The Howard Hughes Annual Report 2013

Plain-text annual report

T H E H O W A R D H U G H E S C O R P O R A T I O N A N N U A L R E P O R T 2 0 1 3 | THIS ANNUAL REPORT IS A PRODUCT OF THE HOWARD HUGHES STUDIO. HHC/13 UNLOCKING VALUE FROM WALL STREET TO WAIKIKI ANNUAL REPORT 2013 CONTENTS CEO SHAREHOLDER LETTER BY DAVID R. WEINREB – THE YEAR IN REVIEW PROJECT HIGHLIGHTS FROM COAST TO COAST TO COAST ANNUAL REPORT ON FORM 10-K PAGE# 3 22 57 OUR VISION TO THE SHAREHOLDERS OF THE HOWARD HUGHES CORPORATION FROM THE CHIEF EXECUTIVE OFFICER MARCH 13, 2014 — During his lifetime, Howard Hughes built a legacy that places him among the greatest entrepreneurs of the 20th century. We are inspired by his namesake and driven by our own sharply focused ambitions. In last year’s letter, I compared the development of our company to the process of making a film. In 2012, we wrote the script, scouted locations and cast the talent. In 2013, the cameras began rolling and I am pleased to report from the field that our core developments are off to a strong start. We made substantial progress in creating value at our most important assets, increased the depth of our world- class development team, delivered strong financial results, and generated liquidity that further solidified our balance sheet. The Howard Hughes Corporation had an exceptional year. We have the preeminent master planned community (MPC) business in the country, and under the skilled stewardship of our MPC leaders, this thriving business was primarily responsible for another year of exemplary financial results. Our consolidated revenues totaled $475 million, of which MPC land sales were up 36% to $246 million, and operating income and income from non-consolidated affiliates totaled $118 fact million compared to $76 million in 2012. that many the Notwithstanding of our most valuable assets are under construction and do not contribute to our bottom line, cash flow from operations was $129 million in 2013. We invested $376 million in pre-development and development to advance our projects to the point at which they will begin to generate recurring cash flow and their intrinsic value can begin to be recognized. We took advantage of low interest rates by raising $750 million of cash through the issuance of covenant-lite bonds which will allow us the flexibility to stay the course in developing assets that will have significant long-term value, regardless of short-term economic or capital markets disruptions during the development cycle. At the end of 2013, we had $895 million of unrestricted cash on hand, and just 28% net debt against the book value of our equity capital base, a value which we believe significantly understates our Company’s intrinsic value. We remain focused on a handful of core assets in which the majority of our value creation potential resides: The South Street Seaport in Lower Manhattan; the master planned communities in Columbia, Maryland, Houston, Texas and Las Vegas, Nevada; the Shops at 3 Summerlin in Las Vegas; and Ward Village, an urban master planned community in Honolulu, Hawai'i. We are also redeveloping several assets that showcase how imaginative thinking can create value. The Outlet Collection at Riverwalk in New Orleans, Louisiana, represents such an example. We attribute our success in our ongoing progress in unlocking the value of our assets to the dedication and tireless efforts of our exceptionally talented employees, and the ongoing support, guidance and commitment of our board of directors. This year we continued to add talented professionals to our team who share our passion for excellence, have accomplished track records and have made immediate contributions. Together with the board, the senior management team and our 1000+ employees aspire to continue to grow the per-share value of The Howard Hughes Corporation at a high rate over the long term. ANNUAL REPORT 2013CONSTRUCTION An aerial view of The Shops at Summerlin under construction. An aerial view of construction at Hughes Landing. Last year I mentioned that 2013 would be a pivotal year for the company as we transition from planning to building. We did just that by initiating construction from Wall Street to Waikiki: THE WOODLANDS HAWAI'I • We completed construction of 3 • In Hawai'i, we completed the Waterway Square and One Hughes Landing. Together these office buildings are approximately 430,000 square feet in size and are 98% occupied. construction of The Ward Village Residential Sales Gallery and the Master Plan Information Center in the iconic IBM Building. • Two Hughes Landing, a 197,000- • We completed Phase Two of Ward square-foot office building, quickly followed on the heels of the two office buildings listed above, is almost complete. • We began construction of two office buildings totaling 647,000 square feet of which 478,000 square feet have been leased to Exxon Mobil Corporation. Village Shops, a 57,000-square-foot retail building now occupied by Nordstrom Rack and Pier One. • We began construction of One Ala Moana, a 206-unit condominium tower that is 100% sold out and slated for completion at the end of 2014. • We commenced construction of our Hughes Landing Retail project, which consists of approximately 122,000 square feet of retail, anchored by a Whole Foods Market. • In the Village of Creekside Park, we are now under construction on a 75,000-square-foot retail center that will be complete in late 2014. • We began construction of One Lake’s Edge, a 390-unit multifamily project • We began the redevelopment of The Woodlands Resort and Conference Center, which will be completed by the third quarter of 2014. • We are approaching completion of Millennium Phase II, 314 apartment units which we are building in a joint venture with The Dinerstein Companies. COLUMBIA • We are continuing the construction of The Metropolitan, a 380-unit multifamily development in Columbia, Maryland. The Metropolitan is being built in partnership with Kettler- Orchard and is expected to begin pre-leasing in the second half of 2014. • In the fourth quarter of last year we entered into a joint venture with Kettler-Orchard to construct Phase II, a 437-unit apartment building on land currently known as Parcel C. • We continued the redevelopment and conversion of the old Rouse headquarters into a Whole Foods anchored center. LAS VEGAS, NEW ORLEANS AND NEW YORK CITY • In Summerlin, we are continuing to develop and lease The Shops at Summerlin, a 1.6 million-square- foot retail downtown for the master planned community which we expect to be open for the holiday season. • In New Orleans, we began construction of the Outlet Collection at Riverwalk. The property is 95% preleased. This will be the first outlet center in the country located in an urban location expected to open in May 2014. • In New York, we commenced construction of the redevelopment of Pier 17 and the historic (Uplands) district, just west of the FDR Drive. In the aggregate, the above developments represent 1.3 million square feet of office, 2.5 million square feet of retail, 1,725 multifamily units and a 406-room renovated hotel with total project costs, excluding the South Street Seaport and the One Ala Moana condominium development, of $1.3 billion. We expect to generate a stabilized yield of approximately 10% from these developments. We have excluded the South Street Seaport because we expect to generate a significantly higher yield on cost than 10% but do not have clear visibility yet. 5 ANNUAL REPORT 2013MASTER PLANNED COMMUNITIES The Howard Hughes Corporation has the best MPCs in some of the strongest markets in the country. Our seasoned management team took advantage of the continued demand for our land and obtained significant price and volume increases over 2012 thereby delivering outstanding results. This trend is continuing into 2014. THE WOODLANDS George Mitchell was an icon of the energy industry and the visionary founder of The Woodlands. In the 1960s, he saw the need for a thoughtfully planned community where families and businesses could live in harmony with nature. He used the wealth he amassed in the energy industry to acquire 28,000 acres of raw land north of Houston. In his obituary, his children wrote “He led his life with a winning combination of confidence, risk, intellect, imagination, persistence, integrity and loyalty. He touched the lives of countless people and left the world a better place.” Mr. Mitchell’s passion and legacy survive as part of the culture of our team, led by Paul Layne – Executive Vice President Master Planned Communities, and Alex Sutton and Tim Welbes – Co-Presidents of The Woodlands. The following napkin sketch from 1972 depicts the original town center concept for The Woodlands. The creator of this drawing, Robert Heineman, is still a valued executive with HHC today. In this drawing, the red and orange areas between I-45 on the right and the blue residential plan on the left represent the acreage reserved for commercial development. Commercial buildings were not developed on this site until the 2000s, after a critical mass of residential homes had been built to generate demand for commercial product. Today, the most valuable opportunities still remain in Town Center. George Mitchell possessed the vision, foresight and courage to preserve the most valuable it really land for development until mattered. We continue to be a tremendous beneficiary of Mr. Mitchell’s vision. Demand for residential and commercial property in The Woodlands continues to grow at a tremendous pace, benefitting not only from a regional economic tailwind but also from our team’s ability The Woodlands Waterway to identify and execute at the highest level on new commercial and residential opportunities. In 2011, we acquired the remaining 47.5% equity interest in The Woodlands that we did not already own for $117.5 million, implying a $247 million equity value for the entire asset. With the ongoing commercial development and with results from recent land sales, we believe that the equity value of The Woodlands today is far in excess of that valuation. The following table illustrates the different elements of potential value at The Woodlands. Please note that this table does not adjust for the time value of money nor any potential increase in future value of The Woodlands assets and includes several assumptions regarding cap rates, net operating income, development costs and sales prices, which may or may not be accurate. Despite these caveats, we believe this back of the envelope analysis provides a good illustration of the potential magnitude of the value appreciation in this property since our 2011 acquisition. The vision for The Woodlands Town Center sketched on a napkin. 6 CEO SHAREHOLDER LETTERAmount Valuation Metric Year Stabilized Estimated Value ($MM) THE WOODLANDS VALUE ESTIMATES Asset Land Residential Land (1) Commercial Acres (2) Total Land Stabilized Assets 4 Waterway Square 3 Waterway Square 9303 New Trails 1400 Woodloch 20/25 Waterway One Hughes Landing Millennium Waterway Apartments 2,064 Lots 791 Acres $ 5.8 Projected Annual NOI 6.3 Projected Annual NOI 1.8 Projected Annual NOI 1.5 Projected Annual NOI 1.5 Projected Annual NOI 5.5 Projected Annual NOI 4.6 Projected Annual NOI Woodlands Resort & Conference Center (3) 16.0 Projected Stabilized NOI Other Assets Total Stabilized Assets (4) Under Construction Two Hughes Landing Hughes Landing Retail One Lake’s Edge Multifamily Creekside Park Village Center Millennium Six Pines Multifamily ExxonMobil Build-to-Suit $ $ 0.4 Projected Annual NOI 43.4 5.5 Projected Stabilized NOI 3.5 Projected Stabilized NOI 7.8 Projected Stabilized NOI 1.9 Projected Stabilized NOI 4.4 Projected Stabilized NOI 14.4 Projected Stabilized NOI Total Under Construction (5) $ 37.5 Additional Planned Development Commercial Development (6) 7.0 Square Feet (MM) Total Additional Planned Development 7.0 Gross Asset Value Less: Cost to Complete (7) Less: Existing Debt (8) Estimated Undiscounted Value (9) 2014 2014 2014 2014 2014 2015 2014 2016 2014 2015 2016 2016 2015 2015 2016 $ $ $ $ $ $ $ $ $ $ 316 417 732 83 90 26 21 21 79 66 229 6 620 79 50 111 27 63 262 592 1,050 1,050 2,994 (428) (407) 2,159 1. 2013 average price per lot less remaining net development costs. 2. Assumes $12.09 per square-foot. Excludes land in the Town Center. 3. Represents projected stabilized NOI upon completion of the redevelopment. 2013 actual NOI was $10.2 million. 4. Assumes a 7.0% cap rate on Projected Annual NOI. 5. Assumes a 7.0% cap rate on Projected Stabilized NOI excluding ExxonMobil, which assumes a 5.5% cap rate. 6. Future development valued $150 per square-foot net of development costs. 7. Estimated cost to complete projects under construction as of December 31, 2013. 8. Debt as of December 31, 2013. 9. The value derived does not account for timing of future developments or completion of existing developments. Future development projects assumed to be completed in this analysis may or may not actually be completed. 7 ANNUAL REPORT 2013 Hughes Landing is being developed into a vibrant, walkable mixed-use environment. Whole Foods will bring fresh gourmet food options to Hughes Landing. Due to strong demand for hotel rooms at premium rates, we intend to develop a 300-room hotel located in Town Center. Located adjacent to 4 Waterway Square and across the street from 3 Waterway Square, this hotel will serve as the newest generation Four Diamond hotel in an underserved market and will complement The Woodlands Resort & Conference Center. This $100+ million project is expected to break ground in the first half of 2014 and will welcome its first guests in late 2015. THE WOODLANDS COMMERCIAL PROPERTY DEVELOPMENT OPPORTUNITY The Woodlands commercial office vacancy rate at less than 5% is one of the lowest in the country. In light of this demand, we continue to work to identify future potential development sites in The Woodlands. We have identified an additional seven million square feet o f fu ture c om m erc ia l d evelop ment opportunities since we obtained 100% ownership of The Woodlands. Using current market values of $400 per square- foot and a cost to complete (excluding land value) of $250 per square-foot, we estimate that we can achieve more than $1 billion of value from these new development opportunities. Strong economic trends are expected to continue to provide us with a unique opportunity to accelerate growth, density and development. The time is now for The Woodlands and we understand the unique opportunity in front of us. THE WOODLANDS RESIDENTIAL AND COMMERCIAL LAND In my 2013 shareholder letter, I discussed the results of a competitive bid process for 375 residential lots in which pricing came in 49% higher than sale prices for comparable lots prior to the origination of this process. We continue to obtain competitive bids for residential lots and now command an average price per lot that is 98% higher than before the program was implemented in the second half of 2012. Based on the 2013 average lot price of $155,500 and the uninflated future net cash cost to deliver of approximately $2,600, we estimate a profit of $152,900 on the remaining 2,064 lots. Assuming no further price increases, this results in $316 million in total proceeds from residential lots. If we use the 2013 expected value of $12.09 per square-foot for the 791 acres of our remaining commercial land outside The Woodlands Town Center district, we can expect $417 million in proceeds for a combined undiscounted land value of $732 million. THE WOODLANDS COMMERCIAL OPERATING PROPERTIES We continue to expand the platform of stabilized operating assets in The Woodlands. Our commercial properties currently encompass over 1,000,000 square feet of office space, 50,000 square feet of retail space, 393 luxury multifamily units, a 406-key resort and conference center and a country club. Once redevelopment of The Woodlands Resort & Conference Center has been completed and stabilized, we expect the combined annual NOI from these properties to be in excess of $43 million. Applying a conservative 7.0% cap rate to this portfolio of assets, results in a value before debt of $620 million. The Woodlands Resort & Conference Center is currently under construction undergoing a $75 million redevelopment. We are adding 184 new rooms and expect to demolish the older 218 rooms, which were built in the 1970s. Our future plans include replacing these at a later date with luxury townhomes. Occupancy prior to the start of construction was approximately 57.6% comprised of 62.9% during the week and 46.3% during the weekend. With the addition of an 865-foot “lazy river” we expect to attract families on the weekend which will increase average occupancy to 67% comprised of 71% during the week and 58% on the weekend. While the property continues to perform well during construction, we expect NOI to increase by over 50% to $16 million once the redevelopment has been completed and occupancy stabilizes. THE WOODLANDS COMMERCIAL PROPERTIES UNDER DEVELOPMENT As the demand for commercial space and new amenities continues to exceed supply, we are advancing development plans for several strategic assets located within The Woodlands. Most notably, in July 2012, we announced plans for Hughes Landing, a 66-acre mixed use development located on Lake Woodlands. The development is ultimately planned for 1.6 million square feet of office, 250,000 square feet of retail, restaurant and entertainment space, up to 1,500 multifamily units and a 175-room hotel. We recently announced 650,000 square feet of office currently under construction at Hughes Landing, of which 478,000 square feet were leased to the Exxon Mobil Corporation. Once the commercial properties under development and stabilized, we expect them to generate approximately $37.5 million in NOI and we estimate their value at approximately $600 million. completed are 8 CEO SHAREHOLDER LETTERA block of homes in a Bridgeland residential neighborhood. A kayaker enjoys one of the many waterways and lakes in Bridgeland. BRIDGELAND Bridgeland finished 2013 with 7,350 residents in 2,100 homes, and demand for finished lots remains robust. While we sold 143 residential lots at an average price of $77,000 and 16.6 commercial acres generating $13.6 million in revenue, we were unable to fully capitalize on demand due to an unforeseen delay in obtaining a development permit from the US Army Corps of Engineers. By comparison, in 2012, we sold 389 lots and generated revenue of $21.9 million. I am pleased to report that on February 27, 2014 we received the development permit. As a result, we should be able to deliver over 500 finished lots to builders within 180 days and develop an additional 806 acres of land in Bridgeland, representing approximately 1,300 finished lots. There are a few reasons why we are confident that sales momentum will return to Bridgeland and lot sales will accelerate. First, Segment E of the Grand Parkway, which bisects the future downtown of Bridgeland, is now open to vehicular traffic. The Grand Parkway will reduce the commute time between Bridgeland and The Woodlands and other areas of the Houston Metropolitan Statistical Area (MSA). Next, as Houston continues to grow northwest, many of Bridgeland’s competitors are running out of lot inventory. With approximately 18,000 remaining developable lots and a 2013 average price per lot of $77,000, we are positioned to capitalize on Bridgeland’s potential for growth. Finally, with an increasing number of residents, we continue to invest in infrastructure so that we can stay ahead of expected growth. In 2013, we invested $29.2 million in the development of future residential sections and critical support items such as waste water treatment plants, roads, sewers and community amenities. 9 ANNUAL REPORT 2013SUMMERLIN When I became CEO of The Howard Hughes Corporation near the depth of the housing recession in 2010, Summerlin had just $11 million of revenues. At its peak, Summerlin generated $260 million of annual revenues. Because of this potential, we dubbed Summerlin the Sleeping Giant, and in 2013, this Sleeping Giant awoke. Summerlin generated $112 million of land sales in 2013 compared with $32 million in 2012, and the average price per superpad acre increased to $323,000 from $226,000 in 2012. In 2013, Summerlin sold 157 finished lots, nine superpads (totaling 257 acres) and 12 custom lots. At December 31, 2013, Summerlin had ten active subdivisions containing 290 lots, down from 13 at the end of 2012. Summerlin’s new home sales increased to 589 in 2013 from 471 in 2012. Kevin Orrock, President of Summerlin, and his team are energized by the recovery of this market and growing demand for land in Summerlin. Our patience paid off and now our community is once again blossoming as the premier community where homebuilders want to build. In 2013, median new home sales prices in the Las Vegas Valley increased approximately 37% over the prior year. According to the Las Vegas Review Journal, resale inventory at the end of 2013 represented 2.8 months of inventory, less than half the six-month supply of a normal market. Visitors to the Las Vegas strip were 39.7 million, just shy of the 2012 record. Construction activity is also on the upswing, with almost $8 billion of investment proposed or under construction in Las Vegas. To give some context to the rebound in values at Summerlin, in 2010 we took an impairment charge against the approximately 2,000 acres in Summerlin South. The $203 million fair value determined at that time for accounting purposes was computed using a discounted cash flow model containing projected future sales prices and costs to deliver parcels to homebuilders. In the second half of 2013, we sold superpads for an average of approximately $365,000 per acre. Our model from 2010 did not assume we would reach this price until 2025, so from a pricing standpoint we are 12 years ahead of our assumptions in the 2010 valuation model. You may remember from our Chairman’s letter in 2011, Bill Ackman stated “small changes in assumptions on discount rates, lot pricing and sales velocity, inflation etc. can have an enormous impact on fair value.” Calculating the positive impact of pricing increases and sales velocity would dramatically change the carrying value of Summerlin, but under GAAP accounting, we do not “write up” assets if they increase in value. We only write them down if we believe we cannot recover our book value from the future cash flows we expect to receive from the property. In light of the recent rapid increase in sales prices, one might ask whether we are approaching peak pricing in Summerlin, but we believe we are far from it. The following chart shows historical annual superpad sales and price per acre for superpads. We are now at 2003/2004 pricing levels and one-third of the peak. We also believe that the creation of a downtown in Summerlin will have a substantial positive impact on land values. We believe the future is very bright for Summerlin. As the Las Vegas economy continues its recovery, we expect Summerlin to further differentiate itself as the top MPC in the region. Summerlin, which is equipped with the best amenities of any MPC in the Las Vegas market, is adjacent to the Red Rock Canyon National Conservation Area and has neighborhoods connected by a 150-mile trail network. The community also boasts the best public and private schools in the state. Eleven out of the 12 public schools in Summerlin received one of two top scores according to the Nevada Department of Education’s 2013 statewide assessment. I believe that anything really worth doing, whether in life or in business, requires persistence and perseverance. Staying the course means having the necessary foresight, capital and, most importantly, courage to stick to your plan. The Shops at Summerlin in Downtown Summerlin was an abandoned mall site that our predecessor had invested over $150 million infrastructure before suspending construction during the financial crisis. It had an all-star lineup of tenants and if previous management had the capital and courage to stay the course, despite how badly Las Vegas was in HISTORICAL SUPERPAD SALES PRICE PER ACRE (THOUSANDS) $83,191 $65,176 $72,754 $67,122 $60,621 $81,266 $1,059 $973 $822 $54,936 $720 SALES (THOUSANDS) $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $37,635 $30,000 $20,000 $10,000 $- $24,372 $289 $203 $160 $169 $170 $108 $26,116 $14,657 $323 $226 $12,505 $7,042 -$ -$ -$ -$ -$ -$ $0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SUMMERLIN SUPERPAD SALES 10 $1,200 $1,000 $800 $600 $400 $200 $- CEO SHAREHOLDER LETTERhit by the downturn, it would be a fortress mall today. I am excited about launching the development of the downtown in Summerlin because we are not building a mall or a town center but instead a small city just like we did at The Woodlands. in Part of a 400-acre site, this downtown will initially be home to over 1.35 million square feet of national retailers, a 200,000-square-foot Class-A office the coming years, building, and thousands of residents in apartments and condos in addition to more office buildings to meet the demands of companies wanting to enjoy this world class community where their employees can work, live and play. A 200,000-square-foot Class-A office building, originally begun by our predecessor, will be located in the center of our city. The partially completed structure that we inherited provided us the opportunity to profitably develop this building at an attractive economic return. This building will be a catalyst for additional office development on our site as tenants throughout the Las Vegas Valley are drawn to the amenities offered by our downtown development. A view of the Summerlin master planned community in Las Vegas, Nevada. Dave Kautz – Senior Vice President of Development, is responsible for building the Downtown Summerlin project. Dave has over 30 years of development experience in a diverse range of retail projects. His talent, enthusiasm, tireless energy and no nonsense approach are a perfect fit for a project of this scale and complexity. When you visit this site, you will find it bustling with activity with as many as 600 workers onsite daily. We expect the opening of The Shops at Summerlin to be a huge success. COLUMBIA In Columbia, Maryland we began construction on the first two important commercial developments in Downtown Columbia. The 50/50 joint venture with Kettler-Orchard to develop a 380-unit Class-A apartment building called The Metropolitan began construction last year and is expected to be completed on schedule by the end of 2014. Kettler-Orchard has been a great partner on the project and we therefore decided to do a 50/50 joint venture with Kettler on a new 437-unit Class-A apartment building adjacent to The Metropolitan. We contributed approximately five acres of land with a book value of $4.0 million at a valuation of $4.8 million per acre, or $53,500 per unit which equates to $23.4 million in total value. We expect construction on this second apartment building to begin in 2014. The renovation of the Frank Gehry-designed Columbia Headquarters building began in 2013. Anchored by Whole Foods and the Columbia Association, this 89,000-square- foot building, when complete, will re-energize the Downtown Columbia lakefront area. We obtained a $23.0 million non-recourse construction loan at LIBOR plus 2.00% to fund nearly all of the $24.6 million renovation. The project is expected to be completed by the end of 2014 and reach stabilized annual net operating income of $2.1 million in the second quarter of 2015. John DeWolf, Senior Vice President Development, and his team continue to develop a master plan for the 13 million square feet of entitlements that we have surrounding the Columbia Mall and in the adjacent 40-acre area called the Crescent, which also contains the Merriweather Post Pavilion, ranked the fourth best amphitheater in America by Rolling Stone Magazine in 2013. Columbia is the oldest MPC in our portfolio, and was developed by Jim Rouse in the 1960s and early 1970s. Since that time, very little development has occurred in Columbia and most of its commercial buildings are dated. Rouse is widely recognized as the father of the MPC business, and since Columbia was developed, Howard County, which comprises Columbia, has become the sixth-most affluent county in the U.S. according to Forbes. Downtown Columbia is poised for new development, and during 2014 we expect to unveil our master plan for its redevelopment. 11 ANNUAL REPORT 2013STRATEGIC DEVELOPMENTS WARD VILLAGE It is critical that we have a strong sense of who we are, both as a company and in our plans for specific markets and developments. This allows us to be authentic to the communities we serve. It is this drive for authenticity that has guided our vision for Ward Village, our vertical master planned community in urban Honolulu. During 2013, we began the transformation of Ward Centers into Ward Village, an urban master planned community that will include approximately 4,000 residential units and over one million square feet of retail and commercial space. Ward Village will be a vibrant neighborhood complete with diverse retail experiences and exceptional residences set among dynamic public open spaces and pedestrian-friendly streets. We recently completed the redevelopment of the onsite iconic IBM Building into the world-class Ward Village residential sales gallery and master plan information center, which showcases the urban master planned community that we are creating. In November, Ward Village was awarded LEED Neighborhood Development Platinum certification. Ward Village is the only LEED-ND Platinum-certified project in Hawai'i and the largest LEED-ND Platinum-certified project in the U.S. This designation confirms our commitment to sustainability of the projects that we develop. Consistent with our goal of creating a thriving community at Ward Village, we established the non-profit Ward Village Foundation with an initial $1 million commitment to support the local community over the next two years, and committed the first $100,000 grant to Kupu, a local non-profit that provides experiential education and life skills development opportunities to help youth and young adults succeed in life and create lifelong community servants. These investments in sustainability and community are long-term investments. We believe that over time this approach will contribute to our goal of making Ward Village the most desirable place to live in Honolulu. Earlier this year, we began pre-sales of the first two residential towers at Ward Village called Waiea, meaning “water of life” in Hawaiian and Anaha, meaning “reflection of light”. Waiea will contain 171 residential units and Anaha will contain 311 units. The strong demand for units at ONE Ala Moana and the demand we are experiencing for Waiea and Anaha are consistent with numerous data sources indicating strong housing demand fundamentals in Hawai'i. A study published in February 2014 by The Economic Research Organization at the University of Hawai'i predicts a 35% increase in median condominium pricing by 2018 due to a lack of supply and hurdles to new development. In addition to strong local demand fundamentals, Hawai'i has strong international appeal to second home buyers. In addition to demand from the mainland U.S. and Japan, visits by Chinese and Korean tourists, which had been small in the past, are increasing substantially. Visits from Korean and Chinese tourists have increased on an annual compounded basis by over 20% since 2007. While still less than 5% of total annual visitors to Hawai'i, many believe that these numbers could become much larger with the establishment of additional non-stop service between Mainland China and Hawai'i. In January 2014, Air China began the first non-stop service between Beijing and Honolulu, and Hawaiian Airlines has announced it will begin non-stop service in April. An influx of tourists from areas of the world, such as China and Korea, that had not traditionally been visitors to Hawai'i in the past, will further increase demand for residential housing. The ground floor at one of the two luxury towers in the first phase of Ward Village. 12 CEO SHAREHOLDER LETTERSOUTH STREET SEAPORT The South Street Seaport in Lower Manhattan is one of our most valuable and recognizable assets. The Seaport is an important catalyst for the revitalization of Downtown Manhattan as it continues to recover from Superstorm Sandy. Our vision is to transform the Seaport area into the most vibrant community in Lower Manhattan that will become a premier destination for local New Yorkers and tourists for entertainment, culture, shopping, dining and living. Lower Manhattan was severely impacted by Superstorm Sandy in October 2012. Many local businesses struggled to re-open or closed permanently, and the area is still recovering to this day. As a result of the storm, last year we created innovative programming called SEE/ CHANGE to re-energize and re-activate the Seaport community and create a gathering place for the community that did not exist in the aftermath of the storm. The program includes bringing an array of new retail, culinary and cultural events to the Seaport each season to attract local New Yorkers and tourists, and an intensive social media campaign to advertise the events. SEE/CHANGE launched Memorial Day weekend with over 30 small businesses opening in containers and pop-up retail spaces for the summer. Between Memorial Day and Labor Day we had approximately 20,000 people attend 30 outdoor movie nights and Smorgasbar, a collection of pop-up restaurants that generated over $2,000 per square-foot in sales. SEE/CHANGE is just the beginning of the transformation of this area into the South Street Seaport District. We donated 100% of SEE/CHANGE revenues to the old Seaport Alliance to help businesses that were hard hit by Sandy and continue to be impacted by the storm. As described in Travel and Leisure, “The words South Street Seaport and hip have never been strung together by a New Yorker … That’s changing: the cool factor is rising.” This is just the beginning as we have made SEE/CHANGE a part of each season of the year and launched our winter campaign that ice-rink and an inflatable cube that can hold several hundred people with live music performances, food and drinks. included an Our initial project includes the rede- velopment of Pier 17 and renovation of the historic area west of the FDR Drive. During 2013, we obtained all necessary entitlements needed to begin the project and in September, we began construction on the complete transformation of Pier 17. The redevelopment plan balances 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 Manhat- tan—a population that has nearly tripled in the past 15 years. A view of the FDR entering the Tin Building that will be redeveloped as part of our Seaport master plan. Pier 17 Thousands gather for a free movie screening at South Street Seaport Front Row Cinema program. 13 ANNUAL REPORT 201312,000 skaters visited the outdoor ice rink at the Seaport. Esplanade and enhance the neighborhood connectivity to the water while preserving and enhancing views. The project will include a LEED-certified building with hotel and residential uses, the replacement of deteriorated wooden platform piers adjacent to Pier 17, a complete restoration of the historic Tin Building into a world- class food market open to the public seven days a week, and a marina with public access and a myriad of maritime activities. The South Street Seaport District and Ward Village developments are urban siblings of our core suburban master planned community business. Thoughtful planning, with an emphasis on sustainability, creates a virtuous development cycle where one property type generates demand for other types, which attracts more property residents, creates more demand for development, and so forth. These urban planned communities, containing retail, entertainment, residential, office and hotel with public open spaces, become desirable communities where residents can live, work, learn and play. The redeveloped pier will be highlighted by a 1.5-acre rooftop that will include a world-class restaurant, two outdoor bars and an amphitheater that will hold up to 4,000 people for concerts and special events, becoming the premier boutique entertainment venue in the world. Larger open spaces on the pier level along with the new rooftop venue will showcase breathtaking views of the city skyline. The structure will contain approximately 182,000 square feet of leasable space, not including the rooftop. The South Street Seaport District will have a character unique from the rest of Manhattan. Its location and views of the Brooklyn Bridge, the East River and New York Harbor, and its storied history as the birthplace of New York’s maritime history, will make the customer experience unique. We are curating a tenant mix that will complement these unique attributes to further differentiate the South Street Seaport District and create a destination unlike any other in the city. One of our new anchor tenants is a great illustration of this strategy. In late 2013, we announced that we will be bringing world-class cinema operator iPic to the Seaport in what will be the first of many tenant announcements. Along with the redevelopment of Pier 17, the theater will be part of a dynamic lineup of retail, dining, entertainment and culture at the Seaport that will transform this district into the most desired place to be in Manhattan. Containing eight- screens and 505 seats, iPic’s guests will enjoy reserved luxury seating, in-theater dining, and a level of comfort and service offered nowhere else in Manhattan. The iPic theater will be located in the historic Seaport. We estimate our initial project will cost approximately $425 million to complete, which includes the costs of fully replacing the concrete Pier 17 structure. We have chosen initially to fund the project from unrestricted cash on an unleveraged basis. We believe that initially developing this project without construction debt provides the most flexibility and allows us to make decisions quickly for this unique project. As development and leasing advances, we expect to obtain project level financing for this development. to In November, we presented the public preliminary plans for a second project, which, together with our initial project, completes our vision and master plan for transforming the entire South Street Seaport District. Designed by the renowned architectural firm SHoP, led by principal Greg Pasquarelli, the proposed second project is expected to encompass nearly 700,000 square feet of space and will be fully integrated into the East River 14 CEO SHAREHOLDER LETTERThe Seaport will be highlighted by a 1.5-acre rooftop that will include an amphitheater that will hold up to 4,000 people for concerts and special events in becoming the premier boutique entertainment venue in the world. THE OUTLET COLLECTION AT RIVERWALK The Outlet Collection is centrally located in New Orleans’ business and tourist districts and sits on several long-term ground leases and easements owned and controlled by multiple government and commercial constituencies. Navigating these complexities, the development team successfully entitled the project and the leasing team has executed leases for over 95% of the rentable space. The Outlet Collection will include marquee tenants such as Neiman Marcus Last Call Studio, Forever XXI and Coach. This development is a case study which demonstrates the potential value that can be created with unconventional and innovative approaches to development. In 2010, we took an impairment charge to write down Riverwalk to its then fair value of $10 million. Its redevelopment into an upscale urban outlet center, which will cost approximately $82 million, will open in 2014 with approximately $8.5 million of annual net operating income. Given the scope of the project, we believe the stabilized value of this asset will approach $150 million. The Outlet Collection at Riverwalk demonstrates the creativity and tenacity of our development, leasing, operations and marketing teams in navigating complex projects to drive shareholder value. I discussed the unique attributes of this project in my 2013 letter. The development is slated to become the first upscale urban outlet center in the United States and will be the first, new, large- scale retail development in downtown New Orleans since Hurricane Katrina hit in 2005. The project solidifies Downtown New Orleans’ resurgence as a retail destination for residents and tourists alike. A view of the interior of the Outlet Collection at Riverwalk. 