporation (the “Corporation”), and David R. Weinreb (“Purchaser”) hereby enter intothis amendment (this “Amendment”) to amend the Warrant Purchase Agreement between the Corporation and Purchaser, dated as of November 22, 2010 (the“Agreement”), as set forth herein. This Amendment will be effective as of August 23, 2011 (the “Effective Date”). Except as specifically amended hereby,the Agreement will remain unchanged, and as amended herein, will continue in full force and effect. 1.The first sentence of Section 6 of the Agreement is hereby amended and restated as follows:“This Warrant may be assigned in whole or in part during your lifetime as a gift to one or more members of your Immediate Family or to a trust inwhich you and/or one or more such family members hold more than 50% of the beneficial interest.”IN WITNESS WHEREOF, the Corporation has caused this Amendment to be executed by its duly authorized officer as of the Effective Date. THE HOWARD HUGHES CORPORATIONBy: /s/ Gary Krow Gary Krow, Chairman of the Compensation Committee ACKNOWLEDGED AND AGREED:/s/ David R. WeinrebDavid R. WeinrebEXHIBIT 10.30SECOND AMENDED AND RESTATED MASTER CREDIT AGREEMENTDATED MARCH 29, 2011amongTHE WOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P.,THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P.,andKEYBANK NATIONAL ASSOCIATION,andTHE OTHER LENDERS THAT ARE A PARTYTO THIS AGREEMENTandOTHER LENDERS WHICH MAY BECOMEPARTIES TO THIS AGREEMENTANDKEYBANK NATIONAL ASSOCIATION,AS AGENTANDKEYBANC CAPITAL MARKETS,AS LEAD MANAGER AND ARRANGERANDCOMPASS BANK,AS SYNDICATION AGENTSECOND AMENDED AND RESTATED MASTER CREDIT AGREEMENTTHIS SECOND AMENDED AND RESTATED MASTER CREDIT AGREEMENT is made the 29 day of March, 2011, by and amongTHE WOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P. (“Commercial Company”), a Texas limited partnership having its principalplace of business at c/o The Woodlands Operating Company, L.P., 24 Waterway Avenue, Suite 1100, The Woodlands, Texas 77380, THE WOODLANDSLAND DEVELOPMENT COMPANY, L.P. (“Land Company”; Commercial Company and Land Company are hereafter referred to collectively as“Borrowers”), a Texas limited partnership having its principal place of business at c/o The Woodlands Operating Company, L.P., 24 Waterway Avenue, Suite1100, The Woodlands, Texas 77380, KEYBANK NATIONAL ASSOCIATION, the other lenders that are a party to this Agreement, and the other lendinginstitutions which may become parties hereto pursuant to §18 (the “Lenders”), KEYBANK NATIONAL ASSOCIATION, as Administrative Agent for theLenders (the “Agent”), and COMPASS BANK, as Syndication Agent.RECITALSWHEREAS, Commercial Company, Land Company, KeyBank, Agent and the other parties thereto have entered into that certain First Amended andRestated Master Credit Agreement, dated August 29, 2006, as amended by that certain First Amendment to First Amended and Restated Master CreditAgreement, dated July 30, 2008 (the “Original Credit Agreement”); andWHEREAS, the parties desire to enter into this Agreement to amend and restate the Original Credit Agreement;NOW, THEREFORE, in consideration of the recitals herein and the mutual covenants contained herein, the parties hereto hereby covenant and agree andamend and restate the Original Credit Agreement in its entirety as follows: §1.DEFINITIONS AND RULES OF INTERPRETATION; AMENDMENT AND RESTATEMENT§1.1 Definitions. The following terms shall have the meanings set forth in this §1 or elsewhere in the provisions of this Agreement referred to below:Account Debtor. Any person who is obligated on any of the Accounts Receivable.Accounts Receivable. All accounts, whether now owned or hereafter acquired by the respective Borrowers and whether now existing or hereafter arising,and all proceeds of the foregoing, from the Municipal Utility District Contracts and the Note Receivables, as more particularly described in the SecurityAgreements.Adjusted Net Amount. The outstanding principal amount payable pursuant to the Eligible Accounts Receivable, as adjusted as provided in theBorrowing Base worksheet attached hereto as Exhibit E.thAdjusted Value. As of any Quarterly Measurement Date, the Appraised Value as most recently determined under §5.2(a), (c) or (d) of a Borrowing BaseAsset (other than Eligible Accounts Receivable), as adjusted as of such Quarterly Measurement Date by the Borrowers to reflect any sales, changes in leasingstatus, transfers, new Indebtedness, new development or other circumstance affecting the Borrowing Base Assets, as provided in §5.2(b). With respect to anyQualifying Income Properties for which there is not an Appraised Value set forth on Schedule 1.2 hereto or a subsequent Appraised Value determined pursuantto §5.2, the Adjusted Value of each such Qualifying Income Property shall be the historic cost (including land value) of such Qualifying Income Property.Affiliates. As applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. Forpurposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), asapplied to any Person, means (a) the possession, directly or indirectly, of the power to vote ten percent (10%) or more of the stock, shares, voting trustcertificates, beneficial interests, partnership interests, member interests or other interests having voting power for the election of directors of such Person orotherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract orotherwise, or (b) the ownership of (i) a general partnership interest, (ii) a managing member’s interest in a limited liability company or (iii) a limitedpartnership interest or preferred stock (or other ownership interest) representing ten percent (10%) or more of the outstanding limited or general partnershipinterests, preferred stock or other ownership interests of such Person. An Affiliate shall not include a Restricted Subsidiary or an Unrestricted Subsidiary.Agent. KeyBank, acting as Administrative Agent for the Lenders, its successors and assigns.Agent’s Head Office. The Agent’s head office located at 127 Public Square, Cleveland, Ohio 44114-1306, or at such other location as the Agent maydesignate from time to time by notice to the Borrowers and the Lenders.Agent’s Special Counsel. McKenna Long & Aldridge LLP or such other counsel as may be approved by the Agent.Agreement. This Second Amended and Restated Master Credit Agreement, including the Schedules and Exhibits hereto.Agreement Regarding Fees. See §4.2.Appraisal. An MAI appraisal (or update of a prior Appraisal) of the value of a parcel of Real Estate ordered by and addressed to Agent, determined on anas-is basis, performed by an independent appraiser selected by the Agent who is not an employee of the Borrowers, the Agent or a Lender, the form andsubstance of such appraisal and the identity of the appraiser to be in accordance with regulatory laws and policies (both regulatory and internal) applicable tothe Lenders and otherwise acceptable to the Agent. 2Appraised Value. The “as-is” value of a parcel of Real Estate determined by the most recent Appraisal of such parcel or update obtained pursuant to§5.2(c) subject, however, to such changes or adjustments to the value determined thereby as may be required by the appraisal department of the Agent in itsgood faith business judgment, or the valuation proposed by the Borrowers and approved by the Agent as provided in §5.2(c), whichever is applicable. Withrespect to Land Assets, the Appraised Value may be determined on a per lot or per acre basis and then multiplied by the number of lots or acres.Architect’s Contract. For the applicable Vertical Commercial Improvements, the contract, between a Borrower and the Project Architect, providing for thedesign of the Improvements for the applicable Vertical Commercial Improvements and the supervision of the construction thereof.Assignment of Hedge. An Assignment of Hedge Agreement by the Borrowers to the Agent for the benefit of the Lenders, as the same may be modified andamended, pursuant to which the Interest Cap described in §7.24 is pledged as security for the Obligations, and any financing statements that may be deliveredin connection therewith, such assignment to be in form and substance satisfactory to Agent.Assignment of Interests. Each of the collateral assignments of partner’s or limited liability company member’s interest or rights to distributions from aBorrower to the Agent, as the same may be modified or amended, pursuant to which there shall be collaterally assigned to the Agent for the benefit of theLenders a security interest in the interest of such Person in certain of the Partnerships or in rights to distributions as more particularly described therein, eachsuch assignment to be in form and substance satisfactory to the Agent.Assignment of Leases and Rents. Each of the collateral assignments of leases and rents from a Borrower, to the Agent, as the same may be modified oramended, pursuant to which there shall be assigned to the Agent for the benefit of the Lenders a security interest in the interest of such Borrower as lessor withrespect to all Leases of all or any part of a Mortgaged Property, each such collateral assignment to be in form and substance satisfactory to the Agent.Assignment of Management Agreement and Subordination. Each collateral assignment of the Management Agreements from a Borrower to the Agent forthe benefit of the Lenders, as the same may be modified or amended, pursuant to which there shall be collaterally assigned to the Agent for the benefit of theLenders a security interest in the interest of such Borrower with respect to the Management Agreements, together with the consent of the manager thereunder tosuch assignment and a subordination of the manager’s rights with respect to the Mortgaged Properties to the rights of the Agent with respect thereto.Assignment of Project Documents. Each assignment of project documents made by a Borrower to the Agent for the benefit of the Lenders, as the samemay be modified or amended, pursuant to which a Borrower assigns and grants a security interest in such Borrower’s right, title and interest in and to, amongother things, the Architect’s Contract, Construction Contract, Plans and Specifications and Project Consents pertaining to the applicable Vertical CommercialImprovements, each such assignment of project documents to be in form and substance satisfactory to the Agent. 3Associations. Collectively, The Woodlands Township and Woodlands Commercial Owners Association.Assumption Agreement. The assumption agreement dated August 29, 2006 pursuant to which Land Company assumed the obligations of Stibbs underthe “Security Deed” and the “Assignment of Leases and Rents” delivered pursuant to the Master Credit Agreement dated November 30, 2004 amongBorrowers, Agent, and the other parties thereto.Authorized Officer. As to Commercial Company, Randy Davis, Tim Welbes, Alex Sutton, or such other officer familiar with the matters subject to theapplicable certification being executed by such officer having a title of vice president or president of Woodlands Operating as is designated in a written noticefrom Commercial Company to Agent and the Title Insurance Company. As to Land Company, Randy Davis, Tim Welbes, Alex Sutton, or such other officerfamiliar with the matters subject to the applicable certification being executed by such officer having a title of vice president or president of WoodlandsOperating as is designated in a written notice from Land Company to Agent and the Title Insurance Company.Balance Sheet Date. December 31, 2010.Bankruptcy Code. Title 11, U.S.C.A., as amended from time to time or any successor statute thereto.Base Rate. The greatest of (a) the variable per annum rate of interest announced from time to time by Agent at Agent’s Head Office as its “prime rate”,(b) one-half of one percent (0.5%) above the Federal Funds Effective Rate (rounded to the nearest 1/100th of one percent), or (c) the LIBOR Rate for an InterestPeriod of one (1) month plus one percent (1%). The Base Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to anycustomer. Any change in the rate of interest payable hereunder resulting from a change in the Base Rate shall become effective as of the opening of business onthe day on which such change in the Base Rate becomes effective, without notice or demand of any kind.Base Rate Loans. Collectively, the Revolving Credit Base Rate Loans and the Secured Term Base Rate Loans.Borrowers. As defined in the preamble hereto.Borrowing Base. At any time, the Borrowing Base for the Borrowers on a combined basis shall be an amount equal to the sum of:(a) sixty percent (60%) of the Adjusted Value of the Developed Residential Land;(b) fifty percent (50%) of the Adjusted Value of the Developed Commercial Land;(c) sixty percent (60%) of the Adjusted Value of the Undeveloped Residential Land; 4(d) fifty percent (50%) of the Adjusted Value of the Undeveloped Commercial Land;(e) forty percent (40%) of the Adjusted Value of the Golf Courses;(f) for each Qualifying Income Property, an amount equal to the product obtained by multiplying (i) the Adjusted Value of such QualifyingIncome Property, by (ii) 0.70;(g) ninety percent (90%) of the Adjusted Net Amount of the Eligible Accounts Receivable; and(h) sixty-five percent (65%) of the historic costs (including land at its Adjusted Value) of Properties under Construction owned by a Borrower thatare subject to a lien in favor of the Agent to secure the Obligations, provided that the maximum Borrowing Base value pursuant to this clause (h) shall notexceed $50,000,000.00 at any time.A form showing the computation of the Borrowing Base as of a Quarterly Measurement Date is set forth on Exhibit E hereto. The Borrowing BaseAssets must satisfy the conditions of §7.19 at all times.Notwithstanding the foregoing, (1) in no event shall more than thirty percent (30%) of the Borrowing Base be comprised of the items described in clause(c) above within the definition of Borrowing Base, and (2) in no event shall the Conference Center be included in the Borrowing Base if any Borrower hasincurred other Indebtedness with respect thereto.Borrowing Base Assets. Collectively, the Developed Residential Land, the Developed Commercial Land, the Undeveloped Residential Land, theUndeveloped Commercial Land, the Golf Courses, the Qualifying Income Properties, the Eligible Accounts Receivable and Properties under Construction.Budget. The annual budgets of the Borrowers, which Budget shall be a detailed estimate of projected income, cash flow, land development costs andother capital expenditures of the Borrowers for each quarter of the calendar year in question, the projected cash flows and net income for such year, and asummary of the significant assumptions upon which such projections are based. In addition, the Budget shall include the annual income and expenditures forthe management, leasing, maintenance, supervision, direction and operation of each Qualifying Income Property (including those owned by RestrictedSubsidiaries to the extent reasonably available from such entities) included within the Property for the calendar year in question. The budget shall also includea budget of significant capital improvements, repairs, replacements, tenant improvements and leasing commissions and other similar tenant-related expenseswith respect to each Qualifying Income Property (including those owned by Restricted Subsidiaries to the extent reasonably available from such entities)included within the Property for the calendar year in question, which shall be a complete and reasonable estimate of the capital expenditures, and expendituresfor tenant improvements and leasing commissions and other similar tenant-related expenses, for such Property for the period covered thereby. Each Budgetshall be a reasonable estimate of the Borrowers of the income and expenditures for the Property for the period covered thereby and shall be prepared by theBorrowers in good faith and in accordance with sound cash basis accounting practices applied on a consistent basis (except that net income 5shall be prepared in accordance with generally accepted accounting principles applied on a consistent basis). Notwithstanding anything herein to the contrary,any fees or expenses to be paid to the Borrowers, any General Partner, any Second Tier Partner, any Third Tier Partner or any affiliate of any of such Personsshall not exceed an amount which would be paid to an unaffiliated entity in any arms-length transaction.Building. All of the buildings and related structures and improvements now or hereafter located on a parcel of Real Estate.Build-To-Suit Properties. Properties owned by a Borrower or its Restricted Subsidiaries or Unrestricted Subsidiaries which are each 100% preleasedunder a net lease having a term of not less than five (5) years and with respect to which Vertical Commercial Improvements are to be constructed.Business Day. Any day on which banking institutions in Cleveland, Ohio are open for the transaction of banking business and, in the case of LIBORRate Loans, which also is a LIBOR Business Day.Capitalized Lease. A lease under which a Person is the lessee or obligor, the discounted future rental payment obligations under which are required to becapitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles.Cash. Money in legal tender of the United States.Cash Collateral Account Agreement. The Second Amended and Restated Cash Collateral Account and Control Agreement between the Borrowers, theAgent and KeyBank, as the same may be modified or amended, such agreement to be in form and substance satisfactory to the Agent.Cash Equivalents. As of any date, (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency orinstrumentality thereof having maturities of not more than one year from such date, (ii) time deposits and certificates of deposits having maturities of not morethan one year from such date and issued by any domestic commercial bank having (A) senior long term unsecured debt rated at least A or the equivalentthereof by S&P or A2 or the equivalent thereof by Moody’s and (B) capital and surplus in excess of $100,000,000.00, (iii) commercial paper rated at least A-1or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody’s and in either case maturing within one hundred twenty (120) days from suchdate, and (iv) shares of any money market mutual fund rated at least AAA or the equivalent thereof by S&P or at least Aaa or the equivalent thereof byMoody’s.CERCLA. See §6.20.Change of Control. A Change of Control shall be deemed to occur upon the occurrence of any of the following events: (a) neither the Howard HughesGroup nor the MSREF Group, each as a separate group, continues to own and control, directly or indirectly, at least fifty percent (50%) of the voting interestsin each Borrower and at least thirty-seven and one-half percent (37.5%) of the ownership interests in each Borrower; or (b) neither a member of the HowardHughes Group nor the MSREF Group (or a wholly-owned subsidiary of the Howard Hughes Group or the MSREF Group) shall be a general partner of eachBorrower. 6Closing Date. The first date on which all of the conditions set forth in §10 and §11 have been satisfied or waived in writing.Code. The Internal Revenue Code of 1986, as amended, and all regulations and formal guidance issued thereunder.Collateral. All of (a) the property, rights and interests of the Borrowers and the Guarantors which are subject to the security interests, liens andmortgages created by the Security Documents, including, without limitation, the Mortgaged Property, and (b) the Guaranty.Collateral Qualification Documents. With respect to any Vertical Commercial Improvements included in the Borrowing Base, or other Income ProducingProperties, Developed Residential Land, Developed Commercial Land, Undeveloped Residential Land, Undeveloped Commercial Land or other property asrequired under this Agreement, each of the following:(a) Security Documents. Such Security Documents relating to such property as the Agent shall require, in form and substance satisfactory to theAgent and duly executed and delivered by the respective parties thereto.(b) Perfection of Liens. Evidence reasonably satisfactory to the Agent that the Security Documents are effective to create in favor of the Agent alegal, valid and enforceable first lien and security interest in such property and that all filings, recordings, deliveries of instruments and other actionsnecessary or desirable to protect and preserve such liens or security interests have been duly effected.(c) Survey. The Survey of the Land upon which such Vertical Commercial Improvements are to be constructed or of such other property.(d) Title. A current report from the Title Insurance Company covering the Land upon which such Vertical Commercial Improvements are to beconstructed or such other property, or other evidence satisfactory to Agent, showing that title is vested in a Borrower, and, if requested by Agent, true andaccurate copies of all documents listed as exceptions in such report or to such title.(e) UCC Certification. A certification from the Title Insurance Company or other person to the Agent that a search of the public records designatedby the Agent disclosed no conditional sales contracts, security agreements, chattel mortgages, leases of personalty, financing statements or title retentionagreements which affect any property, rights or interests of such Borrower that are or are intended to be subject to the security interest, assignments, andmortgage liens created by the Security Documents relating to such property except to the extent that the same are discharged prior to the inclusion of theSecurity Documents relating to such property in the Collateral. 7(f) Management Agreement. If requested by Agent, a true copy of any Management Agreement relating to such Vertical Commercial Improvementsor such other property, and if such Management Agreement is with MS Hospitality, L.P. or any other Affiliate of a Borrower, an Assignment of ManagementAgreement and Subordination.(g) Leases. True copies of any Leases relating to such property requested by Agent together with a Rent Roll for such property certified by theBorrower owning such land as accurate and complete as of a recent date, and if any Lease is to WECCR or any other Affiliate of a Borrower, a subordinationof such Lease to the Loan Documents in form and substance reasonably satisfactory to Agent.(h) Certificates of Insurance. Each of (i) a current certificate of insurance as to the insurance maintained by the Borrower owning such property orthe Project Contractor with respect to such Vertical Commercial Improvements (including flood insurance if necessary) from the insurer or an independentinsurance broker, identifying insurers, types of insurance, insurance limits, and policy terms; (ii) certified copies of all policies evidencing such insurance (orcertificates therefor signed by the insurer or an agent authorized to bind the insurer); and (iii) such further information and certificates from the Borrowerowning the land on which such Vertical Commercial Improvements are to be constructed or such other property, the Project Contractor, their insurers andinsurance brokers as the Agent may reasonably request, all of which shall be in compliance with the requirements of this Agreement and the Security Deeds.(i) Hazardous Substance Assessments. A hazardous waste site assessment report concerning Hazardous Substances and asbestos on the Landrelating to such Vertical Commercial Improvements or such other property dated or updated not more than three months prior to the inclusion of such propertyin the Collateral, from an Environmental Engineer, such report to contain no qualification except those that are acceptable to the Agent in its sole discretion andto otherwise be in form and substance satisfactory to the Agent.(j) Appraisal. In the event such property is to be included in the Borrowing Base, an Appraisal of the proposed Vertical CommercialImprovements, assuming completion in accordance with the Plans and Specifications, or such other property in form and substance satisfactory to the Agentand dated not more than three (3) months prior to the inclusion of the Security Documents relating to the applicable Vertical Commercial Improvements or suchother property in the Collateral.(k) Budget. If requested by Agent, the Project Budget for the proposed Vertical Commercial Improvements.(l) Construction Documents. If requested by Agent, a fully executed copy of the Architect’s Contract and the Construction Contract for theproposed Vertical Commercial Improvements.(m) Plans and Specifications; Permit. If requested by Agent, one complete set of the Plans and Specifications for the proposed VerticalCommercial Improvements and copies of the Project Consents received through the date of inclusion of the Security Documents for such Vertical CommercialImprovements in the Collateral. 8(n) Additional Documents. Such other documents, opinions, certificates, reports or assurances as the Agent may reasonably require in itsdiscretion.Commercial Company Secured Term Loan Commitment. As to each Secured Term Loan Lender, the amount equal to such Secured Term Loan Lender’sCommercial Company Secured Term Loan Commitment Percentage of the aggregate principal amount of the Secured Term Loans from time to timeoutstanding to Commercial Company.Commercial Company Secured Term Loan Commitment Percentage. With respect to each Secured Term Loan Lender, the percentage set forth onSchedule 1.1 hereto as such Secured Term Loan Lender’s percentage of the aggregate Secured Term Loan to Commercial Company, as the same may bechanged from time to time in accordance with the terms of this Agreement.Commercial Company Secured Term Loan or Secured Term Loans. An individual Secured Term Loan or the aggregate Secured Term Loans, as the casemay be, made by the Secured Term Loan Lenders hereunder to Commercial Company.Commercial Company Secured Term Loan Note. A promissory note made by the Borrowers in favor of a Secured Term Loan Lender in the principalface amount equal to such Secured Term Loan Lender’s Secured Term Loan Commitment, in substantially the form of Exhibit B-1 hereto.Commercial Land. Collectively, the Developed Commercial Land and the Undeveloped Commercial Land. The Commercial Land shall not include anyof the Common Area Land.Commitment. With respect to each Lender, the aggregate of (a) the Revolving Credit Commitment and (b) the Secured Term Loan Commitment.Commitment Percentage. With respect to each Lender, the percentage set forth on Schedule 1.1 hereto as such Lender’s percentage of the aggregateCommitments of all of the Lenders, as the same may be changed from time to time in accordance with the terms of this Agreement.Common Area Land. The Common Area Land shall be all land located within the Woodlands Project which is now or hereafter used, designated orreserved for amenities, green space, open space and infrastructure. As of the date hereof, the Woodlands Project includes approximately 10,433 acres ofCommon Area Land.Compliance Certificate. See §7.4(e).Conference Center. The Woodlands Conference Center & Resort, including approximately 440 guestrooms, 34 meeting rooms, 6 restaurants and relatedfacilities.Conference Center Loan. The $36,100,000.00 loan agented by KeyBank to Commercial Company secured by the Conference Center and guaranteed byLand Company. 9Consolidated or combined. With reference to any term defined herein, that term as applied to the accounts of a Person and its Restricted Subsidiaries,consolidated or combined in accordance with generally accepted accounting principles.Construction Contract. With respect to each Vertical Commercial Improvement, the contract between a Borrower that owns the land upon which theapplicable Vertical Commercial Improvements are to be constructed, as the case may be, and the applicable Project Contractor providing for the construction ofthe applicable Vertical Commercial Improvements.Construction Inspector. A firm of professional engineers or architects selected by Borrowers and reasonably acceptable to the Agent.Construction Schedule. With respect to each Vertical Commercial Improvement, the schedule broken down by trade, job and subcontractor, of theestimated dates of commencement and completion of construction of the Improvements, prepared by the applicable Project Contractor, approved by the Agent.Contribution Agreement. The Cross Reimbursement and Indemnity Agreement dated as of July 31, 1997, between Commercial Company and LandCompany, as amended, such Agreement to be in form and substance satisfactory to the Agent.Conversion Request. A notice given by the Borrowers to the Agent of their election to convert or continue a Loan in accordance with §4.1.Debt Service. For any period, the sum of all Interest Expense and mandatory principal payments due (including, without limitation, because of thereductions in Commitments pursuant to §3.6) and payable by the Borrowers and the Restricted Subsidiaries during such period excluding any balloonpayments due upon maturity of any indebtedness.Default. See §12.1Developed Commercial Land. Developed Commercial Land shall mean the land designated for commercial or multifamily use under the Master Plan ofthe Woodlands Project with respect to which infrastructure development has been substantially completed to such an extent that permits construction ofVertical Commercial Improvements, and with respect to which the commencement of the construction of Vertical Commercial Improvements has not yetcommenced.Developed Residential Land. Developed Residential Land shall mean that portion of the Woodlands Project designated under the applicable Master Planfor single-family residential or institutional use, schools, churches, nurseries or day care centers or designated for gas stations, convenience stores or similarretail uses or apartment use and other commercial uses and designated as part of the Residential Land under the applicable Master Plan, for which a MunicipalUtility District has been established or has been applied for, with respect to which infrastructure development has been substantially completed, and as towhich the commencement of construction of such single family housing, institutional facilities or other improvements described above has not yet commenced. 10Direct Costs. Direct Costs shall mean and include the Adjusted Value of the Land, the costs of the Personal Property, and all labor, materials, fixtures,machinery and equipment required to construct, equip and complete the Vertical Commercial Improvements.Disbursement Accounts. As defined in the Cash Collateral Account Agreement.Distribution. With respect to any Person, the declaration or payment of any cash, cash flow, dividend or distribution on or in respect of any shares ofany class of capital stock, partner’s interest, member’s interest or other beneficial interest of such Person; the purchase, redemption, exchange or otherretirement of any shares of any class of capital stock, partner’s interest, member’s interest or other beneficial interest of such Person, directly or indirectlythrough a Restricted Subsidiary of such Person or otherwise; the return of capital by a Person to its shareholders, partners, members or other beneficial ownersas such; or any other distribution on or in respect of any shares of any class of capital stock, partner’s interest, member’s interest or other beneficial interest ofsuch Person.Distribution Level 1. Distribution Level 1 shall exist as of any determination date if (a) as of the most recent Quarterly Measurement Date, the ratio ofTotal Indebtedness to Total Market Value Capitalization (determined pursuant to §9.1), expressed as a percentage, is less than or equal to 50% (or 45% as ofMarch 31, 2012 and thereafter), and (b) after giving effect to the aggregate of any and all Distributions to the partners or other beneficial owners of theBorrowers and Woodlands Operating Distributions and Partner Subordinated Debt Payments to be paid or made, as applicable, the ratio of Total Indebtednessto Total Market Value Capitalization, on a pro forma basis, shall be less than or equal to 50% (or 45% as of March 31, 2012 and thereafter).Distribution Level 2. Distribution Level 2 shall exist as of any determination date if (a) as of the most recent Quarterly Measurement Date, the ratio ofTotal Indebtedness to Total Market Value Capitalization (determined pursuant to §9.1), expressed as a percentage, is less than or equal to 40%, and (b) aftergiving effect to the aggregate of any and all Distributions to the partners or other beneficial owners of the Borrowers and Woodlands Operating Distributionsand Partner Subordinated Debt Payments to be paid or made, as applicable, the ratio of Total Indebtedness to Total Market Value Capitalization, on a proforma basis, shall be less than or equal to 40%.Division Agreement. The Certificate of Merger of The Woodlands Commercial Properties Company, L.P. and The Woodlands Land DevelopmentCompany, L.P. dated July 31, 1997 and the Plan of Merger attached thereto.Dollars or $. Dollars in lawful currency of the United States of America.Domestic Lending Office. Initially, the office of each Lender designated as such in Schedule 1.1 hereto; thereafter, such other office of such Lender, ifany, located within the United States that will be making or maintaining Base Rate Loans.Drawdown Date. The date on which any Loan is made or is to be made, and the date on which any Revolving Credit Loan or Secured Term Loan whichis made prior to the Maturity Date is converted to a Loan of the other Type. 11Eligible Accounts Receivable. That portion of the Accounts Receivable which is owned by a Borrower, subject to a Security Agreement, in which Agenthas a perfected first priority security interest, subject to no other security interest, lien, charge or other encumbrance of any nature, evidenced by promissorynotes or other documentation acceptable to Agent, and consisting of accounts which have payment terms acceptable to the Agent and which: (i) are and shall becreated in the ordinary course of business of the Borrowers, except with respect to Accounts Receivable described in (ix) below so long as Land Company andAccount Debtor are in compliance with (A) through (D) described therein; (ii) arise from a complete bona fide transaction and which require no further actunder any circumstances on the part of any Borrower to make such receivable payable by the Account Debtor; (iii) are not subject to dispute, offset orcounterclaim; (iv) do not arise out of any transaction with an Account Debtor which is insolvent or the subject of any bankruptcy or insolvency proceedingsof any kind or of any other proceeding or action, threatened or pending, which might have a material adverse effect on the financial condition of such AccountDebtors; (v) conform to all representations and warranties made by Borrowers in this Agreement and the other Loan Documents; (vi) have not remainedunpaid for more than thirty (30) days from any payment date; (vii) do not arise out of any transaction with any affiliate of either Borrower, the GeneralPartner, a Second Tier Partner, a Third Tier Partner, any Guarantor or any affiliate thereof; (viii) are owed by Account Debtors located within the UnitedStates of America; (ix) with respect to each Municipal Utility District Contract, (A) Land Company is in full compliance with the applicable CON-10necessary to give rise to the obligation of the applicable Municipal Utility District to purchase the relevant facilities in accordance with the applicable CON-10,including without limitation the terms and conditions set forth in the applicable Policy Manual for Construction or Acquisition of Facilities, (B) except withrespect to Accounts Receivable related to the San Jacinto River Authority contracts, Land Company has obtained and delivered to the Agent a copy of theexecuted confirmatory letter of such Municipal Utility District’s obligation contemplated by the applicable Policy, (C) the obligation of the applicableMunicipal Utility District to acquire the “facility” has not lapsed or expired, and (D) Land Company has delivered satisfactory evidence to the Agent that eachMunicipal Utility District Contract does not exceed the applicable Municipal Utility District’s authority to issue bond indebtedness to satisfy the MunicipalUtility District’s obligations under the applicable Municipal Utility District Contract; and (x) are not determined by the Majority Lenders in their solediscretion to be otherwise ineligible for any other reason (it nevertheless being understood that the receivables described in (i) through (ix) above shall beincluded as part of the Collateral). Eligible Accounts Receivable shall in no event include any Investments of the type described in §8.3(k).Eligible Assignee. (a) a Lender or any Affiliate or Related Fund of such Lender; (b) a commercial bank; (c) a savings and loan association or savingsbank; or (d) an insurance company, financing company, other financial institution, fund or institutional investor experienced in real estate lending or investingin loans similar to the Loans in the ordinary course of its business reasonably acceptable to Agent and Borrower; provided that an Eligible Assignee shall notinclude any Borrower or any of their Affiliates or Restricted Subsidiaries or Unrestricted Subsidiaries.Employee Benefit Plan. Any employee benefit plan within the meaning of §3(3) of ERISA maintained or contributed to by a Borrower or any ERISAAffiliate, other than a Multiemployer Plan. 12Environmental Engineer. A firm of independent professional engineers or other scientists generally recognized as expert in the detection, analysis andremediation of the Hazardous Substances and related environmental matters and reasonably acceptable to the Agent.Environmental Laws. See §6.20(a).Equity Offering. The issuance and sale by a Borrower subsequent to the date of this Agreement of any partnership interests or equity securities of suchBorrower to investors other than the then current partners.ERISA. The Employee Retirement Income Security Act of 1974, as amended and in effect from time to time, and all regulations and formal guidanceissued thereunder.ERISA Affiliate. Any Person which is treated as a single employer with a Borrower under §414 of the Code or §4001 of ERISA, and any predecessorentity of any of them.ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of §4043 of ERISA as to which therequirement of notice has not been waived or any other event with respect to which a Borrower or an ERISA Affiliate could have liability under §4062(e) or§4063 of ERISA.Event of Default. See §12.1.Excess Cash Flow. With respect to the Borrowers on a combined basis for any fiscal year period, an amount equal to the Operating Cash Flow of theBorrowers, minus (a) the sum of all interest and mandatory principal payments due and payable with respect to the Loans for such period, minus(b) mandatory interest and principal payments due and payable during such period on other permitted Indebtedness of the Borrowers for such period, andminus (c) Vertical Development Costs incurred during the applicable test period.Exiting Lenders. See §1.3.Extension Request. See §4.15.Federal Funds Effective Rate. For any day, the rate per annum (rounded to the nearest one-hundredth of one percent (1/100 of 1%)) announced by theFederal Reserve Bank of Cleveland on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal fundsbrokers on the previous trading day, as computed and announced by such Federal Reserve Bank in substantially the same manner as such Federal ReserveBank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate”, or, if such rate is not so published for any day that is aBusiness Day, the average of the quotations for such day on such transactions received by the Agent from three (3) Federal funds brokers of recognizedstanding selected by the Agent.Fees. The fees payable to either Borrower pursuant to any management agreements relating to the Woodlands Project or any part thereof, and easementusage fees payable to Commercial Company pursuant to the agreements commonly known as the TCI Easement Agreement. 13Fixed Charge Coverage Ratio. As of each Quarterly Measurement Date the ratio of (a) sum of (i) the Operating Cash Flow of the Borrowers for the TestPeriod minus (ii) the Non-Recurring Amount for the Test Period to (b) the Debt Service for the Test Period.Funding Agreement. The Funding Agreement effective as of July 31, 1997 among Borrowers and the other parties thereto regarding contributions,distributions and loans, as amended by that certain First Amendment to Funding Agreement effective as of November 24, 2004.Funding Subordination and Standstill Agreement. The Second Amended and Restated Subordination and Standstill Agreement dated of even dateherewith, by and among Agent, Commercial Company and Land Company relating to the Funding Agreement, as the same may be modified or amended.General Partner. Collectively, TWLDC Holdings GP and TWCPC Holdings GP.Generally Accepted Accounting Principles. Principles that are (a) consistent with the principles promulgated or adopted by the Financial AccountingStandards Board and its predecessors, as in effect from time to time and (b) consistently applied with past financial statements of the Borrower adopting thesame principles; provided that a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver anunqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which suchprinciples have been properly applied.Golf Courses. The golf courses (including the clubhouses, swimming pools, driving ranges, tennis courts and other related amenities) commonlyknown as the Carlton Woods Nicklaus Golf Course and the Tom Fazio Carlton Woods Creekside Golf Course, together with any new golf courses that aredeveloped and opened within the Woodlands Project and are included within the Collateral.Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of §3(2) of ERISA maintained or contributed to by a Borrower of anyERISA Affiliate the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a MultiemployerPlan.Guarantor Contribution Agreement. That certain Contribution Agreement dated of even date herewith among Borrowers, the Guarantors and eachadditional Person which may become a Guarantor which may hereafter become a party thereto, as the same may be modified, amended or ratified from time totime.Guarantors. Woodlands Operating, Town Center Development Company, L.P. and Town Center Development Company GP, L.L.C., and any Personwhich may become a guarantor of the Obligations after the date hereof.Guaranty. The Unconditional Guaranty of Payment and Performance made by the Guarantors and each Person which becomes a Guarantor pursuant to§5.6 in favor of the Agent and the Lenders, as the same may be modified, amended, ratified or confirmed, such Guaranty to be in form and substancesatisfactory to the Agent. 14Hazardous Substances. See §6.20(b).Hedge Obligations. All obligations of Borrowers to any Lender or an Affiliate of a Lender to make any payments (including, without limitation, anypayments due upon a termination or default) under any agreement with respect to an interest rate swap, collar, cap or floor or a forward rate agreement or otheragreement regarding the hedging of interest rate risk exposure executed in connection with the satisfaction of the condition set forth in §7.24, and anyconfirming letter executed pursuant to such hedging agreement, all as amended, restated or otherwise modified. Nothing herein shall require the Borrowers toobtain any such agreement from any Lender or an Affiliate of a Lender.Highest Lawful Rate. With respect to Agent or any Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may becontracted for, taken, reserved, charged or received on the Obligations under laws applicable to Agent or such Lenders which are currently in effect or, to theextent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate thanapplicable laws now allow. On each day, if any, that Texas law establishes the Highest Lawful Rate, the Highest Lawful Rate shall be the “weekly ceiling” (asdefined in Section 303 of the Texas Finance Code) for that day.Howard Hughes Group. The Howard Hughes Company, LLC, a Delaware limited liability company.Improvements. The improvements to be constructed on the Land for any Vertical Commercial Improvements in accordance with the Plans andSpecifications therefor.Income Producing Properties. Income producing properties owned by Commercial Company or Land Company or their Restricted Subsidiaries locatedwithin the Woodlands Project or, with the approval of the Agent, adjacent thereto.Indebtedness. All obligations, contingent and otherwise, that in accordance with Generally Accepted Accounting Principles should be classified upon theobligor’s balance sheet as liabilities, or to which reference should be made by footnotes thereto, including in any event and whether or not so classified: (a) alldebt and similar monetary obligations, whether direct or indirect; (b) all liabilities secured by any mortgage, pledge, security interest, lien, charge or otherencumbrance existing on property owned or acquired subject thereto, whether or not the liability secured thereby shall have been assumed; (c) all guarantees,endorsements and other contingent obligations whether direct or indirect in respect of indebtedness of others, including any obligation to supply funds to or inany manner to invest directly or indirectly in a Person, to purchase indebtedness, or to assure the owner of indebtedness against loss through an agreement topurchase goods, supplies or services for the purpose of enabling the debtor to make payment of the indebtedness held by such owner or otherwise, and theobligation to reimburse the issuer in respect of any letter of credit; (d) any obligation as a lessee or obligor under a Capitalized Lease; (e) all obligations withrespect to letters of credit or similar instruments issued by a 15Person; (f) all subordinated debt; and (g) all indebtedness, obligations or other liabilities under or with respect to (i) interest rate swap, collar, cap or similaragreements providing interest rate protection and (ii) foreign currency exchange agreements. Indebtedness shall not include current liabilities of the Borrowers ortheir respective Restricted Subsidiaries or Unrestricted Subsidiaries incurred in the ordinary course of business but not incurred through (i) the borrowing ofmoney, or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchasesof goods and services. Indebtedness shall also include loans made pursuant to the Funding Agreement and the Partner Subordinated Debt; provided, however,that loans made pursuant to the Funding Agreement and the Partner Subordinated Debt shall be excluded from Indebtedness so long as no Event of Defaultexists, and no default, material misrepresentation or breach of warranty has occurred under the Funding Subordination and Standstill Agreement or the PartnerSubordination and Standstill Agreement.Indemnity Agreement. The Indemnity Agreement Regarding Hazardous Materials, made by the Borrowers in favor of the Agent and the Lenders, as thesame may be modified or amended, pursuant to which the Borrowers agree to indemnify the Agent and the Lenders with respect to Hazardous Substances andEnvironmental Laws, such Indemnity Agreement to be in form and substance satisfactory to the Agent.Indirect Costs. Indirect Costs shall mean and include title insurance report fees, survey charges, engineering fees, architectural fees, real estate taxes,appraisal costs, commitment fees and interest payable to the Lenders under the Loan with respect to the Vertical Commercial Improvements, premiums forinsurance, marketing, advertising and leasing costs, brokerage commissions, legal fees, accounting fees, overhead and administrative costs, and all otherexpenses which are expenditures relating to Vertical Commercial Improvements and are not Direct Costs.Interest Cap. See §7.24.Interest Expense. For any period, the sum of all actual interest expense (excluding capitalized interest funded pursuant to a construction loan butincluding all other capitalized interest) due and payable by the Borrowers and the Restricted Subsidiaries during such period. Interest Expense shall includeinterest paid by the Borrowers and Land Company, respectively, with respect to loans made pursuant to the Funding Agreement and the Partner SubordinatedDebt; provided, however, that payments or accruals of interest by the Borrowers or Land Company with respect to loans made pursuant to the FundingAgreement and the Partner Subordinated Debt, as applicable, shall be excluded from Interest Expense so long as no Event of Default exists, and no default,material misrepresentation or breach of warranty has occurred under the Funding Subordination and Standstill Agreement or the Partner Subordination andStandstill Agreement.Interest Payment Date. The first day of each calendar month during the term of such Loan.Interest Period. With respect to each LIBOR Rate Loan (a) initially, the period commencing on the Drawdown Date of such Loan and ending one, two,three or six months 16thereafter, and (b) thereafter, each period commencing on the day following the last day of the next preceding Interest Period applicable to such LIBOR Loanand ending on the last day of one of the periods set forth above, as selected by the Borrowers in a Conversion Request; provided that all of the foregoingprovisions relating to Interest Periods are subject to the following:(i) if any Interest Period with respect to a LIBOR Rate Loan would otherwise end on a day that is not a LIBOR Business Day, that InterestPeriod shall end and the next Interest Period shall commence on the next preceding or succeeding LIBOR Business Day as determined conclusively by theAgent in accordance with the then current bank practice in the applicable LIBOR interbank market;(ii) if the Borrowers shall fail to give notice as provided in §4.1, the Borrowers shall be deemed to have requested a conversion of theaffected LIBOR Rate Loan to a Base Rate Loan on the last day of the then current Interest Period with respect thereto; and(iii) no Interest Period relating to any LIBOR Rate Loan shall extend beyond the Maturity Date.Investment. With respect to any Person, all shares of capital stock, evidences of Indebtedness and other securities issued by any other Person, all loans,advances, or extension of credit to, or contributions to the capital of, any other Person, all purchases of the securities or business or integral part of thebusiness of any other Person and commitments to make such purchases, all interests in real property, and all other investments; provided, however, that theterm “Investment” shall not include (i) equipment, inventory and other tangible personal property acquired in the ordinary course of business, or (ii) currenttrade and customer accounts receivable for services rendered in the ordinary course of business and payable in accordance with customary trade terms. Indetermining the aggregate amount of Investments outstanding at any particular time: (a) the amount of any investment represented as a guaranty shall be takenat not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be included as an Investment all interest accrued withrespect to Indebtedness constituting an Investment unless and until such interest is paid; (c) there shall be deducted in respect of each such Investment anyamount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (d) thereshall not be deducted in respect of any Investment any amounts received as earning on such Investment, whether as dividends, interest or otherwise, exceptthat accrued interest included as provided in the foregoing clause (b) may be deducted when paid; and (e) there shall not be deducted from the aggregate amountof Investments any decrease in the value thereof.Joinder Agreement. The Joinder Agreement with respect to the Guaranty and Guarantor Contribution Agreement to be executed and delivered pursuant to§5.6 by any Person required to become a Guarantor thereunder, such Joinder Agreement to be substantially in the form of Exhibit “H” hereto.KeyBank. KeyBank National Association, a national banking association, and its successors by merger. 17Land. With respect to each Vertical Commercial Improvement, the real estate upon which the Vertical Commercial Improvements are to be constructed.Land Assets. Collectively, the Residential Land and the Commercial Land.Land Company. As defined in the preamble hereto.Land Company Secured Term Loan Commitment. As to each Secured Term Loan Lender, the amount equal to such Secured Term Loan Lender’s LandCompany Secured Term Loan Commitment Percentage of the aggregate principal amount of the Secured Term Loans to Land Company from time to timeoutstanding.Land Company Secured Term Loan Commitment Percentage. With respect to each Secured Term Loan Lender, the percentage set forth on Schedule 1.1hereto as such Secured Term Loan Lender’s percentage of the aggregate Secured Term Loans to Land Company, as the same may be changed from time to timein accordance with the terms of this Agreement.Land Company Secured Term Loan or Loans. An individual Secured Term Loan or the aggregate Secured Term Loans, as the case may be, made by theSecured Term Loan Lenders hereunder to Land Company.Land Company Secured Term Loan Note. A promissory note made by the Borrowers in favor of a Secured Term Loan Lender in the principal faceamount equal to such Secured Term Loan Lender’s Land Company Secured Term Loan Commitment, in substantially the form of Exhibit B-2 hereto.Lead Arranger. KeyBanc Capital Markets.Leases. Leases, licenses and agreements whether written or oral, relating to the use of occupation of space in or on the Building or on the Real Estate.Lease Summaries. Summaries of the material terms of the Leases.Lenders. KeyBank, the other Lenders a party hereto, and any other Person who becomes an assignee of any rights of a Lender pursuant to §18; andcollectively, the Revolving Credit Lenders and the Secured Term Loan Lenders.LIBOR Business Day. Any day on which commercial banks are open for international business (including dealings in Dollar deposits) in the Londoninterbank market.LIBOR Lending Office. Initially, the office of each Lender designated as such in Schedule 1.1 hereto; thereafter, such other office of such Lender, ifany, that shall be making or maintaining LIBOR Rate Loans.LIBOR Rate. For any LIBOR Rate Loan for any Interest Period, the greater of (a) the average rate (rounded to the nearest 1/100th) as shown in ReutersScreen LIBOR01 Page (or any successor service, or if such Person no longer reports such rate as determined by Agent, by another commercially availablesource providing such quotations approved by Agent) at which 18deposits in U.S. dollars are offered by first class banks in the London Interbank Market at approximately 11:00 a.m. (London time) on the day that is two(2) LIBOR Business Days prior to the first day of such Interest Period with a maturity approximately equal to such Interest Period and in an amountapproximately equal to the amount to which such Interest Period relates, adjusted for reserves and taxes if required by future regulations, and (b) one percent(1%). If such service or such other Person approved by Agent no longer reports such rate or Agent determines in good faith that the rate so reported no longeraccurately reflects the rate available to Agent in the London Interbank Market, Agent may select a replacement index. For any period during which a ReservePercentage shall apply, the LIBOR Rate with respect to LIBOR Rate Loans shall be equal to the amount determined above divided by an amount equal to 1minus the Reserve Percentage.LIBOR Rate Loans. Collectively, the Revolving Credit LIBOR Rate Loans and the Secured Term LIBOR Rate Loans.Liens. See §8.2.Liquidity. As of any date of determination, the sum of (a) the Borrowers’ Cash plus (b) the amount of the Revolving Credit Loans available to beborrowed by Land Company as of such Quarterly Measurement Date plus (c) the budgeted cash available for Distribution for the two (2) QuarterlyMeasurement Dates for the next two(2) full calendar quarters following the date of determination as a result of operations of the Borrowers during the fiscalquarters ending on such next two (2) Quarterly Measurement Dates (based on the budget for such period approved by Agent pursuant to §7.4(k) and proforma projection of compliance with the requirements to meet Distribution Level 1 or Distribution Level 2).Loan Documents. This Agreement, the Notes (if any), the Security Documents, the Guarantor Contribution Agreement, the Joinder Agreements and allother documents, instruments or agreements now or hereafter executed or delivered by or on behalf of any Borrower or any Guarantor in connection with theLoans.Loan or Loans. Collectively, the Revolving Credit Loans and the Secured Term Loans.Loan Request. See §2.6.Majority Lenders. As of any date, the Lender or Lenders whose aggregate Commitment Percentage is more than fifty percent (50%) of the totalCommitments.Management Agreements. Agreements, whether written or oral, providing for the management of all or any portion of the Mortgaged Properties.Market Value Net Worth. As of any date of determination, the sum of (a) Total Market Value Capitalization as of such date minus (b) the aggregate TotalIndebtedness of the Borrowers and their respective Restricted Subsidiaries.Master Plan. The Master Plan for the Woodlands Project. 