16 CEO SHAREHOLDER LETTERSpanish Plaza, The Outlet Collection at Riverwalk. The Outlet Collection at Riverwalk is located in the heart of New Orleans’ central business and tourist districts. TALENT I have always believed that all companies need two things to be successful—great assets and great people. We are constantly looking to add world-class talent that share our values and commitment. Both Grant and I spend a great deal of time recruiting top-notch talent to our company. As the lifeblood of any good organization, we have a deep appreciation for the interconnectivity of people and how important chemistry, commitment and character are to executing on our vision. We have embedded in our culture the importance that every current and future employee share our passion and our values. Below I have identified some of our key 2013 recruits. In preparation for the impending operation and management of our soon-to-be stabilized properties, we hired Sarah Vasquez, Senior Vice President of Management and Operations, in February 2013. Sarah’s broad experience managing retail centers at Westfield provides her with an excellent background to effectively and efficiently maximize the operations of our stabilized developments while adhering to and advancing the latest trends in customer service and sustainability. Sarah’s electric energy and infectious enthusiasm have already made a huge imprint in the fabric of our organization. It is almost as if she started with the company in November of 2010. In August 2012, we engaged Cornwell Design, an Australian branding and marketing firm, to develop a brand strategy for our Ward Village development. The work developed by Steven Cornwell, CEO and Founder, and his team gave us insight into his marketing brilliance and showed us the potential impact great content can have in bringing the vision for our properties to life. While working with Steve, I realized that we needed to develop our intellectual property in-house, and that Steve’s ability to translate powerful ideas into content would be invaluable to us in unlocking the potential of the Howard Hughes brand. To that end, led by Steve Cornwell, we launched the HHC Studio at the beginning of this year. HHC Studio is our in-house design, marketing and branding group. Steve relocated his family from Australia to New York and HHC Studio will be headquartered at our Seaport offices. In February of this year we, hired Brent Habeck as EVP Strategic Leasing. Prior to joining our team Brent was directly responsible for leasing the World Trade Center. In partnership with Keith Laird – EVP Leasing, Brent will help uncover the many undiscovered jewels within our portfolio, the results of which will be shared with you in the coming years. In March of 2013, we received all of the necessary approvals to begin the redevelopment of the South Street Seaport. Our redevelopment efforts began in earnest at the beginning of October but in the interim, we have been hard at work hiring the necessary expertise to ensure that the reconstruction and operation of Pier 17 is in great hands. Phillip St. Pierre joined us as General 18 Tim Welbes, Robert Heineman and Alex Sutton, accept the Vision Award for Exemplary Leadership from the Urban Land Institute in Houston. Manager in March 2013. Previously he was responsible for managing Century City Mall in Los Angeles, California. Phillip has already made a valuable contribution, leading our dynamic SEE/CHANGE programming. We are actively leasing the Seaport with the help of Jonathan Lauren – Vice President of Leasing who began working for us in January 2014. Jonathan has over 25 years of leasing experience at retail centers such as Century City Mall, Topanga Mall and Valley Fair, all in California. His knowledge of and key relationships with national, international and local retailers will be pivotal as we continue to announce the many outstanding tenants we believe will be part of this iconic project. Also in New York, Susi Yu joined us as Senior Vice President of Development. In this role, she is leading the planning efforts for the future mixed-use development at the Seaport. Prior to joining Howard Hughes in August, 2013, Susi served as Senior Vice President for Forest City Ratner Companies. During her 12-year tenure with Forest City Ratner, Susi led the development of large scale, mixed-use urban projects, including the development of 8 Spruce Street, a 1.1 million-square-foot, 896-unit rental building designed by Frank Gehry, and the development of B2, the first residential building of Atlantic Yards. I am pleased that these very talented and accomplished individuals have joined the deep bench we already have in place. I expect that these new additions will make their mark in the coming years and collaborate effectively with our growing family of employees. CEO SHAREHOLDER LETTERThe Board of Directors and HHC executives ring the bell at the New York Stock Exchange in March 2011. A LEADING AMERICAN COMPANY FOR THE 21ST CENTURY The Howard Hughes Corporation has built the foundation for our future success. Our unique assets have drawn world-class talent to the company who will create a myriad of future possibilities to grow our business. First and foremost, however, there is a lot of work yet to be done to maximize the value of our existing real estate assets. In 2014, you will see ongoing vertical development in our largest core assets as they get closer to completion. We will begin to generate significant stabilized recurring cash flows from our commercial properties and realize sales proceeds from sales of condominiums and residential and commercial land. At The Howard Hughes Corporation, we love real estate, but our brand is about so much more than bricks and mortar. We are about creating something great and transformational that will outlast us. In order to achieve this, I encourage each of our employees, consultants and partners to THINK BIG. I am grateful for the continued confidence and support you have shown as we continue our mission to create timeless places and memorable experiences that inspire people while driving sustainable, long-term growth and value for our shareholders. Warm Regards, David R. Weinreb Chief Executive Officer 19 ANNUAL REPORT 2013STRENGTH IN NUMBERS 2013 N O I T A Z I L A T I P A C T E K R A M UP 65% FROM 2012 $4.75B $895M UNRESTRICTED CASH ON HAND OUR KEY FOCUS IS ON FULLY UNLOCKING VALUE IN OUR CORE ASSETS ONLY 28% NET DEBT AGAINST THE BOOK VALUE OF OUR EQUITY CAPITAL BASE CONSOLIDATED REVENUES OF $475M 26% INCREASE IN NET REVENUE FROM 2012 A PORTFOLIO OF COMMERCIAL REAL ESTATE ASSETS THAT DELIVER RECURRING CASH FLOW $246 MILLION IN MASTER PLANNED COMMUNITY LAND SALES FOR 2013, OVER A 36% INCREASE FROM 2012. WE INVESTED $376 MILLION IN PROJECT PRE-DEVELOPMENT AND DEVELOPMENT. PROJECT H IGHLIGHTS FROM WALL STREET TO WAIKIKI Our portfolio is making a mark on the nation. AT A GLANCE 2013 Portfolio Snapshot MASTER PLANNED COMMUNITIES Project Location State Size Asset Type COTTONWOOD ELK GROVE SUMMERLIN FASHION SHOW AIR RIGHTS REDLANDS PARK WEST Houston Washington, DC /Baltimore 11,400 ACRES 800 ACRES Master Planned Community Mixed-Use TX MD 16,450 ACRES Master Planned Community Las Vegas Houston NV TX 22,500 ACRES 1.6 Million SQ FT Master Planned Community Mixed-Use 28,400 ACRES 66 ACRES Master Planned Community Mixed-Use ONE ALA MOANA BRIDGELAND Location State Size Asset Type WARD VILLAGE Bridgeland Master Planned Community Town Center Columbia Master Planned Community Summerlin Master Planned Community The Shops at Summerlin The Woodlands Master Planned Community Hughes Landing KEY PROPERTIES Project Cottonwood Elk Grove Kendall Town Center Landmark ONE Ala Moana Salt Lake City Sacramento Miami Alexandria Honolulu The Outlet Collection at Riverwalk New Orleans South Street Seaport 110 N. Wacker Ward Village West Windsor New York Chicago Honolulu Princeton UT CA FL VA HI LA 57 ACRES Mixed-Use 1.1 Million SQ FT Retail 731,300 SQ FT Mixed-Use 879,413 SQ FT Mixed-Use 280,653 SQ FT Residential 250,000 SQ FT Retail NY 362,000 SQ FT Mixed-Use IL 226,000 SQ FT Office 9.3 Million SQ FT 60 ACRES Residential / Mixed-Use 658 ACRES Mixed-Use HI NJ 24 110 N WACKER ALLEN TOWNE CIRCLE T RANCH CENTURY PLAZA WEST WINDSOR COLUMBIA LANDMARK MINT HILL KENDALL TOWN CENTER COTTONWOOD FASHION SHOW AIR RIGHTS REDLANDS PARK WEST ELK GROVE ONE ALA MOANA 110 N WACKER WEST WINDSOR SOUTH STREET SEAPORT ALLEN TOWNE CIRCLE T RANCH CENTURY PLAZA THE WOODLANDS RIVERWALK BRIDGELAND COLUMBIA LANDMARK MINT HILL KENDALL TOWN CENTER At The Howard Hughes Corporation, we are driven by a passion for excellence. Our mission is to be the pre-eminent developer and operator of master planned communities and mixed-use properties. We create timeless places and memorable experiences that inspire people while driving sustainable, long-term growth and value for our shareholders. 25 SEAPORT NY NEW YORK NEW YORK The ground floor of Pier 17 offers expansive views of Brooklyn and Lower Manhattan. 26 CELEBRATING A CITY’S UNIQUE MARITIME HISTORY AND POSITIONING A NEIGHBORHOOD FOR THE FUTURE. The South Street Seaport has been an essential part of New York’s urban fabric for over 400 years and the re-envisioned Seaport will transform over 362,000 square feet on Pier 17 and the Uplands historic district in Lower Manhattan into an unmatched shopping, dining and entertainment destination for residents, workers and visitors alike. Our objective is to create a unique New York ex perie nc e tha t draw s the n ei ghb or ho od ’s f ast growi ng population and workforce, as well as tourists who already consider the Seaport a vital attraction. To do so, the new Pier 17 building will combine the pier’s unique waterfront location with its ability to provide an important anchor for the community. The Pier 17 building, which had its official groundbreaking in October 2013, will feature a striking glass façade and provide spectacular views of the Brooklyn Bridge, the Statue of Liberty and One World Trade Center. Inside, the cutting-edge marketplace design will offer 180,000 square feet of national and international retail tenants, local boutiques and great dining options, all while embracing the energy of New York street shopping. The redeveloped Pier 17 will be highlighted by a 1.5-acre rooftop that will include a world-class restaurant, two outdoor bars and an amphitheater that will hold up to 4,000 people for concerts and special events—becoming the premier boutique entertainment venue in the world. PROJECT HIGHLIGHTSAnchored by its unparalleled rooftop experience, the new South Street Seaport will host live events year round. The new rooftop will be a multi-use space capable of hosting fashion events, concerts, movie premieres, product launches and much more. 27 ANNUAL REPORT 2013The Seaport district will become one of the city’s most vibrant destinations with the new marina, renovated Pier 17, Tin Building and mixed-use tower. In November 2013, we presented to the public preliminary plans for a second project, that, together with our initial project, continues our vision and master plan which will transform the entire area into the South Street Seaport District. Along with the redevelopment of Pier 17, this project will be part of a world- class, vibrant lineup of retail, dining, entertainment and culture. Designed by the renowned architectural firm SHoP, the proposed second project is expected to encompass nearly 700,000 square feet of space and will be fully integrated into the East River Esplanade and enhance the neighborhood connectivity to the water while preserving and enhancing views. The project will include a LEED-certified building with hotel and residential uses, the replacement of deteriorated wooden platform piers adjacent to Pier 17, a complete restoration of the historic Tin Building into a world-class food market open to the public seven days a week and a marina with public access and a number of maritime activities. As we move forward with our plans, The Seaport will not only be a place of historical significance but a unique destination that serves as a link between a storied legacy and the future New York experience. THE WOODLANDS NEW ENERGY FOR THE WOODLANDS The Woodlands Town Center. HUGHES LANDING CONTINUES TO RAPIDLY PROGRESS. THIS DEVELOPMENT INCLUDES THE RECENTLY ANNOUNCED TWO CLASS-A OFFICE TOWERS TOTALING 650,000 SQUARE FEET OF WHICH EXXONMOBIL WILL BE LEASING 74%. The dynamic Hughes Landing waterfront will include multiple restaurants and entertainment offerings. A Class-A multi-family development at Hughes Landing. The Woodlands commercial office vacancy rate at less than 5% is one of the lowest in the country. We have identified an additional seven million square feet of future commercial development opportunities and strong economic trends are expected to continue which provide us with a unique opportunity to accelerate growth, density, and development. The time is now for The Woodlands. Demand drivers are in place for continued growth at The Woodlands. A key catalyst is the anticipated opening of the 385-acre ExxonMobil campus, which began construction in 2011 and is scheduled for completion in 2015. The new campus, located only a few miles from The Woodlands, is expected to bring 10,000 direct jobs to the area from the relocation of their employees currently working in a number of Houston locations as well as 2,600 jobs to be relocated from Virginia. Completion of the newest perimeter roadway around Houston, the Grand Parkway, will provide residents of the community even greater accessibility. Today, numerous businesses are looking for office space in The Woodlands due to its location, rich amenities and highly- educated population. A key to future growth will be development efforts designed to bring these businesses to The Woodlands, which is already home to nearly 1,900 employers and over 54,000 employees. Businesses continue to seek office space in The Woodlands, drawn by its location, skilled workforce and numerous amenities. As the demand for commercial space and new amenities continues to exceed supply, we are advancing development plans for several strategic assets located within The Woodlands. Most notably, in July 2012, we announced plans for Hughes Landing, a 66-acre mixed-use development located on Lake Woodlands. The is ultimately planned development for 1.6 million square feet of office, 250,000 square feet of retail, restaurant and entertainment space, up to 1,500 multifamily units and a 175-room hotel. Hughes Landing continues to rapidly progress. This development includes the recently announced two Class-A office towers totaling 650,000 square feet of which ExxonMobil will be leasing 74%. I n a d d i t i o n , w e a r e currently under construction on Two Hughes Landing, a 197,000-square- foot o f f i c e b u i l d i n g , 390 u n i t s o f multifamily, as well as a Whole Foods anchored retail center. 32 PROJECT HIGHLIGHTSA view of Hughes Landing from one of the future office buildings that will be leased by ExxonMobil Corporation. Hughes Landing. Additional projects, such as 3 and 4 Waterway Square in Town Center, will offer employers a wide range of suitable office space with plenty of room to expand. As of December 31, 2013, The Woodlands had approximately 623 acres of unsold residential land, representing over 2,000 lots and approximately 791 acres of unsold land designated for com- mercial use. The Woodlands also has full ownership interests in commercial properties which total over 1,000,000 square feet of office space, 50,000 square feet of retail, a 406-room resort and spa with conference facilities and 393 rental apartment units. The redevelopment of the Woodlands Resort and Conference Center will solidify it as the premier resort in the region. 33 ANNUAL REPORT 2013BRIDGELAND BRIDG ELAND As demand for its high quality of life strengthens, Bridgeland is positioned to become Northwest Houston’s premier master planned community. It is currently home to 7,350 residents who live in homes ranging in price from $200,000 to $1,000,000, and growth is expected to remain strong. Bridgeland has been acknowledged for its success, receiving The Greater Houston Builders Association “Master Planned Community of the Year” award in 2013. Less than 30 miles from Downtown Ho u st o n , B r i d g e l a n d h a s 1 1 ,4 0 0 acres designed to consists of four residential villages, an 800-acre town center and over 3,000 acres of lakes, parks, trails and open spaces. Rich amenities such as pools, playing fields, tennis courts and bike trails, as well as award-winning schools, contribute to an exceptional lifestyle that is projected to draw 65,000 residents over time. Residents are already close to Houston’s important Energy Corridor and will soon have convenient access to downtown and other locations. The Grand Parkway, a major road bisecting Bridgeland, now has parts open to vehicular traffic and will offer residents improved accessibility and an under 30-minute commute to a new ExxonMobil campus as well as The Woodlands. ALLSUM SUMMERLIN We are making Summerlin the ultimate lifestyle destination in Las Vegas. MERLIN NEAR THE DEPTH OF THE HOUSING RECESSION IN 2010, SUMMERLIN HAD JUST $11 MILLION OF REVENUES. AT ITS PEAK, SUMMERLIN GENERATED $260 MILLION OF ANNUAL REVENUES. BECAUSE OF THIS POTENTIAL, WE DUBBED SUMMERLIN THE SLEEPING GIANT, AND IN 2013, THIS SLEEPING GIANT AWOKE. Spanning the western rim of the Las Vegas Valley and located approximately nine miles from the Las Vegas Strip, our 22,500-acre Summerlin master planned community is comprised of planned and developed villages and offers suburban living with accessibility to the key parts of Las Vegas. For much of its 20-year history, Summerlin has consistently ranked in the Robert Charles Lesser annual poll of Top-Selling Master Planned Communities in the nation, ranking 11th in 2013. With 22 public and private schools (K-12), four institutions of higher learning, nine golf courses and a number of cultural facilities, Summerlin is a fully integrated community. The first residents moved into their homes in 1991 and as of December 31, 2013, there were approximately 41,000 homes occupied by approximately 100,000 residents. A view of the Las Vegas Strip from Summerlin, which is only a short drive away. Summerlin is comprised of hundreds of neighborhoods located in 19 developed villages, out of 30 currently planned, with nearly 150 neighborhood and village parks that are all connected by a 150-mile long trail system. Summerlin is located adjacent to Red Rock Canyon National Conservation Area, a landmark in southern Nevada, which has become a world-class hiking and rock climbing destination. At the core of Summerlin lies our downtown development, which at completion will significantly increase the value of our surrounding land due to the addition of retail, restaurant and entertainment amenities. Red Rock Casino Resort & Spa, which is adjacent to our site, receives more than one million visitors annually. Summerlin contains approximately 2.1 million square feet of developed retail space, 3.3 million square feet of developed office space, and three hotel properties containing approximately 1,400 hotel rooms. Health and medical centers are also located at Summerlin, including Summerlin Hospital. As of December 31, 2013, Summerlin had approximately 4,804 residential acres and 873 commercial acres remaining to be sold. Summerlin’s population upon full build out is expected to be in excess of 200,000 residents. Summerlin is divided into three separate regions known as Summerlin North, Summerlin West, and Summerlin South. Summerlin North is fully developed and sold out. In Summerlin South, we are entitled to develop 740 acres of commercial property with no square footage restrictions, 355 of such acres are owned by third parties or already committed to commercial development. We also have entitlements for an additional 18,000 residential units yet to be developed in Summerlin South. 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 has already been developed through the construction of a grocery store anchored shopping center. We are also entitled to develop 30,000 residential units in Summerlin West, approximately 24,000 of which remain to be developed. The remaining 42,000 saleable residential lots represent Summerlin’s total entitlements, and utilization of these entitlements is based on current and forecasted economic conditions. Summerlin’s beautiful landscape is a major part of what makes it the premier place to live in Las Vegas. 40 PROJECT HIGHLIGHTSA view of the Spring Mountains inside Red Rock National Conservation Area in Summerlin. The Shops at Downtown Summerlin will provide residents and visitors with top fashion, shopping, dining and entertainment options. Downtown Summerlin is designed as part of an open-air setting. The Shops at Downtown Summerlin. THE SHOPS AT DOWNTOWN SUMMERLIN The Shops at Downtown Summerlin, among the nation’s premier regional mixed-use developments, will open by October 2014. Located in the heart of the acclaimed Summerlin master planned community, the development will help define Downtown Summerlin and serve the entire Las Vegas Valley. It will offer retail, restaurant and entertainment choices, forming a dynamic, pedestrian-friendly urban center in the heart of a thriving 22,500-acre master planned community. This nearly 1.6 million-square-foot, 106-acre project will be one of the largest mixed-use developments on the Las Vegas Valley’s west side. Featuring over 125 stores and restaurants, The Shops at Summerlin will have an appealing open-air environment to encourage walking and window shopping. With an abundance of exciting events, luxury dining and shopping options, the contemporary downtown concept will have genuine Las Vegas glamour and sophistication. Top style-centric brands that will appeal to area fashionistas, including Michael Kors, True Religion, Sephora and Victoria’s Secret, are among a strong roster of tenants at the center. Other popular tenants include Regal Theatres, Trader Joe’s, American Eagle, The Art of Shaving, Bath & Body Works, Buckle, Clark’s, Everything But Water, It’Sugar, Nordstrom Rack, Old Navy, Pandora, Resto Lounge, Sur La Table, Teavana and Ulta. The urban design seamlessly integrates the community with the Shops at Downtown Summerlin. 43 ANNUAL REPORT 2013WARD VILLAGE HI A VISION FORWARD As the 60-acre Ward Centers is transformed into Ward Village over the coming years, a bold vision is being realized that honors traditions of the past. With its ideal location between Waikiki and Downtown Honolulu, Ward Village represents the first urban master planned community on the island and is a major part of the planned revitalization of Kaka'ako. The heart of the community will ultimately be the Ward Village Green, a vast multipurpose gathering place where residents and visitors will convene, socialize and enjoy an array of cultural events. Part of our first phase, Waiea features a façade inspired by the essential life-giving role of water in the local landscape—from the fishponds to the vast Pacific Ocean. 46 PROJECT HIGHLIGHTSThe Ward Village master plan allows for up to 9.3 million square feet of mixed-use development, spanning over 4,000 residential units and more than one million square feet of retail and other commercial space. This is consistent with the plan approved in 2009 by the Hawai'i Community Development Authority. Anaha Tower—Part of our first phase, Anaha is the Hawaiian phrase for “reflection of light,” and describes the building’s brilliant, rolling glass façade, which evokes the rippling waves of the nearby Pacific Ocean. Part of our first phase, Anaha is pictured above. A n a h a i s d e s i g n e d around principles of sustainability, respect for culture and an urban-village include lifestyle, Ward Village will high-rise residential towers that will have mauka-makai (mountain-ocean) orientation and showcase breathtaking views. New buildings along Ala Moana Boulevard will be pulled back from the street, establishing a new face for the future neighborhood. The pedestrian- friendly design will encourage walking and biking while other sustainable design strategies will reduce energy and water use. The plans also include open space and greenbelts to bring nature, the beach and ocean across the street and into the community. The redevelopment will also double the current amount of retail, dining and entertainment space, creating a diverse combination of local boutiques, restaurants and national retailers. Ward Village received a LEED for Neighborhood Development Platinum certification, the highest rating possible. It is the largest U.S. project Platinum-certified and the only one of its kind in Hawai'i. Residents can lounge in a breathtakingly tranquil and scenic environment on Waiea’s amenity deck. Ward Village residences offer expansive views of the Pacific. Ward Village residences all feature premium contemporary design by world-class architects. 47 ANNUAL REPORT 2013Residential Sales Center includes (shown clockwise): Gallery Lobby, Courtyard Lanai, Sales Gallery, and Rooftop Lanai. 48 PROJECT HIGHLIGHTSTo introduce Ward Village to the community and the world, in 2013 we largely completed a $24 million renovation of the IBM building into a world-class residential sales gallery and master plan information center that will rival the finest sales experiences in the world. Our vision for the community is beginning to be crystallized. In February of 2014, we launched the first phase of this development, which includes two high rise market rate towers and one reserved housing tower comprising over 900 units. The Ward Village Residential Sales Gallery and Master Plan Information Center. 49 ANNUAL REPORT 2013COLUMBIA Thousands of people attend a live performance at the Merriweather Post Pavilion, the area’s premier music venue. ENCOMPASSING 16,450 ACRES IN THE RAPIDLY GROWING REGION BETWEEN BALTIMORE AND WASHINGTON, D.C., THE MASTER PLANNED COMMUNITIES IN MARYLAND OF COLUMBIA, EMERSON, AND FAIRWOOD OFFER A BLEND OF NATURAL BEAUTY COMBINED WITH METROPOLITAN SOPHISTICATION. Downtown Columbia Initially opened in the late 1960s by James W. Rouse, considered one of the fathers of the master planned community business, Columbia was created to offer a metropolitan setting that would provide a high quality of life for residents. With parks, lakes, trails and the acclaimed Merriweather Post Pavilion at Symphony Woods, Columbia lives up to its recognition by Money Magazine in 2012 as one of the “Best Places to Live.” The convenient location continues to draw highly-educated people to Columbia, with easy access to leading public and private employers and some of the best public schools in the United States. Premier homebuilders and a compelling environment have also led to a growing population. Columbia is located in Howard County, one of the nation’s most affluent counties, with a median household income of over $100,000 and population growth above 34% over the past decade. Downtown Columbia is currently undergoing a major redevelopment, with a new master plan that allows for up to 13 million square feet of mixed-use development, including 5,500 residential units, 1.25 million square feet of retail, 4.3 million square feet of office space and 640 hotel rooms. One of the first steps in the redevelopment recently began with the groundbreaking for The Metropolitan Downtown Columbia, a new luxury apartment development that will be the foundation for significant commercial and residential enhancements in the heart of Columbia. In conjunction with joint venture partner, Kettler-Orchard, The Metropolitan will feature 380 luxury units 52 PROJECT HIGHLIGHTSNew residents and visitors in Downtown Columbia gather outside a café in a planned mixed-use space. with a range of high-end amenities, which include the largest resident clubhouse in Columbia, a fitness center with studio, media and game rooms, a catering kitchen, a courtyard that can serve as an outdoor screening room, and a pool with submerged seating and cabanas. The project is surrounded by ground floor retail, access-controlled garage parking and a public promenade with a play area for children. Also in Downtown Columbia, Whole Foods Market will be opening a new store in the iconic former Rouse Headquarters Building. The building, designed by internationally renowned architect Frank Gehry, sits on the shore of Lake Kittamaqundi and is a cornerstone of the downtown. Distinguished by its flat roof, terraces and stucco exterior, Whole Foods Market will occupy over 40,000 square feet following a renovation of the structure. The redevelopment of the building will also incorporate an upscale health and fitness center to be run by the Columbia Association. As part of the redevelopment of Downtown Columbia, these initial projects are expected to be completed by late 2014, with future development plans under way. A preview of the proposed Columbia redesign shows a series of towers surrounded by lush greenery. 53 ANNUAL REPORT 2013THE OUTLET COLLECTION AT RIVERWALK Soon to be the nation’s first urban, upscale outlet center, The Outlet Collection at Riverwalk will be located in the heart of Downtown New Orleans. Targeting both New Orleans residents and visitors alike, The Outlet Collection at Riverwalk will showcase a wide range of national brands including marquis tenants such as Neiman Marcus Last Call Studio, Forever XXI and Coach. A market that has long been underserved in the retail sector, New Orleans has approximately 30% less square feet of retail per capita than the national average. Beyond providing a compelling shopping experience for the growing population, the property is ideally situated to attract the large number of tourists who visit New Orleans. At the base of Canal and Poydras Streets, the Riverwalk sits next to the recently renovated New Orleans Morial Convention Center, the Hilton Hotel, the Aquarium and Harrah’s Casino. It is also steps away from the French Quarter with easy access to virtually every hotel in the area, making it a must-visit destination for tourists. Riverwalk is also connected to the Port of New Orleans, which enjoys a thriving cruise industry. In 2013, New Orleans welcomed over 9 million visitors spending approximately $6 billion. The Outlet Collection at Riverwalk is expected to open in the late spring of 2014. 54 PROJECT HIGHLIGHTSANNUAL REPORT ON FORM 10-K DIRECTORS William A. Ackman Chairman of the Board Adam R. Flatto Jeffrey D. Furber Gary A. Krow Allen J. Model R. Scot Sellers CORPORATE OFFICERS David R. Weinreb Chief Executive Officer Grant D. Herlitz President Andrew C. Richardson Chief Financial Officer Peter F. Riley General Counsel Steven H. Shepsman HEADQUARTERS Burton M. Tansky Mary Ann Tighe David R. Weinreb 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 Ernst & Young LLP 2323 Victory Avenue, Suite 2000 Dallas, TX 75219 FORWARD-LOOKING STATEMENTS: Certain statement 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 included in this annual report to stockholders for additional information. NON-GAAP FINANCIAL MEASURES The Company uses net operating income, or NOI, a non-GAAP financial measure, in this annual report to stockholders because we believe that it is a useful supplemental measure of the performance of our Operating Assets because it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in occupancy rates, rental rates, and operating costs. We define NOI as revenues (rental income, tenant recoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI also excludes straight line rents and tenant incentives amortization, net interest expense, depreciation, ground rent, demolition costs, other amortization expenses, and equity in earnings from our real estate affiliates. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant mix, which vary by property, have on our operating results, gross margins and investment returns. Although we believe that NOI provides useful information to the investors about the performance of our Operating Assets due to the exclusions noted above, NOI should only be used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP net income (loss). No reconciliation of projected NOI is included herein because we are unable to quantify certain amounts that would be required to be included in the GAAP financial measure without unreasonable efforts and we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors. For additional information on non-GAAP financial measures used in this annual report to stockholders, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K included in this annual report to stockholders. T H E H O W A R D H U G H E S C O R P O R A T I O N A N N U A L R E P O R T 2 0 1 3 | Use these links to rapidly review the documentTABLE OF CONTENTS THE HOWARD HUGHES CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIALSTATEMENT SCHEDULETable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KThe Howard Hughes Corporation(Exact name of registrant as specified in its charter)(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013oro TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-34856Delaware 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:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  NO oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. YES  NO oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files). YES  NO oIndicate 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, andwill not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO As of June 30, 2013, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $4.4 billionbased on the closing sale price as reported on the New York Stock Exchange.As of February 24, 2014, there were 39,498,912 shares of the registrant's common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's Proxy Statement relating to its 2014 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, 13and 14 of Part III of this Annual Report on Form 10-K. The registrant intends to file its Proxy Statement with the Securities and Exchange Commissionwithin 120 days of the end of the fiscal year to which this Annual Report on Form 10-K relates. Large accelerated filer  Accelerated filer oNon-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company oTable of ContentsTABLE OF CONTENTSiItem No. Page Number Part I 1. Business 2 1A. Risk Factors 24 1B. Unresolved Staff Comments 36 2. Properties 36 3. Legal Proceedings 40 4. Mine Safety Disclosure 40 Part II 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities 41 6. Selected Financial Data 42 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 44 7A. Quantitative and Qualitative Disclosures About Market Risk 80 8. Financial Statements and Supplementary Data 80 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 80 9A. Controls and Procedures 80 9B. Other Information 83 Part III 10. Directors, Executive Officers and Corporate Governance 83 11. Executive Compensation 83 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 83 13. Certain Relationships and Related Transactions, and Director Independence 83 14. Principal Accountant Fees and Services 83 Part IV 15. Exhibits and Financial Statement Schedule 84 Signatures 85 Table of ContentsCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K ("Annual Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in thisAnnual Report on Form 10-K are forward-looking statements. Forward-looking statements give our current expectations relating to our financialcondition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that theydo not relate strictly to current or historical facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "forecast,""plan," "intend," "believe," "may," "should," "would," "likely," "realize," "transform" and other statements of similar expression. Forward-lookingstatements should not be relied upon. They give our expectations about the future and are not guarantees. These statements involve known andunknown risks, uncertainties and other factors that may cause our actual results, performance and achievements to materially differ from any futureresults, performance and achievements expressed or implied by such forward-looking statements. These forward-looking statements present ourestimates 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 tomodify 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 inability to obtain operating and development capital, including our inability to obtain debt capital from lenders and the capitalmarkets; •continued low growth in the national economy and adverse economic conditions in the homebuilding, condominium development andretail sectors; •our inability to obtain rents sufficient to justify developing our properties and/or the inability of our tenants to pay their contractual rents; •our inability to compete effectively; •our directors may be involved or have interests in other businesses, including real estate activities and investments, which may competewith us; •our inability to control certain of our properties due to the joint ownership of such property and our inability to successfully attractdesirable strategic partners; and •the other risks described in "Item 1A. Risk Factors."1Table of ContentsPART I Throughout this Annual Report, references to the "Company", "HHC", "we" and "our" refer to The Howard Hughes Corporation and its consolidatedsubsidiaries, unless the context requires otherwise.ITEM 1. BUSINESS OVERVIEWOur mission is to be the preeminent developer of master planned communities and mixed use properties. We create timeless places and memorableexperiences that inspire people while driving sustainable, long-term growth and value for our shareholders. We specialize in the development of masterplanned communities and the ownership, management and the redevelopment or repositioning of real estate assets currently generating revenues, alsocalled Operating Assets, as well as other strategic real estate opportunities in the form of entitled and unentitled land and other development rights, alsocalled Strategic Developments. We are headquartered in Dallas, Texas and our assets are located across the United States.Unlike most publicly traded real estate companies which are limited in their activities because they have elected to be taxed as a real estate investmenttrust, we, except for Victoria Ward, Limited, one of our subsidiaries which is a captive REIT, have no restrictions on our operating activities or the typesof services that we can offer. We believe our structure provides the greatest flexibility for maximizing the value of our real estate portfolio. As ofDecember 31, 2013, our consolidated debt equaled approximately 33.2% of our total assets, and we had $894.9 million of cash on 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 with their operations and long-term opportunity through entitlements, land and home site sales and project developments will drive our long-term growth.We were incorporated in Delaware in 2010. Through our predecessors, we have been in business for several decades. We operate our business in threesegments: Master Planned Communities, Operating Assets and Strategic Developments. Financial information about each of our segments is presentedin Note 18 – Segments of our audited financial statements on pages F-48 to F-52.Recent Significant TransactionsOn October 2, 2013, we issued $750.0 million aggregate principal amount of our 6.875% Senior Notes due 2021 (the "Senior Notes") and received netcash proceeds of $739.6 million. We have and will continue to use the net proceeds for development, acquisitions and other general corporate purposes.Interest is payable semiannually, on April 1 and October 1 of each year starting in April 2014. The Notes contain customary terms and covenants andhave no maintenance covenants.In the fourth quarter of 2012, we retired warrants to purchase 6,083,333 shares of our common stock pursuant to the warrant purchase agreements byand among the Company and affiliates of Brookfield Asset Management, Fairholme Funds and Blackstone Real Estate Partners. We paid a total of$80.5 million in cash and issued 1,525,272 shares of our common stock to Brookfield in connection with the warrant transactions. The warranttransactions reduced diluted common shares outstanding by 9.2%, or 4,558,061 shares, to a total of 45,119,706 shares assuming all stock options andwarrants outstanding at December 31, 2012, were exercised.On July 1, 2011, we acquired our former partner's 47.5% economic interest in The Woodlands pursuant to a Partnership Interest Purchase Agreement.We paid $20.0 million in cash at closing and the remaining $97.5 million of the purchase price was represented by a non-interest bearing promissorynote which we repaid from available cash on hand on December 1, 2011. Following the acquisition, we2Table of Contentsown 100% of The Woodlands and control all aspects related to the management and development of The Woodlands. Our management anddevelopment staff for The Woodlands master planned community also manages the development of Bridgeland, our other Houston, Texas masterplanned community. We are leveraging The Woodlands' nearly 40 years of master planned community development experience to replicate TheWoodlands success at Bridgeland, which is located 40 miles southwest of The Woodlands and is in the early stages of its development life cycle.Overview of Business SegmentsMaster Planned Communities. Our Master Planned Communities segment consists of the development and sale of residential and commercial land,primarily in large-scale projects. We own four master planned communities (The Woodlands, Summerlin, Bridgeland and Maryland). Our masterplanned community in Maryland includes four separate communities that are collectively referred to as the "Maryland Communities."Our master planned communities include over 11,500 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., condominiums, townhomes and apartments) parcels designated for detached andattached single- and multi-family 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 27 properties, investments and other assets that currently generate revenue, consistingprimarily of commercial mixed-use, retail, multi-family and office properties. These assets include eight mixed-use and retail properties, nine officeproperties (the "Columbia Office Properties" contain five separate office buildings), a multi-family apartment building, a resort and conference center, a36-hole golf and country club, three equity investments and four other assets. We believe that there are opportunities to redevelop or reposition many ofthese assets, primarily the retail properties, to increase operating performance. These opportunities will require new capital investment and vary incomplexity and scale. The redevelopment opportunities range from minimal disruption to the property to the partial or full demolition of existingstructures for new construction.Strategic Developments. Our Strategic Developments segment consists of near, medium and long-term development projects for 24 of our real estateproperties. We believe most of these 24 assets will require substantial future development to achieve their highest and best use. We are in various stagesof creating or executing strategic plans for many of these assets based on market conditions and availability of capital. In addition to the permitting andapproval process attendant to almost all large-scale real estate developments of this nature, we will likely need to obtain financing to realize adevelopment plan for one or more of these assets.3Table of ContentsThe chart below presents our assets by reportable segment at December 31, 2013.Master Planned CommunitiesThe development of master planned communities requires expertise in large-scale and long-range land use planning, residential and commercial realestate development, sales and other special skills. The development of our large scale master planned communities requires decades of investment andcontinual focus on the changing market dynamics surrounding these communities. We believe that the long-term value of our master plannedcommunities remains strong because of their competitive and dominant positioning in their respective markets, our expertise and flexibility in land useplanning and the fact that we have substantially completed the entitlement process within our communities.Our Master Planned Communities segment consists of the development and sale of residential land and the development of commercial land to hold,develop or sell. Our master planned communities are located in and around Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland. Residentialrevenues are generated primarily from the sale of finished lots and undeveloped superpads to residential builders and commercial developers. Revenueis also generated through profit participation with builders. Revenues and net income are affected by factors such as: (1) the availability of constructionand permanent mortgage financing to purchasers at acceptable interest rates; (2) consumer and business confidence; (3) regional economic conditions inthe areas surrounding the projects, which includes levels of employment and homebuilder inventory; (4) other factors generally affecting thehomebuilder business and sales of residential properties; (5) availability of saleable land for particular uses; and (6) our decisions to sell, develop orretain land.The geographic markets in which our master planned communities operate are experiencing different rates of recovery following the housing marketdecline that started in 2007. The Woodlands has benefited from companies relocating to Houston and the growth of energy sector companies,particularly with the announcement in 2012 of the new 385-acre Exxon Mobil Corporation ("ExxonMobil") campus located just four miles south of TheWoodlands. Bridgeland land sales were adversely affected in 2013 compared to prior years due to a pending wetland permit application from the U.S.Army Corps of Engineers ("USACE"). On February 27, 2014, we received the wetlands permit from USACE and expect to begin delivering newfinished lots by mid-2014. The Las Vegas, Nevada market is recovering and our Summerlin Master Planned Community has experienced significantimprovement in 2013 land sales compared to the past two years, with the bulk of their land sales coming in the form of superpad sites. The MarylandCommunities have no more remaining residential saleable acres and represent primarily a commercial real estate development opportunity.4Table of ContentsThe following table summarizes our master planned communities, all of which are wholly owned, as of December 31, 2013:(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 and conservation areas.(b)Includes standard, custom and high density residential land parcels. Standard residential lots are designed for detached and attached single- and multi-family homes, consistingof a broad range, from entry-level to luxury homes. At Summerlin and The Woodlands, we have designated certain residential parcels as custom lots as their premium pricereflects their larger size and other distinguishing features – such as being located within a gated community, having golf course access or being located at higher elevations. Highdensity residential includes townhomes, apartments and condominiums. Reflected are the remaining residential acres.(c)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.(d)With the exception of Gateway, reflects the number of net developable acres of raw land and subdivided land parcels available for new development, and which we currentlyintend to hold. In 2013, The Woodlands began developing 26 acres for its own use, which includes three office buildings, an apartment complex and two retail centers.(e)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 assumptionsregarding entitlements and zoning of the remaining project and are likely to change over time as the master plan is refined. Remaining saleable lots are estimates.(f)We currently intend to develop the land surrounding the Columbia Town Center. The date represents our estimated redevelopment completion date.(g)Amount represents remaining entitlements, not necessarily the number of lots that will ultimately be developed and sold.Bridgeland (Houston, Texas)Bridgeland is located near Houston, Texas and consists of approximately 11,400 acres. It was voted "Master Planned Community of the Year" in 2013by Greater Houston Builders Association and voted by The National Association of Home Builders as the "Master Planned Community of the Year" in2009. The first residents moved into their homes in June 2006. There were approximately 2,100 homes occupied by approximately 7,350 residents as ofDecember 31, 2013.We anticipate that the Bridgeland community will eventually accommodate approximately 20,000 homes and 65,000 residents. We further believe that itis poised to be one of the top master planned communities in the nation. The Woodlands senior management team, averages over 25 years each ofexperience developing master planned communities, is leading the development and marketing of Bridgeland. As of December 31, 2013, Bridgelandhad approximately 3,452 residential acres and 1,149 commercial acres remaining to be sold.Bridgeland's conceptual plan was revised in 2012 and includes four villages – Lakeland Village, Parkland Village, Prairieland Village and CreeklandVillage. The conceptual plan also includes an 800-acre Town Center mixed-use district and a carefully designed network of trails totaling over 60 milesthat will provide pedestrian connectivity to distinct residential villages and neighborhoods and access to recreational, educational, cultural, employment,retail, religious and other offerings.5 Remaining Saleable Acres Community Location TotalGrossAcres(a) PeopleLiving inCommunity(Approx.No.) Residential(b) Commercial(c) Total OtherAcres(d) RemainingSaleableResidentialLots(e) ProjectedCommunitySell-OutDate Bridgeland Houston,TX 11,400 7,350 3,452 1,149 4,601 — 17,665 2036 Maryland Columbia HowardCounty 14,200 100,000 — — — 35 — 2022(f)Gateway HowardCounty 630 — — 63 63 40 — 2018 Emerson HowardCounty 520 3,400 — 34 34 — — 2017 Fairwood PrinceGeorge'sCounty 1,100 2,600 — 11 11 24 — 2017 Summerlin LasVegas, NV 22,500 100,000 4,804 873 5,677 — 42,000(g) 2039 TheWoodlands Houston,TX 28,400 107,800 623 563 1,186 290 2,064 2022 Total 78,750 321,150 8,879 2,693 11,572 389 61,729 Table of ContentsThe conceptual plan also contemplates that the Town Center will be located adjacent to the expansion of State Highway 99 (the "Grand Parkway"),which is a 180-mile circumferential highway traversing seven counties that provides access to southwest, west, northwest, north and northeast Houston.Segment E of the Grand Parkway is a 15-mile four-lane controlled access toll road with intermittent frontage roads from Interstate 10 to Highway 290through Harris County. Segment E, which has four interchanges serving Bridgeland, provides direct access to the portion of Bridgeland designated forthe Town Center and to future residential sections of Bridgeland allowing for enhanced access to the master planned development. Construction onSegment E began in October 2011 and was officially opened for traffic on December 21, 2013. Additional segments are scheduled for completion in2015 that will connect Bridgeland to The Woodlands, the new ExxonMobil Campus and Houston's George Bush Intercontinental Airport.Bridgeland's first five neighborhoods are located in Lakeland Village. Bridgeland has many home sites that have views of the water, buried power linesto maximize the views of open space, fiber-optic technology, brick-lined terrace walkways and brick, stone and timber architecture. The prices of thehomes range from approximately $200,000 to more than $1.0 million. Lakeland Village is approximately 65% complete. The complex is anchored by a6,000 square foot community center and features a water park with three swimming pools, two lighted tennis courts and a state-of-the-art fitness room.A grand promenade wrapping around Lake Bridgeland offers a boat dock, canoes, kayaks, sailboats and paddleboats.We expect Bridgeland to feature more than 3,000 acres of waterways, lakes, trails, parks and open spaces, as well as an expansive Town Center thatwill provide employment and room for retail, educational and entertainment facilities.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 that begandevelopment in the 1960's. As of December 31, 2013, Columbia was home to approximately 100,000 people.Situated between Baltimore and Washington, D.C., and encompassing 14,200 acres of land, Columbia offers a wide variety of living, business andrecreational opportunities. The master planned community's full range of housing options is located in nine distinct, self-contained villages and a TownCenter. Columbia has an estimated 5,500 businesses, which occupy approximately 26 million square feet of space and provide more than 63,000 jobs.There is a wide variety of retail options encompassing approximately 4.8 million square feet of retail space in more than 500 stores.As a result of the 2005 Base Realignment and Closure Commission, additional government agencies have been relocated to Fort George G. Meade, just11 miles from Downtown Columbia. The overall workforce on the base is projected to be 60,000 people by 2015 due to its role in cyber security andprotecting the nation's information technology assets from foreign threats. An economic engine for the region, Fort Meade directly or indirectly supportsapproximately 170,000 local jobs and growth projections indicate that there will be demand for office space and housing for highly paid personnel.6Table of ContentsIn downtown Columbia, 1.6 million square feet of office space is located close to shopping, restaurants and entertainment venues. We believe there issignificant opportunity to redevelop this area in the future. During 2010, we received entitlements to develop up to 5,500 new residential units,4.3 million square feet of commercial office space, 1.25 million square feet of retail space and 640 hotel rooms.In November, 2010, we entered into development agreements with General Growth Properties, Inc. ("GGP") that provide for the division of propertiesbetween our Company and GGP in an area within the Mall Ring Road surrounding the Mall in Columbia, which is owned by GGP. We have apreferred residential and office development covenant that provides us the right of first offer for new development densities of residential and officewithin the Columbia Mall Ring Road. This covenant expires in 2030. The development agreements contain the key terms, conditions, responsibilitiesand obligations with respect to the future development of this area within the greater Downtown Columbia Redevelopment District. The agreements alsoprovide us with a five-year right of first refusal and a subsequent six-month purchase option to acquire seven office buildings and associated parkinglots, totaling approximately 22 acres. In August 2012, we acquired 70 Columbia Corporate Center, a 168,000 square foot office building, one of thebuildings associated with our right of first refusal. There are now six office buildings remaining under this right of first refusal.During 2011, we contributed more than four acres of land to The Metropolitan Downtown Columbia Project for the development of a 380-unit Class Aapartment building with a local multi-family developer, Kettler, Inc. ("Kettler"), which is described under "– Strategic Developments".On October 4, 2013, we entered into a joint venture agreement with Kettler to construct a 437-unit, Class A apartment building with 31,000 square feetof ground floor retail on Parcel C, which is described under "– Strategic Developments".We also own approximately 35 acres, net of road and related infrastructure improvements, on the land around Merriweather Post Pavilion, an outdooramphitheater and concert venue, which is south of Columbia Mall. The acreage currently consists of raw land and subdivided land parcels readilyavailable for new development. We held the initial public meeting called for in the county's Final Development Plan (FDP) process and intend toformally submit an FDP application in early 2014. Preliminary plans call for at least four million square feet of development activity, with high-risebuildings encompassing the Central Park-like setting afforded by the Pavilion and its surrounding property.GatewayGateway is a 630-acre premier master planned corporate community located in a high traffic area in Howard County, Maryland. Gateway offers qualityoffice space in a campus setting with approximately 63 commercial acres remaining to be sold as of December 31, 2013.EmersonEmerson is located in Howard County, Maryland and consists of approximately 520 acres. The first residents moved into their homes in 2002. Emersonhas a wide assortment of single-family homes and townhomes offered by some of the region's top homebuilders and is located in one of Maryland'stop-performing public school districts. As of December 31, 2013, there were approximately 1,210 homes occupied by approximately 3,400 residentswith 34 commercial acres remaining to be developed. The remaining commercial land is fully entitled for build-out, subject to meeting local requirementsfor subdivision and land development permits.FairwoodFairwood is a fully developed master planned community located in Prince George's County, Maryland, consisting of approximately 1,100 acres.Fairwood consists of single-family and townhouse lots, as well as undedicated open space and two historic houses. The first residents moved into theirsingle-family7Table of Contentshomes in 2002. As of December 31, 2013, there were approximately 1,200 homes occupied by approximately 2,600 residents with 11 commercial acresavailable for sale. In addition to the commercial acres remaining to be sold, we own a few undedicated open space parcels, and 24 acres of unsubdividedland which cannot be developed as long as the nearby airport is operating.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 SummerlinMaster Planned Community is comprised of planned and developed villages and offers suburban living with accessibility to the Las Vegas Strip. Formuch of its 20-year history, Summerlin has consistently ranked in the Robert Charles Lesser annual poll of Top-Selling Master Planned Communitiesin the nation, ranking 11th in 2013. With 22 public and private schools (K-12), four institutions of higher learning, nine golf courses, and culturalfacilities, Summerlin is a fully integrated community. The first residents moved into their homes in 1991. As of December 31, 2013, there wereapproximately 41,000 homes occupied by approximately 100,000 residents.Summerlin is comprised of hundreds of neighborhoods located in 19 developed villages, out of 30 currently planned, with nearly 150 neighborhoodand village parks that are all connected by a 150-mile long trail system. Summerlin is located adjacent to Red Rock Canyon National Conservation Area,a landmark in southern Nevada, which has become a world-class hiking and rock climbing destination. It is also in close proximity to our Shops atSummerlin development site. As described in "Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations –Strategic Developments", in 2013 we executed agreements with two anchor retailers for approximately 380,000 square feet at The Shops at Summerlin,a 1.6 million square foot mixed-use downtown development. We believe that the completion of the downtown will significantly increase the value ofour surrounding land due to the addition of retail, office, restaurant and entertainment amenities. Red Rock Casino Resort & Spa, which is adjacent toour site, receives more than one million visitors annually. Summerlin contains approximately 2.1 million square feet of developed retail space,3.3 million square feet of developed office space and three hotel properties containing approximately 1,400 hotel rooms. Health and medical centers arealso located at Summerlin, including Summerlin Hospital.Summerlin is divided into three separate regions known as Summerlin North, Summerlin West and Summerlin South. Summerlin North is fullydeveloped and sold out. In Summerlin South, we are entitled to develop 740 acres of commercial property with no square footage restrictions, 355 ofsuch acres are owned by third parties or already committed to commercial development. We also have entitlements for an additional 18,000 residentialunits yet to be developed in Summerlin South. In Summerlin West, we are entitled to develop 5.85 million square feet of commercial space on up to 508acres of which 100,000 square feet has already been developed through the construction of a grocery store anchored shopping center. We are alsoentitled to develop 30,000 residential units in Summerlin West, approximately 24,000 of which remain to be developed. The remaining 42,000 saleableresidential lots represent Summerlin's total entitlements, and utilization of these entitlements is based on current and forecasted economic conditions. Asof December 31, 2013, Summerlin had approximately 4,804 residential acres and 873 commercial acres remaining to be sold. Summerlin's populationupon completion of the project is expected to be in excess of 200,000 residents.The Woodlands (Houston, Texas)The Woodlands is a 28,400 acre mixed-use self-contained master planned community approximately 1.5 times the size of Manhattan, New York,situated 27 miles north of Houston. The Woodlands provides an exceptional lifestyle and integrates recreational amenities, residential neighborhoods,commercial office space, retail shops and entertainment venues.8Table of ContentsDuring its nearly 40-year history, The Woodlands has won numerous awards, with the most recent being the Urban Land Institute's 2014 "VisionAward for Exemplary Leadership." Past awards include the Master Planned Community of the Year presented by the Greater Houston BuildersAssociation in 2010 for overall planning and design of The Woodlands. The Woodlands has consistently ranked as one of the top master plannedcommunities in the nation and Texas with regard to annual home sales. The Woodlands was ranked 8th nationally and was also ranked 3rd in theHouston area in 2013 for the number of home sales by Robert Charles Lesser.The Woodlands includes a waterway, outdoor art and an open-air performance pavilion, a resort and conference center, a luxury hotel and conventioncenter, educational opportunities for all ages, hospitals and health care facilities. The Fountains at Waterway Square located on The WoodlandsWaterway connects all of the amenities of the community via a water taxi system serving The Woodlands Town Center area and will eventually haveconnectivity to East Shore and Hughes Landing.Home site sales began in 1974. To maximize long term values, the development started with residential activity with land reserved for the eventualdevelopment of a town center containing office, retail, multi-family and hotel properties to serve the residents. Over time the residential success createddemand for commercial development. In recent years, the commercial and residential components have achieved significant appreciation in values andacceleration of development. The development and opening in 2014 of the new ExxonMobil campus four miles south of The Woodlands, should furtheraccelerate commercial development and drive residential pricing and velocity as employees relocate to the ExxonMobil campus and businesses servingExxonMobil relocate to our commercial properties in order to be close to the campus. Additionally, by virtue of the fact that The Woodlands owns mostof the available land, we have substantial influence over the market and our competitors.As of December 31, 2013, there were approximately 40,618 homes occupied by approximately 107,800 residents and more than 1,900 businessesproviding employment for approximately 54,500 people. We estimate that The Woodlands has a jobs to home ratio of approximately 1.34 to 1.00. Thisratio implies that many residents also work within the MPC, making it a more attractive place to live compared to purely residential communities byimproving quality of life through short commute times.Approximately 28% of The Woodlands is dedicated to green space, including parks, pathways, open spaces, golf courses and forest preserves. Thepopulation is projected to be approximately 130,000 by 2021. The Woodlands has full or partial ownership interests in commercial properties totalingapproximately 1,709,782 square feet of office space (of which 865,782 square feet is complete and 844,000 square feet is under construction), 398,632square feet of retail and service space (of which 201,280 square feet are complete and 197,352 square feet are under construction) and 1,097 rentalapartment units (of which 393 units are complete and 704 units are under construction). We also own and operate a 440-room resort and conferencecenter facility, with a second 300-room hotel soon to be under construction, and a 36-hole golf course with a country club facility. These commercialproperties are more fully described under "– Operating Assets". As of December 31, 2013, The Woodlands had approximately 623 acres of unsoldresidential land representing approximately 2,064 lots.As of December 31, 2013, The Woodlands had 853 acres of land designated for commercial use remaining to be sold or developed, which is currentlydesignated as 563 acres for third-party land sales and 290 acres for development. The 290 acres intended to be developed is comprised of 110 acres forapartments or condominiums, 28 acres for retail development, three acres for hotel facilities, nine acres for mixed-use and 140 acres for office buildings.The Woodlands is well positioned to dominate the commercial market for the next several years because we have the largest inventory of vacantcommercial land available in the area and we offer virtually every product type being sought after by our customers. The mix of acreage designated fordevelopment versus sale may change over time based on market conditions, projected demand, our view of the economic benefits of developing orselling and other factors.9Table of ContentsThe ExxonMobil corporate campus that is located on a 385-acre site south of The Woodlands is expected to include approximately 20 buildings,representing three million square feet of space. ExxonMobil expects to begin relocating employees into this new location starting in 2014 and ending inmid-2015. Upon completion of the relocation, ExxonMobil estimates there will be approximately 10,000 employees working at the new campus. Webelieve that the direct and indirect jobs related to this relocation will have a significant positive impact on The Woodlands and Bridgeland due toincreased housing demand, as well as commercial space needs for companies servicing ExxonMobil.Since inception, The Woodlands has always sought to maintain a wide array of home choices and marketed that information to the realtor community asthey are critical in providing guidance to the corporate relocation homebuyer. As a result of this effort, over the last ten years The Woodlands hasachieved an average of approximately 42% of new home sales attributable to "Outside of Houston Area" residents. Due to the new ExxonMobilcampus that opens in 2014, we are seeing increased home sales to ExxonMobil employees who are relocating to The Woodlands in order to live incloser proximity to the new campus.We believe the construction of The Grand Parkway linking The Woodlands and Bridgeland to the new ExxonMobil campus and the rest of the greaterHouston area will have a positive impact on purchasing decisions for residents in our Houston master planned communities. Construction of thesegments of The Grand Parkway that will serve The Woodlands and Bridgeland are expected to be completed in 2015.Operating AssetsWe own eight mixed-use and retail properties, nine office properties (the Columbia Office Properties contain six separate office buildings, whichincludes 70 Columbia Corporate Center), a multi-family apartment building, a resort and conference center, a 36-hole golf course and country club, threeequity investments and four other assets that generate revenue. Based on a variety of factors, we believe that there are opportunities to redevelop orreposition certain of these assets, primarily the retail and Columbia office properties, to improve their operating performance. These factors include, butare not limited to the following: (1) existing and forecasted demographics surrounding the property; (2) competition related to existing and/or alternativeuses; (3) existing entitlements of the property and our ability to change them, (4) compatibility of the physical site with proposed uses; and(5) environmental considerations, traffic patterns and access to the properties. We believe that, subject to obtaining all necessary consents and approvals,these assets have the potential for future growth by means of an improved tenant mix, additional gross leasable area ("GLA"), or repositioning of theasset for alternative use. Redevelopment plans for these assets may include office, retail or residential space, shopping centers, movie theaters, parkingcomplexes and open space. Any future redevelopment will require the receipt of permits, licenses, consents and waivers from various parties. Our retailproperties include approximately 2.2 million total square feet of GLA in the aggregate. Our office properties include approximately 1.5 million totalsquare feet of GLA in the aggregate.Retail20 & 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. Theproperties total 49,972 square feet and were completed in 2009 and 2007, respectively. The properties are currently 100% leased as of December 31,2013.Cottonwood Square (Salt Lake City, Utah)Cottonwood Square is a 77,079 square foot community center situated in a high traffic area. This site is across from our Cottonwood Mall property,which provides an opportunity for development synergies. The property is currently 94% leased.10Table of ContentsLandmark Mall (Alexandria, Virginia)Anchored by Macy's and Sears, Landmark Mall is an 879,413 square foot shopping mall located just nine miles west of Washington, D.C. The mall iswithin one mile of public rail service on D.C.'s metro blue line. In 2013 we received unanimous rezoning approval from the City of Alexandria forPhase I of the redevelopment which includes converting 11 acres of our 22 acre site, located within the center of the property between Macy's andSears, from a traditional enclosed mall to a vibrant outdoor mixed-use environment with street retail shops and restaurants and high density residential.The redevelopment requires the consent of Macy's and Sears, and within Phase I of the redevelopment, we will construct approximately 285,000 squarefeet of new retail including a upscale dine-in movie theater, and up to 400 residential units. Future phases may include the balance of the mall site withmixed-use densities to total up to 5.5 million square feet as prescribed in the City of Alexandria's 2009 Van Dorn Small Area Plan. Futureredevelopment will also be subject to approval of the anchor tenants as part of a reciprocal easement agreement that governs the property. We expect tobegin redevelopment in 2014.Park West (Peoria, Arizona)Park West is a 249,184 square foot open-air shopping, dining and entertainment destination which is approximately one mile northwest of the ArizonaCardinals' football stadium and the Phoenix Coyote's hockey arena. Park West has an additional 100,000 square feet of available development rights aspermitted for retail, restaurant and hotel uses. On November 5, 2012, we acquired four parcels of land adjacent to our Park West property consisting ofapproximately 18 acres. The acquisition enhances our control over infrastructure requirements and development rights associated with our property. Theproperty is 76.4% leased as of December 31, 2013.South Street Seaport (New York, New York)South Street Seaport is comprised of the historic area and Pier 17. The historic area (area west of the FDR Drive) includes three mid-rise buildings andretail condominium space in an adjacent 1.1 million square foot office tower. Pier 17 includes a pavilion shopping center located in a historic waterfrontdistrict on the East River in Manhattan. The property is subject to a ground lease expiring in 2072. Upon completion of the Pier 17 Renovation Project("Renovation Project", as described below), South Street Seaport will have approximately 362,000 square feet of leasable space, substantially all ofwhich is retail.On November 20, 2013, we announced plans for further redevelopment of the South Street Seaport district. The current zoning will support anadditional 700,000 square feet of development. The plan features East River Esplanade improvements, restoration of the historic Tin Building,replacement of the wooden platform piers adjacent to Pier 17 and a mixed-use tower. The plan will need the approval of the New York City LandmarksPreservation Commission and will be subject to a Uniform Land Use Review Procedure ("ULURP") that requires approval by the New York CityCouncil. We expect to begin the ULURP process in 2014.On June 27, 2013, the City of New York executed the amended and restated ground lease for South Street Seaport, which was the final step necessaryfor the commencement of the renovation and reconstruction of the existing Pier 17 Building. Simultaneously with the execution of the lease, weexecuted a completion guaranty which requires us to perform certain obligations under the lease, including the commencement of construction with ascheduled completion date of March 31, 2016. The Renovation Project will increase the leasable area of Pier 17 to approximately 182,000 square feetand features a complete transformation of the Pier 17 building designed to include a vibrant, open rooftop with 40% more open space, upscale retail andoutdoor entertainment venues. Construction on this site began during September 2013. In addition to the Renovation Project, we plan to retenantapproximately 180,000 square feet of the historic area. The estimated costs for the Renovation Project and retenanting of the historic area areapproximately $425 million.11Table of ContentsOn October 29, 2012, South Street Seaport was heavily impacted by Superstorm Sandy. The storm caused massive flooding in the waterfront areas ofLower Manhattan, including the South Street Seaport historic area. Reconstruction efforts are ongoing and the property is only partially operating.Please refer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regardingthis redevelopment project.Outlet Collection at Riverwalk (New Orleans, Louisiana)The Outlet Collection at Riverwalk (formerly known as "Riverwalk Marketplace") is located along the Mississippi River in downtown New Orleansand is adjacent to the New Orleans Memorial Convention Center and the Audubon Aquarium of the Americas. Construction of the Outlet Collection atRiverwalk began in July 2013 and is expected to open in the second quarter of 2014. This redevelopment expands our existing footprint by 50,000square feet to approximately 250,000 square feet, and the total estimated costs are approximately $82 million (exclusive of our land value).Please refer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regardingthis redevelopment project.Ward 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 downtownHonolulu. It is also a ten minute walk from Ala Moana Center, Hawaii's largest shopping center. Ward Centers currently includes a 665,000 square footshopping district containing seven specialty centers and approximately 140 unique shops, a variety of restaurants and an entertainment center whichincludes a 16-screen movie theater.In January 2009, the Hawaii Community Development Authority ("HCDA") approved a 15-year master plan, which entitles us to develop a mixed-usedevelopment encompassing a maximum of 9.3 million square feet, including up to 7.6 million square feet of residential space. In January 2011, weexecuted a development agreement with the HCDA which expires in 2024.During 2011, we completed a 722-stall parking deck that directly serves the Ward Village Shops and the Auahi Shops tenants at a cost of $70.8 million.In 2012, Ward Village Shops was completed consisting of approximately 70,000 square feet at a cost of $32.1 million, and as of December 31, 2013,construction for Auahi Shops consisting of 57,000 square feet was substantially complete and at final completion we expect total costs to approximate$26.0 million. Pier 1 Imports and Nordstrom Rack occupy 100% of this retail center and relocated from their former locations within Ward Centers.Consistent with the master plan approved by the HCDA, we announced plans in October 2012 to create a world-class urban master planned communitythat will transform Ward Centers into Ward Village, a vibrant neighborhood offering unique retail experiences, exceptional residences and workforcehousing set among dynamic open spaces and pedestrian friendly streets. Ward Village has received LEED Neighborhood Development (LEED-ND)Platinum certification, making the project the nation's largest LEED-ND Platinum certified project, and the only LEED-ND Platinum project in the stateof Hawaii. The LEED rating system is the foremost program for buildings, homes, and communities that are designed, constructed, maintained andoperated for improved environmental and human health performance. LEED certification is generally important to buyers and users of such facilitiesbecause it is a third party certification regarding the facility's water efficiency, energy saving capability, indoor environmental quality, carbon dioxideemissions and resource preservation.12Table of ContentsThe project is expected to include approximately 4,000 condominium units assuming an average of approximately 1,500 square feet per unit, and overone million square feet of retail and other commercial space.Phase One of the redevelopment consists of four components on four separate blocks: the renovation of the IBM building, a portion of which will serveas the information center and sales gallery for Ward Village, two mixed-use market rate residential towers and one reserved housing tower.During 2013, we began the redevelopment of the IBM building, a well-known office building located at Ward Centers, into a world class informationcenter and sales gallery for the entire Ward Village project. The information center and sales gallery will dedicate a section to the history of the land,while another will showcase our vision for Ward Village. The sales center opened in January 2014.Development permit applications and detailed plans for Phase One, which includes the first three residential towers, were approved by the HCDA in thethird quarter of 2013 and condominium documents have been approved by the Hawaii Real Estate Commission for two market rate towers. The first ofthe two market rate towers, Waiea, is planned to be developed at a surface parking lot on Ala Moana Boulevard and will have 171 market ratecondominium units for sale, six levels of parking, and approximately 8,000 square feet of new retail space. Waiea will consist of one, two and three-plus bedroom units ranging from approximately 1,100 to 17,500 square feet.The second market rate tower, Anaha, is planned for Auahi Street and will have 311 market rate condominium units for sale, six levels of parking, andapproximately 17,000 square feet of new retail space. Anaha will consist of studios, one, two and three-bedroom units, townhomes and penthousesranging from approximately 450 to 6,500 square feet.Please refer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regardingthis redevelopment project.Waterway Garage Retail (The Woodlands, Texas)Waterway Garage Retail is attached to The Waterway Square Garage located within The Woodlands Town Center. The 21,513 square feet retail portionof the garage was completed in 2011 and is currently 92.8% leased as of December 31, 2013.Rio West Mall (Gallup, New Mexico)Rio West Mall, a 521,194 square foot shopping center, is the only enclosed regional shopping center within a 125-mile radius and is easily accessedfrom Interstate 40 and historic Route 66. On September 30, 2013, we sold the property for $12.0 million and received $10.8 million of net proceeds,inclusive of a credit to the purchaser for certain improvement obligations. The net book value of the property was $10.2 million and we recognized apre-tax gain of $0.6 million which is included in other income.Office Operating Assets110 N. Wacker (Chicago, Illinois)The property is a 226,000 square foot office building located at 110 N. Wacker Drive in downtown Chicago. This office building is subject to a groundlease that expires in 2055, and is 100% net leased through October 2019. The tenant has several options to extend their lease through the duration of theground lease, and we have the right to terminate the lease with six months' notice following the expiration of the initial term in 2019. We receiveapproximately $6.1 million in annual lease payments. We own a 99% ownership interest in the property which, upon a capital event, entitles us to a 11%preferred return on our invested capital. After we have received the preferred return, and a return of our capital, the excess cash flow is evenly split withour partners.13Table of ContentsThe Woodlands (The Woodlands, Texas)1400 Woodloch Forest Drive1400 Woodloch Forest Drive is a five-story Class B office building located at the entrance to The Woodlands Town Center. The property totals 95,667square feet, was completed in 1981 and is 79.4% leased as of December 31, 2013.2201 Lake Woodlands Drive2201 Lake Woodlands Drive is a two-story Class C office building located in the East Shore commercial district of The Woodlands. The property totals24,119 square feet, was completed in 1994 and was recently vacated by its single tenant who moved to our office building at One Hughes Landing. Weare seeking a tenant for this building.3 Waterway SquareIn June 2013, we opened an 11-story 232,000 square foot Class A office building located in The Woodlands Town Center and adjacent to the4 Waterway Square office building. The property is 97.3% leased as of December 31, 2013.4 Waterway Square4 Waterway Square is a nine-story Class A office building located within The Woodlands Town Center. The property totals 218,551 square feet, wascompleted in 2010, and is 100% leased as of December 31, 2013.9303 New Trails9303 New Trails is a four-story Class B office building located within the Research Forest district of The Woodlands. The property totals 97,705square feet, was completed in 2008, and is 94.3% leased as of December 31, 2013.One Hughes LandingIn September 2013, we opened One Hughes Landing, an eight-story, 197,719 square foot Class A office building set on 2.7 acres, including a632 space parking garage. One Hughes Landing is the first building to open for the 66-acre mixed-use development site called Hughes Landing on LakeWoodlands. The property is 97.8% leased as of December 31, 2013.Columbia Office Properties (Columbia, Maryland)We own five office buildings, and are a master tenant of a sixth office building, in downtown Columbia, Maryland. Columbia is located 14 miles fromthe Baltimore Beltway and 17 miles from the Washington Beltway. The master ground lease under the sixth office building has a 2020 initial expirationand a 2060 final expiration date, including the market renewal options. The buildings, which comprise approximately 491,000 square feet in the heart ofdowntown Columbia, include: (1) American City Building (master tenant); (2) the Columbia Association Building; (3) 70 Columbia Corporate Center;(4) the Columbia Exhibit Building; (5) the Columbia Regional Office Building and (6) the Ridgley Building. This group also contains the MerriweatherPost Pavilion. Both the Columbia Regional Building and Merriweather Post Pavilion were designed by Frank Gehry. The Columbia Regional OfficeBuilding is being redeveloped as a mixed-use project. Construction is expected to be completed during the fourth quarter of 2014, and the totaldevelopment cost is $25 million (exclusive of land value). In July 2012, we executed a lease with Whole Foods Market for 41,000 square feet. InDecember 2012, we executed a lease with The Columbia Association Inc. for an upscale fitness center comprised of 27,556 square feet. The tenants areexpected to take occupancy in the fourth quarter of 2014.14Table of ContentsPlease refer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regardingthis redevelopment project.Multi-familyThe Millennium Waterway Apartments (The Woodlands, Texas)The Millennium Waterway Apartments is a 393-unit apartment building located within The Woodlands Town Center. We acquired our partners' intereston May 31, 2012, and it is now consolidated in our financials. This property was previously an equity investment. As of December 31, 2013, theproperty is 90.1% leased.Resort and Conference Center and Country ClubThe Woodlands Resort & Conference Center (The Woodlands, Texas)The Woodlands Resort & Conference Center is located approximately two miles south of The Woodlands Town Center and consists of 440 hotel roomsand 90,000 square feet of meeting space, including the 30,000 square feet currently leased by ExxonMobil.In 2013, we announced plans for the redevelopment and expansion of The Woodlands Resort & Conference Center. Completion of the project isexpected during the summer of 2014. Total estimated construction costs for this project are approximately $75 million.Please refer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regardingthis redevelopment project.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. In addition to an 18-hole Jack NicklausSignature Golf Course and an 18-hole Tom Fazio Championship Course, it contains two clubhouses, a spa, tennis courts, a golf learning center andfitness facilities totaling approximately 78,000 square feet.Other Operating Assets and InvestmentsWaterway Square Garage (The Woodlands, Texas)Waterway Square Garage, located within The Woodlands Town Center, is a five-story parking garage that contains 1,933 parking spaces and 21,513square feet of retail space. The garage was completed in 2009 and is reported separately from the retail space. The retail space is included in our retailoperating asset section above.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 portfoliocontains 129,790 square feet and the various buildings were constructed between the late 1980s and 2002.Participation Interest in Golf Courses at TPC Summerlin and TPC Las Vegas, located in the Summerlin Master Planned Community (Las Vegas,Nevada)The TPC Summerlin is an 18-hole private championship course designed by golf course architect Bobby Weed with player consultant Fuzzy Zoeller.TPC Las Vegas is an 18-hole public championship course designed by Bobby Weed with player consultant Raymond Floyd. These courses representthe only two golf courses in Nevada that are owned and operated by the Professional Golfers' Association of America (the "PGA").15Table of ContentsWe are entitled to receive residual payments from the PGA with respect to the two golf courses through October 31, 2021, the termination date of theagreement with the PGA. We receive 75% of the net operating profits and 90% of all profits from membership sales at TPC Summerlin until such timeas the original investment in the courses of $23.5 million has been recouped, which is projected to occur no sooner than 2015. Once we have receivedpayments from the PGA totaling $23.5 million, we are entitled to receive 20% of all net operating profits from the two courses through the terminationdate of the agreement. As of December 31, 2013, the remaining balance of our investment is approximately $5.6 million, approximately $4.4 milliongreater than our $1.2 million book value.Note Approximating Office Lease PaymentsWe receive payments approximating the lease revenue that GGP receives from the Arizona 2 Office in Phoenix, Arizona. The right to receive thesepayments is in the form of a fully amortizing promissory note issued by a subsidiary of GGP. These payments total approximately $6.9 million per yearthrough the end of 2015 and are recorded as interest income and principal amortization. The underlying real property interests in the Arizona 2 Officeare owned by GGP, and we will not own or obtain any real property interest therein or have any rights to receive payments after 2015.Summerlin Las Vegas Baseball ClubIn 2012, we became a 50% partner in a joint venture, Summerlin Las Vegas Baseball Club, LLC, formed for the purpose of acquiring 100% of theoperating assets of the Las Vegas 51s, a Triple-A baseball team which is affiliated with the New York Mets. The Las Vegas 51s is a member of thePacific Coast League and has been based in Las Vegas for 30 years. In May 2013, the joint venture acquired the team for approximately $21.0 million,of which our 50% share was $10.5 million. The team is located near our Summerlin Master Planned Community. Our strategy in acquiring anownership interest is to pursue a potential relocation of the team to a stadium which we would then build in our Summerlin Master Planned Community.There can be no assurance that such a stadium will ultimately be built.Interest in Stewart Title (The Woodlands, Texas)We own a 50% interest in Stewart Title, a real estate services company located in The Woodlands which handles a majority of the residential andcommercial land sale closings for The Woodlands.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. Our ownership interest entitles us to a prorata share of the cumulative undistributed profit in the hospital and we typically receive a distribution one time per year during the first quarter. Theannual distributions have typically been between $2.0 million to $3.0 million, but vary from year to year. This medical center is a 450-bed hospitallocated on a 32-acre medical campus in our Summerlin Master Planned Community. The hospital completed a major renovation in 2009 that expandedthe hospital to 450 beds (from 281 beds) and added a new six-story patient tower, an expanded emergency room, a four-story 80,000 square footmedical office building and a 600-space parking garage. Our interest relates to the contributed land, and Universal Health Services, Inc. provided thefunds to build the hospital.Interest in Head Acquisition (Hexalon)On October 30, 2013, we sold our interest in Head Acquisition, LP ("Head"), a cost basis investment, for cash proceeds of $13.3 million. The saleresulted in a gain of approximately $8.5 million.16Table of ContentsStrategic DevelopmentsOur Strategic Developments segment is made up of near, medium and long-term real estate properties and development projects. We continue toadvance the development plans for each of these assets based on market conditions and availability of capital. We will likely need to obtain financing toundertake a development plan, in addition to obtaining the proper permits and approvals which are typical of most large-scale real estate developmentsof this nature. Unless otherwise indicated, estimated costs associated with developments are exclusive of land value because we typically own all of theland underlying our Strategic Developments.We are continuing to execute our strategic plans to substantially develop several of these assets with construction either under way or pending. Theremainder of these assets will require substantial future development to achieve their highest and best use.The following table summarizes our Operating Assets undergoing redevelopment and our Strategic Development projects, some of which are currentlyunder construction as of December 31, 2013: Location Size/GLA Size(Acres) Net BookValue,December 31,2013(Millions) AcquisitionYear Operating AssetsUndergoingRedevelopment: Outlet Collectionat Riverwalk New Orleans,LA 250,000 11 $36.4(a) 2004 South StreetSeaport New York, NY 362,000 11 41.0(b) 2004 The WoodlandsResort &ConferenceCenter (c) The Woodlands,TX 440rooms 70 75.1(d) 1974 /2002 StrategicDevelopmentsUnderConstruction: ColumbiaRegionalBuilding Columbia, MD 89,000 — 20.9(e) 2004 CreeksideVillage Green The Woodlands,TX 74,352 7 2.9 — ExxonMobilBuild-to-Suit The Woodlands,TX 647,000 4 6.6 — Hughes LandingRetail The Woodlands,TX 123,000 9 6.2 — MillenniumWoodlandsPhase II (f) The Woodlands,TX 314 units 5 2.2 — ONE Ala MoanaCondoProject (f) Honolulu, HI 206 units — 19.9 2002 One Lake's Edge The Woodlands,TX 390 units/ 22,289retail 3 6.1 — The MetropolitanDowntownColumbiaProject (f) Columbia, MD 380 units/ 14,000retail 4 5.0 2004 The Shops atSummerlinCenter Las Vegas, NV 1,600,000 106 141.4 2004 Two HughesLanding The Woodlands,TX 197,000 4 22.4 — Ward SalesCenter Honolulu, HI — — 16.0(g) — Other StrategicDevelopments: AlamedaPlaza (h) Pocatello, ID 65,292 7 0.7 2002 AllenTowne Allen, TX — 238 25.5 2006 Bridges at MintHill (i) Charlotte, NC — 210 21.4 2007 Century Plaza Birmingham, AL 755,573(j) 63 4.5 1997 Note: Projects are grouped according to development activity. For the purposes of this table, the assets under or pending construction are grouped first. All other projects underdevelopment are grouped alphabetically.(a)Net Book Value includes $25.0 million of development costs at the Outlet Collection at Riverwalk.(b)Net Book Value includes $24.2 million of development costs at South Street Seaport.