19Material Agreements. Collectively, the Master Plan, the documents and agreements governing the Associations, and, to the extent any rights thereunderare a part of the Collateral, any of the Municipal Utility District Contracts, the Note Receivables and the partnership agreements or other organizationaldocuments pursuant to which rights have been pledged to Agent pursuant to an Assignment of Interests.Material Assets. Collectively, (a) Commercial Land sold in one transaction or a series of related transactions to the same Person (which for the purposeshereof shall include affiliated or related entities) for an aggregate purchase price of more than $30,000,000.00 within any twelve (12) month period,(b) Residential Land sold in one transaction or a series of related transactions to the same Person (which for the purposes hereof shall include affiliated orrelated entities) involving 750 or more contiguous single family lots within any twelve (12) month period, or (c) Land Assets sold for an aggregate purchaseprice of more than $30,000,000.00 within any twelve (12) month period to one or more Unrestricted Subsidiaries.Maturity Date. March 29, 2014, as the same may be extended by the Borrowers as provided in §4.15, or such earlier date on which the Loans shallbecome due and payable pursuant to the terms hereof.Mortgaged Property or Mortgaged Properties. Collectively, the Real Estate of Borrowers which is security for the Obligations pursuant to the SecurityDeeds.MS Hospitality Management Fee. The fees payable to MS Hospitality, L.P. pursuant to that certain Management Agreement dated March 20, 2002, asamended, between WECCR and MS Hospitality, L.P. with respect to the management of the Conference Center.MSREF. The Morgan Stanley Real Estate Fund II, L.P., a Delaware limited partnership.MSREF Group. MSREF, MS/TWC Joint Venture, MS TWC, Inc., Morgan Stanley Real Estate Investors, L.P., MSREF II 892 Investors - B, L.P. andany co-investment partnership between an Affiliate of the general partner of MSREF and a major limited partner of MSREF formed to co-invest alongsideMSREF pursuant to an existing co-investment agreement.Multiemployer Plan. Any multiemployer plan within the meaning of §3(37) or §4001(a)(3) of ERISA or §414(f) of the Code maintained or contributed toby a Borrower or any ERISA Affiliate.Municipal Utility District Contracts. The Municipal Utility District Contracts and the Road Utility District Contracts included within MUD Contractsand Note Receivables in Schedule 1.2 hereto.Net Income (or Deficit). With respect to any Person, for any fiscal period, the net income (or deficit) of such Person, after deduction of all expenses,taxes and other proper charges, determined in accordance with Generally Accepted Accounting Principles.Non-Recourse Indebtedness. Indebtedness of a Person which is secured by one or more parcels of Real Estate and related personal property or intereststherein and is not a general obligation of such Person, the holder of such Indebtedness having recourse solely to the parcels 20of Real Estate securing such Indebtedness, the Building and any leases thereon and the rents and profits thereof securing such Indebtedness, subject to suchexceptions for fraud or material misrepresentation, misapplication of rents or misappropriation of funds (including insurance proceeds or condemnationawards), environmental issues, any loss of collateral due to forfeiture as a result of any criminal or quasi-criminal activity, springing recourse obligations dueto voluntary or involuntary bankruptcy, encumbrances or transfers of interests or assets in violation of loan documents, or amendment, dissolution or othermodifications or failures to follow organizational documents, and other customary matters as Agent may reasonably approve; provided, however, that theamount of any claims for liability with respect to any springing recourse obligations to the extent that a Person becomes liable therefor shall not be consideredNon-Recourse Indebtedness.Non-Recurring Amount. For any period, the sum of (a) any amounts included in Operating Cash Flow which are attributable to the non-recurring sale ofincome-producing assets (other than land sales) minus (b) any such amounts from such a sale of completed Vertical Commercial Improvements theconstruction of which commenced after the date of the Existing Credit Agreement which are in excess of the cost basis (exclusive of land) of such VerticalCommercial Improvements and minus (c) the market value of the land attributable to such Vertical Commercial Improvements.Note Receivables. The notes payable to Commercial Company or Land Company and all proceeds of the foregoing, as more particularly described onSchedule 1.6 hereto and which are subject to the Security Agreement to which Commercial Company or Land Company is a party, together with anyadditional notes payable to Commercial Company or Land Company and all proceeds of the foregoing hereafter approved by Agent in writing for inclusion asa Note Receivable and which is subject to a Security Agreement.Notes. Collectively, the Revolving Credit Notes and the Secured Term Loan Notes, if any.Notice. See §19.Obligations. All indebtedness, obligations and liabilities of the Borrowers and the Guarantors to any of the Lenders and the Agent, individually orcollectively, under this Agreement or any of the other Loan Documents or in respect of any of the Loans or the Notes, or other instruments at any timeevidencing any of the foregoing, whether existing on the date of this Agreement or arising or incurred hereafter, direct or indirect, joint or several, absolute orcontingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise.OFAC. Office of Foreign Asset Control of the Department of the Treasury of the United States of America.Operating Cash Flow. For any period, an amount equal to the sum of (a) the Operating Income of a Borrower for such period minus (b) the OperatingExpenses of a Borrower for such period. 21Operating Expenses. For any period, all expenses of a Borrower directly attributable to the operation of such Borrower or the operation, repair and/ormaintenance of the Property (if applicable) including, without limitation, taxes, insurance premiums, management fees, payments to third party suppliers,marketing and operating expenses, capital expenditures for maintenance or improvement of income producing properties, general and administrative expensesand all land and lot development expenditures (other than the amounts expended in respect of construction of Vertical Commercial Improvements) including,without limitation, amounts reimbursable under Municipal Utility District Contracts. For the purposes of this Agreement, Operating Expenses shall notinclude any Foreign, U.S., state and local income taxes, franchise taxes or other taxes based on the income imposed on a Borrower generally and not as ownerof the Property, depreciation and any other non-cash expenditures of a Borrower, or any payment of principal or interest with respect to the Obligations or otherIndebtedness or other fees or charges payable under the Loan Documents (except that appraisals and cost reimbursements to the Agent or the Lenders shall beOperating Expenses). Operating Expenses shall be determined on the basis of sound cash basis accounting practices applied on a consistent basis, modified asdescribed above, and consistent with the manner in which they have previously been calculated and provided to the Lenders. Operating Expenses shall notinclude expenses of a Borrower’s Restricted Subsidiaries and Unrestricted Subsidiaries or costs of Vertical Commercial Improvements.Operating Income. For any period, all revenue or receipts derived by a Borrower from any source, including, without limitation (as applicable), netproceeds of sales, exchanges or transfers of Residential Land, Commercial Land and income-producing properties or interests therein, partnershipdistributions, dividends, management and other fees or similar payments, payments received on Accounts Receivable, interest income, rents and profits,operating expense and real estate tax expense reimbursements, escalations, percentage rents, administrative and supervisory fees, insurance proceeds andcondemnation awards (other than proceeds and condemnation awards that are applied to Indebtedness by a lender or are used to restore and rebuildimprovements) and any other extraordinary, non-recurring or miscellaneous revenues, but excluding capital contributions from a Borrower’s partners and netproceeds of new construction and development financings or any borrowings of the Loans. Operating Income shall be determined on the basis of sound cashbasis accounting practices applied on a consistent basis, modified as provided above and consistent with the manner in which they have previously beencalculated and provided to the Lenders. Operating Income shall not include gross income of Restricted Subsidiaries and Unrestricted Subsidiaries of aBorrower, but instead the amount distributed to such Borrower.Original Credit Agreement. As defined in the recitals.Outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination.Partial Interest. The ownership interest (determined based on its right to receive cash flow and other distributions) of Land Company or CommercialCompany, whether such interest is evidenced by a partnership interest or otherwise, in certain Persons which own office, retail, research/industrial andmultifamily rental properties more particularly described in Schedule 1.4 hereto, together with such additional interests as may hereafter be added as providedin §7.17. For the purposes of calculating compliance with financial covenants, a Partial Interest shall sometimes be expressed as a percentage interest in theunderlying Income Producing Property. 22Partner Subordinated Debt. The principal amount of the indebtedness evidenced by that certain Amended and Restated Promissory Note dated as ofNovember 30, 2004, in the sum of $250,000.00, made by Land Company in favor of MS TWC, Inc.; that certain Amended and Restated Promissory Notedated as of November 30, 2004, in the sum of $14,125,000.00, made by Land Company in favor of MS/TWC Joint Venture; and that certain Amended andRestated Promissory Note dated as of November 30, 2004, in the sum of $10,625,000.00, made by Land Company in favor of TWC Land Development.Partner Subordinated Debt Payments. The amount of all payments made by Land Company on the Partner Subordinated Debt to MS TWC, Inc.,MS/TWC Joint Venture and TWC Land Development during any period.Partner Subordination and Standstill Agreement. The First Amended and Restated Subordination and Standstill Agreement dated of even date herewith,by and among Agent, Land Company and the holders of the Partner Subordinated Debt relating to the Partner Subordinated Debt, as the same may bemodified or amended.Partnerships. The Persons described on Schedule 1.5 hereto in which a Borrower has an ownership interest, together with each other Person in which aBorrower may hereafter obtain an ownership interest which is a Restricted Subsidiary.Patriot Act. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as thesame may be amended from time to time, and corresponding provisions of future laws.PBGC. The Pension Benefit Guaranty Corporation created by §4002 of ERISA and any successor entity or entities having similar responsibilities.Performance Obligations. Letters of credit issued on behalf of a Borrower or one of its Restricted Subsidiaries to, or a guaranty provided by a Borroweror Restricted Subsidiary to, a governmental authority, the purpose of which is to assure completion by a Borrower or such Restricted Subsidiary of thedevelopment or maintenance of land improvements.Permitted Excess Cash Flow Investments. Investments permitted pursuant to §8.3(a)-(g), the investments permitted pursuant to §8.3(h) and(i) (regardless of whether such Investment is deposited with Agent or any other Person), and such other investments as the Agent may reasonably approve.Permitted Liens. Liens, security interests and other encumbrances permitted by §8.2.Person. Any individual, corporation, partnership, limited liability company, trust, unincorporated association, business, or other legal entity, and anygovernment or any governmental agency or political subdivision thereof. 23Personal Property. With respect to each Vertical Commercial Improvements, all materials, furnishings, fixtures, furniture, machinery, equipment andall items of tangible personal property now or hereafter owned or acquired by a Borrower, wherever located, and either (i) to be located on or incorporated intothe applicable Vertical Commercial Improvements, (ii) used in connection with the construction of the applicable Vertical Commercial Improvements or (iii) tobe used in connection with the operation or maintenance of the applicable Vertical Commercial Improvements.Plan. An Employee Benefit Plan, Multiemployer Plan and/or Guaranteed Pension Plan.Plans and Specifications. The final and/or permitted detailed architectural, structural, mechanical, electrical, landscaping, erosion control, grading,utility and other plans and specifications for the applicable Vertical Commercial Improvements prepared by the Project Architect.Principal Financial Officer. The primary officer or the authorized agent of the Borrowers, the General Partners, the Second Tier Partners, or the ThirdTier Partners responsible for the preparation and certification of financial statements.Project Architect. With respect to each Vertical Commercial Improvements, the licensed professional architect retained by a Borrower to design suchVertical Commercial Improvements and prepare the Plans and Specifications therefor, and supervise the construction of such Vertical CommercialImprovements.Project Budget. The budget for total estimated Project Costs for Vertical Commercial Improvements in such form as the Agent may reasonably request.Project Consents. All approvals, consents, waivers, orders, agreements, acknowledgments, authorizations, permits and licenses required underapplicable Requirements or under the terms of any agreement, restriction, covenant or easement affecting Vertical Commercial Improvements, or otherwisenecessary or desirable, for the ownership and acquisition of Vertical Commercial Improvements, the construction and equipping of the Improvements, and theuse, occupancy and operation of Vertical Commercial Improvements following completion of construction of the Improvements, whether obtained from agovernmental authority or any other Person.Project Contractor. With respect to each Vertical Commercial Improvements, the general contractor hired by a Borrower to construct the VerticalCommercial Improvements.Project Costs. For each Vertical Commercial Improvements, the sum of all Direct Costs and Indirect Costs that will be incurred by a Borrower inconnection with the construction, equipping and completion of the Improvements and the operation and carrying of such Vertical Commercial Improvementsthrough stabilization.Properties under Construction. Vertical Commercial Improvements under construction; provided that a property shall cease to be under construction andeligible for inclusion in the Borrowing Base as a Property Under Construction upon the earlier to occur of (a) eighteen months following the commencement ofconstruction and (b) six (6) months after the issuance of a shell certificate of occupancy or an equivalent thereto for such improvements. 24Property. Collectively, the Accounts Receivable, the Residential Land, the Commercial Land, the Common Area Land, the Golf Courses, the QualifyingIncome Properties, the Partial Interests, the Properties under Construction, the Income Producing Properties and the Fees.Qualifying Income Properties. Income Producing Properties that satisfy the terms of §5.2 and §7.19. The initial Qualifying Income Properties are moreparticularly described in Schedule 1.3 hereto. The Qualifying Income Properties may include the Conference Center to the extent the Borrowers satisfy theconditions to the inclusion of the Conference Center as a Borrowing Base Asset.Quarterly Measurement Date. Each December 31, March 31, June 30 and September 30 during the term of the Agreement, with the first QuarterlyMeasurement Date occurring December 31, 2010.Real Estate. All real property at any time owned or leased (as lessee or sublessee) by the Borrowers, any of their respective Restricted Subsidiaries, aGuarantor or any of the Partnerships.Register. See §18.2.Related Fund. With respect to any Lender which is a fund that invests in loans, any Affiliate of such Lender or any other fund that invests in loans thatis managed by the same investment advisor as such Lender or by an Affiliate of such Lender or such investment advisor.Release. See §6.20(c) (iii).Rent Roll. A report prepared and certified by a Borrower showing for each property its type, occupancy status, lease expiration date, lease rent and otherinformation in substantially the form presented to the Lenders prior to the date hereof or in such other form as may have been approved by the Agent, suchapproval not to be unreasonably withheld.Requirements. Any law, ordinance, code, order, rule or regulation of any governmental authority relating in any way to the acquisition, ownership,construction, use, occupancy and operation of Vertical Commercial Improvements before, during and following the completion thereof, including those relatingto subdivision control, zoning, building, use and occupancy, fire prevention, health, safety, sanitation, handicapped access, historic preservation andprotection, tidelands, wetlands, flood control, access and earth removal, and all Environmental Laws.Reserve Percentage. For any Interest Period, that percentage which is specified three (3) Business Days before the first day of such Interest Period by theBoard of Governors of the Federal Reserve System (or any successor) or any other governmental or quasi-governmental authority with jurisdiction over Agentor any Lender for determining the maximum reserve requirement (including, but not limited to, any marginal reserve requirement) for Agent or any Lender withrespect to liabilities constituting of or including (among other liabilities) Eurocurrency liabilities in an amount equal to that portion of the Loan affected bysuch Interest Period and with a maturity equal to such Interest Period. 25Residential Land. Collectively, the Developed Residential Land and the Undeveloped Residential Land. The Residential Land shall not include any of theCommon Area Land.Restricted Subsidiary. A Restricted Subsidiary shall mean (a) any corporation, association, partnership, limited liability company, trust, or otherbusiness entity of which the designated parent (i) shall be the general partner, managing member, controlling shareholder or similar controlling Person of suchentity, (ii) shall own directly or indirectly through a Person or Persons at least fifty percent (50%) (by number of votes or controlling interests) of theoutstanding Voting Interests and (iii) shall have control over all major decisions (including the decision to sell or encumber such Person’s assets) and day-to-day operations of such entity, and (b) any other entity the accounts of which are consolidated with the accounts of a Borrower in accordance with GenerallyAccepted Accounting Principles; provided that such Borrower has not elected that such entity be an Unrestricted Subsidiary as permitted in this Agreement.Notwithstanding the foregoing, Stewart Title of Montgomery County, Inc. shall not constitute a Restricted Subsidiary.Revolving Credit Base Rate Loans. Revolving Credit Loans bearing interest calculated by reference to the Base Rate.Revolving Credit Commitment. With respect to each Revolving Credit Lender, the amount set forth on Schedule 1.1 hereto as the amount of suchRevolving Credit Lender’s Revolving Credit Commitment to make or maintain Revolving Credit Loans to Land Company, as the same may be changed fromtime to time in accordance with the terms of this Agreement.Revolving Credit Commitment Percentage. With respect to each Revolving Credit Lender, the percentage set forth on Schedule 1.1 hereto as suchRevolving Credit Lender’s percentage of the aggregate Revolving Credit Commitments of all of the Revolving Credit Lenders, as the same may be changed fromtime to time in accordance with the terms of this Agreement.Revolving Credit LIBOR Rate Loans. Revolving Credit Loans bearing interest calculated by reference to the LIBOR Rate.Revolving Credit Lenders. Collectively, the Lenders which have a Revolving Credit Commitment, such Revolving Credit Lenders being identified onSchedule 1.1 hereto.Revolving Credit Loan or Loans. An individual Revolving Credit Loan or the aggregate Revolving Credit Loans, as the case may be, to be made by theRevolving Credit Lenders hereunder as more particularly described in §2.Revolving Credit Note or Notes. A promissory note or notes made by the Borrowers in favor of a Revolving Credit Lender in the principal face amountequal to such Revolving Credit Lender’s Revolving Credit Commitment, or if less, the outstanding amount of all Revolving Credit Loans made by suchRevolving Credit Lender, in substantially the form of Exhibit A-2 hereto. 26Second Tier Partners. Collectively, TWLDC Holdings and TWCPC Holdings.Secured Term Base Rate Loans. The Secured Term Loans bearing interest by reference to the Base Rate.Secured Term LIBOR Rate Loans. The Secured Term Loans bearing interest by reference to the LIBOR Rate.Secured Term Loan or Secured Term Loans. An individual Secured Term Loan or the aggregate Secured Term Loans, as the case may be, in themaximum principal amount of $170,000,000.00 made by the Secured Term Loan Lenders hereunder.Secured Term Loan Commitment. As to each Secured Term Loan Lender, the amount equal to such Secured Term Loan Lender’s percentage set forth onSchedule 1.1 of the aggregate principal amount of the Secured Term Loans from time to time outstanding.Secured Term Loan Commitment Percentage. With respect to each Secured Term Loan Lender, the percentage set forth on Schedule 1.1 hereto as suchSecured Term Loan Lender’s percentage of the aggregate Secured Term Loans, as the same may be changed from time to time in accordance with the terms ofthis Agreement.Secured Term Loan Lenders. Collectively, the Lenders which have a Secured Term Loan Commitment, such Secured Term Loan Lenders beingidentified on Schedule 1.1 hereto.Secured Term Loan Notes. Collectively, the Commercial Company Secured Term Loan Notes and the Land Company Secured Term Loan Notes, ifany.Security Agreements. Collectively the Collateral Assignment of Documents from Commercial Company to the Agent for the benefit of the Lenders and theCollateral Assignment of Documents from Land Company to the Agents for the benefit of the Lenders, as the same may be modified or amended, pursuant towhich the Accounts Receivable and the Fees have been pledged as security for the Obligations, such Security Agreements to be in form and substancesatisfactory to the Agent.Security Deeds. The Deeds of Trust from a Borrower or Stibbs (which has been assumed by Land Company pursuant to the Assumption Agreement),to the Agent for the benefit of the Lenders (or to trustees named therein acting on behalf of the Agent for the benefit of the Lenders), as the same may bemodified or amended, pursuant to which a Borrower has conveyed a Mortgaged Property as security for the Obligations, such Security Deeds to be in formand substance satisfactory to the Agent.Security Documents. The Security Deeds, the Assignments of Rents and Leases, the Assignment of Management Agreements and Subordination, theAssignment of Interests, the Assignment of Project Documents, the Security Agreements, the Assignment of Hedge, the Cash Collateral Account Agreement, theIndemnity Agreement, the Guaranty, the Assumption Agreement, and any further collateral assignments to the Agent for the benefit of the Lenders, including,without limitation, UCC-1 financing statements executed and delivered in connection therewith. 27Short-term Investments. Investments described in subsections (a) through (g), inclusive, of §8.3.Speculative Development. Development of Commercial Land or Residential Land for office, retail or research/industrial use which is less than seventypercent (70%) leased (or sixty percent (60%) leased for a grocery anchored retail development) pursuant to a bona-fide arm’s length lease to third parties that arenot an Affiliate of any Borrower, any of the General Partners, any Second Tier Partner, any of the Third Tier Partners, any Guarantor, or any of theirRestricted Subsidiaries or Unrestricted Subsidiaries at the time construction commences. A lease shall not be deemed a lease with an Affiliated Person in theevent that a Borrower, any of the General Partners, any Second Tier Partner, any of the Third Tier Partners, any Guarantor, or any of their RestrictedSubsidiaries or Unrestricted Subsidiaries enters into a joint venture with a third party unaffiliated with any of such Persons which in turn leases a portion ofsuch property to such unaffiliated Person. In the event that any of such property is to be leased to an Affiliate of a Borrower, any of the General Partners, anySecond Tier Partner, any of the Third Tier Partners, any Guarantor, or any of their Restricted Subsidiaries or Unrestricted Subsidiaries, the square footagesubject to such lease shall be deducted from the overall square footage of the project and excluded in calculating compliance with the foregoing tests. Once aparticular development is leased at or above such level, such development shall cease to be a Speculative Development.Stibbs. John H. Stibbs, Jr., as Trustee for a Borrower.Stipulated Commitment Reduction Amount. See §3.6(a).Super-Majority Lenders. As of any date, the Lender or Lenders whose aggregate Commitment Percentage is equal to or greater than sixty-six and two-thirds percent (66 2/3%) of the total Commitments.Survey. With respect to each Mortgaged Property, an instrument survey of such Mortgaged Property or the Land upon which Vertical CommercialImprovements are to be constructed and any improvements thereon, if any, a plat, or other description of the Mortgaged Property reasonably satisfactory toAgent.Syndication Agent. Compass Bank.TCI Easement Agreement. That certain Access Agreement between Woodlands and The Woodlands Communication Network pursuant to whichComcast Cable Communications, Inc., successor to The Woodlands Communication Network, operates a cable system within private easements owned byWoodlands for a period which ends on June 15, 2015.Test Period. See §9.2.Third Tier Partners. Collectively, TWC Commercial Properties and MS TWC, Inc. as the general partners of TWCPC Holdings, and TWC LandDevelopment and MS TWC, Inc. as the general partners of TWLDC Holdings.Title Insurance Company. Stewart Title Company of Montgomery County, Inc. or another title insurance company or companies or title agent approvedby the Agent. 28Total Debt Ratio. As of any Quarterly Measurement Date, the ratio of (a) the aggregate Total Indebtedness of the Borrowers and their respective RestrictedSubsidiaries to (b) Total Market Value Capitalization of the Borrowers.Total Indebtedness. See §9.1(a).Total Market Value Capitalization. At any time the sum of (a) an amount equal to the total value of the Borrowing Base Assets as determined for thepurposes of computing the Borrowing Base at such time (without reference to any percentage advance rate), plus (b) the Appraised Value as most recentlydetermined hereunder (or if the Appraised Value has not been determined, the historic cost (including construction in progress and land value)) of incomeproducing properties that are owned by Commercial Company or Land Company but do not constitute Borrowing Base Assets other than Build-To-SuitProperties (or in the event that such property is owned by a Restricted Subsidiary of Commercial Company or Land Company, then a percentage of suchAppraised Value or cost, as applicable, equal to the percentage that Commercial Company’s or Land Company’s Partial Interest bears to the entire equityinterest in such property), plus (c) the historic cost (including land value) of Build-To-Suit Properties owned by Commercial Company or Land Companywhich do not constitute Borrowing Base Assets (or in the event that such property is owned by a Restricted Subsidiary of Commercial Company or LandCompany, then a percentage of such cost equal to the percentage that Commercial Company’s or Land Company’s Partial Interest bears to the entire equityinterest in such property), plus (d) for each Partial Interest, an amount equal to the product obtained by multiplying (x) (i) the product obtained by multiplying(A) the sum of the historic cost of each Income Producing Property underlying the Partial Interest by (B) 0.70, by (y) the Partial Interest (expressed as apercentage) (but not less than zero). Notwithstanding the foregoing, any property described in clauses (a), (b), (c) and (d) above that is security for any Non-Recourse Indebtedness in the event that the Non-Recourse Indebtedness secured by such asset exceeds fifty-five percent (55%) of the Adjusted Value of suchasset, shall be excluded for the purposes of determining Total Market Value Capitalization.Tri-Party Agreement. An agreement among the Agent, the Borrowers and the Title Insurance Company providing for the execution by the Title InsuranceCompany on behalf of the Agent of releases and other consents pursuant to §5.5, as the same may be modified or amended, such agreement to be in form andsubstance satisfactory to Agent.TWC Commercial Properties. TWC Commercial Properties, LP, a Delaware limited partnership.TWC Land Development. TWC Land Development, LP, a Delaware limited partnership.TWCPC Holdings. TWCPC Holdings, L.P., a Texas limited partnership.TWCPC Holdings GP. TWCPC Holdings GP, L.L.C., a Texas limited liability company.TWLDC Holdings. TWLDC Holdings, L.P., a Texas limited partnership.TWLDC Holdings GP. TWLDC Holdings GP, L.L.C., a Texas limited liability company. 29Type. As to any Revolving Credit Loan or Secured Term Loan, its nature as a Base Rate Loan or a LIBOR Rate Loan.Undeveloped Commercial Land. Land designated for commercial use under the Master Plan of the Woodlands Project, but not Developed CommercialLand.Undeveloped Residential Land. Land designated for residential or institutional use, schools, churches, nurseries or day care centers or designated forgas stations, service stations or similar retail use or apartment use and other commercial uses designated as part of the Residential Land under the applicableMaster Plan of the Woodlands Project, but not Developed Residential Land.Unrestricted Cash and Cash Equivalents. As of any date of determination, the sum of (a) the aggregate amount of Unrestricted Cash and (b) theaggregate amount of Unrestricted Cash Equivalents (valued at fair market value). As used in this definition, “Unrestricted” means the specified asset is notsubject to any escrow, reserves or Liens or claims of any kind in favor of any Person.Unrestricted Subsidiaries. Any corporation, association, partnership, limited liability company, trust, or other business entity of which the designatedparent shall at any time own directly or indirectly through a Person or Persons an ownership interest but which is not a Restricted Subsidiary or which aBorrower elects to be an Unrestricted Subsidiary.Vertical Commercial Improvements. Improvements to the Commercial Land or Residential Land, as applicable (which may include improvements to beused for multifamily rental housing), which are intended to be income-producing operating properties upon completion, rising vertically from such landtogether with any site work and grading performed on the Commercial Land or Residential Land, as applicable, in connection therewith.Vertical Development Costs. The aggregate amount of all historic costs (including land at its Adjusted Value) of Properties under Construction, less theamount of such costs paid for through any date of determination from proceeds of any financing secured by the applicable Properties under Construction.Voting Interests. Stock or similar ownership interests of any class or classes (however designated), the holders of which are at the time entitled, as suchholders, (a) to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, partnership, trust orother business entity involved, or (b) to control, manage, or conduct the business of the corporation, partnership, association, trust or other business entityinvolved.WECCR. WECCR General Partnership, a Texas general partnership.Woodlands. The Woodlands Corporation.Woodlands Operating. The Woodlands Operating Company, L.P. 30Woodlands Operating Distributions. A Distribution made by The Woodlands Operating Company, L.P. to the partners or other beneficial owners of TheWoodlands Operating Company, L.P.Woodlands Operating Payments. The sum of (i) the amount of all Distributions made by Woodlands Operating to the partners or other beneficial ownersof Woodlands Operating during any period plus (ii) the amount of all MS Hospitality Management Fees paid during any period.Woodlands Project. The project commonly known as The Woodlands and described in the Master Plan.§1.2 Rules of Interpretation.(a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to timein accordance with its terms and the terms of this Agreement.(b) The singular includes the plural and the plural includes the singular.(c) A reference to any law includes any amendment or modification to such law.(d) A reference to any Person includes its permitted successors and permitted assigns.(e) Accounting terms not otherwise defined herein have the meanings assigned to them by Generally Accepted Accounting Principles applied on aconsistent basis by the accounting entity to which they refer.(f) The words “include,” “includes” and “including” are not limiting.(g) The words “approval” and “approved” as the context so determines, means an approval in writing given to the party seeking approval afterfull and fair disclosure to the party giving approval of all material facts necessary in order to determine whether approval should be granted.(h) All terms not specifically defined herein or by Generally Accepted Accounting Principles, which terms are defined in the Uniform CommercialCode as in effect in the State of Texas, have the meanings assigned to them therein.(i) Reference to a particular “§” refers to that section of this Agreement unless otherwise indicated.(j) The words “herein,” “hereof,” “hereunder” and words of like import shall refer to this Agreement as a whole and not to any particular sectionor subdivision of this Agreement. 31(k) In the event of any change in Generally Accepted Accounting Principles after the date hereof or any other change in accounting procedurespursuant to §7.3 which would affect the computation of any financial covenant, ratio or other requirement set forth in any Loan Document, then upon therequest of Borrower or Agent, the Borrower, the Guarantors, the Agent and the Lenders shall negotiate promptly, diligently and in good faith in order to amendthe provisions of the Loan Documents such that such financial covenant, ratio or other requirement shall continue to provide substantially the same financialtests or restrictions of the Borrower as in effect prior to such accounting change, as determined by the Majority Lenders in their good faith judgment. Untilsuch time as such amendment shall have been executed and delivered by the Borrower, the Guarantors, the Agent and the Majority Lenders, such financialcovenants, ratio and other requirements, and all financial statements and other documents required to be delivered under the Loan Documents, shall becalculated and reported as if such change had not occurred.§1.3 Amendment and Restatement. In order to facilitate the amendment and restatement of the Original Credit Agreement, certain lenders a party to theOriginal Credit Agreement are no longer continuing as Lenders under this Agreement (the “Exiting Lenders”), and certain new lenders are becoming a party tothis Agreement as Lenders. Contemporaneously with the execution of this Agreement, the Exiting Lenders shall be deemed to have assigned their Commitmentsunder the Original Credit Agreement to the Lenders under this Agreement, and the Exiting Lenders shall be paid all principal, interest and fees due to them inconnection therewith. The Revolving Credit Commitments and the Secured Term Loan Commitments shall be allocated among the Lenders a party to thisAgreement in accordance with their respective Revolving Credit Commitment Percentages and their Secured Term Loan Commitment Percentages. Theforegoing is done as an accommodation to the Borrowers, the Exiting Lenders and the Lenders, and shall be deemed to have occurred with the same force andeffect as if such assignments were evidenced by the applicable Assignment and Acceptance Agreements (as defined in the Original Credit Agreement), and noother documents shall be, or shall be required to be, executed in connection therewith. §2.THE REVOLVING CREDIT FACILITY§2.1 [Intentionally Omitted.]§2.1A. Commitment to Lend Revolving Credit Loans. Subject to the terms and conditions set forth in this Agreement, each of the Revolving CreditLenders severally agrees to lend to Land Company, and Land Company may borrow (and repay and reborrow) from time to time between the date hereof andthe Maturity Date, upon notice by Land Company to the Agent given in accordance with §2.6, such sums as are requested by Land Company for thepurposes set forth in §7.11 up to the lesser of (a) a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any onetime equal to such Revolving Credit Lender’s Revolving Credit Commitment and (b) such Revolving Credit Lender’s Revolving Credit Commitment Percentageof the sum of (i) the Borrowing Base minus (ii) the amount of all outstanding or requested Commercial Company Secured Term Loans and Land CompanySecured Term Loans; provided, that, in all events no Default or Event of Default shall have occurred and be continuing and the Borrowers shall be incompliance with all covenants as required pursuant to §2.6(ii); and provided, further, that the outstanding principal amount of the 32Revolving Credit Loans (after giving effect to all amounts requested) shall not at any time exceed the total Revolving Credit Commitment. The Revolving CreditLoans shall be made pro rata in accordance with each Revolving Credit Lender’s Revolving Credit Commitment Percentage. Each request for a RevolvingCredit Loan hereunder shall constitute a representation and warranty by Land Company that all of the conditions set forth in §10 and §11, in the case of theinitial Revolving Credit Loan, and §11, in the case of all other Revolving Credit Loans, have been satisfied on the date of such request. No Revolving CreditLender shall have any obligation to make Revolving Credit Loans to Land Company in the maximum aggregate principal amount outstanding of more than theamount of its Revolving Credit Commitment.§2.2 Unused Fee. The Borrowers agree to pay to the Agent for the accounts of the Revolving Credit Lenders in accordance with their respectiveRevolving Credit Commitment Percentages an unused fee calculated at the rate per annum set forth below on the average daily amount by which the RevolvingCredit Commitment from time to time exceeds the outstanding principal amount of Revolving Credit Loans during each calendar quarter or portion thereofcommencing on the date hereof and ending on the Maturity Date. The unused fee shall be calculated for each day based on the ratio (expressed as a percentage)of (a) the average daily amount of the outstanding principal amount of the Revolving Credit Loans during such quarter to (b) the Revolving CreditCommitment, and shall be payable based upon the ratios set forth below: Ratio of Revolving Credit Loans to Revolving Credit Commitment Unused Fee Less than 50% 0.45% Greater than or equal to 50% 0.35% The unused fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter or portion thereof,or on any earlier date on which the Revolving Credit Commitment shall terminate as provided in §2.3, with a final payment on the Maturity Date. Anypayment due under this §2.2 shall be prorated for any partial calendar quarter.§2.3 Optional Reduction of Revolving Credit Commitment. Land Company shall have the right at any time and from time to time upon three BusinessDays’ prior written notice to the Agent to reduce by $5,000,000.00 or an integral multiple of $500,000.00 in excess thereof (provided that in no event shall theaggregate Revolving Credit Commitment be reduced to an amount less than $25,000,000.00) or to terminate entirely the unborrowed portion of the RevolvingCredit Commitment, whereupon the Revolving Credit Commitment of the Revolving Credit Lenders shall be reduced pro rata in accordance with theirrespective Revolving Credit Commitment Percentages of the amount specified in such notice or, as the case may be, terminated, any such reduction to bewithout penalty. Promptly after receiving any notice of Land Company delivered pursuant to this §2.3, the Agent will notify the Revolving Credit Lenders ofthe substance thereof. Upon the effective date of any such termination in full, the Borrowers shall pay to the Agent for the respective accounts of the RevolvingCredit Lenders the full amount of any unused fee under §2.2 then accrued. No reduction or termination of the 33Revolving Credit Commitment may be reinstated. Any reduction of the Revolving Credit Commitment pursuant to this Agreement shall be allocated pro rataamong the Revolving Credit Lenders in accordance with their Revolving Credit Commitment Percentages.§2.4 Evidence of Debt. The indebtedness of the Borrowers resulting from the Loans made by each Lender from time to time shall be evidenced by one ormore accounts or records maintained by such Lender and the Agent in the ordinary course of business, including, without limitation, the amounts of principaland interest payable and paid to such Lender from time to time hereunder. The Borrowers hereby irrevocably authorize Agent and the Lenders to make, orcause to be made, at or about the time of the Drawdown Date of any Loan or at the time of receipt of any payment thereof, an appropriate notation on Agent’sand the Lender’s records reflecting the making of such Loan or (as the case may be) the receipt of such payment. The Agent shall maintain accounts or recordsin accordance with its usual practice in which it shall record: (i) the date and the amount of each Loan made hereunder, the Type of Loan and, if appropriate,the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers to eachLender hereunder, and (iii) the amount of any sum received by the Agent hereunder from the Borrowers and each Lender’s share thereof. The accounts orrecords maintained by the Agent and each Lender shall be prima facie evidence of the existence and amounts of the Obligations recorded therein and shall beconclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrowers and the interest and payments thereon. Any failure to sorecord or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder or under the Notes, if any, to pay anyamount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts andrecords of the Agent in respect of such matters, the accounts and records of the Agent shall control in the absence of manifest error. The Borrowers agree thatupon the request of any Lender made through the Agent (whether for purposes of pledge, enforcement or otherwise), the Borrowers shall promptly execute anddeliver to such Lender (through the Agent) a Revolving Credit Note, a Commercial Company Secured Term Loan Note and/or a Land Company Secured TermLoan Note, as applicable, payable to the order of such Lender, which shall evidence such Lender’s Loans in addition to such accounts or records. EachLender may attach schedules to its Notes and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respectthereto. All references to Notes in the Loan Documents shall mean Notes, if any, to the extent issued hereunder. By delivery of this Agreement and anyRevolving Credit Note, Commercial Company Secured Term Loan Note and/or a Land Company Secured Term Loan Note, there shall not be deemed to haveoccurred, and there has not otherwise occurred, any payment, satisfaction or novation of the Indebtedness evidenced by the Original Credit Agreement, the“Revolving Credit Notes” and the “Secured Term Loan Notes” described in the Original Credit Agreement, which Indebtedness is instead allocated among theRevolving Credit Lenders and the Secured Term Loan Lenders as of the date hereof in accordance with their respective Revolving Credit CommitmentPercentages, Commercial Company Secured Term Loan Commitment Percentages and Land Company Secured Term Loan Commitment Percentages, and isevidenced by this Agreement and any Revolving Credit Notes, Commercial Company Secured Term Loan Notes and Land Company Secured Term LoanNotes, and the Revolving Credit Lenders and the Secured Term Loan Lenders shall as of the date hereof make such adjustments to the outstanding RevolvingCredit Loans and Secured Term Loans of such Revolving Credit Lenders and Secured Term Loan Lenders so that such outstanding Revolving 34Credit Loans and Secured Term Loans are consistent with their respective Revolving Credit Commitment Percentages and Secured Term Loan CommitmentPercentages. By execution hereof, the Lenders waive payment of any prepayment fees payable to such Lenders, if any, under the Original Credit Agreement.§2.4A. [Intentionally Omitted.]§2.5 Interest on Revolving Credit Loans.(a) Each Revolving Credit LIBOR Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the dateon which such Revolving Credit LIBOR Rate Loan is converted to a Revolving Credit Base Rate Loan from a Revolving Credit LIBOR Rate Loan at the rate perannum equal to the sum of (i) the LIBOR Rate plus (ii) four percent (4.0%).(b) Each Revolving Credit Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the dateon which such Revolving Credit Base Rate Loan is converted to a Revolving Credit LIBOR Rate Loan from a Revolving Credit Base Rate Loan at a rate perannum equal to the sum of (i) the Base Rate plus (ii) two and one-half percent (2.5%).(c) The Borrowers promise to pay interest on each Revolving Credit Loan in arrears on each Interest Payment Date with respect thereto.§2.6 Requests for Revolving Credit Loans. Land Company (i) shall notify the Agent of a potential request for a Revolving Credit Loan as soon aspossible prior to Land Company’s proposed Drawdown Date, and (ii) shall give to the Agent written notice in the form of Exhibit C-2 hereto (or telephonicnotice confirmed in writing in the form of Exhibit C-2 hereto) of each Revolving Credit Loan requested hereunder (a “Loan Request”) no later than 10:00 a.m.three (3) Business Days prior to the proposed Drawdown Date. The Agent shall promptly notify each of the Revolving Credit Lenders following the receipt of aLoan Request, but in any event not less than two (2) Business Days prior to the proposed Drawdown Date. Land Company shall not make a Loan Requestmore frequently than five (5) times each month. Each such notice shall specify with respect to the requested Revolving Credit Loan the proposed principalamount, Drawdown Date and Type (if applicable). Each such notice shall also contain (i) a statement as to the purpose for which such advance shall be used(which purpose shall be in accordance with the terms of §7.11), and (ii) a certification by the Principal Financial Officer of each Borrower that the Borrowersare and will be in compliance with all covenants under the Loan Documents after giving effect to the making of such Revolving Credit Loan. Except asprovided in this §2.6, each such Loan Request shall be irrevocable and binding on Land Company and shall obligate Land Company to accept the RevolvingCredit Loan requested from the Revolving Credit Lenders on the proposed Drawdown Date, provided that, in addition to Land Company’s other remediesagainst any Revolving Credit Lender which fails to advance its proportionate share of a requested Revolving Credit Loan, such Loan Request may be revokedby Land Company by notice received by the Agent no later than the Drawdown Date if any Revolving Credit Lender fails to advance its proportionate share ofthe requested Revolving Credit Loan in accordance with the terms of this Agreement, provided further that Land Company shall be liable in 35accordance with the terms of this Agreement to any Revolving Credit Lender which is prepared to advance its proportionate share of the requested RevolvingCredit Loan for any costs, expenses or damages incurred by such Revolving Credit Lender as a result of Land Company’s election to revoke such LoanRequest. Nothing herein shall prevent Land Company from seeking recourse against any Revolving Credit Lender that fails to advance its proportionate shareof a requested Revolving Credit Loan as required by this Agreement. Land Company may without cost or penalty revoke a Loan Request by delivering noticethereof to each of the Revolving Credit Lenders no later than 10:00 a.m. two (2) Business Days prior to the Drawdown Date. Each Loan Request shall be for aminimum aggregate amount of $1,000,000 or an integral multiple of $100,000 in excess thereof.§2.7 Funds for Revolving Credit Loans.(a) Not later than 2:00 p.m. (Atlanta time) on the proposed Drawdown Date of any Revolving Credit Loans, each of the Revolving Credit Lenderswill make available to the Agent, at the Agent’s Head Office, in immediately available funds, the amount of such Revolving Credit Lender’s Revolving CreditCommitment Percentage of the amount of the requested Revolving Credit Loans which may be disbursed pursuant to §2.1. Upon receipt from each RevolvingCredit Lender of such amount, and upon receipt of the documents required by §10 and §11 and the satisfaction of the other conditions set forth therein, to theextent applicable, the Agent will make available to Land Company the aggregate amount of such Revolving Credit Loans made available to the Agent by theRevolving Credit Lender by promptly crediting such amount to the account of Land Company maintained at the Agent’s Head Office. The failure or refusal ofany Revolving Credit Lender to make available to the Agent at the aforesaid time and place on any Drawdown Date the amount of its Revolving CreditCommitment Percentage of the requested Revolving Credit Loans to the extent it is obligated to fund such Revolving Credit Loan hereunder shall not relieve anyother Revolving Credit Lender from its several obligation hereunder to make available to the Agent the amount of such other Revolving Credit Lender’sRevolving Credit Commitment Percentage of any requested Revolving Credit Loans, including any additional Revolving Credit Loans that may be requestedby Land Company subject to the terms and conditions hereof to provide funds to replace those not advanced by the Revolving Credit Lender so failing orrefusing, provided that Land Company may by notice received by the Agent no later than the Drawdown Date refuse to accept any Revolving Credit Loanwhich is not fully funded in accordance with Land Company’s Loan Request subject to the terms of §2.6; provided further that no Revolving Credit Lendershall be obligated to advance any amount in excess of the limits set forth in §2.1A. In the event of any such failure or refusal, the Revolving Credit Lendersnot so failing or refusing shall be entitled to a priority position as against the Revolving Credit Lender or Revolving Credit Lenders so failing or refusing forsuch Revolving Credit Loans as provided in §14.5.(b) Unless Agent shall have been notified by any Revolving Credit Lender prior to the applicable Drawdown Date that such Revolving CreditLender will not make available to Agent such Revolving Credit Lender’s pro rata share of a proposed Revolving Credit Loan, Agent may in its discretionassume that such Revolving Credit Lender has made such Revolving Credit Loan available to Agent in accordance with the provisions of this Agreement andAgent may, if it chooses, in reliance upon such assumption make such Revolving Credit Loan available to Land Company, and such Revolving Credit Lendershall be liable to the Agent 36for the amount of such advance. If such Revolving Credit Lender does not pay such corresponding amount upon the Agent’s demand therefor, the Agent willpromptly notify the Borrowers, and, if such amount was actually advanced to the Borrowers, the Borrowers shall promptly pay such corresponding amountto the Agent. The Agent shall also be entitled to recover from the Revolving Credit Lender or the Borrowers, as the case may be, interest on such correspondingamount in respect of each day from the date such corresponding amount was made available by the Agent to the applicable Borrower to the date suchcorresponding amount is recovered by the Agent at a per annum rate equal to (i) from the Borrowers at the applicable rate for such Revolving Credit Loan or(ii) from a Revolving Credit Lender at the Federal Funds Effective Rate plus one-half of one percent (0.5%). §2A.THE SECURED TERM LOAN FACILITY§2A.1 Commitment to Lend Commercial Company Secured Term Loan. Subject to the terms and conditions set forth in this Agreement, each of theSecured Term Loan Lenders severally agrees to lend to Commercial Company on the Closing Date such Secured Term Loan Lender’s Commercial CompanySecured Term Loan Commitment Percentage of the Commercial Company Secured Term Loan Commitment.§2A.1A Commitment to Lend Land Company Secured Term Loan. Subject to the terms and conditions set forth in this Agreement, each of the SecuredTerm Loan Lenders severally agrees to lend to Land Company on the Closing Date such Secured Term Loan Lender’s Land Company Secured Term LoanCommitment Percentage of the Land Company Secured Term Loan Commitment.§2A.2 [Intentionally Omitted.]§2A.2A [Intentionally Omitted.]§2A.3 Interest on Secured Term Loans.(a) Each Secured Term LIBOR Rate Loan (whether of Commercial Company or Land Company) shall bear interest for the period commencingwith the Drawdown Date thereof and ending on the date on which such Secured Term LIBOR Rate Loan is converted to a Secured Term Base Rate Loan at arate per annum equal to the sum of (i) the LIBOR Rate plus (ii)four percent (4.0%).(b) Each Secured Term Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the date onwhich such Secured Term Base Rate Loan is converted to a Secured Term LIBOR Rate Loan at a rate per annum equal to the sum of (i) the Base Rate plus(ii) two and one-half percent (2.5%).(c) The Borrowers promise to pay interest on the Secured Term Loans in arrears on each Interest Payment Date with respect thereto. 37§3. REPAYMENT OF THE LOANS§3.1 Stated Maturity. The Borrowers promise to pay on the Maturity Date, and there shall become absolutely due and payable on the Maturity Date, allof the Loans outstanding on such date, together with any and all accrued and unpaid interest thereon.§3.2 Mandatory Prepayments.(a) If at any time the aggregate outstanding principal amount of the Revolving Credit Loans exceeds the total Revolving Credit Commitment, or theaggregate Secured Term Loans exceeds the total Secured Term Loan Commitment, or the aggregate outstanding principal amount of the Revolving Credit Loansand the Secured Term Loans exceeds the Borrowing Base, then the Borrowers shall immediately pay the amount of such excess to the Agent for the respectiveaccounts of the Revolving Credit Lenders and the Secured Term Loan Lenders for application to the Revolving Credit Loans and the Secured Term Loans.(b) Without limiting the terms of this Agreement, in the event that a Change of Control shall occur and all of the Lenders shall not have consentedin writing thereto, then the Revolving Credit Lenders shall be relieved of all obligations to make Revolving Credit Loans and the Borrowers shall immediatelypay to the Agent for the respective accounts of the Revolving Credit Lenders and the Secured Term Loan Lenders for application to the Revolving Credit Loansand the Secured Term Loans all of the Revolving Credit Loans and Secured Term Loans outstanding on such date, together with any and all accrued andunpaid interest thereon.§3.3 Optional Prepayments. The Borrowers shall have the right, at their election, to prepay the outstanding amount of the applicable Revolving CreditLoans or Secured Term Loans, as a whole or in part, at any time without penalty or premium except as otherwise provided herein. The applicable Borrowershall give the Agent, no later than 10:00 a.m., Atlanta time, at least three (3) Business Days prior written notice of any prepayment pursuant to this §3.3, ineach case specifying the proposed date of payment of applicable Revolving Credit Loans or Secured Term Loans and the principal amount to be paid.§3.4 Partial Prepayments. Each partial prepayment of the Loans under §3.3 shall be in the minimum amount of $5,000,000.00 or an integral multiple of$1,000,000.00 in excess thereof (unless the applicable Loan is being prepaid in full), and each partial prepayment of the Loans under §3.2 and §3.3 shall beapplied, in the absence of instruction by the applicable Borrower, first to the principal of the Secured Term Loans and then to the principal of the RevolvingCredit Loans, and within each category, first to the principal of Base Rate Loans and then to the principal of LIBOR Rate Loans. Notwithstanding anythingherein to the contrary (but subject to the terms of this sentence), all prepayments pursuant to §5.5 and §8.7 shall be applied first to the principal of theSecured Term Loans and then to the principal of the Revolving Credit Loans, and may be further allocated between the Commercial Company Secured TermLoans and the Land Company Secured Term Loans, as applicable, as specified in a notice to the Agent.§3.5 Effect of Prepayments. Except as provided in this Agreement, amounts of the Revolving Credit Loans prepaid under §3.2, §3.3 and §3.4 prior tothe Maturity Date may be reborrowed as provided in §2. Any portion of the Secured Term Loan that is prepaid may not be reborrowed. Except as otherwiseexpressly provided herein, all payments shall first be applied to accrued but unpaid interest and then to principal as provided above. 38§3.6 Mandatory Reduction of Revolving Credit Commitments and Secured Term Loan Commitments.(a) On each date set forth on Schedule 3.6 attached hereto, the Commercial Company Secured Term Loan Commitments, the Land CompanySecured Term Loan Commitments and the Revolving Credit Commitments shall be reduced in the aggregate by the amounts set forth on Schedule 3.6 heretocorresponding to the applicable date on which such reduction is to occur (each such reduction amount is hereinafter referred to as the “Stipulated CommitmentReduction Amount”). Any payment that is due by Borrowers to maintain compliance with the provisions of this Agreement as a result of the StipulatedCommitment Reduction Amount shall be due and payable on the corresponding date on which such Commitment reduction is required pursuant to Schedule3.6.(b) The respective Secured Term Loan Commitments and Revolving Credit Commitments of the Borrowers shall be reduced pro rata by eachStipulated Commitment Reduction Amount (based on the amount that the Secured Term Loan Commitments and the Revolving Credit Commitments,respectively, bear to the aggregate Secured Term Loan Commitments and the Revolving Credit Commitments on each such date). As between the CommercialCompany Secured Term Loan Commitments and the Land Company Secured Term Loan Commitments, the Borrowers shall be permitted to allocate suchreductions resulting from the application of the Stipulated Commitment Reduction Amount between the respective Secured Term Loan Commitments asspecified in a notice to the Agent (and in the absence of such instruction, shall be applied pro rata among the Commercial Company Secured Term LoanCommitments and the Land Company Secured Term Loan Commitments, respectively. The respective Loans shall be reduced as applicable so as not toexceed the applicable Commitment as provided in §3.2(a) and §3.6(a).(c) No reduction of the Revolving Credit Commitments, the Commercial Company Secured Term Loan Commitments and the Land CompanySecured Term Loan Commitments pursuant to this §3.6 may be reinstated. §4.CERTAIN GENERAL PROVISIONS§4.1 Conversion Options; Number of LIBOR Contracts.(a) The Borrowers may elect from time to time to convert any of their outstanding Secured Term Loans or Revolving Credit Loans to a SecuredTerm Loan or Revolving Credit Loan, respectively, of another Type and such Secured Term Loan or Revolving Credit Loan shall thereafter bear interest as aBase Rate Loan or a LIBOR Rate Loan, as applicable; provided that (i) with respect to any such conversion of a LIBOR Rate Loan to a Base Rate Loan, theBorrowers shall give the Agent at least three (3) Business Days’ prior written notice of such election, and such conversion shall only be made on the last day ofthe Interest Period with respect to such LIBOR Rate Loan; (ii) with respect to any such conversion of a Base Rate Loan to a LIBOR Rate Loan, the Borrowersshall give the Agent at least three (3) 39LIBOR Business Days’ prior written notice of such election and the Interest Period requested for such Loan; the principal amount of the Loan so convertedshall be in a minimum aggregate amount of $2,000,000 or an integral multiple of $100,000 in excess thereof; and (iii) no Loan may be converted into a LIBORRate Loan when any Default or Event of Default has occurred and is continuing. All or any part of the outstanding Secured Term Loans or Revolving CreditLoans of any Type may be converted as provided herein, provided that no partial conversion shall result in a Secured Term Base Rate Loan or RevolvingCredit Base Rate Loan in an aggregate principal amount of less than $1,000,000 or a Secured Term LIBOR Rate Loan or a Revolving Credit LIBOR Rate Loanin an aggregate principal amount of less than $2,000,000 and that the aggregate principal amount of each Loan shall be an integral multiple of $100,000. Onthe date on which such conversion is being made, each Lender shall take, to the extent it deems it necessary to do so, such action as is necessary to transfer itsCommitment Percentage of such Loans to its Domestic Lending Office or its LIBOR Lending Office, as the case may be. Each Conversion Request relating tothe conversion of a Base Rate Loan to a LIBOR Rate Loan shall be irrevocable by the Borrowers.(b) Any Secured Term Loan or Revolving Credit Loan may be continued as such Type upon the expiration of an Interest Period with respectthereto by compliance by the Borrowers with the terms of §4.1; provided that no LIBOR Rate Loan may be continued as such when any Default or Event ofDefault has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the Interest Period relating thereto endingduring the continuance of any Default or Event of Default.(c) In the event that the Borrowers do not notify the Agent of their election hereunder with respect to any Loan, such Loan shall be automaticallyconverted to a Base Rate Loan at the end of the applicable Interest Period.(d) There shall be no more than ten (10) LIBOR Rate Loans outstanding at any one time.§4.2 Closing Fees. The Borrowers shall pay to KeyBank certain fees for services rendered or to be rendered in connection with the Loan as providedpursuant to an Agreement Regarding Fees between the Borrower and KeyBank (the “Agreement Regarding Fees”). All such fees shall be solely for the accountof KeyBank as provided in such agreement.§4.3 Agent Fee. The Borrowers shall pay to the Agent, for the Agent’s own account, a non-refundable Agent’s fee pursuant to the Agreement RegardingFees. The Agent’s fee shall be payable quarterly in arrears on the first day of each calendar quarter for the preceding calendar quarter or portion thereof. TheAgent’s fee shall also be paid upon the Maturity Date or earlier termination of the Commitment. The Agent’s fee for any partial quarter shall be prorated.§4.4 Funds for Payments.(a) All payments of principal, interest, unused fees, Agent’s fees, closing fees and any other amounts due hereunder or under any of the otherLoan Documents shall be made to the Agent, for the respective accounts of the Lenders and the Agent, as the case may be, at the Agent’s Head Office, no laterthan 1:00 p.m. (Atlanta time) on the day when due, in each case in lawful money of the United States in immediately available funds. 40(b) All payments by the Borrowers hereunder and under any of the other Loan Documents shall be made without set off or counterclaim and freeand clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions orconditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unlessthe Borrowers are compelled by law to make such deduction or withholding. If any such obligation is imposed upon the Borrowers with respect to any amountpayable by them hereunder or under any of the other Loan Documents, the Borrowers will pay to the Agent, for the account of the Lenders or (as the case maybe) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars asshall be necessary to enable the Lenders or the Agent to receive the same net amount which the Lenders or the Agent would have received on such due date hadno such obligation been imposed upon the Borrowers. The Borrowers will deliver promptly to the Agent certificates or other valid vouchers for all taxes or othercharges deducted from or paid with respect to payments made by the Borrowers hereunder or under such other Loan Document.(c) Each Lender organized under the laws of a jurisdiction outside the United States, if requested in writing by the Borrowers (but only so long assuch Lender remains lawfully able to do so), shall provide the Borrowers with such duly executed form(s) or statement(s) which may, from time to time, beprescribed by law and, which, pursuant to applicable provisions of (i) an income tax treaty between the United States and the country of residence of suchLender, (ii) the Code, or (iii)any applicable rules or regulations in effect under (i) or (ii) above, indicates the withholding status of such Lender; provided thatnothing herein (including without limitation the failure or inability to provide such form or statement) shall relieve the Borrowers of their obligations under§4.4(b). In the event that the Borrowers shall have delivered the certificates or vouchers described above for any payments made by the Borrowers and suchLender receives a refund of any taxes paid by the Borrower pursuant to §4.4(b), such Lender will pay to the Borrowers the amount of such refund promptlyupon receipt thereof; provided that if at any time thereafter such Lender is required to return such refund, the Borrowers shall promptly repay to such Lenderthe amount of such refund. In the event that any such Lender shall, after it becomes a Lender hereunder, become subject to withholding as described above(such Lender is hereinafter referred to as a “Withholding Lender”), then the Withholding Lender shall promptly notify the Agent and the Borrowers and theBorrowers shall have the one-time right as to such Withholding Lender, to be exercised by delivery of written notice delivered to the Agent and the WithholdingLender within thirty (30) days of receipt of such notice, to elect to cause the Withholding Lender to transfer its Commitment. The Agent shall promptly notifythe remaining Lenders that each of such Lenders shall have the right, but not the obligation, to acquire a portion of the Commitment, pro rata based upon theirrelevant Commitment Percentages, of the Commitment of the Withholding Lender (or if any of such Lenders does not elect to purchase its pro rata share, thento such remaining Lenders in such proportion as approved by the Agent). In the event that the Lenders do not elect to acquire all of the Withholding Lender’sCommitment, then the Agent shall endeavor to obtain a new Lender to acquire such remaining Commitment. Upon any such purchase of the Commitment ofthe Withholding Lender, the Withholding Lender’s interest in the Obligations and its rights 41hereunder and under the Loan Documents shall terminate at the date of purchase, and the Withholding Lender shall promptly execute all documentsreasonably requested to surrender and transfer such interest. The purchase price for the Withholding Lender’s Commitment shall equal the principal balanceof the Obligations outstanding and owed by Borrowers to the Withholding Lender, plus any and all accrued and unpaid interest and fees thereon (providedthat the Borrowers may pay the amount of any interest or fees owed to such Withholding Lender).§4.5 Computations. All computations of interest on the Loans and of other fees to the extent applicable shall be based on a 360-day year and paid for theactual number of days elapsed. Whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day,the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amountof the Loans as reflected on the records of the Agent from time to time shall be considered prima facie evidence of such amount.§4.6 Inability to Determine LIBOR Rate. In the event that at any time the Agent shall determine in the exercise of its good faith business judgment thatadequate and reasonable methods do not exist for ascertaining the LIBOR Rate or the Agent shall reasonably determine that the LIBOR Rate will not accuratelyand fairly reflect the cost of the Lenders making or maintaining LIBOR Rate Loans for such Interest Period, the Agent shall forthwith give notice of suchdetermination (which shall be conclusive and binding on the Borrowers and the Lenders) to the Borrowers and the Lenders. In such event (a) any LoanRequest or Conversion Request then made with respect to such LIBOR Rate Loans shall be automatically withdrawn and shall be deemed a request for BaseRate Loans and (b) any such LIBOR Rate Loan will automatically become a Base Rate Loan, and the obligations of the Lenders to make LIBOR Rate Loansshall be suspended until the Agent determines in the exercise of its good faith business judgment that the circumstances giving rise to such suspension nolonger exist, whereupon the Agent shall so notify the Borrowers and the Lenders.§4.7 Illegality. Notwithstanding any other provisions herein, if any present or future law, regulation, treaty or directive or the interpretation orapplication thereof shall make it unlawful, or any central bank or other governmental authority having jurisdiction over a Lender or its LIBOR Lending Officeshall assert that it is unlawful, for any Lender to make or maintain LIBOR Rate Loans, such Lender shall forthwith give notice of such circumstances to theAgent and the Borrowers and thereupon (a) the commitment of the Lenders to make LIBOR Rate Loans shall forthwith be suspended and (b) the LIBOR RateLoans then outstanding shall be converted automatically to Base Rate Loans. Notwithstanding the foregoing, before giving such notice, the applicable Lendershall designate a different lending office if such designation will void the need for giving such notice and will not, in the judgment of such Lender, beotherwise materially disadvantageous to such Lender.§4.8 Additional Interest. If any LIBOR Rate Loan or any portion thereof is repaid or is converted to a Base Rate Loan for any reason on a date which isprior to the last day of the Interest Period applicable to such LIBOR Rate Loan, or if repayment of the Loans has been accelerated as provided in §12.1, theBorrowers will pay to the Agent upon demand for the account of the Lenders in accordance with their respective Commitment Percentages, in addition to anyamounts of interest otherwise payable hereunder, any amounts required to compensate the Lenders for any losses, costs or expenses which may reasonably beincurred as a result of such payment or conversion. 42§4.9 Additional Costs, Etc.. Notwithstanding anything herein to the contrary, if any present or future applicable law, or any amendment ormodification of present applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and legally binding interpretationsthereof by any competent court or by any governmental or other regulatory body or official with appropriate jurisdiction charged with the administration or theinterpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Lenderor the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall:(a) subject any Lender or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to thisAgreement, the other Loan Documents, such Lender’s Commitment or the Loans (other than franchise taxes and taxes based upon or measured by the incomeor profits of such Lender or the Agent), or(b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Lender of the principal of or theinterest on any Loans or any other amounts payable to any Lender under this Agreement or the other Loan Documents, or(c) impose or increase or render applicable any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements(whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or commitments of an office of any Lender, or(d) impose on any Lender or the Agent any other conditions or requirements with respect to this Agreement, the other Loan Documents, the Loans,such Lender’s Commitment, or any class of loans or commitments of which any of the Loans or such Lender’s Commitment forms a part; and the result ofany of the foregoing is(i) to increase the cost to any Lender of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Lender’sCommitment, or(ii) to reduce the amount of principal, interest or other amount payable to such Lender or the Agent hereunder on account of such Lender’sCommitment or any of the Loans, or(iii) to require such Lender or the Agent to make any payment or to forego any interest or other sum payable hereunder, the amount ofwhich payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Lender or theAgent from the Borrowers hereunder;then, and in each such case, the Borrowers will, within fifteen (15) days of demand made by such Lender or (as the case may be) the Agent at any time andfrom time to time and as often as the occasion therefor may arise, pay to such Lender or the Agent such additional amounts as such Lender or the Agent shalldetermine in good faith to be sufficient to compensate such Lender or the Agent for such additional cost, reduction, payment or foregone interest or other sum.Each 43Lender and the Agent in determining such amounts may use any reasonable averaging and attribution methods, generally applied by such Lender or the Agent.Notwithstanding the foregoing, Borrowers shall not be required to compensate any Lender pursuant to this §4.9 for any increased costs or reductions incurredmore than one hundred eighty (180) days prior to the date of such Lender’s demand. Notwithstanding the foregoing, the Borrowers shall have the right, in lieuof making the payment referred to in this §4.9, to prepay the Loan of the applicable Lender within fifteen (15) days of such demand and avoid the payment ofthe amounts otherwise due under this §4.9, provided, however, that the Borrowers shall be required to pay together with such prepayment of the Loan all othercosts, damages and expenses otherwise due under this Agreement as a result of such prepayment.§4.10 Capital Adequacy. If after the date hereof any Lender reasonably determines that (a) the adoption of or change in any law, rule, regulation orguideline regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by any governmentalauthority charged with the administration thereof, or (b) compliance by such Lender or its parent bank holding company with any guideline, request ordirective of any such entity regarding capital adequacy or any amendment or change in interpretation of any existing guideline, request or directive (whether ornot having the force of law), has the effect of reducing the return on such Lender’s or such holding company’s capital as a consequence of such Lender’scommitment to make Loans hereunder to a level below that which such Lender or holding company could have achieved but for such adoption, change orcompliance (taking into consideration such Lender’s or such holding company’s then existing policies with respect to capital adequacy and assuming the fullutilization of such entity’s capital) by any amount deemed by such Lender to be material, then such Lender may notify the Borrowers thereof. The Borrowersagree to pay to such Lender the amount of such reduction in the return on capital as and when such reduction is determined, upon presentation by such Lenderof a statement of the amount setting for the Lender’s calculation thereof. In determining such amount, such Lender may use any reasonable averaging andattribution methods.§4.11 Indemnity of Borrowers. THE BORROWERS AGREE TO INDEMNIFY EACH LENDER AND TO HOLD EACH LENDERHARMLESS FROM AND AGAINST ANY LOSS, COST OR EXPENSE THAT SUCH LENDER MAY SUSTAIN OR INCUR AS ACONSEQUENCE OF (A) DEFAULT BY THE BORROWERS IN PAYMENT OF THE PRINCIPAL AMOUNT OF OR ANY INTEREST ONANY LIBOR RATE LOANS AS AND WHEN DUE AND PAYABLE, INCLUDING ANY SUCH LOSS OR EXPENSE ARISING FROMINTEREST OR FEES PAYABLE BY SUCH LENDER TO LENDERS OF FUNDS OBTAINED BY IT IN ORDER TO MAINTAIN ITS LIBORRATE LOANS, OR (B) DEFAULT BY A BORROWER IN MAKING A BORROWING OR CONVERSION AFTER SUCH BORROWER HASGIVEN (OR IS DEEMED TO HAVE GIVEN) A LOAN REQUEST, OR (C) DEFAULT BY THE BORROWERS IN MAKING THE PAYMENTSOR PERFORMING THEIR OBLIGATIONS UNDER §§4.9, 4.10 OR 4.12. THE BORROWERS AGREE THAT THE INDEMNIFICATION OFLENDERS BY BORROWERS SET FORTH IN THIS §4.11 INCLUDES INDEMNIFICATION IN THE EVENT OR ORDINARYNEGLIGENCE ON THE PART OF LENDER BUT DOES NOT INCLUDE INDEMNIFICATION OF LENDER FOR LENDER’S GROSSNEGLIGENCE OR WILLFUL MISCONDUCT. 44§4.12 Interest Following Default; Late Charge. Following the occurrence and during the continuance of any Event of Default, and regardless of whetheror not the Agent or the Lenders shall have accelerated the maturity of the Loans, all Loans shall bear interest payable on demand at a rate per annum equal totwo percent (2%) above the rate that would otherwise be applicable at such time (the “Default Rate”), until all Obligations shall be paid in full (after as well asbefore judgment), or if such rate shall exceed the maximum rate permitted by law, then at the maximum rate permitted by law. In addition, the Borrowers shallpay a late charge equal to three percent (3%) of any amount of interest and/or principal payable on the Loans or any other amounts payable hereunder or underthe Loan Documents, which amount is not paid within ten (10) days of the date when due (such late charge being applicable only to the amounts not paidwithin ten (10) days of the date when due). Borrowers acknowledge that it would be extremely difficult or impracticable to determine the Lenders’ actualdamages resulting from any late payment, Event of Default or prepayment, and the late charges and Default Rate described in this Agreement are reasonableestimates of those damages and do not constitute a penalty.§4.13 Certificate. A certificate setting forth any amounts payable pursuant to §4.8, §4.9, §4.10, §4.11 or §4.12 and a brief explanation of suchamounts which are due, submitted by any Lender or the Agent to the Borrowers, shall be conclusive in the absence of manifest error.§4.14 Limitation on Interest.(a) Notwithstanding anything in this Agreement or the other Loan Documents to the contrary, it is the intent of the Agent, the Lenders and theBorrowers to conform to and contract in strict compliance with all applicable usury laws from time to time in effect. All agreements (including the LoanDocuments) between Agent, the Lenders and the Borrowers (or any other party liable with respect to any indebtedness under the Loan Documents) are herebylimited by the provisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising and whether written ororal. In no way, nor in any event or contingency (including but not limited to prepayment, default, demand for payment, or acceleration of the maturity of anyobligation), shall the interest taken, reserved, contracted for, charged or received under this Agreement, any other Loan Document, or otherwise, exceed themaximum nonusurious amount permissible under applicable law. If, from any possible construction of this Agreement, any other Loan Document, or anyother document, interest would otherwise be taken, reserved, contracted for, charged or payable in excess of the maximum nonusurious amount, any suchconstruction shall be subject to the provisions of this Section and this Agreement, such other Loan Document, and such other document shall be automaticallyreformed and the interest taken, reserved, contracted for, charged or payable shall be automatically reduced to the maximum nonusurious amount permittedunder applicable law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which isinterest or characterized as interest under applicable law and which would apart from this provision be in excess of the maximum lawful nonusurious amount,an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing onthe Loans to it (in inverse order of maturity) and not to the payment of interest, or refunded to the Borrowers if and to the extent such amount which wouldhave been excessive exceeds such unpaid principal. The right to accelerate maturity of the Loans and the other Obligations does not include the right toaccelerate any interest which has not otherwise accrued on the date of such acceleration, and the Agent and 45the Lenders do not intend to charge or receive any unearned interest in the event of acceleration. All interest paid or agreed to be paid to the Lenders on the Loansshall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal orextension) of the Loans so that the amount of interest on account of the Loans does not exceed the maximum nonusurious amount permitted by applicable law.As used in this Section, the term “applicable law” shall mean such laws as they now exist or may be changed or amended or come into effect in the future. Asused in this Section, the term “interest” includes all amounts that constitute, are deemed, or are characterized as interest under applicable law.(b) If at any time the interest rate (the “Stated Rate”) called for under this Agreement or any other Loan Document exceeds or would exceed theHighest Lawful Rate, the rate at which interest shall accrue hereunder or thereunder shall automatically be limited to the Highest Lawful Rate, and shall remainat the Highest Lawful Rate until the total amount of interest accrued equals the total amount of interest which would have accrued but for the operation of thissentence. Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate would again exceed the Highest Lawful Rate, in which case theimmediately preceding sentence shall apply.(c) Borrowers hereby agree that as a condition precedent to any claim seeking usury penalties against Lenders, Borrowers will provide writtennotice to Agent, advising Agent in reasonable detail of the nature and amount of the violation, and Lenders shall have sixty (60) days after receipt of suchnotice in which to correct such usury violation, if any, by either refunding such excess interest to Borrowers or crediting such excess interest against the Loansand/or any other indebtedness then owing by Borrowers to Lenders. To the extent that Lenders are relying on Chapter 303, as amended, of the Texas FinanceCode to determine the Highest Lawful Rate, Lenders will utilize the weekly rate ceiling from time to time in effect as provided in such Chapter 303, asamended. To the extent United States federal law permits a greater amount of interest than is permitted under Texas law, Lenders will rely on United Statesfederal law instead of such Chapter 303, as amended, for the purpose of determining the Highest Lawful Rate. Additionally, to the extent permitted byapplicable law now or hereafter in effect, Lenders may, at Lenders’ option and from time to time, implement any other method of computing the maximumlawful rate under such Chapter 303, as amended, or under other applicable law by giving notice, if required, to Borrowers as provided by applicable law nowor hereafter in effect. This §4.14 will control all agreements between Borrowers, Agents and Lenders.(d) Borrowers and Lenders expressly agree that in no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certainrevolving credit loan accounts and revolving triparty accounts) apply to Revolving Credit Loans or to any advance of Revolving Credit Loans made pursuantto the terms of this Agreement.§4.15 Extension of Maturity Date.(a) Provided that no Default or Event of Default shall have occurred and be continuing, the Borrowers shall have the option, to be exercised bygiving written notice to the Agent in the form of Exhibit D hereto not more than ninety (90) days and not less than forty-five (45) days prior to the initialscheduled Maturity Date (an “Extension Request”), subject to the 46terms and conditions set forth in this Agreement, to extend the Maturity Date by one (1) year to March 29, 2015. The request by the Borrowers for extensionof the Maturity Date shall constitute a representation and warranty by the Borrowers that all of the conditions set forth in this Section shall have been satisfiedon the date of such request.(b) The obligations of the Agent and the Lenders to extend the Maturity Date as provided in §4.15(a) shall be subject to the satisfaction of thefollowing conditions precedent on the then effective Maturity Date (without regard to such extension request):(i) Payment of Extension Fee. The Borrowers shall pay to the Agent on or before the then effective Maturity Date (without regard to suchextension request) for the pro rata account of the Lenders in accordance with their respective Commitment Percentages an extension fee equal to four-tenths ofone percent (0.40%) of the total Commitment, which fee shall, when paid, be fully earned and non-refundable under any circumstances.(ii) No Default. On the date the Extension Request is given and on the Maturity Date (as determined without regard to such extension) thereshall exist no Default or Event of Default.(iii) Representations and Warranties. The representations and warranties made by the Borrowers, the Restricted Subsidiaries and theGuarantors in the Loan Documents or otherwise made by or on behalf of such Persons in connection therewith or after the date thereof shall have been true andcorrect in all material respects when made and shall also be true and correct in all material respects on the Maturity Date (as determined without regard to suchextension) other than for changes in the ordinary course of business permitted by this Agreement that have not had any materially adverse affect on thebusiness of any of such Persons.(iv) Extension of Interest Cap. The Interest Cap required under §7.24 shall be extended to a date not earlier than the Maturity Date (asextended) at the strike rate and for the notional amount required pursuant to §7.24.(c) The Agent shall notify each of the Lenders in the event that the Maturity Date is extended as provided in this §4.15. §5.COLLATERAL SECURITY AND GUARANTY§5.1 Collateral. The Obligations shall be secured by (i) a perfected first priority lien or security title and security interest to be held by the Agent for thebenefit of the Lenders in the Mortgaged Property and certain personal property of Borrowers related to the Mortgaged Property, pursuant to the terms of theSecurity Deeds, (ii) a perfected first priority security interest to be held by the Agent for the benefit of the Lenders in leases, rents and profits pursuant to theAssignment of Rents and Leases, in the Management Agreements pursuant to the Assignment of Management Agreements and Subordination and in theConstruction Contracts, Architect’s Contracts and other items pursuant to the Assignment of Project Documents, (iii) the Indemnity Agreement, (iv) a perfectedfirst priority lien to be held by the Agent for the benefit of the Lenders in the interest of the Borrowers in the Fees and the Accounts Receivable pursuant to theSecurity Agreements, (v) a perfected first priority security interest to be held by the Agent for 47the benefit of the Lenders in the interest of Borrowers in certain of the Partnerships pursuant to the Assignment of Interests, (vi) the Cash Collateral AccountAgreement, and (vii) such additional collateral, if any, as the Agent for the benefit of the Lenders from time to time may accept as security for the Obligationswith the consent of the Majority Lenders, which consent may be given or withheld in the sole discretion of the Majority Lenders. The Obligations shall also beguaranteed pursuant to the terms of the Guaranty.§5.2 Appraisals; Adjusted Value.(a) The Appraised Value for the Borrowing Base as of the date hereof shall be as set forth on Schedule 1.2 hereto. With respect to Land Assets, theAdjusted Value may be determined as provided herein on a per lot or per acre basis and then multiplied by the number of lots or acres.(b) The Borrowers acknowledge that the Borrowers shall make such quarterly adjustments to the Adjusted Value of the Borrowing Base Assetsand the Borrowing Base as may be required by the Agent in the exercise of its good faith business judgment to account for the effects of development costs,sales of land and other assets, new debt, defaults under Indebtedness, or other circumstances, as reflected in the quarterly Compliance Certificate and theattached Borrowing Base worksheet, a form of which is attached hereto as Exhibit E.(c) In addition to such quarterly adjustments as may be necessary, the Agent shall order an Appraisal or a thorough update revising a priorAppraisal each year with the as-is value of the Borrowing Base Assets (other than the Eligible Accounts Receivable, Properties under Construction andQualifying Income Properties) to be determined as of year end, and request that such Appraisal or update be provided to Agent on or prior to March 31 of eachyear during the term of the Loans for the purpose of determining the Appraised Value thereof. From time to time, but provided there is no existing Event ofDefault, not more frequently than once in any twelve (12) month period, Agent may in its discretion order an Appraisal or a thorough update revising a priorAppraisal of the as-is value of the Qualifying Income Properties commonly known as 20 Waterway, 4 Waterway and any new Qualifying Income Propertiesafter the date of this Agreement as selected by Agent. The Appraisal or update shall be reviewed by the appraisal department of the Agent to determine theAppraised Value of such Borrowing Base Assets. The Appraised Values of the Borrowing Base Assets (other than the Eligible Accounts Receivable, Propertiesunder Construction and Qualifying Income Properties) and of the Qualifying Income Properties commonly known as 20 Waterway, 4 Waterway and any newQualifying Income Properties after the date of this Agreement as selected by Agent determined therefrom shall be the Appraised Value for such Borrowing BaseAssets for the purposes of this Agreement until such time as such Appraised Value is required hereunder to be redetermined. Borrowers shall have the right torequest that Agent select a different appraiser to perform the Appraisals or updates, but any selection of an appraiser shall be in accordance with the legalrequirements applicable to Agent. The Borrowers shall pay the Agent within thirty (30) days of demand from Agent all reasonable costs of such appraisals.During such valuation process, the prior Appraised Value (as the same may have been adjusted to reflect changes in the Borrowing Base Assets) shall continueto be in effect until the new Appraised Value is determined hereunder. 48(d) [Intentionally omitted.](e) Notwithstanding the other provisions of this §5.2, the Agent may, for the purpose of determining the current Appraised Value of the BorrowingBase Assets (other than the Eligible Accounts Receivable and Properties under Construction) and Borrowing Base, obtain thorough interim Appraisalsupdating and revising prior Appraisals with respect to the Borrowing Base Assets or such portion thereof as the Agent shall determine (i) at any time that theregulatory requirements of any Lender generally applicable to real estate loans of the category made under this Agreement as reasonably interpreted by suchLender shall require more frequent Appraisals, (ii) at any time following a condemnation of more than an immaterial portion of an asset within a category ofBorrowing Base Assets (as determined by the Agent) or any material adverse change with respect to a Borrowing Base Asset (provided that such Appraisalshall be limited to the affected Borrowing Base Asset), or (iii) at the request of the Majority Lenders. The expense of such Appraisals and updates performedpursuant to this §5.2(e) shall be borne by the Borrowers. Copies of any Appraisals or updates revising prior Appraisals obtained pursuant to this §5.2 shallbe promptly delivered to each of the Lenders (and for the purposes hereof any Related Funds shall be considered a single Lender).(f) In the event that the Agent shall advise the Borrowers, on the basis of any Appraisal, update or other valuation pursuant to this §5.2, that theBorrowing Base is insufficient to comply with the requirements of §9.3, then until the Borrowing Base shall be restored to compliance with §9.3 theRevolving Credit Lenders shall not be required to make advances under §§2.1 or 2.1A.(g) The Borrowers acknowledge that the Agent may make changes or adjustments to the value set forth in any Appraisal as may be required bythe appraisal department of the Agent in the exercise of its good faith business judgment, and that the Agent is not bound by the value set forth in anyAppraisal performed pursuant to this Agreement and does not make any representations or warranties with respect to any such Appraisal. The Borrowersfurther agree that the Lenders and Agent shall have no liability as a result of or in connection with any such Appraisal for statements contained in suchAppraisal, including without limitation, the accuracy and completeness of information, estimates, conclusions and opinions contained in such Appraisal, orvariance of such Appraisal from the fair value of such property that is the subject of such Appraisal given by the local tax assessor’s office, or the Borrowers’idea of the value of such property.§5.3 [Intentionally Omitted.]§5.4 Releases of Certain Liens. The Borrowers shall have the right to obtain the release of the interests described in the Assignment of Interests and theNote Receivables pursuant to the cash sale of same for fair market value to third parties unaffiliated with any Borrower and their respective RestrictedSubsidiaries and Unrestricted Subsidiaries; provided, however, that all net proceeds from any such sales shall be deposited by the Borrowers in suchBorrower’s Disbursement Account; and provided further that a Borrower may obtain a release of the Municipal Utility District Contracts upon a transfer ofsuch Municipal Utility District Contracts to an Unrestricted Subsidiary of such Borrower pursuant to §8.8, provided that no Default or Event of Defaultexists or would be created as a result of such transfer. Notice of each 49such proposed sale together with a request for release by the Agent must be received by the Agent at least five (5) Business Days prior to the date the releaseshall be required by the Borrowers. The Borrowers shall reimburse the Agent for all costs and expenses incurred in granting such release as provided in §15.§5.5 Release of Mortgaged Property; Consent to Easements.(a) Provided no Default or Event of Default shall have occurred hereunder and be continuing (or would exist immediately after giving effect to thetransactions contemplated by this §5.5), the Agent shall release one or more individual properties included in the Mortgaged Property or DevelopedCommercial Land, Developed Residential Land, Undeveloped Commercial Land or Undeveloped Residential Land from the lien or security title of the SecurityDocuments encumbering the same upon the request of the Borrowers subject to and upon the following terms and conditions as applicable:(i) Except as set forth in §5.5(a)(v) and (vi) below or in §8.8 as to sales by a Borrower, such release shall be for fair market value as aresult of an arms-length sale of such Mortgaged Property in the ordinary course of such Borrower’s business to a party that is not an Affiliate of anyBorrower, any General Partner, any Second Tier Partner, any Third Tier Partner or any Guarantor; and provided that the applicable Borrower shall havedelivered to the Agent a certificate pursuant to §7.4(g) from the Principal Financial Officer of such Borrower to such effect for all such sales and releases thepreceding calendar month, a Borrower shall be entitled to obtain releases of Undeveloped Residential Land, Developed Residential Land, UndevelopedCommercial Land and Developed Commercial Land on which there are no Vertical Commercial Improvements from the Title Insurance Company pursuant tothe Tri-Party Agreement without further certification to the Agent or the Title Insurance Company; provided, further, that in the event that such sale is of anyother Mortgaged Property, the applicable Borrower shall deliver to Agent and the Title Insurance Company a certificate from an Authorized Officer of suchBorrower to the effect that such sale is in compliance with the terms of this §5.5(a)(i);(ii) In the event that such sale is to an Affiliate of any Borrower, any General Partner, any Second Tier Partner, any Third Tier Partner orany Guarantor (including a Restricted Subsidiary or Unrestricted Subsidiary), Agent shall have confirmed that such sale is in accordance with therequirements of §8.8 (and if the Title Insurance Company is executing releases pursuant to the Tri-Party Agreement, Agent shall send to the Title InsuranceCompany written notice of such confirmation). In the event such transfer is from a Borrower to the other Borrower, such release shall be conditioned upon thedelivery to Agent by the transferee Borrower of an amendment of such Borrower’s Security Documents to include such property as additional propertyencumbered thereby;(iii) The applicable Borrower shall cause the Title Insurance Company to pay or cause to be deposited contemporaneously with each saleof all excess net sales proceeds, if any, into the Disbursement Account of the applicable Borrower maintained pursuant to the Cash Collateral AccountAgreement; 50(iv) In the event that Agent is required to execute the release or confirmation documents, Agent shall provide such release or confirmation tothe Title Insurance Company within four (4) Business Days of receipt of Borrower’s request to have such property released, and any release documents to beexecuted by the Agent shall be in form and substance reasonably satisfactory to the Agent;(v) Releases of Mortgaged Property may be made by Agent or the Title Insurance Company pursuant to the Tri-Party Agreement of parcelsconsistent with good land development practices contributed, donated or sold at a reduced price by a Borrower to non-profits and other like entities, and topublic agencies, such as The Woodlands Town Center Improvement District, The Woodlands Association, Municipal Utility Districts, Property Owners’Associations or Harris County Park Authority, for the development of churches, public facilities, parks or for other public or community purposes; and(vi) Agent may consent or subordinate to (and the Title Insurance Company may pursuant to the Tri-Party Agreement do so on behalf ofAgent), easements, subdivision plats, road dedications, restrictions or similar agreements provided that the applicable Borrower shall have delivered to Agentthe certificate required by §7.4(g) as to such agreements or matters for the preceding calendar month.(b) Notwithstanding the foregoing, the Agent shall delegate the release of Mortgaged Property from the lien of the Security Documents and consentsto easements, subdivision plats, road dedications, restrictions and similar agreements to the Title Insurance Company pursuant to the Tri-Party Agreement.Such releases will be administered by the Title Insurance Company in accordance with the terms of the Tri-Party Agreement, and Agent shall have the right torevoke the authority of any such Title Insurance Company to execute such releases at any time as provided in the Tri-Party Agreement; provided, that so longas no Event of Default has occurred and is continuing, Agent shall enter into another Tri-Party Agreement with another Title Insurance Company approved byAgent. The Borrowers shall pay all fees, costs and expenses of each such Title Insurance Company. Upon an Event of Default, Agent may revoke theauthority of the Title Insurance Company under the Tri-Party Agreement and at its option either execute such releases and consents itself or designate anotherTitle Insurance Company to execute such releases and consents pursuant to a Tri-Party Agreement.(c) As a result of the frequency and volume of sales of property by the Borrowers, it is possible that the title information provided by the TitleInsurance Company to the Agent may not reflect all sales that have occurred to date. In the event that Agent shall receive evidence satisfactory to it that theSecurity Documents encumber property not owned by or on behalf of a Borrower, Agent shall be authorized to release such property from the lien of theSecurity Documents. Borrower shall be permitted to submit such evidence to Agent.§5.6 Additional Guarantors. In the event that either of the Borrowers shall form a Restricted Subsidiary, the Borrowers shall cause such RestrictedSubsidiary to become a Guarantor promptly following its formation. Such Restricted Subsidiary shall execute and deliver to Agent a Joinder Agreement, andshall cause all of the conditions set forth in §10 applicable to Guarantors or Loan Documents executed by Guarantors to be satisfied. The organizationalagreements of such Restricted Subsidiary or such other resolutions or consents 51satisfactory to Agent shall specifically authorize such Restricted Subsidiary to guaranty the Obligations and the Borrower shall certify to the Agent thatapplicable law does not preclude such Subsidiary from executing the Joinder Agreement. Borrowers shall further cause all representations in the LoanDocuments made by or with respect to Guarantors and their Subsidiaries in the Loan Documents to be true and correct with respect to such additionalGuarantor, and no Default or Event of Default shall exist or might exist in the event that such Restricted Subsidiary becomes a Guarantor.§5.7 Release of Collateral. Upon the refinancing or repayment of the Obligations, then the Agent shall release the Collateral from the lien and securityinterest of the Security Documents and release the Guarantors, provided that Agent has not received a notice from the “Representative” (as defined in §14.11)or the holder of the Hedge Obligations that any Hedge Obligation is then due and payable to the holder thereof. §6.REPRESENTATIONS AND WARRANTIESThe Borrowers represent and warrant to the Agent and the Lenders as follows:§6.1 Corporate Authority, Etc.(a) Organization; Good Standing. Each Borrower is a Texas limited partnership duly organized and is validly existing under the laws of Texas.Each Second Tier Partner is a Texas limited partnership duly organized and validly existing under the laws of the State of Texas. Each General Partner is aTexas limited liability company duly organized and validly existing and in good standing under the laws of the State of Texas. Woodlands Operating is aTexas limited partnership duly organized and validly existing under the laws of Texas. Each of the Borrowers and the Guarantors (i) has all requisite power toown its respective properties and conduct its respective business as now conducted and as presently contemplated, and (ii) as to each of such Persons, is dulyauthorized to do business in each other jurisdiction where a failure to be so qualified in such other jurisdiction could have a materially adverse effect on thebusiness, assets or financial condition of such Person.(b) Subsidiaries. Each of the Restricted Subsidiaries of the Borrowers (i) is a corporation, limited partnership, limited liability company or trustduly organized under the laws of its State of organization and is validly existing and in good standing under the laws thereof, (ii) has all requisite power to ownits property and conduct its business as now conducted and as presently contemplated and (iii) is in good standing and is duly authorized to do business ineach jurisdiction where a failure to be so qualified could have a materially adverse effect on the business, assets or financial condition of such Borrower orsuch Restricted Subsidiary.(c) Authorization. The execution, delivery and performance of this Agreement and the other Loan Documents to which the Borrowers, the GeneralPartners, Woodlands Operating or the Guarantors are or are to become a party and the transactions contemplated hereby and thereby (i) are within the authorityof such Person, (ii)have been duly authorized by all necessary proceedings on the part of such Person, (iii)do not and will not conflict with or result in anybreach or contravention of any provision of law, statute, rule or regulation to which such Person is subject or any judgment, order, writ, injunction, license or 52permit applicable to such Person, (iv)do not and will not conflict with or constitute a default (whether with the passage of time or the giving of notice, or both)under any provision of the articles of incorporation, partnership agreement, declaration of trust or other charter documents or bylaws of, or any agreement orother instrument binding upon, such Person or any of its properties, and (v)do not and will not result in or require the imposition of any lien or otherencumbrance on any of the properties, assets or rights of such Person.(d) Enforceability. The execution and delivery of this Agreement and the other Loan Documents to which the Borrowers, Woodlands Operating orthe Guarantors are or are to become a party are valid and legally binding obligations of such Person enforceable in accordance with the respective terms andprovisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affectinggenerally the enforcement of creditors’ rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to thediscretion of the court before which any proceeding therefor may be brought.§6.2 Governmental Approvals. The execution, delivery and performance of this Agreement and the other Loan Documents to which the Borrowers, theGeneral Partners, Woodlands Operating or the Guarantors are or are to become a party and the transactions contemplated hereby and thereby do not require theapproval or consent of, or filing with, any governmental agency or authority other than those already obtained and the filing of the Security Documents in theappropriate records office with respect thereto.§6.3 Title to Properties; Leases. Except as set forth on Schedule 6.3 hereto, each Borrower and its Restricted Subsidiaries owns all of the assets reflectedin the consolidated balance sheet of the applicable Borrower as at the Balance Sheet Date or acquired since that date (except property and assets sold orotherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional salesagreements, title retention agreements, liens or other encumbrances except Permitted Liens. Without limiting the foregoing, each Borrower and its RestrictedSubsidiaries has good and indefeasible fee simple title to all real property reasonably necessary for the operation of its business, free from all liens orencumbrances of any nature whatsoever, except for Permitted Liens (provided that Borrowers lease their headquarters building).§6.4 Financial Statements. The Borrowers have furnished or caused to be furnished to each of the Lenders: (a) the consolidated balance sheet of eachBorrower and its subsidiaries as of the Balance Sheet Date certified by each Borrower’s Principal Financial Officer as fairly presenting the balance sheet ofsuch Persons for such period, and (b) certain other financial information. Such balance sheet and statements have been prepared in accordance with generallyaccepted accounting principles (other than the inclusion of footnotes) and fairly present the financial condition of such Borrower and its subsidiaries as ofsuch dates and the results of the operations of such Borrower and its subsidiaries for such periods. There are no liabilities, contingent or otherwise, of anyBorrower or any of its subsidiaries involving material amounts not disclosed in said financial statements and the related notes thereto.§6.5 No Material Changes. Since the Balance Sheet Date, there has occurred no materially adverse change in the financial condition or business ofeither Borrower, or their 53respective subsidiaries taken as a whole as shown on or reflected in the consolidated balance sheet of such Borrower as of the Balance Sheet Date, or itsconsolidated statement of income or cash flows for the fiscal year then ended, other than changes in the ordinary course of business that have not had anymaterially adverse effect either individually or in the aggregate on the business or financial condition of such Person. There has been no materially adversechange to the physical condition of any of the Borrowing Base Assets since the last Appraisal thereof (or if no Appraisal has been performed under thisAgreement with respect thereto, then since the last Compliance Certificate and accompanying Borrowing Base Worksheet). There has occurred no materiallyadverse change in the financial condition or business of any of the Borrowing Base Assets from the condition shown on the statements delivered to the Lenderspursuant to §6.4 other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate onthe business or financial condition of the Borrowing Base Assets.§6.6 Franchises, Patents, Copyrights, Etc. The Borrowers and their respective Restricted Subsidiaries possess all franchises, patents, copyrights,trademarks, trade names, servicemarks, licenses, liquor licenses and permits, and rights in respect of the foregoing, adequate for the conduct of theirbusiness substantially as now conducted without known violation of any rights of others, except where a failure to possess such rights could not have amaterially adverse effect on the business, assets or financial condition of such Person.§6.7 Litigation. Except as stated on Schedule 6.7 there are no actions, suits, proceedings or investigations of any kind pending or to the best of theBorrowers’ knowledge and belief, threatened against any Borrower, any Guarantor, any of the Restricted Subsidiaries of a Borrower or any of theAssociations before any court, arbitrator, mediator, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in theaggregate, materially adversely affect the properties, assets, financial condition or business of such Person (in the case of the Associations, which materiallyadversely affects a Borrower) or materially impair the right of such Person to carry on business substantially as now conducted by it, or which question thevalidity of this Agreement or any of the other Loan Documents, any action taken or to be taken pursuant hereto or thereto or any lien or security interest createdor intended to be created pursuant hereto or thereto, or which will adversely affect the ability of such Person to pay and perform the Obligations in the mannercontemplated by this Agreement and the other Loan Documents. There are no judgments or awards outstanding against or effecting any Borrower, anyGuarantor, any of the Restricted Subsidiaries of a Borrower, or any of the Collateral.§6.8 No Materially Adverse Contracts, Etc. None of the Borrowers, the Guarantors nor any of the Restricted Subsidiaries of a Borrower is subject toany charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a materiallyadverse effect on the business, assets or financial condition of such Person. None of the Borrowers, the Guarantors nor any of the Restricted Subsidiaries of aBorrower is a party to any contract or agreement that has or is expected, in the judgment of the partners or officers of such Person, to have any materiallyadverse effect on the business of any of them. 54§6.9 Compliance with Other Instruments, Laws, Etc. None of the Borrowers, the Guarantors nor any of the Restricted Subsidiaries of a Borrower is inviolation of any provision of its partnership agreement, charter or other organizational documents, bylaws, or any agreement or instrument to which it may besubject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases ina manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of suchPerson.§6.10 Tax Status. The Borrowers, the Guarantors and each of the Restricted Subsidiaries of a Borrower (a) has made or filed all federal and stateincome and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, if applicable or required, except to the extent suchPerson has obtained an extension of the deadline to file such return, (b) has paid all taxes and other private or governmental assessments and charges shown ordetermined to be due on such returns, reports and declarations, if applicable or required, except those being contested in good faith and by appropriateproceedings or where a failure to so pay could not have a materially adverse effect on the business, assets or financial condition of such Person and (c) has setaside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports ordeclarations apply, if applicable or required. There are no unpaid taxes or assessments in any material amount claimed to be due by the taxing authority of anyjurisdiction or pursuant to any private agreement except for those that are being contested as permitted in this Agreement, and the partners or officers of suchPerson know of no basis for any such claim.§6.11 No Event of Default. No Default or Event of Default has occurred and is continuing.§6.12 Investment Company Act. None of the Borrowers, the Guarantors nor any of the Restricted Subsidiaries of a Borrower is an “investmentcompany,” or an “affiliated company” or a “principal underwriter” of an “investment company,” as such terms are defined in the Investment Company Act of1940.§6.13 Absence of UCC Financing Statements, Etc. Except with respect to Liens permitted by §8.2, there is no financing statement, security agreement,chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affector give notice of any present or possible future lien on, or security interest or security title in, the Collateral (excluding any such items in favor of Agent) or anyother property of a Borrower or its Restricted Subsidiaries or rights thereunder.§6.14 Setoff, Etc. The Collateral and the rights of the Agent and the Lenders with respect to the Collateral are not subject to any setoff, claims,withholdings or other defenses. The Borrowers are the owners of the Collateral free from any lien, security interest, encumbrance or other claim or demand,except those encumbrances permitted in the Security Deeds or permitted by §8.2.