(c)The Woodlands Resort & Conference Center was built in 1974, expanded in 2002, and is currently being renovated.17Circle T Ranchand PowerCenter (f) Dallas / Ft.Worth, TX — 279 9.1 2005 CommercialLand (k) The Woodlands,TX — 19 14.0 — CottonwoodMall Holladay, UT 232,843 54 20.3 2002 Elk GrovePromenade Elk Grove, CA — 100 6.2 2003 Fashion ShowAir Rights Las Vegas, NV — — — 2004 Kendall TownCenter Kendall, FL — 70 18.1 2004 Lakemoor (Volo)Land Lakemoor, IL — 40 0.3 1995 Maui Ranch Land Maui, HI — 20(l) — 2002 Parcel C (f) Columbia, MD 437 units/ 31,000retail 5 5.8 2004 RedlandsPromenade Redlands, CA — 10 3.0 2004 Redlands Mall Redlands, CA 174,787 12(m) 6.5 2004 WardCondominiums Honolulu, HI 906 units — 17.1(n) 2002 West Windsor West Windsor,NJ — 658 23.0 2004 Total 2,019 $577.6 Table of Contents(d)Net Book Value includes $27.5 million of development costs at The Woodlands Resort & Conference Center.(e)Net Book Value includes $16.4 million of development costs at the Columbia Regional Building.(f)Net Book Value is made up of our investment in the joint venture. Please refer to Note 5 – Real Estate Affiliates, in our Consolidated Financial Statements.(g)Net Book Value represents development costs at December 31, 2013.(h)During 2013, we sold 1.3 acres including 10,000 square feet of retail space.(i)Net Book Value represents net consolidated investment in the joint venture.(j)Century Plaza square footage represents GLA for entire mall.(k)Represents land identified for future retail, office, hotel and / or other commercial developments at The Woodlands.(l)Maui Ranch Land size represents two-10 acre land parcels.(m)The Village at Redlands acreage represents total mall site inclusive of anchor lots. Five of the twelve acres is owned by us, and the remaining seven acres are parking owned byThe City of Redlands.(n)Net Book Value represents development costs for the first three residential towers approved by the HDCA.The Woodlands (The Woodlands, Texas)Creekside Village GreenCreekside Village Green is located within the 100-acre mixed-use commercial development that is anchored by H-E-B grocery store and will ultimatelyinclude 400,000 square feet of retail and office space, 800 units of multi-family, 200 units of senior living facility and an 85,000 square foot campuswithin the Lone Star College System. Creekside Village Green is a 74,352 square foot retail center which will consist of retail, restaurant andprofessional office space across two main buildings and a centrally located restaurant building. Creekside Village Green will also include a one-acretree-lined park designed to be the hub of all activity within the greater 100-acre development. During the fourth quarter 2013, we began construction.Total development costs are expected to be approximately $19 million. We anticipate the project will open in the fourth quarter of 2014. Please refer to"Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regarding thisredevelopment project.ExxonMobil Build-to-SuitOn December 16, 2013 we announced the development of two adjacent Class A office buildings. The building located at 1725 Hughes LandingBoulevard (West Building) will be 12 stories and approximately 318,000 rentable square feet, and the one located at 1735 Hughes Landing Boulevard(East Building) will be 13 stories and 329,000 rentable square feet. A 2,617 space parking garage will also be located on the 4.3 acre site and will beexclusive to the office project. ExxonMobil Corporation has executed leases to occupy the entire West Building for twelve years and 160,000 squarefeet in the East Building for eight years, with an option to lease the remaining space before the building opens. Total development costs are expected tobe approximately $171 million (exclusive of land value) and the project is expected to be completed by the fourth quarter of 2015. Please refer to"Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regarding this developmentproject.Hughes Landing RetailDuring the fourth quarter 2013, we began construction of Hughes Landing Retail, a 123,000 square foot retail component of Hughes Landing. Theproject will consist of Whole Foods, an anchor tenant with 40,000 square feet of space, 32,900 square feet of retail, and a 50,100 square foot restaurantrow. Total development costs are expected to be approximately $36 million, and the project is expected to be completed in the fourth quarter of 2014.The majority of the restaurants on restaurant row will open during the first quarter 2015. Please refer to "Item 7 – Management's Discussion andAnalysis of Financial Condition and Results of Operations" for further information regarding this development project.18Table of ContentsMillennium Woodlands Phase IIOn May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC ("Millennium Phase II"), with The Dinerstein Companies, forthe construction of a 314-unit Class A multi-family complex in The Woodlands Town Center. Total development costs are expected to be $38 million(exclusive of land value), and completion is expected in the second quarter of 2014. Please refer to "Item 7 – Management's Discussion and Analysis ofFinancial Condition and Results of Operations" for further information regarding this development project.One Lake's EdgeIn October 2013, we began construction of an eight-story, Class A, multi-family project within Hughes Landing that will be comprised of 390 multi-family units (averaging 984 square feet per unit), 22,289 square feet of retail and an approximately 750 space parking garage, all situated on 2.92 acresof land. Additionally, the project will feature an amenity deck on the third floor which will house the pool, courtyard and other amenities overlookingLake Woodlands. Total development costs are expected to be approximately $88 million and completion is expected in the first quarter of 2015. Pleaserefer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regarding thisdevelopment project.Two Hughes LandingDuring the third quarter 2013, we began construction of Two Hughes Landing, the second Class A office building located in Hughes Landing on LakeWoodlands. Two Hughes Landing will be a 197,000 square foot, eight-story office building with an adjacent 630 space parking garage. The buildingand the garage will be situated on 3.6 acres of land and is estimated to cost approximately $49 million. Please refer to "Item 7 – Management'sDiscussion and Analysis of Financial Condition and Results of Operations" for further information regarding this redevelopment project.ONE Ala Moana Tower Condo Project (Honolulu, Hawaii)In October 2011, we and an entity jointly owned by two local developers, Kobayashi Group and The MacNaughton Group, formed a joint venturecalled HHMK Development, LLC ("HHMK Development"), to explore the development of a luxury condominium tower above an existing parkingstructure at Ala Moana Center. We own 50% of the venture and our partner owns the remaining 50%. In June 2012, we formed another 50/50 jointventure, KR Holdings, LLC ("KR Holdings"), with the same two development partners. KR Holdings was responsible for development activities andobtained construction financing for the project. Construction of the 23-story, 206-unit tower consisting of one, two and three-bedroom units rangingfrom 760 to 4,100 square feet commenced in April of 2013, and we expect completion at the end of 2014. The venture is expected to investapproximately $265.1 million, which includes construction, selling and all financing costs.During the fourth quarter of 2012, we pre-sold all of the condominium units at an average price of $1.6 million, or approximately $1,170 per squarefoot and the average unit size is approximately 1,350 square feet.Please refer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regardingthis development project.Parcel C (Columbia, Maryland)On October 4, 2013, we entered into a joint venture agreement with a local multi-family developer, Kettler, Inc., ("Kettler") to construct a 437-unit,Class A apartment building with 31,000 square feet of ground floor retail. We contributed approximately five acres of land having an estimated bookvalue of $4.0 million in exchange for a 50% interest in the joint venture. When the joint venture closes on a19Table of Contentsconstruction loan our interest in the joint venture will be stepped up to $23.4 million or $53,500 per constructed unit and our partner will be required tomake a cash contribution to the venture, the amount of which will depend on the size of the construction financing obtained for the development. Pleaserefer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regarding thisdevelopment project.The Metropolitan Downtown Columbia Project (Columbia, Maryland)In October 2011, we entered into a joint venture with Kettler to construct an approximate 380-unit Class A apartment building with approximately10,000 square feet of ground floor retail space in downtown Columbia, Maryland. We contributed a 4.2 acre site, having a $3.0 million book value, inexchange for a 50% interest in the venture. Our partner is responsible for providing construction and property management services, including thefunding and oversight of development activities. The venture began construction of The Metropolitan in February 2013. On July 11, 2013, the ventureclosed on a $64.1 million construction financing. Our contributed land was valued at $20.3 million and Kettler contributed $13.3 million in cash, ofwhich $7.0 million was distributed to us. Total development costs are expected to be $97 million and completion is expected in the third quarter of 2014.Please refer to "Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information regardingthis development project.The Shops at Summerlin (Las Vegas, Nevada)This 106-acre development project is part of a 400-acre mixed-use town center for the Summerlin Master Planned Community and faces Interstate 215between Sahara Drive and Summerlin Centre Drive, approximately nine miles west of the Las Vegas Strip. The project is planned for approximately1.6 million square feet of retail and office development. The project consists of retail, office, and anchor space and has the potential for a hotel and multi-family residential units. Construction began again in 2013 with completion anticipated at the end of 2014. Total development costs are expected to be$391 million.In the fourth quarter of 2013, we sold approximately eight acres of land to Dillard's for the construction of a two-level, 200,000 square foot departmentstore. Also in the fourth quarter, we leased approximately six acres of land to Macy's for the construction of an 180,000 square foot department store.Dillard's and Macy's are two anchor tenants of a total of three planned anchors for The Shops at Summerlin, which is expected to open in late 2014. Weare actively pre-leasing the non-anchor space at the property. Please refer to "Item 7 – Management's Discussion and Analysis of Financial Conditionand Results of Operations" for further information regarding this development project.Other Development ProjectsAlameda Plaza (Pocatello, Idaho)Alameda Plaza is located in Pocatello, Idaho at the intersection of Yellowstone Park Highway and Alameda Road. The approximate 19.7-acre sitecontains 190,341 square feet of mostly vacant retail space. During 2013, we sold a 1.3 acre site for $1.3 million that had a book value of $0.4 million.During 2012, we sold 11.5 acres, including 104,705 square feet of mostly vacant retail spaces for $4.5 million which had a book value of $1.3 million.We are continuing to explore the sale of the remaining 6.9 acres.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 continuing to consider our plans to best position the property for the opportunities presented by evolving market conditions.20Table of ContentsBridges at Mint Hill (Charlotte, North Carolina)On September 8, 2011, we entered into a joint venture with the owner of land adjacent to our land to develop a shopping center on the combinedproperty located southeast of Charlotte, North Carolina.. On October 30, 2012, we contributed $4.5 million in cash to pay off the existing mortgage onour partner's property, and both parties contributed their respective properties in the venture. Our ownership in the venture increased from 79.0% to90.5% as a result of the contribution. The combined parcel is now approximately 210 acres consisting of 120 developable acres and is currently zonedfor approximately 1.3 million 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 resulting parcels with bridges over the creek. Development will require construction of internalroadways, connecting bridges, expansion of roads and an installation of a force main (offsite) for sewer utility.Century Plaza (Birmingham, Alabama)Century Plaza is located on the southeastern side of Birmingham, Alabama, on U.S. Route 78 (Crestwood Blvd.) near Interstate 20. In May 2009, themall was shuttered. The site consists of approximately 63 acres with approximately 740,000 square feet of GLA.Circle T Ranch and Circle T Power Center (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. Theproperty is approximately 279 total acres on two parcels. The Circle T Ranch parcel contains 128 acres while the Circle T Power Center parcel contains151 acres. We have a 50% ownership interest with Hillwood Properties, a local developer, in this joint venture.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,work began on a complete redevelopment of the 54-acre site, but development has been delayed due to the changing economic environment. Theoriginal mall was completely demolished with the exception of Macy's which continues to operate as a stand-alone department store on the site. Theproject is entitled for 575,000 square feet of 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 interest in the site.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 began in2007, but has been delayed due to changing economic conditions. Located approximately 17 miles southeast of Sacramento, the location affords easyaccess and visibility 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%ownership interest in the air rights above the Fashion Show Mall located on the Las Vegas Strip. This right is contingent upon the satisfaction of anumber of conditions and does not become effective unless the existing loans of the Fashion Show Mall and The Shoppes at the Palazzo and relatedguarantees are settled in full, which is currently expected to occur with GGP's scheduled repayment in May 2017.21Table of ContentsKendall Town Center (Kendall, Florida)Kendall Town Center is a 141 acre mixed-used site located at the intersection of North Kendall Drive and SW 158th, approximately 20 miles southwestof downtown Miami. A 31-acre parcel was sold to Baptist Hospital in March 2008, a 282,000 square foot hospital with 133 beds and a 62,000 squarefoot medical office building, opened in 2011. In addition, we sold five acres in 2011 and 18 acres in 2009. These 23 acres are expected to include a 120-room hotel with ancillary office and retail space and a senior housing development. Land totaling 14 acres has been deeded to the property ownersassociation and three acres have been deeded to the County. We own the remaining 70 acres, which are currently entitled for 621,300 square feet ofretail, 60,000 square feet of office space and a 50,000 square foot community center. We are currently developing a mixed-use program and site planand expect to submit a rezoning application to permit residential development in 2014.Lakemoor (Volo) Land (Lakemoor, Illinois)This 40-acre vacant land parcel is located on Route 12 which is 50 miles north of Chicago in a growing suburb. The project has no utilities in place andis currently designated as farmland.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.The land 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 inthe surrounding area. Accordingly, only a nominal value was ascribed to these parcels when they were acquired by our predecessors in conjunctionwith the purchase of Ward Centers.Redlands Promenade (Redlands, California)Redlands Promenade is a ten-acre site located at Eureka and the Interstate 10 off ramp in Redlands, California. The project is entitled for 125,000 squarefeet of retail development.Redlands Mall (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.Currently anchored by CVS, Denny's and Union Bank, the site is located in downtown Redlands two blocks south of the Redlands Promenade site.The interior portion of the mall closed in September 2010. This center is envisioned as a mixed-use retail and residential redevelopment.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, NewJersey. The land 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 evaluated in conjunction with a development 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 segment,we compete with other landholders and residential and commercial property developers in the development of properties within Las Vegas; Nevada,Houston; Texas and the Baltimore/Washington, D.C. markets. Significant factors which we believe allow us to compete effectively in this businessinclude:•the size and scope of our master planned communities; •years of experience serving the industry;22Table of Contents•the recreational and cultural amenities available within the communities; •the commercial centers in the communities, including the 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.With respect to our Operating Assets segment we primarily compete for retail and office tenants, and to a lesser extent, residential tenants. We believethe principal factors that retailers consider in making their leasing decisions include: (1) consumer demographics; (2) quality, design and location ofproperties; (3) neighboring real estate projects that have been developed by our predecessors or that we, in the future, may develop; (4) diversity ofretailers and anchor tenants at shopping center locations; (5) management and operational expertise; and (6) rental rates.With respect to our Strategic Developments segment, our direct competitors include other commercial property developers, retail mall development andoperating companies and other owners of retail real estate that engage in similar businesses.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 hazardousor toxic substances on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, thepresence of such hazardous or toxic substances. The costs of remediation or removal of such substances may be substantial, and the presence of suchsubstances, or the failure to promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using suchreal estate as collateral.Substantially, all of our properties have been subject to Phase I environmental assessments, which are intended to evaluate the environmental conditionof the surveyed and surrounding properties. As of December 31, 2013, the assessments have not revealed any known environmental liability that webelieve 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 encumbered with debt). Moreover, no assurances can be given that future laws, ordinances or regulations will not imposeany material environmental liability on us, or the current environmental condition of our properties will not be adversely affected by tenants andoccupants of the properties, by the condition of properties in the vicinity of our properties (such as the presence on such properties of undergroundstorage tanks) or by third parties unrelated to us.Future development opportunities may require additional capital and other expenditures to comply with federal, state and local statutes and regulationsrelating to the protection of the environment. In addition, there is a risk when redeveloping sites, that we might encounter previously unknown issuesthat require remediation or residual contamination warranting special handling or disposal, which could affect the speed of redevelopment. Whereredevelopment involves renovating or demolishing existing facilities, we may be required to undertake abatement and/or the removal and disposal ofbuilding materials or other remediation or cleanup activities that contain hazardous materials. We cannot predict with any certainty the magnitude of anysuch expenditures or the long-range effect, if any, on our operations. Compliance with such laws has not had a material adverse effect on our operatingresults or competitive position in the past, but could have such an effect on our operating results or competitive position in the future.23Table of ContentsEmployeesAs of December 31, 2013, we had approximately 1,000 employees.Available InformationWe maintain a website at www.howardhughes.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports onForm 8-K are available and may be accessed free of charge through the Investors section of our website under the SEC Filings subsection, as soon asreasonably practicable after those documents are filed with, or furnished to, the SEC. Also available through our Investors section of our website arereports filed by our directors and executive officers on Forms 3, 4 and 5, and amendments to those reports. Our website and included or linkedinformation on the website are not intended to be incorporated into this Annual Report on Form 10-K.ITEM 1A. RISK FACTORS The 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 BusinessOur performance is subject to risks associated with the real estate industry.Our economic performance and the value of our properties are subject to developments that affect real estate generally and that are specific to ourproperties. If our properties do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cashflow will be adversely affected. The following factors, among others, may adversely affect the income generated by our properties:•downturns in the economic conditions at the national, regional or local levels, particularly a decline in one or more of our primarymarkets; •competition from other master planned communities, retail properties, office properties or other commercial space; •increases in interest rates; •the availability of financing, including refinancing or extensions of existing mortgage debt, on acceptable terms, or at all; •increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; •fluctuating condominium prices and absorption rates; •vacancies and changes in rental rates; •declines in the financial condition of our tenants and our ability to collect rents from our tenants; •declines in consumer confidence and spending that adversely affect our revenue from our retail properties; •decrease in traffic to our retail properties due to the convenience of other retailing options such as the internet;24Table of Contents•natural disasters or terrorist acts which may result in uninsured or underinsured losses; •adoption of more restrictive laws and government regulations, including more restrictive zoning, land use or environmental regulationsand an increase in real estate taxes; and •opposition from local community or political groups with respect to the development, construction or operations at a particular site.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 suchcapital could include bank borrowings, public and private offerings of debt or equity, or the sale of certain assets which may include entry into jointventures with one or more third parties. We may be unable to obtain financing in the future and any financing we are able to secure may only beavailable on unfavorable terms.A downturn in national or regional economic conditions, could adversely impact our business.Fluctuations in growth in the national economy may negatively impact our earnings, cash flow and liquidity by weakening demand for our real estateproperties.In addition, the housing market and the demand from builders for lots vary depending on location. Projected lot sales used in our feasibility analysesmay not be met. In addition, the success of our master planned communities business is heavily dependent on local housing markets in Las Vegas;Nevada, Houston, Texas; and Baltimore, Maryland/Washington, D.C., which in turn are dependent on the health and growth of the economies andavailability of credit in these regions.We may be unable to develop and expand our properties.Our business objective includes the development and redevelopment of our properties, which we may be unable to do if we do not have or cannotobtain sufficient capital to proceed with planned development, redevelopment or expansion activities. We may be unable to obtain anchor store,mortgage lender and property partner approvals that are required for any such development, redevelopment or expansion. We may abandonredevelopment or expansion activities already under way that we are unable to complete, which may result in charge-offs of costs previously capitalized.In addition, if redevelopment, expansion or reinvestment projects are unsuccessful, the investment in such projects may not be fully recoverable fromfuture operations or sale resulting in impairment charges.We are exposed to risks associated with the development or redevelopment of our properties.Our development or redevelopment activities entail risks that could adversely impact our results of operations, cash flows and financial condition,including:•increased construction costs for a project that exceeded our original estimates due to increases in materials, labor or other costs, whichcould make completion of the project less profitable because market rents may not increase sufficiently to compensate for the increase ofconstruction costs; •construction delays or cost overruns, which may increase project development costs; •claims for construction defects after a property has been developed; •compliance with building codes and other local regulations; and •an inability to secure tenants necessary to support commercial projects or obtain construction financing for the development orredevelopment of our properties.25Table of ContentsDevelopment of properties 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. In addition, our competitors and local residents may challenge ourefforts to obtain entitlements and permits for the development of properties. The process to comply with these regulations is usually lengthy and costly,may not result in the approvals we seek, and can be expected to materially affect our development activities.Our development, construction and sale of condominiums are subject to state regulations and may be subject to claims from the homeownersassociation at each project.A portion of our business is dedicated to the formation and sale of condominiums. Condominiums are generally regulated by an agency of the state inwhich they are located or where the condominiums are marketed to be sold. In connection with our development of condominiums and offering ofcondominium units for sale, we must submit regulatory filings to various state agencies and engage in an entitlement process by which real propertyowned under one title is converted into individual units. Any responses or comments on our condominium filings may delay our ability to sellcondominiums in certain states and other jurisdictions. Further, we will be required to transfer control of a condominium association's board of directorsonce we trigger one of several statutory thresholds, with the most likely triggers being tied to the sale of not less than a majority of units to third-partyowners. Transfer of control can result in claims with respect to deficiencies in operating funds and reserves, constructions defects and othercondominium-related matters by the condominium association and/or third-party condominium unit owners. Any material claims in these areas couldnegatively affect our reputation in condominium development and ultimately have a material adverse effect on our operations as a whole.Purchasers may default on their obligations to purchase condominiums.We enter into contracts for the sale of condominium units that generally provide for the payment of a substantial portion of the sales price at closingwhen a condominium unit is ready to be delivered and occupied. A significant amount of time may pass between the execution of a contract for thepurchase of a condominium unit and the closing thereof. Defaults by purchasers to pay any remaining portions of the sales prices for condominiumunits under contract may have an adverse effect on our financial condition and results of operations.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 adverselyaffected if homebuilders do not view our master planned communities as desirable locations for homebuilding operations. Also, some homebuildersmay be unwilling or 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 adverse effect on our financial position and results of operations.26Table of ContentsOur results of operations are subject to significant fluctuation by various factors that are beyond our control.Our results of operations are subject to significant fluctuations by various factors that are beyond our control. Fluctuations in these factors may decreaseor eliminate the income generated by a property, and include:•the regional and local economy, which may be negatively impacted by material relocation by residents, industry slowdowns, plantclosings, increased unemployment, lack of availability of consumer credit, levels of consumer debt, housing market conditions, adverseweather conditions, natural disasters and other factors; •strength of the residential housing and condominium markets; •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 withcertain tenants.A decline in our results of operations could have a negative impact on the trading price of our common stock.We may experience construction delays and cost overruns in connection with the construction of our condominium projects and development orredevelopment of our properties.Several of our condominium and other development and redevelopment projects are under construction. Construction projects entail significant risks,which can substantially increase costs or delay completion of a project. Such risks include shortages of materials or skilled labor, unforeseenengineering, environmental or geological problems, health and safety incidents and site accidents, poor performance or nonperformance by any of ourjoint venture partners or other third parties on whom we rely, work stoppages, weather interference and unanticipated cost increases. Most of thesefactors are beyond our control. Difficulties or delays with respect to construction projects could adversely affect our results of operations.Our substantial indebtedness could adversely affect our business, prospects, financial condition or results of operations and prevent us fromfulfilling our obligations under the notes.We have a significant amount of indebtedness. On October 2, 2013, we issued $750.0 million aggregate principal amount of our 6.875% Senior Notesdue 2021 (the "Senior Notes") and received net cash proceeds of $739.6 million. As of December 31, 2013, our total consolidated debt wasapproximately $1,514.6 million (excluding an undrawn balance of $103.3 million under our revolving facilities) of which $778.3 million was recourseto the Company. In addition, we have $32.2 million of recourse guarantees associated with undrawn construction financing commitments as ofDecember 31, 2013. As of December 31, 2013, our share of the debt of our Real Estate Affiliates was $39.0 million based upon our economicownership which is non-recourse to us.Subject to the limits contained in the indenture governing the Senior Notes and any limits under our other debt agreements, we may be able to incursubstantial additional indebtedness from time to time, including project indebtedness at our subsidiaries. If we do so, the risks related to our level of27Table of Contentsindebtedness could intensify. Specifically, a high level of indebtedness could have important consequences to holders of the notes and equity holders,including:•making it more difficult for us to satisfy our obligations with respect to the notes and our other debt; •limiting our ability to obtain additional financing to fund future working capital, capital expenditures, debt service requirements,execution of our business strategy or other general corporate requirements, or requiring us to make non-strategic divestitures, particularlywhen the availability of financing in the capital markets is limited; •requiring a substantial portion of our cash flow to be dedicated to debt service payments instead of other purposes, thereby reducing theamount of cash flow available for working capital, capital expenditures, acquisitions, dividends and other general corporate purposes; •increasing our vulnerability to general adverse economic and industry conditions, including increases in interest rates, particularly giventhat certain indebtedness bears interest at variable rates; •limiting our ability to capitalize on business opportunities, reinvest in and develop properties, and to react to competitive pressures andadverse changes in government regulations; •placing us at a disadvantage compared to other, less leveraged competitors; •limiting our ability, or increasing the costs, to refinance indebtedness; and •resulting in an event of default if we fail to satisfy our obligations under the notes or our other debt or fail to comply with the financialand other restrictive covenants contained in the indenture governing the notes or our other debt, which event of default could result in thenotes and all of our debt becoming immediately due and payable and, in the case of our secured debt, could permit the lenders toforeclose on our assets securing such debt.The indenture governing our Senior Notes contains, and our other debt agreements contain, restrictions which may limit our ability to operateour business.The indenture governing our Senior Notes contains, and some of our other debt agreements contain, certain restrictions. These restrictions limit ourability or the ability of certain of our subsidiaries to, among other things:•pay dividends on, redeem or repurchase capital stock or make other restricted payments; •make investments; •incur indebtedness or issue certain equity; •create certain liens; •incur obligations that restrict the ability of our subsidiaries to make dividend or other payments to us; •consolidate, merge or transfer all or substantially all of our assets; •enter into transactions with our affiliates; and •create or designate unrestricted subsidiaries.Additionally, certain of our debt agreements also contain various restrictive covenants, including minimum net worth requirements, maximum payoutratios on distributions, minimum debt yield ratios, minimum fixed charge coverage ratios, minimum interest coverage ratio and maximum leverageratios.The restrictions under the indenture and or other debt agreements could limit our ability to finance our future operations or capital needs, makeacquisitions or pursue available business opportunities.28Table of ContentsWe may be required to take action to reduce our debt or act in a manner contrary to our business objectives to meet such ratios and satisfy the covenantsin our debt agreements. Events beyond our control, including changes in economic and business conditions in the markets in which we operate, mayaffect our ability to do so. We may not be able to meet the ratios or satisfy the covenants in our debt agreements, and we cannot assure you that ourlenders will waive any failure to do so. A breach of any of the covenants in, or our inability to maintain the required financial ratios under, our debtagreements could result in a default under such debt agreements, which could lead to that debt becoming immediately due and payable and, if such debtis secured, foreclosure on our assets that secure such debt. A breach of any of the covenants in, or our inability to maintain the required financial ratiosunder, our debt agreements also would prevent us from borrowing additional money under such agreements that include revolving lending facilities. Adefault under any of our debt agreements could, in turn, result in defaults under other obligations and result in other creditors accelerating the paymentof other obligations and foreclosing on assets securing such obligations, if any.Any such defaults could materially impair our financial condition and liquidity. In addition, if the lenders under any of our debt agreements or otherobligations accelerate the maturity of those obligations, we cannot assure you that we will have sufficient assets to satisfy our obligations under thenotes or our other debt.We may be unable to renew leases or re-let space as leases expire.When a lease expires, a tenant may elect not to renew it. We may not be able to re-let the property on similar terms, if we are able to re-let the property atall. The terms of renewal or re-lease (including the cost of required tenant improvements, renovations and/or concessions to tenants) may be lessfavorable to us than the prior lease. If we are unable to re-let all or a substantial portion of our properties, or if the rental rates upon such re-letting aresignificantly lower than expected, our cash generated before debt repayments and capital expenditures and our ability to make expected distributions,may be adversely effected.The Houston, Texas economy is highly dependent on the energy sector.The greater Houston area is home to a large number of energy companies. A decline in the energy sector could have a significant negative effect on theperformance 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. 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;and Baltimore/Washington, D.C. markets. A number of residential and commercial developers, some with greater financial and other resources, competewith us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adverselyaffect our ability to attract purchasers and sell residential and commercial real estate, sell undeveloped rural land, attract and retain experienced real estatedevelopment personnel, or obtain construction materials and labor. These competitive conditions can make it difficult to sell land at desirable prices andcan adversely affect our results of operations and financial condition.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 discount29Table of Contentsshopping centers, discount shopping clubs, catalog companies, internet sales and telemarketing. Competition of this type could adversely affect ourresults of operations and 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 and private institutional investors.Our 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 future 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 othercompetitive assets. In the future, we may not have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able toattract partners who want to conduct business in the locations where our properties are located, and who have the assets, reputation or othercharacteristics that would optimize our development opportunities.While we generally participate in making decisions for our jointly owned properties and assets, we might not always have the same objectives as thepartner in relation to a particular asset, and we might not be able to formally resolve any issues that arise. In addition, actions by a partner may subjectproperty owned by the joint venture to liabilities greater than those contemplated by the joint venture agreements, be contrary to our instructions orrequests or result in adverse consequences. We cannot control the ultimate outcome of any decision made, which may be detrimental to our interests.Some of our interests, such as the Summerlin Medical Hospital Center are controlled entirely by our partners.The bankruptcy of one of the other investors in any of our joint ventures could materially and adversely affect the relevant property or properties. If thisoccurred, we would be precluded from taking some actions affecting the estate of the other investor without prior court approval which would, in mostcases, entail prior notice to other parties and a hearing. At a minimum, the requirement to obtain court approval may delay the actions we would or mightwant to take. If the relevant joint venture through which we have invested in a property has incurred recourse obligations, the discharge in bankruptcy ofone of the other investors might result in our ultimate liability for a greater portion of those obligations than would otherwise be required.If the recoverable values of our real estate assets were to drop below the book value of those properties, we would be required to write-down thebook 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 theperiod in which the write-down is recorded.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 sometimes seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest rate swap agreements.There cannot be any assurance that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or thatour hedging of these transactions will not result in losses. Our policy is to use derivatives only to hedge30Table of Contentsinterest rate risks related to our borrowings, not for speculative or trading purposes, and to enter into contracts only with major financial institutionsbased on their credit ratings and other factors. These hedging arrangements, which could include a number of counterparties, may expose us toadditional risks, including failure of any of our counterparties to perform under these contracts, and may involve extensive costs, such as transactionfees or breakage costs, if we terminate them. Failure to hedge effectively against interest rate changes may materially adversely affect our results ofoperations.In addition, hedging instruments involve risks because the business failure of a hedging counterparty with whom we entered into a hedging transactionwill most likely result in the counterparty's default on its obligation to pay. Further, the credit quality of the counterparty owing money on the hedge maybe downgraded to such an extent that it impacts our ability to sell or assign our side of the hedging transaction.We may not realize the value of our tax assets.Certain provisions of the Internal Revenue Code could limit our ability to fully utilize the tax assets if we were to experience a "change of control". Ifsuch an event were to occur, the cash flow benefits we might otherwise have received would be eliminated. We currently have approximately$95 million of federal net operating loss carryforwards, of which $25 million are subject to the separate return year limitation rules. A change of controlcould limit our ability to use our net operating losses prior to their expiration.Some 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 theseactivities or may serve as investment advisors, directors or officers. These interests and activities, and any duties to third parties arising from suchinterests and activities, could divert the attention of such directors from our operations. Additionally, certain of our directors are engaged in investmentand other activities in which they may learn of real estate and other related opportunities in their non-director capacities. Our Code of Business Conductand Ethics applicable to our directors expressly provides, as permitted by Section 122(17) of the Delaware General Corporation Law (the "DGCL"),that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunitiesthat may arise in connection therewith, even if the opportunities are complementary to, or in competition with, our businesses. Accordingly, we have noexpectation that we will be able to learn of or participate in such opportunities. If any potential business opportunity is expressly presented to a directorexclusively in his or her director capacity, the director will not be permitted to pursue the opportunity, directly or indirectly through a controlled affiliatein which the director has an ownership interest, without the approval of 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 almostentirely through our subsidiaries. Our ability to generate cash to pay our operating expenses is dependent on the earnings of and the receipt of fundsfrom subsidiaries through dividends and distributions. The ability of our subsidiaries to pay dividends or to make distributions or other payments to uswill depend on their respective operating results and may be restricted by, among other things, the laws of their respective jurisdiction of organization,regulatory requirements, agreements entered into by those operating subsidiaries and the covenants of any existing or future outstanding indebtednessthat we or our subsidiaries may incur.31Table of ContentsWe 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) if a 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 injury giving 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 nottimely file the creditor's claim in such bankruptcy case due to excusable neglect; (4) we are found liable for our predecessors' tax liabilities under afederal and/or state theory of successor liability; or (5) the order of confirmation for the GGP bankruptcy plan is found to be procured by fraud. If weshould become subject to such successor 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 ofhuman error, the circumvention or overriding of controls or fraud. Even effective internal controls can provide only reasonable assurance with respect tothe preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure toimplement required new or improved controls, or if we experience difficulties in our implementation, our business and operating results could beharmed and we could fail to meet our financial reporting obligations.