§6.15 Certain Transactions. Except as set forth in Schedule 6.15 hereto, none of the partners, officers, trustees, directors, or employees of theBorrowers, the General Partners, the Second Tier Partners, the Third Tier Partners, the Guarantors or any of the Restricted 55Subsidiaries of a Borrower is a party to any material transaction with either of the Borrowers or any of their respective Restricted Subsidiaries (other thanemployment and severance agreements relating to services as partners, employees, officers, trustees and directors), including any contract, agreement or otherarrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to orfrom any partner, officer, trustee, director or such employee or, to the knowledge of the Borrowers, any corporation, partnership, trust or other entity in whichany partner, officer, trustee, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, unless such contract,agreement or other arrangement is an arm’s-length arrangement with terms comparable to those which would be obtained from an unaffiliated Person or asotherwise approved by the Agent. For the purposes of this §6.15, a transaction shall be deemed “material” to the extent such transaction would be required tobe disclosed to the shareholders pursuant to applicable securities laws (including, without limitation, Item 404 of Regulation SK promulgated by the Securitiesand Exchange Commission).§6.16 Employee Benefit Plans. Except as set forth on Schedule 6.16, each Borrower is in compliance in all material respects with ERISA. There hasbeen no ERISA Reportable Event with respect to any Employee Benefit Plan, Multiemployer Plan or Guaranteed Pension Plan. There has been no institution ofproceedings or any other action by PBGC, any Borrower or any ERISA Affiliate to terminate or withdraw or partially withdraw from any such Plan under anycircumstances which could lead to material liabilities to PBGC or, with respect to a Multiemployer Plan, the “Reorganization” or “Insolvency” (as each suchterm is defined in ERISA) of any such Plan. No “prohibited transaction” (within the meaning of Section 406 of ERISA or Section 4975 of the Code) hasoccurred with respect to any such Plan, and the consummation of the transactions provided for in this Agreement and compliance by the Borrowers with theprovisions hereof and the other Loan Documents will not involve any prohibited transaction. None of the Borrowing Base Assets constitutes a “plan asset”(within the meaning of ERISA and the Code) of any Employee Benefit Plan, Multiemployer Plan or Guaranteed Pension Plan.§6.17 ERISA Taxes. None of the Borrowers or any ERISA Affiliate thereof is currently and the Borrowers have no reason to believe that any Borroweror any ERISA Affiliate thereof will become subject to any liability (other than routine expenses or contributions relating to the Plans set forth on Schedule 6.17,if timely paid), tax or penalty whatsoever to any person whomsoever, which liability, tax or penalty is directly or indirectly related to any Plans set forth onSchedule 6.17 including, but not limited to, any penalty or liability arising under Title I or Title IV of ERISA, any tax or penalty resulting from a loss ofdeduction under Sections 404 and 419 of the Code, or any tax or penalty under Chapter 43 of the Code, except such liabilities, taxes or penalties (when takenas a whole) as will not have a material adverse effect on such Borrowers or upon their financial condition, assets, business, operations, liabilities or prospects.§6.18 Plan Payments. Each Borrower and each ERISA Affiliate has made full and timely payment of all amounts (i) required to be contributed underthe terms of each Plan set forth on Schedule 6.17 and applicable law and (ii) required to be paid as expenses of each Plan set forth on Schedule 6.17. No Planset forth on Schedule 6.17 would have an “amount of unfunded benefit liabilities” (as defined in Section 4001(a)(18) of ERISA) if such Plan were terminatedas of the date on which this representation and warranty is made. 56§6.19 Regulations U and X. No portion of any Loan is to be used by any Borrower for the purpose of purchasing or carrying any “margin security” or“margin stock” as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.Neither Borrower is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose ofpurchasing or carrying any “margin security” or “margin stock” as such terms are used in Regulations T, U and X of the Board of Governors of the FederalReserve System, 12 C.F.R. Parts 220, 221 and 224.§6.20 Environmental Compliance. The Borrowers have taken all commercially reasonable steps necessary to investigate the past and present conditionsand usage of the Real Estate and the operations conducted thereon and, based upon such investigation, make the following representations and warranties.(a) To the best of the Borrowers’ knowledge, none of the Borrowers, the Guarantors nor the Restricted Subsidiaries of any Borrower or anyoperator of the Real Estate, or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulationpertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act (“RCRA”), theComprehensive Environmental Response, Compensation and Liability Act of 1980 as amended (“CERCLA”), the Superfund Amendments andReauthorization Act of 1986 (“SARA”), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or localstatute, regulation, ordinance, order or decree relating to the environment (hereinafter “Environmental Laws”), which violation involves the Real Estate andwould have a material adverse effect on the environment or the business, assets or financial condition of either Borrower, any Guarantor or any of aBorrower’s Restricted Subsidiaries.(b) Except as set forth on Schedule 6.20, none of the Borrowers, the Guarantors nor any of the Restricted Subsidiaries of any Borrower hasreceived notice from any third party including, without limitation, any federal, state or local governmental authority, (i) that it has been identified by theUnited States Environmental Protection Agency (“EPA”) as a potentially responsible party under CERCLA with respect to a site listed on the NationalPriorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any hazardous waste, as defined by 42 U.S.C. §9601(5), any hazardous substances asdefined by 42 U.S.C. §9601(14), any pollutant or contaminant as defined by 42 U.S.C. §9601(33) or any toxic substances, oil or hazardous materials orother chemicals or substances regulated by any Environmental Laws (“Hazardous Substances”) which it has generated, transported or disposed of have beenfound at any site at, on or under the Real Estate for which a federal, state or local agency or other third party has conducted or has ordered that any of theBorrowers, any Guarantor or any of the Restricted Subsidiaries of any Borrower conduct a remedial investigation, removal or other response action pursuantto any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding(in each case, contingent or otherwise) arising out of any third party’s incurrence of costs, expenses, losses or damages of any kind whatsoever in connectionwith the release of Hazardous Substances.(c) To the best of the Borrowers’ knowledge, except as set forth on Schedule 6.20: (i) no portion of the Real Estate has been used as a landfill orfor dumping or for the handling, processing, storage or disposal of Hazardous Substances except in accordance with 57applicable Environmental Laws, and no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of theReal Estate that is not in compliance with applicable Environmental Laws; (ii) in the course of any activities conducted by the Borrowers, the Guarantors, theRestricted Subsidiaries of any Borrower or the operators of any of their properties, no Hazardous Substances have been generated or are being used on the RealEstate except in the ordinary course of business and in accordance with applicable Environmental Laws; (iii) there has been no past or present releasing,spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping (a “Release”) or threatened Release ofHazardous Substances on, upon, into or from the Real Estate, which Release would have a material adverse effect on the value of any of the Real Estate oradjacent properties or the environment; (iv) there have been no Releases on, upon, from or into any real property in the vicinity of any of the Real Estate which,through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate;and (v) any Hazardous Substances that have been generated on any of the Real Estate have been transported off site only by carriers having an identificationnumber issued by the EPA or approved by a state or local environmental regulatory authority having jurisdiction regarding the transportation of suchsubstance and treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under all applicable Environmental Laws,which transporters and facilities have been and are, to the best of the Borrowers’ knowledge, operating in compliance with such permits and applicableEnvironmental Laws.(d) None of the Borrowers, the Guarantors, the Restricted Subsidiaries of any Borrower, nor any Real Estate is subject to any applicableEnvironmental Law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or thegiving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of thetransactions set forth herein and contemplated hereby, or as a condition to the recording of the Security Deed or to the effectiveness of any other transactionscontemplated hereby.§6.21 Subsidiaries. Schedule 6.21 sets forth, as of the date hereof, all of the Restricted Subsidiaries and Unrestricted Subsidiaries of the Borrowers,the form and jurisdiction of organization of each of such Subsidiaries, and the Borrowers’ ownership interest therein.§6.22 Loan Documents. All of the representations and warranties made by or on behalf of the Borrowers, Woodlands Operating, the Guarantors and theRestricted Subsidiaries of any Borrower made in this Agreement and the other Loan Documents or any document or instrument delivered to the Agent or theLenders pursuant to or in connection with any of such Loan Documents are true and correct in all material respects, and neither of the Borrowers nor anyGuarantor has failed to disclose such information as is necessary to make such representations and warranties not misleading. There is no material fact orcircumstance that has not been disclosed to the Agent and the Lenders, and the written information, reports and other papers and data with respect to theBorrowers and the Property (other than projections and estimates) furnished to the Agent or the Lender in connection with this Agreement or the obtaining of thecommitments of the Lenders hereunder was, at the time so furnished and when considered as a whole, complete and correct in all material respects, or hasbeen subsequently supplemented by other information, reports or other papers or data, to the extent necessary to give in all material 58respects a true and accurate knowledge of the subject matter in all material respects; provided that such representation shall not apply to (a) the accuracy ofany engineering and environmental reports prepared by third parties or legal conclusions or analysis provided by the Borrowers’ counsel (although Borrowershave no reason to believe that the Agent and the Lenders may not rely on the accuracy thereof), (b) misstatements or omissions actually known as such to theloan officer of the Agent or a Lender responsible for the Loans prior to the execution and delivery of the Loan Documents, or (c) budgets, projections and otherforward-looking speculative information prepared in good faith by Borrowers (except to the extent the related assumptions are manifestly unreasonable).§6.23 Property. All of the Borrowers’ and their respective Restricted Subsidiaries’ and the Guarantors’ improved Real Estate are in good condition andworking order subject to ordinary wear and tear, other than with respect to deferred maintenance existing as of the date of acquisition of such property which isbeing corrected or repaired in the ordinary course of business and certain deminimis known and unknown repairs, none of which may have a materiallyadverse effect on the business or financial condition of the Borrowers. Except as disclosed to Agent in writing as of the Closing Date, there are no unpaid oroutstanding real estate or other taxes or assessments on or against any property of the Borrowers or any of their respective Restricted Subsidiaries or ofGuarantors which are payable by such Persons (except only real estate or other taxes or assessments, that are not yet due and payable or are being protested aspermitted by this Agreement). Except as disclosed to Agent in writing, there are no pending eminent domain proceedings against any property of the Borrowersor their respective Restricted Subsidiaries or the Guarantors or any part thereof, and, to the knowledge of the Borrowers, no such proceedings are presentlythreatened or contemplated by any taking authority which in either case may individually or in the aggregate have any materially adverse effect on the businessor financial condition of either Borrower. None of the property of Borrowers or their respective Restricted Subsidiaries or the Guarantors is now damaged as aresult of any fire, explosion, accident, flood or other casualty in any manner which individually or in the aggregate would have any materially adverse effecton the business or financial condition as a whole of either Borrower.§6.24 Material Agreements. Borrowers have delivered or made available to Agent true, correct and complete copies of the Material Agreements. To thebest knowledge of the Borrowers, each of the Material Agreements is in full force and effect in accordance with their respective terms, and except as disclosedto the Agent in writing there are no material claims or any basis for material claims by any party to any Material Agreement.§6.25 Brokers. None of the Borrowers nor any of their respective Restricted Subsidiaries has engaged or otherwise dealt with any broker, finder orsimilar entity in connection with this Agreement or the Loans contemplated hereunder.§6.26 Partners. As of the date hereof, (a) TWC Commercial Properties and MS TWC, Inc. are the sole general partners of TWCPC Holdings andtogether own a two percent (2%) general partner interest in TWCPC Holdings, (b) TWCPC Holdings is the sole member of TWCPC Holdings GP,(c) TWCPC Holdings and TWCPC Holdings GP are the sole partners of Commercial Company, (d) TWC Land Development and MS TWC, Inc. are thesole general partners of TWLDC Holdings and together own a forty-three and one-half percent (43.5%) 59general partner interest in TWLDC Holdings, (e) TWLDC Holdings is the sole member of TWLDC Holdings GP, and (f) TWLDC Holdings and TWLDCHoldings GP are the sole partners of Land Company. Each of the Howard Hughes Group and the MSREF Group are in control of at least 50% of the votingrights in each Borrower and not less than 37.5% of the ownership interests in each Borrower as of the date hereof.§6.27 Options to Acquire; Restrictions on Development. None of the Borrowing Base Assets are subject to any right of first refusal, right of first offeror other options to purchase except as set forth on Schedule 6.27 hereto or except such rights of first refusal, rights of first offer or other options to purchasethat constitute arm’s-length agreements entered into in the ordinary course of business which individually or in the aggregate do not have a material adverseaffect on the Collateral as a whole or restrict, limit or materially adversely affect the ability to develop or the marketability or financeability of the BorrowingBase Assets subject thereto. None of the Undeveloped Residential Land or the Undeveloped Commercial Land is subject to any material agreement restrictingor limiting its development except as set forth on Schedule 6.27.§6.28 [Intentionally omitted.]§6.29 Fair Consideration. The Borrowers and the Guarantors, by receiving the benefits under this Agreement, are receiving “reasonably equivalentvalue” within the meaning of Section 548 of the Bankruptcy Code, Title 11, U.S.C.A., in exchange for the delivery of the Security Documents to Agent. Thetransaction evidenced by this Agreement and the other Loan Documents is in the best interests of the Borrowers and the Guarantors and the creditors of theBorrowers and the Guarantors.§6.30 Solvency. As of the Closing Date and after giving affect to the transactions contemplated by this Agreement and the other Loan Documents,including all of the Loans made or to be made hereunder, none of the Borrowers nor any of their respective Restricted Subsidiaries nor any Guarantor isinsolvent on a balance sheet basis, the sum of such Person’s assets exceeds the sum of such Person’s liabilities, each of the Borrowers and their respectiveRestricted Subsidiaries and the Guarantors is able to pay its debts as they become due, and each of the Borrowers and their respective Restricted Subsidiariesand the Guarantors has sufficient capital to carry on its business. Neither the Borrowers nor any Guarantor has entered into the Loan or any Loan Documentwith the actual intent to hinder, delay or defraud any creditor.§6.31 No Bankruptcy Filing. None of the Borrowers, the Guarantors nor any of the Restricted Subsidiaries of any Borrower is contemplating either thefiling of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of its assets or property, and neither Borrower has anyknowledge of any Person contemplating the filing of any such petition against it or any of such other Persons.§6.32 Other Debt. None of the Borrowers, the Guarantors nor any of their respective Restricted Subsidiaries is in default (after giving effect toapplicable grace periods) in the payment of any Indebtedness or the terms of any agreement, mortgage, deed of trust, security agreement, financing agreement,indenture or other lease to which any of them is a party which relates to Indebtedness or other obligations which individually or in the aggregate exceed 60$5,000,000.00. None of the Borrowers, the Guarantors nor the Restricted Subsidiaries of any Borrower is a party to or bound by any agreement, instrument orindenture that may require the subordination in right or time of payment of any of the Obligations to any other indebtedness or obligation of any Borrower orany Guarantor. The Borrowers have provided to the Agent copies of or access to all agreements, mortgages, deeds of trust, financing agreements or othermaterial agreements binding upon Borrowers, their respective Restricted Subsidiaries, the Guarantors or their respective properties and entered into by suchPerson as of the date of this Agreement with respect to any Indebtedness of such Person.§6.33 OFAC. None of the Borrowers or Guarantors are (and none of the Borrowers or Guarantors will be) a Person with whom any Lender is restrictedfrom doing business under OFAC (including, those Persons named on OFAC’s Specially Designated and Blocked Persons list) or under any statute, executiveorder (including the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit,or Support Terrorism), or other governmental action and is not and shall not engage in any dealings or transactions or otherwise be associated with suchpersons. In addition, Borrowers hereby agree to provide to the Lenders any additional information that a Lender deems reasonably necessary from time to timein order to ensure compliance with all applicable laws concerning money laundering and similar activities.§6.34 Additional Land. Except for the Conference Center and any Real Estate which is encumbered by a Lien securing Indebtedness permitted by§8.1(a)(viii) or §8.1(a)(xvi), Borrowers do not own any other Real Estate or rights or privileges within or with respect to the Woodlands Project other than thatwhich is included within the Collateral. Stibbs has conveyed to Land Company all real estate owned by Stibbs in his capacity as trustee for the benefit ofLand Company.§6.35 WECCR Leases; Management Agreements. None of the Mortgaged Property is leased to WECCR or any other Affiliate of a Borrower orWoodlands Operating except for such Leases with respect to which a subordination agreement acceptable to Agent has been executed and delivered to Agent bythe applicable Borrower and WECCR or such Affiliate and except for (a) the Lease Agreement, dated March 26, 2001, between Land Company, as landlord,and Beverage Operations, Inc., as tenant, pertaining to the provision of alcoholic beverage services at The Club at Carlton Woods, as amended June 6, 2005 toinclude The Club at Carlton Woods Creekside, and (b) the Sub-Lease Agreement, dated August 21, 2002, between WECCR, as landlord, and BeverageOperations, Inc., as tenant, pertaining to the provision of alcoholic beverage services at the Conference Center, the Gary Player golf course, the East golfcourse, the Arnold Palmer golf course and The Woodlands Country Club, as amended July 31, 2007 to delete the Gary Player golf course, the Arnold Palmergolf course and The Woodlands Country Club. None of the Mortgaged Property is subject to any Management Agreement with MS Hospitality, L.P. or anyother Affiliate of a Borrower except for such Management Agreements with respect to which an Assignment of Management Agreement and Subordination hasbeen executed and delivered to Agent and except for (x) the Management Service Agreement, dated March 26, 2001, between Beverage Operations, Inc. andLand Company, as amended June 4, 2001, pertaining to the service of alcoholic beverages at The Club at Carlton Woods, and amended June 6, 2005 to addThe Club at Carlton Woods Creekside, and further amended October 4, 2005 to include the words “mixed beverages,” and (y) the Management Service 61Agreement, dated August 21, 2002, between Beverage Operations, Inc. and MS Hospitality, L.P., pertaining to the service of alcoholic beverages at theConference Center, the Gary Player golf course, the East golf course, the Arnold Palmer golf course and The Woodlands Country Club, amended July 31,2004 to delete the Gary Player golf course, the East golf course, and the Arnold Palmer golf course, and further amended May 31, 2007 and July 31, 2007 todelete The Woodlands Country Club.§6.36 Guarantor Contribution Agreement. The Borrowers and the Guarantors have executed and delivered the Guarantor Contribution Agreement, andthe Guarantor Contribution Agreement constitutes the valid and legally binding obligations of such parties enforceable against them in accordance with theterms and provisions thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affectinggenerally the enforcement of creditors’ rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to thediscretion of the court before which any proceeding therefor may be brought. §7.AFFIRMATIVE COVENANTS OF THE BORROWERSThe Borrowers covenant and agree that, so long as any Loan or Note is outstanding or any Lender has any obligation to make any Loans:§7.1 Punctual Payment. The Borrowers will duly and punctually pay or cause to be paid the principal and interest on the Loans and all interest and feesprovided for in this Agreement, all in accordance with the terms of this Agreement and the Notes as well as all other sums owing pursuant to the LoanDocuments.§7.2 Maintenance of Office. Borrowers will maintain their chief executive offices at c/o The Woodlands Operating Company, L.P., 24 WaterwayAvenue, Suite 1100, The Woodlands, Texas 77380, or at such other place in the United States of America as such Borrower shall designate upon prior writtennotice to the Agent and the Lenders, where notices, presentations and demands to or upon each Borrower in respect of the Loan Documents may be given ormade.§7.3 Records and Accounts. The Borrowers will (a) keep, and cause each of their respective Restricted Subsidiaries to keep, true and accurate recordsand books of account in which full, true and correct entries will be made in accordance with Generally Accepted Accounting Principles, as revised from timeto time, and (b) maintain reasonably adequate accounts and reserves for all taxes against their respective Real Estate and depreciation and amortization of itsproperties and the properties of their respective Restricted Subsidiaries, contingencies and other reserves. Except as required by Generally Accepted AccountingPrinciples and with prior written notice to Agent, none of the Borrowers nor any of their respective Restricted Subsidiaries shall, without the prior writtenconsent of the Agent, make any material change to the accounting procedures used by such Person in preparing the financial statements and other informationdescribed in §6.4. The Borrowers shall not, without the prior written consent of the Agent, change their fiscal year which ends on December 31 of each year. 62§7.4 Financial Statements, Certificates and Information. The Borrowers will deliver to the Agent with sufficient copies for each of the Lenders:(a) as soon as practicable, but in any event not later than one hundred twenty (120) days after the end of each fiscal year of each Borrower, theaudited consolidated balance sheet of each Borrower and its subsidiaries and of the Borrowers collectively and their subsidiaries on a combined basis at theend of such year, and the related audited consolidated statements of income, changes in capital and cash flows for such year, each setting forth in comparativeform the figures for the previous fiscal year and all such statements to be in reasonable detail, prepared in accordance with Generally Accepted AccountingPrinciples, and accompanied by an auditor’s report prepared without qualification by a nationally recognized accounting firm reasonably acceptable to theAgent, and any other information the Agent may reasonably require to complete a financial analysis of the Borrowers, together with a written statement fromsuch accountants to the effect that they have read a copy of this Agreement, and that, in making the examination necessary to said certification, they haveobtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event ofDefault they shall disclose in such statement any such Default or Event of Default; provided that such accountants shall not be liable to the Agent or theLenders for failure to obtain knowledge of any Default or Event of Default;(b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each fiscal quarter of the Borrowers (including thefourth fiscal quarter in each year), copies of the unaudited consolidated balance sheet of each Borrower and its Consolidated subsidiaries and of the Borrowerscollectively and their Consolidated subsidiaries on a combined basis as of the end of such quarter, and the related unaudited consolidated statements ofincome, changes in capital and cash flows for the portion of the Borrowers’ fiscal year then elapsed, all prepared in accordance with Generally AcceptedAccounting Principles (other than the inclusion of footnotes) and in addition a calculation of Operating Cash Flow, Excess Cash Flow, Total Debt Ratio,Woodlands Operating Payments, Woodlands Operating Distributions, Net Income of Woodlands Operating, Partner Subordinated Debt Payments and theDistributions to be made to the parties or other beneficial owners of the Borrowers for such period (or if such amounts relate to a prior period as permitted by§8.7(i)) and any other terms defined in this Agreement, and showing any variations for such quarter and the year-to-date of actual operations from the Budget,together with a certification by the Principal Financial Officer of each Borrower that the information contained in such financial statements fairly presents thefinancial position of the Borrowers and their respective Consolidated subsidiaries on the date thereof (subject to year end adjustments);(c) contemporaneously with the delivery of the financial statements referred to in clause (a) above, a statement of all contingent liabilities in excessof $100,000.00 of each Borrower and their respective Restricted Subsidiaries which are not reflected in such financial statements or referred to in the notesthereto (including, without limitation, all guarantees, endorsements and other contingent obligations in respect of indebtedness of others, and obligations toreimburse the issuer in respect of any letters of credit);(d) [Intentionally omitted]. 63(e) not later than sixty (60) days after the end of the first three fiscal quarters of the Borrowers and not later than one hundred twenty (120) daysafter the end of each fiscal year of the Borrowers, a statement (a “Compliance Certificate”) certified by the Principal Financial Officer of each Borrower in theform of Exhibit E hereto setting forth in reasonable detail computations evidencing compliance with the covenants contained in §9 and the other covenantsdescribed therein, and (if applicable) reconciliations to reflect changes in Generally Accepted Accounting Principles since the Balance Sheet Date;(f) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above and the Compliance Certificate referredto in subsection (e) above, a spreadsheet listing each parcel of income-producing Real Estate and its location, whether such Real Estate is owned by a Borroweror one of their respective Restricted Subsidiaries, its size (square footage for office and retail assets; number of apartments for multifamily; number of roomsfor hotel/lodging/resort assets), occupancy level as of the quarter most recently ended, current quarter net income and partnership distributions and such otherinformation as Agent may reasonably request, a specific listing of any new Eligible Accounts Receivable proposed to be included in the Borrowing Base, alisting of each Vertical Commercial Improvements project under construction or development, the budgeted cost of completing such project (on a fullydeveloped basis including land) of Commercial Company, Land Company and their respective Restricted Subsidiaries and Unrestricted Subsidiaries, theamount expended and the remaining costs to be incurred, whether each such project constitutes a Speculative Development, the status of completion, theestimated completion date, the status of leasing and the summary and breakdown of the sources of capital for such construction and development;(g) not later than five (5) days after the end of each calendar month, a statement certified by an Authorized Officer of each Borrower that each saleof Undeveloped Residential Land or Developed Residential Land for the preceding calendar month was for fair market value as a result of an arm’s-length saleof such Property in the ordinary course of such Borrower’s business to a party that was not an Affiliate of any Borrower, any General Partner, any SecondTier Partner, any Third Tier Partner or any Guarantor, and that any easements, subdivision plats, road dedications, restrictions or similar agreementsconsented or subordinated to by the Title Insurance Company pursuant to the Tri-Party Agreement during the preceding calendar month shall not have anymaterial negative impact to the Collateral;(h) if requested by the Agent, copies of all annual federal income tax returns and amendments thereto of the Borrowers;(i) [Intentionally omitted];(j) not later than forty-five (45) days after the end of each fiscal quarter of the Borrowers (including the fourth fiscal quarter in each year), astatement, certified as true and correct by the Principal Financial Officer of each Borrower, of all recourse and Non-Recourse Indebtedness of each Borrowerand their respective Restricted Subsidiaries as of the end of such fiscal quarter, including, with respect to each such Indebtedness, the outstanding principalamount as of the end of such fiscal quarter, the amount remaining undisbursed, if any, the maturity date and any extension options, the required monthlypayments of principal and interest, the identity of the lender, the interest rate, the collateral for such Indebtedness and whether such Indebtedness is recourse ornon-recourse; 64(k) not later than ten (10) days after approval by each Borrower’s executive committee, the Budget for the next calendar year. Such Budget shall bein form reasonably satisfactory to the Agent and shall be submitted to the Agent together with a narrative description of the assumptions upon which theBudget is based and such other information as the Agent may request;(l) at such times as Agent shall determine in its discretion (but, so long as no Event of Default has occurred and is continuing, not more frequentlythan once each calendar year), Borrower shall deliver to Agent such title updates, UCC searches or other evidence as Agent may reasonably require to showthat the Security Documents create a first lien and security interest in the Collateral; and(m) from time to time such other financial data and information in the possession of the Borrowers, their respective Restricted Subsidiaries ortheir respective Unrestricted Subsidiaries (including without limitation auditors’ management letters, market comparable studies, property inspection andenvironmental reports and information as to zoning and other legal and regulatory changes affecting the Borrowers or their respective Subsidiaries) as the Agentmay reasonably request.§7.5 Notices.(a) Defaults. The Borrowers will promptly notify the Agent in writing of the occurrence of any Default or Event of Default. If any Person shallgive any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Agreement or under anynote, obligation or other evidence of indebtedness to which or with respect to which any of the Borrowers, the Guarantors or any of the Borrowers’ RestrictedSubsidiaries or Unrestricted Subsidiaries is a party or obligor, whether as principal or surety, and such default would permit the holder of such note orobligation or other evidence of indebtedness to accelerate the maturity thereof, which acceleration would have a material adverse effect on any of such Personsor constitute a Default or Event of Default, the Borrowers shall forthwith give written notice thereof to the Agent, describing the notice or action and the natureof the claimed default.(b) Environmental Events. The Borrowers will promptly give notice to the Agent (i) upon either of the Borrowers obtaining knowledge of anypotential or known Release, or threat of Release, of any Hazardous Substances at or from any Real Estate, other than a deminimis Release that is not reportableto any federal, state or local environmental agency; (ii) of any violation of any Environmental Law that either of the Borrowers or any of their respectiveRestricted Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) toany federal, state or local environmental agency; and (iii) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including anotice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, that in either case involves the RealEstate or has the potential to materially affect the assets, liabilities, financial conditions or operations of either of the Borrowers or any Restricted Subsidiary orthe Agent’s liens on the Collateral pursuant to the Security Documents. 65(c) Notification of Claims Against Collateral. The Borrowers will, promptly upon becoming aware thereof, notify the Agent in writing of anymaterial setoff, claims (including, with respect to the Real Estate, environmental claims), withholdings or other defenses to which any of the Collateral, or therights of the Agent or the Lenders with respect to the Collateral, are subject.(d) Notice of Litigation and Judgments. The Borrowers will give notice to the Agent in writing within fifteen (15) days of becoming aware of anylitigation or proceedings threatened in writing or any pending litigation and proceedings affecting any of the Borrowers, the Guarantors or any of the RestrictedSubsidiaries of any Borrower or to which any of such persons is or is to become a party involving an uninsured claim against any of such Persons that couldreasonably be expected to have a materially adverse effect on such Person and stating the nature and status of such litigation or proceedings. The Borrowerswill give notice to the Agent, in writing, in form and detail satisfactory to the Agent and each of the Lenders, within ten (10) days of any judgment not coveredby insurance, whether final or otherwise, against any of the Borrowers, the Guarantors or any of the Restricted Subsidiaries of any Borrower in an amount inexcess of $1,000,000.00.(e) [Intentionally omitted].(f) Notice of Material Adverse Effect. The Borrowers will give notice to the Agent in writing within fifteen (15) days of becoming aware of theoccurrence of any event or circumstance which might have a material adverse effect on the business, assets or financial condition of either of the Borrowers orany Guarantor.(g) Notice of Designation of Restricted and Unrestricted Subsidiaries. The Borrowers will promptly give notice to the Agent of any designation bya Borrower of Restricted Subsidiaries or Unrestricted Subsidiaries as provided in the definition of same. No designation of a Restricted Subsidiary may bemade unless a Borrower has sufficient interests and other rights with respect to such Person to satisfy the requirements set forth in the definition of RestrictedSubsidiary to be a Restricted Subsidiary. Any such designation of a Restricted Subsidiary or Unrestricted Subsidiary may not be changed. Notwithstandinganything in this Agreement to the contrary, prior to a Borrower designating a Person as an Unrestricted Subsidiary, the Borrower shall deliver to the Agent acertificate showing pro forma compliance with §9.3 (Borrowing Base) after giving effect to such designation.§7.6 Existence; Maintenance of Properties.(a) The Borrowers will do or cause to be done all things necessary to preserve and keep in full force and effect their existence as Texas limitedpartnerships. Each Borrower will cause each of its Restricted Subsidiaries to do or cause to be done all things necessary to preserve and keep in full force andeffect its legal existence. The Borrowers will do or cause to be done all things necessary to preserve and keep in full force all of their material rights andfranchises and those of their respective Restricted Subsidiaries. The Borrowers will, and will cause each of their respective Restricted Subsidiaries to, continueto engage primarily in the businesses now conducted by it and in related businesses. 66(b) Irrespective of whether proceeds of the Loans are available for such purpose, the Borrowers (i) will cause all of their respective properties andthose of their respective Restricted Subsidiaries used or useful in the conduct of its business or the business of their respective Restricted Subsidiaries to bemaintained and kept in good condition, repair and working order (ordinary wear and tear excepted) and supplied with all necessary equipment, and (ii) willcause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof in all cases in which the failure so to do would have amaterial adverse effect on the condition of its properties or on the financial condition, assets or operations of the Borrowers and their respective RestrictedSubsidiaries.§7.7 Insurance.(a) The Borrowers will, at their expense, procure and maintain or cause to be procured and maintained for the benefit of the Borrowers, the Agentand the Lenders, insurance policies issued by such insurance companies, in such amounts, in such form and substance, and with such coverages,endorsements, deductibles and expiration dates as are acceptable to the Agent, providing the following types of insurance covering the Mortgaged Property:(i) “All Risks” property insurance (including broad form flood, broad form earthquake and comprehensive boiler and machinerycoverages) on the Buildings and the Golf Courses and the contents therein in an amount not less than one hundred percent (100%) of the full replacement costof the improvements on the Mortgaged Property and the contents therein of the Borrowers, with deductibles not to exceed $500,000 for any one occurrence andwith a replacement cost coverage endorsement or an agreed amount endorsement. Full replacement cost as used herein means the cost of replacing theimprovements (exclusive of the cost of excavations, foundations and footings below the lowest grade) and the contents therein of the Borrowers withoutdeduction for physical depreciation thereof;(ii) During the course of construction or repair of any Buildings, the insurance required by clause (i) above shall be written on a buildersrisk, completed value, non-reporting form, meeting all of the terms required by clause (i) above, covering the total value of work performed, materials,equipment, machinery and supplies furnished, existing structures, and temporary structures being erected on or near the Mortgaged Property, includingcoverage against collapse and damage during transit or while being stored off-site, and containing a soft costs (including loss of rents) coverage endorsementand a permission to occupy endorsement;(iii) Flood insurance if at any time any Buildings are located in any federally designated “special hazard area” (including any area havingspecial flood, mudslide and/or flood-related erosion hazards, and shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map published by theFederal Emergency Management Agency as Zone A, AO, AI-30, A99, AH, VO, VI-30, VE, V, M or E) and the broad form flood coverage required by clause(i) above is not available, in an amount equal to the full replacement cost or the maximum amount then available under the National Flood Insurance Program; 67(iv) Rent loss and/or business interruption insurance in an amount sufficient to recover at least the total estimated gross receipts from allsources of income, including without limitation, rental income and income from the use or occupancy of rooms or other facilities, for the Mortgaged Propertyfor a twelve month period;(v) Commercial general liability insurance against claims for personal injury (to include, without limitation, bodily injury and personaland advertising injury) and property damage liability, all on an occurrence basis, if commercially available, with such coverages as the Agent may reasonablyrequest (including, without limitation, contractual liability coverage and completed operations coverage, and coverages equivalent to an ISO broad formendorsement), with a general aggregate limit of not less than $2,000,000, a completed operations aggregate limit of not less than $2,000,000, and a combinedsingle “per occurrence” limit of not less than $1,000,000 for bodily injury, property damage and medical payments;(vi) During the course of construction or repair of any Buildings on the Mortgaged Property, owner’s contingent or protective liabilityinsurance covering claims not covered by or under the terms or provisions of the insurance required by clause (v) above;(vii) Umbrella liability insurance with limits of not less than $25,000,000 to be in excess of the limits of the insurance required byclauses (v) and (vi) above, with coverage at least as broad as the primary coverages of the insurance required by clauses (v) and (vi) above, with any excessliability insurance to be at least as broad as the coverages of the lead umbrella policy. All such policies shall be endorsed to provide defense coverageobligations;(viii) Automobile liability in such amounts as Agent may reasonably require, and if any of the Mortgaged Property is a hotel, innkeeper’slegal liability, liquor liability, safe deposit box liability, automobile liability and garagekeeper liability in such amounts as Agent may reasonably require;(ix) Workers’ compensation insurance (including employer’s liability insurance) for all employees of the Borrowers engaged on or withrespect to the Mortgaged Property; and(x) Such other insurance in such form and in such amounts as may from time to time be reasonably required by the Agent against otherinsurable hazards and casualties which at the time are commonly insured against in the case of properties of similar character and location to the MortgagedProperty.The Borrowers shall pay or cause to be paid all premiums on insurance policies. The insurance policies with respect to the Mortgaged Property providedfor in clauses (v), (vi), (vii) and (viii) above with respect to the Mortgaged Property shall name the Agent and each Lender as an additional insured and shallcontain a cross liability/severability endorsement. The insurance policies provided for in clauses (i), (ii), (iii) and (iv) above shall name the Agent as mortgageeand loss payee, shall be first payable in case of loss to the Agent, and shall contain mortgage clauses and lender’s loss payable endorsements in form andsubstance acceptable to the Agent. The Borrowers shall promptly furnish to the Agent all renewal notices and evidence that all 68premiums or portions thereof then due and payable have been paid. At least thirty (30) days prior to the expiration date of the policies, the Borrowers shalldeliver to the Agent evidence of continued coverage, including a certificate of insurance, as may be satisfactory to the Agent.(b) All policies of insurance required by this Agreement shall contain clauses or endorsements to the effect that (i) no act or omission of eitherBorrower or anyone acting for a Borrower (including, without limitation, any representations made in the procurement of such insurance), which mightotherwise result in a forfeiture of such insurance or any part thereof, no occupancy or use of the Mortgaged Property for purposes more hazardous thanpermitted by the terms of the policy, and no foreclosure or any other change in title to the Mortgaged Property or any part thereof, shall affect the validity orenforceability of such insurance insofar as the Agent or the Lenders are concerned, (ii) the insurer waives any right of setoff, counterclaim, subrogation, orany deduction in respect of any liability of the Borrowers, the Agent and the Lenders, (iii) such insurance is primary and without right of contribution fromany other insurance which may be available, (iv) such policies shall not be modified, cancelled or terminated prior to the scheduled expiration date thereofwithout the insurer thereunder giving at least 30 days’ prior written notice to the Agent by certified or registered mail, and (v) that the Agent and the Lendersshall not be liable for any premiums thereon or subject to any assessments thereunder, and shall in all events be in amounts sufficient to avoid anycoinsurance liability.(c) The insurance required by this Agreement may be effected through a blanket policy or policies covering additional locations and property ofthe Borrowers and other Persons not included in the Mortgaged Property, provided that such blanket policy or policies comply with all of the terms andprovisions of this §7.7 and contain endorsements or clauses assuring that any claim recovery will not be less than that which a separate policy wouldprovide, including, without limitation, a priority claim provision with respect to property insurance and an aggregate limits of insurance endorsement in thecase of liability insurance.(d) All policies of insurance required by this Agreement shall be issued by companies licensed to do business in the state where the policy isissued to the extent so required by state law and also in the states where the Mortgaged Property is located and having a rating in Best’s Key Rating Guide of atleast “A” and a financial size category of at least “VIII”.(e) The Borrowers shall not carry separate insurance, concurrent in kind or form or contributing in the event of loss, with any insurance requiredunder this Agreement unless such insurance complies with the terms and provisions of this §7.7.(f) In the event of any loss or damage to any Building or other improvements covered by casualty insurance in excess of the applicable deductible,the Borrowers shall give immediate written notice to the insurance carrier and the Agent, or in the case of any loss or damage in excess of $200,000.00, to theAgent, and the Agent shall furnish a copy of such notice promptly to each of the Lenders. The applicable Borrowers may make proof of loss and adjust andcompromise any claim under insurance policies which is of an amount not more than $2,000,000.00 so long as no Event of Default has occurred and iscontinuing and so long as such Borrower shall in good faith diligently pursue such claim. The Borrowers hereby irrevocably authorize and empower theAgent, at the Agent’s option in the Agent’s sole discretion, as attorney in fact for the Borrowers to make proof of any loss except as provided in the preceding 69sentence, to adjust and compromise any claim under insurance policies, to appear in and prosecute any action arising from such insurance policies, to collectand receive insurance proceeds, and to deduct therefrom the Agent’s reasonable expenses incurred in the collection of such proceeds. If a Mortgaged Property isacquired by the Agent or any nominee through foreclosure, deed in lieu of foreclosure or otherwise is acquired from a Borrower, all right, title and interest ofsuch Borrower in and to any insurance policies and unearned premiums thereon and in and to the proceeds thereof resulting from loss or damage to theMortgaged Property prior to such sale or acquisition shall pass to the Agent or any other successor in interest to such Borrower or purchaser or grantee of theMortgaged Property.(g) Subject to the terms of the following sentence, the Borrowers authorize the Agent, at the Agent’s option, in its sole discretion, to (i) apply thebalance of such proceeds to the payment of the Obligations whether or not then due in accordance with the terms of this Agreement, or (ii) if the Agent shallrequire the reconstruction or repair of the Mortgaged Property, to hold the balance of such proceeds to be used to pay all taxes, charges, sewer use fees, waterrates and assessments which may be imposed upon the Mortgaged Property and the Obligations as they become due during the course of reconstruction orrepair of the Mortgaged Property and to reimburse the applicable Borrower, in accordance with such terms and conditions as Agent may prescribe, for the costof such reconstruction or repair of the Mortgaged Property, and on completion of such reconstruction or repair to apply any of the excess to the payment of theObligations. Notwithstanding the foregoing, the Agent shall make such net proceeds available to the applicable Borrower to reconstruct and repair theMortgaged Property, in accordance with such terms and conditions as the Agent may prescribe for the disbursement of such proceeds to assure completion ofsuch reconstruction or repair provided that (A) the cost of such reconstruction or repair is not estimated by the Agent to exceed fifty percent (50%) of the fairmarket value of the specific building, structure or improvement or such portion of the Mortgaged Property which is in need of repair or reconstruction asdetermined by Agent, (B) no Default or Event of Default shall have occurred and be continuing, (C) the applicable Borrower shall have provided to Agentadditional cash security (other than from proceeds of the Loan) in an amount equal to the amount reasonably estimated by the Agent to be the amount in excessof such proceeds which will be required to complete such repair or restoration, (D) the Agent shall have approved the plans and specifications for such repairor restoration and determined that the repaired or restored Mortgaged Property will provide the Lenders with adequate security applicable for the Obligations atleast substantially identical in nature, quality and value to the security for the Obligations existing prior to such casualty, (E) the applicable Borrower shallhave delivered to the Agent written agreements binding upon all tenants or other parties having present or future rights to possession of any portion of theMortgaged Property or having any right to require repair, restoration or completion of the Mortgaged Property or any portion thereof or having any right toterminate any management agreement, franchise agreement or other agreement relating to or affecting the Mortgaged Property, agreeing upon a date for deliveryof possession of the Mortgaged Property or their respective portions thereof, or for such required repair, restoration or completion, to permit time which issufficient in the judgment of the Agent for such repair or restoration and approving the plans and specifications for such repair or restoration, or other evidencesatisfactory to the Agent that none of such tenants or other parties may terminate their Leases or other agreements affecting or relating to the Mortgaged Propertyas a result of such casualty or have a right to approve the plans and specifications for such repair or restoration, and (F) the Agent shall determine that suchrepair or reconstruction 70can be completed prior to the Maturity Date. Any excess of net proceeds over the amount necessary to complete such repair and restoration may, so long as noDefault or Event of Default is continuing, be retained by the applicable Borrower or if a Default or Event of Default is continuing be applied, at the Agent’soption, in its sole discretion, to the payment of the Obligations, whether or not due, in accordance with the terms of the Loan Agreement.(h) The Borrowers will procure and maintain or cause to be procured and maintained such other insurance covering the Borrowers and theGuarantors and the Restricted Subsidiaries of the Borrowers and their respective properties (the cost of such insurance to be borne by the insured thereunder)in such amounts and against such risks and casualties as are customary for properties of similar character and location, due regard being given to the type ofimprovements thereon, their construction, location, use and occupancy.§7.8 Taxes. The Borrowers and each Restricted Subsidiary and Guarantor will duly pay and discharge, or cause to be paid and discharged, before thesame shall become overdue, all taxes, assessments and other private or governmental charges imposed upon it and upon the Real Estate, sales and activities, orany part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien orcharge upon any of its property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shallcurrently be contested in good faith by appropriate proceedings and if a Borrower or such Restricted Subsidiary or Guarantor shall have set aside on its booksreasonably adequate reserves with respect thereto; and provided, further, that forthwith upon the commencement of proceedings to foreclose any lien that mayhave attached as security therefor, the Borrowers and each Restricted Subsidiary of the Borrowers or Guarantor either (i) will provide a bond issued by asurety reasonably acceptable to the Agent and sufficient to stay all such proceedings or (ii) if no such bond is provided, will pay each such tax, assessment,charge, levy or claim.§7.9 Inspection of Properties and Books. The Borrowers shall permit the Lenders to visit and inspect any of the properties of the Borrowers or any oftheir respective Restricted Subsidiaries, to examine the books of account of the Borrowers and their respective Restricted Subsidiaries (and to make copiesthereof and extracts therefrom) and to discuss the affairs, finances and accounts of the Borrowers and their respective Restricted Subsidiaries with, and to beadvised as to the same by, its officers, all at such reasonable times and intervals as the Agent or any Lender may reasonably request, provided that theBorrowers shall only be responsible for the expense of the Agent or any representative designated by the Agent. The Agent shall use good faith efforts tocoordinate such visits and inspections so as to minimize the interference with and disruption to the Borrowers’ normal business operations and the expense tothe Borrowers thereof.§7.10 Compliance with Laws, Contracts, Licenses, and Permits. The Borrowers will comply with, and will cause each of their respective RestrictedSubsidiaries and each Guarantor to comply in all respects with (i) all applicable laws and regulations now or hereafter in effect wherever its business isconducted, including all Environmental Laws, (ii) the provisions of its corporate charter, partnership agreement or declaration of trust, as the case may be,and other charter documents and bylaws, (iii)all agreements and instruments to which it is a party or by which it or any of its properties may be bound,(iv)all applicable decrees, orders, and judgments, 71and (v)all licenses and permits required by applicable laws and regulations for the conduct of its business or the ownership, use or operation of its properties,except when a failure to so comply with the foregoing (i)-(v) would not have a material adverse effect on the business, assets or financial condition of suchBorrower, such Restricted Subsidiary or such Guarantor (provided, further, that the foregoing shall not limit any obligation to comply with terms of the LoanDocuments). If at any time while any Loan or Note is outstanding or the Lenders have any obligation to make Loans hereunder, any authorization, consent,approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrowers orany Guarantor may fulfill any of their obligations hereunder, the Borrowers will, and will cause the Guarantors to, immediately take or cause to be taken allsteps necessary to obtain such authorization, consent, approval, permit or license.§7.11 Use of Proceeds. The Borrowers will use the proceeds of the Loans solely (a) for working capital purposes in the operation and development of theReal Estate within the Woodlands Project, (b) for the payment of closing costs in connection with the Loans, and (c) for such other purposes as the MajorityLenders in their discretion from time to time may agree to in writing.§7.12 Further Assurances. The Borrowers will cooperate with, and will cause each of their respective Restricted Subsidiaries to cooperate with the Agentand the Lenders and execute such further instruments and documents as the Lenders or the Agent shall reasonably request to carry out to their satisfaction thetransactions contemplated by this Agreement and the other Loan Documents.§7.13 Management. The Borrowers shall not, nor shall the Borrowers permit WECCR or any other Person to, enter into any Management Agreementrelating to all or any portion of the Conference Center without the prior written consent of the Agent, such consent not to be unreasonably withheld. Any suchconsent shall be conditioned upon the delivery to Agent of an Assignment of Management Agreement and Subordination. Any management of the ConferenceCenter shall be by either: (a) Commercial Company or an entity affiliated with Commercial Company approved by Agent for so long as Commercial Companyor said affiliated entity is managing the Conference Center in a manner consistent with the operation of a first-class hotel and resort; or (b) a professionalproperty management company approved by Agent, such approval not to be unreasonably withheld. MS Hospitality, L.P. is approved as the current managerof the Conference Center. Neither of the Borrowers shall terminate or replace the management agreement with MS Hospitality, L.P. or any successormanagement agreement approved by the Agent without the prior consent of the Agent, such consent not to be unreasonably withheld (provided that if suchagreement is to be replaced by an agreement with an Affiliate of either Borrower, the Agent may require that any payments to such party be treated as“Woodlands Operating Payments” under this Agreement). The provisions of this §7.13 shall only apply in the event that the Conference Center is a BorrowingBase Asset.§7.14 Leases; Development. The Borrowers will take or cause to be taken all reasonable steps within the power of the Borrowers to market and lease thesaleable and leaseable area of the Real Estate in accordance with sound and customary development, leasing and management practices for similar properties.Borrowers shall be permitted to enter into Leases without the approval of the Agent to the extent provided in the Security Deeds. 72§7.15 ERISA Compliance. Neither of the Borrowers will permit the present value of all employee benefits vested in all Employee Benefit Plans,Multiemployer Plans and Guaranteed Pension Plans maintained by such Person and any ERISA Affiliate thereof to exceed the present value of the assetsallocable to such vested benefits by an amount greater than $500,000.00 in the aggregate. Neither of the Borrowers nor any ERISA Affiliate thereof will at anytime permit any such Plan maintained by it to engage in any “prohibited transaction” as such term is defined in Section 4975 of the Code or Section 406 ofERISA, incur any “accumulated funding deficiency” as such term is defined in Section 302 of ERISA, whether or not waived, or terminate any such Plan inany manner which could result in the imposition of a lien on the property of such Borrower or any Guarantor pursuant to Section 4068 of ERISA. Neither ofthe Borrowers will permit any of the Borrowing Base Assets to be “plan assets” within the meaning of ERISA or the Code.§7.16 Interest Cap. From and after the date hereof, the Borrowers shall at all times own and maintain in full force and effect the Interest Cap as requiredby this Agreement. The Borrowers shall upon the request of the Agent provide to the Agent evidence that the Interest Cap is in effect.§7.17 Partnership Pledge; Assignment of Notes; Additional Real Estate.(a) In the event that after the date hereof a Borrower acquires or forms an interest in a Restricted Subsidiary, Borrower shall execute and deliver tothe Agent on behalf of the Lenders a collateral assignment of all of such Borrower’s right, title and interest in such Restricted Subsidiary, such assignment tobe substantially in the form of the Assignment of Interests, with such other changes thereto as may be reasonably required by the Agent.(b) In the event that a Borrower shall have any Investments of the type described in §8.3(k), then as a condition to a Borrower having suchInvestment such Borrower shall execute and deliver to the Agent on behalf of the Lenders a collateral assignment of all of such Borrower’s right, title andinterest in and to the loan documents and other rights and privileges relating thereto, such assignment to be substantially in the form of the SecurityAgreements, with such other changes thereto as may be reasonably required by the Agent.(c) In the event that after the date hereof a Borrower shall acquire any Real Estate or other Real Estate owned by it becomes unencumbered, suchBorrower shall within thirty (30) days of such acquisition deliver to Agent the Collateral Qualification Documents with respect to such Real Estate unless andfor so long as such Real Estate is collateral for other Indebtedness permitted pursuant to §8.1(a)(viii) or §8.1(a)(xvi).(d) The Borrowers shall be permitted to acquire additional Real Estate through a trustee or nominee acting on its behalf. Any indebtedness of suchtrustee or nominee, shall constitute Indebtedness of the Borrowers for the purposes of §8.1(a). Notwithstanding the foregoing, any such Real Estate which isnot collateral for other indebtedness permitted pursuant to §8.1(a)(viii) or §8.1(a)(xvi) shall be required to be pledged as Collateral as provided in §7.17(c)above and shall be subject to the limitations of §7.19(b). If a Borrower shall desire to include within the Borrowing Base any Real Estate owned by a trustee ornominee for such Borrower, such trustee or nominee shall be required to become a Guarantor hereunder. In such 73event, Borrowers shall also enter into such amendments to the Loan Documents as Agent may reasonably require to reflect the inclusion of such nominee ortrustee as a Guarantor and as a party to the applicable Security Documents.§7.18 Business Operations. The Borrowers, the Guarantors and the Borrowers’ Restricted Subsidiaries shall operate their respective businessesgenerally in the same manner as operated since January 1, 2004 and in compliance with the terms and conditions of this Agreement and the Loan Documents.§7.19 Borrowing Base Assets.(a) Each of the Borrowing Base Assets shall be owned one hundred percent (100%) by a Borrower (in fee simple as to Real Estate) and shallsatisfy all of the following conditions:(i) each of the Borrowing Base Assets shall be free and clear of all Liens other than the Liens permitted in §8.2(i), (iii), (iv) and (v);(ii) each of the Borrowing Base Assets shall be encumbered by the Security Documents which shall be a first priority perfected lien andsecurity interest in such Borrowing Base Assets subject to the Liens permitted by §7.19(a)(i);(iii) to the best of the Borrowers’ knowledge and belief, none of the Borrowing Base Assets shall have any material title, survey,environmental or other defects that would give rise to a materially adverse effect as to the value, use of or ability to sell or refinance such property;(iv) [Intentionally Omitted];(v) the Borrowing Base Assets (including Properties Under Construction) which are derived from or are intended to become IncomeProducing Properties shall be utilized (or with respect to Properties Under Construction upon completion will be utilized) principally for office, retail, hotel orlodging facilities, research/industrial, office/warehouse, warehouse/distribution or multifamily rental housing;(vi) the Borrowing Base Assets (other than Properties Under Construction) which are or derive from Income Producing Properties shall be(1) fully operational; and (2) properties for which valid certificates of occupancy or the equivalent for all buildings thereon have been issued and are in fullforce and effect;(vii) with respect to Properties Under Construction, in the event that the aggregate estimated Project Costs for all Properties UnderConstruction is at any time greater than $15,000,000.00, the Borrowers shall have delivered to the Agent the Collateral Qualification Documents relating toeach of such Properties Under Construction (provided that in any event for any Properties Under Construction with respect to which the aggregate estimatedProject Costs do not exceed $15,000,000.00 the Borrowers shall deliver the Collateral Qualification Documents described in clauses(a), (b), (c), (d), (e),(h) and (i) of the definition of Collateral Qualification Documents); and 74(viii) each of such Borrowing Base Assets shall satisfy each other condition in this Agreement and the other Loan Documents applicablethereto.For the avoidance of doubt, no assets of Restricted Subsidiaries or Unrestricted Subsidiaries shall be included in Borrowing Base Assets.(b) Notwithstanding the terms of §7.19(a), Undeveloped Residential Land or Undeveloped Commercial Land may be owned by a trustee ornominee for a Borrower approved by Agent, provided that the Real Estate owned by such trustee or nominee included in the Borrowing Base shall not exceed375 acres in the aggregate or contribute more than $10,000,000.00 to the Borrowing Base.(c) The Borrowers shall provide to the Agent as of the date hereof and concurrently with the delivery of the financial statements described in§7.4(a) or 7.4(b) (i)a list of the Borrowing Base Assets, (ii)the certification of the Principal Financial Officer of each Borrower of the Adjusted Values and thatsuch properties are in compliance with this §7.19 and §9.3, and (iii)that the Borrowing Base Assets comply with the terms of §§6.20 and 6.23. In the eventthat all or any material portion of a property within the Borrowing Base Assets shall be damaged or taken by condemnation, then such property shall no longerbe a part of the Borrowing Base Assets unless and until any damage to such asset is repaired or restored, such asset becomes fully operational and the Agentshall receive evidence satisfactory to the Agent of the Appraised Value of such asset following such repair or restoration.§7.20 [Intentionally Omitted.]§7.21 Distribution of Income to the Borrowers. The Borrowers shall use reasonable and diligent efforts to cause all of their respective RestrictedSubsidiaries to, and shall use reasonable efforts to cause their respective Unrestricted Subsidiaries to, promptly distribute to the Borrowers (but not lessfrequently than once each fiscal quarter of the Borrowers), whether in the form of dividends, distributions or otherwise, all profits, proceeds or other incomerelating to or arising from such Person’s use, operation, financing, refinancing, sale or other disposition of their respective assets and properties after (a)thepayment by each Person of its operating expenses and scheduled debt service for such quarter and (b)the establishment of reasonable reserves for the paymentof operating expenses not paid on at least a quarterly basis and capital improvements to be made to such Person’s assets and properties approved by suchPerson in the ordinary course of business consistent with its past practices.§7.22 More Restrictive Agreements. Without limiting the terms of §8.1, should a Borrower or a Guarantor enter into or modify any agreements ordocuments pertaining to any existing or future Indebtedness or Equity Offering, which agreements or documents include covenants (whether affirmative ornegative) which are individually or in the aggregate more restrictive against a Borrower, a Guarantor or the Restricted Subsidiaries of any Borrower than thoseset forth in §9, the Borrowers shall promptly notify the Agent and, if requested by the Majority Lenders, the Borrowers, the Agent, and the Majority Lendersshall (and if applicable, the Borrowers shall cause the Guarantors to) promptly amend this Agreement and the other Loan Documents to include some or all ofsuch more restrictive provisions as determined by the Majority Lenders in their sole discretion; provided that from and after the satisfaction of any 75such Indebtedness the agreements for which may have contained a more restrictive covenant as provided herein, the Agreement shall no longer be modified as aresult of such covenant contained in the agreement relating to such Indebtedness.§7.23 Associations. The Borrowers will comply in all respects with the terms of all declarations, agreements and other instruments with respect to theAssociations, the failure to comply with would have a material adverse effect on either Borrower, and will cause the Associations to do all things necessary topreserve and keep in full force their respective rights under such declarations, agreements and instruments. Either or both of the Borrowers will at all timesmaintain a controlling interest in the Associations.§7.24 Acquisition of Interest Rate Protection. The Borrowers shall acquire and at all times maintain an interest rate cap, swap, collar or other interestrate protection reasonably acceptable to Agent providing to the Borrowers a cap on one month LIBOR Rate on a notional amount of not less than$100,000,000.00, at a rate not to exceed six and one-half percent (6.5%) per annum, and following the expiration of the currently existing interest cap onAugust 30, 2011, at a rate not to exceed five percent (5.0%) per annum (the “Interest Cap”). The term of the Interest Cap shall not expire before the MaturityDate (without regard to any extension thereof); provided that with the approval of Agent the maturity of the Interest Cap may expire prior to the Maturity Date,and provided further that a replacement Interest Cap satisfying the requirements of this Agreement is delivered to Agent at least fifteen (15) days prior to thetermination of the existing Interest Cap, and Borrower further delivers to Agent such amendments to the Assignment of Hedge and consents to andacknowledgments of such pledge by the provider of the Interest Cap as Agent may reasonably require. The Interest Cap shall be provided by any bank whichis a party to this Credit Agreement or a bank or other financial institution that has unsecured, uninsured and unguaranteed long-term debt which is rated atleast A-3 by Moody’s Investor Service, Inc. or at least A- by Standard & Poor’s Corporation. In connection with the Interest Cap, the Borrowers shall executeand deliver to Agent for the benefit of the Lenders the Assignment of Hedge.§7.25 Condemnation. If any Mortgaged Property or any portion thereof shall be damaged or taken through condemnation (which term, when used inthis Agreement, shall include any damage or taking by any governmental authority, quasi-governmental authority, any party having the power ofcondemnation, or any transfer by private sale in lieu thereof), either temporarily or permanently, then Borrowers promptly upon obtaining knowledge of theinstitution of any proceeding therefor, shall notify Agent of the pendency of such proceeding. Borrowers authorize Agent at Agent’s option (but in no event shallAgent be obligated to), as attorney in fact for Borrowers to commence, appear in and prosecute, in Agent’s or a Borrower’s name, any action or proceedingrelating to any condemnation or other taking of the Mortgaged Property and to settle or compromise any claim in connection with such condemnation or othertaking. Except for condemnation proceeds which are designated by a condemning authority or court of competent jurisdiction as payable to a tenant of anyportion of a Mortgaged Property (other than WECCR) or an owner of any easement encumbering a Mortgaged Property, the proceeds of any award or claim fordamages, direct or consequential, in connection with any condemnation, or other taking of a Mortgaged Property, or part thereof, or for conveyances in lieu ofcondemnation, are hereby assigned and shall be paid to Agent. Borrowers authorize Agent to apply such awards, proceeds or damages, after the deduction ofAgent’s expenses 76incurred in the collection of such amounts, at Agent’s option, to restoration or repair of the Mortgaged Property or to payment of the Obligations, whether or notthen due (and in such order as Agent may determine), with the balance (subject to the terms of this §7.25), if any, to the applicable Borrower.Notwithstanding anything in this §7.25 to the contrary, (a) if the Mortgaged Property subject to such condemnation is Undeveloped Residential Land orUndeveloped Commercial Land, then the applicable Borrower, so long as no Default or Event of Default shall have occurred or be continuing, shall be entitledto settle or compromise any claim in connection with such condemnation or other taking provided further that the aggregate amount involved in such claim isnot excess of $5,000,000.00 and that any award from such condemnation or other taking is deposited in the Disbursement Account of the applicable Borrower.Notwithstanding anything in this §7.25 to the contrary, Agent shall make the net condemnation award available to the applicable Borrower to restore andrepair a Mortgaged Property containing one or more Buildings, in accordance with such terms and conditions as Agent may prescribe for the disbursement ofthe condemnation award to assure completion of such restoration or repair, provided that (a) no Default or Event of Default shall have occurred and becontinuing, (b) the applicable Borrower shall have provided to Agent additional cash security (other than from proceeds of a Loan) in an amount equal to theamount reasonably estimated by the Agent to be the amount in excess of such award which would be required to complete such repair or restoration, (c) Agentshall have approved the plans and specifications for such repair or restoration, (d) the applicable Borrower shall have delivered to Agent written agreementsbinding upon all tenants or other parties having present or future rights to possession of any portion of such Mortgaged Property in excess of 1,000 square feetor having any right to require repair, restoration or completion of the Property or any portion thereof or having any right to terminate any managementagreement, franchise agreement or other agreement relating to or affecting such Mortgaged Property, agreeing upon a date for delivery of possession of suchMortgaged Property or their respective portions thereof, or for such required repair, restoration or completion, to permit time which is sufficient in the judgmentof Agent for such repair or restoration and approving the plans and specifications for such repair or restoration, or other evidence satisfactory to Agent thatnone of such tenants or other parties may terminate their leases or other agreements affecting or relating to such Mortgaged Property as a result of suchcondemnation or taking or have a right to approve the plans and specifications for such repair or restoration, (e) Agent shall determine that following suchrepair or restoration there shall be no more than a ten percent (10%) reduction in occupancy or in rental income or revenues (excluding any proceeds from rentalloss or business interruption insurance or proceeds for such award allocable to rent or revenues from such Mortgaged Property), (f) Agent shall determine thatsuch repair or reconstruction can be completed prior to the Maturity Date, and (g) Agent in its sole discretion shall have determined that such MortgagedProperty can be restored to (i) not less than the fair market value of such Mortgaged Property immediately prior to such taking as determined by Agent and(ii) the utility and substantially similar condition existing immediately prior to such taking, and any excess award may be applied by Agent in its discretion tothe Obligations in such order as Agent may determine. Borrowers agree to execute such further assignment of any awards, proceeds, damages or claims arisingin connection with such condemnation or injury that Agent may reasonably require. 77 §8.CERTAIN NEGATIVE COVENANTS OF THE BORROWERSThe Borrowers covenant and agree that, so long as any Loan or Note is outstanding or any of the Lenders has any obligation to make any Loans:§8.1 Restrictions on Indebtedness.(a) Subject to the provisions of §9, the Borrowers will not, and will not permit any of their respective Restricted Subsidiaries or any of theGuarantors to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than:(i) Indebtedness to the Lenders arising under any of the Loan Documents and the Hedge Obligations;(ii) [Intentionally omitted];(iii) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to theextent that payment therefor shall not at the time be required to be made in accordance with the provisions of §7.8;(iv) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so longas execution is not levied thereunder or in respect of which the applicable Borrower shall at the time in good faith be prosecuting an appeal or proceedings forreview and in respect of which a stay of execution shall have been obtained pending such appeal or review;(v) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary courseof business;(vi) [Intentionally Omitted];(vii) Indebtedness in respect of reverse repurchase agreements having a term of not more than one hundred eighty (180) days with respectto Investments described in §8.3(a), (b) or (e);(viii) recourse Indebtedness of Borrowers and Guarantors not to exceed $100,000,000.00 in the aggregate (excluding the Loans, the HedgeObligations, the Performance Obligations and Indebtedness under §§8.1(a)(i) and the Conference Center Loan pursuant to §8.1(a)(xiv)(A) (but not exceeding$36,100,000.00 with respect to the Conference Center Loan), but including, without limitation, recourse Indebtedness incurred pursuant to §8.1(a)(xiv)(B),§8.1(a)(xv) or §8.1(a)(xvi) (to the extent a claim has been made pursuant to any guaranty or indemnity described therein)), provided that such Indebtednessdoes not cause the Borrowers to fail to comply with the financial covenants contained in §9.2 and §9.5 below after recalculating the interest coverage ratio andFixed Charge Coverage Ratio for the most recent Quarterly Measurement Date on a pro forma basis to give effect to such Indebtedness, and the maximum TotalDebt Ratio permitted by §9.1 is not exceeded; 78(ix) [Intentionally omitted];(x) unsecured Indebtedness in respect of the Partner Subordinated Debt, which is subordinate to the repayment of the Obligationspursuant to the Partner Subordination and Standstill Agreement;(xi) [Intentionally omitted];(xii) [Intentionally omitted];(xiii) unsecured Indebtedness between Commercial Company and Land Company pursuant to the Funding Agreement, which issubordinate to the Obligations pursuant to the Funding Subordination and Standstill Agreement;(xiv) Indebtedness secured solely by the Conference Center (A) which, in connection with the Conference Center Loan may be recourse toBorrowers and Guarantors and shall not, up to a maximum principal amount of not more than $36,100,000.00, be included as recourse Indebtedness for thepurposes of §8.1(a)(viii) above; provided that (B) any readvance, increase or refinancing of the Conference Center Loan that is recourse to either of Borrowersor Guarantors in excess of $36,100,000.00 in principal amount shall be included as recourse Indebtedness for the purposes of §8.1(a)(viii) above;(xv) Indebtedness of Borrowers under guarantees or indemnities with respect to customary non-recourse carve outs approved by Agentrelating to Indebtedness of its Unrestricted Subsidiaries permitted pursuant to §8.1(b)(v); and(xvi) Indebtedness of the Borrowers and their Restricted Subsidiaries (including without limitation obligations under completionguaranties), provided such Indebtedness:(A) does not exceed $225,000,000.00 in the aggregate (which for the purposes hereof shall also include any Indebtedness under§8.1(a)(viii) and §8.1(b)(v));(B) except with respect to any Indebtedness otherwise permitted under §8.1(a)(viii), is incurred solely to finance (1) the acquisitionof additional undeveloped residential land or undeveloped commercial land to be added to the Woodlands Project or (2) the construction by a Borrower or suchRestricted Subsidiary of Vertical Commercial Improvements to the Commercial Land or Residential Land, if applicable, or permanent refinancing thereof (itbeing agreed that the proceeds of a permanent refinancing of such improvements may exceed the amount of the applicable construction loan) or (3) MunicipalUtility District Contracts of such Borrower or Restricted Subsidiary; and(C) except with respect to any Indebtedness otherwise permitted under §8.1(a)(viii), with respect to any property on which VerticalCommercial Improvements are constructed, does not exceed seventy percent (70%) of the fair market value of such property; provided that (1) with respect tothe Speculative Development of Vertical Commercial Improvements on any single parcel of Commercial Land or Residential Land, if applicable, suchIndebtedness incurred for the construction of such Vertical Commercial 79Improvements does not exceed sixty-five percent (65%) of the costs for such development (including the Appraised Value of the subject Commercial Land orResidential Land, if applicable) (in each instance the balance of the acquisition and development costs to be covered by equity), and (2) with respect to thedevelopment of Build-To-Suit Properties, such Indebtedness does not exceed ninety percent (90%) of the costs for such development (including the cost of thesubject Commercial Land or Residential Land, if applicable) (in each instance the balance of the acquisition and development costs to be covered by equity).(b) The Borrowers will not permit any of their respective Unrestricted Subsidiaries to create, incur, assume, guarantee or be or remain liable,contingently or otherwise, with respect to any Indebtedness other than:(i) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extentthat payment therefor shall not at the time be required to be made in accordance with the provisions of §7.8 (assuming for the purposes hereof that §7.8 isapplicable to Unrestricted Subsidiaries);(ii) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so longas execution is not levied thereunder or in respect of which the applicable Unrestricted Subsidiary shall at the time in good faith be prosecuting an appeal orproceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review;(iii) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary courseof business;(iv) Indebtedness in respect of reverse repurchase agreements having a term of not more than one hundred eighty (180) days with respect toInvestments described in §8.3(a), (b) or (e); and(v) Indebtedness of Unrestricted Subsidiaries (including without limitation obligations under completion guaranties), provided suchIndebtedness:(A) does not exceed $225,000,000.00 in the aggregate (which for the purposes hereof shall also include any Indebtedness under§8.1(a)(xvi));(B) [Intentionally omitted];(C) is incurred solely to finance (1) the acquisition of additional undeveloped residential land or undeveloped commercial land to beadded to the Woodlands Project or (2) the construction by such Unrestricted Subsidiary of Vertical Commercial Improvements to the Commercial Land orResidential Land, if applicable, or permanent refinancing thereof (it being agreed that the proceeds of a permanent refinancing of such improvements mayexceed the amount of the applicable construction loan) or (3) Municipal Utility District Contracts of such Unrestricted Subsidiary; and(D) with respect to any property on which Vertical Commercial Improvements are constructed, does not exceed seventy percent(70%) of the fair market value of 80such property; provided that (1) with respect to the Speculative Development of Vertical Commercial Improvements on any single parcel of Commercial Landor Residential Land, if applicable, such Indebtedness incurred for the construction of such Vertical Commercial Improvements does not exceed sixty-fivepercent (65%) of the costs for such development (including the Appraised Value of the subject Commercial Land or Residential Land, if applicable) (in eachinstance the balance of the acquisition and development costs to be covered by equity), and (2) with respect to the development of Build-To-Suit Properties,such Indebtedness does not exceed ninety percent (90%) of the costs for such development (including the cost of the subject Commercial Land or ResidentialLand, if applicable) (in each instance the balance of the acquisition and development costs to be covered by equity).§8.2 Restrictions on Liens, Etc. Each of the Borrowers will not, and will not permit any of its Restricted Subsidiaries or Guarantors to, (a) create orincur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, negative pledge, charge, restriction or other security interest of anykind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (b) transfer any ofits property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any otherobligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or othertitle retention or purchase money security agreement, device or arrangement; (d)suffer to exist for a period of more than sixty (60) days after the same shallhave been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given anypriority whatsoever over its general creditors; (e) pledge or otherwise encumber any accounts, contract rights, general intangibles, chattel paper or instruments,with or without recourse; or (f) incur or maintain any obligation to any holder of Indebtedness of such Borrowers or such Restricted Subsidiary or Guarantorwhich prohibits the creation or maintenance of any lien securing the Obligations (collectively the “Liens”); provided that a Borrower and any RestrictedSubsidiary of a Borrower may create or incur or suffer to be created or incurred or to exist:(i) liens on properties to secure taxes, assessments and other governmental and owner association charges and assessments or claims forlabor, material or supplies in respect of obligations not overdue or which are being contested pursuant to §7.8;(ii) liens on properties other than the Mortgaged Property or any interest therein (including the rents, issues, income and profits therefrom)or any other Collateral in respect of judgments, awards or indebtedness, the Indebtedness with respect to which is permitted by §8.1(a)(iv), §8.1(a)(viii),§8.1(a)(xiv) or §8.1(a)(xvi);(iii) encumbrances on properties consisting of easements, rights of way, zoning restrictions, mineral rights reservations, restrictions on theuse of real property, landlord’s or lessor’s liens under leases to which a Borrower or a Restricted Subsidiary of a Borrower is a party, rights of first refusal orrights of first offer consistent with §6.27, and other minor non-monetary liens or encumbrances none of which interferes materially with the use,marketability or development of the property affected in the ordinary conduct of the business of such Borrower and its Restricted Subsidiaries, whichencumbrances or liens do not individually or in the aggregate have a materially adverse effect on the business of a Borrower individually or of such Borrowerand its Restricted Subsidiaries on a consolidated basis; 81(iv) liens in favor of the Agent and the Lenders under the Loan Documents to secure the Obligations and the Hedge Obligations; and(v) liens and encumbrances on a Mortgaged Property expressly permitted under the terms of the Security Deed relating thereto.§8.3 Restrictions on Investments. Each of the Borrowers will not, and will not permit any of its Restricted Subsidiaries to, make or permit to exist or toremain outstanding any Investment except Investments in:(a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by suchBorrower or its Restricted Subsidiary;(b) marketable direct obligations of any of the following: Federal Home Loan Mortgage Corporation, Student Loan Marketing Association, FederalHome Loan Banks, Federal National Mortgage Association, Government National Mortgage Association, Bank for Cooperatives, Federal Intermediate CreditBanks, Federal Financing Banks, Export Import Bank of the United States, Federal Land Banks, or any other agency or instrumentality of the United Statesof America;(c) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks having total assets in excess of$100,000,000; provided, however, that the aggregate amount at any time so invested with any single bank having total assets of less than $1,000,000,000 willnot exceed $200,000;(d) [Intentionally Omitted];(e) [Intentionally Omitted];(f) repurchase agreements having a term not greater than ninety (90) days and fully secured by securities described in the foregoing subsection (a),(b) or (e) with banks described in the foregoing subsection (c) or with financial institutions or other corporations having total assets in excess of $500,000,000;(g) shares of so called “money market funds” registered with the SEC under the Investment Company Act of 1940 which maintain a level pershare value, invest principally in investments described in the foregoing subsections (a) through (f) and have total assets in excess of $50,000,000;(h) Investments in the Property (excluding Partial Interests) and Restricted Subsidiaries of a Borrower. With the approval of the Majority Lenders,such Investments may be located other than in the Woodlands Project; 82(i) Investments in Unrestricted Subsidiaries of a Borrower, provided the aggregate book value of such Investments does not exceed $35,000,000.00at any time;(j) Subject to the terms of this Agreement, Investments in the construction by Commercial Company or Land Company of new Income ProducingProperties; and(k) Investments in note receivables evidencing seller financing provided by a Borrower in connection with the sale of Land Assets; provided thatin no event shall the aggregate principal amount of such note receivables exceed $10,000,000.00.§8.4 Merger, Consolidation. Each of the Borrowers will not, and will not permit any of its Restricted Subsidiaries to, become a party to any merger,consolidation or other business combination except (i) the merger or consolidation of one or more of the Restricted Subsidiaries of a Borrower with and intosuch Borrower and (ii) the merger or consolidation of two or more Restricted Subsidiaries of a Borrower.§8.5 Sale and Leaseback. Borrowers will not, and will not permit any of their Restricted Subsidiaries to, enter into any arrangement, directly orindirectly, whereby the Borrowers or any Restricted Subsidiary of a Borrower shall sell or transfer any Real Estate owned by it individually or in the aggregatein excess of $12,500,000.00 in order that then or thereafter a Borrower or any Restricted Subsidiary of a Borrower shall lease back such Real Estate.§8.6 Compliance with Environmental Laws. Each of the Borrowers will not, and will not permit any of its Restricted Subsidiaries or any tenants orother occupants of any of the Real Estate, to do any of the following: (a) use any of the Real Estate or any portion thereof as a facility for the handling,processing, storage or disposal of Hazardous Substances, except for small quantities of Hazardous Substances used in the ordinary course of business and incompliance with all applicable Environmental Laws, (b) cause or permit to be located on any of the Real Estate any underground tank or other undergroundstorage receptacle for Hazardous Substances except in full compliance with Environmental Laws, (c) generate any Hazardous Substances on any of the RealEstate except in full compliance with Environmental Laws, (d) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause aRelease of Hazardous Substances on, upon or into the Real Estate or any surrounding properties or any threatened Release of Hazardous Substances whichmight give rise to liability under CERCLA or any other Environmental Law, or (e)directly or indirectly transport or arrange for the transport of any HazardousSubstances (except in compliance with all Environmental Laws).The Borrowers shall:(i) in the event of any change in Environmental Laws governing the assessment, release or removal of Hazardous Substances, whichchange would lead a prudent lender to require additional testing to avail itself of any statutory insurance or limited liability, take all action (including, withoutlimitation, the conducting of engineering tests at the sole expense of the Borrowers) to confirm that no Hazardous Substances are or ever were Released ordisposed of on the Real Estate; and 83(ii) if any Release or disposal of Hazardous Substances shall occur or shall have occurred on the Real Estate (including without limitationany such Release or disposal occurring prior to the acquisition of such Real Estate by a Borrower or its Restricted Subsidiary), cause the prompt containmentand removal of such Hazardous Substances and remediation of the Real Estate in full compliance with all applicable laws and regulations and to thesatisfaction of the Majority Lenders; provided, that the Borrowers shall be deemed to be in compliance with Environmental Laws for the purpose of this clause(ii) so long as it or a responsible third party with sufficient financial resources is taking reasonable action to remediate or manage any event of noncomplianceto the satisfaction of the Majority Lenders and no action shall have been commenced by any enforcement agency. The Majority Lenders may engage their ownEnvironmental Engineer to review the environmental assessments and the Borrowers’ compliance with the covenants contained herein.At any time after an Event of Default shall have occurred hereunder, or, whether or not an Event of Default shall have occurred, at any time that theAgent or the Majority Lenders shall have reasonable grounds to believe that a Release or threatened Release of Hazardous Substances may have occurred,relating to any Real Estate, or that any of the Real Estate is not in compliance with the Environmental Laws, the Agent may at its election (and will at therequest of the Majority Lenders) obtain such environmental assessments of such Real Estate prepared by an Environmental Engineer as may be necessary oradvisable for the purpose of evaluating or confirming (i) whether any Hazardous Substances are present in the soil or water at or adjacent to such Real Estateand (ii) whether the use and operation of such Real Estate comply with all Environmental Laws. Environmental assessments may include detailed visualinspections of such Real Estate including, without limitation, any and all storage areas, storage tanks, drains, dry wells and leaching areas, and the taking ofsoil samples, as well as such other investigations or analyses as are necessary or appropriate for a complete determination of the compliance of such RealEstate and the use and operation thereof with all applicable Environmental Laws. All such environmental assessments shall be at the sole cost and expense ofthe Borrowers.The Agent may, but shall never be obligated to remove or cause the removal of any Hazardous Substances from the Real Estate (or if removal isprohibited by any Environmental Law, take or cause the taking of such other action as is required by any Environmental Law) if the Borrowers fail to complywith their obligation hereunder with respect thereto (without limitation of the Agent’s or the Majority Lenders rights to declare a default under any of the LoanDocuments and to exercise all rights and remedies available by reason thereof); and the Agent and its designees are hereby granted access to the Real Estate atany time or times, upon reasonable notice, and a license which is coupled with an interest and irrevocable, to remove or cause such removal or to take or causethe taking of any such other action. All costs, including, without limitation, the reasonable costs incurred by the Agent in taking the foregoing action,damages, liabilities, losses, claims, expenses (including attorneys’ fees and disbursements) which are incurred by the Agent, as the result of the Borrowers’failure to comply with the provisions of this §8.6, shall be paid by the Borrowers to the Agent upon demand by the Agent and shall be additional obligationssecured by the Security Documents. 84§8.7 Distributions; Payment of Subordinated Debt.(a) Neither of the Borrowers shall pay any Distributions to the partners or other beneficial owners of such Borrower, and no payments ofWoodlands Operating Distributions or Partner Subordinated Debt Payments shall be made, except as permitted in this §8.7.(b) Neither of the Borrowers shall pay any Distribution, nor shall any Woodlands Operating Distributions or Partner Subordinated DebtPayments be made, unless and until Agent shall have received and approved the Compliance Certificate for such period and the calculation of Excess CashFlow for such period (which Compliance Certificate, for the purposes of this §8.7, shall set forth the amount of the proposed Distribution, WoodlandsOperating Distributions and/or Partner Subordinated Debt Payments to be paid and also demonstrate compliance with the terms of §8.7(c) and pro formacompliance with the terms of §8.7(c) after giving effect to such Distributions, Woodlands Operating Distributions and/or Partner Subordinated DebtPayments). Agent shall be deemed to have approved such statement in the event that Agent does not respond within five (5) Business Days of confirmedreceipt of such statement.(c) Notwithstanding the foregoing, no Distributions may be made to any of the partners or other beneficial owners of a Borrower, nor shall anyWoodlands Operating Distributions or Partner Subordinated Debt Payments be made, unless (i) no Default or Event of Default shall have occurred and becontinuing or would exist after giving effect to such Distribution, Woodlands Operating Distribution or Partner Subordinated Debt Payment, as applicable,and (ii) the conditions for either Distribution Level 1 or Distribution Level 2 exist. If the foregoing conditions are satisfied and Distribution Level 1 exists, thenBorrowers shall be permitted to make Distributions, and Woodlands Operating Distributions or Partner Subordinated Debt Payments may be made, providedthat the aggregate amount of such Distributions, Woodlands Operating Distributions and/or Partner Subordinated Debt Payments shall not exceed 50% ofExcess Cash Flow for such prior quarterly period provided that simultaneously with any such Distribution, Woodlands Operating Distribution and/or PartnerSubordinated Debt Payment, Borrowers shall permanently reduce and prepay the Secured Term Loan by an equal dollar-for-dollar amount of the amount sodistributed or paid (which payment shall be in addition to the Stipulated Commitment Reduction Amount). If the foregoing conditions are satisfied andDistribution Level 2 exists, then Borrowers shall be permitted to make such Distributions, and/or Woodlands Operating Distributions and/or PartnerSubordinated Debt Payments may be made, in an amount not to exceed 100% of the Excess Cash Flow for such prior quarterly period, provided that aftergiving effect to any such Distribution, Woodlands Operating Distribution or Partner Subordinated Debt Payment, the Liquidity is greater than the sum of(x) the remaining Project Costs of all Properties under Construction not available from Indebtedness permitted pursuant to §8.1 (other than the Loans) plus(y) $35,000,000.00.(d) [Intentionally Omitted.](e) [Intentionally Omitted.](f) [Intentionally omitted.] 85(g) Notwithstanding the terms of §8.7, the amounts available to be a Distribution to the partners or other beneficial owners of the Borrowersduring any period pursuant to §8.7 shall be reduced on a dollar-for-dollar basis by the amount of the Woodlands Operating Payments during such period.(h) The Agent acknowledges that Land Company shall have the right to request a Revolving Credit Loan in accordance with the terms of §2.6 tofund the Distributions permitted by §8.7(c) above. In addition, the Agent acknowledges and agrees that any funds retained by Borrowers pursuant to this§8.7 may be used to repay any Secured Term Loan or Revolving Credit Loan.(i) Any amounts available for Distribution to a Borrower’s partners or other beneficial owners pursuant to this §8.7 may be distributed withineighteen (18) months following a Quarterly Measurement Date as provided herein, provided that the conditions in this Agreement to the making ofDistributions (including, without limitation, the terms of §8.7(c) which require a simultaneous prepayment of the Secured Term Loans) continue to besatisfied at such time. Any amounts available for Distribution to a Borrower’s partners or other beneficial owners which are not distributed within eighteen(18) months following a Quarterly Measurement Date as provided herein shall be retained by such Borrower either in the Disbursement Account of suchBorrower or in a Permitted Excess Cash Flow Investment and not used for a Distribution to a Borrower’s partners or other beneficial owners, and suchamounts shall be available for any other use permitted under the terms of this Agreement.(j) Amounts retained by the Borrowers pursuant to this Section may be applied by such Borrower toward the payment of any Borrowerexpenditures permitted under the terms of this Agreement; provided, however, that to the extent that any such expenditures so paid qualify as OperatingExpenses, such expenditures shall be deducted when computing Operating Cash Flow for the period in which such expenditures were incurred.(k) Amounts paid under the Funding Agreement as Distributions shall not be counted against the Distributions permitted by this Agreementprovided that such amounts are contributed to the other Borrower and are deposited in the Disbursement Account of the Borrower receiving the same or areinvested in the Borrower receiving the same in Investments permitted pursuant to §8.3(a)-(g) under the control of the Agent.(l) Borrowers shall cause any trustee or nominee acting on behalf of such Borrower to deposit all income of such trustee or nominee into aDisbursement Account of a Borrower.§8.8 Asset Sales. None of the Borrowers or any of the Restricted Subsidiaries of a Borrower or a Guarantor shall sell, transfer or otherwise dispose ofany asset (other than as the result of a condemnation or casualty, the granting of Permitted Liens or the sale of lots for cash in the ordinary course of businessto parties other than any other Borrower, the General Partners, the Second Tier Partners, the Third Tier Partners, a Guarantor, any Restricted Subsidiary ofany Borrower or any Affiliate of any of such Persons) except as follows:(a) any of such Persons may sell any asset in the ordinary course of business for all cash and for fair market value, except that to the extentpermitted by §8.3(k), Land Assets may be seller-financed in lieu of a sale for all cash; 86(b) Commercial Company, Land Company or a Guarantor may sell, transfer or otherwise dispose of Commercial Land or Residential Land toRestricted Subsidiaries of a Borrower for the construction of Vertical Commercial Improvements, provided such sales are (i) for all cash and for fair marketvalue or (ii)an equivalent equity interest in such Restricted Subsidiary; and(c) Commercial Company, Land Company or a Guarantor may sell or transfer Commercial Land or Residential Land to UnrestrictedSubsidiaries of a Borrower and Affiliates for the construction of Vertical Commercial Improvements, provided the aggregate amount of such sales do notexceed $30,000,000.00 in the aggregate in any fiscal year, such sales are for (i) all cash and for fair market value or (ii)an equivalent equity interest in suchUnrestricted Subsidiary; and(d) the Borrowers may sell or transfer Income Producing Property to their respective Restricted Subsidiaries or Unrestricted Subsidiaries orMunicipal Utility District Contracts to their respective Unrestricted Subsidiaries, provided that such sales are (i) for all cash and for fair market value or(ii) subject to §8.3(i), an equivalent equity interest in such Person; and(e) the Borrowers may sell Property other than Commercial Land, Residential Land, Income Producing Property or Municipal Utility DistrictContracts to their respective Restricted Subsidiaries or Unrestricted Subsidiaries, provided that such sales are for all cash and for fair market value; and(f) transfers of assets for all cash and for fair market value between the Borrowers or by Guarantors to Borrowers; provided that the Golf Coursesmay be transferred between the Borrowers other than for cash or for fair market value (provided further that such transfer shall not entitle Borrowers to arelease of such Golf Course from the lien of the Security Documents).Notwithstanding the foregoing, none of such Persons may sell, transfer or dispose or permit the sale, transfer or disposition of any Material Asset orsuch Person’s interest therein without the prior written consent of the Majority Lenders.§8.9 Development. Without the approval of the Majority Lenders, none of the Borrowers nor any of their respective Restricted Subsidiaries orUnrestricted Subsidiaries nor any Guarantor shall engage, directly or indirectly, in the development or construction of real estate other than (a) landdevelopment and the construction by Commercial Company or Land Company of golf courses and (b) the construction by Commercial Company or LandCompany and their respective Restricted Subsidiaries and Unrestricted Subsidiaries of Vertical Commercial Improvements as to which costs of completingsuch Vertical Commercial Improvements on a fully developed basis including land (from borrowings and equity), does not exceed $125,000,000 in theaggregate at any time (provided that Vertical Commercial 87Improvements that are Build-To-Suit Properties which are 100% pre-leased shall not count towards the foregoing $125,000,000 limitation). Notwithstandingthe foregoing, without the approval of the Agent, neither Commercial Company nor Land Company, nor any of their respective Restricted Subsidiaries orUnrestricted Subsidiaries, shall engage directly or indirectly in any Vertical Commercial Improvements that would constitute a Speculative Development;provided further, without the approval of the Majority Lenders, neither Commercial Company nor Land Company nor any of their respective RestrictedSubsidiaries or Unrestricted Subsidiaries shall engage directly or indirectly in any Vertical Commercial Improvements that would constitute a SpeculativeDevelopment which causes at any time the cost of completing such development, on a fully developed basis including land (from borrowings and equity), toexceed $15,000,000 in the aggregate at any time. In addition, without the approval of the Majority Lenders, neither of the Borrowers nor any of their RestrictedSubsidiaries or Unrestricted Subsidiaries shall engage directly or indirectly in any Vertical Commercial Improvements of hotel or lodging facilities. Neither ofthe Borrowers nor any of their Restricted Subsidiaries or Unrestricted Subsidiaries shall engage directly or indirectly in the development of golf courseswithout the prior written consent of Agent.§8.10 Sources of Capital. The Borrowers shall, at all times that a Borrower or any of their respective Restricted Subsidiaries or UnrestrictedSubsidiaries is engaging in any development as provided in §8.9 or has entered into any agreement to provide funds with respect to a development, maintainor have identified available sources of capital from the Borrowers’ Cash, the amount of Revolving Credit Loans available to be borrowed by Land Company,and funds available under construction loans for such purpose equal to the total cost to acquire and complete such developments and to satisfy such fundingobligations reasonably acceptable to Agent.§8.11 Restriction on Prepayment of Indebtedness. None of the Borrowers shall prepay the principal amount, in whole or in part, of any Indebtednessother than the Obligations and the Hedge Obligations after the occurrence of any Event of Default; provided, however, that this §8.11 shall not prohibit theprepayment of Indebtedness which is financed solely from the proceeds of a new loan which would otherwise be permitted by the terms of §8.1.§8.12 Restrictions on Amendments; Transfers. None of the Borrowers shall (a) sell, convey, assign, option, mortgage, pledge, hypothecate, encumberor dispose of any of the Material Agreements (except as permitted in §5.4), except for Liens in favor of the Agent and the Lenders to secure the Obligations, or(b) make a material modification or amendment to or terminate prior to maturity any of the Material Agreements. None of the Borrowers shall amend orterminate the Trust Agreement for the Purchase of Real Property dated to be effective May 1, 2000, as amended September 28, 2000 and November 18, 2004,without the written consent of Agent.§8.13 Transfers. None of the Borrowers shall consent to or otherwise permit any pledge, mortgage, hypothecation or encumbering of any direct orindirect interest in such Borrower except for such transfers or pledges that (until foreclosed or transferred in lieu thereof) do not result in a Change of Control. 88§8.14 Subordinated Debt. Land Company shall be permitted to pay only accrued but unpaid interest on the Partner Subordinated Debt and only at suchtimes and to the extent that the Borrowers are permitted to make Distributions. Without the prior written consent of the Majority Lenders, which consent maybe withheld by the Majority Lenders in their sole and absolute discretion, the Borrowers shall not (i) modify or amend any Partner Subordinated Debt,(ii) prepay, amortize, purchase, retire, redeem or otherwise acquire any Partner Subordinated Debt, or (iii) make any payments on any Partner SubordinatedDebt except as permitted in this §8.14. Provided that no Default or Event of Default exists under §8.7 or this §8.14 and no default, material misrepresentationor breach of warranty has occurred under the Partner Subordination and Standstill Agreement, the Partner Subordinated Debt shall not constitute Indebtednessand payments or accruals of interest thereon shall not constitute Interest Expense. §9.FINANCIAL COVENANTS OF THE BORROWERSThe Borrowers covenant and agree that, so long as any Loan or Note is outstanding or any Lender has any obligation to make any Loans it will complywith the following:§9.1 Liabilities to Market Value Capitalization Ratio. The Borrowers will not, as of each Quarterly Measurement Date occurring on or after the datehereof, permit the ratio of (a) the sum of (i) the aggregate amount of Indebtedness of the Borrowers and their Restricted Subsidiaries (limited to each Borrowers’allocable share thereof) outstanding under notes, bonds, debentures or similar debt instruments plus all guarantees, endorsements or similar contingentobligations individually or in the aggregate in excess of $25,000,000.00 with respect to Indebtedness of other Persons (excluding obligations under completionguaranties, Non-Recourse Indebtedness that is secured by an asset in the event that the Non-Recourse Indebtedness exceeds fifty-five percent (55%) of theAdjusted Value thereof (or if the Adjusted Value of such asset is not determined under this Agreement, then its historic cost (including land value)),Indebtedness permitted under §8.1(a)(x) and §8.1(a)(xiii) and operating leases that will be treated as capital leases under the proposed guidelines of FASB andthe International Accounting Standards Board as described in Exposure Draft: Leases (Topic 840)) (the aggregate amount of Indebtedness described by thisclause (a) being referred to collectively as the “Total Indebtedness”) minus (ii) the amount of Unrestricted Cash and Cash Equivalents in excess of$10,000,000.00 reported in accordance with the terms of this Agreement as of such Quarterly Measurement Date to (b)Total Market Value Capitalization of theBorrowers to exceed the following percentages: Fiscal Quarter Ending on or before: Percentage December 31, 2011 55% Thereafter 50% §9.2 Interest Coverage. The Borrowers will not, as of any Quarterly Measurement Date, permit the sum of (a) the Operating Cash Flow of theBorrowers minus (b) the Non-Recurring Amount for any period of four consecutive fiscal quarters ending on a Quarterly Measurement Date (treated as a singleaccounting period) (the “Test Period”) to be less than 2.25 times the Interest Expense for the Test Period. 89§9.3 Borrowing Base. The Borrowers will not at any time permit (a) the outstanding principal balance of the Revolving Credit Loans and the SecuredTerm Loans as of the date of determination to be greater than (b) the Borrowing Base as determined as of the same date.§9.4 Market Value Net Worth. Borrowers will not, as of each Quarterly Measurement Date occurring on or after the date hereof, permit their aggregateMarket Value Net Worth to be less than $125,000,000.00.§9.5 Fixed Charge Coverage Ratio. The Borrowers will not, as of each Quarterly Measurement Date, permit the Fixed Charge Coverage Ratio to be lessthan 1.50. §10.CLOSING CONDITIONSThe obligations of the Agent and the Lenders to make the initial Loans shall be subject to the satisfaction of the following conditions precedent on orprior to the Closing Date:§10.1 Loan Documents. Each of the Loan Documents (including any amendments to agreements securing or relating to the Original Credit Agreement)shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory tothe Agent. The Agent shall have received a fully executed copy of each such document, except that each Lender requesting a Note shall have received a fullyexecuted counterpart of its Note or Notes. The Agent is authorized on behalf of the Lenders and Agent, as applicable, to execute any amendments to agreementssecuring or relating to the Original Credit Agreement as Agent deems appropriate.