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.Some of our properties, including Ward Centers, South Street Seaport and the Outlet Collection at Riverwalk are located in coastal regions, and couldtherefore be affected by increases in sea levels, the frequency or severity of hurricanes and tropical storms, or environmental disasters, whether suchevents 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 thepolicy specifications and insured limits of these policies are adequate and appropriate. There are some types of losses, including lease and other contractclaims, 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 capitalinvested in a property, as well as the anticipated future revenue from the property. If this happens, we might remain obligated for any mortgage debt orother financial obligations related to the property.A downgrade or financial failure of our insurance carrier may have an adverse impact on our financial condition.The insurance carriers that we utilize had satisfactory financial ratings at the time the policies were placed and made effective based on various insurancecarrier rating agencies commonly used in the insurance industry. We cannot assure our investors that these financial ratings will remain satisfactory orconstant throughout the policy period. There is a risk that these financial ratings may be downgraded throughout the policy period or that the insurancecarriers may experience a financial failure. A downgrade or financial failure of our insurance carriers may result in their inability to pay current andfuture claims. This inability to pay claims may have an adverse impact on our financial32Table of Contentscondition. In addition, a downgrade or a financial failure of our insurance carriers may cause our insurance renewal or replacement policy costs toincrease.Possible 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 goodsand services offered by tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resultingdecrease in retail demand could make it difficult to renew or re-lease properties at lease rates equal to or above historical rates. Terrorist activities orviolence also could directly affect the value of our properties through damage, destruction or loss, and the availability of insurance for such acts, or ofinsurance generally, might be lower or cost more, which could increase our operating expenses and adversely affect our financial condition and resultsof operations. To the extent that tenants are affected by future attacks, their businesses similarly could be adversely affected, including their ability tocontinue to meet obligations under their existing leases. These acts might erode business and consumer confidence and spending and might result inincreased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate,decrease or delay the occupancy of new or redeveloped properties, and limit access to capital or increase the cost of capital.We may be subject to potential costs to comply with environmental laws.Future development opportunities may require additional capital and other expenditures to comply with laws and regulations relating to the protection ofthe environment. Under various federal, state or local laws, ordinances and regulations, a current or previous owner or operator of real estate may berequired to investigate and clean up hazardous or toxic substances released at a property and may be held liable to a governmental entity or to thirdparties for property damage or personal injuries and for investigation and clean-up costs incurred by the parties in connection with the contamination.These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous or toxicsubstances. The presence of contamination or the failure to remediate contamination may adversely affect the owner's ability to sell or lease real estate orto borrow using the real estate as collateral. Other federal, state and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopments,and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of undergroundstorage tanks. In connection with our ownership, operation and management of certain properties, we could be held liable for the costs of remedialaction with respect to these regulated substances or tanks or related claims.We cannot predict with any certainty the magnitude of any expenditures relating to the environmental compliance or the long-range effect, if any, on ouroperations. Compliance with such laws has not had a material adverse effect on our operating results or competitive position in the past, but could havesuch an effect on our operating results and competitive position in the future.There is a risk of investor influence over our company that may be adverse to our best interests and those of our other stockholders.Pershing Square Capital Management, L.P. ("Pershing Square") beneficially owns 9.0% of our outstanding common stock (excluding shares issuableupon the exercise of warrants) as of December 31, 2013. Under the terms of our stockholder agreements, Pershing Square currently has the ability todesignate three members of our board of directors.33Table of ContentsAlthough Pershing Square has entered into a standstill agreement to limit its influence over us, the concentration of ownership of our outstandingcommon stock held by Pershing Square and other substantial stockholders may make some transactions more difficult or impossible without thesupport of these stockholders, or more likely with the support of these stockholders. The interests of our substantial stockholders could conflict with ordiffer from the interests of our other stockholders. For example, the concentration of ownership held by Pershing Square and other substantialstockholders, even if these stockholders are not acting in a coordinated manner, could allow Pershing Square and other substantial stockholders toinfluence our policies and strategy and could delay, defer or prevent a change of control or impede a merger, takeover or other business combination thatmay otherwise be favorable to us and our other stockholders.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 thatof our tenants and business partners and personally identifiable information of our employees 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 bevulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise ournetworks, and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of informationcould result in legal claims or proceedings and liability under laws that protect the privacy of personal information, which could adversely affect ourbusiness.Risks Related to Spin-offWe 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 reasonableexpenses to which we become subject, in each case solely to the extent attributable to certain taxes related to sales of certain assets in our MasterPlanned Communities segment prior to March 31, 2010, in an amount equal to a maximum of $303.8 million, plus applicable interest. We will beresponsible for the remainder of any such taxes. GGP may not have sufficient cash to reimburse us for its share of these taxes described above. As ofDecember 31, 2013, the maximum amount covered by the GGP indemnity is $282.3 million plus applicable interest. We have ongoing litigation relatedto the foregoing taxes that, whether resolved in our favor or otherwise, could impact the timing of the items subject to indemnification by GGP. Inaddition, if the IRS were successful in litigation with respect to such audits, we may be required to change our method of tax accounting for certaintransactions, which could affect the timing of our future tax payments, increasing our tax payments in the short term relative to our current tax costprojections.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;34Table of Contents•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, Pershing Square and other substantial shareholders may hold their investments for an extended period of time, thereby decreasing the numberof shares available in the market and creating artificially low supply for, and trading prices of our common stock. If one or more of these principalholders sell a significant 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, stockholders rights agreement and certain other agreements mayprevent or 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; •restrictions on the ability of stockholders to call a special meeting without 15% or more of the voting power of the issued andoutstanding shares entitled 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.We have also implemented a so-called poison pill by adopting our stockholders rights agreement. The poison pill assists in the preservation of ourvaluable tax attributes by significantly increasing the costs that would be incurred by an unwanted third party acquirer if such party owns or announcesits intent to commence a tender offer for the Threshold Percentage or more of our securities. The stockholders rights agreement expires on March 14,2015. All of these provisions could limit the price that investors 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 held by Pershing Square and certain members of ourmanagement would materially dilute the ownership interest of our existing stockholders. Likewise, any additional issuances of common stock, throughThe Howard Hughes Corporation Amended and Restated 2010 Incentive Plan or otherwise, will dilute the ownership interests of our existingstockholders. Any sales in the public market of such additional35Table of Contentscommon stock could adversely affect prevailing market prices of the outstanding shares of our common stock. In addition, the existence of ouroutstanding warrants may encourage short selling or arbitrage trading activity by market participants because the exercise of our warrants could depressthe 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.Certain of our substantial stockholders, including Pershing Square, have the right to purchase the number of our shares as necessary to allow thestockholder to maintain its proportionate ownership interest on a fully diluted basis, for so long as the stockholder beneficially owns at least 5% of ouroutstanding common stock on a fully-diluted basis.In most circumstances, stockholders will not be entitled to vote on whether or not additional capital stock or securities convertible into or exchangeablefor our capital stock is issued. In addition, depending on the terms and pricing of an additional offering of common stock or securities convertible intoor exchangeable for our capital stock, and the value of our properties, stockholders may experience dilution in both the book value and the market valueof their shares.ITEM 1B. UNRESOLVED STAFF COMMENTS None.ITEM 2. PROPERTIES Our principal executive offices are located in Dallas, Texas where we lease approximately 34,932 square feet under an arrangement that expires in 2021.We also maintain offices at certain of our properties as well as in The Woodlands, Texas, New York, New York, and Los Angeles, California. Webelieve our present facilities are sufficient to support our operations.Our Master Planned Communities, Operating Assets, and our Strategic Developments assets are described above in "Item 1. Business Overview ofBusiness Segments". Leases with tenants at our retail operating asset locations generally include base rent and common area maintenance charges.36Table of ContentsThe following table summarizes certain metrics of the retail properties within our Operating Assets segment as of December 31, 2013.n.a. – not available(a)Average Annual Tenant Sales per Square Foot is calculated by the sum of all comparable sales for the year ended December 31, 2013 for tenants that are contractually obligated toreport sales data, divided by the comparable square footage for the same period. When calculating comparable sales and comparable square footage, we include all tenants thathave operated for the entire year, under a lease agreements less than 30,000 square feet except for tenants whereby we do not maintain their premises.(b)Mall and Other Rental NOI includes mall and other rental revenue and expenses according to accounting principles generally accepted in the United States of America ("GAAP"),excludes straight-line rent, market lease amortization, depreciation and other amortization expense. For the year ended December 31, 2013, tenant recoveries representedapproximately 23.5% of total revenue for the above mentioned retail properties only. The impact of concessions, such as free rent and new tenant inducements, are not significantto our business.(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 ended December 31, 2013 forthe tenant base used to calculate (a), 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.(e)NOI Margin is calculated by dividing NOI by total contractual and other property revenue. Please refer to "Item 7 – MD&A" for definition of NOI.(f)Tenants at Cottonwood Square are not required to report sales.(g)41,612 square feet of the Existing Gross Leasable Area is part of a ground lease where we are the ground lessee. The ground lease payments are paid by the current tenant directlyto the ground lessor.(h)Cottonwood Square includes only seven acres; three acres of which we are a ground lessee, and four acres of which we own fee-simple.(i)Excludes 438,937 square feet that is owned and occupied by Sears and Macy's.(j)Net Book Value includes $13.8 million of development costs at Landmark Mall.(k)Net Book Value includes $0.5 million of development costs at Park West.(l)As a result of Super Storm Sandy, tenants did not operate for an entire twelve month period and therefore; (a) Average Annual Tenant Sales per Square Foot, (c) Average Sum ofRent and Recoverable Common Area Costs per Square Foot, and (d) Occupancy Costs are incalculable.(m)All of the project is on a ground lease where we are the ground lessee, except for 6,513 square feet.(n)Reflects square footage in service as of December 31, 2013. Upon completion of the redevelopment, South Street Seaport will be approximately 362,000 square feet.(o)Net Book Value includes $33.0 million of development costs at South Street Seaport.(p)Reflects square footage in service as of December 31, 2013. Upon completion of the redevelopment of the Outlet Collection at Riverwalk, gross leasable area will beapproximately 250,000 square feet.(q)Net Book Value includes $25.0 million of development costs at the Outlet Collection at Riverwalk.(r)Net Book Value includes $16.0 million of development costs at Ward Centers.(s)Ground floor retail space attached to the Waterway Square Garage.(t)Waterway Garage Retail has two retail tenants that are not required to report sales data.With respect to certain of our office properties, we enter into triple net leases. These leases typically include provisions whereby tenants are required topay their pro-rata share of certain property operating costs such as real estate taxes, utilities and insurance.37 Year Ended December 31, 2013 Property Location ExistingGrossLeasableArea Size(Acres) Net BookValue,December 31,2013(Millions) AverageAnnualTenantSales perSquareFoot(a) Mall andOtherRentalNOI(000)(b) AverageSum ofRent andRecoverableCommonAreaCosts perSquareFoot(c) OccupancyCost(d) NOIMargin(e) Year Built/Acquired 20/25WaterwayAvenue TheWoodlands,TX 49,972 1 $10.9 $385 $1,640 $51 13.2% 63.5% 2007/2009 CottonwoodSquare (f) Salt LakeCity, UT 77,079(g) 7(h) 5.4 n.a. 451 n.a. n.a. 66.4% 2002 LandmarkMall Alexandria,VA 440,476(i) 22 33.8(j) 351 491 21 6.0% 11.0% 2004 Park West Peoria, AZ 249,184 66 79.0(k) 363 1,608 22 6.1% 43.8% 2006 South StreetSeaport (l) New York, NY 88,419(m)(n) 11 41.0(o) n.a. (8,980) n.a. n.a. n.a. 2004 OutletCollectionatRiverwalk New Orleans,LA 6,735(p) 11 36.4(q) 826 (763) 49 5.9% n.a. 2004 Ward Centers Honolulu, HI 1,289,714 60 370.9(r) 533 24,144 55 10.3% 55.5% 2002 WaterwayGarageRetail (s) TheWoodlands,TX 21,513(t) — 6.3 n.a. 370 42 n.a. 57.9% 2011 Total 2,223,092 178 $583.7 $18,961 Table of ContentsThe following table summarizes certain metrics of our office assets within our Operating Assets Segment as of December 31, 2013:(a)Average Effective Annual Rent per Square Foot is equal to the sum of base minimum rent and tenant reimbursements divided by the averageoccupied square feet. For the year ended December 31, 2013, tenant reimbursements represented approximately 17.6% of total revenue. Theimpact of concessions, such as free rent and new tenant inducements, are not significant to our business.(b)3 Waterway Square opened in June 2013 and One Hughes Landing opened in September 2013. The amounts included in the table representleases in place as of December 31, 2013 as if the leases were in place as of January 1, 2013.(c)% Leased is computed based on the weighted average square feet of each office building. At December 31, 2013 the occupancies of eachbuilding were as follows: 70 Columbia Corporate Center – 96.8%; American City Building – 17.0%; Columbia Association Building – 100.0%;Columbia Exhibit Building – 100.0%; Ridgely Building – 70.5%.The following table summarizes certain metrics of our other Operating Assets (exclusive of owned retail and office properties) as of December 31,2013:Asset EconomicOwnership% ExistingGrossLeasableArea % Leased AverageEffectiveAnnualRent perSquareFoot(a) Year Built /Acquired Net BookValue,December 31,2013(Millions) 3 WaterwaySquare 100% 232,021 97.3%$28.19(b) 2013 $41.8 4 WaterwaySquare 100% 218,551 100.0% 36.51 2010 54.8 70 ColumbiaCorporateCenter 100% 167,858 96.8% 18.77 2012 20.3 110 N.Wacker(Chicago,IL) 99% 226,000 100.0% 27.08 1957 21.9 1400WoodlochForest 100% 95,667 79.4% 24.14 1981 8.8 2201 LakeWoodlandsDrive 100% 24,119 0.0% — 1994 3.8 9303 NewTrails 100% 97,705 94.3% 26.64 2008 14.8 ColumbiaOfficeProperties(c) 100% 224,550 59.6% 21.62 1969/1972 23.2 One HughesLanding 100% 197,719 97.8% 28.78(b) 2013 35.5 Total 1,484,190 $224.9 Other than Owned Retail and Office Operating EconomicOwnership% PropertyType SquareFeet /Keys /Other %Leased Year Built Net BookValue,December 31,2013(Millions) Arizona 2 Office Lease 100%Note — — — $13.2 Golf Courses at Summerlin and TPC LasVegas Participation Golf — — — 1.2 Howard Hughes Management ServicesManagement(a)The Woodlands Parking Garages consist of two garages; Woodloch Forest Garage built in 2008, and Waterway Square Garage built in 2009.(b)The Woodlands Resort & Conference Center was built in 1974, expanded in 2002, and is currently being renovated.38Company 100%Company — — — — Millennium Waterway Apartments 100%Apartments 393units 90.1% 2010 68.3 Stewart Title of Montgomery Company 50%TitleCompany — — — 2.2 Summerlin Baseball Club, LLC 50%AthleticTeam — — — 10.6 Summerlin Hospital Medical Center 7%Hospital — — 1997 4.1 The Club at Carlton Woods 100%CountryClub 36holes — 2001 15.9 The Woodlands Parking Garages 100%Garage 2,988spaces — 2008/2009(a) 6.0 The Woodlands Resort & Conference Center 100%Hotel 440rooms — 1974/2002(b) 75.1 Woodlands Sarofim #1 Ltd. 20%Industrial 129,790 91.3% late 1980s 2.6 Total Net Book Value $199.2 Table of ContentsThe following table summarizes our retail and office lease expirations:(a)Includes 136 specialty leases which expire in less than 365 days.The following table sets forth the occupancy rates, for each of the last five years for our wholly owned retail and office properties:Year Number ofExpiring Leases TotalSquare FeetExpiring TotalAnnualizedBase RentExpiring(Thousands) % of TotalAnnual GrossRent Expiring 2014 (a) 206 498,973 $4,700 8.0%2015 82 249,367 4,203 7.2%2016 59 247,512 9,211 15.7%2017 45 209,127 4,856 8.3%2018 64 274,608 6,348 10.8%2019 19 97,061 1,621 2.8%2020 38 196,149 4,571 7.8%2021 13 217,340 3,569 6.1%2022 17 294,917 5,428 9.3%2023 23 274,908 7,010 12.0%2024+ 84 1,230,171 6,995 12.0% 650 3,790,133 $58,512 100.0% Annual Weighted Average Occupancy Rates(a) Occupancy as ofDecember 31, 2013 2013 2012 2011 2010 2009 Retail: 20/25WaterwayAvenue (b) 100.0% 94.2% 95.6% 91.7% 64.2% 51.8%CottonwoodSquare 94.0% 86.5% 74.1% 73.8% 78.2% 73.8%LandmarkMall (c) 77.1% 79.2% 75.0% 73.7% 76.0%(d) 85.5%Park West 77.2% 72.1% 65.1% 64.6% 62.5% 63.6%South StreetSeaport (e) 33.0% 46.5% 92.1% 89.7% 89.7% 91.3%OutletCollection atRiverwalk(f) 100.0% 56.2% 92.2% 89.9% 87.9% 84.5%Ward Centers 84.4% 90.8% 89.5% 90.1% 90.0% 88.6%WaterwayGarageRetail (g) 92.8% 68.4% 24.8% 19.3% n.a. n.a. Office: 110 N.Wacker 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%1400WoodlochForest 79.4% 85.7% 100.0% 78.3% 94.2% 100.0%2201 LakeWoodlandsn.a. – not available(a)Occupancy rates represent the weighted average square footage occupied during the year divided by total GLA.(b)25 Waterway opened in February 2007 and 20 Waterway opened in May 2009.(c)Occupancy rates exclude 438,937 square feet that is owned and occupied by Sears and Macy's.(d)Reflects the loss of permanent and specialty tenants in 2010 due to potential redevelopment.39Drive — 66.7% 83.4% 100.0% 100.0% 100.0%3 WaterwaySquare (h) 97.3% 84.9% n.a. n.a. n.a. n.a. 4 WaterwaySquare 100.0% 100.0% 99.3% 59.8% 25.7% n.a. 9303 NewTrails 94.3% 94.3% 99.0% 78.8% 73.8% 52.4%ColumbiaOfficeProperties(i) 70.5% 63.2% 76.6%(j) 89.3% 89.9% 89.9%One HughesLanding (k) 47.6% 36.1% n.a. n.a. n.a. n.a. Table of Contents(e)Occupancy rates are lower in 2013 due to the effects of Superstorm Sandy and potential redevelopment efforts.(f)Occupancy rates are lower in 2013 due to redevelopment efforts. Occupancy as of December 31, 2013 is based on 15,812 square feet that wasin service as of the end of the year.(g)Waterway Garage Retail opened in July 2011.(h)3 Waterway Avenue opened in June 2013.(i)% Leased is computed based on the weighted average square feet of each office building. At December 31, 2013 the occupancies of eachbuilding were as follows: 70 Columbia Corporate Center – 96.8%; American City Building – 17.0%; Columbia Association Building – 100.0%;Columbia Exhibit Building – 100.0%; Ridgely Building – 70.5%.(j)Decrease in occupancy is attributed to acquisition of 70 Columbia Corporate Center, which was 44.1% occupied upon acquisition.(k)One Hughes Landing opened in September 2013 and is 97.8% leased as of December 31, 2013.ITEM 3. LEGAL PROCEEDINGS In 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.Neither we nor any of our Real Estate Affiliates is currently involved in any legal or administrative proceedings that we believe are likely to have amaterial adverse effect on our business, results of operations or financial condition.ITEM 4. MINE SAFETY DISCLOSURE Not applicable.40Table of ContentsPART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESOF EQUITY SECURITIES Market InformationThe Company's common stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "HHC". The following table shows thehigh and low sales prices of the Company's common stock on NYSE, as reported in the consolidated transaction reporting system for each quarter offiscal 2013 and 2012.No dividends have been declared or paid in 2013 or 2012. Any future determination related to our dividend policy will be made at the discretion of ourboard of directors and will depend on a number of factors, including future earnings, capital requirements, restrictions under debt agreements, financialcondition and future prospects and other factors the board of directors may deem relevant.Number of Holders of RecordAs of February 24, 2014, there were 2,409 stockholders of record of the Company's common stock.Performance GraphThe following performance graph compares the monthly dollar change in the cumulative shareholder return on our common stock with the cumulativetotal returns of the NYSE Composite Index and the group of companies in the Morningstar Real Estate – General Index. The graph was prepared on thefollowing assumptions:•Dividends have been reinvested subsequent to the initial investment.41 Common StockPrice Range High Low Year Ended December 31, 2013 Fourth Quarter $121.68 $105.51 Third Quarter $118.86 $100.35 Second Quarter $113.79 $82.72 First Quarter $84.42 $70.74 Year Ended December 31, 2012 Fourth Quarter $76.71 $67.43 Third Quarter $73.88 $60.85 Second Quarter $68.94 $55.36 First Quarter $65.63 $44.02 Table of ContentsCumulative Total ReturnAssumes Initial Investment of $100on November 5, 2010ITEM 6. SELECTED FINANCIAL DATA The following table sets forth the selected consolidated financial and other data of our business for the most recent five years. We were formed in 2010to receive certain assets and liabilities of our predecessors in connection with their emergence from bankruptcy. We did not conduct any business anddid not have any material assets or liabilities until our spin-off from GGP was completed on November 9, 2010.Our selected historical data for 2013, 2012 and 2011, which is presented in accordance with GAAP 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 in The Woodlands using the equity method.The selected historical financial data as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012, and 2011 has been derivedfrom our audited Consolidated Financial Statements, which are included in this Annual Report as referenced in the index on page F-1.The selected historical combined financial data as of and for the year ended December 31, 2011 has been derived from our audited ConsolidatedFinancial Statements which are not included in this Annual Report.The selected historical combined financial data as of and for the years ended December 31, 2010 and 2009 have been derived from our auditedConsolidated and Combined Financial Statements which are not included in this Annual Report. Our spin-off did not change the carrying value of ourassets and liabilities. Operations for 2010 are presented as the aggregation of the combined results from January 1, 2010 to November 9, 2010 and theconsolidated 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 suchallocations are reasonable. Such results do not reflect what our expenses would have been had we been operating as a separate, stand-alone publiclytraded company. The historical combined financial information presented for periods prior to our separation from GGP are not indicative of the resultsof operations, financial position or cash flows that would have been obtained if we had been an independent, stand-alone entity during such periods.42Table of ContentsThe historical results set forth below do not indicate results expected for any future periods. The selected financial data set forth below are qualified intheir entirety by, and should be read in conjunction with, "Item 7- Management's Discussion and Analysis of Financial Condition and Results ofOperations" and our Consolidated Financial Statements and related notes thereto included on pages F-2 to F-56 in this Annual Report on Form 10-K. Year Ended December 31, 2013 2012 2011 2010 2009 (In thousands, except per share amounts) Operating Data: Revenues $474,610 $376,886 $275,689 $142,718 $136,348 Depreciation and amortization (33,845) (24,429) (16,782) (16,563) (19,841)Provisions for impairment — — — (503,356) (680,349)Other property operating costs (329,551) (279,992) (231,442) (134,666) (128,833)Interest (expense) income, net (6,574) 8,473 9,876 (2,053) 712 Reorganization items — — — (57,282) (6,674)Warrant liability gain (loss) (181,987) (185,017) 101,584 (140,900) — Benefit from (provision for)income taxes (9,570) (6,887) 18,325 633,459 23,969 Reduction in tax indemnityreceivable (1,206) (20,260) — — — Equity in income (loss) of RealEstate Affiliates 14,428 3,683 8,578 9,413 (28,209)Investment in real estate affiliatebasis adjustment — — (6,053) — — Early extinguishment of debt — — (11,305) — — Income (loss) from continuingoperations (73,695) (127,543) 148,470 (69,230) (702,877)Discontinued operations – loss ondispositions — — — — (939) Net income (loss) (73,695) (127,543) 148,470 (69,230) (703,816)Net (income) loss attributable tononcontrolling interests (95) (745) (1,290) (201) 204 Net income (loss) attributable tocommon stockholders $(73,790)$(128,288)$147,180 $(69,431)$(703,612) Basic Earnings (Loss) Per Share: Continuing operations $(1.87)$(3.36)$3.88 $(1.84)$(18.64)Discontinued operations — — — — (0.02) Total basic income (loss) pershare $(1.87)$(3.36)$3.88 $(1.84)$(18.66) Diluted Earnings (Loss) Per Share: Continuing operations $(1.87)$(3.36)$1.17 $(1.84)$(18.64)Discontinued operations — — — — (0.02) Total diluted income (loss) pershare $(1.87)$(3.36)$1.17 $(1.84)$(18.66) Cash dividends per common share $— $— $— $— $— Year Ended December 31, 20132012201120102009 43 2013 2012 2011 2010 2009 (In thousands, except per share amounts) Cash Flow Data: Operating activities $129,332 $153,064 $86,508 $(67,899)$(17,870)Investing activities (294,325) (81,349) (39,680) (111,829) (21,432)Financing activities 830,744 (70,084) (103,944) 461,206 37,543 As of December 31, 2013 2012 2011 2010 2009 (In thousands) Balance Sheet Data: Investments in real estate – cost $3,085,854 $2,778,775 $2,648,520 $2,311,520 $2,822,692 Total assets 4,567,868 3,503,042 3,399,593 3,022,707 2,905,227 Total debt 1,514,623 688,312 606,477 318,660 342,833 Total equity 2,245,146 2,310,997 2,329,599 2,179,107 1,503,520 Table of ContentsITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in thisAnnual Report. This discussion contains forward-looking statements that involve risks, uncertainties, assumptions and other factors, including thosedescribed in Part I, "Item 1A. Risk Factors" and elsewhere in this Annual Report. These factors could cause our actual results in 2014 and beyond todiffer materially from those expressed in, or implied by, those forward-looking statements. You are cautioned not to place undue reliance on thisinformation which speaks only as of the date of this report. We are not obligated to update this information, whether as a result of new information,future events or otherwise, except as may be required by law.All references to numbered Notes are to specific Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K andwhich descriptions are incorporated into the applicable response by reference. Capitalized terms used, but not defined, in this Management'sDiscussion and Analysis of Financial Condition and Results of Operation ("MD&A") have the same meanings as in such Notes.OverviewOur mission is to be the preeminent developer and operator of master planned communities and mixed-use and other real estate properties. We createtimeless places and memorable experiences that inspire people while driving sustainable, long-term growth and value for our shareholders. Wespecialize in the development of master planned communities, the redevelopment or repositioning of real estate assets currently generating revenues, alsocalled operating assets, and other strategic real estate opportunities in the form of entitled and unentitled land and other development rights. Our assetsare located across the United States. We expect to drive income and growth through entitlements, land and home site sales and project developments.We are focused on maximizing value from 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 ("MPCs"), 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, except for Victoria Ward, Limited,one of our subsidiaries which is a captive REIT, have no restrictions on our operating activities or types of services that we can offer. We believe ourstructure provides the greatest flexibility for maximizing the value of our real estate portfolio.We believe many of our operating and strategic development assets require repositioning or redevelopment to maximize their value. We havecommenced construction on certain key assets, and we are continuing to develop plans for other strategic development assets for which no formal planshad been previously established.The development and redevelopment process for each specific asset is complex and takes several months to several years prior to the commencement ofactual construction. We must study each local market, determine the highest and best use of the land and improvements, obtain entitlements and permits,complete architectural design, construction drawings and plans, secure tenant commitments and commit sources of capital. During this period, theseactivities generally have very little impact on our operations relative to the activity and effort involved in the development process.Significant milestones achieved during 2013:•Generated a $68.6 million increase in MPC land sales revenue for 2013, a 37.5% increase compared to 2012. •Increased average price per lot sold at The Woodlands by 51.9% to $156,000, and increased the average price per superpad acre sold atSummerlin by 42.9% to $323,000, compared to 2012.44Table of Contents•Completed two Class A office towers in The Woodlands, 3 Waterway and One Hughes Landing, totaling approximately 429,000 squarefeet. Both buildings are 98% leased and combined will generate annual NOI of approximately $11.7 million upon stabilization in 2014. •Began construction of three Class A office towers in The Woodlands. Two Hughes Landing is a 197,000 square foot multi-tenantbuilding scheduled for completion in second quarter 2014. Two build-to-suit buildings totaling 647,000 square feet are being constructedat Hughes Landing and are scheduled for completion in the first quarter of 2015. Exxon Mobil Corporation ("ExxonMobil") has pre-leased 478,000 square feet and has an option on the remaining space. •Commenced construction of a 123,000 square foot Whole Foods-anchored retail center at Hughes Landing scheduled for completion inthe first quarter of 2015. •Launched construction of One Lake's Edge, a 390-unit Class A apartment building located in Hughes Landing which will open in thefirst quarter of 2015. •Began the $75.4 million redevelopment of The Woodlands Resort & Conference Center which will be completed in the third quarterof 2014. •Obtained all entitlements, including approval from the New York City Council, and began construction to transform Pier 17. The Pierwill have a vibrant open rooftop and a glass façade encompassing dynamic retail space filled with destination stores, restaurants andneighborhood shops. Pre-leased a portion of the Fulton Market building to iPic Entertainment, which will be the first luxury movietheater in Manhattan. The new Pier 17, containing approximately 182,000 square feet, is expected to open in 2016 and the renovation ofthe historic area, containing approximately 180,000 square feet, is expected to be completed in 2015. •Began construction of the 1.6 million square foot Shops at Summerlin mixed-use development, which is expected to open by the fourthquarter of 2014. •Commenced the redevelopment of the Outlet Collection at Riverwalk into the nation's first upscale urban outlet center. The250,000 square foot project is 95.1% pre-leased and expected to be completed in May 2014. Closed on a $64.4 million constructionloan. The project is expected to generate approximately $7.8 million of stabilized annual NOI based on leases in place. •Received approval for two market rate and one workforce housing condominium towers at Ward Village and in February 2014,commenced public presales of the two market rate condominium towers. •Substantially completed the transformation of the IBM building at Ward Village into a world-class information center and sales gallery. •Began the redevelopment of the 89,000 square foot Columbia Regional Building, anchored by Whole Foods Market, Inc. and TheColumbia Association, located in downtown Columbia, MD. •Continued construction at The Metropolitan Downtown Columbia Project, a 380-unit multi-family project under a 50/50 joint ventureand obtained $64.1 million non-recourse construction financing for this project. Entered into a second 50/50 joint venture with the samepartner to develop Parcel C, an adjacent 437-unit Class A apartment building on five acres. The land will be contributed to the venture ata $23.4 million valuation, which is approximately 585% of book value, or $53,500 per unit. •Received unanimous approval from the City of Alexandria for a zoning change for the Landmark Mall. The site will be transformed intoan open-air, mixed-use community with retail, residential and entertainment components designed to create an urban village. •Sold the One Ala Moana condominium rights into our 50/50 development joint venture for $47.5 million, and closed on a $132.0 millionnon-recourse construction loan and $40.0 million in45Table of Contentsmezzanine financing. The condo rights had a $22.8 million book value. The expected completion date for the sold out 206-unit project isthe fourth quarter of 2014.•Extended and modified The Woodlands Master Credit Facility to reduce its interest rate to one-month LIBOR plus 2.75% with nominimum rate from one-month LIBOR plus 4.00% with a 5.00% minimum rate. The final maturity was extended to August 2018 fromMarch 2015. •Issued $750.0 million of Senior Notes, raising $739.6 million of net cash proceeds. The notes bear interest at 6.875% and matureOctober 1, 2021. •Obtained $768.0 million of other aggregate financings in addition to our Senior Notes noted above. •Sold our Head Acquisition investment for $13.3 million, generating a $8.5 million pre-tax gain. •Sold Rio West Mall for net cash proceeds of $10.8 million, generating a $0.6 million pre-tax gain.Real Estate Property Earnings Before TaxesWe use a number of operating measures for assessing operating performance of our communities, assets, properties and projects within our segments,some of which may not be common among all three of our segments. We believe that investors may find some operating measures more useful thanothers when separately evaluating each segment. One common operating measure used to assess operating results for our business segments is RealEstate Property Earnings Before Taxes ("REP EBT"). We believe REP EBT provides useful information about our operating performance because itexcludes certain non-recurring and non-cash items, which we believe are not indicative of our core business. REP EBT may be calculated differently byother companies in our industry, limiting its usefulness as a comparative measure.REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, corporate interest income,corporate interest and depreciation expense, provision for income taxes, warrant liability gain (loss) and the increase (reduction) in tax indemnityreceivable. We present REP EBT because we use this measure, among others, internally to assess the core operating performance of our assets. We alsopresent this measure because we believe certain investors use it as a measure of a company's historical operating performance and its ability to serviceand incur debt. We believe that the inclusion of certain adjustments to net income (loss) to calculate REP EBT is appropriate to provide additionalinformation to investors. A reconciliation of REP EBT to consolidated net income (loss) as computed in accordance with GAAP has been presented inNote 18 – Segments.REP EBT should not be considered as an alternative to GAAP net income (loss) attributable to common stockholders or GAAP net income (loss), as ithas limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.Some of the limitations of this metric are that it does not include the following:•cash expenditures, or future requirements for capital expenditures or contractual commitments; •corporate general and administrative expenses; •interest expense on our corporate debt; •income taxes that we may be required to pay; •any cash requirements for replacement of depreciated or amortized assets or take into account that these assets have different useful lives;•limitations on, or costs related to, transferring earnings from our Real Estate Affiliates to us.46Table of ContentsOperating Assets Net Operating IncomeWe believe that net operating income ("NOI") is a useful supplemental measure of the performance of our Operating Assets because it provides aperformance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estateproperties and the impact on operations from trends in rental and occupancy rates and operating costs. We define NOI as revenues (rental income, tenantrecoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI excludes straightline rents and amortization of tenant incentives, net interest expense, ground rent, demolition costs, amortization, depreciation and equity in earningsfrom Real Estate Affiliates. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate theimpact that factors such as lease structure, lease rates and tenant mix, which vary by property, have on our operating results, gross margins andinvestment returns.Although we believe that NOI provides useful information to investors about the performance of our Operating Assets, due to the exclusions notedabove, NOI should only be used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP net income(loss). For reference, and as an aid in understanding our computation of NOI, a reconciliation of Operating Assets NOI to Operating Assets REP EBThas been presented in the Operating Assets segment discussion below.