§10.2 Certified Copies of Organizational Documents. The Agent shall have received from the Borrowers a copy, certified as of a recent date by theappropriate officer of each State in which each Borrower, the General Partners, the Second Tier Partners, Woodlands Operating or the Guarantors, asapplicable, is organized or in which the Real Estate is located and a duly authorized partner or officer of such Borrower, the General Partners, the Second TierPartners, Woodlands Operating and the Guarantors, as applicable, to be true and complete, of the partnership agreement, corporate charter or otherorganizational documents of such Borrower, the General Partners, the Second Tier Partners, Woodlands Operating and the Guarantors, as applicable (or acertification satisfactory to Agent that there have been no changes to the foregoing items from those provided to the Agent in connection with the execution of theOriginal Credit Agreement), or its qualification to do business, as applicable, as in effect on such date of certification.§10.3 Bylaws; Resolutions. All action on the part of the Borrowers, the General Partners, Woodlands Operating, and the Guarantors necessary for thevalid execution, delivery and performance by the Borrowers, Woodlands Operating and the Guarantors of this Agreement and the other Loan Documents towhich such Person is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Agent shall have beenprovided to the Agent. The Agent shall have received from the General Partners and the Guarantors true copies of their respective bylaws (or a certificationsatisfactory to Agent that 90there have been no changes to the foregoing items from those provided to the Agent in connection with the execution of the Original Credit Agreement) and theresolutions adopted by their respective board of directors authorizing the transactions described herein, each certified by its secretary as of a recent date to betrue and complete.§10.4 Incumbency Certificate; Authorized Signers. The Agent shall have received from the General Partners, Woodlands Operating and the Guarantorsan incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer or partner of the General Partners, Woodlands Operating and theGuarantors and giving the name and bearing a specimen signature of each individual who shall be authorized to sign, in the name and on behalf of the GeneralPartners, Woodlands Operating and the Guarantors, each of the Loan Documents to which such Person is or is to become a party. The Agent shall have alsoreceived from the Borrowers a certificate, dated as of the Closing Date, signed by a duly authorized partner of each Borrower and giving the name andspecimen signature of each individual who shall be authorized to make Loan Requests, and give notices and to take other action on behalf of such Borrowerunder the Loan Documents.§10.5 Opinion of Counsel. The Agent shall have received a favorable opinion addressed to the Lenders and the Agent and dated as of the Closing Date,in form and substance reasonably satisfactory to the Agent, from counsel of the Borrowers, the General Partners, Woodlands Operating and the Guarantors,and counsel in such other states as may be required by the Agent, as to such matters as the Agent shall reasonably request.§10.6 Payment of Fees. The Borrowers shall have paid to the Agent the closing fee pursuant to §4.2.§10.7 [Intentionally omitted.]§10.8 [Intentionally Omitted.]§10.9 Insurance. The Agent shall have received certificates evidencing that the Agent and the Lenders are named as loss payee and additional insured onall policies of insurance as required by this Agreement or the other Loan Documents.§10.10 Performance; No Default. The Borrowers shall have performed and complied with all terms and conditions herein required to be performed orcomplied with by any of them on or prior to the Closing Date, and on the Closing Date there shall exist no Default or Event of Default.§10.11 Representations and Warranties. The representations and warranties made by the Borrowers and the Guarantors in the Loan Documents orotherwise made by or on behalf of the Borrowers, the Guarantors or the Restricted Subsidiaries of the Borrowers in connection therewith or after the datethereof shall have been true and correct in all material respects when made and shall also be true and correct in all material respects on the Closing Date.§10.12 Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documentsshall be reasonably satisfactory to the Agent and the Agent’s Special Counsel in form and substance, and the Agent shall have 91received all information and such counterpart originals or certified copies of such documents and such other certificates, opinions or documents as the Agentand the Agent’s Special Counsel may reasonably require. No proceeding challenging or seeking to enjoin any of the transactions contemplated by the LoanDocuments shall be pending or shall have been threatened.§10.13 Collateral Qualification Documents. The Collateral Qualification Documents for each parcel of Mortgaged Property to be included in theCollateral as of the Closing Date which is not collateral for the Original Credit Agreement shall have been delivered to the Agent at the Borrowers’ expense.Borrowers shall deliver to Agent such updated title reports as Agent may reasonably request, but Borrowers shall not be required to deliver any current surveys(as-built or otherwise) or title policies with respect to the Mortgaged Property included in the Collateral as of the Closing Date.§10.14 Compliance Certificate. A Compliance Certificate dated as of the date of the Closing Date demonstrating compliance with each of the covenantscalculated therein.§10.15 Consents. The Agent shall have received evidence satisfactory to the Agent that all necessary partner consents and other consents required inconnection with the pledge of the Collateral to the Agent for the benefit of the Lenders have been obtained.§10.16 Other Documents. To the extent requested by the Agent, the Agent shall have received executed copies of all material agreements of any naturewhatsoever to which the Borrowers or any of their respective Restricted Subsidiaries is a party affecting or relating to the use, operation, development,construction or management of the Real Estate.§10.17 No Condemnation/Taking. The Agent shall have received written confirmation from the Borrowers that no material condemnation proceedingsare pending or to the Borrowers’ knowledge threatened against any Real Estate or, if any such material proceedings are pending or threatened, identifying thesame and the Real Estate affected thereby and the Agent shall have determined that none of such proceedings is or will be material to the Real Estate affectedthereby.§10.18 Interest Cap. The Agent shall have received evidence satisfactory to Agent that the Borrowers have acquired the Interest Cap.§10.19 Conference Center Loan. The Conference Center Loan shall be extended to October 30, 2012 under terms satisfactory to the Agent.§10.20 [Intentionally Omitted.]§10.21 Other. The Agent shall have reviewed such other documents, instruments, certificates, opinions, assurances, consents and approvals as theAgent or the Agent’s Special Counsel may reasonably have requested. §11.CONDITIONS TO ALL BORROWINGSThe obligations of the Lenders to make any Loan, whether on or after the Closing Date, shall also be subject to the satisfaction of the followingconditions precedent:§11.1 Prior Conditions Satisfied. All conditions set forth in §10 shall continue to be satisfied as of the date upon which any Loan is to be made. 92§11.2 Representations True; No Default. Each of the representations and warranties made by or on behalf of the Borrowers, the Guarantors and theBorrowers’ Restricted Subsidiaries contained in this Agreement, the other Loan Documents or in any document or instrument delivered pursuant to or inconnection with this Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of such Loan,with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Agreementand the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and except tothe extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing.The Agent shall have received a certificate of the Borrowers signed by an authorized officer of each Borrower to such effect.§11.3 No Legal Impediment. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinionof any Lender would make it illegal for such Lender to make such Loan.§11.4 Governmental Regulation. Each Lender shall have received such statements in substance and form reasonably satisfactory to such Lender assuch Lender shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of theFederal Reserve System.§11.5 Proceedings and Documents. All proceedings in connection with the Loan shall be satisfactory in substance and in form to the Agent, and theAgent shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request.§11.6 Borrowing Documents. In the case of any request for a Loan, the Agent shall have received a copy of the request for a Loan required by §2.6 inthe form of Exhibit C-1 or Exhibit C-2 hereto, as applicable, fully completed.§11.7 Future Advances Tax Payment. As a condition precedent to any Lender’s obligations to make any Revolving Credit Loans in excess of anaggregate amount of $100,000,000 (calculated as the sum of all Revolving Credit Loans advanced hereunder without deduction for any repayments of suchRevolving Credit Loans and regardless of whether such Revolving Credit Loans are outstanding at the time of reference hereto), the Borrowers will pay to theAgent any mortgage, recording, intangible, documentary stamp or other similar taxes and charges which the Agent reasonably determines to be payable as aresult of such Revolving Credit Loan to any state or any county or municipality thereof in which the Mortgaged Property is located and deliver to the Agentsuch affidavits or other information which the Agent reasonably determines to be necessary in connection with the payment of such tax, in order to insure thatthe Security Deed secures the Borrowers’ obligation with respect to the Revolving Credit Loans then being requested. The provisions of this §11.7 shall bewithout limitation of the Borrowers’ obligations under other provisions of the Loan Documents, including without limitation §15 hereof. 93 §12.EVENTS OF DEFAULT; ACCELERATION; ETC.§12.1 Events of Default and Acceleration. If any of the following events (“Events of Default” or, if the giving of notice or the lapse of time or both isrequired, then, prior to such notice or lapse of time, “Defaults”) shall occur:(a) either of the Borrowers shall fail to pay any principal of the Loans when the same shall become due and payable, whether at the stated date ofmaturity or any accelerated date of maturity or at any other date fixed for payment;(b) either of the Borrowers shall fail to pay any interest on the Loans or any other sums due hereunder or under any of the other Loan Documents,when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment;(c) either of the Borrowers shall fail to comply with any covenant contained in §7.13, §8.1, §8.2, §8.3, §8.7 and §8.14;(d) either of the Borrowers shall fail to comply with any covenant contained in §9, and such failure shall continue for twenty (20) days afterwritten notice thereof shall have been given to the Borrowers by the Agent (provided that with respect to any failure to comply with §9.2 or §9.5, such failureshall be cured by Borrowers prepaying the Loans as provided in §3.3 to an amount which would have resulted in compliance on a proforma basis with theapplicable covenant based on actual Operating Cash Flow for the Test Period and the average interest payable with respect to the Loans during the Test Period);(e) either of the Borrowers or any of their respective Restricted Subsidiaries or any Guarantor shall fail to perform any other term, covenant oragreement contained herein or in any of the other Loan Documents (other than those specified above in this §12);(f) any representation or warranty made by or on behalf of any Borrower, any Guarantor or any of the Restricted Subsidiaries of a Borrower inthis Agreement or any other Loan Document, or in any report, certificate, financial statement, request for a Loan, or in any other document or instrumentdelivered pursuant to or in connection with this Agreement, any advance of a Loan or any of the other Loan Documents shall prove to have been false in anymaterial respect upon the date when made or deemed to have been made or repeated;(g) any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower shall fail to pay at maturity, or within any applicableperiod of grace, any obligation for borrowed money or credit received or other Indebtedness, or fail to observe or perform any material term, covenant oragreement contained in any agreement by which it is bound, evidencing or securing any such borrowed money or credit received or other Indebtedness for suchperiod of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder toaccelerate the maturity thereof; provided that the events described in this §12.1(g) shall not constitute an Event 94of Default unless such failure to pay or perform, together with other failures to pay or perform, involve singly or in the aggregate recourse obligations forborrowed money or credit received or other Indebtedness totaling in excess of $5,000,000.00 or, with respect to non-recourse obligations for borrowed money orcredit received or other Indebtedness totaling in excess of $15,000,000.00 (except that with respect to Non-Recourse Indebtedness of a Restricted Subsidiary of aBorrower it shall not be an Event of Default hereunder unless the Borrowers’ aggregate equity Investment in all of such Restricted Subsidiaries exceeds$15,000,000.00);(h) any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower, (1)shall make an assignment for the benefit ofcreditors, or admit in writing its general inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for theappointment of a trustee or other custodian, liquidator or receiver of any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borroweror of any substantial part of the assets of any thereof, (2) shall commence any case or other proceeding relating to any of the Borrowers, any Guarantor or anyof the Restricted Subsidiaries of a Borrower under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidationor similar law of any jurisdiction, now or hereafter in effect, or (3)shall take any action to authorize or in furtherance of any of the foregoing;(i) a petition or application shall be filed for the appointment of a trustee or other custodian, liquidator or receiver of any of the Borrowers, anyGuarantor or any of the Restricted Subsidiaries of a Borrower or any substantial part of the assets of any thereof, or a case or other proceeding shall becommenced against any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower under any bankruptcy, reorganization,arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, and any of theBorrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower shall indicate its approval thereof, consent thereto or acquiescence therein orsuch petition, application, case or proceeding shall not have been dismissed within ninety (90) days following the filing or commencement thereof;(j) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating any of the Borrowers, any Guarantoror any of the Restricted Subsidiaries of a Borrower bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order forrelief is entered in respect of any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower, in an involuntary case under federalbankruptcy laws as now or hereafter constituted;(k) there shall remain in force, undischarged, unsatisfied and unstayed, for more than sixty (60) days, whether or not consecutive, anyuninsured final judgment against any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower that, with other outstandinguninsured final judgments, undischarged, against any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower exceeds in theaggregate $5,000,000.00;(l) if (i) any of the Loan Documents shall be canceled, terminated, revoked or rescinded otherwise than in accordance with the terms thereof orwith the express prior written agreement, consent or approval of the Lenders, or (ii) any action at law, suit in equity or other 95legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of any of the Borrowers, any Guarantor or anyof their respective stockholders, partners or beneficiaries, or (iii) any court or any other governmental or regulatory authority or agency of competentjurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal,invalid or unenforceable in accordance with the terms thereof and, with respect to Defaults under this clause (iii) Borrowers do not cure such illegality,invalidity or unenforceability in a manner satisfactory to Agent within ten (10) days of such determination, judgment, order, decree or ruling, as applicable;(m) any dissolution, termination, partial or complete liquidation, merger or consolidation of any of the Borrowers or any Guarantor, or any sale,transfer or other disposition of the assets of any of the Borrowers or any Guarantor, other than as permitted under the terms of this Agreement or the other LoanDocuments;(n) any suit or proceeding shall be filed against any of the Borrowers, any Guarantor or any of their respective assets which in the good faithbusiness judgment of the Majority Lenders after giving consideration to the likelihood of success of such suit or proceeding and the availability of insurance tocover any judgment with respect thereto and based on the information available to them, if adversely determined, would have a materially adverse affect on theability of any of the Borrowers or any Guarantor to perform its obligations under and by virtue of the Loan Documents;(o) any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower shall be indicted for a federal crime, a punishmentfor which could include the forfeiture of any assets of such Person included in the Collateral or the Property;(p) (i) an ERISA Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall beappointed, to administer or to terminate, any Employee Benefit Plan, which ERISA Reportable Event or institution of proceedings is, in the opinion of theMajority Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, and, in the case of an ERISA Reportable Event, thecontinuance of such ERISA Reportable Event unremedied for thirty (30) days after notice of such ERISA Reportable Event pursuant to Section 4043 of ERISAis given or, in the case of institution of proceedings, the continuance of such proceedings for thirty (30) days after commencement thereof, (ii) any EmployeeBenefit Plan shall terminate for purposes of Title IV of ERISA, or (iii) any other event or condition shall occur or exist with respect to an Employee BenefitPlan and in each case in clauses (i) through (iii) above, such event or condition, together with all other such events or conditions, if any, could subject any ofthe Borrowers or any of their respective Restricted Subsidiaries or any Guarantor to any tax, penalty or other liabilities in the aggregate material in relation tothe business, operations, property or financial or other condition of any of the Borrowers, any Guarantor or of a Borrower and its Restricted Subsidiariestaken as a whole;(q) any Guarantor denies that such Guarantor has any liability or obligation under the Guaranty or the Guarantor Contribution Agreement, orshall notify the Agent or any of the Lenders of such Guarantor’s intention to attempt to cancel or terminate the Guaranty or the Guarantor ContributionAgreement, or shall fail to observe or comply with any term, covenant, condition or agreement under the Guaranty or the Guarantor Contribution Agreement; 96(r) a Change of Control shall occur without the prior written approval of all of the Lenders (which consent may be withheld by the Lenders in theirsole and absolute discretion); or(s) any Event of Default, as defined in any of the other Loan Documents, shall occur;then, and in any such event, the Agent may, and upon the request of the Majority Lenders shall, by notice in writing to the Borrowers declare all amountsowing with respect to this Agreement, the Notes and the other Loan Documents to be, and they shall thereupon forthwith become, immediately due and payablewithout presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; provided that in the event ofany Event of Default specified in §12.1(h), §12.1(i) or §12.1(j), all such amounts shall become immediately due and payable automatically and without anyrequirement of notice from any of the Lenders or the Agent.Notwithstanding the foregoing, it shall not be an Event of Default upon the occurrence of any of the events described under §12.1(f), (h), (i) or (j) withrespect to a Restricted Subsidiary or Unrestricted Subsidiary unless the Borrowers’ aggregate equity Investment in all of such Restricted Subsidiaries orUnrestricted Subsidiaries exceeds $15,000,000.00.§12.lA Limitation of Cure Periods.(a) Notwithstanding anything contained in §12.1 to the contrary, (i)no Event of Default shall exist hereunder upon the occurrence of any failuredescribed in §12.1(a) or §12.1(b) in the event that the Borrowers cure such Default within five (5) days following receipt of written notice of such Default,provided, however, that Borrowers shall not be entitled to receive more than two (2) notices in the aggregate pursuant to this clause (i) in any period of threehundred sixty-five (365) days ending on the date of any such occurrence of Default, and provided further that no such cure period shall apply to anypayments due upon the maturity of any of the Obligations, and (ii) no Event of Default shall exist hereunder upon the occurrence of any failure described in§12.1(e) or §12.1(f) in the event that the Borrowers cure such Default within thirty (30) days following receipt of written notice of such Default, or if suchDefault is of such a nature that it cannot be cured within such thirty (30) day period, in the event that Borrowers commence such cure within such thirty(30) day period and thereafter diligently, continuously and in good faith prosecute such cure to completion, and in any event cure such Default within onehundred twenty (120) days following receipt of such written notice of Default. The provisions of clause (ii) shall not pertain to Defaults consisting of a failureto provide insurance as required by §7.7, to any Default consisting of a failure to comply with §7.4(e), to any Default under §§7.13, 8.1, 8.2, 8.3 8.7 and8.14, or to any Default excluded from any provision of cure of Defaults contained in any other of the Loan Documents.(b) Notwithstanding anything in this Agreement or any other Loan Document to the contrary, any reference in this Agreement or any other LoanDocument to “the continuance of a default” or “the continuance of an Event of Default” or any similar phrase shall not create or be deemed to create any righton the part of Borrowers or any other party to cure any default following the expiration of any applicable grace or notice and cure period. 97(c) In the event that a Borrower obtains any knowledge that any representation or warranty made by or on behalf of the Borrowers, the Guarantorsor any Restricted Subsidiaries of a Borrower in this Agreement or any of the other Loan Documents to its knowledge and belief shall be untrue or misleading,the Borrowers shall promptly notify the Agent in writing of the same and shall, within thirty (30) days after learning such representation or warranty is untrueor misleading, take such actions as are required to cause such warranty or representation to be correct.§12.2 Termination of Commitments. If any one or more Events of Default specified in §12.1(h), §12.1(i) or §12.1(j) shall occur, then immediately andwithout any action on the part of the Agent or any Lender any unused portion of the credit hereunder shall terminate and the Lenders shall be relieved of allobligations to make Revolving Credit Loans to Land Company. If any other Event of Default shall have occurred, the Agent, upon the election of the MajorityLenders, may by notice to the Borrowers terminate the obligation to make Revolving Credit Loans to Land Company. No termination under this §12.2 shallrelieve the Borrowers of their obligations to the Lenders arising under this Agreement or the other Loan Documents. Nothing in this §12.2 shall limit or impairthe terms of this Agreement (including §2.1) which provide that the Lenders shall have no obligation to make Revolving Credit Loans upon the occurrence of aDefault or Event of Default.§12.3 Remedies. In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Agent or the Lendersshall have accelerated the maturity of the Loans pursuant to §12.1, the Agent on behalf of the Lenders may, and upon the direction of the Majority Lendersshall, proceed to protect and enforce their rights and remedies under this Agreement, the Notes or any of the other Loan Documents by suit in equity, action atlaw or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other LoanDocuments or any instrument pursuant to which the Obligations are evidenced, including to the full extent permitted by applicable law the obtaining of the exparte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any otherlegal or equitable right. No remedy herein conferred upon the Agent or the holder of any Note or Obligation is intended to be exclusive of any other remedy andeach and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or bystatute or any other provision of law. In the event that all or any portion of the Obligations is collected by or through an attorney-at-law, the Borrowers shall payall reasonable costs of collection including, but not limited to, reasonable attorney’s fees. Notwithstanding the provisions of this Agreement providing that theLoans may be evidenced by multiple Notes in favor of the Lenders, the Lenders acknowledge and agree that only the Agent may exercise any remedies arisingby reason of a Default or Event of Default. In the event an Event of Default shall have occurred and be continuing and the Loans shall have been accelerated,Agent may require that Borrowers obtain a mortgagee’s title insurance policy in the amount of the Outstanding Loans and in such form as the Agent mayreasonably require insuring the first priority of the Security Deeds and that a Borrower holds good and indefeasible fee simple title to such parcel, subject onlyto such encumbrances as shall be approved by the 98Agent and containing such endorsements and reinsurance or co-insurance agreements as Agent may require, and Borrowers shall pay upon demand allpremiums and other charges reasonably necessary in connection with the issuance of such title policy or policies. In the event that Borrowers shall fail to paysuch amount, Agent or the Lenders may advance such amount on behalf of the Borrowers and such amount shall become a part of the Obligations, shall bearinterest at the Default Rate and shall be due and payable upon demand.§12.4 Distribution of Collateral Proceeds. In the event that, following the occurrence or during the continuance of any Event of Default, any monies arereceived in connection with the enforcement of any of the Security Documents, or otherwise with respect to the realization upon any of the Collateral, suchmonies shall be distributed for application as follows:(a) First, to the payment of, or (as the case may be) the reimbursement of, the Agent for or in respect of all reasonable costs, expenses,disbursements and losses which shall have been incurred or sustained by the Agent to protect or preserve the collateral or in connection with the collection ofsuch monies by the Agent, for the exercise, protection or enforcement by the Agent of all or any of the rights, remedies, powers and privileges of the Agentunder this Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Agentagainst any taxes or liens which by law shall have, or may have, priority over the rights of the Agent to such monies;(b) Second, to all other Obligations in such order or preference as the Majority Lenders shall determine; provided, however, that (i) distributionsin respect of such other Obligations shall be made pari passu among Obligations with respect to the Agent’s fee payable pursuant to §4.3 and all otherObligations, (ii) in the event that any Revolving Credit Lender or Secured Term Loan Lender shall have wrongfully failed or refused to make an advance under§2.7 and such failure or refusal shall be continuing, advances made by other Revolving Credit Lenders or Secured Term Loan Lenders, respectively, duringthe pendency of such failure or refusal shall be entitled to be repaid as to principal and accrued interest in priority to the other Obligations described in thissubsection (b), and (iii) Obligations owing to the Lenders with respect to each type of Obligation such as interest, principal, fees and expenses shall be madeamong the Lenders, pro rata; and provided further that the Majority Lenders may in their discretion make proper allowance to take into account anyObligations not then due and payable;(c) Third, to the Hedge Obligations; and(d) Fourth, the excess, if any, shall be returned to the Borrowers or to such other Persons as are entitled thereto. §13.SETOFFRegardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits (general or specific, time or demand,provisional or final, regardless of currency, maturity, or the branch of where such deposits are held) or other sums credited by or due from any of the Lendersto any of the Borrowers or any Guarantor and any securities or other property of any of the Borrowers or any Guarantor in the possession of such Lender maybe 99applied to or set off against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, nowexisting or hereafter arising, of the Borrowers to such Lender. Each of the Lenders agrees with each other Lender that if such Lender shall receive from any ofthe Borrowers or any Guarantor, whether by voluntary payment, exercise of the right of setoff, or otherwise, and shall retain and apply to the payment of theObligations owed to such Lender any amount in excess of its ratable portion of the payments received by all of the Lenders with respect to the Obligations heldby all of the Lenders, such Lender will make such disposition and arrangements with the other Lenders with respect to such excess, either by way ofdistribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Lender receiving in respect of the Obligations held by it itsproportionate payment as contemplated by this Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Lender,such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. §14.THE AGENT§14.1 Authorization. The Agent is authorized to take such action on behalf of each of the Lenders and to exercise all such powers as are hereunder andunder any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto,provided that no duties or responsibilities not expressly assumed herein or therein shall be implied to have been assumed by the Agent. The obligations ofAgent hereunder are primarily administrative in nature, and nothing contained in this Agreement or any of the other Loan Documents shall be construed toconstitute the Agent as a trustee for any Lender or to create any agency or fiduciary relationship. Agent shall act as the contractual representative of the Lendershereunder, and notwithstanding the use of the term “Agent,” it is understood and agreed that the Agent shall not have any fiduciary duties or responsibilities toany Lender by reason of this Agreement or any other Loan Document and is acting as an independent contractor, the duties of which are limited to thoseexpressly set forth in this Agreement and the other Loan Documents. The Borrowers and any other Person shall be entitled to conclusively rely on a statementfrom the Agent that it has the authority to act for and bind the Lenders pursuant to this Agreement and the other Loan Documents.§14.2 Employees and Agents. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take,and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Agreement and the other Loan Documents.§14.3 No Liability. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties norany agent, or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or themhereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error ofjudgment whatsoever, except that the Agent or such other Person, as the case may be, shall be liable for losses due to its willful misconduct or gross negligence. 100§14.4 No Representations. The Agent shall not be responsible for the execution or validity or enforceability of this Agreement, the Notes, any of the otherLoan Documents or any instrument at any time constituting, or intended to constitute, collateral security for the Obligations, or for the value of any suchcollateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Obligations, or for any recitals orstatements, warranties or representations made herein, or any agreement, instrument or certificate delivered in connection therewith or in any of the other LoanDocuments or in any certificate or instrument hereafter furnished to it by or on behalf of any of the Borrowers, any of the General Partners, any of the SecondTier Partners, any of the Third Tier Partners, any of the Restricted Subsidiaries of a Borrower or any Guarantor, or be bound to ascertain or inquire as to theperformance or observance of any of the terms, conditions, covenants or agreements herein or in any other of the Loan Documents. The Agent shall not bebound to ascertain whether any notice, consent, waiver or request delivered to it by any of the Borrowers or any Guarantor or any of the RestrictedSubsidiaries of a Borrower or any holder of any of the Obligations shall have been duly authorized or is true, accurate and complete. The Agent has not madenor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Lenders, with respect to thecreditworthiness or financial condition of any of the Borrowers or any of their respective Restricted Subsidiaries or Unrestricted Subsidiaries or anyGuarantor. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender, and based upon such informationand documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that itwill, independently and without reliance upon the Agent or any other Lender, based upon such information and documents as it deems appropriate at the time,continue to make its own credit analysis and decisions in taking or not taking action under this Agreement and the other Loan Documents. Agent’s SpecialCounsel has only represented Agent and KeyBank in connection with the Loan Documents and the only attorney-client relationship is between Agent’s SpecialCounsel and Agent or KeyBank. Each Lender has been independently represented by separate counsel on all matters regarding the Loan Documents and thegranting and perfecting of liens in the Collateral.§14.5 Payments.(a) A payment by the Borrowers or the Guarantors to the Agent hereunder or under any of the other Loan Documents for the account of any Lendershall constitute a payment to such Lender. The Agent agrees to distribute to each Lender not later than one Business Day after the Agent’s receipt of goodfunds, determined in accordance with the Agent’s customary practices, such Lender’s pro rata share of payments received by the Agent for the account of theLenders except as otherwise expressly provided herein or in any of the other Loan Documents. In the event that the Agent fails to distribute such amountswithin one Business Day as provided above, the Agent shall pay interest on such amount at a rate per annum equal to the Federal Funds Effective Rate fromtime to time in effect.(b) If in the opinion of the Agent the distribution of any amount received by it in such capacity hereunder, under the Notes or under any of theother Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated bya court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, 101each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaidor shall pay over the same in such manner and to such Persons as shall be determined by such court.(c) Notwithstanding anything to the contrary contained in this Agreement or any of the other Loan Documents, any Lender that fails (i) to makeavailable to the Agent its pro rata share of any Loan or (ii) to comply with the provisions of §13 with respect to making dispositions and arrangements with theother Lenders, where such Lender’s share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due andpayable to all of the Lenders, in each case as, when and to the full extent required by the provisions of this Agreement, shall be deemed delinquent (a“Delinquent Lender”) and shall be deemed a Delinquent Lender until such time as such delinquency is satisfied. A Delinquent Lender shall be deemed to haveassigned any and all payments due to it from the Borrowers and the Guarantors, whether on account of outstanding Loans, interest, fees or otherwise, to theremaining nondelinquent Lenders for application to, and reduction of, their respective pro rata shares of all outstanding Loans in accordance with the terms ofthis Agreement. The Delinquent Lender hereby authorizes the Agent to distribute such payments to the nondelinquent Lenders in proportion to their respectivepro rata shares of all outstanding Loans in accordance with the terms of this Agreement. A Delinquent Lender shall be deemed to have satisfied in full adelinquency when and if, as a result of application of the assigned payments to all outstanding Loans of the nondelinquent Lenders or as a result of otherpayments by the Delinquent Lenders to the nondelinquent Lenders, the Lenders’ respective pro rata shares of all outstanding Loans have returned to those ineffect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. In addition to the rights and remedies thatmay be available to the Agent at law and in equity, a Delinquent Lender’s right to participate in the administration of the Loan Documents, including, withoutlimitation, any rights to consent to or direct any action or inaction of the Agent pursuant to this Agreement or otherwise, or to be taken into account in thecalculation of Majority Lenders, Super-Majority Lenders or any matter requiring approval of all of the Lenders, shall be suspended while such Lender is aDelinquent Lender. The provisions of this Section shall apply and be effective regardless of whether an Event of Default occurs and is then continuing, andnotwithstanding (i) any other provision of this Agreement to the contrary or (ii) any instruction of Borrowers as to its desired application of payments. TheAgent shall be entitled to (i) withhold or set off, and to apply to the payment of the obligations of any Delinquent Lender any amounts to be paid to suchDelinquent Lender under this Agreement, (ii) to collect interest from such Lender for the period from the date on which the payment was due at the FederalFunds Effective Fate, for each day during such period, and (iii) bring an action or suit against such Delinquent Lender in a court of competent jurisdiction torecover the defaulted obligations of such Delinquent Lender and, to the extent such recovery would not fully compensate the Lenders for the DelinquentLender’s breach of this Agreement, to collect damages. In addition, the Delinquent Lender shall indemnify, defend and hold Agent and each of the otherLenders harmless from and against any and all claims, actions, liabilities, damages, costs and expenses (including attorneys’ fees and expenses), plus interestthereon at the Default Rate, for funds advanced by Agent or any other Lender on account of the Delinquent Lender or any other damages such Persons maysustain or incur by reason of or as a direct consequence of the Delinquent Lender’s failure or refusal to abide by its obligations under this Agreement. 102§14.6 Holders of Notes. Subject to the terms of Article 18, the Agent may deem and treat the payee of any Obligation and any Note as the absolute owneror purchaser thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder,assignee or transferee.§14.7 Indemnity. THE LENDERS RATABLY AGREE HEREBY TO INDEMNIFY AND HOLD HARMLESS THE AGENT FROM ANDAGAINST ANY AND ALL CLAIMS, ACTIONS AND SUITS (WHETHER GROUNDLESS OR OTHERWISE), LOSSES, DAMAGES,COSTS, EXPENSES (INCLUDING ANY EXPENSES FOR WHICH THE AGENT HAS NOT BEEN REIMBURSED BY THE BORROWERSAS REQUIRED BY §15), AND LIABILITIES OF EVERY NATURE AND CHARACTER ARISING OUT OF OR RELATED TO THISAGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED OREVIDENCED HEREBY OR THEREBY, OR THE AGENT’S ACTIONS TAKEN HEREUNDER OR THEREUNDER, EXCEPT TO THEEXTENT THAT ANY OF THE SAME SHALL BE DIRECTLY CAUSED BY THE AGENT’S WILLFUL MISCONDUCT OR GROSSNEGLIGENCE. LENDERS AGREE THAT THE INDEMNIFICATION OF AGENT BY LENDERS SET FORTH IN THIS §14.7 INCLUDESINDEMNIFICATION IN THE EVENT OF ORDINARY NEGLIGENCE ON THE PART OF AGENT BUT DOES NOT INCLUDEINDEMNIFICATION OF AGENT FOR AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.§14.8 Agent as Lender. In its individual capacity, KeyBank shall have the same obligations and the same rights, powers and privileges in respect to itsCommitment and the Loans made by it, and as the holder of any of the Obligations and Notes, if any, as it would have were it not also the Agent.§14.9 Resignation; Removal. The Agent may resign at any time by giving thirty (30) calendar days’ prior written notice thereof to the Lenders and theBorrowers; provided, however, that unless a Default or Event of Default shall have occurred and be continuing, no such resignation shall be permitted withoutBorrowers’ consent, such consent not to be unreasonably conditioned, withheld or delayed. The Majority Lenders may remove the Agent in the event of theAgent’s gross negligence or willful misconduct. Upon any such resignation or removal, the Majority Lenders, subject to the terms of §18.1, shall have theright to appoint as a successor Agent any Lender or any bank whose senior debt obligations are rated not less than “A3” or its equivalent by Moody’s InvestorsService, Inc. or not less than “A-” or its equivalent by Standard & Poor’s corporation and which has a net worth of not less than $500,000,000. Any suchresignation or removal shall be effective upon appointment and acceptance of a successor agent selected by the Majority Lenders. If no successor Agent shallhave been appointed and shall have accepted such appointment, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shallbe a bank whose debt obligations are rated not less than “A3” or its equivalent by Moody’s Investors Service, Inc. or not less than “A-” or its equivalent byStandard & Poor’s Corporation and which has a net worth of not less than $500,000,000. Unless a Default or Event of Default shall have occurred and becontinuing, such successor Agent shall be reasonably acceptable to the Borrowers. Upon the acceptance of any appointment as Agent hereunder by a successorAgent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent,and the 103retiring or removed Agent shall be discharged from its duties and obligations hereunder as Agent. After any retiring Agent’s resignation or the removal of anyAgent, the provisions of this Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to betaken by it while it was acting as Agent.§14.10 Duties in the Case of Enforcement. In case one or more Events of Default have occurred and shall be continuing, and whether or not accelerationof the Obligations shall have occurred, the Agent may and shall, if so requested by the Majority Lenders and the Lenders have provided to the Agent suchadditional indemnities and assurances against expenses and liabilities as the Agent may reasonably request, proceed to exercise all or any legal and equitableand other rights or remedies as it may have. The Majority Lenders may direct the Agent in writing as to the method and the extent of any such exercise, theLenders hereby agreeing to indemnify and hold the Agent harmless from all liabilities incurred in respect of all actions taken or omitted in accordance withsuch directions, provided that the Agent need not comply with any such direction to the extent that the Agent reasonably believes the Agent’s compliance withsuch direction to be unlawful or commercially unreasonable in any applicable jurisdiction.§14.11 Reliance on Hedge Provider. For purposes of applying payments received in accordance with §12.4, the Agent shall be entitled to rely upon thetrustee, paying agent or other similar representative (each, a “Representative”) or, in the absence of such a Representative, upon the holder of the HedgeObligations for a determination (which each holder of the Hedge Obligations agrees (or shall agree) to provide upon request of the Agent) of the outstandingHedge Obligations owed to the holder thereof. Unless it has actual knowledge (including by way of written notice from such holder) to the contrary, the Agent,in acting hereunder, shall be entitled to assume that no Hedge Obligations are outstanding.§14.12 Co-Agents. The Lead Arranger and Syndication Agent shall not have any additional rights or obligations under the Loan Documents, except forthose rights, if any, as a Lender.§14.13 Request for Agent Action. Agent and the Lenders acknowledge that in the ordinary course of business of the Borrowers, (a)Borrowers may enterinto leases covering the Collateral that may require the execution of a subordination, attornment and non-disturbance agreement in favor of the tenantthereunder, (b)the Collateral may be subject to a condemnation or other taking, (c)Borrower may desire to enter into easements or other agreements affecting theCollateral, record a subdivision plat, dedicate roads or utilities, or take other actions or enter into other agreements in the ordinary course of business whichsimilarly require the consent, approval or agreement of the Agent. In connection with the foregoing, the Lenders hereby expressly authorize the Agent to(w)execute and deliver to the Borrower subordination, attornment and non-disturbance agreements with any tenant under a lease upon such terms as Agent inits good faith judgment determines are appropriate (Agent in the exercise of its good faith judgment may agree to allow some or all of the casualty,condemnation, restoration or other provisions of the applicable lease to control over the applicable provisions of the Loan Documents), (x)execute releases ofliens of Mortgaged Property as permitted in this Agreement or in connection with any condemnation or other taking, (y)execute consents or subordinations inform and substance satisfactory to Agent in connection with any easements, agreements, plats, dedications or similar matters affecting the Collateral, or(z)execute consents, approvals, or other agreements in form 104and substance satisfactory to the Agent in connection with such other actions or agreements as may be necessary in the ordinary course of Borrowers’business. Without limiting the foregoing, the Agent may delegate to the Title Insurance Company pursuant to the Tri-Party Agreement the right to executecertain consents on behalf of Agent and the Lenders as described in §5.5.§14.14 [Intentionally omitted.]§14.15 Bankruptcy. In the event a bankruptcy or other insolvency proceeding is commenced by or against any Borrower or Guarantor, the Agent shallhave the sole and exclusive right to file and pursue a joint proof claim on behalf of all Lenders. Each Lender irrevocably waives its right to file or pursue aseparate proof of claim in any such proceedings.§14.16 Lender Intercreditor Agreement. The Agent and the Lenders acknowledge and agree that the Intercreditor Agreement (Senior Loan) datedNovember 30, 2004 among Agent and the lenders a party thereto continues in effect and that this Agreement constitutes the “Credit Agreement” referencedtherein. To the extent there is any Lender which is not a party to such Intercreditor Agreement, such Lender joins therein as a party thereto and assumes allobligations of a Lender thereunder and confirms the representations and warranties of a Lender thereunder. §15.EXPENSESThe Borrowers agree to pay (a) the reasonable costs of producing and reproducing this Agreement, the other Loan Documents and the other agreementsand instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Agent or any of the Lenders, includingany recording, mortgage, documentary or intangibles taxes in connection with the Security Deeds and other Loan Documents, or other taxes payable on or withrespect to the transactions contemplated by this Agreement (other than taxes based upon the Agent’s or any Lender’s gross or net income, except that the Agentand the Lenders shall be entitled to indemnification for any and all amounts paid by them in respect of taxes based on income or other taxes assessed by anyState in which Mortgaged Property or other Collateral is located, such indemnification to be limited to taxes due solely on account of the granting of Collateralunder the Security Documents and to be net of any credit allowed to the indemnified party from any other State on account of the payment or incurrence ofsuch tax by such indemnified party), including any such taxes payable by the Agent or any of the Lenders after the Closing Date (the Borrowers herebyagreeing to indemnify the Agent and each Lender with respect thereto), (c) all appraisal fees, engineer’s fees, charges for commercial finance exams andengineering and environmental reviews (provided that to the extent permitted under applicable laws and regulations, the Lenders shall rely upon reports ofengineering and environmental consultants previously retained by Borrowers so that duplication of consultant’s expenses is avoided where possible) and thereasonable fees, expenses and disbursements of the counsel to the Agent, counsel for KeyBank and any local counsel to the Agent incurred in connection withthe performance of due diligence and the preparation, negotiation, administration or interpretation of the Loan Documents and other instruments mentionedherein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder, (d) the reasonable out-of-pocket fees,expenses and disbursements of the Agent incurred by the Agent in connection with the performance of due diligence, underwriting analysis, credit reviews,executing releases and consents, and the preparation, negotiation, 105administration or interpretation of the Loan Documents and other instruments mentioned herein, credit and collateral evaluations, and the making of eachadvance hereunder, (e) all reasonable out of pocket expenses (including reasonable attorneys’ fees and costs, which attorneys may be employees of any Lenderor the Agent and the fees and costs of appraisers, engineers, investment bankers or other experts retained by any Lender or the Agent) incurred by any Lenderor the Agent in connection with (i) the enforcement of or preservation of rights under any of the Loan Documents against any of the Borrowers, any Guarantoror any other Person or the administration thereof after the occurrence of a Default or Event of Default, (ii) the sale of, collection from or other realization uponany of the Collateral, (iii) the failure of any of the Borrowers or any Guarantor to perform or observe any provision of the Loan Documents, and (iv) anylitigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to the Agent’s or any of the Lender’s relationship with any of theBorrowers or any Guarantor, (f) all reasonable fees, expenses and disbursements of the Agent incurred in connection with UCC searches, UCC filings, titlerundowns, title searches or mortgage recordings, and (g) all reasonable attorneys’ fees and costs which may be incurred by KeyBank in connection with eachand every assignment of interests in the Loans pursuant to §18.1 or sale of participations pursuant to §18.4. The covenants of this §15 shall survivepayment or satisfaction of payment of the Obligations. §16.INDEMNIFICATIONTHE BORROWERS AGREE TO INDEMNIFY AND HOLD HARMLESS THE AGENT AND THE LENDERS AND EACHDIRECTOR, OFFICER, EMPLOYEE, AGENT AND PERSON WHO CONTROLS THE AGENT OR ANY LENDER FROM AND AGAINSTANY AND ALL CLAIMS, ACTIONS AND SUITS, WHETHER GROUNDLESS OR OTHERWISE, AND FROM AND AGAINST ANY ANDALL LIABILITIES, LOSSES, DAMAGES AND EXPENSES OF EVERY NATURE AND CHARACTER ARISING OUT OF OR RELATINGTO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY ANDTHEREBY INCLUDING, WITHOUT LIMITATION, (A) ANY LEASING FEES AND ANY BROKERAGE, FINDERS OR SIMILAR FEESASSERTED AGAINST ANY PERSON INDEMNIFIED UNDER THIS §16 BASED UPON ANY AGREEMENT, ARRANGEMENT ORACTION MADE OR TAKEN, OR ALLEGED TO HAVE BEEN MADE OR TAKEN, BY ANY OF THE BORROWERS, ANY OF THEGENERAL PARTNERS, ANY OF THE SECOND TIER PARTNERS, ANY OF THE THIRD TIER PARTNERS, ANY GUARANTOR OR ANYOF THE RESTRICTED SUBSIDIARIES OF A BORROWER, (B) ANY CONDITION, USE, OPERATION OR OCCUPANCY OF THEMORTGAGED PROPERTY OR OTHER COLLATERAL FIRST OCCURRING PRIOR TO THE AGENT OR THE LENDERS OR THEIRNOMINEE ACQUIRING TITLE TO THE MORTGAGED PROPERTY OR OTHER COLLATERAL BY THE EXERCISE OF ITSFORECLOSURE REMEDIES OR BY DEED IN LIEU OF FORECLOSURE, (C)ANY ACTUAL OR PROPOSED USE BY A BORROWER OFTHE PROCEEDS OF ANY OF THE LOANS, (D) ANY ACTUAL OR ALLEGED INFRINGEMENT OF ANY PATENT, COPYRIGHT,TRADEMARK, SERVICE MARK OR SIMILAR RIGHT OF ANY OF THE BORROWERS, ANY OF THE GENERAL PARTNERS, ANY OFTHE SECOND TIER PARTNERS, ANY OF THE THIRD TIER PARTNERS, ANY GUARANTOR OR ANY OF THE RESTRICTED 106SUBSIDIARIES OF A BORROWER COMPRISED IN THE COLLATERAL, (E) THE BORROWERS AND THE GUARANTORS ENTERINGINTO OR PERFORMING THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, (F)ANY ACTUAL OR ALLEGEDVIOLATION OF ANY LAW, ORDINANCE, CODE, ORDER, RULE, REGULATION, APPROVAL, CONSENT, PERMIT OR LICENSERELATING TO THE MORTGAGED PROPERTY OR THE OTHER COLLATERAL WHICH VIOLATION FIRST OCCURRED PRIOR TOTHE AGENT OR THE LENDERS OR THEIR NOMINEE ACQUIRING TITLE TO THE MORTGAGED PROPERTY OR APPLICABLECOLLATERAL BY THE EXERCISE OF ITS FORECLOSURE REMEDIES OR BY DEED IN LIEU OF FORECLOSURE, (G) ANY USE OFSYNDTRAK, INTRALINKS OR OTHER SERVICE FOR THE DISSEMINATION OF DOCUMENTS OR INFORMATION, OR (H) WITHRESPECT TO EACH OF THE BORROWERS, EACH OF THE GENERAL PARTNERS, EACH OF THE SECOND TIER PARTNERS,EACH OF THE THIRD TIER PARTNERS, EACH OF THE GUARANTORS AND THE RESTRICTED SUBSIDIARIES OF EACHBORROWER AND THEIR RESPECTIVE PROPERTIES AND ASSETS, THE VIOLATION OF ANY ENVIRONMENTAL LAW, THERELEASE OR THREATENED RELEASE OF ANY HAZARDOUS SUBSTANCES OR ANY ACTION, SUIT, PROCEEDING ORINVESTIGATION BROUGHT OR THREATENED WITH RESPECT TO ANY HAZARDOUS SUBSTANCES (INCLUDING, BUT NOTLIMITED TO CLAIMS WITH RESPECT TO WRONGFUL DEATH, PERSONAL INJURY OR DAMAGE TO PROPERTY), FIRSTOCCURRING PRIOR TO THE AGENT OR THE LENDERS OR THEIR NOMINEE ACQUIRING TITLE TO THE MORTGAGEDPROPERTY BY THE EXERCISE OF ITS FORECLOSURE REMEDIES OR BY DEED IN LIEU OF FORECLOSURE, IN EACH CASEINCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALLOCATED COSTSOF INTERNAL COUNSEL INCURRED IN CONNECTION WITH ANY SUCH INVESTIGATION, LITIGATION OR OTHER PROCEEDING;PROVIDED, HOWEVER, THAT THE BORROWERS SHALL NOT BE OBLIGATED UNDER THIS §16 TO INDEMNIFY ANY PERSONFOR LIABILITIES ARISING FROM SUCH PERSON’S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IN LITIGATION, ORTHE PREPARATION THEREFOR, THE LENDERS AND THE AGENT SHALL BE ENTITLED TO SELECT A SINGLE LAW FIRM ASTHEIR OWN COUNSEL AND, IN ADDITION TO THE FOREGOING INDEMNITY, THE BORROWERS AGREE TO PAY PROMPTLY THEREASONABLE FEES AND EXPENSES OF SUCH COUNSEL. IF, AND TO THE EXTENT THAT THE OBLIGATIONS OF THEBORROWERS UNDER THIS §16 ARE UNENFORCEABLE FOR ANY REASON, THE BORROWERS HEREBY AGREE TO MAKE THEMAXIMUM CONTRIBUTION TO THE PAYMENT IN SATISFACTION OF SUCH OBLIGATIONS WHICH IS PERMISSIBLE UNDERAPPLICABLE LAW. THE PROVISIONS OF THIS §16 SHALL SURVIVE THE REPAYMENT OF THE LOANS AND THE TERMINATIONOF THE OBLIGATIONS OF THE LENDERS HEREUNDER. BORROWERS AGREE THAT THE INDEMNIFICATION OF AGENT ANDTHE LENDERS BY BORROWERS SET FORTH IN THIS §16 INCLUDES INDEMNIFICATION IN THE EVENT OF ORDINARYNEGLIGENCE ON THE PART OF AGENT AND THE LENDERS BUT DOES NOT INCLUDE INDEMNIFICATION OF 107AGENT AND THE LENDERS FOR AGENT’S OR SUCH LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR AGENT’SOR LENDER’S BREACH OF THE TERMS OF THE LOAN DOCUMENTS. §17.SURVIVAL OF COVENANTS, ETC.All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any documents or otherpapers delivered by or on behalf of any of the Borrowers, any Guarantor or any of the Restricted Subsidiaries of a Borrower pursuant hereto or thereto shall bedeemed to have been relied upon by the Lenders and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shallsurvive the making by the Lenders of any of the Loans, as herein contemplated, and shall continue in full force and effect so long as any amount due underthis Agreement or the Notes or any of the other Loan Documents remains outstanding or any Lender has any obligation to make any Loans. Theindemnification obligations of the Borrowers provided herein and the other Loan Documents shall survive the full repayment of amounts due and thetermination of the obligations of the Lenders hereunder and thereunder to the extent provided herein and therein. All statements contained in any certificate orother paper delivered to any Lender or the Agent at any time by or on behalf of any of the Borrowers or any Guarantor or any of the Restricted Subsidiaries of aBorrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrowers, theGuarantors or such Restricted Subsidiary hereunder. §18.ASSIGNMENT AND PARTICIPATION§18.1 Conditions to Assignment by Lenders. Except as provided herein, each Lender may assign to one or more banks or other entities all or a portionof its interests, rights and obligations under this Agreement (including all or a portion of its Commitment Percentage and Commitment and the same portion ofthe Loans at the time owing to it, and the Notes, if any, held by it); provided that (a) the Agent and the Borrowers shall have given their prior written consent tosuch assignment, which consent shall not be unreasonably withheld (provided that such consent shall not be required for any assignment to another Lender,to the parent of such Lender, to a wholly-owned subsidiary of such Lender, or to a Related Fund of such Lender, provided that such assignee shall remain aparent, a wholly-owned subsidiary or Related Fund of such Lender, as applicable, and provided further Borrowers shall be deemed to have consented theretounless they shall have objected in writing thereto no later than five (5) Business Days after notice thereof, and provided further that the consent of Borrowersshall not be required if a Default or Event of Default has occurred and is continuing), (b) each such assignment shall be of a constant, and not a varying,percentage of all the assigning Lender’s rights and obligations under this Agreement, (c) the parties to such assignment shall execute and deliver to the Agent,for recording in the Register (as hereinafter defined), a notice of such assignment, together with any Notes subject to such assignment, (d) such assignee shallbe an Eligible Assignee, (e) such assignee of a portion of the Revolving Credit Loans shall have a net worth or unfunded capital commitments as of the date ofsuch assignment of not less than $200,000,000.00 unless such requirement is waived in writing by the Borrowers and the Agent, (f) such assignment issubject to the terms of any intercreditor agreement among the Lenders and the Agent, (g) such assignee shall acquire an interest in the Revolving Credit Loansof not less than $5,000,000.00 or in the 108Secured Term Loans of not less than $5,000,000.00, as applicable unless such assignment is to another Lender or a Related Fund of such Lender or, if less,such assignment represents the entire remaining Revolving Credit Commitment or Secured Term Loan Commitment, as applicable, of the assigning Lender, orunless such requirement is waived by the Borrowers and Agent, (h) such assignment shall be of an equal percentage of such assignee’s Revolving CreditCommitment, in the event an interest in the Revolving Credit Loans is assigned, and an equal percentage of such assignee’s Commercial Company SecuredTerm Loan Commitment and Land Company Secured Term Loan Commitment, in the event an interest in the Secured Term Loans is assigned, and (i)theassignee and assignor execute and deliver to Agent an Assignment and Acceptance Agreement in the form of Exhibit F attached hereto and made a part hereof.The Lenders shall endeavor to assign Commitments only to Lenders that are not subject to withholding as provided in §4.4(b). Upon such execution, delivery,acceptance and recording, of such notice of assignment, (i)the assignee thereunder shall be a party hereto and all other Loan Documents executed by theLenders and, to the extent provided in such assignment, have the rights and obligations of a Lender hereunder, (ii) the assigning Lender shall, to the extentprovided in such assignment and upon payment to the Agent of the registration fee referred to in §18.2, be released from its obligations under this Agreement,and (iii) the Agent may unilaterally amend Schedule 1.1 to reflect such assignment. In connection with each assignment, the assignee shall represent andwarrant to the Agent, the assignor and each other Lender as to whether such assignee is an Eligible Assignee. Notwithstanding anything herein to the contrary,in the event that any Lender acting as Agent shall assign all or any portion of its Commitment and as a result thereof its Commitment is less than$15,000,000.00, then such Lender shall promptly provide written notice thereof to the Lenders and the Majority Lenders (excluding the Lender acting as Agent)shall have the right, to be exercised within fifteen (15) days of delivery of such notice by such Lender acting as Agent, to elect to remove such Lender as Agentand replace such Lender as Agent, subject to the terms of §14.9.§18.2 Register. The Agent for itself and on behalf of the Borrowers shall maintain a copy of each assignment delivered to it and a register or similar list(the “Register”) for the recordation of the names and addresses of the Lenders and the Commitment Percentages of, and principal amount of the Loans owing tothe Lenders from time to time. Transfers of any Commitment shall be effective upon recording in the Register. The entries in the Register shall be conclusive,in the absence of manifest error, and the Borrowers, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lenderhereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers and the Lenders at any reasonable time and fromtime to time upon reasonable prior notice. Upon each such recordation, the assigning Lender agrees to pay to the Agent a registration fee in the sum of$5,000.00. Contemporaneous assignments by a Lender to multiple assignees will be treated as a single assignment for the purposes of such registration fee.§18.3 New Notes. Upon its receipt of an assignment executed by the parties to such assignment, together with each Note, if any, subject to suchassignment, the Agent shall (a) record the information contained therein in the Register, and (b) give prompt notice thereof to the Borrowers and the Lenders(other than the assigning Lender). Within five (5) Business Days after receipt of such notice, the Borrowers, at their own expense, shall, if requested by theassignee or assignor as provided below, execute and deliver to the Agent, in exchange for each surrendered Note, a new Note to the order of such assignee in anamount equal to the amount 109assumed by such assignee pursuant to such assignment and, if the assigning Lender has retained some portion of its obligations hereunder, a new Note to theorder of the assigning Lender in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for thesurrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective dateof such assignment and shall otherwise be in substantially the form of the assigned Notes. The surrendered Notes, if any, shall be canceled and returned to theBorrowers.§18.4 Participations. Each Lender may sell participations to one or more banks or other entities in all or a portion of such Lender’s rights andobligations under this Agreement and the other Loan Documents; provided that (a)any such sale or participation shall not affect the rights and duties of theselling Lender hereunder to the Borrowers, (b)such participation shall not entitle such participant to any rights or privileges under this Agreement or the LoanDocuments, including, without limitation, the right to approve waivers, amendments or modifications, (c)such participant shall have no direct rights againstany of the Borrowers or any Guarantor except the rights granted to the Lenders pursuant to §13, (d)such sale is effected in accordance with all applicablelaws, and (e)such participant shall not be a Person controlling, controlled by or under common control with, or which is not otherwise free from influence orcontrol by, any of the Borrowers or any Guarantor.§18.5 Pledge by Lender. Any Lender may at any time pledge all or any portion of its interest and rights under this Agreement (including all or anyportion of its Note) to any of the twelve Federal Reserve Banks organized under §4 of the Federal Reserve Act, 12 U.S.C. §341 or to any Federal Home LoanBank. Any Secured Term Loan Lender may with the consent of the Agent pledge all or any portion of its interests and rights under this Agreement (includingall or any portion of its Note) to a Person approved by the Agent. No such pledge or the enforcement thereof shall release the pledgor Lender from its obligationshereunder or under any of the other Loan Documents.§18.6 No Assignment by Borrowers. Neither of the Borrowers shall assign or transfer any of its rights or obligations under any of the Loan Documentswithout the prior written consent of each of the Lenders.§18.7 Cooperation; Disclosure. The Borrowers agree to promptly cooperate with any Lender in connection with any proposed assignment orparticipation of all or any portion of its Commitment. The Borrowers agree that in addition to disclosures made in accordance with standard banking practicesany Lender may disclose information obtained by such Lender pursuant to this Agreement to assignees or participants and potential assignees or participantshereunder, provided that any potential assignee or participant hereunder shall execute and deliver to Agent and the Borrowers a confidentiality agreement insubstantially the form of Exhibit G hereto as a condition to the receipt of any financial statements or other reports delivered by the Borrowers to the Agenthereunder. In addition, the Lenders may make disclosure of such information to any contractual counterparty in swap agreements or such contractualcounterparty’s professional advisors (so long as such contractual counterparty or professional advisors to such contractual counterparty agree to be bound bythe provisions of this §18.7). 110§18.8 Mandatory Assignment. In the event Borrowers request that certain amendments, modifications or waivers be made to this Agreement or any ofthe other Loan Documents which request is approved by Agent but is not approved by one or more of the Lenders (any such non-consenting Lender shallhereafter be referred to as the “Non-Consenting Lender”), then, within thirty (30) days after Borrowers’ receipt of notice of such disapproval by such Non-Consenting Lender, Borrowers shall have the right as to such Non-Consenting Lender, to be exercised by delivery of written notice delivered to the Agent andthe Non-Consenting Lender within thirty (30) days of receipt of such notice, to elect to cause the Non-Consenting Lender to transfer its Commitment. TheAgent shall promptly notify the remaining Lenders that each of such Lenders shall have the right, but not the obligation, to acquire a portion of theCommitment, pro rata based upon their relevant Commitment Percentages, of the Non-Consenting Lender (or if any of such Lenders does not elect to purchaseits pro rata share, then to such remaining Lenders in such proportion as approved by the Agent). In the event that the Lenders do not elect to acquire all of theNon-Consenting Lender’s Commitment, then the Agent shall endeavor to find a new Lender or Lenders to acquire such remaining Commitment. Upon anysuch purchase of the Commitment of the Non-Consenting Lender, the Non-Consenting Lender’s interests in the Obligations and its rights hereunder and underthe Loan Documents shall terminate at the date of purchase, and the Non-Consenting Lender shall promptly execute and deliver any and all documentsreasonably requested by Agent to surrender and transfer such interest, including, without limitation, an assignment and acceptance agreement in the formattached hereto as Exhibit F and such Non-Consenting Lender’s original Note, if any. The purchase price to be paid by the acquiring Lenders for the Non-Consenting Lender’s Commitment shall equal the principal owed to such Non-Consenting Lender, and the Borrowers shall pay to such Non-ConsentingLender in addition thereto and as a condition to such sale any and all other amounts outstanding and owed by Borrowers to the Non-Consenting Lender,including all accrued and unpaid interest or fees, which would be owed to such Non-Consenting Lender if the Loans were to be repaid in full on the date ofsuch purchase of the Non-Consenting Lender’s Commitment (provided that the Borrowers may pay such interest, fees and other amounts (other thanprincipal)). No registration fee under §18.2 shall be required in connection with such assignment. §19.NOTICESEach notice, demand, election or request provided for or permitted to be given pursuant to this Agreement (hereinafter in this §19 referred to as“Notice”), but specifically excluding to the maximum extent permitted by law any notices of the institution or commencement of foreclosure proceedings, mustbe in writing and shall be deemed to have been properly given or served by personal delivery or by sending same by overnight courier or by depositing same inthe United States Mail, postpaid and registered or certified, return receipt requested, or by sending same by facsimile with receipt by the party giving theNotice of an acknowledgment generated by the machine from which the facsimile was sent indicating that the facsimile was sent in its entirety to theaddressee’s facsimile number, in each case addressed as follows:If to the Agent or any Lender, at the address set forth on the signature page for the Agent or such Lender; and 111If to the Borrowers:The Woodlands Commercial Properties Company, L.P.The Woodlands Land Development Company, L.P.c/o The Woodlands Operating Company, L.P.24 Waterway Avenue, Suite 1100The Woodlands, Texas 77380Attn: PresidentFacsimile: (281) 719-7388With a copy to:The Woodlands Commercial Properties Company, L.P.The Woodlands Land Development Company, L.P.c/o The Woodlands Operating Company, L.P.24 Waterway Avenue, Suite 1100The Woodlands, Texas 77380Attn: Chief Financial OfficerFacsimile: (281) 719-7331and to:The Morgan Stanley Real Estate Fund II, L.P.US RE Investing Division555 California Street, Suite 2200San Francisco, California 94104Attn: Randy KossFacsimile: (415) 576-2673and to:The Howard Hughes Corporation13355 Noel Road, Suite 950Dallas, Texas 75240Attn: PresidentFacsimile: (214) 741-3021and to:The Howard Hughes Corporation13355 Noel Road, Suite 950Dallas, Texas 75240Attn: General CounselFacsimile: (214) 741-3021and to each other Lender which may hereafter become a party to this Agreement at such address as may be designated by such Lender. Each Notice shall beeffective upon being personally delivered or upon being sent by overnight courier or upon being deposited in the United States Mail as aforesaid, or iftransmitted by facsimile, upon being sent and confirmation of receipt. The time period in which a response to such Notice must be given or any action takenwith 112respect thereto (if any), however, shall commence to run from the date of receipt if personally delivered or sent by overnight courier or facsimile (or if sent byfacsimile, next Business Day if received after 5:00 p.m. (Atlanta time) or on a day that is not a Business Day), or if so deposited in the United States Mail,the earlier of three (3) Business Days following such deposit or the date of receipt as disclosed on the return receipt. Rejection or other refusal to accept or theinability to deliver because of changed address for which no notice was given shall be deemed to be receipt of the Notice sent. By giving at least fifteen(15) days prior Notice thereof, a Borrower, a Lender or Agent shall have the right from time to time and at any time during the term of this Agreement tochange their respective addresses and each shall have the right to specify as its address any other address within the United States of America. §20.RELATIONSHIPNeither the Agent nor any Lender has any fiduciary relationship with or fiduciary duty to any of the Borrowers arising out of or in connection with theAgreement or the other Loan Documents or the transactions contemplated hereunder and thereunder, and the relationship between each Lender and eachBorrower is solely that of a lender and borrower, and nothing contained herein or in any of the other Loan Documents shall in any manner be construed asmaking the parties hereto partners, joint venturers or any other relationship other than lender and borrower. §21.GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICETHIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS EXCEPT AS OTHERWISE SPECIFICALLY PROVIDEDTHEREIN, ARE CONTRACTS UNDER THE LAWS OF THE STATE OF TEXAS AND SHALL FOR ALL PURPOSES BE CONSTRUED INACCORDANCE WITH AND GOVERNED BY THE LAWS OF SUCH STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTSOR CHOICE OF LAW). THE BORROWERS AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OFTHE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR ANY FEDERAL COURTSITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESSIN ANY SUCH SUIT BEING MADE UPON THE BORROWERS BY MAIL AT THE ADDRESS SPECIFIED IN §19. THE BORROWERSHEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCHCOURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. §22.HEADINGSThe captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof. §23.COUNTERPARTSThis Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when soexecuted and delivered shall be 113an original, and all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more thanone such counterpart signed by the party against whom enforcement is sought. §24.ENTIRE AGREEMENT, ETC.The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respectto the transactions contemplated hereby. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in§27. §25.WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMSEACH OF THE BORROWERS, THE AGENT AND THE LENDERS HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITHRESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY NOTE ORANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THEPERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY PROHIBITED BY LAW, EACH OFTHE BORROWERS HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANYSPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,ACTUAL DAMAGES. EACH OF THE BORROWERS (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANYLENDER OR THE AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH LENDER OR THE AGENT WOULDNOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGES THAT THEAGENT AND THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTSTO WHICH THEY ARE PARTIES BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN THIS §25. §26.DEALINGS WITH THE BORROWERSThe Agent, the Lenders and their affiliates may accept deposits from, extend credit to, invest in, act as trustee under indentures of, serve as financialadvisor of, and generally engage in any kind of banking, trust or other business with the each Borrower, their respective Restricted Subsidiaries orUnrestricted Subsidiaries or any of their affiliates regardless of the capacity of the Agent or the Lender hereunder. The Lenders acknowledge that, pursuant tosuch activities, KeyBank or its Affiliates may receive information regarding such Persons (including information that may be subject to confidentialityobligations in favor of such Person) and acknowledge that the Agent shall be under no obligation to provide such information to the Lenders. 114 §27.CONSENTS, AMENDMENTS, WAIVERS, ETC.Except as otherwise expressly provided in this Agreement, any consent or approval required or permitted by this Agreement may be given, and any termof this Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrowers of anyterms of this Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particularinstance and either retroactively or prospectively) with, but only with, the written consent of the Majority Lenders. Notwithstanding the foregoing, none of thefollowing may occur without the written consent of the Super-Majority Lenders: a modification or waiver of any of the covenants set forth in §8.7, §9.1,§9.2, §9.3, §9.4, §9.5 or with respect to the Borrowing Base (including any definitions relating to such provisions). Notwithstanding the foregoing, none ofthe following may occur without the written consent of each Lender directly affected thereby: a decrease in the rate of interest on any Loan (but excludinginterest at the default rate); an increase in the amount of the Commitments of the Lenders; a reduction or waiver of the principal of any unpaid Loan or anyinterest thereon; a change in the amount of any fee payable to a Lender hereunder; any extension, postponement or waiver of the date on which any fees arepayable to a Lender hereunder; except as provided in §4.15 an extension of the Maturity Date; the release of the Borrowers or the Guarantor which has executedany of the Loan Documents or any of the Collateral except as otherwise provided herein; any modification to require a Lender to fund a pro rata share of arequest for an advance of the Loans made by the Borrowers other than based on its Commitment Percentage; a change to this §27; any postponement of anydate fixed for any payment of principal of or interest on the Loan; any change in the manner of distribution of any payments to the Lenders or Agent; or anamendment of the definition of Majority Lenders or Super-Majority Lenders or of any requirement for consent by all of the Lenders. The amount of the Agent’sfee payable for the Agent’s account and the provisions of §14 may not be amended without the written consent of the Agent. The provisions of §14 may not beamended nor any change made in the amount of any fee payable to the Agent without the written consent of the Agent. The Borrowers agree to enter into suchmodifications or amendments of this Agreement or the other Loan Documents as reasonably may be requested by KeyBank in connection with the assignmentof Commitments provided that no such amendment or modification materially affects or increases any of the obligations of the Borrowers hereunder. Nowaiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on thepart of the Agent or any Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon theBorrowers shall entitle the Borrowers to other or further notice or demand in similar or other circumstances. §28.SEVERABILITYThe provisions of this Agreement are severable, and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part inany jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in anymanner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 115 §29.[INTENTIONALLY OMITTED.] §30.REPLACEMENT OF NOTESUpon receipt of evidence reasonably satisfactory to a Borrower of the loss, theft, destruction or mutilation of any Note, and in the case of any such loss,theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory to such Borrower or, in the case of any such mutilation, upon surrenderand cancellation of the applicable Note, such Borrower will execute and deliver, in lieu thereof, a replacement Note, identical in form and substance to theapplicable Note and dated as of the date of the applicable Note and upon such execution and delivery all references in the Loan Documents to such Note shallbe deemed to refer to such replacement Note. §31.TIME OF THE ESSENCETime is of the essence with respect to each and every covenant, agreement and obligation of the Borrowers under this Agreement and the other LoanDocuments. §32.NONRECOURSE OBLIGATIONSAnything contained in this Agreement or the other Loan Documents to the contrary notwithstanding (except as provided below), Agent’s and the Lenders’recourse against Borrowers for the payment and performance of all of the Obligations of Borrowers under this Agreement or the other Loan Documents shall belimited solely to the interest of Borrowers in the Collateral and all of the other assets, whether now owned or hereafter acquired, of any of the Borrowers, andno partner of any of the Borrowers shall be personally liable for the performance of any of the Obligations; provided, however, that (a) the foregoing limitationon the personal liability of the General Partners described above shall not impair the validity of any lien, pledge, security interest or other encumbrance createdby the Loan Documents, or the right of Agent to foreclose and/or enforce any of its rights or remedies against a Guarantor, in and to the Collateral or any otherassets of any Borrower or a Guarantor upon the occurrence of an Event of Default as provided in this Agreement or the other Loan Documents or be deemed tobe a release or impairment of the Obligations, and (b)the foregoing limitation shall not limit Agent and Lenders, in the case of actual fraud, misapplication ormisappropriation of insurance proceeds, condemnation proceeds, tenant security deposits, rents, issues, profits, accounts, revenues, payments and any otherfunds which are not applied in accordance with the terms of the Loan Documents, or intentional misrepresentation committed against, or made to, the Agent orany Lender by any of the Borrowers, any of their respective Restricted Subsidiaries, any Guarantor or any of its members, partners, officers, agents,employees or other person authorized or apparently authorized to make statements or representations on behalf of such Person, from instituting any proceedingor making any claim they may otherwise have against Borrowers, but not against any direct or indirect owner of Borrowers, in respect thereof. Nothing hereinshall be deemed to be a waiver of any right which Agent may have under Section 506(a), 506(b), 1111(b) or any other provision of the Bankruptcy Code orany successor thereto or similar provisions under applicable state law to file a claim for the full amount of the Obligations or to require that all the Collateralshall continue to secure all of the Obligations in accordance with this Agreement and the other Loan Documents. Nothing herein shall relieve, reduce or impairany obligation of Guarantors under the Guaranty. 116 §33.JOINT AND SEVERAL LIABILITYEach of the Borrowers covenants and agrees that each and every covenant and obligation of any Borrower hereunder and under the other LoanDocuments shall be the joint and several obligations of each Borrower. §34.ADDITIONAL AGREEMENTS CONCERNING OBLIGATIONS OF BORROWERS§34.1 Waiver of Automatic or Supplemental Stay. Each of the Borrowers represents, warrants and covenants to the Lenders and Agent that in the eventof the filing of any voluntary or involuntary petition in bankruptcy by or against the other of the Borrowers at any time following the execution and delivery ofthis Agreement, neither of the Borrowers shall seek a supplemental stay or any other relief, whether injunctive or otherwise, pursuant to Section 105 of theBankruptcy Code or any other provision of the Bankruptcy Code, to stay, interdict, condition, reduce or inhibit the ability of the Lenders or Agent to enforceany rights it has by virtue of this Agreement, the Loan Documents, or at law or in equity, or any other rights the Lenders or Agent has, whether now orhereafter acquired, against the other Borrower or against any property owned by such other Borrower.§34.2 Consideration. The Borrowers hereby represent and warrant to the Lenders and Agent that each of them has received good and valuableconsideration for the division of the assets described in the Division Agreement, and the Borrowers hereby acknowledge the adequacy and sufficiency of suchconsideration.§34.3 Waiver of Defenses. Each of the Borrowers hereby waives and agrees not to assert or take advantage of any defense based upon: (a) anyincapacity, lack of authority, death or disability of the other Borrower or any other Person; (b) any failure of the Lenders or Agent to commence an actionagainst the other Borrower or any other Person or to file or enforce a claim against the estate (either in administration, bankruptcy, or any other proceeding) ofthe other Borrower or any other Person, whether or not demand is made upon the Lenders or Agent to file or enforce such claim; (c) any failure of the Lendersor Agent to give notice of the existence, creation or incurring of any new or additional indebtedness or other obligation or of any action or nonaction on the partof any other Person in connection with the Loan Documents, including the waiver of any conditions to the making of any advance of proceeds of any Loan;(d) any failure on the part of the Lenders or Agent to ascertain the extent or nature of the Collateral or any insurance or other rights with respect thereto, or theliability of any party liable for the Loan Documents or the obligations evidenced or secured thereby, or any failure on the part of the Lenders or Agent todisclose to the Borrowers any facts any of them may now or hereafter know regarding the Borrowers, the Collateral, or such other parties; (e) except asspecifically required in the Loan Documents, any notice of intention to accelerate any of the Obligations or any notice of acceleration of the Obligations; (f) anylack of acceptance or notice of acceptance of this Agreement by Lenders or Agent; (g) except as specifically required in the Loan Documents, any lack ofpresentment, demand, protest, or notice of demand, protest or nonpayment with respect to 117any indebtedness or obligations under any of the Loan Documents; (h) any lack of notice of disposition or of manner of disposition of any Collateral;(i) except as specifically required in the Loan Documents, any lack of other notices to which the Borrowers, or either of them, might otherwise be entitled;(j) failure to properly record any document or any other lack of due diligence by the Lenders or Agent in creating or perfecting a security interest in orcollection, protection or realization upon any Collateral or in obtaining reimbursement or performance from any person or entity now or hereafter liable for theLoan Documents or any obligation secured thereby; (k) any invalidity or irregularity, in whole or in part, of any one or more of the Loan Documents; (l) theinaccuracy of any representation or other provision contained in any Loan Document; (m) any sale or assignment of the Loan Documents, in whole or in part;(n) any sale or assignment by any of the Borrowers of the Collateral, or any portion thereof, whether or not consented to by the Lenders or Agent; and (o) anylack of commercial reasonableness in dealing with any of the Collateral now or hereafter owned by the other of the Borrowers.§34.4 Waiver. Each of the Borrowers waives, to the fullest extent that each may lawfully so do, the benefit of all appraisement, valuation, stay,extension, homestead, exemption and redemption laws which such Person may claim or seek to take advantage of in order to prevent or hinder the enforcementof any of the Loan Documents or the exercise by Lenders or Agent of any of their respective remedies under the Loan Documents and, to the fullest extent thatthe Borrowers may lawfully so do, such Person waives any and all right to have the assets comprised in the security intended to be created by the SecurityDocuments (including, without limitation, those assets owned by the other of the Borrowers) marshaled upon any foreclosure of the lien created by suchSecurity Documents. Each of the Borrowers further agrees that the Lenders and Agent shall be entitled to exercise their respective rights and remedies under theLoan Documents or at law or in equity in such order as they may elect. Without limiting the foregoing, each of the Borrowers further agrees that upon theoccurrence of an Event of Default, the Lenders and Agent may exercise any of such rights and remedies without notice to either of the Borrowers except asrequired by law or the Loan Documents and agrees that neither the Lenders nor Agent shall be required to proceed against the other of the Borrowers or anyother person or to proceed against or to exhaust any other security held by the Lenders or Agent at any time or to pursue any other remedy in Lender’s orAgent’s power or under any of the Loan Documents before proceeding against a Borrower or its assets under the Loan Documents.§34.5 Subordination. Each of the Borrowers hereby expressly waives any right of contribution from or indemnity against the other, whether at law or inequity, arising from any payments made by such Person pursuant to the terms of this Agreement or the Loan Documents, and each of the Borrowersacknowledges that it has no right whatsoever to proceed against the other for reimbursement of any such payments. In connection with the foregoing, each ofthe Borrowers expressly waives any and all rights of subrogation to the Lenders or Agent against the other of the Borrowers, and each of the Borrowers herebywaives any rights to enforce any remedy which the Lenders or Agent may have against the other of the Borrowers and any rights to participate in any Collateralor any other assets of the other Borrower. Notwithstanding the foregoing, the Borrowers shall be entitled to the rights and benefits set forth in the ContributionAgreement and the Funding Agreement. In addition to and without in any way limiting the foregoing, each of the Borrowers hereby subordinates any and allindebtedness it may now or hereafter owe to such other Borrower to all indebtedness of the Borrowers to the Lenders and Agent, and agrees with the Lendersand Agent that neither of the Borrowers shall claim any 118offset or other reduction of such Borrower’s obligations hereunder because of any such indebtedness and shall not take any action to obtain any of theCollateral or any other assets of the other Borrower. §35.RIGHTS OF THIRD PARTIESThis Agreement and the other Loan Documents are made and entered into for the sole protection and legal benefit of the Borrowers, the Lenders, the Agentand the holders of the Hedge Obligations, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, orhave any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. All conditions to the performanceof the obligations of the Agent and the Lenders under this Agreement, including the obligation to make Loans, are imposed solely and exclusively for the benefitof the Agent and the Lenders and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled toassume that the Agent and the Lenders will refuse to make Loans in the absence of strict compliance with any or all thereof and no other Person shall, underany circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by the Agent and theLenders at any time if in their sole discretion they deem it desirable to do so. In particular, the Agent and the Lenders make no representations and assume noobligations as to third parties concerning the quality of the construction by the Borrowers or any of their Restricted Subsidiaries or Unrestricted Subsidiaries,as applicable, of the Vertical Commercial Improvements or other development or the absence therefrom of defects. §36.PATRIOT ACTEach Lender and the Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers and Guarantors that, pursuant to the requirementsof the Patriot Act, it is required to obtain, verify and record information that identifies each Borrower, which information includes names and addresses andother information that will allow such Lender or the Agent, as applicable, to identify each Borrower in accordance with the Patriot Act.[REMAINDER OF PAGE LEFT BLANK] 119IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a sealed instrument the date first set forth above. BORROWERS:THE WOODLANDS COMMERCIALPROPERTIES COMPANY, L.P., a Texas limitedpartnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: /s/ G. Randy Davis Name: G. Randy Davis Title: Chief Financial OfficerTHE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: /s/ G. Randy Davis Name: G. Randy Davis Title: Chief Financial Officer 120KEYBANK NATIONAL ASSOCIATION,individually and as AgentBy: /s/ Eric HafertepenIts: Vice PresidentKeyBank National Association1200 Abernathy Road, N.E.Suite 1550Atlanta, Georgia 30328Attn: Dan SilbertFacsimile: 770-510-2195andKeyBank National Association1200 Abernathy Road, N.E.Suite 1550Atlanta, Georgia 30328Attn: Oved AmramFacsimile: 770-510-2195 121COMPASS BANK, individually and as SyndicationAgentBy: /s/ Todd M. FullerName: Todd FullerTitle: Senior Vice PresidentCompass Bank8333 Douglas AvenueSuite 505Dallas, Texas 75225Attn: Todd FullerFacsimile: (713) 993-8524 122JPMORGAN CHASE BANK, N.A.By: /s/ Laurie FunkName: Laurie FunkTitle: Credit BankerJPMorgan Chase Bank, N.A.707 Travis, 6NHouston, Texas 77002Attn: Laurie FunkFacsimile: (713) 216-2391 123ATLAS VENTURE I, LLCBy: /s/ Paul E. Rowsey, IIIName: Paul E. Rowsey, IIITitle: PresidentAtlas Venture I, LLC3401 Armstrong AvenueDallas, Texas 75205Attn: Sarah HippFacsimile: (214) 443-1911 124AMEGY MORTGAGE COMPANY, L.L.C., a Texaslimited liability companyBy: /s/ Don HickeyName: Don HickeyTitle: Senior Vice PresidentAmegy Mortgage Company, L.L.C.4576 Research Forest DriveThe Woodlands, Texas 77381Attn: Don HickeyFacsimile: (713) 571-5083 125TEXAS CAPITAL BANK, N.A., a national bankingassociationBy: /s/ Elaine A. OpperName: Elaine A. OpperTitle: Executive Vice PresidentTexas Capital Bank, N.A.One RiverwaySuite 2100Houston, Texas 77019Attn: Angie HillFacsimile: (832) 308-7042 126WOODFOREST NATIONAL BANKBy: /s/ Dan E. HauserName: Dan E. HauserTitle: Regional PresidentWoodforest National Bank1330 Lake Robbins DriveSuite 100The Woodlands, Texas 77380Attn: Scott BilinskiFacsimile: (832) 375-3396 127CAPITAL ONE, N.A.By: /s/ Jason ReevesName: Jason ReevesTitle: Vice PresidentCapital One, N.A.5718 WestheimerSuite 600Houston, Texas 77057Attn: Ryan MatthewsFacsimile: (713) 435-5117 128PNC BANK, NATIONAL ASSOCIATIONBy: /s/ Luis DonosoName: Luis DonosoTitle: Vice PresidentPNC Bank, National AssociationTwo Tower Center18 FloorE. Brunswick, New Jersey 08816Attn: Luis DonosoFacsimile: (732) 220-3744 129thGREEN BANK, N.A.By: /s/ J. Cory LeBoufName: J. Cory LeBoufTitle: Senior Vice PresidentGreen Bank, N.A.4000 GreenbriarSuite 200Houston, Texas 77098Attn: J. Cory LeBoufFacsimile: (713) 275-8259 130TRUSTMARK NATIONAL BANKBy: /s/ Amy WalpName: Amy WalpTitle: Loan OfficerTrustmark National Bank10497 Town & Country WaySuite 860Houston, Texas 77024Attn: Amy WalpFacsimile: (713) 365-0890 131THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BECONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. BORROWERS:THE WOODLANDS COMMERCIALPROPERTIES COMPANY, L.P., a Texas limitedpartnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: /s/ G. Randy Davis Name: G. Randy Davis Title: Chief Financial Officer THE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: /s/ G. Randy Davis Name: G. Randy Davis Title: Chief Financial Officer 132EXHIBIT A-1[RESERVED] EXHIBIT A-1 – Page 1EXHIBIT A-2FORM OF REVOLVING CREDIT NOTE $ , 2011 FOR VALUE RECEIVED, the undersigned THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P., a Texas limited partnership, and THEWOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P., a Texas limited partnership, hereby jointly and severally promise to pay to or order, in accordance with the terms of that certain Second Amended and Restated Master Credit Agreement dated March 29,2011 (the “Credit Agreement”), as from time to time in effect, among the undersigned, KeyBank National Association, for itself and as Agent, and such otherLenders as may be from time to time named therein, to the extent not sooner paid, on or before the Maturity Date, the principal sum of DOLLARS ($ ), or such amount as may be advanced by the payee hereof to Land Company under the Credit Agreement asRevolving Credit Loans with daily interest from the date hereof, computed as provided in the Credit Agreement, on the principal amount hereof from time totime unpaid, at a rate per annum on each portion of the principal amount which shall at all times be equal to the rate of interest applicable to such portion inaccordance with the Credit Agreement, and with interest on overdue principal and, to the extent permitted by applicable law, on overdue installments of interestand late charges at the rates provided in the Credit Agreement. Interest shall be payable on the dates specified in the Credit Agreement, except that all accruedinterest shall be paid at the stated or accelerated maturity hereof or upon the prepayment in full hereof. Capitalized terms used herein and not otherwise definedherein shall have the meanings set forth in the Credit Agreement.Payments hereunder shall be made to KeyBank National Association, as Agent for the payee hereof, at 127 Public Square, Cleveland, Ohio 44114-1306or at such other address as Agent may designate.This Note is one of one or more Revolving Credit Notes evidencing borrowings by Land Company under and is entitled to the benefits and subject to theprovisions of the Credit Agreement. The principal of this Note may be due and payable in whole or in part prior to the maturity date stated above and issubject to mandatory prepayment in the amounts and under the circumstances set forth in the Credit Agreement, and may be prepaid in whole or from time totime in part, all as set forth in the Credit Agreement.Notwithstanding anything in this Note or the other Loan Documents to the contrary, it is the intent of the Agent, the Lenders and the Borrowers toconform to and contract in strict compliance with all applicable usury laws from time to time in effect. All agreements (including the Loan Documents) betweenAgent, the Lenders and the Borrowers (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by theprovisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In noway, nor in any event or contingency (including but not limited to prepayment, default, demand for payment, or acceleration of the maturity of anyobligation), shall the interest taken, reserved, contracted for, charged or received under this Note, any other Loan Document, or otherwise, exceed the EXHIBIT A-2 – Page 1maximum nonusurious amount permissible under applicable law. If, from any possible construction of this Note, any other Loan Document, or any otherdocument, interest would otherwise be taken, reserved, contracted for, charged or payable in excess of the maximum nonusurious amount, any suchconstruction shall be subject to the provisions of this Section and this Note, such other Loan Document, and such other document shall be automaticallyreformed and the interest taken, reserved, contracted for, charged or payable shall be automatically reduced to the maximum nonusurious amount permittedunder applicable law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which isinterest or characterized as interest under applicable law and which would apart from this provision be in excess of the maximum lawful nonusurious amount,an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing onthe Loans to it (in inverse order of maturity) and not to the payment of interest, or refunded to the Borrowers if and to the extent such amount which wouldhave been excessive exceeds such unpaid principal. The right to accelerate maturity of the Loans and the other Obligations does not include the right toaccelerate any interest which has not otherwise accrued on the date of such acceleration, and the Agent and the Lenders do not intend to charge or receive anyunearned interest in the event of acceleration. All interest paid or agreed to be paid to the Lenders on the Loans shall, to the extent permitted by applicable law,be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest onaccount of the Loans does not exceed the maximum nonusurious amount permitted by applicable law. As used in this Section, the term “applicable law” shallmean such laws as they now exist or may be changed or amended or come into effect in the future. As used in this Section, the term “interest” includes allamounts that constitute, are deemed, or are characterized as interest under applicable law.If at any time the interest rate (the “Stated Rate”) called for under this Note or any other Loan Document exceeds or would exceed the Highest LawfulRate, the rate at which interest shall accrue hereunder or thereunder shall automatically be limited to the Highest Lawful Rate, and shall remain at the HighestLawful Rate until the total amount of interest accrued equals the total amount of interest which would have accrued but for the operation of this sentence.Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate would again exceed the Highest Lawful Rate, in which case the immediatelypreceding sentence shall apply.Borrowers hereby agree that as a condition precedent to any claim seeking usury penalties against a Lender, Borrowers will provide written notice toAgent, advising Agent in reasonable detail of the nature and amount of the violation, and such Lender shall have sixty (60) days after receipt of such notice inwhich to correct such usury violation, if any, by either refunding such excess interest to Borrowers or crediting such excess interest against the Loans and/orany other indebtedness then owing by Borrowers to such Lender. To the extent that Lenders are relying on Chapter 303, as amended, of the Texas Finance Codeto determine the Highest Lawful Rate, Lenders will utilize the weekly rate ceiling from time to time in effect as provided in such Chapter 303, as amended. Tothe extent United States federal law permits a greater amount of interest than is permitted under Texas law, Lenders will rely on United States federal lawinstead of such Chapter 303, as amended, for the purpose of determining the Highest Lawful Rate. Additionally, to the extent permitted by applicable law nowor hereafter in effect, Lenders may, at Lenders’ option and from time to time, implement any other method of EXHIBIT A-2 – Page 2computing the maximum lawful rate under such Chapter 303, as amended, or under other applicable law by giving notice, if required, to Borrowers asprovided by applicable law now or hereafter in effect. These provisions will control all agreements between Borrowers, Agents and Lenders.The undersigned and Lenders expressly agree that in no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certainrevolving credit loan accounts and revolving triparty accounts) apply to this Note or to any advance made pursuant to the terms of this Note.In case an Event of Default shall occur, the entire principal amount of this Note may become or be declared due and payable in the manner and with theeffect provided in said Credit Agreement.This Note shall be governed by and construed in accordance with the laws of the State of Texas (without giving effect to the conflict of laws rules of anyjurisdiction).The undersigned maker and all guarantors and endorsers, hereby waive presentment, demand, notice, protest, notice of intention to accelerate theindebtedness evidenced hereby, notice of acceleration of the indebtedness evidenced hereby and all other demands and notices in connection with the delivery,acceptance, performance and enforcement of this Note, except as specifically otherwise provided in the Credit Agreement, and assent to extensions of time ofpayment or forbearance or other indulgence without notice.This Note, together with the other Revolving Credit Notes executed pursuant to the Credit Agreement contemporaneously with the execution hereof, areexecuted in amendment and restatement of the “Revolving Credit Notes” under the Original Credit Agreement.IN WITNESS WHEREOF the undersigned have by their duly authorized officers, executed this Note under seal as of the day and year first abovewritten. THE WOODLANDS COMMERCIALPROPERTIES COMPANY, L.P., a Texas limitedpartnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer[CONTINUED ON NEXT PAGE] EXHIBIT A-2 – Page 3THE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer EXHIBIT A-2 – Page 4EXHIBIT B-1FORM OF COMMERCIAL COMPANY SECURED TERM LOAN NOTE $ , 2011 FOR VALUE RECEIVED, the undersigned THE WOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P., a Texas limited partnership, andTHE WOODLANDS LAND DEVELOPMENT COMPANY, L.P., a Texas limited partnership, hereby jointly and severally promise to pay to or order, in accordance with the terms of that certain Second Amended and Restated Master Credit Agreement dated March 29,2011 (the “Credit Agreement”), as from time to time in effect, among the undersigned, KeyBank National Association, for itself and as Agent, and such otherLenders as may be from time to time named therein, to the extent not sooner paid, on or before the Maturity Date, the principal sum of DOLLARS ($ ), with daily interest from the date hereof, computed as provided in the Credit Agreement, on the principalamount hereof from time to time unpaid, at a rate per annum on each portion of the principal amount which shall at all times be equal to the rate of interestapplicable to such portion in accordance with the Credit Agreement, and with interest on overdue principal and, to the extent permitted by applicable law, onoverdue installments of interest and late charges at the rates provided in the Credit Agreement. Interest shall be payable on the dates specified in the CreditAgreement, except that all accrued interest shall be paid at the stated or accelerated maturity hereof or upon the prepayment in full hereof. Capitalized termsused herein and not otherwise defined herein shall have the meanings set forth in the Credit Agreement.Payments hereunder shall be made to KeyBank National Association, as Agent for the payee hereof, at 127 Public Square, Cleveland, Ohio 44114-1306or at such other address as Agent may designate.This Note is one of one or more Commercial Company Secured Term Loan Notes evidencing borrowings by Commercial Company under and isentitled to the benefits and subject to the provisions of the Credit Agreement. The principal of this Note may be due and payable in whole or in part prior to thematurity date stated above and is subject to mandatory prepayment in the amounts and under the circumstances set forth in the Credit Agreement, and may beprepaid in whole or from time to time in part, all as set forth in the Credit Agreement.Notwithstanding anything in this Note or the other Loan Documents to the contrary, it is the intent of the Agent, the Lenders and the Borrowers toconform to and contract in strict compliance with all applicable usury laws from time to time in effect. All agreements (including the Loan Documents) betweenAgent, the Lenders and the Borrowers (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by theprovisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In noway, nor in any event or contingency (including but not limited to prepayment, default, demand for payment, or acceleration of the maturity of anyobligation), shall the interest taken, reserved, contracted for, charged or received under this Note, any other Loan Document, or otherwise, exceed themaximum nonusurious amount permissible under applicable law. If, from any possible EXHIBIT B-1– Page 1construction of this Note, any other Loan Document, or any other document, interest would otherwise be taken, reserved, contracted for, charged or payable inexcess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this Section and this Note, such other LoanDocument, and such other document shall be automatically reformed and the interest taken, reserved, contracted for, charged or payable shall beautomatically reduced to the maximum nonusurious amount permitted under applicable law, without the necessity of execution of any amendment or newdocument. If any Lender shall ever receive anything of value which is interest or characterized as interest under applicable law and which would apart fromthis provision be in excess of the maximum lawful nonusurious amount, an amount equal to the amount which would have been excessive interest shall,without penalty, be applied to the reduction of the principal amount owing on the Loans to it (in inverse order of maturity) and not to the payment of interest, orrefunded to the Borrowers if and to the extent such amount which would have been excessive exceeds such unpaid principal. The right to accelerate maturity ofthe Loans and the other Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, andthe Agent and the Lenders do not intend to charge or receive any unearned interest in the event of acceleration. All interest paid or agreed to be paid to theLenders on the Loans shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (includingany renewal or extension) of the Loans so that the amount of interest on account of the Loans does not exceed the maximum nonusurious amount permitted byapplicable law. As used in this Section, the term “applicable law” shall mean such laws as they now exist or may be changed or amended or come into effect inthe future. As used in this Section, the term “interest” includes all amounts that constitute, are deemed, or are characterized as interest under applicable law.If at any time the interest rate (the “Stated Rate”) called for under this Note or any other Loan Document exceeds or would exceed the Highest LawfulRate, the rate at which interest shall accrue hereunder or thereunder shall automatically be limited to the Highest Lawful Rate, and shall remain at the HighestLawful Rate until the total amount of interest accrued equals the total amount of interest which would have accrued but for the operation of this sentence.Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate would again exceed the Highest Lawful Rate, in which case the immediatelypreceding sentence shall apply.Borrowers hereby agree that as a condition precedent to any claim seeking usury penalties against a Lender, Borrowers will provide written notice toAgent, advising Agent in reasonable detail of the nature and amount of the violation, and such Lender shall have sixty (60) days after receipt of such notice inwhich to correct such usury violation, if any, by either refunding such excess interest to Borrowers or crediting such excess interest against the Loans and/orany other indebtedness then owing by Borrowers to such Lender. To the extent that Lenders are relying on Chapter 303, as amended, of the Texas Finance Codeto determine the Highest Lawful Rate, Lenders will utilize the weekly rate ceiling from time to time in effect as provided in such Chapter 303, as amended. Tothe extent United States federal law permits a greater amount of interest than is permitted under Texas law, Lenders will rely on United States federal lawinstead of such Chapter 303, as amended, for the purpose of determining the Highest Lawful Rate. Additionally, to the extent permitted by applicable law nowor hereafter in effect, Lenders may, at Lenders’ option and from time to time, implement any other method of computing the maximum lawful rate under suchChapter 303, as amended, or under other EXHIBIT B-1– Page 2applicable law by giving notice, if required, to Borrowers as provided by applicable law now or hereafter in effect. These provisions will control all agreementsbetween Borrowers, Agents and Lenders.In case an Event of Default shall occur, the entire principal amount of this Note may become or be declared due and payable in the manner and with theeffect provided in said Credit Agreement.This Note shall be governed by and construed in accordance with the laws of the State of Texas (without giving effect to the conflict of laws rules of anyjurisdiction).The undersigned maker and all guarantors and endorsers, hereby waive presentment, demand, notice, protest, notice of intention to accelerate theindebtedness evidenced hereby, notice of acceleration of the indebtedness evidenced hereby and all other demands and notices in connection with the delivery,acceptance, performance and enforcement of this Note, except as specifically otherwise provided in the Credit Agreement, and assent to extensions of time ofpayment or forbearance or other indulgence without notice.This Note, together with the other Commercial Company Secured Term Loan Notes executed pursuant to the Credit Agreement contemporaneously withthe execution hereof, are executed in amendment and restatement of the “Commercial Company Secured Term Loan Notes” under the Original CreditAgreement.IN WITNESS WHEREOF the undersigned has by its duly authorized officers, executed this Note under seal as of the day and year first above written. THE WOODLANDS COMMERCIALPROPERTIES COMPANY, L.P., a Texas limitedpartnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer[CONTINUED ON NEXT PAGE] EXHIBIT B-1– Page 3THE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer EXHIBIT B-1– Page 4EXHIBIT B-2FORM OF LAND COMPANY SECURED TERM LOAN NOTE $ , 2011 FOR VALUE RECEIVED, the undersigned THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P., a Texas limited partnership, and THEWOODLANDS COMMERCIAL PROPERTIES COMPANY, L.P., a Texas limited partnership, hereby jointly and severally promise to pay to or order, in accordance with the terms of that certain Second Amended and Restated Master Credit Agreement dated March 29,2011 (the “Credit Agreement”), as from time to time in effect, among the undersigned, KeyBank National Association, for itself and as Agent, and such otherLenders as may be from time to time named therein, to the extent not sooner paid, on or before the Maturity Date, the principal sum of DOLLARS ($ ), with daily interest from the date hereof, computed as provided in the Credit Agreement, on the principalamount hereof from time to time unpaid, at a rate per annum on each portion of the principal amount which shall at all times be equal to the rate of interestapplicable to such portion in accordance with the Credit Agreement, and with interest on overdue principal and, to the extent permitted by applicable law, onoverdue installments of interest and late charges at the rates provided in the Credit Agreement. Interest shall be payable on the dates specified in the CreditAgreement, except that all accrued interest shall be paid at the stated or accelerated maturity hereof or upon the prepayment in full hereof. Capitalized termsused herein and not otherwise defined herein shall have the meanings set forth in the Credit Agreement.Payments hereunder shall be made to KeyBank National Association, as Agent for the payee hereof, at 127 Public Square, Cleveland, Ohio 44114-1306or at such other address as Agent may designate.This Note is one of one or more Land Company Secured Term Loan Notes evidencing borrowings by Land Company under and is entitled to thebenefits and subject to the provisions of the Credit Agreement. The principal of this Note may be due and payable in whole or in part prior to the maturity datestated above and is subject to mandatory prepayment in the amounts and under the circumstances set forth in the Credit Agreement, and may be prepaid inwhole or from time to time in part, all as set forth in the Credit Agreement.Notwithstanding anything in this Note or the other Loan Documents to the contrary, it is the intent of the Agent, the Lenders and the Borrowers toconform to and contract in strict compliance with all applicable usury laws from time to time in effect. All agreements (including the Loan Documents) betweenAgent, the Lenders and the Borrowers (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by theprovisions of this Section which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In noway, nor in any event or contingency (including but not limited to prepayment, default, demand for payment, or acceleration of the maturity of anyobligation), shall the interest taken, reserved, contracted for, charged or received under this Note, any other Loan Document, or otherwise, exceed themaximum nonusurious amount permissible under applicable law. If, from any possible EXHIBIT B-2– Page 1construction of this Note, any other Loan Document, or any other document, interest would otherwise be taken, reserved, contracted for, charged or payable inexcess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this Section and this Note, such other LoanDocument, and such other document shall be automatically reformed and the interest taken, reserved, contracted for, charged or payable shall beautomatically reduced to the maximum nonusurious amount permitted under applicable law, without the necessity of execution of any amendment or newdocument. If any Lender shall ever receive anything of value which is interest or characterized as interest under applicable law and which would apart fromthis provision be in excess of the maximum lawful nonusurious amount, an amount equal to the amount which would have been excessive interest shall,without penalty, be applied to the reduction of the principal amount owing on the Loans to it (in inverse order of maturity) and not to the payment of interest, orrefunded to the Borrowers if and to the extent such amount which would have been excessive exceeds such unpaid principal. The right to accelerate maturity ofthe Loans and the other Obligations does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, andthe Agent and the Lenders do not intend to charge or receive any unearned interest in the event of acceleration. All interest paid or agreed to be paid to theLenders on the Loans shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (includingany renewal or extension) of the Loans so that the amount of interest on account of the Loans does not exceed the maximum nonusurious amount permitted byapplicable law. As used in this Section, the term “applicable law” shall mean such laws as they now exist or may be changed or amended or come into effect inthe future. As used in this Section, the term “interest” includes all amounts that constitute, are deemed, or are characterized as interest under applicable law.If at any time the interest rate (the “Stated Rate”) called for under this Note or any other Loan Document exceeds or would exceed the Highest LawfulRate, the rate at which interest shall accrue hereunder or thereunder shall automatically be limited to the Highest Lawful Rate, and shall remain at the HighestLawful Rate until the total amount of interest accrued equals the total amount of interest which would have accrued but for the operation of this sentence.Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate would again exceed the Highest Lawful Rate, in which case the immediatelypreceding sentence shall apply.Borrowers hereby agree that as a condition precedent to any claim seeking usury penalties against a Lender, Borrowers will provide written notice toAgent, advising Agent in reasonable detail of the nature and amount of the violation, and such Lender shall have sixty (60) days after receipt of such notice inwhich to correct such usury violation, if any, by either refunding such excess interest to Borrowers or crediting such excess interest against the Loans and/orany other indebtedness then owing by Borrowers to such Lender. To the extent that Lenders are relying on Chapter 303, as amended, of the Texas Finance Codeto determine the Highest Lawful Rate, Lenders will utilize the weekly rate ceiling from time to time in effect as provided in such Chapter 303, as amended. Tothe extent United States federal law permits a greater amount of interest than is permitted under Texas law, Lenders will rely on United States federal lawinstead of such Chapter 303, as amended, for the purpose of determining the Highest Lawful Rate. Additionally, to the extent permitted by applicable law nowor hereafter in effect, Lenders may, at Lenders’ option and from time to time, implement any other method of computing the maximum lawful rate under suchChapter 303, as amended, or under other EXHIBIT B-2– Page 2applicable law by giving notice, if required, to Borrowers as provided by applicable law now or hereafter in effect. These provisions will control all agreementsbetween Borrowers, Agents and Lenders.In case an Event of Default shall occur, the entire principal amount of this Note may become or be declared due and payable in the manner and with theeffect provided in said Credit Agreement.This Note shall be governed by and construed in accordance with the laws of the State of Texas (without giving effect to the conflict of laws rules of anyjurisdiction).The undersigned maker and all guarantors and endorsers, hereby waive presentment, demand, notice, protest, notice of intention to accelerate theindebtedness evidenced hereby, notice of acceleration of the indebtedness evidenced hereby and all other demands and notices in connection with the delivery,acceptance, performance and enforcement of this Note, except as specifically otherwise provided in the Credit Agreement, and assent to extensions of time ofpayment or forbearance or other indulgence without notice.This Note, together with the other Land Company Secured Term Loan Notes executed pursuant to the Credit Agreement contemporaneously with theexecution hereof, are executed in amendment and restatement of the “Land Company Secured Term Loan Notes” under the Original Credit Agreement.IN WITNESS WHEREOF the undersigned has by its duly authorized officers, executed this Note under seal as of the day and year first above written. THE WOODLANDS COMMERCIALPROPERTIES COMPANY, L.P., a Texas limitedpartnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial OfficerTHE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer EXHIBIT B-2 – Page 3EXHIBIT C-1[RESERVED] EXHIBIT C-1– Page 1EXHIBIT C-2FORM OF REQUEST FOR LOAN(LAND COMPANY)KeyBank National Association,for itself and as Agent1200 Abernathy Road, N.E.Suite 1550Atlanta, Georgia 30328Attn: Dan SilbertLadies and Gentlemen:Pursuant to the provisions of §2.6 of the Second Amended and Restated Master Credit Agreement dated March 29, 2011, as from time to time in effect(the “Credit Agreement”), among The Woodlands Commercial Properties Company, L.P. and The Woodlands Land Development Company, L.P. (individuallya “Borrower” and collectively the “Borrowers”), KeyBank National Association, for itself and as Agent, and the other Lenders from time to time party thereto,the undersigned Borrower hereby requests and certifies as follows:1. Revolving Credit Loan. The undersigned Borrower hereby requests a Revolving Credit Loan under §2.1 of the Credit Agreement:Principal Amount: $Type (LIBOR Rate, Base Rate):Interest Period:Drawdown Date: , 20 by credit to the general account of the undersigned Borrower with the Agent at the Agent’s Head Office.2. Use of Proceeds. Such Revolving Credit Loan shall be used for the following purposes permitted by §7.11 of the Credit Agreement:[Describe]3. No Default. The undersigned Principal Financial Officer of the Borrower certifies that the Borrower is and will be in compliance with all covenantsunder the Loan Documents after giving effect to the making of the Revolving Credit Loan requested hereby. No condemnation proceedings are pending or to theBorrower’s knowledge threatened against any Mortgaged Property.4. Representations True. Each of the representations and warranties made by or on behalf of any of the Borrowers, the Guarantors and the RestrictedSubsidiaries of a Borrower contained in the Credit Agreement, in the other Loan Documents or in any document or instrument delivered pursuant to or inconnection with the Credit Agreement was true as of the EXHIBIT C-2– Page 1date as of which it was made and shall also be true at and as of the Drawdown Date for the Revolving Credit Loan requested hereby, with the same effect as ifmade at and as of such Drawdown Date (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and theother Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and except to theextent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default has occurred and is continuing.5. Other Conditions. All other conditions to the making of the Revolving Credit Loan requested hereby set forth in §11 of the Credit Agreement havebeen satisfied. (Reference title update, if applicable.)6. Drawdown Date. Except to the extent, if any, specified by notice actually received by the Agent prior to the Drawdown Date specified above, theforegoing representations and warranties shall be deemed to have been made by the Borrowers on and as of such Drawdown Date.7. Definitions. Terms defined in the Credit Agreement are used herein with the meanings so defined.IN WITNESS WHEREOF, I have hereunto set my hand this day of , 20 . THE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer EXHIBIT C-2– Page 2EXHIBIT DFORM OF REQUEST FOR EXTENSION OF LOANSKeyBank National Association,for itself and as Agent1200 Abernathy Road, N.E.Suite 1550Atlanta, Georgia 30328Attn: Dan SilbertLadies and Gentlemen:Pursuant to the provisions of §4.15 of the Second Amended and Restated Master Credit Agreement dated March 29, 2011, as from time to time in effect(the “Credit Agreement”), among The Woodlands Commercial Properties Company, L.P. and The Woodlands Land Development Company, L.P. (collectivelythe “Borrowers”), KeyBank National Association, for itself and as Agent, and the other Lenders from time to time party thereto, the Borrowers hereby requestand certify as follows:1. Extension Request. The Borrowers hereby irrevocably request that the Maturity Date be extended to [insert date as permitted by §4.15].2. No Default. The undersigned Principal Financial Officers of the Borrowers certify that no Default or Event of Default has occurred and is continuing.3. Other Conditions. All other conditions to the extension to the Maturity Date requested hereby set forth in §4.15 of the Credit Agreement have beensatisfied.4. Definitions. Terms defined in the Credit Agreement are used herein with the meanings so defined.[CONTINUED ON NEXT PAGE] EXHIBIT D – Page 1IN WITNESS WHEREOF, I have hereunto set my hand this day of , 20 . THE WOODLANDS COMMERCIAL PROPERTIESCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial OfficerTHE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer EXHIBIT D – Page 2EXHIBIT EFORM OFCOMPLIANCE CERTIFICATEKeyBank National Association, for itself and as Agent1200 Abernathy Road, N.E.Suite 1550Atlanta, Georgia 30328Attn: Dan SilbertLadies and Gentlemen:Reference is made to the Second Amended and Restated Master Credit Agreement dated March 29, 2011 (the “Credit Agreement”) by and among TheWoodlands Commercial Properties Company, L.P. and The Woodlands Land Development Company, L.P. (collectively the “Borrowers”), KeyBank NationalAssociation, for itself and as Agent, and the other Lenders from time to time party thereto. Terms defined in the Credit Agreement and not otherwise definedherein are used herein as defined in the Credit Agreement.Pursuant to the Credit Agreement, the Borrowers are furnishing to you herewith (or have most recently furnished to you) the financial statements of theBorrowers and their respective subsidiaries for the fiscal period ended (the “Balance Sheet Date”). Such financial statements have been preparedin accordance with generally accepted accounting principles (other than the inclusion of footnotes with respect to quarterly reports) and present fairly thefinancial position of the Borrowers and the subsidiaries covered thereby at the date thereof and the results of their operations for the periods covered thereby,subject in the case of interim statements only to normal year end audit adjustments.This certificate is submitted in compliance with requirements of §5.5, §7.4(e) or §10.14 of the Credit Agreement. If this certificate is provided under aprovision other than §7.4(e), the calculations provided below are made using the financial statements of the Borrowers and their respective RestrictedSubsidiaries as of the Balance Sheet Date adjusted in the best good faith estimate of the Borrowers to give effect to the making of a Revolving Credit Loan,extension of the Maturity Date, acquisition or disposition of property or other event that occasions the preparation of this certificate; and the nature of suchevent and the Borrowers’ estimate of its effects are set forth in reasonable detail in an attachment hereto. The undersigned officers of the Borrowers are itsPrincipal Financial Officers.The undersigned officers have caused the provisions of the Credit Agreement to be reviewed and have no knowledge of any Default or Event of Default.(Note: If the signer does have knowledge of any Default or Event of Default, the form of certificate should be revised to specify the Default or Event of Default,the nature thereof, the actions taken, being taken or proposed to be taken by the Borrowers with respect thereto in order to cure such Default or Event ofDefault and the time period required to cure such Default or Event of Default.) EXHIBIT E – Page 1The Borrowers are providing the following information to demonstrate compliance as of the date hereof with the following covenants:[SEE ATTACHED EXHIBIT 1][Remainder of page intentionally left blank] EXHIBIT E – Page 2IN WITNESS WHEREOF, I have hereunto set my hand this day of , 20 . THE WOODLANDS COMMERCIAL PROPERTIESCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial OfficerTHE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texaslimited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer EXHIBIT E – Page 3EXHIBIT FFORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENTTHIS ASSIGNMENT AND ACCEPTANCE AGREEMENT (this “Agreement”) dated , , by and between (“Assignor”), and (“Assignee”).W I T N E S E T H:WHEREAS, Assignor is a party to that certain Second Amended and Restated Master Credit Agreement, dated March 29, 2011, by and among TheWoodlands Commercial Properties Company, L.P., a Texas limited partnership (“Commercial Company”), The Woodlands Land Development Company,L.P., a Texas limited partnership (“Land Company”; Commercial Company and Land Company are hereinafter referred to collectively as the “Borrowers”),KeyBank National Association, the other lenders that are or may become a party thereto, and KeyBank National Association, as Agent (the “LoanAgreement”); andWHEREAS, Assignor desires to transfer to Assignee [Describe assigned Commitments] under the Loan Agreement and its rights with respect to theCommitment assigned and its Outstanding Loans with respect thereto;NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable considerations, the receiptand sufficiency of which are hereby acknowledged, Assignor and Assignee hereby agree as follows:1. Definitions. Terms defined in the Loan Agreement and used herein without definition shall have the respective meanings assigned to such terms in theLoan Agreement.2. Assignment.(a) Subject to the terms and conditions of this Agreement and in consideration of the payment to be made by Assignee to Assignor pursuant toParagraph 5 of this Agreement, effective as of the “Assignment Date” (as defined in Paragraph 7 below), Assignor hereby irrevocably sells, transfers andassigns to Assignee, without recourse, (i) a $ Commercial Company Secured Term Loan Commitment, (ii) a $ Land Company [Describe assignedCommitments] Commitment, and a percent ( %) Land Company [Describe assigned Commitments] Commitment Percentage, and acorresponding interest in and to all of the other rights and obligations under the Loan Agreement and the other Loan Documents (the assigned interests beinghereinafter referred to as the “Assigned Interests”), including Assignor’s share of all outstanding Commercial Company [Describe assigned Loan] Loansand Land Company [Describe assigned Loan] Loans with respect to the Assigned Interests and the right to receive interest and principal on and all other feesand amounts with respect to the Assigned Interests, all from and after the Assignment Date, all as if Assignee were an original Lender under and signatory tothe Loan Agreement having a Commercial Company [Describe assigned Commitment] Commitment Percentage and Land Company [Describe assignedCommitment] Commitment Percentage equal to the amount of the respective Assigned Interests. EXHIBIT F – Page 1(b) Assignee, subject to the terms and conditions hereof, hereby assumes all obligations of Assignor with respect to the Assigned Interests fromand after the Assignment Date as if Assignee were an original Lender under and signatory to the Loan Agreement and the “Bank Intercreditor Agreement” (ashereinafter defined), which obligations shall include, but shall not be limited to, the obligation to make [Describe assigned Loan] Loans to the Borrowerswith respect to the Assigned Interests and to indemnify the Agent as provided therein (such obligations, together with all other obligations set forth in the LoanAgreement and the other Loan Documents are hereinafter collectively referred to as the “Assigned Obligations”). Assignor shall have no further duties orobligations with respect to, and shall have no further interest in, the Assigned Obligations or the Assigned Interests.3. Representations and Requests of Assignor.(a) Assignor represents and warrants to Assignee (i) that it is legally authorized to, and has full power and authority to, enter into this Agreementand perform its obligations under this Agreement; (ii) that as of the date hereof, before giving effect to the assignment contemplated hereby the amount ofAssignor’s Commercial Company Secured Term Loan Commitment is $ and the aggregate outstanding principal balance of the Commercial CompanySecured Term Loans made by it equals $ , (iii) that it has forwarded to the Agent the Commercial Company Secured Term Loan Note held by Assignor,if any, (iv) that as of the date hereof, before giving effect to the assignment contemplated hereby the amount of Assignor’s Land Company [Describe assignedCommitment] Commitment is $ and the aggregate outstanding principal balance of the Land Company [Describe assigned Commitment] Loansmade by it equals $ , (v) that it has forwarded to the Agent the Land Company [Describe assigned Note] Note held by Assignor, if any. Assignor makesno representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or inconnection with the Loan Documents or the execution, legality, validity, enforceability, genuineness or sufficiency of any Loan Document or any otherinstrument or document furnished pursuant thereto or in connection with the Loan, the collectability of the Loans, the continued solvency of the Borrowers orthe Guarantors or the continued existence, sufficiency or value of the Collateral or any assets of the Borrowers or the Guarantors which may be realized uponfor the repayment of the Loans, or the performance or observance by the Borrowers or the Guarantors of any of their respective obligations under the LoanDocuments to which it is a party or any other instrument or document delivered or executed pursuant thereto or in connection with the Loan; other than that itis the legal and beneficial owner of, or has the right to assign, the interests being assigned by it hereunder and that such interests are free and clear of anyadverse claim.(b) If the applicable box is checked below, Assignor requests that the Agent obtain replacement notes for each of Assignor and Assignee asprovided in the Loan Agreement.¨ Replacement Note Requested for Assignor¨ Replacement Note Requested for Assignee EXHIBIT F – Page 24. Representations of Assignee. Assignee makes and confirms to the Agent, Assignor and the other Lenders all of the representations, warranties andcovenants of a Lender under Articles 14 and 18 of the Loan Agreement and Paragraph 4 of the Bank Intercreditor Agreement. Without limiting the foregoing,Assignee (a) represents and warrants that it is legally authorized to, and has full power and authority to, enter into this Agreement and perform its obligationsunder this Agreement; (b) confirms that it has received copies of such documents and information as it has deemed appropriate to make its own credit analysisand decision to enter into this Agreement; (c)agrees that it has and will, independently and without reliance upon Assignor, any other Lender or the Agent andbased upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in evaluating the Loans, theLoan Documents, the creditworthiness of the Borrowers and the Guarantors and the value of the assets of the Borrowers and the Guarantors, and taking or nottaking action under the Loan Documents and any intercreditor agreement among the Lenders and the Agent (the “Bank Intercreditor Agreement”); (d)appointsand authorizes the Agent to take such action as agent on its behalf and to exercise such powers as are reasonably incidental thereto pursuant to the terms of theLoan Documents and the Bank Intercreditor Agreement; (e) agrees that, by this Assignment, Assignee has become a party to and will perform in accordancewith their terms all the obligations which by the terms of the Loan Documents and the Bank Intercreditor Agreement are required to be performed by it as aLender; (f) represents and warrants that Assignee is an Eligible Assignee; (g) agrees that if Assignee is not incorporated under the laws of the United States ofAmerica or any State, it has on or prior to the date hereof delivered to Borrowers and Agent certification as to its exemption from deduction or withholding ofany United States federal income taxes; and (h) if Assignee is an assignee of a portion of the Revolving Credit Loans, it has a net worth or unfunded capitalcommitment as of the date hereof of not less than $200,000,000.00 unless waived in writing by Borrowers and Agent.5. Payments to Assignor. In consideration of the assignment made pursuant to Paragraph 1 of this Agreement, Assignee agrees to pay to Assignor on theAssignment Date, an amount equal to $ representing the aggregate principal amount outstanding of the [Described assigned Loans] Loans owing toAssignor under the Loan Agreement and the other Loan Documents with respect to the Assigned Interests.6. Payments by Assignor. Assignor agrees to pay the Agent on the Assignment Date the registration fee required by §18.2 of the Loan Agreement.7. Effectiveness.(a) The effective date for this Agreement shall be (the “Assignment Date”). Following the execution of this Agreement, each party heretoshall deliver its duly executed counterpart hereof to the Agent for acceptance and recording in the Register by the Agent.(b) Upon such acceptance and recording and from and after the Assignment Date, (i) Assignee shall be a party to the Loan Agreement and theBank Intercreditor Agreement and, to the extent of the Assigned Interests, have the rights and obligations of a Lender thereunder, and (ii) Assignor shall, withrespect to the Assigned Interests, relinquish its rights and be released from its obligations under the Loan Agreement and the Bank Intercreditor Agreement. EXHIBIT F – Page 3(c) Upon such acceptance and recording and from and after the Assignment Date, the Agent shall make all payments in respect of the rights andinterests assigned hereby accruing after the Assignment Date (including payments of principal, interest, fees and other amounts) to Assignee.(d) All outstanding LIBOR Rate Loans shall continue in effect for the remainder of their applicable Interest Periods and Assignee shall accept thecurrently effective interest rates on its Assigned Interest of each LIBOR Rate Loan.8. Notices. Assignee specifies as its address for notices and its Lending Office for all assigned Loans, the offices set forth below: Notice Address: Attn: Facsimile: Domestic Lending Office: Same as aboveLIBOR Lending Office: Same as above9. Payment Instructions. All payments to Assignee under the Loan Agreement shall be made as provided in the Loan Agreement in accordance with thefollowing instructions: 10. Governing Law. THIS AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT FOR ALL PURPOSES AND TOBE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS (WITHOUT REFERENCE TOCONFLICT OF LAWS).11. Counterparts. This Agreement may be executed in any number of counterparts which shall together constitute but one and the same agreement.12. Amendments. This Agreement may not be amended, modified or terminated except by an agreement in writing signed by Assignor and Assignee, andconsented to by Agent. EXHIBIT F – Page 413. Successors. This Agreement shall inure to the benefit of the parties hereto and their respective successors and assigns as permitted by the terms ofLoan Agreement and the Bank Intercreditor Agreement.[signatures on following page] EXHIBIT F – Page 5IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Agreement to be executed on its behalf by its officersthereunto duly authorized, as of the date first above written. ASSIGNEE: By: Title: ASSIGNOR: By: Title: RECEIPT ACKNOWLEDGED ANDASSIGNMENT CONSENTED TO BY:KEYBANK NATIONAL ASSOCIATION,as AgentBy: Title: EXHIBIT F – Page 6ASSIGNMENT APPROVED BY :THE WOODLANDS COMMERCIAL PROPERTIESCOMPANY, L.P.,a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texas limited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial OfficerTHE WOODLANDS LAND DEVELOPMENTCOMPANY, L.P., a Texas limited partnershipBy: The Woodlands Operating Company, L.P., a Texas limited partnership, its Authorized Agent By: Name: G. Randy Davis Title: Chief Financial Officer Include to the extent required by the Credit Agreement. EXHIBIT F – Page 711EXHIBIT GFORM OF CONFIDENTIALITY AGREEMENT[Letterhead of Assignee or Participant][Date]KeyBank National Association, as Agent1200 Abernathy Road, N.E.Suite 1550Atlanta, Georgia 30328The Woodlands Commercial Property Company, L.P.c/o The Woodlands Operating Company, L.P.2201 Timberloch PlaceThe Woodlands, Texas 77380The Woodlands Land Development Company, L.P.c/o The Woodlands Operating Company, L.P.2201 Timberloch PlaceThe Woodlands, Texas 77380 RE:$270,000,000 Revolving Credit and Secured Term Loan Facility to TheWoodlands Commercial Properties Company, L.P. and The WoodlandsLand Development Company, L.P. (collectively the “Borrowers”)Ladies and Gentlemen:We are interested in acquiring [describe interest] (the “Interest”) in that certain $270,000,000 revolving credit, and/or secured term loan (the “Loan”)made by KeyBank National Association, individually and as Agent, and the other “Lenders” (collectively, the “Lenders”) which are a party to that certainSecond Amended and Restated Master Credit Agreement dated March 29, 2011, among the Lenders, the Agent and the Borrowers (the “Credit Agreement”) andin connection therewith we have requested certain information which is not available to the general public. Capitalized terms used herein that are not otherwisedefined herein shall have the meanings set forth in the Credit Agreement.As used herein, “Confidential Information” means all financial certificates, data, reports, interpretations, forecasts, records and other information of afinancial nature concerning or relating to the Borrowers which is not available to the general public and which you, your affiliates or representatives mayprovide to us in the course of our consideration of a possible acquisition of the Interest, together with financial analyses, compilations, studies or otherdocuments, whether or not prepared by you or any of the Lenders which contain or otherwise reflect such financial information. Notwithstanding theforegoing, Confidential Information shall not include (i) information which was already in our possession prior to our consideration of a possible acquisitionof the Interest or (ii )information which is obtained by us from a third person who is not prohibited from transmitting the information to us.We agree that all Confidential Information will be held and treated by us and our agents, directors, officers, employees, investment advisors, partners,contractual counterparties in any EXHIBIT G – Page 1swap agreement or such contractual counterparty’s professional advisors (collectively, “Representatives”) in confidence and will not, except as hereinafterprovided, without your prior consent, be disclosed by us or our Representatives other than in connection with our consideration of a possible acquisition of theInterest or in connection with a further transfer of the Interest. Moreover, we further agree (i) to disclose Confidential Information only to our Representativeswho need to know the Confidential Information for purposes of our consideration of a possible acquisition of the Interest and who will be advised by us of thisagreement or to others in connection with a potential transfer of the interest (provided that such potential assignee or participant shall execute a confidentialityagreement as required by the Credit Agreement), and (ii) that we shall be responsible for any breach of this agreement by our Representatives. The writtenConfidential Information will be promptly returned to you or destroyed as and when you may request, if we do not acquire the Interest.In the event that we are requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, “civil investigativedemand” or other process) to disclose any Confidential Information, we will provide you with prompt notice of any such request or requirement so that you (orthe Borrowers or other Lenders, as appropriate) may seek an appropriate protective order or waive our compliance with the provisions of this agreement. If aprotective order or the receipt of a waiver hereunder has not been obtained, or if prior notice is not possible, and we are, in the opinion of our counsel,compelled to disclose Confidential Information, we may disclose that portion of the Confidential Information which our counsel advises us that we arecompelled to disclose. In any event, we will not oppose action by you (or the Borrowers or the Lenders) to obtain an appropriate protective order or other reliableassurance that confidential treatment will be accorded the Confidential Information. Nothing herein shall prevent the disclosure of the Confidential Informationto the extent necessary to enforce the Loan Documents (provided that reasonable efforts shall be used to cause the Confidential Information to remainconfidential).We agree to indemnify and hold you harmless from any damage, loss, cost or liability, (including attorneys’ fees and court costs) arising or resultingfrom our breach of the agreement.Neither party hereto shall be under any obligation to the other not expressly contained herein, including any obligation to proceed with a transaction,until definitive transaction documentation has been executed and delivered. This agreement will be governed by and construed in accordance with the internallaws of the State of Texas and may only be amended by a writing. EXHIBIT G – Page 2If the foregoing reflects your agreement, kindly sign and return the duplicate copy of this agreement to us. Very truly yours,[Name of Assignee or Participant]By: Name: Title: AGREED AND ACCEPTED THE FIRST DAY WRITTENABOVE[Name]By: Name: Title EXHIBIT G – Page 3EXHIBIT HFORM OF JOINDER AGREEMENTTHIS JOINDER AGREEMENT (“Joinder Agreement”) is executed as of , 20 , by , a (“Joining Party”), anddelivered to KeyBank National Association, as Agent, pursuant to §5.6 of the Second Amended and Restated Master Credit Agreement dated as of March 29,2011, as from time to time in effect (the “Credit Agreement”), among The Woodlands Commercial Properties Company, L.P. and The Woodlands LandDevelopment Company, L.P. (the “Borrowers”), KeyBank National Association, for itself and as Agent, and the other Lenders from time to time party thereto.Terms used but not defined in this Joinder Agreement shall have the meanings defined for those terms in the Credit Agreement.RECITALSA. Joining Party is required, pursuant to §5.6 of the Credit Agreement, to become an additional Guarantor under the Guaranty and the GuarantorContribution Agreement.B. Joining Party expects to realize direct and indirect benefits as a result of the availability to Borrower of the credit facilities under the Credit Agreement.NOW, THEREFORE, Joining Party agrees as follows:AGREEMENT1. Joinder. By this Joinder Agreement, Joining Party hereby becomes a “Subsidiary Guarantor” and a “Guarantor” under the Guaranty and theGuarantor Contribution Agreement, and the other Loan Documents with respect to all the Obligations of Borrower now or hereafter incurred under the CreditAgreement and the other Loan Documents. Joining Party agrees that Joining Party is and shall be bound by, and hereby assumes, all representations,warranties, covenants, terms, conditions, duties and waivers applicable to a Subsidiary Guarantor and Guarantor under the Guaranty, the GuarantorContribution Agreement and the other Loan Documents. Without limiting the foregoing, Joining Party hereby unconditionally guarantees the payment andperformance of the Obligations as defined in the Guaranty, as required thereunder.2. Representations and Warranties of Joining Party. Joining Party represents and warrants to Agent that, as of the Effective Date (as defined below),except as disclosed in writing by Joining Party to Agent on or prior to the date hereof and approved by the Agent in writing, the representations and warrantiescontained in the Credit Agreement and the other Loan Documents are true and correct in all material respects as applied to Joining Party as a SubsidiaryGuarantor and a Guarantor on and as of the Effective Date as though made on that date. As of the Effective Date, all covenants and agreements in the LoanDocuments of the Subsidiary Guarantor are true and correct with respect to Joining Party and no Default or Event of Default shall exist or might exist upon theEffective Date in the event that Joining Party becomes a Subsidiary Guarantor. EXHIBIT H – Page 13. Joint and Several. Joining Party hereby agrees that, as of the Effective Date, the Guaranty, the Guarantor Contribution Agreement, and the other LoanDocuments heretofore delivered to the Agent and the Lenders shall be a joint and several obligation of Joining Party to the same extent as if executed anddelivered by Joining Party, and upon request by Agent, will promptly become a party to the Guaranty, the Guarantor Contribution Agreement and the otherLoan Documents to confirm such obligation.4. Further Assurances. Joining Party agrees to execute and deliver such other instruments and documents and take such other action, as the Agent mayreasonably request, in connection with the transactions contemplated by this Joinder Agreement.5. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACTUAL OBLIGATION UNDER, AND SHALLBE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.6. Counterparts. This Agreement may be executed in any number of counterparts which shall together constitute but one and the same agreement.7. The effective date (the “Effective Date”) of this Joinder Agreement is , 20 .IN WITNESS WHEREOF, Joining Party has executed this Joinder Agreement under seal as of the day and year first above written. “JOINING PARTY” ,a By: Name: Title: [SEAL] ACKNOWLEDGED:KEYBANK NATIONAL ASSOCIATION, as AgentBy: Its: [Printed Name and Title] EXHIBIT H – Page 2SCHEDULE 1.1LENDERS AND COMMITMENTS Lenders TotalCommitment Term Facility RevolverFacility RevolverLoan % Total TermLoan Land % Land Commercial Commercial % Land only KeyBank National Association127 Public SquareCleveland, Ohio 44114-1306Attn: Real Estate CapitalServices LIBOR Lending Office 65,000,000.00 43,000,000.00 37,941,176.47 25.294117647058800% 5,058,823.53 25.294117647058800% 22,000,000.00 22.000% Same as above Compass Bank8333 Douglas Ave, Suite 505Dallas, Texas 75225Attn: Todd Fuller LIBOR Lending Office 32,000,000.00 18,000,000.00 15,882,352.94 10.588235294117600% 2,117,647.06 10.588235294117600% 14,000,000.00 14.000% Same as above JPMorgan Chase Bank, N.A.707 Travis, 6NHouston, Texas 77002Attn: Laurie Funk LIBOR Lending Office 28,000,000.00 15,500,000.00 13,676,470.59 9.117647058823530% 1,823,529.41 9.117647058823530% 12,500,000.00 12.500% Same as above Atlas Venture I, L.L.C.3401 Armstrong AveDallas, Texas 75205Attn: Sarah Hipp LIBOR Lending Office 27,000,000.00 27,000,000.00 23,823,529.41 15.882352941176500% 3,176,470.59 15.882352941176500% 0.00 0.000% Same as above Woodforest National Bank1330 Lake Robbins Drive, Suite100The Woodlands, Texas 77380Attn: Scott Bilinski, LIBOR Lending Office 20,000,000.00 12,000,000.00 10,588,235.29 7.058823529411760% 1,411,764.71 7.058823529411770% 8,000,000.00 8.000% Same as above SCHEDULE 1.1 – Page 1 Lenders TotalCommitment Term Facility RevolverFacility RevolverLoan % Total TermLoan Land % Land Commercial Commercial % Land only Texas Capital Bank, N.A.One Riverway, Suite 2100Houston, Texas 77019Attn: Angie Hill LIBOR Lending Office 20,000,000.00 11,000,000.00 9,705,882.35 6.470588235294120% 1,294,117.65 6.470588235294120% 9,000,000.00 9.000% Same as above Amegy MortgageCompany, L.L.C.4576 Research ForestDriveThe Woodlands, Texas77381Attn: Don Hickey LIBOR Lending Office 20,000,000.00 11,000,000.00 9,705,882.35 6.470588235294120% 1,294,117.65 6.470588235294120% 9,000,000.00 9.000% Same as above Capital One, N.A.5718 Westheimer, Suite600Houston, Texas 77057Attn: Ryan Matthews LIBOR Lending Office 18,000,000.00 10,000,000.00 8,823,529.41 5.882352941176470% 1,176,470.59 5.882352941176470% 8,000,000.00 8.000% Same as above PNC Bank, NationalAssociationTwo Tower Center 18thFloorEast Brunswick, NewJersey 08816Attn: Luis Donoso LIBOR Lending Office 15,000,000.00 8,500,000.00 7,500,000.00 5.000000000000000% 1,000,000.00 5.000000000000000% 6,500,000.00 6.500% Same as above Green Bank, N.A.4000 Greenbriar, Suite200Houston, Texas 77098Attn: J. Cory LeBouf LIBOR Lending Office 15,000,000.00 8,500,000.00 7,500,000.00 5.000000000000000% 1,000,000.00 5.000000000000000% 6,500,000.00 6.500% Same as above SCHEDULE 1.1 – Page 2Lenders Total Commitment Term Facility RevolverFacility RevolverLoan % Total Term Loan Land % Land Commercial Commercial % Land only TrustmarkNational Bank10497 Town &Country Way,Suite 860Houston, Texas77027Attn: Amy Walp LIBOR LendingOffice 10,000,000.00 5,500,000.00 4,852,941.18 3.235294117647060% 647,058.82 3.235294117647060% 4,500,000.00 4.500% Same asabove 270,000,000.00 170,000,000.00 150,000,000.00 100.00% 20,000,000.00 100.00% 100,000,000.00 100.000% SCHEDULE 1.1 – Page 3SCHEDULE 1.2BORROWING BASE SCHEDULE 1.2 – Page 1SCHEDULE 1.3QUALIFYING INCOME PROPERTIES SCHEDULE 1.3 – Page 1SCHEDULE 1.4PARTIAL INTERESTS SCHEDULE 1.4 – Page 1SCHEDULE 1.5PARTNERSHIPS SCHEDULE 1.5 – Page 1SCHEDULE 1.6NOTE RECEIVABLES SCHEDULE 1.6 – Page 1SCHEDULE 3.6STIPULATED COMMITMENT REDUCTION AMOUNTS A. For Period Ending: Stipulated Commitment ReductionAmount for Such Period Is: March 29, 2012 (First Anniversary) $10,000,000.00 March 29, 2013 (Second Anniversary) $25,000,000.00 March 29, 2014 (Third Anniversary) $30,000,000.00 B. For Extension Term: Stipulated Commitment ReductionAmount for Such Period Is: Period Ending June 29, 2014 $10,000,000.00 Period Ending September 29, 2014 $10,000,000.00 Period Ending December 29, 2014 $10,000,000.00 SCHEDULE 3.6 – Page 1SCHEDULE 6.3TITLE TO PROPERTIES; LEASES SCHEDULE 6.3 – Page 1SCHEDULE 6.7LITIGATION SCHEDULE 6.7 – Page 1SCHEDULE 6.15TRANSACTIONS OF AFFILIATES SCHEDULE 6.15 – Page 1SCHEDULE 6.16ERISA COMPLIANCENone. SCHEDULE 6.16 – Page 1SCHEDULE 6.17ERISA MATTERSNone. SCHEDULE 6.17 – Page 1SCHEDULE 6.20ENVIRONMENTAL MATTERS SCHEDULE 6.20 – Page 1SCHEDULE 6.21SUBSIDIARIES SCHEDULE 6.21 – Page 1SCHEDULE 6.27RIGHT OF FIRST REFUSALS, PURCHASE OPTIONS, ETC. SCHEDULE 6.27 – Page 1SCHEDULE 7.19UNPLEDGED PARTIAL INTERESTS 1.Woodlands-Sarofim #1, Ltd. SCHEDULE 7.19 – Page 1TABLE OF CONTENTS Page §1. DEFINITIONS AND RULES OF INTERPRETATION; AMENDMENT AND RESTATEMENT 1 §1.1 Definitions 1 §1.2 Rules of Interpretation 31 §1.3 Amendment and Restatement 32 §2. THE REVOLVING CREDIT FACILITY 32 §2.1 [Intentionally Omitted.] 32 2.1A Commitment to Lend Revolving Credit Loans 32 §2.2 Unused Fee 33 §2.3 Optional Reduction of Revolving Credit Commitment 33 §2.4 Evidence of Debt 34 §2.4A [Intentionally Omitted.] 35 §2.5 Interest on Revolving Credit Loans 35 §2.6 Requests for Revolving Credit Loans 35 §2.7 Funds for Revolving Credit Loans 36 §2A. THE SECURED TERM LOAN FACILITY 37 §2A.1 Commitment to Lend Commercial Company Secured Term Loan. 37 §2A.1A Commitment to Lend Land Company Secured Term Loan. 37 §2A.2 [Intentionally Omitted.] 37 §2A.2A [Intentionally Omitted.] 37 §2A.3 Interest on Secured Term Loans 37 §3. REPAYMENT OF THE LOANS 38 §3.1 Stated Maturity 38 §3.2 Mandatory Prepayments 38 §3.3 Optional Prepayments 38 §3.4 Partial Prepayments 38 §3.5 Effect of Prepayments 38 §3.6 Mandatory Reduction of Revolving Credit Commitments and Secured Term Loan Commitments 39 §4. CERTAIN GENERAL PROVISIONS 39 §4.1 Conversion Options; Number of LIBOR Contracts 39 -i-TABLE OF CONTENTS(continued) Page §4.2 Closing Fees 40 §4.3 Agent Fee 40 §4.4 Funds for Payments 40 §4.5 Computations 42 §4.6 Inability to Determine LIBOR Rate 42 §4.7 Illegality 42 §4.8 Additional Interest 42 §4.9 Additional Costs, Etc 43 §4.10 Capital Adequacy 44 §4.11 Indemnity of Borrowers 44 §4.12 Interest Following Default; Late Charge 45 §4.13 Certificate 45 §4.14 Limitation on Interest 45 §4.15 Extension of Maturity Date 46 §5. COLLATERAL SECURITY AND GUARANTY 47 §5.1 Collateral 47 §5.2 Appraisals; Adjusted Value 48 §5.3 [Intentionally Omitted.] 49 §5.4 Releases of Certain Liens 49 §5.5 Release of Mortgaged Property; Consent to Easements 50 §5.6 Additional Guarantors 51 §5.7 Release of Collateral 52 §6. REPRESENTATIONS AND WARRANTIES 52 §6.1 Corporate Authority, Etc 52 §6.2 Governmental Approvals 53 §6.3 Title to Properties; Leases 53 §6.4 Financial Statements 53 §6.5 No Material Changes 53 §6.6 Franchises, Patents, Copyrights, Etc 54 §6.7 Litigation 54 -ii-TABLE OF CONTENTS(continued) Page §6.8 No Materially Adverse Contracts, Etc 54 §6.9 Compliance with Other Instruments, Laws, Etc 55 §6.10 Tax Status 55 §6.11 No Event of Default 55 §6.12 Investment Company Act 55 §6.13 Absence of UCC Financing Statements, Etc 55 §6.14 Setoff, Etc 55 §6.15 Certain Transactions 55 §6.16 Employee Benefit Plans 56 §6.17 ERISA Taxes 56 §6.18 Plan Payments 56 §6.19 Regulations U and X 57 §6.20 Environmental Compliance 57 §6.21 Subsidiaries 58 §6.22 Loan Documents 58 §6.23 Property 59 §6.24 Material Agreements 59 §6.25 Brokers 59 §6.26 Partners 59 §6.27 Options to Acquire; Restrictions on Development 60 §6.28 [Intentionally omitted.] 60 §6.29 Fair Consideration 60 §6.30 Solvency 60 §6.31 No Bankruptcy Filing 60 §6.32 Other Debt 60 §6.33 OFAC 61 §6.34 Additional Land 61 §6.35 WECCR Leases; Management Agreements 61 §6.36 Guarantor Contribution Agreement 62 §7. AFFIRMATIVE COVENANTS OF THE BORROWERS 62 -iii-TABLE OF CONTENTS(continued) Page §7.1 Punctual Payment 62 §7.2 Maintenance of Office 62 §7.3 Records and Accounts 62 §7.4 Financial Statements, Certificates and Information 63 §7.5 Notices 65 §7.6 Existence; Maintenance of Properties 66 §7.7 Insurance 67 §7.8 Taxes 71 §7.9 Inspection of Properties and Books 71 §7.10 Compliance with Laws, Contracts, Licenses, and Permits 71 §7.11 Use of Proceeds 72 §7.12 Further Assurances 72 §7.13 Management 72 §7.14 Leases; Development 72 §7.15 ERISA Compliance 73 §7.16 Interest Cap 73 §7.17 Partnership Pledge; Assignment of Notes; Additional Real Estate 73 §7.18 Business Operations 74 §7.19 Borrowing Base Assets 74 §7.20 [Intentionally Omitted.] 75 §7.21 Distribution of Income to the Borrowers 75 §7.22 More Restrictive Agreements 75 §7.23 Associations 76 §7.24 Acquisition of Interest Rate Protection 76 §7.25 Condemnation 76 §8. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS 78 §8.1 Restrictions on Indebtedness 78 §8.2 Restrictions on Liens, Etc 81 §8.3 Restrictions on Investments 82 §8.4 Merger, Consolidation 83 -iv-TABLE OF CONTENTS(continued) Page §8.5 Sale and Leaseback 83 §8.6 Compliance with Environmental Laws 83 §8.7 Distributions; Payment of Subordinated Debt 85 §8.8 Asset Sales 86 §8.9 Development 87 §8.10 Sources of Capital 88 §8.11 Restriction on Prepayment of Indebtedness 88 §8.12 Restrictions on Amendments; Transfers 88 §8.13 Transfers 88 §8.14 Subordinated Debt 89 §9. FINANCIAL COVENANTS OF THE BORROWERS 89 §9.1 Liabilities to Market Value Capitalization Ratio 89 §9.2 Interest Coverage 89 §9.3 Borrowing Base 90 §9.4 Market Value Net Worth 90 §9.5 Fixed Charge Coverage Ratio 90 §10. CLOSING CONDITIONS 90 §10.1 Loan Documents 90 §10.2 Certified Copies of Organizational Documents 90 §10.3 Bylaws; Resolutions 90 §10.4 Incumbency Certificate; Authorized Signers 91 §10.5 Opinion of Counsel 91 §10.6 Payment of Fees 91 §10.7 [Intentionally omitted.] 91 §10.8 [Intentionally Omitted.] 91 §10.9 Insurance 91 §10.10 Performance; No Default 91 §10.11 Representations and Warranties 91 §10.12 Proceedings and Documents 91 §10.13 Collateral Qualification Documents 92 -v-TABLE OF CONTENTS(continued) Page §10.14 Compliance Certificate 92 §10.15 Consents 92 §10.16 Other Documents 92 §10.17 No Condemnation/Taking 92 §10.18 Interest Cap 92 §10.19 Conference Center Loan 92 §10.20 [Intentionally Omitted.] 92 §10.21 Other 92 §11. CONDITIONS TO ALL BORROWINGS 92 §11.1 Prior Conditions Satisfied 92 §11.2 Representations True; No Default 93 §11.3 No Legal Impediment 93 §11.4 Governmental Regulation 93 §11.5 Proceedings and Documents 93 §11.6 Borrowing Documents 93 §11.7 Future Advances Tax Payment 93 §12. EVENTS OF DEFAULT; ACCELERATION; ETC 94 §12.1 Events of Default and Acceleration 94 §12.1A Limitation of Cure Periods 97 §12.2 Termination of Commitments 98 §12.3 Remedies 98 §12.4 Distribution of Collateral Proceeds 99 §13. SETOFF 99 §14. THE AGENT 100 §14.1 Authorization 100 §14.2 Employees and Agents 100 §14.3 No Liability 100 §14.4 No Representations 101 §14.5 Payments 101 §14.6 Holders of Notes 103 -vi-TABLE OF CONTENTS(continued) Page §14.7 Indemnity 103 §14.8 Agent as Lender 103 §14.9 Resignation; Removal 103 §14.10 Duties in the Case of Enforcement 104 §14.11 Reliance on Hedge Provider 104 §14.12 Co-Agents 104 §14.13 Request for Agent Action 104 §14.14 [Intentionally omitted.] 105 §14.15 Bankruptcy 105 §14.16 Lender Intercreditor Agreement 105 §15. EXPENSES 105 §16. INDEMNIFICATION 106 §17. SURVIVAL OF COVENANTS, ETC 108 §18. ASSIGNMENT AND PARTICIPATION 108 §18.1 Conditions to Assignment by Lenders 108 §18.2 Register 109 §18.3 New Notes 109 §18.4 Participations 110 §18.5 Pledge by Lender 110 §18.6 No Assignment by Borrowers 110 §18.7 Cooperation; Disclosure 110 §18.8 Mandatory Assignment 111 §19. NOTICES 111 §20. RELATIONSHIP 113 §21. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE 113 §22. HEADINGS 113 §23. COUNTERPARTS 113 §24. ENTIRE AGREEMENT, ETC 114 §25. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS 114 §26. DEALINGS WITH THE BORROWERS 114 -vii-TABLE OF CONTENTS(continued) Page §27. CONSENTS, AMENDMENTS, WAIVERS, ETC 115 §28. SEVERABILITY 115 §29. [INTENTIONALLY OMITTED.] 116 §30. REPLACEMENT OF NOTES 116 §31. TIME OF THE ESSENCE 116 §32. NONRECOURSE OBLIGATIONS 116 §33. JOINT AND SEVERAL LIABILITY 117 §34. ADDITIONAL AGREEMENTS CONCERNING OBLIGATIONS OF BORROWERS 117 §34.1 Waiver of Automatic or Supplemental Stay 117 §34.2 Consideration 117 §34.3 Waiver of Defenses 117 §34.4 Waiver 118 §34.5 Subordination 118 §35. RIGHTS OF THIRD PARTIES 119 §36. PATRIOT ACT 119 -viii-EXHIBITS EXHIBIT A-1 RESERVEDEXHIBIT A-2 FORM OF REVOLVING CREDIT NOTEEXHIBIT B-1 FORM OF COMMERCIAL COMPANY SECURED TERM LOAN NOTEEXHIBIT B-2 FORM OF LAND COMPANY SECURED TERM LOAN NOTEEXHIBIT C-1 RESERVEDEXHIBIT C-2 FORM OF REQUEST FOR LOAN (LAND COMPANY)EXHIBIT D FORM OF REQUEST FOR EXTENSION OF LOANSEXHIBIT E FORM OF COMPLIANCE CERTIFICATE WITH BORROWING BASE WORKSHEETEXHIBIT F FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENTEXHIBIT G FORM OF CONFIDENTIALITY AGREEMENTEXHIBIT H FORM OF JOINDER AGREEMENTSCHEDULES SCHEDULE 1.1 LENDERS AND COMMITMENTSSCHEDULE 1.2 BORROWING BASESCHEDULE 1.3 QUALIFYING INCOME PROPERTIESSCHEDULE 1.4 PARTIAL INTERESTSSCHEDULE 1.5 PARTNERSHIPSSCHEDULE 1.6 NOTE RECEIVABLESSCHEDULE 3.6 STIPULATED COMMITMENT REDUCTION AMOUNTSSCHEDULE 6.3 TITLE TO PROPERTIES; LEASESSCHEDULE 6.7 LITIGATIONSCHEDULE 6.15 TRANSACTIONS OF AFFILIATESSCHEDULE 6.16 ERISA COMPLIANCESCHEDULE 6.17 ERISA MATTERSSCHEDULE 6.20 ENVIRONMENTAL MATTERSSCHEDULE 6.21 SUBSIDIARIESSCHEDULE 6.27 RIGHT OF FIRST REFUSALS, PURCHASE OPTIONS, ETC.SCHEDULE 7.19 UNPLEDGED PARTIAL INTERESTSExhibit 21.1THE HOWARD HUGHES CORPORATIONLIST OF SUBSIDIARIES 4 Waterway Holdings, LLC Delaware110 Holding, LLC Delaware110 Wacker, LLC Delaware170 Retail Associates, Ltd. Texas170 Retail Holding, LLC Delaware9303 New Trails Holdings, LLC DelawareACB Parking Business Trust MarylandAlameda Plaza, LLC DelawareAllenTowne Mall, LLC DelawareAmerican City Building Corporation MarylandBeverage Operations, Inc. TexasBridgeland Development, LP MarylandBridgeland GP, LLC DelawareBridgeland Partner, LLC MarylandBridges at Mint Hill, LLC DelawareBridges at Mint Hill Member, LLC DelawareCentury Plaza L.L.C. DelawareClover Acquisitions LLC DelawareCottonwood Mall, LLC DelawareCottonwood Square, LLC DelawareCypress LA, LLC DelawareElk Grove Town Center L.L.C. DelawareElk Grove Town Center, L.P. DelawareEmerson Land Business Trust MarylandEmerson Land, LLC DelawareFairwood Commercial Development Corporation MarylandFairwood Commercial Development Holding, LP MarylandFairwood Commercial Development Limited Partnership MarylandFairwood Commercial Front Foot Benefit Company, LLC MarylandFV-93 Limited TexasGateway Overlook III Business Trust MarylandGG DR, L.L.C. IllinoisGreengate Mall, Inc. PennsylvaniaHarper’s Choice Business Trust MarylandHex Holding, LLC DelawareHexalon Real Estate, LLC DelawareHHMK Development, LLC DelawareHoward Hughes Properties, Inc. NevadaHoward Hughes Management, Co. LLC DelawareHRD Parking Deck Business Trust MarylandHRD Parking, Inc. MarylandKapiolani Residential LLC DelawareLand Trust No. 89433 HawaiiLand Trust No. 89434 HawaiiLand Trust No. FHB-TRES 200601 HawaiiLand Trust No. FHB-TRES 200602 HawaiiLandmark Mall L.L.C. DelawareLRVC Business Trust MarylandMerchantwired Interest, Inc. MarylandMerchantWired, LLC DelawareMerriweather Post Business Trust MarylandNatick Residence LLC DelawareOakland Ridge Industrial Development Corporation MarylandParcel C Business Trust MarylandParcel D Business Trust MarylandParcel D Development LLC DelawareParcel D Property LLC DelawareParke West, LLC DelawarePrice Development TRS, Inc. DelawarePrinceton Land East, LLC DelawarePrinceton Land, LLC DelawareRed Rock Investment, LLC NevadaRedlands Land Acquisition Company L.L.C. DelawareRedlands Land Acquisition Company L.P. DelawareRio West L.L.C. DelawareRiverwalk Marketplace (New Orleans), LLC DelawareSeaport Marketplace Theatre, LLC MarylandSeaport Marketplace, LLC MarylandSouth Street Seaport Limited Partnership MarylandStewart Title of Montgomery County Inc. TexasStone Lake, LLC MarylandSummerlin Centre, LLC DelawareSummerlin Corporation DelawareSummerlin Hospital Medical Center, L.P. DelawareTHC-HRE, LLC MarylandThe Howard Hughes Company, LLC DelawareThe Howard Research And Development Corporation MarylandThe Hughes Corporation DelawareThe Woodlands Beverage, Inc. TexasThe Woodlands Brokerage, LLC TexasThe Woodlands Commercial Brokerage Company, L.P. TexasThe Woodlands Commercial Properties Company, LP TexasThe Woodlands Corporation DelawareThe Woodlands Custom Residential Sales, LLC TexasThe Woodlands Custom Sales, LP TexasThe Woodlands Land Development Company, L.P. TexasThe Woodlands Operating Company, L.P. TexasTimbermill-94 Limited TexasTown Center Development Company GP, LLC TexasTown Center Development Company, LP TexasTown Center East Business Trust MarylandTown Center East Parking Lot Business Trust MarylandTWC Commercial Properties, LLC DelawareTWC Commercial Properties, LP DelawareTWC Land Development, LLC DelawareTWC Land Development, LP DelawareTWC Operating, LLC DelawareTWC Operating, LP DelawareTWCPC Holdings GP, LLC TexasTWCPC Holdings, L.P. TexasTWLDC Holdings GP, LLC TexasTWLDC Holdings, LP TexasVictoria Ward Center L.L.C. DelawareVictoria Ward Entertainment Center L.L.C. DelawareVictoria Ward Services, Inc. DelawareVictoria Ward, Limited DelawareVW Condominium Development, LLC DelawareVolo Land, LLC DelawareWard Gateway-Industrial-Village, LLC DelawareWard Plaza-Warehouse, LLC DelawareWaterway Ave Partners, L.L.C. TexasWECCR General Partnership TexasWECCR, Inc. TexasWest Kendall Holdings, LLC MarylandWestlake Retail Associates, Ltd. TexasWestlake Retail Holding, LLC DelawareWincopin Restaurant Business Trust MarylandWoodlands Acquisition, LLC TexasWoodlands Office Equities-95, Ltd. TexasWoodlands Sarofim #1, Ltd. TexasExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-170432, 333-174031, 333-171909 and 333-171910 on Form S-8 of our reportsdated February 29, 2012, relating to the financial statements and financial statement schedule of The Howard Hughes Corporation and subsidiaries (the“Company”) (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the allocations of certain operating expensesfrom General Growth Properties, Inc included in the Company’s combined financial statements prior to November 9, 2010), and the effectiveness of theCompany’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2011./s/ Deloitte & Touche LLPDallas, TexasFebruary 29, 2012Exhibit 24.1POWER OF ATTORNEYEach of the undersigned hereby constitutes and appoints David R. Weinreb as the undersigned’s true and lawful attorney and agent, with full power ofsubstitution and resubstitution for the undersigned and in the undersigned’s name, place and stead, in any and all capacities, to sign the Annual Report onForm 10-K of The Howard Hughes Corporation for the year ended December 31, 2011 and any and all amendments thereto, and to file the same, with allexhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney and agent full powerand authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or coulddo in person, hereby ratifying and confirming all that said attorney and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtuehereof. /s/ William Ackman /s/ R. Scot SellersWilliam Ackman R. Scot Sellers/s/ Adam Flatto /s/ Steven ShepsmanAdam Flatto Steven Shepsman/s/ Jeffrey Furber /s/ Burton M. TanskyJeffrey Furber Burton M. Tansky/s/ Gary Krow /s/ Mary Ann TigheGary Krow Mary Ann Tighe/s/ Allen Model Allen Model Dated: February 27, 2012Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) ADOPTEDPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, David Weinreb, certify that:1. I have reviewed this Annual Report on Form 10-K of The Howard Hughes Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likelyto adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: February 29, 2012 /s/ David R. WeinrebDavid R. WeinrebChief Executive OfficerExhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) ADOPTEDPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I Andrew Richardson, certify that:1. I have reviewed this Annual Report on Form 10-K of The Howard Hughes Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting.Date: February 29, 2012 /s/ Andrew C. RichardsonAndrew C. RichardsonChief Financial OfficerExhibit 32.1CERTIFICATION PURSUANT TO 18 U.S.C. 1350 ADOPTED PURSUANTTO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report on Form 10-K of The Howard Hughes Corporation (the “Company”) for the period ended December 31, 2011, as filedwith the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers, in their capacity as officers, of theCompany, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’sknowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ David R. WeinrebDavid R. WeinrebChief Executive OfficerFebruary 29, 2012/s/ Andrew C. RichardsonAndrew C. RichardsonChief Financial OfficerFebruary 29, 2012

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