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 ouroperating assets in the form of fixed minimum rents, overage rent and recoveries of operating expenses.On July 1, 2011, we acquired our partner's economic interest in The Woodlands located near Houston, Texas. As a result of the acquisition, weconsolidated The Woodlands' operations in our Consolidated Financial Statements. Consequently, our consolidated statements of operations and cashflows for the years ended December 31, 2013 and 2012, respectively, are not comparable to the same period in 2011. Prior to such acquisition, TheWoodlands was presented as a Real Estate Affiliate and accounted for using the equity method. The Woodlands operating results for periods prior toJuly 1, 2011 when this investment was a Real Estate Affiliate are presented on a consolidated basis for the purposes of this MD&A and segmentreporting, in order to provide comparability between periods for analyzing operating results. For a reconciliation of REP EBT to net income (loss) seeNote 18 – Segments to the Consolidated Financial Statements.Consolidated revenues for the year ended December 31, 2013 increased $97.7 million or 25.9% to $474.6 million from $376.9 million for the yearended December 31, 2012. The increase is primarily due to higher revenues in our MPCs and Strategic Developments segments. MPC segment landsale revenues increased $68.6 million for the year ended December 31, 2013 compared to the year ended December 31, 2012, due to the higher demandfor our residential superpad sites in Summerlin and finished lots in The Woodlands. Strategic Developments revenue increased $34.5 million for theyear ended December 31, 2013, respectively, compared to the year ended December 31, 2012, due primarily to the recognition of $33.0 million ofrevenue from the sale of our ONE Ala Moana condominium rights into a 50/50 joint venture in the second quarter of 2013.Consolidated revenues for the year ended December 31, 2012 increased $101.2 million or 36.7% to $376.9 million from $275.7 million for the yearended December 31, 2011. The increase is primarily due to the inclusion of $83.3 million of revenue from The Woodlands for the first half of 2012compared to no revenues for the same period in 2011 because we did not begin consolidating The Woodlands operations until July 1, 2011. MasterPlanned Community land sales and builder price participation increased $27.5 million primarily due to price increases and accelerated lot sales at TheWoodlands resulting from an auction of 375 lots in August 2012. Minimum rents and tenant recoveries increased47Table of Contents$8.8 million primarily due to the acquisition of our partner's interest in, and consolidation of, Millennium Waterway apartments, 4 Waterway reachingstabilization in 2012, improved occupancy at Ward Centers and 1400 Woodloch Forest slightly offset by lost revenue due to Superstorm Sandy atSouth Street Seaport. The Woodlands Resort & Conference Center revenues increased $2.4 million primarily due to higher revenue per available room.Condominium unit sales decreased $21.8 million in 2012 compared to 2011 due to the sale of the last two units in the first quarter of 2012.Net loss attributable to common stockholders was $73.8 million for the year ended December 31, 2013 compared to net loss attributable to commonstockholders of $128.3 million for 2012. The $54.5 million decrease in net loss for 2013 as compared to 2012 was primarily due to higher earningsfrom our MPC segment of $39.0 million, higher earnings from our Strategic Developments segment of $27.7 million, lower warrant liability loss of$3.0 million, a $19.1 million lower reduction in tax indemnity receivable, and $23.7 million increase in other income. These were offset by lowerearnings in our Operating Assets segment of $22.0 million, higher interest expense of $20.7 million, mainly due to the issuance of our Senior Notes,higher income tax expense of $2.7 million, a decrease in net income attributable to noncontrolling interests of $0.7 million, along with additionalcorporate general and administrative expenses of $11.9 million primarily due to higher headcount. The lower earnings in our Operating Assets segmentwas mainly due to increased interest expense of $2.9 million, increased depreciation and amortization of $8.1 million, increased other property operatingcosts of $4.5 million, and decreased revenues of $4.5 million principally caused by the effects of Superstorm Sandy at the South Street Seaport andredevelopment of the Outlet Collection at Riverwalk. Please refer to the individual segment operations sections and the general and administrativesection for explanations of these variances.Net loss attributable to common stockholders was $128.3 million for the year ended December 31, 2012 compared to net income attributable to commonstockholders of $147.2 million for the same period in 2011. The net loss in 2012 is primarily due to the $185.0 million warrant liability loss related tothe increase in value of the Sponsors and Management warrants in 2012 compared to the $101.6 million warrant liability gain in 2011. Land sales,builder price participation and other land sales revenue net of cost of sales and MPC operations improved $32.9 million in 2012 compared to 2011primarily due to higher lot prices and lower cost of sales for The Woodlands MPC in 2012. The Woodlands also contributed $17.1 million to netincome during the first half of 2012 as compared to $3.7 million during the first half of 2011 when it was an equity investment. The increases in incomewere somewhat offset by income taxes of $6.1 million attributable to our higher earnings, the reduction in tax indemnity receivable of $20.3 millionrelated to our utilization of tax assets and the profit contribution from Nouvelle at Natick decreasing by $7.4 million due to the sale of the two remainingunits in the first quarter of 2012.Master Planned CommunitiesMPC revenues vary between periods based on economic conditions and several factors such as, but not limited to, location, availability of land for sale,development density and residential or commercial use. Although our business does not involve the sale or resale of homes, we believe that net newhome sales are an important indicator of future demand for our superpad sites and lots; therefore, we use this statistic in the discussion of our MPCsbelow. Net new home sales reflect home sales made by home builders, less cancelations. Cancelations occur when a home buyer signs a contract topurchase a home, but later fails to qualify for a home mortgage or is unable to provide an adequate down payment to complete the home sale. Reportedresults may differ significantly from actual cash flows generated principally because cost of sales for GAAP purposes is derived from marginscalculated using carrying values, projected future improvements and other capitalized project costs in relation to projected future land sale revenues.Carrying values, generally, represent acquisition and development costs less adjustment for previous impairment charges. Development expenditures arecapitalized and generally not reflected in the Consolidated Statements of Operations in the current year.48Table of ContentsMPC Sales Summary Land Sales Acres Sold Number ofLots/Units Price per acre Price per lot Year Ending December 31, 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011 ($ In thousands) Maryland Residential Single family –detached $— $— $1,480 — — 1.4 — — 7 $ — $— $1,057 $— $— $211 Townhomes — 4,156 5,538 — 1.2 1.8 — 28 39 — 3,463 3,077 — 148 142 Commercial Office andother 13,000 — — 56.2 — — — — — 231 — — — — — Apartments — 5,300 — — 18.7 — — — — — 283 — — — — 13,000 9,456 7,018 56.2 19.9 3.2 — 28 46 231 475 2,193 — 148 153 Bridgeland Residential Single family –detached 10,974 21,875 16,707 33.2 80.5 63.2 143 389 318 331 272 264 77 56 53 Commercial Apartments 2,636 — — 16.6 — — — — — 159 — — — — — 13,610 21,875 16,707 49.8 80.5 63.2 143 389 318 273 272 264 77 56 53 Summerlin Residential Single family –detached 18,038 14,394 30,247 23.4 20.7 83.5 157 158 419 771 695 362 115 91 72 Custom lots 4,813 4,141 679 5.3 5.3 1.0 12 10 2 908 781 679 401 414 340 Superpad Sites 83,191 12,505 — 257.3 55.3 — 1,164 232 — 323 226 — 71 54 — Commercial Office andother 4,526 — — 7.3 — — — — — 620 — — — — — Retail — 784 1.0 784 Not-for-profit 1,334 — 3,616 5.9 — 16.1 — — — 226 — 225 — — — Other 575 — — 17.2 — — — — — 33 — — — — — 112,477 31,824 34,542 316.4 82.3 100.6 1,333 400 421 355 387 343 80 78 73 The Woodlands Residential Single family –detached 100,142 100,235 76,362 162.8 241.6 210.4 589 979 826 615 415 363 170 102 92 Single family –attached 3,897 — 1,235 7.1 — 3.0 80 — 46 549 — 409 49 — 27 Commercial Office andother 1,500 9,069 6,213 2.1 14.2 14.0 — — — 714 639 449 — — — Retail 1,261 7,904 6,365 1.6 18.4 12.0 — — — 788 430 547 — — — Other 135 50 1,839 0.7 0.8 5.0 — — — 193 63 348 — — — 106,935 117,258 92,014 174.3 275.0 244.4 669 979 872 614 426 376 156 102 89 Total acreagesales revenue 246,022 180,413 150,281 596.7 457.7 411.4 2,145 1,796 1,657 Deferredrevenue (12,451) (2,092) 5,680 SpecialImprovementDistrictrevenue 17,646 4,322 5,420 Total segmentland salerevenues 251,217 182,643 161,381 Less: RealEstateAffiliatesland salesrevenue — — (46,771) Total land49salesrevenue –GAAP basis $251,217 $182,643 $114,610 Table of ContentsMPC land sales increased 37.5%, or $68.6 million to $251.2 million for the year ended December 31, 2013 as compared to $182.6 million for the yearended December 31, 2012. MPC land sales increased 59.4% or $68.0 million to $182.6 million for the year ended December 31, 2012 as compared to$114.6 million for the year ended December 31, 2011. Land sales for the year ended December 31, 2013, including Special Improvement District("SID") revenues and reimbursements and deferred revenue, increased at Summerlin and Maryland by 200.3%, or $87.2 million to $130.7 million, anddecreased by $8.3 million at Bridgeland and $10.3 million at The Woodlands. The increase in land sales is primarily due to the low inventory of homesfor sale and strong homebuilder demand for superpad sites at Summerlin.For large MPCs such as ours, sales prices on a per lot basis and per acre basis generally increase as the size of the developed lot grows. This increase isbecause smaller lots are more commodity-like and larger lots may have more unique features. Additionally, the average homebuyer finds morecompetition for new and resale homes on the lower end of the price range in the broader residential market. As lot sizes and prices increase, the numberof potential customers and developers decreases. Barring a softening in market conditions, when a MPC reaches the level whereby land is relativelyscarce, pricing begins to escalate on a per lot and per acre basis due to a scarcity premium resulting from the market's realization that new home siteinventory will be depleted, as is being experienced at The Woodlands.MarylandMaryland's land sales increased 37.5%, or $3.5 million to $13.0 million for the year ended December 31, 2013 as compared to $9.5 million for the yearended December 31, 2012 due to a 56.2 acre commercial land sale at Emerson. Maryland's land sales increased 34.7%, or $2.4 million to $9.5 millionfor the year ended December 31, 2012 as compared to 2011, primarily due to an 18.7 acre apartment site sale.The Woodlands and BridgelandThe Woodlands land sales decreased 8.8%, or $10.3 million to $106.9 million for the year ended December 31, 2013 as compared to $117.3 million forthe year ended December 31, 2012. The decrease was primarily due to approximately $14.2 million lower commercial land sales. In 2013 we beganemphasizing holding land for development rather than selling. This decrease was partially offset by an approximately $3.8 million increase in residentialland sales. For the year ended December 31, 2013, The Woodlands sold 169.9 residential acres compared to 241.6 acres in 2012, but average price perresidential acre (single-family – detached) increased 48.2% to $615,000 compared to $415,000 in 2012. The Woodlands land sales increased 27.4%, or$25.2 million to $117.3 million, for the year ended December 31, 2012 as compared to $92.0 million for the year ended December 31, 2011 due to thecontinued strong housing market.In recognition of the pent up demand for lots in The Woodlands, a competitive bid process was introduced in August 2012. During the period fromAugust 2012 through December 31, 2013, The Woodlands sold 1,077 residential lots of which 786 have closed, providing total revenues of$81.4 million and $38.5 million for the years ended December 31, 2013 and 2012, respectively. The remaining 291 lots are expected to close in 2014and 2015 providing an estimated $53.2 million of revenues. We plan to continue the bid process for future sections to ensure we maximize values;however, we expect that the bid process will result in a slower pace of annual lot sales. With the anticipated slower lot sales pace, our current projectionsindicate a complete sell-out of all lots within five to six years. As of December 31, 2013, we estimate the cash costs to complete and deliver theremaining lots, net of expected future collections from municipal district receivables, to be approximately $2,600 per lot.Bridgeland's land sales decreased 37.8%, or $8.3 million, to $13.6 million for the year ended December 31, 2013, as compared to land sales of$21.9 million and $16.7 million for the years ended50Table of ContentsDecember 31, 2012 and 2011, respectively. The decrease in lot sales revenues for the year ended December 31, 2013, as compared to the same periodsin 2012 and 2011, relates primarily to the availability of lot inventory. Bridgeland's inventory levels are low due to the inability to develop finished lotsin 2013 pending obtaining wetlands permits from the U.S. Army Corps of Engineers ("USACE"), we expect to have the right to build on 806 acres ofland. Bridgeland offered 32 lots for sale in October 2013 in a competitive bid process. These lot sales closed in December 2013 at an average lot priceof $115,000, which was 105.0%, or $59,000 higher than the average lot price of $56,000 as of December 31, 2012. On February 27, 2014, weobtained the needed permits from USACE to develop 806 acres of land, and expect to begin delivering new finished lots by mid-2014. Land sales forthe year ended December 31, 2013 include a $2.6 million sale of a commercial parcel.The average price per residential acre at Bridgeland increased 21.3%, or $59,000, to $331,000 for the year ended December 31, 2013, as compared to$272,000 and $265,000 per acre, for the years ended December 31, 2012 and 2011, respectively. The average lot price for the year ended December 31,2013 increased 36.5% or $21,000 to $77,000 as compared to $56,000 and $53,000 for the years ended December 31, 2012 and 2011, respectively. The2013 average lot price increase relates to a 10% lot price increase implemented in late 2012 that benefitted the 2013 average lot prices, the competitivebid process implemented in the fourth quarter of 2013 and the sale of more higher priced lots. There were 11 finished lots remaining at Bridgelandavailable for sale as of December 31, 2013.The Houston, Texas area continues to benefit from a strong energy sector. Additionally, we expect the completion of construction of the GrandParkway to positively impact the surrounding areas. The Grand Parkway is an approximate 180-mile circumferential highway traversing seven countiesand encircling the Greater Houston region. Construction of segment E of the Grand Parkway, which bisects Bridgeland, (from IH 10 to US 290) wascompleted and open to the public on December 21, 2013, and segments F1 (from US 290 to SH 249) and F2 (from SH 249 to IH 45) are scheduled forcompletion in 2015. Completion of these segments will improve travel patterns for residents living in The Woodlands and Bridgeland. In addition, webelieve the Grand Parkway was instrumental in ExxonMobil's decision to relocate and construct a large corporate campus on a 385-acre site just southof The Woodlands. The site is expected to include approximately 20 buildings, representing three million square feet of space, and we believe it is oneof the largest construction projects currently under way in the United States. ExxonMobil expects to begin relocating employees to this new locationstarting in early 2014 and ending in 2015. Upon completion of the relocation, ExxonMobil expects approximately 10,000 employees will be employedat the new campus. The direct and indirect jobs related to this relocation are positively impacting The Woodlands and Bridgeland due to increasedhousing demand, as well as commercial space needs for companies servicing ExxonMobil.As more fully discussed in the Strategic Developments segment, ExxonMobil has pre-leased 478,000 square feet in two to-be-constructed Class Aoffice buildings at Hughes Landing in The Woodlands.SummerlinSummerlin's land sales increased 253.4%, or $80.7 million, to $112.5 million for the year ended December 31, 2013, compared to $31.8 million and$34.5 million for the years ended December 31, 2012 and 2011, respectively. This increase was primarily due to increasing new home demand and lownew home sales inventory, resulting in significantly higher sales of superpad sites to homebuilders in terms of volume and price per acre. Superpad sitesare generally 20-acre parcels of unimproved land where we develop and construct the major utilities (water, sewer and drainage) and roads to theborders of the parcel and the homebuilder completes the on-site utilities, roads and finished lots. The average price per acre for superpads increased42.9%, or $97,000 to $323,000 for the year ended December 31, 2013 when compared to 2012. The increase in average price per acre is primarily dueto a scarcity of attractive developable residential land in the market and the improving new housing demand. The volume of lot sales increased 233.3%,or 933 lots, to 1,333 lots for the year ended December 31, 2013 as compared to 400 lots for 2012. Summerlin had 421 lot sales during 2011. As of51Table of ContentsDecember 31, 2013, Summerlin had 152 residential lots under contract of which 60 lots are scheduled to close in 2014, providing an estimated$11.2 million of revenues. The remaining 92 lots are scheduled to close in 2015, providing an estimated $16.9 million of revenues.Builder and new home sales activity continues to improve in Summerlin with 566 new home sales for the year ended December 31, 2013, representinga 20.2% increase as compared to the 471 and 215 new home sales for the years ended December 31, 2012 and 2011, respectively. Inventory levels forboth the new home segment and the resale market continue to decline, resulting in increasing home pricing, which we believe will translate to higher peracre land prices in the future. As new home prices increase, we also earn higher builder price participation revenue from the home builders, and thevalue of our land inventory also increases. Furthermore, as more fully discussed in our Strategic Developments segment, we are constructing the1.6 million square foot Shops at Summerlin development on 106 acres in the future downtown of Summerlin. We believe this destination for shoppingand entertainment will further increase residential sales and pricing when completed in the fourth quarter of 2014.Master Planned Communities Revenues and Expenses (*) (*)For a detailed breakdown of our Master Planned Communities segment EBT, refer to Note 18 – Segments. (**)Amounts include The Woodlands as if consolidated. (***)Negative interest expense amounts relate to interest capitalized on debt assigned to our Operating Assets segment and Corporate.Land sales increased $68.6 million to $251.2 for the year ended December 31, 2013 as compared to $182.6 million for the year ended December 31,2012. The increase for the year ended December 31, 2012, as compared to 2011 was $21.3 million. These year-over-year increases were due to factorsdescribed more fully above.Builder price participation represents the contractual amount we collect from home builders when the homes they have constructed sell for more than anagreed upon amount when the land was sold to them. Builder price participation increased $3.6 million to $9.4 million for the year ended December 31,2013, as compared to $5.7 million in 2012, primarily due to increased home closings at higher prices at Summerlin and increased participation fees atThe Woodlands due to home sales price appreciation since initial lot closing. Builder price participation increased $0.8 million to $5.7 million for theyear ended December 31, 2012 as compared to 2011.52 Year Ended December 31, 2013 2012 2011 (**) (In thousands) Land sales $251,217 $182,643 $161,383 Builder price participation 9,356 5,747 4,924 Other land sale revenues 14,197 18,649 17,730 Total revenues 274,770 207,039 184,037 Cost of sales – land 124,040 89,298 94,040 Land sales operations 38,414 40,375 41,584 Depreciation and amortization 32 72 48 Interest expense, net (***) (18,694) (14,643) (10,296) Total expenses 143,792 115,102 125,376 Venture partner share of The Woodlands EBT — — (7,949) MPC REP EBT $130,978 $91,937 $50,712 Table of ContentsOther land revenues decreased 23.9%, or $4.5 million, to $14.2 million for the year ended December 31, 2013, as compared to $18.6 million and$17.7 million in 2012 and 2011, respectively. The primary reasons for the decrease were the land use modification fees collected in 2012 that were notrepeated in 2013 and the termination of a contract in June 2012 that provided easement fee revenues to The Woodlands during 2011 and the first half of2012.Land sales margins, which include builder price participation, were 52.4%, 52.6% and 43.5% for the years ended December 31, 2013, 2012 and 2011,respectively. The margin increase in 2012 as compared to 2011 was principally caused by a lower cost of sales percentage attributed to The Woodlandssales in 2012 as compared to 2011 because the majority of The Woodlands third and fourth quarter cost of sales for 2011 reflected their finished lots atthe fair value established in connection with our acquisition of our partner's interest.Cost of sales – land increased $34.7 million to $124.0 million for the year ended December 31, 2013, as compared to $89.3 million and $94.0 million in2012 and 2011, respectively, primarily due to higher land sales revenue. Cost of land sales is based on cost ratios which are determined as a specifiedpercentage of land sales revenues for each master planned community project. The cost ratios are based on actual costs incurred and estimates ofdevelopment costs and sales revenues for completion of each project.Land sales operations expenses decreased 4.9%, or $2.0 million, to $38.4 million for the year ended December 31, 2013, as compared to $40.4 millionand $41.6 million for the years ended December 31, 2012 and 2011, respectively. The majority of the decrease in 2013 relates to reduced advertisingand marketing costs, commissions, closing costs, sale incentives and real estate taxes. The fewer commercial land sales in 2013 resulted in lowercommissions and selling expenses, and co-branding for The Woodlands and Bridgeland resulted in lower advertising and marketing expenses.Interest expense, net reflects the amount of interest that is capitalized at the project level. Interest expense, net increased by 27.7%, or $4.1 million, to$18.7 million for the year ended December 31, 2013, as compared to $14.6 million and $10.3 million for the years ended December 31, 2012 and 2011,respectively. The increase in 2013 was related primarily to higher consolidated company debt levels which resulted in increased capitalized interest.In addition to REP EBT for the MPCs, we believe that certain investors measure the value of the assets in this segment based on their contribution toliquidity and capital available for investment. MPC Net Contribution is defined as MPC REP EBT, plus MPC cost of sales and depreciation andamortization reduced by MPC development and acquisition expenditures. Although MPC Net Contribution can be computed from GAAP elements ofincome and cash flows, it is not a GAAP-based operational metric and should not be used to measure operating performance of the MPC assets as asubstitute for GAAP measures of such performance. A reconciliation of REP EBT to consolidated net income (loss) as computed in accordance withGAAP is presented in Note 18 – Segments.The following table sets forth the MPC Net Contribution for the years ended December 31, 2013, 2012 and 2011.53Table of ContentsMPC Net Contribution (*)For a detailed breakdown of our Master Planned Communities segment EBT, refer to Note 18 – Segments. (**)Amounts include The Woodlands as if consolidated.The MPC Net Contribution increased by 56.1%, or $41.6 million, to $115.8 million for the year ended December 31, 2013 as compared to$74.2 million in 2012. The MPC Net Contribution increased 104.9%, or $38.0 million, to $74.2 million for the year ended December 31, 2012 ascompared to $36.2 million for 2011. The increase in MPC Net Contribution was primarily attributable to increased land sales at Summerlin, partiallyoffset by increased development expenditures at Bridgeland, Summerlin and The Woodlands to produce inventory to meet expected future demand.MPC land and residential development expenditures consist primarily of land development costs, such as water, sewer, drainage and paving.Operating AssetsOperating assets typically generate rental revenues sufficient to cover their operating costs except when a substantial portion, or all, of the property isbeing redeveloped or vacated for development. Variances between years in NOI typically result from changes in rental rates, occupancy, tenant mix andoperating expenses. We view NOI as an important measure of the operating performance of our Operating Assets.54 Year Ended December 31, 2013 2012 2011 (**) (In thousands) MPC REP EBT (*) $130,978 $91,937 $50,712 Plus: Cost of sales – land 124,040 89,298 82,672 Depreciation and amortization 32 72 26 Less: MPC land/residential development and acquisition expenditures 139,257 107,144 97,216 MPC Net Contribution $115,793 $74,163 $36,194 Table of ContentsOperating Assets NOI and REP EBT Year Ended December 31, 2013 2012 2011 (In thousands) Retail Cottonwood Square $451 $432 $380 Landmark Mall (a) 491 923 737 Park West (b) 1,608 830 576 South Street Seaport (c) (8,980) 639 5,650 Outlet Collection at Riverwalk (c) (763) 221 418 Ward Centers (d) 24,144 22,045 21,481 20/25 Waterway Avenue 1,640 1,582 1,310 Waterway Garage Retail 370 97 7 Total Retail 18,961 26,769 30,559 Office 70 Columbia Corporate Center (e) 757 140 — Columbia Office Properties (f) 1,151 2,304 2,649 2201 Lake Woodlands Drive (167) 53 332 9303 New Trails 1,679 1,819 742 110 N. Wacker 6,023 6,073 6,115 One Hughes Landing (g) (139) — — 3 Waterway Square (g) 2,059 — — 4 Waterway Square 5,886 5,544 1,639 1400 Woodloch Forest (h) 1,160 1,995 649 Total Office 18,409 17,928 12,126 Millennium Waterway Apartments (i) 4,457 2,589 — The Woodlands Resort & Conference Center 10,167 10,670 7,726 Total Retail, Office, Multi-family, Resort & ConferenceCenter 51,994 57,956 50,411 The Club at Carlton Woods (j) (5,241) (4,242) (5,126)The Woodlands Ground leases 444 404 403 The Woodlands Parking Garages (749) (1,128) (1,204)Other Properties (k) (41) 1,749 1,463 Total Other (5,587) (3,217) (4,464) Operating Assets NOI – Consolidated and Owned as ofDecember 31, 2013 46,407 54,739 45,947 Dispositions: Rio West Mall (l) 790 1,250 1,319 Head Acquisition (m) — (46) 67 Total Operating Asset Dispositions 790 1,204 1,386 Total Operating Assets NOI– Consolidated 47,197 55,943 47,333 Straight–line lease amortization 1,759 (736) 918 Early extinguishment of debt — — (11,305)Demolition costs (2,078) — — 55Depreciation and amortization (31,427) (23,318) (20,309)Write-off of lease intangibles and other (2,884) — — Equity in earnings from Real Estate Affiliates 3,893 3,683 3,926 Interest, net (19,011) (16,104) (12,775)Less: Partners' share of Operating Assets REP EBT — — 425 Total Operating Assets REP EBT (n) $(2,551)$19,468 $8,213 Table of Contents (a)The NOI decrease for Landmark Mall for the year ended December 31, 2013 compared to 2012 is due to reduced rental rates on renewals as a Year Ended December 31, 2013 2012 2011 (In thousands) Operating Assets NOI – Equity and Cost MethodInvestments Millennium Waterway Apartments (i) $— $1,768 $2,571 Millennium Woodlands Phase II (74) — — Summerlin Baseball Club Member, LLC (13) — — Stewart Title (title company) 2,514 1,876 1,069 Woodlands Sarofim # 1 1,417 621 1,489 Same Operating Assets NOI – equity investees 3,844 4,265 5,129 Operating Asset Dispositions Forest View/Timbermill Apartments (o) — 487 1,826 Total Operating Asset Dispositions NOI – equityinvestees — 487 1,826 Total NOI – equity investees 3,844 4,752 6,955 Adjustments to NOI (p) (77) (1,476) (3,862) Equity Method Investments REP EBT 3,767 3,276 3,093 Less: Joint Venture Partner's Share of REP EBT (2,377) (1,969) (3,061) Equity in earnings from Real Estate Affiliates 1,390 1,307 32 Distributions from Summerlin Hospital Investment 2,503 2,376 3,894 Segment equity in earnings from Real Estate Affiliates $3,893 $3,683 $3,926 Company's Share of Equity Method Investments NOI Millennium Waterway Apartments (i) $— $1,477 $2,148 Millennium Woodlands Phase II — — — Summerlin Baseball Club Member, LLC (7) — — Stewart Title (title company) 1,257 938 535 Woodlands Sarofim # 1 283 124 298 1,533 2,539 2,981 Operating Assets Sold During Periods Presented Forest View/Timbermill Apartments (o) — 244 913 Total Operating Assets Sold During Periods Presented — 244 913 Total NOI – equity investees $1,533 $2,783 $3,894 December 31, 2013 EconomicOwnership Debt Cash (In thousands) Woodlands Sarofim #1 20.00%$6,546 $895 Stewart Title(title company) 50.00% — 1,064 Summerlin Las Vegas Baseball Club 50.00% — 376 result of the upcoming redevelopment. (b)The NOI increase for Park West for the year ended December 31, 2013 compared to 2012 is due to additional leasing at the property. (c)South Street Seaport and the Outlet Collection at Riverwalk are in redevelopment as of December 31, 2013. Please refer to discussion in thesection following the table. (d)The NOI increase for Ward Centers for the year ended December 31, 2013 compared to 2012 was primarily attributable to additional leasing andutility savings at the property. (e)70 Columbia Corporate Center was acquired on August 15, 2012. Please refer to discussion in the section following the table.56Table of Contents(f)The NOI decrease for Columbia Office Properties for the year ended December 31, 2013 compared to 2012 is due to relocation of a majortenant to 70 Columbia Corporate Center. (g)Both One Hughes Landing and 3 Waterway Square were placed in service during 2013. Please refer to discussion in the section following thetable. (h)The NOI decrease for 1400 Woodloch for the year ended December 31, 2013 compared to 2012 was primarily related to the planned relocationof one 22,459 square foot tenant to 3 Waterway Square in June 2013. Approximately 9,000 of the square feet of the space vacated by the tenantremains vacant as of December 31, 2013. (i)On May 31, 2012, we acquired our partner's interest in the 393-unit Millennium Waterway Apartments. (j)Please refer to discussion in the section following the table. During 2013, 2012 and 2011 the Club at Carlton Woods collected $4.3 million,$5.5 million and $2.9 million, respectively of membership deposits not included in NOI because they are not recognized as revenue whencollected, but are recognized over the expected life of the membership which is estimated to be a 12 year period. (k)The decrease of NOI in other properties is due to lower easement fee revenues in The Woodlands. The contract that provided easement fees inThe Woodlands expired June 2012. (l)Rio West Mall was sold on September 30, 2013. (m)Head Acquisition was sold on October 30, 2013. (n)For a detailed breakdown of our Operating Asset segment REP EBT, please refer to Note 18 – Segments in the Consolidated FinancialStatements. (o)On April 19, 2012, the joint ventures owning the Forest View and Timbermill Apartments completed their sale to a third party. Our share of thedistributable cash after repayment of debt and transaction expenses was $8.6 million. (p)Adjustments to NOI include straight-line and market lease amortization, depreciation and amortization and non-real estate taxes.Reconciliation of Operating Assets Segment Equity in EarningsRetail PropertiesRetail NOI for the year ended December 31, 2013 decreased $7.8 million to $19.0 million as compared to $26.8 million for the same period in 2012.The decrease was primarily attributable to South Street Seaport and the Outlet Collection at Riverwalk. NOI at South Street Seaport and the OutletCollection at Riverwalk decreased $9.6 million and $1.0 million, respectively, for the year ended December 31, 2013, compared to the same periods in2012. For further details related to this variance, please refer to the South Street Seaport and the Outlet Collection at Riverwalk discussions hereinafter.57 December 31, 2013 2012 2011 (In thousands) Equity Method investments 1,390 1,307 4,685 Cost basis investments and dividends 2,503 2,376 3,893 Operating Assets segment Equity in Earnings from Real Estate Affiliates 3,893 3,683 8,578 Strategic Developments segment Equity in Earnings from Real Estate Affiliates 10,535 — — Equity in Earnings from Real Estate Affiliates $14,428 $3,683 $8,578 Table of ContentsThe following table summarizes the leases we executed at our retail properties during the year ended December 31, 2013:(a)Pre-leased information is associated with projects under development at December 31, 2013. (b)Comparable information is associated with stabilized assets whereby the square footage was occupied by a tenant within 12 months prior to theexecuted agreement. These leases represent an increase in cash rents from $19.95 per square foot to $20.92 per square foot, or 4.9% overprevious rents. (c)Non-comparable information is associated with stabilized assets whereby the square footage was previously vacant for more than 12 months orhas never been occupied.Landmark MallDuring 2013, we reached an agreement with Lord & Taylor for the early termination of its leasehold interest and we received unanimous rezoningapproval from the City of Alexandria for Phase I of the redevelopment which includes converting 11 acres of our 22 acre site, located within the centerof the property between Macy's and Sears, from a traditional enclosed mall to a vibrant outdoor mixed-use environment with street retail shops andrestaurants with high density residential. The redevelopment requires the consent of Macy's and Sears, and within Phase I we expect to constructapproximately 285,000 square feet of a new retail upscale dine-in movie theater, and up to 400 residential units. Future phases may include the balanceof the mall site with mixed-use densities to total up to 5.5 million square feet as prescribed in the City of Alexandria's 2009 Van Dorn Small Area Plan.Future redevelopment will also be subject to approval of the anchor tenants as part of a reciprocal easement agreement that governs the property. Weexpect to begin redevelopment in 2014. We have submitted a development permit application and anticipate approval later in 2014 from the City ofAlexandria. As of December 31, 2013, we have incurred $13.8 million of development costs on this project, including the early termination of theanchor lease. On January 24, 2014, an agreement was reached with the City of Alexandra regarding the tax assessment for years 2007, 2010, 2011 and2013. As a result of the settlement we were awarded a tax credit of $0.7 million. This credit will be used to offset future real estate taxes for thisproperty.Rio West MallOn September 30, 2013, we sold the property for $12.0 million and received $10.8 million of net proceeds. The net book value of the property was$10.2 million and we recognized a pre-tax gain of $0.6 million which is included in other income.South Street SeaportNOI for the year ended December 31, 2013 decreased $9.6 million to $(9.0) million as compared to $0.6 million for the same period in 2012. NOI for2013 and 2012 includes the negative impact of $15.2 million and $5.6 million respectively, resulting from the closure of a majority of the property dueto Superstorm Sandy in October 2012. During 2014 the Pier will be demolished for redevelopment, and the majority of the historic area will undergorenovations. We also incurred a $1.2 million charge related to an early lease termination.58 Per Square Foot Annual (millions) Retail Properties TotalExecuted Avg.LeaseTerm(Months) TotalLeasedSquareFootage Avg.StartingRentsperAnnum Total TenantImprovements Total LeasingCommissions Avg.StartingRents TenantImprovements LeasingCommissions Pre-leased (a) 89 110 489,855 $27.71 $79.61 $7.97 $13.6 $34.2 $2.3 Comparable (b) 51 43 130,466 20.92 10.38 20.20 2.7 0.3 0.2 Non-comparable (c) 13 75 34,883 26.01 26.10 7.86 0.9 0.7 0.1 Total 655,204 $17.2 $35.2 $2.6 Table of ContentsOn October 29, 2012, as a result of Superstorm Sandy, the historic area of South Street Seaport (area west of the FDR Drive) suffered significantdamages due to flooding. During 2013, we filed a claim with our insurance carriers for property damages, lost income and other expenses resultingfrom the storm and we believe insurance will cover substantially all of these losses. We are continuing to work through the claims process with theinsurance carriers and have collected $20.5 million in insurance proceeds through December 31, 2013. Insurance recoveries to date have exceeded thebook value of the buildings and equipment at the date of the storm. For the year ended December 31, 2013, we have recorded a $12.2 million gain inOther Income, which is excluded from NOI.During the first half of 2013, we established the SEE/CHANGE program in an effort to revitalize the South Street Seaport following the lossessustained by Superstorm Sandy. SEE/CHANGE is an innovative seasonal program developed by us to re-energize and re-activate the Seaport area andto create a gathering place for the community that did not exist in the aftermath of the storm. The program includes bringing to the Seaport for eachseason an array of new retail, culinary and cultural events to attract local New Yorkers and tourists, and an intensive social media campaign to advertisethe events. During the year ended December 31, 2013, SEE/CHANGE-related expenses were approximately $3.8 million and are included in OtherProperty Operating Costs.As more fully described in "Note 10 – Commitments and Contingencies", on June 27, 2013, the City of New York executed the amended and restatedground lease for South Street Seaport and we provided a completion guarantee to New York City for the Renovation Project (as defined below).Pursuant to the amended and restated ground lease, annual ground rent will be fixed at $1.2 million with an escalation of 3.0% compounded annually.The execution of the amended and restated ground lease was the final step necessary for the commencement of the renovation and reconstruction of theexisting Pier 17 Building ("Renovation Project"). The redevelopment of Pier 17 and renovation of the historic area is expected to cost approximately$425 million, $11.0 million of which are demolition costs that will be expensed as incurred. As of December 31, 2013, we have incurred $25.7 millionof development costs on this project, which includes $0.4 million of demolition costs and $1.0 million of marketing costs. Construction began duringSeptember 2013 and is expected to conclude in 2016.The Renovation Project will increase the leasable area of Pier 17 to approximately 182,000 square feet, features a complete transformation of the Pier 17building and is designed to include a vibrant, open rooftop with 40% more open space, upscale retail, outdoor entertainment venues and a dynamic foodmarket. Additionally, we plan to retenant a significant portion of the 180,000 square feet of retail space in the historic area. On December 11, 2013, weexecuted a 20-year lease with iPic Entertainment for 46,145 square feet in the Fulton Market Building located in the historic area.On November 20, 2013, we announced plans for further redevelopment of the South Street Seaport district which includes approximately 700,000square feet of additional space, East River Esplanade improvements, a marina, restoration of the historic Tin Building and replacement of woodenplatform piers adjacent to Pier 17 and a mixed-use building. The plan will need the approval of the New York City Landmarks PreservationCommission and will be subject to a Uniform Land Use Review Procedure ("ULURP") that requires approval by the New York City Council. Weexpect to begin the ULURP process in early 2014.Outlet Collection at RiverwalkThe $1.0 million NOI decrease for the year ended December 31, 2013, respectively, as compared to 2012 was primarily attributable to vacating tenantsin June 2013 to transform the property into the Outlet Collection at Riverwalk, an urban upscale outlet center located in New Orleans, Louisiana. TheOutlet Collection at Riverwalk will be the nation's first outlet center located in the downtown of a major city. The redevelopment will feature a tenantmix of top national retailers with established outlet stores, local retailers and several dining and entertainment options. We plan to expand the currentleasable area by approximately 50,000 square feet to 250,000 square feet. Total development costs are59Table of Contentsexpected to be approximately $82 million (exclusive of our land value), with an expected opening date in May 2014. As of December 31, 2013, wehave incurred $28.9 million of development costs on this project of which $1.0 million are demolition costs. On October 24, 2013, we closed on a$64.4 million partial recourse construction loan bearing interest at one-month LIBOR plus 2.75% with an initial maturity date of October 24, 2016 withtwo one-year extension options.Approximately 95.1% of the space has been pre-leased and during the redevelopment, approximately 6,735 square feet of space has remained occupiedand operating. We have commitments from a strong roster of retailers and restaurants, including Last Call Studio by Neiman Marcus, Coach and CoachMen's Factory Store, Forever 21, Tommy Bahama, Toby Keith's I Love This Bar & Grill, U.S. Polo Assn. Outlet, Guess, American Eagle, CharlotteRusse, Café Du Monde, GAP, and New Balance Factory Stores. When stabilized, the project is expected to reach annual NOI of $7.8 million based onleases in place.Ward CentersDuring 2012, we substantially completed The Ward Village Shops consisting of approximately 70,000 square feet for a total cost of $32.1 million. The36,000 square foot upper level was placed in service in May 2012 when TJ Maxx took occupancy. We are in discussions with a potential tenant for thelower level space.In November of 2013, we substantially completed construction of the Auahi Shops, a 57,000 square foot, two-story retail center. We expect our finalinvestment to be approximately $26.0 million on this project and as of December 31, 2013, we have incurred $23.6 million. Pier 1 Imports andNordstrom Rack occupy 100% of this retail center and have relocated from other areas within Ward Centers. Pier 1 Imports and Nordstrom Rack areexpected to contribute an incremental $1.0 million of combined annual NOI. The Pier 1 Imports former location is the site of one of the first twoplanned market rate condominium towers for which we have begun pre-sales.In October 2012, we announced plans to transform Ward Centers into Ward Village, a vibrant neighborhood offering unique retail experiences, diningand entertainment, along with exceptional residences and workforce housing set among open public spaces and pedestrian-friendly streets. Our masterplan development agreement with the Hawaii Community Development Authority ("HCDA") allows for up to 9.3 million square feet, including up to7.6 million square feet of residential (approximately 4,000 units which are initially estimated to average approximately 1,500 square feet per unit), andover 1.7 million square feet of retail, office, commercial and other uses. Full build-out is estimated to occur over 15 years, but will ultimately depend onmarket absorption and many other factors that are difficult to estimate.The first phase of the master plan includes the renovation of the IBM Building and the development of approximately 482 condominium units in twomixed-use residential towers and development of a workforce residential tower having unit sale prices lower than the market rate towers. We expect thefirst two market rate towers to be completed in 2016.During the first quarter of 2013, we began redevelopment of the IBM building, a well-known office building located at Ward Centers, into a world classinformation center and sales gallery for the entire Ward Village project. The sales center will dedicate a section to telling the story of the history of theland, while another will showcase our vision for Ward Village. The sales center opened in January 2014. As of December 31, 2013, we have incurred$19.9 million of costs on this project, and at final completion in the first quarter of 2014 total costs are expected to be $24.4 million.Development permit applications and detailed plans for Phase One, which includes the first three residential towers, were approved by the HCDA in thethird quarter of 2013 and condominium documents have been approved by the Hawaii Real Estate Commission for two market rate towers. The first ofthe two market rate towers, Waiea, meaning "water of life" in Hawaiian, is planned to be60Table of Contentsdeveloped at a surface parking lot on Ala Moana Boulevard and will have 171 market rate condominium units for sale, six levels of parking, andapproximately 8,000 square feet of new retail space. Waiea will consist of one, two and three-plus bedroom units ranging from approximately 1,100 to17,500 square feet. Construction is expected to commence in 2014 with projected completion by the end of 2016. As of December 31, 2013, we haveincurred $9.0 million of development costs on this project.The second market rate tower, Anaha, meaning "reflection of light," is planned for Auahi Street and will have 311 market rate condominium units forsale, six levels of parking, and approximately 17,000 square feet of new retail space. Anaha will consist of studios, one, two and three-bedroom units,townhomes and penthouses ranging from approximately 450 to 6,500 square feet. Construction is expected to commence in 2014 with projectedcompletion by the end of 2016. As of December 31, 2013, we have incurred $8.1 million of development costs on this project.We launched public pre-sales of both market rate towers on February 1, 2014.The workforce housing tower is planned for a site on Ward Avenue and current designs include 424 condominium units, including 375 reservedcondominium units that can be used to meet reserved housing provisions, and 49 market rate units, six levels of parking and approximately 25,000square feet of new retail space. Plans for this tower are being finalized. As of December 31, 2013 we have incurred $1.9 million in costs on this project.Office PropertiesAll of the office properties listed in the NOI schedule, except for 110 N. Wacker, the Columbia Office Properties and 70 Columbia Corporate Center("70 CCC") are located in The Woodlands. Leases related to our office properties, except those located in Columbia, Maryland, are generally triple netleases. Triple net leases typically require tenants to pay their pro-rata share of certain property operating costs, such as real estate taxes, utilities andinsurance.Office property NOI was flat for the year ended December 31, 2013, respectively, as compared to 2012. NOI for The Woodlands office propertiesincreased for the year ended December 31, 2013, due primarily to 3 Waterway Square being placed in service. Combined NOI for the Columbia OfficeProperties and 70 CCC decreased for the year ended December 31, 2013, as compared to the same period in 2012 due to a decrease in leased squarefootage of a major tenant.The following table summarizes our executed office property leases during the year ended December 31, 2013:(a)Pre-leased information is associated with projects under development at December 31, 2013.(b)First generation information is associated with space for buildings which were constructed and placed in service on or before December 31, 2013.(c)Comparable information is associated with stabilized assets whereby the square footage was occupied by a tenant within 12 months prior to the executed agreement. These leasesrepresent an increase in cash rents from $21.17 per square foot to $23.50 per square foot, or 11.0% over previous rents.(d)Non-comparable information is associated with stabilized assets whereby the square footage was previously vacant for more than 12 months or has never been occupied.61 Per Square Foot Annual (millions) Office Properties TotalExecuted Avg.LeaseTerm(Months) TotalLeasedSquareFootage Avg.StartingRentsperAnnum TotalTenantImprovements TotalLeasingCommissions Avg.StartingRents TenantImprovements LeasingCommissions Pre-leased (a) 2 120 478,122 $22.00 $40.00 $14.11 $10.5 $19.1 $6.7 Firstgeneration (b) 14 98 156,297 27.55 58.93 21.22 4.3 9.2 3.3 Comparable (c) 12 52 63,581 23.50 7.12 7.62 1.5 0.4 0.5 Non-comparable (d) 2 98 74,591 26.28 46.35 15.95 2.0 3.5 1.2 Total 772,591 $18.3 $32.2 $11.7 Table of ContentsThe WoodlandsDuring September 2013, we substantially completed and opened One Hughes Landing, the first office building in Hughes Landing, a 66-acre, mixed-use development situated on the 200-acre Lake Woodlands. One Hughes Landing is a 197,719 square foot Class A office building that is 97.8% leasedas of December 31, 2013. Based on leases in place, we expect the property to reach stabilized annual NOI of approximately $5.6 million by the secondquarter of 2014. Total estimated costs for this project are approximately $50 million. As of December 31, 2013, we have incurred $37.6 million(exclusive of land value) of which the remaining amounts to be spent represent tenant improvements. The project is financed by a $38.0 million non-recourse mortgage at one-month LIBOR plus 2.65% with an initial maturity date of November 14, 2015 with two one-year extension options.During June 2013, we substantially completed the construction of 3 Waterway Square, a 232,000 square foot Class A office building at a cost of$51.4 million. The building is 98.4% leased as of December 31, 2013. Based on leases in place, we expect the property to reach stabilized annual NOIof $6.1 million by first quarter 2014.Columbia Office PropertiesIn March 2013, we began a complete restoration and redevelopment of the Columbia Regional Building, which we believe will serve as a catalyst forfuture development in the Columbia Town Center. Construction remains on pace and we anticipate completion of the renovation during the fourthquarter of 2014. Total development costs are expected to be $25 million (exclusive of land value), and we have incurred $17.8 million as ofDecember 31, 2013. The project is financed by a $23.0 million construction loan bearing interest at one-month LIBOR plus 2.0% and having an initialmaturity of March 15, 2016, with two one-year extension options. We have executed leases with Whole Foods Market, Inc. and The ColumbiaAssociation for the majority of the approximately 89,000 square foot building and we expect to reach annual NOI of $2.1 million in the second quarterof 2015.On August 15, 2012, we acquired 70 CCC, a 168,000 square foot Class A office building located in Columbia, Maryland by assuming a $16.0 millionmortgage at 4.25%. In February 2013, we executed a lease for 63,640 square feet that increased occupancy to approximately 94.7% when the tenanttook possession in July 2013. We expect annual NOI to increase to approximately $2.5 million by fourth quarter 2015 based on leases in place as ofDecember 31, 2013.Multi-familyOn May 31, 2012, we acquired our partner's interest in Millennium Waterway Apartments at a negotiated $72.0 million valuation of the property andconsolidated the asset after the purchase. This property is a stabilized Class A multi-family property located in The Woodlands Town Center. The NOIincrease of $1.9 million for the year ended December 31, 2013 as compared to 2012 is primarily due to increased rental income offset by higherproperty taxes, due to a higher assessed value, and an increase in operating costs due to a full year of operations. The property is 90.1% occupied as ofDecember 31, 2013. In conjunction with this acquisition, we entered into a joint venture agreement with our partner to construct a 314-unit Class Amulti-family property as more fully discussed under our Strategic Developments segment.The Woodlands Resort & Conference CenterThe Woodlands Resort & Conference Center's NOI of $10.2 million for the year ended December 31, 2013, decreased $0.5 million compared to$10.7 million for the year ended December 31, 2012 primarily due to lower banquet and catering revenues caused by the ongoing renovation project.NOI of $10.7 million in 2012 increased $2.9 million as compared to 2011 primarily due to an increase in RevPAR to $109.84 from $95.73, or 14.7%.RevPAR is defined as the average daily room rate multiplied by average occupancy. During the first quarter of 2013, we announced the expansion and62Table of Contentsredevelopment of The Woodlands Resort and Conference Center and construction is expected to be completed during the summer of 2014. Therenovation will encompass 222 existing guest rooms, the replacement of 218 rooms with a new wing consisting of 184 guest rooms and suites, a newlobby, an update of the 13,000 square foot spa facility, the revitalization of 60,000 square feet of meeting and event facilities, and the development of a1,000 foot long lazy river. We expect the renovation, when complete, will have a significant positive impact on NOI due to the replacement of a majorityof the older rooms which have the lowest RevPAR and the addition of amenities such as the lazy river and renovated spa which should increaseweekend occupancy. Construction costs are expected to total approximately $75 million and as of December 31, 2013, we have incurred $27.5 million.Additionally, during the first quarter of 2013, we closed on a $95.0 million non-recourse mortgage bearing interest at one-month LIBOR plus 3.5% andhaving an initial maturity date of February 8, 2016 with three, one-year extensions at our option. The mortgage refinanced the existing $36.1 millionmortgage and will provide the majority of the funding for this redevelopment.OtherThe Club at Carlton Woods (the "Club") is a 36-hole golf and country club at The Woodlands with 699 total members as of December 31, 2013consisting of 576 golf memberships and 123 sports memberships. The Club sold 94 new golf memberships during the year ended December 31, 2013.We estimate the Club requires approximately 800 golf members to achieve break-even NOI, and therefore we expect to continue to incur NOI losses forthe foreseeable future. The Club had a $5.2 million NOI loss for the year ended December 31, 2013, an increase in loss of $1.1 million as compared tothe $4.2 million NOI loss in 2012. The decrease in NOI is due primarily to increased payroll and related costs. A significant portion of membershipdeposits are not recognized as revenue when collected, but are recognized over the estimated 12-year life of a membership. Prior to 2013, membershipdeposits were refundable and therefore no revenue was recognized. For the years ended December 31, 2013, 2012 and 2011, cash membership depositscollected but not recognized in revenue or included in NOI were $4.3 million, $5.5 million and $2.9 million respectively.The Woodlands Parking Garages comprise nearly 3,000 parking spaces in two separate parking structures. The Waterway Square Garage has 1,933spaces and is located in The Woodlands Town Center. The Waterway Square Garage has excess parking capacity for future commercial development.Woodloch Forest garage has approximately 1,000 total spaces with 300 spaces available for future adjacent office development.Partially OwnedDuring the first quarters of 2013 and 2012, we received distributions of $2.5 million and $2.4 million, respectively, from our Summerlin Hospitalinvestment. Distributions from the Summerlin Hospital are typically made one time per year in the first quarter.In 2012, we became a 50% partner in a joint venture formed for the purpose of acquiring 100% of the operating assets of the Las Vegas 51s, a Triple-Abaseball team which is a member of the Pacific Coast League. In May 2013, the joint venture acquired the team for approximately $21.0 million, and ourshare of the purchase price was $10.5 million. Our strategy in acquiring an ownership interest is to pursue a potential relocation of the team to a stadiumwhich we would then build in our Summerlin master planned community. There can be no assurance that such a stadium will ultimately be built.63Table of ContentsOperating Assets Revenues and Expenses (*) (*)For a detailed breakdown of our Operating Assets segment EBT, refer to Note 18 – Segments.Minimum rents for the year ended December 31, 2013 of $80.1 million decreased $1.0 million compared to 2012. The decrease was primarily due tolower minimum rents for the year ended December 31, 2013 at South Street Seaport of $7.5 million resulting from Superstorm Sandy and at the OutletCollection at Riverwalk of $3.3 million resulting from vacating tenants due to the redevelopment. These decreases were partially offset by increasedrents for the year ended December 31, 2013 of $6.8 million related to the acquisition of our partner's interest in Millennium Waterway Apartments inMay 2012, the opening of 3 Waterway Square and One Hughes Landing during 2013, which collectively contributed $3.6 million, and a $2.5 millionincrease at Ward Centers primarily related to the opening of Bed, Bath, & Beyond in April 2013, a full year operations of TJ Maxx and the relocationand expansion of Nordstrom Rack in November 2013.Tenant recoveries for the year ended December 31, 2013 of $20.9 million, decreased $2.3 million compared to 2012. The decrease was primarily due tolower tenant recoveries at South Street Seaport of $2.6 million related to the property being vacant as a result of Superstorm Sandy and the closing ofPier 17 for redevelopment in September 2013, and at Riverwalk Marketplace of $0.9 million as a result of its redevelopment. These decreases werepartially offset by $0.5 million due to the opening of 3 Waterway Square in 2013 and $0.3 million at Waterway Square Garage due to an increase intenant occupancy.Other property operating costs increased $4.5 million to $64.6 million for the year ended December 31, 2013 as compared to 2012. The increase for theyear ended December 31, 2013 primarily resulted from increased costs of $4.0 million relating to the Club at Carlton Woods as well as 3 WaterwaySquare and One Hughes Landing being placed in service in 2013. Other property operating costs generally include recoverable and non-recoverablecosts such as utilities and property management expenses relating to our operating assets, with the exception of real estate taxes and maintenance whichare shown separately.64 Year Ended December 31, 2013 2012 2011 (In thousands) Minimum rents $80,124 $81,140 $72,405 Tenant recoveries 20,901 23,210 20,254 Resort and conference center revenues 39,201 39,782 34,850 Other rental and property revenues 20,360 20,959 21,064 Total revenues 160,586 165,091 148,573 Other property operating costs 64,608 60,072 55,745 Rental property real estate taxes 12,065 11,292 10,638 Rental property maintenance costs 7,552 8,073 6,922 Resort and conference center operations 29,454 29,112 27,124 Provisions for (recovery of) doubtful accounts 835 1,335 (107)Demolition costs 2,078 — — Depreciation and amortization 31,427 23,318 20,309 Interest expense, net 19,011 16,104 12,775 Early extinguishment of debt — — 11,305 Equity in Earnings (loss) from Real Estate Affiliates (3,893) (3,683) (3,926) Total expenses 163,137 145,623 140,785 Venture partner share of The Woodlands — — 425 Operating Assets REP EBT $(2,551)$19,468 $8,213 Table of ContentsThe provision for doubtful accounts decreased for the year ended December 31, 2013 by $0.5 million as compared to 2012 primarily due to bad debtcharges at South Street Seaport in 2012 related to Superstorm Sandy which resulted in several tenant terminations.The $2.1 million in demolition costs for the year ended December 31, 2013 are due to costs to demolish a portion of the existing structures at ourRiverwalk, Columbia Regional Building and South Street Seaport construction projects.Depreciation expense for the year ended December 31, 2013 increased $8.1 million as compared to 2012 primarily due to $1.3 million related toopening of 3 Waterway Square and approximately $6.3 million of increased depreciation recorded as a result of the decrease in estimated useful lives ofcertain assets on land approved for redevelopment at Columbia Office, Landmark and Ward Centers.Net interest expense increased $2.9 million for the year ended December 31, 2013 compared to 2012. The increase is mostly due to an increase of$1.4 million related to 70 CCC lender's participation right in the property and higher average debt balances in 2013. The participation right is remeasuredeach quarter based on the estimated fair value of the property and the change in the value of the participation right is recorded through interest expense.We executed a new 63,985 square foot tenant lease in the first quarter of 2013, which increased the estimated value of the lender's participation.Strategic DevelopmentsOur Strategic Development assets generally require substantial future development to achieve their highest and best use. For our redevelopment anddevelopment projects, the total estimated costs of a project including the construction costs are exclusive of our land value unless otherwise noted. Mostof the properties and projects in this segment generate no revenues with the exception of our future condominium projects for which we will likelyrecognize revenue on a percentage of completion basis. Our expenses relating to these assets are primarily related to carrying costs, such as propertytaxes and insurance, and other ongoing costs relating to maintaining the assets in their current condition. If we decide to redevelop or develop a StrategicDevelopment asset, we would expect that, upon completion of development, the asset would either be sold or reclassified to the Operating Assetssegment and NOI would become an important measure of its operating performance.Strategic Developments Revenues and Expenses (*) (*)For a detailed breakdown of our Strategic Developments segment of EBT, please refer to Note 18 – Segments.65 Year Ended December 31, 2013 2012 2011 (In thousands) Minimum rents $763 $905 $917 Condominium rights and unit sales 32,969 267 22,067 Other land, rental and property revenues 5,522 3,584 1,876 Total revenues 39,254 4,756 24,860 Condominium rights and unit cost of sales 16,572 96 14,465 Rental and other property operations 11,335 6,027 6,703 Provision for (recovery of) doubtful accounts 1 (111) (137)Depreciation and amortization 189 225 234 Interest (income) expense, net (4,318) 219 323 Equity in Earnings from Real Estate Affiliates (10,535) — — Total expenses 13,244 6,456 21,588 Strategic Developments EBT $26,010 $(1,700)$3,272 Table of ContentsRevenues increased $34.5 million to $39.3 million for the year ended December 31, 2013 as compared to December 31, 2012 and decreased$20.1 million to $4.8 million for the year ended December 31, 2012 as compared to December 31, 2011. The increase in 2013 is primarily due to theMay 2013 sale of our condominium rights related to the ONE Ala Moana project. The decrease between 2011 and 2012 is caused by the sale of theremaining two condominium units at Nouvelle at Natick in 2012 compared to selling 57 units in 2011. The condominium rights and unit sales andrelated cost of sales for the year ended December 31, 2013 represents partial recognition of the gain on sale of the condominium rights to the jointventure in which we have a 50% interest and the portion of the deferred sale relating to our ongoing interest in the condominium rights that werecognized on the percentage of completion basis. Condominium rights and unit cost of sales decreased $14.4 million for the year ended December 31,2012 as compared to the same period in 2011, respectively, primarily due to the Nouvelle at Natick project noted above.Other land, rental and property revenues primarily consist of the sale of land parcels (at our various projects) to joint ventures in which we are a partneror to third parties. Revenues vary year to year depending on the number of parcels sold and the selling price.Rental and other property operations expenses increased $5.3 million for the year ended December 31, 2013 as compared to December 31, 2012.During 2013, we expensed $2.5 million in marketing costs related to our Ward Village and South Street Seaport development projects. The balance isprimarily due to the $3.2 million cost associated with the sale of land to The Metropolitan Downtown Columbia Project.Net interest (income) expense improved for the year ended December 31, 2013 as compared to prior periods due to higher capitalized interest fromprojects under construction. In addition, the Equity in Earnings from Real Estate Affiliates includes our share of the profit from the ONE Ala Moanacondominium venture.66Table of ContentsThe following describes the status of our active Strategic Development projects as of December 31, 2013:The WoodlandsHughes LandingDuring the third quarter 2013, we began construction of Two Hughes Landing, the second Class A office building in Hughes Landing and anticipatecompletion of construction by the second quarter of 2014. Two Hughes Landing will be a 197,000 square foot, eight-story office building with anadjacent parking garage containing approximately 630 spaces. The building and the garage will be situated on 3.6 acres of land and are estimated to costapproximately $49 million. As of December 31, 2013 we have incurred $20.7 million of costs on this project, The project is financed by a $41.2 millionnon-recourse construction loan bearing interest at one-month LIBOR plus 2.65% with an initial maturity date of September 11, 2016, with two one-yearextension options.In October 2013, we began construction of an eight-story, Class A, multi-family project within Hughes Landing called One Lake's Edge and anticipatecompletion of construction in the first quarter of 2015. One Lake's Edge will be comprised of 390 multi-family units (averaging 984 square feet perunit), 22,289 square feet of retail and a 750 space parking garage, all situated on 2.92 acres of land. Additionally, the project will feature an amenitydeck on the third floor which will house the pool, courtyard and other amenities overlooking Lake Woodlands. Total development costs are expected tobe approximately $88 million. As of December 31, 2013, we have incurred $5.9 million on this project. On November 25, 2013, we closed on a$73.5 million non-recourse construction loan bearing interest at one-month LIBOR plus 2.50% with an initial maturity date of November 25, 2016, withtwo one-year extension options.During the fourth quarter 2013, we began construction of Hughes Landing Retail, the 123,000 square foot retail component of Hughes Landing. Theproject will consist of Whole Foods, an anchor tenant with 40,000 square feet of space, 32,900 square feet of retail, and a 50,100 square foot restaurantrow. Total development costs are expected to be approximately $36 million and as of December 31, 2013 we have incurred $1.6 million of developmentcosts on this project. On December 20, 2013, we closed on a $36.6 million non-recourse construction loan bearing interest at one-month LIBOR plus1.95% with an initial maturity date of December 20, 2016, with two one-year extension options. The project is expected to be completed in the fourthquarter of 2014. The majority of the restaurants on restaurant row will open during the first quarter 2015. We have pre-leased 43.6% of the project as ofDecember 31, 2013.On December 16, 2013, we announced that we would begin construction on a Class A office project comprised of two adjacent buildings for ExxonMobil Corporation ("ExxonMobil"). The project is expected to be completed by the fourth quarter of 2015. The West Building will be 12-stories andapproximately 318,000 leasable square feet and the East Building will be 13-stories and 329,000 leasable square feet. A 2,617-car structured parkinggarage will also be located on the 4.3 acre site and will be exclusive to the office project. Total development costs are expected to be approximately$172 million. As of December 31, 2013, we have incurred $8.3 million of development costs on this project of which $6.7 million is related to leasing.ExxonMobil has executed leases to occupy the entire West Building for twelve years, and 160,000 square feet in the East Building for eight years withan option to lease the remaining space before the building opens. We expect to reach stabilized NOI, based on ExxonMobil's current 478,000 squarefoot commitment, of $10.7 million in 2018. If ExxonMobil exercises their option for the remaining space, stabilized annual NOI will increase toapproximately $14.5 million.Creekside Village GreenCreekside Village Green is located within the 100-acre mixed-use commercial development that is anchored by H-E-B grocery store and will ultimatelyinclude 400,000 square feet of retail and office67Table of Contentsspace, 800 units of multi-family, 200 units of senior living facility and an 85,000 square foot campus within the Lone Star College System. CreeksideVillage Green is a 74,352 square foot retail center which will consist of retail, restaurant and professional office space across two main buildings and acentrally located restaurant building. Creekside Village Green will also include a one-acre tree-lined park designed to be the hub of all activity within thegreater 100-acre development. During the fourth quarter 2013 we began construction, and we anticipate the project will open in the fourth quarter of2014. Total development costs are expected to be approximately $19 million.As of December 31, 2013, we have incurred $1.9 million of costs. We plan to fund development by using The Woodlands Master Credit Facility(Described in Note 8 – Mortgages, Notes and Loan Payable). We have pre-leased 32.6% of the project as of December 31, 2013.Millennium Woodlands Phase IIMillennium Woodlands Phase II, a joint venture with The Dinerstein Companies, began construction of a 314-unit Class A multi-family complex in TheWoodlands Town Center in the second quarter of 2012. On July 5, 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres of landvalued at $15.5 million (compared to $2.2 million book value), our partner's contribution of $3.0 million in cash and a construction loan in the amountof $37.7 million, which is guaranteed by our partner. Construction is expected to be completed in the second quarter of 2014. Construction costs areestimated to be approximately $38 million and as of December 31, 2013, the project has incurred $23.7 million.ONE Ala Moana Tower Condominium ProjectIn 2011, we and an entity jointly owned by two local development partners formed a joint venture called HHMK Development, LLC ("HHMKDevelopment") to explore the development of a luxury condominium tower above an existing parking structure at Ala Moana Center, a highlysuccessful regional mall owned by a third party. We own 50% and our partner owns the remaining 50% of HHMK Development. In 2012, we formedanother 50/50 joint venture, KR Holdings, LLC ("KR Holdings"), with the same development partner. The venture was responsible for developmentactivities and in 2013 closed on construction financing for the project. Construction of the 23-story, 206-unit tower consisting of one, two and three-bedroom units ranging from 760 to 4,100 square feet commenced in April of 2013 and is expected to be completed by the end of 2014. The ventureexpects to invest a total of $265.1 million, which includes construction, selling and all financing costs. As of December 31, 2013 the venture hadincurred $109.4 million (inclusive of land value) of total costs. The project is financed by a $132.0 million construction loan. The loan is non-recourse,bears interest at one-month LIBOR plus 3.00%, is secured by the condominiums and buyers' deposits, and matures May 15, 2016, with the option toextend for one year. Additionally, two $20.0 million non-recourse mezzanine loan commitments with List Island Properties and A&B Properties weredrawn in full on May 15, 2013. These loans have a blended interest rate of 12% and mature on April 30, 2018 with the option to extend for one year. Inaddition to the mezzanine loans, A&B Properties and List Island Properties both have a profit interest in KR Holdings, which entitles them to receive ashare of the profit, after a return of our capital plus a 13% preferred return on our capital. A&B Properties' participation is capped at $3.0 million.Upon closing of the construction loan on May 15, 2013 and pursuant to the terms of the venture agreement, we sold our condominium rights to KRHoldings for $47.5 million and received net cash proceeds of $30.8 million and an equity interest of 50% in KR Holdings. Our partner contributed cashof $16.8 million for its 50% equity interest. Additionally, KR Holdings reimbursed HHMK Development for its development expenditures related to theproject. We also received a cash distribution from HHMK Development in the amount of $3.1 million representing the return of our investment. Due toour continuing involvement in KR Holdings, we accounted for the transaction as a partial sale representing 50% of the $47.5 million sales value of thecondominium rights, and68Table of Contentsaccordingly, we recognized net profit of $11.8 million. The remaining $23.7 million sales value of the condominium rights will be recognized on thesame percentage of completion basis as KR Holdings. As of December 31, 2013, the project was considered to be 38.8% complete, and we recognizedan additional $4.6 million of profit on the sale for the year ended December 31, 2013.During the fourth quarter of 2012, we sold all of the condominium units at an average price of $1.6 million, or approximately $1,170 per square footand as of July 1, 2013, the venture had collected $66.2 million of buyer deposits, representing 20% of contracted sales prices.The Shops at SummerlinDuring the second quarter of 2013, we commenced construction of The Shops at Summerlin, an approximate 106-acre project within our 400-acre sitelocated in downtown Summerlin and anticipate completion at the end of 2014. The Shops at Summerlin will be approximately 1.6 million square feetand will consist of a 1.1 million square foot Fashion Center which is designed to have three anchor tenants, small-shop retail and restaurants.Additionally, the project will include an approximate 200,000 square foot office building and approximately 280,000 square feet of big box and junioranchor retail space adjacent to the Fashion Center. Total estimated costs are $391 million and as of December 31, 2013, we have incurred $107.4 millionon this project (exclusive of land value). During 2013, we executed agreements with two major department store anchors, Macy's and Dillard's, forapproximately 380,000 square feet.The Metropolitan Downtown Columbia ProjectOn April 12, 2012, Columbia Parcel D venture, in which we are a 50% partner with Kettler, received approval of the final development plan componentof the entitlement process for the first phase. The entitlement provides a density plan for up to 817 residential units, and up to 76,000 square feet of retailto be developed on two parcels. One parcel includes The Metropolitan (Parcel D) which will be a 380-unit apartment building, and the second parcelwill include a 437-unit apartment building (Parcel C).The venture began construction of The Metropolitan in February 2013 and completion is expected in the fourth quarter of 2014. The total estimateddevelopment costs are approximately $97 million including land value and as of December 31, 2013 the venture has incurred $36.8 million ofdevelopment costs and our total net investment for this project is $4.9 million.On July 11, 2013, the joint venture closed a $64.1 million construction loan which is non-recourse to us. The loan bears interest at one-month LIBORplus 2.4% and matures in July 2020. At loan closing, our land contribution was valued at $20.3 million and Kettler contributed $13.3 million in cash, ofwhich $7.0 million was distributed to us. Both we and Kettler were required to each make future contributions of $3.1 million to the joint venture inaccordance with the loan agreement, thus increasing our total capital account to $16.4 million. This transaction was accounted for as a partial sale of theland for which we recognized a net profit of $0.7 million. As of December 31, 2013, we have contributed the $3.1 million to the joint venture.On October 4, 2013, we entered into a joint venture agreement with Kettler to construct a 437-unit, Class A apartment building with 31,000 square feetof ground floor retail on Parcel C. We contributed approximately five acres of land having a book value of $4.0 million, in exchange for a 50% interestin the venture. Our partner will provide construction and property management services, including the funding and oversight of development activities,as well as obtaining construction financing. When the joint venture closes on a construction loan our interest in the joint venture will be increased to$23.4 million or $53,500 per constructed unit. As of December 31, 2013, our total net investment for this project is $5.8 million.69Table of ContentsThe following table summarizes our projects under construction, and related debt, for Operating Assets and Strategic Developments as of December 31, 2013. As further described in thefootnotes below, we are currently documenting construction financing approximating $312.0 million for our Summerlin project and are currently seeking construction financing of$143.0 million for our ExxonMobil Build-to-Suit project. We expect to close construction financing on both of these projects by the end of the second quarter of 2014.($ in thousands) Announced Project TotalEstimatedCosts(a) Costs PaidThroughDecember 31,2013(b) EstimatedRemainingto be Spent Committed/AllocatedDebt(c) AmountDrawnThrough12/31/13 RemainingDebt tobe Drawn EstimatedCostsRemainingin ExcessofRemainingFinancingtobeDrawn(d) EstimatedCompletionDateOperating Assets (A) (B) (A) - (B) =(C) (D) (E) (D) - (E) =(F) (C) - (F) =(G) ColumbiaRegionalBuilding $24,616 $11,525 $13,091 $23,008 $9,207 $13,801 $(710)Q4 2014One HughesLanding 49,615 36,014 13,601 38,000 19,538 18,462 (4,861)Complete(e)OutletCollection atRiverwalk 81,778 22,073 59,705 60,000 — 60,000 (295)Q2 2014Seaport – Pier17 424,880 17,636 407,244 — — — 407,244(f)Q4 2016The WoodlandsResort andConferenceCenter 75,375 23,746 51,629 48,900 — 48,900 2,729 Q3 2014Ward SalesCenter 24,412 11,365 13,047 — — — 13,047 Q1 2014 Total OperatingAssets 680,676 122,359 558,317 169,908 28,745 141,163 417,154 StrategicDevelopments Two HughesLanding 48,603 9,475 39,128 41,230 10 41,220 (2,092)Q2 2014Creekside ParkVillageCenter 18,536 764 17,772 18,536 — 18,536 (764)(g)Q4 2014Exxon MobilCorp Build-to-Suit 171,489 4,295 167,194 — — — 167,194(h)Q4 2015HughesLandingRetail 36,207 1,369 34,838 36,575 913 35,662 (824)Q4 2014One Lake'sEdge 88,493 4,044 84,449 73,525 — 73,525 10,924 Q1 2015The Shops atSummerlin 391,369 59,458 331,911 — — — 331,911(i)Q4 2014 Total StrategicDevelopments 754,697 79,405 675,292 169,866 923 168,943 506,349 StrategicDevelopment –JointVentures (j) MetropolitanDowntownColumbiaProject 97,632 35,093 62,539 64,100 2,303 61,797 742 Q4 2014MillenniumPhase II 38,405 20,453 17,952 37,700 20,339 17,361 591 Q2 2014One Ala Moana 265,088 109,447 155,641 172,000 40,000 132,000 23,641 Q4 2014 Total StrategicDevelopments –Joint Ventures 401,125 164,993 236,132 273,800 62,642 211,158 24,974 Combined Totalat December 31,2013 $1,836,498 $366,757 $1,469,741 $613,574 $92,310 $521,264 $948,477 (a)Total Estimated Costs include all costs to be incurred on the project which includes, construction costs, demolition costs, marketing costs, capitalized leasing and deferredfinancing.(b)Includes construction costs, demolition costs, marketing costs, capitalized leasing and deferred financing costs, but excludes retainage payable and indirect corporate projectcosts.(c)Committed Debt details:– Riverwalk – total commitment is $64,400 which includes $60,000 for construction and a $4,400 earnout which is available after completion and the achievement of operationalcovenants.– The Woodlands Resort & Conference Center – total commitment is $95,000 which includes $48,900 for construction, a $10,000 earnout and $36,100 which refinanced priormortgage debt.(d)Negative balances represent cash to be drawn from financing in excess of Estimated Remaining to be Spent. This is caused primarily by December vendor payments made by usfor which we have not yet been reimbursed by the lenders.(e)This project was placed in service during 2013 but still requires some remaining capital to be invested.(f)We will likely seek project financing for the development when a significant portion of the project is pre-leased.(g)This project will be financed by The Woodlands master credit facility.(h)We are currently seeking financing and expect to close on a $143 million construction loan during the second quarter of 2014.(i)We are currently documenting construction financing approximating $312 million and expect to close during the second quarter of 2014 when a significant portion of theproject is pre-leased.(j)Strategic Development – Joint Ventures amounts are representative of the total project, not just HHC's investment. Estimated costs remaining in excess of financing are theresponsibility of our partners.702013 $1,836,498 $366,757 $1,469,741 $613,574 $92,310 $521,264 $948,477 Projects For Which We Are Seeking Financing: Exxon Mobil Corp Build-to-Suit 142,900(h) The Shops at Summerlin 311,800(i) Estimated costs to be funded, net of financings, assuming closing on Exxon Mobil CorpBuild-to-Suit and The Shops at Summerlin $493,777 Table of ContentsGeneral and Administrative and Other ExpensesThe following table contains certain significant expenses on a consolidated basis that are not otherwise included within the segment analyses. Variancesrelated to income and expenses included in NOI or EBT are explained within the previous segment discussion. Significant variances for consolidatedexpenses not included in NOI or REP EBT are described below.General and administrative expenses increased $11.9 million during the year ended December 31, 2013 as compared to 2012 primarily due to increasedcompensation and benefits of approximately $7.4 million resulting from our increased headcount, incentive stock amortization and director fees, all ofwhich total approximately $2.6 million, and additional professional fees of $2.3 million.Other income for the year ended December 31, 2013 includes a $12.2 million pre-tax gain recognized on insurance proceeds received relating to SouthStreet Seaport, an $8.5 million pre-tax gain recognized on the sale of our Head Acquisition, LP interest, a $4.5 million favorable legal settlement relatingto the British Petroleum oil spill in the Gulf of Mexico in 2010 and a $0.6 million gain from the sale of Rio West Mall.The warrant liability loss for the years ended December 31, 2013 and 2012 was due to appreciation in our stock price, thereby increasing the values ofthe warrants. The warrant liability gain during 2011 resulted from a decrease in stock price during the year. During the fourth quarter of 2012, weretired $6.1 million Sponsor Warrants. Please refer to Footnote 3 – Sponsor and Management Warrants for more information.The reduction in tax indemnity receivable of $1.2 million for the year ended December 31, 2013 relates to the utilization of tax assets. Please refer toNote 9 – Income Taxes for more information.The increase in provision for income taxes of $2.7 million for the year ended December 31, 2013 was attributable to increases in operating income ascompared to 2012, the recording of a $53.9 million deferred tax liability in our captive REIT, and other permanent items, partially offset by an$88.8 million tax benefit from the release of valuation allowances.We have significant permanent differences, primarily from warrant liability gains and losses, interest income on the tax indemnity receivable, andchanges in valuation allowances that cause our effective tax rate to deviate greatly from statutory rates. The effective tax rates based upon actualoperating results were (14.2)% for the year ended December 31, 2013 compared to (6.4)% for the year ended December 31, 2012. The changes in thetax rate were primarily attributable to the changes in the warrant liability, the valuation allowance, and the deferred tax liability recorded in our captiveREIT.The equity in earnings from Real Estate Affiliates of $14.4 million for the year ended December 31, 2013 increased over 2012 primarily due to therecognition of $10.7 million representing our share of the profit related to the ONE Ala Moana condominium project.71 Year Ended December 31, 2013 2012 2011 (In thousands) General and administrative $(48,466)$(36,548)$(32,342)Other income 25,869 2,125 — Depreciation and amortization (33,845) (24,429) (16,782)Early extinguishment of debt — — (11,305)Warrant liability gain (loss) (181,987) (185,017) 101,584 Reduction in tax indemnity receivable (1,206) (20,260) — Provision (benefit) from income taxes 9,570 6,887 (18,325)Equity in earnings from Real Estate Affiliates 14,428 3,683 8,578 Table of ContentsThe following table represents our capitalized internal costs by segment for the years ended December 31, 2013 and 2012: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.The recoverability analysis, as an accounting concept, considers hold periods, but ignores when the future cash flows are expected to be received withinthat hold period and whether we currently expect to receive an above or below market rate of return over our anticipated holding period. If expectedcumulative undiscounted cash flows are less than the carrying value, then we are required to record the asset at the lower of its carrying value or fairvalue. The process for deriving fair value involves discounting the expected future cash flows at a rate of return that we believe an investor wouldrequire based on the risk profile of the cash flows and returns available in the market for other investments having similar risk. We may also use otherinputs such as appraisals and recent transactions for comparable properties, if appropriate. Book value for assets that have been recently impaired froman accounting perspective may more likely reflect market value than book values of assets that have not been impaired; consequently, unimpaired assetsmay be expected to generate above or below market returns relative to their respective book values. The lower book basis resulting from an impairmentcharge increases reported profitability from the asset in future periods, but has no impact on cash flow. For the years ended December 31, 2013, 2012and 2011, we evaluated whether impairment indicators existed at all of our assets. In most instances, we concluded no impairment indicators werepresent. When indicators of impairment were present, we reconsidered expected cash flows and concluded that there were no impairments.Master Planned Communities ImpairmentsOur Master Planned Communities comprise thousands of acres that include four distinct communities, Maryland, Bridgeland, Summerlin and TheWoodlands. Master Planned Community assets by their nature have characteristics that may create a wider range of outcomes in an impairment analysiscompared to other types of real estate such as office, retail and industrial properties. Unlike operating assets, master planned community assets haveextended life cycles that may last 20 to 40 years and have few long-term contractual cash flows (such as operating lease revenue). Further, the majorityof the master planned community assets generally have minimal to no residual values because of their liquidating characteristics and developmentperiods often occur through several economic cycles. Subjective factors such as the expected timing of property development and sales, optimaldevelopment density and sales strategy impact the timing and amount of expected future cash flows and fair value.Based on our development strategies, we may perform a separate impairment evaluation for regions or projects within a single master plannedcommunity if we believe the cash flows for those assets are independent from other regions or projects within the community. Separating masterplanned72 Capitalizedinternal costs Capitalizedinternal costsrelated tocompensationcosts Year EndedDecember 31, Year EndedDecember 31, 2013 2012 2013 2012 (In millions) (In millions) MPC segment $8.9 $7.7 $5.6 $5.0 Operating Assets segment 5.1 3.5 4.3 2.6 Strategic Developments segment 4.4 2.7 3.7 2.1 Table of Contentscommunities into multiple regions or projects for impairment testing may result in a different accounting conclusion than if the community wasevaluated as a whole; however, the accounting has no impact on economic value or fair value. The significant assumptions in our Master PlannedCommunities segment relate to future sales prices of land and future development costs needed to prepare land for sale, over the planned life of theproject, which are based, in part, on assumptions regarding sales pace, timing of related development costs, and the impact of inflation and other marketfactors. There were no impairments for our master planned communities during the years ended December 31, 2013, 2012 or 2011.Operating Assets ImpairmentsThere were no impairment charges for the years ended December 31, 2013, 2012 and 2011.Strategic Developments ImpairmentsThere were no impairments recorded for our Strategic Development properties the years ended December 31, 2013, 2012 or 2011.Liquidity and Capital ResourcesOur primary sources of cash include cash flow from land sales in our MPC segment, cash generated from our operating assets, first mortgagefinancings secured by our assets and the proceeds from the issuance of the Senior Notes. Our primary uses of cash include working capital, overhead,debt service, property improvements, and development costs. We believe that our sources of cash, including existing cash on hand, will providesufficient liquidity to meet our existing non-discretionary obligations and anticipated ordinary course operating expenses for at least the next twelvemonths. The development and redevelopment opportunities in our Operating Assets and Strategic Developments segments are capital intensive and willrequire significant additional funding. Most of these costs are currently discretionary, which means that we could discontinue spending on theseactivities if our liquidity profile, economic conditions or the feasibility of projects changes. To the extent we decide to raise capital in the future, it willlikely be comprised of a mix of construction, bridge and long-term financings, by entering into joint venture arrangements and the sale of non-coreassets.Total outstanding debt was $1,514.6 million as of December 31, 2013. Our share of the debt of our Real Estate Affiliates totaled $39.0 million. Pleaserefer to Note 8 – Mortgages, Notes and Loans Payable to our Consolidated Financial Statements for a table showing our debt maturity dates.On October 2, 2013, we issued $750.0 million in aggregate principal amount of 6.875% Senior Notes due 2021. We have used and will continue to usethe net proceeds for development, acquisitions and other general corporate purposes. Interest is payable semiannually, on April 1 and October 1 of eachyear starting in April 2014. The Notes contain customary terms and covenants including events of default.The following table summarizes our Net Debt on a segment basis as of December 31, 2013. Net Debt is defined as our share of mortgages, notes andloans payable, at our ownership share, reduced by short-term liquidity sources to satisfy such obligations such as our ownership share of cash and cashequivalents and SID receivables. Although Net Debt is not a recognized GAAP financial measure, it is73Table of Contentsreadily computable from existing GAAP information and we believe, as with our other non-GAAP measures, that such information is useful to ourinvestors and other users of our financial statements.(a)Please refer to Note 18 – Segments.(b)Includes our $1.3 million share of debt of our Real Estate Affliates in Operating Assets segment (Woodlands-Sarofim #1).(c)Includes our $37.7 million share of debt of our Real Estate Affliates in Strategic Developments segment (KR Holdings, LLC, MillenniumWoodlands Phase II, and The Metropolitan Downtown Columbia Project).(d)Includes our $0.9 million share of cash and cash equivalents of our Real Estate Affliates in Operating Assets segment (Woodlands-Sarofim #1,Summerlin Las Vegas Baseball Club, LLC, and Stewart Title).(e)Includes our $2.2 million share of cash and cash equivalent of our Real Estate Affliates in Strategic Developments segment (KR Holdings, LLC,HHMK Development, LLC and The Metropolitan Downtown Columbia Project).Cash FlowsCash flow activities include the consolidated cash flow of The Woodlands from the date of acquisition, July 1, 2011, through December 31, 2013.Operating ActivitiesMaster Planned Community development has a significant impact on our business. The cash flows and earnings from the business can be much morevariable than from our operating assets because the MPC business generates revenues from land sales rather than recurring contractual revenues fromoperating leases. MPC Land sales are a substantial portion of our cash flows from operating activities and are partially offset by MPC expenditures.Net cash provided by operating activities was $129.3 million for the year ended December 31, 2013, compared to net cash provided by operatingactivities of $153.1 million for the year ended December 31, 2012, and $86.5 million for the year ended December 31, 2011.The $23.7 million decrease in cash provided by operating activities for the year ended December 31, 2013 compared to the same period in 2012 wasprimarily the result of increased MPC development and condominium expenditures of $47.7 million and $5.7 million of land acquisition costs, higherleasing commissions at our projects under development of $15.0 million, higher compensation and benefit costs of $7.4 million as well as lower MUDcollections of $33.0 million and lower Operating Assets segment earnings of $8.7 million. These decreases were partially offset by the collection of$47.5 million related to the sale of our condominium rights to KR Holdings, $36.0 million increase in MPC segment74Segment Basis (a) MasterPlannedCommunities OperatingAssets StrategicDevelopments SegmentTotals Non-SegmentAmounts TotalDecember 31,2013 (In thousands) Mortgages, notesand loans payable $223,808 $515,282(b)$51,866(c)$790,956 $762,691 $1,553,647 Less: Cash and cashequivalents (33,739) (44,602)(d) (20,361)(e) (98,702) (799,311) (898,013)SpecialImprovementDistrictreceivables (39,688) — — (39,688) — (39,688)MunicipalUtilityDistrictreceivables (125,830) — — (125,830) — (125,830) Net debt $24,551 $470,680 $31,505 $526,736 $(36,620)$490,116 Table of Contentsearnings due to higher land sales, $20.5 million in proceeds received through December 31, 2013 from our insurance carriers related to the SuperstormSandy claim at South Street Seaport of which $3.3 million is included in net operating property improvements within the investing sections in 2013 and$5.0 million was received in 2012.The $66.6 million increase in cash provided by operating activities for the year ended December 31, 2012 compared to 2011 was primarily a result of a$68.0 million increase in MPC land sales and more operating asset earnings, partially offset by lower condominium sales at Natick and increased MPCand development expenditures.Investing ActivitiesNet cash used in investing activities was $294.3 million, $81.3 million and $39.7 million for the years ended December 31, 2013, 2012 and 2011,respectively. Cash used for development of real estate and property expenditures was $270.1 million, $74.4 million and $44.4 million for the yearsended December 31, 2013, 2012 and 2011, respectively. The increased development expenditures in 2013 compared to 2012 and 2011 relate primarilyto the construction of The Shops at Summerlin, One Hughes Landing, Two Hughes Landing, 3 Waterway Square, Ward Centers, South Street Seaport,Columbia Office Properties, and the Outlet Collection at Riverwalk.Financing ActivitiesNet cash provided by financing activities was $830.7 million for the year ended December 31, 2013. Cash provided by financing activities for 2013includes loan proceeds of $380.5 million from the issuance of mortgages, notes and loans payable, and $739.6 million from issuance of our SeniorNotes. The proceeds partially funded development activity at the Bridgeland MPC, 3 Waterway Square, One Hughes Landing and The Shops atSummerlin, and refinanced existing debt to extend maturities and to take advantage of lower interest rates. Comparatively, for the year endedDecember 31, 2012, we received loan proceeds of $68.4 million and made a net payment of $80.5 million to retire Sponsors Warrants to purchase6,083,333 shares of our common stock. Net cash used in financing activities was $103.9 million for the year ended December 31, 2011 and includesrepayment of a $96.5 million acquisition note relating to the acquisition of our partner's interest in The Woodlands.Principal payments on mortgages, notes and loans payable were $279.7 million, $55.8 million and $407.0 million for the years ended December 31,2013, 2012 and 2011, respectively.Contractual Cash Obligations and CommitmentsThe following table aggregates our contractual cash obligations and commitments as of December 31, 2013:75 2014 2015 2016 2017 2018 Subsequent /Other Total In thousands Mortgages,notes andloanspayable (a) $5,462 $26,958 $470,784 $25,885 $26,683 $958,851 $1,514,623 Interestpayments (b) 99,842 98,321 91,240 79,691 77,336 189,202 635,632 Ground leaseand otherleasingcommitments 5,152 7,152 8,787 7,883 6,744 332,867 368,585 Total $110,456 $132,431 $570,811 $113,459 $110,763 $1,480,920 $2,518,840 (a)Based on initial maturity, not including extension options.(b)Interest is based on the borrowings that are presently outstanding andcurrent floating interest rates.Table of ContentsWe 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 proposedsale of the property by the landlord. Rental payments are expensed as incurred and have been, to the extent applicable, straight-lined over the term of thelease. Contractual rental expense, including participation rent, was $6.3 million, $5.4 million and $5.2 million for 2013, 2012 and 2011, respectively.The amortization of above and below-market ground leases and straight-line rents included in the contractual rent amount were not significant.Off-Balance Sheet Financing ArrangementsWe do not have any material off-balance sheet financing arrangements. Although we have interests in certain property owning non-consolidatedventures which have mortgage financing, the financings are non-recourse to us and totaled $69.1 million as of December 31, 2013.REIT RequirementsIn order for Victoria Ward to remain qualified as a REIT for federal income tax purposes, Victoria Ward must meet a number of organizational andoperational requirements, including a requirement that it distribute or pay tax on 100% of its capital gains and distribute at least 90% of its ordinarytaxable income to its stockholders, including us. We intend to revoke Victoria Ward's REIT status sometime in the next three years, at such time VictoriaWard will become a regular "C" corporation subsidiary. Please refer to Note 9 – Income Taxes for more detail on Victoria Ward's ability to remainqualified as a REIT.SeasonalityGenerally, revenues from our Operating Assets segment, Master Planned Communities segment and Strategic Developments segment are not subject toseasonal variations; however, rental revenues for certain retail tenants are subject to overage rent terms, which are based on tenant sales. These retailtenants are generally subject to seasonal variations, with a significant portion of their sales and earnings occurring during the last two months of theyear. As such, our rental income is typically higher in the fourth quarter of each year.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 and Master Planned Communities AssetsWe review our real estate assets, including Operating Assets, land held for development and sale and developments in progress, for potentialimpairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.Impairment indicators for our Master Planned Communities segment are assessed separately for each community and in certain circumstances, regionsor projects within the community, and include, but are not limited to, significant decreases in sales pace and decreasing average selling prices. We alsomonitor local economic conditions and other factors that may relieve demand expectation.Impairment indicators for development costs incurred during the beginning stages of a potential development and developments in progress are assessedby project and include, but are not limited to, significant changes in projected completion dates, revenues or cash flows, development costs, marketfactors and feasibility.76Table of ContentsImpairment indicators for our Operating Assets segment are assessed separately for each property and include, but are not limited to, significantdecreases in net 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.If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscountedcash flow. Significant assumptions used in the estimation of future undiscounted cash flow include, for the master planned communities, estimates offuture lot sales, costs to complete and sales pace, and for properties in our Operating Assets segment and Strategic Developments segment, futuremarket rents, renewals and capital expenditures. Historical experience in such matters and future economic projections were used to establish theseassumptions. These significant assumptions are estimates and are subject to uncertainty. Actual results could differ from these estimates. A real estateasset is considered to be impaired when its carrying amount cannot be recovered through estimated future undiscounted cash flows and the carryingvalue is less than the fair value. To the extent an impairment provision is necessary, the excess of the carrying amount of the asset over its estimated fairvalue is charged to operations. In addition, the impairment is allocated proportionately to adjust the carrying amount of the asset. The adjusted carryingamount for operating assets, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset. The adjustedcarrying amount for master planned communities is recovered through future land sales.Deferred Taxes and Tax ContingenciesAs of December 31, 2013 and 2012, we had gross deferred tax assets totaling $336.6 million and $410.5 million, and gross deferred tax liabilities of$413.4 million and $386.1 million, respectively. We have established a valuation allowance in the amount of $12.6 million and $101.5 million as ofDecember 31, 2013 and 2012, respectively, against certain deferred tax assets for which it is more likely than not that such deferred tax assets will notbe realized. Deferred tax assets in the amount of $76.4 million that we previously believed had only a remote possibility of realization were recorded in2012 due to tax planning that made realization possible. Because significant uncertainty existed as to whether the tax planning would result in realizationof the deferred tax assets we established a 100% valuation allowance. During the fourth quarter of 2013 we executed certain tax planning strategies andwere able to realize over 90% of this deferred tax asset and concluded that a valuation allowance was not needed for the amount remaining.The deferred tax liability associated with the master planned communities is largely attributable to the difference between the basis and value determinedas of the date of the acquisition by our predecessors of The Rouse Company ("TRC") in 2004 adjusted for sales that have occurred since that time. Thecash cost related to this deferred tax liability is dependent upon the sales price of future land sales and the method of accounting used for income taxpurposes. The deferred tax liability related to deferred income is the difference between the income tax method of accounting and the financial statementmethod of accounting for prior sales of land in our master planned communities. Due to Tax Court litigation described below we have moved asignificant portion of the deferred income from a deferred tax liability to uncertain tax position liability on our balance sheet.One of our consolidated entities, Victoria Ward, Limited, elected to be taxed as a REIT and intended to continue to operate so as to qualify as a REITgoing forward. Consequently, deferred taxes were not recorded on book and tax basis differences of Victoria Ward, Limited as it was believed thesedifferences would ultimately be realized at a zero percent tax rate. In connection with the planned condominium development of Victoria Ward that wasapproved by the Hawaii Real Estate Commission during the fourth quarter of 2013, the Company now intends to revoke its REIT election within thenext few years, before future phases of condominium developments commence. The Company now believes that the book and tax basis differences inthe land and buildings of Victoria Ward, Limited will77Table of Contentsbe realized after such time REIT status is revoked and will be taxed at the applicable corporate tax rates. As a result of these fourth quarter events,deferred tax liabilities of $48.0 million have been recorded due to the excess book over tax basis relating to land and buildings as of December 31, 2013.Two of our subsidiaries are involved in a dispute with the IRS relating to years in which those subsidiaries were owned by GGP. On May 6, 2011,GGP filed Tax Court petitions on behalf of these former taxable REIT subsidiaries seeking a redetermination of federal income tax for the years 2007and 2008. The petitions seek to overturn determinations by the IRS that the taxpayers were liable for combined deficiencies totaling $144.1 million. OnOctober 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 case was heard by The United States Tax Court in November of 2012. We expect thetax court to rule on the case within the next twelve months.In connection with the deferred gain that is the subject of the aforementioned litigation, GGP has provided us with an indemnity against certain potentialtax liabilities. Pursuant to the Tax Matters Agreement, GGP has indemnified us from and against 93.75% of any and all losses, claims, damages,liabilities and reasonable expenses to which we become subject (the "Tax Indemnity"), in each case solely to the extent directly attributable to certaintaxes related to sales of certain assets in our Master Planned Communities segment prior to March 31, 2010 ("MPC Taxes"), in an amount up to$303.8 million. Under certain circumstances, GGP has also agreed to be responsible for interest or penalties attributable to such MPC Taxes in excessof the $303.8 million ("Indemnity Cap") to the extent assessed by the IRS. As of the spinoff date, we recorded the Tax Indemnity receivable at theIndemnity Cap of $303.8 million, plus interest of $28.0 million, which is based upon the definition in the Tax Matters Agreements of "MPC Taxes"which includes 93.75% of the deferred tax liability associated with the gains deferred for tax on closed land sales prior to March 31, 2010 that areaccounted for tax purposes under the percentage of completion and the completed contract methods of accounting as of March 31, 2010. The tax liabilityamount for book includes more than just the amounts for which the timing of the recognition for tax is being challenged by the IRS. The total taxliability associated with the deferred gains on these land sales is reflected on the balance sheet in two lines; Deferred tax liabilities (primarily describedas deferred income of $227.4 million and $213.2 million as of December 31, 2013 2012, respectively, in the temporary difference summary in thisNote 9) and Uncertain tax position liability of $129.2 million and $132.5 million as of December 31, 2013 and 2012, respectively. The unrecognized taxbenefits and related accrued interest through December 31, 2013 are primarily related to the taxes that are the subject of the Tax Indemnity. We haverecorded interest income receivable on the Tax Indemnity receivable in the amounts of $38.6 million and $36.4 million as of December 31, 2013 and2012, respectively.The timing of the utilization of the tax assets attributable to indemnified and non-indemnified gains results in changes to the Tax Indemnity receivableand is dependent on numerous future events, such as the timing of recognition of indemnified and non-indemnified gains, the amount of each type ofgain recognized in each year, the use of specific deductions and the ultimate amount of indemnified gains recognized. These non-cash changes could bematerial to our financial statements. Resolution of the Tax Court case noted above could also result in changes to the master planned communitydeferred gains and the timing of utilization of the tax assets, both of which could result in changes to the Tax Indemnity receivable. We record the TaxIndemnity receivable based on the amounts indemnified which are determined in accordance with the provisions set forth in ASC 740 (Income Taxes).During the twelve months ended December 31, 2013, the reduction in tax indemnity receivable of $1.2 million was attributable to our utilization of taxassets that contractually limit the amount we can receive pursuant to the Tax Matters Agreement and changes to our deferred tax liability for the MPCTaxes.During the year ended December 31, 2012, the reduction in the Tax Indemnity receivable of $20.3 million, $8.8 million of which related to 2011 and toa lesser extent 2010, related to our utilization of tax assets that contractually limit the amount we can receive pursuant to the Tax Matters Agreement andchanges to our deferred tax liability for the MPC Taxes.78Table of ContentsCapitalization of development and leasing costsWe capitalize costs related to our development and leasing activities. Development costs, like planning, engineering, design and construction that aredirectly related to a development project are capitalized. Capitalization commences when the development activities begin and ceases when a project iscompleted, put on hold or it is determined we will not move forward with a project. Capitalized costs related to a project where we have determined notto move forward are expensed. Additionally, certain internal costs like payroll are capitalized and allocated to projects based on the amount of timeemployees spend on a project. We also will capitalize real estate taxes and allocated interest costs associated with development once constructioncommences. Leasing costs like commissions or tenant improvements are capitalized and allocated over the life of the lease or average life of a group ofleases if appropriate. We do not capitalize any internal leasing costs.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 recognizedwhen the criteria are met or using the installment or cost recovery methods, as appropriate, in the circumstances. In addition, in certain land saletransactions, we also share in a percentage of the builders' finished home sales revenue, which we term builder's price participation. For land saletransactions in which we are required to perform additional services and incur significant costs after title has passed, revenues and cost of sales arerecognized on a percentage of completion basis.Cost ratios for land sales are determined as a specified percentage of land sales revenues recognized for each master planned community project. Thecost ratios used are based on actual costs incurred and estimates of development costs and sales revenues through completion of each project. The ratiosare reviewed regularly and revised for changes in sales and cost estimates or development plans. Significant changes in these estimates or developmentplans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. The specificidentification method is used to determine cost of sales for certain parcels of land, including acquired parcels we do not intend to develop or for whichdevelopment is complete 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 amountscollected from tenants to allow the termination of their leases prior to their scheduled termination dates and accretion related to above and below-markettenant leases on acquired properties. Straight-line rents receivable represent the current net cumulative rents recognized prior to when billed andcollectible as provided by the terms of the leases. Overage rent is recognized on an accrual basis once tenant sales exceed contractual tenant leasethresholds. Recoveries from tenants are established in the leases or computed based upon a formula related to real estate taxes, insurance and othershopping center operating expenses and are generally recognized as revenues in the period the related costs are incurred.Recently Issued Accounting Pronouncements and DevelopmentsPlease refer to Note 2 – Summary of Significant Accounting Policies for additional information about 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.79Table of ContentsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to interest rate risk with respect to our variable rate financings in that increases in interest rates will increase our payments under thesevariable rates. With respect to fixed rate financings, increases in interest rates could make it more difficult to refinance such debt when due. As ofDecember 31, 2013, we had $509.7 million of variable rate debt outstanding of which $172.0 million has been swapped to a fixed-rate. Approximately$176.7 million of the $337.7 million of total variable rate debt that has not been swapped to a fixed rate is represented by the Master Credit Facility atThe Woodlands. Due to the revolving nature of this type of debt, it is generally inefficient to use interest rate swaps as a hedging instrument; rather, wehave purchased an interest rate cap having a $100.0 million notional amount for this facility to mitigate our exposure to rising interest rates. We also didnot swap to a fixed rate $95.7 million of the outstanding balance on the Victoria Ward financing because it is structured to permit partial repayments torelease collateral for redevelopment. Due to the uncertain timing of such partial repayments, hedging this portion of the outstanding balance isinefficient. As of December 31, 2013, annual interest costs would increase approximately $3.3 million for every 1.00% increase in floating interestrates. Generally, our interest costs are capitalized due to the level of assets we currently have under development; therefore, the impact of a change in ourinterest rate on our Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) is expected to be minimal,but we would incur higher payments. For additional information concerning our debt and management's estimation process to arrive at a fair value ofour debt as required by GAAP, please refer to the Liquidity and Capital Resources section of "Item 2 – Management's Discussion and Analysis ofFinancial Condition and Results of Operations", Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements,Note 8 – Mortgages, Notes and Loans Payable and Note 13 – Derivative Instruments and Hedging Activities. We intend to manage a portion of ourvariable interest rate exposure by using interest rate 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, 2013:ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information with respect to this Item is set forth beginning on page F-1. See "Item 15 – Exhibits and Financial Schedule" below.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and ProceduresWe maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to provide reasonableassurance that information required to be disclosed in our reports to the SEC is recorded, processed, summarized and reported within the time periodsspecified80 Contractual Maturity Date 2014 2015 2016 2017 2018 Thereafter Total (In thousands) Mortgages,notes andloanspayable $5,462 $26,958 $470,784 $25,885 $26,683 $958,851 $1,514,623 Weighted-averageinterest rate 5.25% 5.28% 6.24% 6.28% 6.35% 6.35% Table of Contentsin the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officerand our principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.As required by SEC rules, we carried out an evaluation, under the supervision and with the participation of our management, including our principalexecutive officer and our principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls andprocedures as of December 31, 2013, the end of the period covered by this report. Based on the foregoing, our principal executive officer and principalfinancial and accounting officer concluded that our disclosure controls and procedures were effective as of December 31, 2013.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 reasonablylikely to materially affect our internal control over financial reporting.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 reasonableassurance that transactions are executed in accordance with management authorization and that such transactions are properly recorded and reported inthe financial statements, and that records are maintained so as to permit preparation of the financial statements in accordance with U.S. generallyaccepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.Management has assessed the effectiveness of the Company's internal control over financial reporting utilizing the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (1992 Framework). Management concluded,based on its assessment, that The Howard Hughes Corporation's internal control over financial reporting was effective as of December 31, 2013.Ernst & Young, LLP, an independent registered public accounting firm, has audited the Company's internal control over financial reporting as ofDecember 31, 2013, as stated in their report which is included in this Annual Report on Form 10-K.81Table 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 Howard Hughes Corporation's internal control over financial reporting as of December 31, 2013, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (theCOSO criteria). The Howard Hughes Corporation's management is responsible for maintaining effective internal control over financial reporting, andfor its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on InternalControl over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on ouraudit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other proceduresas we considered necessary 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 to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.In our opinion, The Howard Hughes Corporation maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2013, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheet of The Howard Hughes Corporation as of December 31, 2013, and the related consolidated statements of operations, comprehensive income(loss), equity and cash flows for the year then ended of The Howard Hughes Corporation and our report dated February 27, 2014 expressed anunqualified opinion thereon./s/ Ernst & Young LLPDallas, TXFebruary 27, 201482Table of ContentsITEM 9B. OTHER INFORMATION None.PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 is incorporated by reference to the relevant information included in our proxy statement for our 2014 AnnualMeeting of Stockholders.ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference to the relevant information included in our proxy statement for our 2014 AnnualMeeting of Stockholders.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS The information required by Item 12 is incorporated by reference to the relevant information included in our proxy statement for our 2014 AnnualMeeting of Stockholders.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is incorporated by reference to the relevant information included in our proxy statement for our 2014 AnnualMeeting of Stockholders.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 is incorporated by reference to the relevant information included in our proxy statement for our 2014 AnnualMeeting of Stockholders.83Table of ContentsPART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE (a)Financial Statements and Financial Statement Schedule. The Consolidated Financial Statements and Schedule listed in the accompanying Index to Consolidated Financial Statements and FinancialStatement Schedule are filed as part of this Annual Report. No additional financial statement schedules are presented since the requiredinformation is not present or not present in amounts sufficient to require submission of the schedule or because the information required isenclosed in the Consolidated Financial Statements and notes thereto.(b)Exhibits. (c)Separate financial statements.84Table of ContentsSIGNATURES Pursuant 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 itsbehalf by the undersigned, thereunto duly authorized.THE HOWARD HUGHES CORPORATIONPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated./s/ David R. WeinrebDavid R. WeinrebChief Executive Officer February 27, 2014Signature Title Date*William Ackman Chairman of the Board and Director February 27, 2014/s/ David R. WeinrebDavid R. Weinreb Director and Chief Executive Officer(Principal Executive Officer) February 27, 2014/s/ Andrew C. RichardsonAndrew C. Richardson Chief Financial Officer (Principal Financial and Accounting Officer) February 27, 2014*Adam Flatto Director February 27, 2014*Jeffrey Furber Director February 27, 2014*Gary Krow Director February 27, 2014*Allen Model Director February 27, 2014*R. Scot Sellers Director February 27, 2014*Steven Shepsman Director February 27, 2014*Burton M. Tansky Director February 27, 2014* Director February 27, 201485Mary Ann Tighe*/s/ David R. WeinrebDavid R. WeinrebAttorney-in-fact Table of ContentsTHE HOWARD HUGHES CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULE F-1 PageNumberConsolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2Report of Prior Independent Registered Public Accounting Firm F-3Consolidated Balance Sheets as of December 31, 2013 and 2012 F-4Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011 F-5Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013, 2012and 2011 F-6Consolidated Statements of Equity for the years ended December 31, 2013, 2012 and 2011 F-7Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 F-8Notes to Consolidated Financial Statements F-10Financial Statement Schedule Schedule III – Real Estate and Accumulated Depreciation F-54Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofThe Howard Hughes CorporationWe have audited the accompanying consolidated balance sheet of The Howard Hughes Corporation (the "Company") as of December 31, 2013, and therelated consolidated statements of operations, comprehensive income (loss), equity and cash flows for the year then ended. Our audit also included thefinancial statement schedule listed in the Index at Item 15(a) as it relates to information included therein as of and for the year ended December 31, 2013.These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesefinancial statements and schedule based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit alsoincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The HowardHughes Corporation at December 31, 2013, and the consolidated results of its operations and its cash flows for the year then ended, in conformity withU.S. generally accepted accounting principles. Also, in our opinion, the information as of and for the year ended December 31, 2013 included in therelated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respectsthe information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internalcontrol over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated February 27, 2014 expressed anunqualified opinion thereon./s/ Ernst & Young LLPDallas, TXFebruary 27, 2014F-2Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders ofThe Howard Hughes CorporationWe have audited the accompanying consolidated balance sheet of The Howard Hughes Corporation and subsidiaries (the "Company") as ofDecember 31, 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for theyears ended December 31, 2012 and 2011. Our audits also included the financial statement schedule listed in the Index at Item 15 as it relates toinformation included therein as of and for the years ended December 31, 2012 and 2011. These financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on the financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Howard Hughes Corporationand subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for the years ended December 31, 2012 and 2011, inconformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule as itrelates to information included therein as of and for the years ended December 31, 2012 and 2011, when considered in relation to the basic consolidatedand combined financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein./s/ Deloitte & Touche LLPDallas, TexasFebruary 28, 2013F-3Table of ContentsTHE HOWARD HUGHES CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2013 2012 (In thousands, except shareamounts) Assets: Investment in real estate: Master Planned Community assets $1,537,758 $1,563,122 Land 244,041 252,593 Buildings and equipment 754,878 657,268 Less: accumulated depreciation (111,728) (112,491)Developments 488,156 273,613 Net property and equipment 2,913,105 2,634,105 Investment in Real Estate Affiliates 61,021 32,179 Net investment in real estate 2,974,126 2,666,284 Cash and cash equivalents 894,948 229,197 Accounts receivable, net 21,409 13,905 Municipal Utility District receivables, net 125,830 89,720 Notes receivable, net 20,554 27,953 Tax indemnity receivable, including interest 320,494 319,622 Deferred expenses, net 36,567 12,891 Prepaid expenses and other assets, net 173,940 143,470 Total assets $4,567,868 $3,503,042 Liabilities: Mortgages, notes and loans payable $1,514,623 $688,312 Deferred tax liabilities 89,365 77,147 Warrant liabilities 305,560 123,573 Uncertain tax position liability 129,183 132,492 Accounts payable and accrued expenses 283,991 170,521 Total liabilities 2,322,722 1,192,045 Commitments and Contingencies (see Note 10) Equity: Preferred stock: $.01 par value; 50,000,000 shares authorized, none issued — — Common stock: $.01 par value; 150,000,000 shares authorized, 39,576,344 shares issuedand outstanding as of December 31, 2013 and 39,498,912 shares issued and outstandingas of December 31, 2012 396 395 Additional paid-in capital 2,829,813 2,824,031 Accumulated deficit (583,403) (509,613)Accumulated other comprehensive loss (8,222) (9,575) Total stockholders' equity 2,238,584 2,305,238 Noncontrolling interests 6,562 5,759 Total equity 2,245,146 2,310,997 Total liabilities and equity $4,567,868 $3,503,042 See Notes to Consolidated Financial Statements.F-4Table of ContentsTHE HOWARD HUGHES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2013 2012 2011 (In thousands, except per share amounts) Revenues: Master Planned Community land sales $251,217 $182,643 $114,610 Builder price participation 9,356 5,747 3,816 Minimum rents 81,668 82,621 71,178 Tenant recoveries 21,068 23,351 19,323 Condominium rights and unit sales 32,969 267 22,067 Resort and conference center revenues 39,201 39,782 15,744 Other land revenues 17,315 18,073 13,133 Other rental and property revenues 21,816 24,402 15,818 Total revenues 474,610 376,886 275,689 Expenses: Master Planned Community cost of sales 124,040 89,298 70,108 Master Planned Community operations 38,414 40,506 33,647 Other property operating costs 73,186 63,035 50,549 Rental property real estate taxes 14,291 13,643 10,270 Rental property maintenance costs 8,083 8,655 7,076 Condominium rights and unit cost of sales 16,572 96 14,465 Resort and conference center operations 29,454 29,112 13,220 Provision for (recovery of) doubtful accounts 836 1,224 (235)Demolition costs 2,078 — — General and administrative 48,466 36,548 32,342 Other income (25,869) (2,125) — Depreciation and amortization 33,845 24,429 16,782 Total expenses 363,396 304,421 248,224 Operating income 111,214 72,465 27,465 Interest income 3,185 9,437 9,876 Interest expense (9,759) (964) — Warrant liability gain (loss) (181,987) (185,017) 101,584 Reduction in tax indemnity receivable (1,206) (20,260) — Equity in earnings from Real Estate Affiliates 14,428 3,683 8,578 Investment in Real Estate Affiliate basis adjustment — — (6,053)Early extinguishment of debt — — (11,305) Income (loss) before taxes (64,125) (120,656) 130,145 Provision (benefit) for income taxes 9,570 6,887 (18,325) Net income (loss) (73,695) (127,543) 148,470 Net income attributable to noncontrolling interests (95) (745) (1,290) Net income (loss) attributable to common stockholders $(73,790)$(128,288)$147,180 Basic earnings (loss) per share: $(1.87)$(3.36)$3.88 See Notes to Consolidated Financial Statements.F-5Diluted earnings (loss) per share: $(1.87)$(3.36)$1.17 Table of ContentsTHE HOWARD HUGHES CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (a)Net of deferred tax expense of $0.5 million, and deferred tax benefit of $0.1 million, and $0.1 million for the years ended December 31, 2013,2012 and 2011, respectively.(b)Net of deferred tax benefit of $0.6 million, $0.7 million, and $0.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. See Notes to Consolidated Financial Statements.F-6 Year Ended December 31, 2013 2012 2011 (In thousands, except per share amounts) Comprehensive income (loss), net of tax: Net income (loss) $(73,695)$(127,543)$148,470 Other comprehensive income (loss): Interest rate swaps (a) 2,542 (2,770) (3,351)Capitalized swap interest (b) (1,189) (1,227) (600) Other comprehensive income (loss) 1,353 (3,997) (3,951) Comprehensive income (loss) (72,342) (131,540) 144,519 Comprehensive income attributable to noncontrollinginterests (95) (745) (1,290) Comprehensive income (loss) attributable to common stockholders $(72,437)$(132,285)$143,229 Table of ContentsTHE HOWARD HUGHES CORPORATION CONSOLIDATED STATEMENTS OF EQUITY Shares CommonStock AdditionalPaid-InCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) NoncontrollingInterests TotalEquity (In thousands, except shares) BalanceJanuary 1,2011 37,904,506 $379 $2,708,036 $(528,505)$(1,627)$824 $2,179,107 Net income — — 147,180 — 1,290 148,470 Adjustment tononcontrollinginterests — — — — 3,700 3,700 Acquisitions — — — — (777) (777)Preferreddividendpayment onbehalf ofsubsidiary — — — — (23) (23)Interest rateswaps, net oftax $1,016 — — — (3,351) — (3,351)Capitalized swapinterest, net oftax $358 — — — (600) — (600)Stock planactivity 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 Net income (loss) — — (128,288) — 745 (127,543)Interest rateswaps, net oftax $55 — — — (2,770) — (2,770)Capitalized swapinterest, net oftax $724 — — — (1,227) — (1,227)Warrantsexercised 1,525,272 15 108,645 — — — 108,660 Stock planactivity 27,933 1 4,277 — — — 4,278 Balance,December 31,2012 39,498,912 $395 $2,824,031 $(509,613)$(9,575)$5,759 $2,310,997 Net income (loss) — — (73,790) — 95 (73,695)Adjustment tononcontrollinginterest — — — — 720 720 Preferreddividendpayment onbehalf ofsubsidiary — — — — (12) (12)Interest rateswaps, net oftax ($486) — — — 2,542 — 2,542 Capitalized swapinterest, net oftax $635 — — — (1,189) — (1,189)Stock planactivity 77,432 1 5,782 — — — 5,783 Balance,December 31,2013 39,576,344 $396 $2,829,813 $(583,403)$(8,222)$6,562 $2,245,146 See Notes to Consolidated Financial Statements.F-72013 39,576,344 $396 $2,829,813 $(583,403)$(8,222)$6,562 $2,245,146 Table of ContentsTHE HOWARD HUGHES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2013 2012 2011 (In thousands) Cash Flows from Operating Activities: Net income (loss) $(73,695)$(127,543)$148,470 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation 29,637 19,455 14,012 Amortization 4,208 4,974 2,770 Amortization of deferred financing costs and debt market rate adjustments, net 2,952 1,418 1,771 Amortization of intangibles other than in-place leases 213 96 297 Straight-line rent amortization (3,652) (757) (1,060)Deferred income taxes 8,352 4,448 (19,200)Gain on disposal of investment in Real Estate Affiliate (8,483) — — Restricted stock and stock option amortization 5,782 4,277 3,073 Warrant liability gain (loss) 181,987 185,017 (101,584)Reduction in tax indemnity receivable 1,206 20,260 — Equity in earnings from Real Estate Affiliates, net of distributions (7,121) (35) (4,410)Investment in Real Estate Affiliate basis adjustment — — 6,053 Provision for doubtful accounts 836 1,224 (235)Master Planned Community land acquisitions (5,667) — — Master Planned Community development expenditures (133,590) (107,144) (90,078)Master Planned Community cost of sales 112,695 87,499 65,379 Condominium development expenditures (21,213) — — Condominium and other cost of sales 16,572 96 14,465 Deferred revenue from sale of condominium rights 14,531 — — Net changes *: Accounts and notes receivable 3,857 43,460 27,500 Prepaid expenses and other assets (1,591) 4,110 2,036 Deferred expenses (19,364) (1,995) 404 Accounts payable and accrued expenses 20,333 15,112 19,502 Other 547 (908) (2,657) Cash provided by operating activities 129,332 153,064 86,508 Cash Flows from Investing Activities: Property and equipment expenditures (31,768) (1,226) (690)Operating property improvements, net (17,231) (14,201) (8,498)Operating property redevelopments (221,071) (58,940) (35,192)Cash acquired from The Woodlands acquisition, net of cash consideration — — 5,493 Reimbursement for infrastructure improvements from municipality — — 5,560 Proceeds from dispositions — — 1,429 Consideration paid to acquire Millennium Waterway Apartments, net of cash acquired — (2,721) — Distribution from Millennium Waterway Apartments — 6,876 — Proceeds from sales of investment in Real Estate Affiliates 13,270 8,579 — Proceeds from sales of operating assets 10,814 — — Investment in Summerlin Las Vegas Baseball Club, LLC (10,350) — — Investment in KR Holdings, LLC (16,750) — — Investment in Real Estate Affiliates, net (4,035) (4,552) — Change in restricted cash (17,204) (15,164) (7,782) Cash used in investing activities (294,325) (81,349) (39,680) Cash Flows from Financing Activities: Proceeds from issuance of mortgages, notes and loans payable 1,120,102 68,410 304,911 Principal payments on mortgages, notes and loans payable (279,721) (55,832) (407,027)Deferred financing costs (6,594) (2,114) (3,828)Preferred dividend payment on behalf of REIT subsidiary (12) — — Distributions to noncontrolling interests (3,031) — — Proceeds from issuance of Management warrants — — 2,000 Purchase of Sponsors Warrants — (80,548) — Cash provided by (used in) financing activities 830,744 (70,084) (103,944) Net change in cash and cash equivalents 665,751 1,631 (57,116)Cash and cash equivalents at beginning of year 229,197 227,566 284,682 Cash and cash equivalents at end of year $894,948 $229,197 $227,566 F-8Table of ContentsTHE HOWARD HUGHES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (*)As a result of The Woodlands acquisition and consolidation in 2011, changes in certain accounts cannot be derived from the balance sheet because these changes are non-cashrelated. Please refer to Note 4 – Acquisitions and Dispositions.F-9 Year Ended December 31, 2013 2012 2011 (In thousands) Supplemental Disclosure of Cash Flow Information: Interest paid $30,600 $28,857 $22,158 Interest capitalized 37,470 27,571 24,062 Income taxes paid 2,268 1,202 — Non-Cash Transactions: Retirement of Sponsors Warrants and issuance of 1,525,272 shares ofcommon stock — (76,264) — Acquisition of Millennium Waterway Apartments: Land — (15,917) — Building and equipment — (56,002) — Other assets — (2,670) — Mortgages, notes and loans payable — 55,584 — Other liabilities — 755 — Reduction in investments in Real Estate Affiliates due to the MillenniumWaterway Apartments acquisition — 22,405 — Acquisition of 70 CCC: Land — (1,281) — Building and equipment — (13,089) — Other Assets — (2,957) — Mortgages, notes and loans payable — 16,037 — Other liabilities — 1,290 — Special Improvement District bond transfers associated with land sales 14,376 (3,033) (4,430)Reduction in investments in Real Estate Affiliates due to The Woodlandsacquisition — — (128,764)Real Estate and property expenditures 85,609 8,384 — MPC Land contributed to Real Estate Affiliate — 2,190 2,990 Acquisition note related to The Woodlands (See Note 4) — — 96,500 Debt assumed from The Woodlands' acquisition (See Note 4) — — 296,695 Prepetition liabilities funded by GGP — — 3,241 Purchase of land from GGP — (1,315) — Non-cash increase in property due to consolidation of real estate affiliate 3,750 — — Transfer of condominium buyer deposits to real estate affiliate 34,220 — — Table of ContentsTHE HOWARD HUGHES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 ORGANIZATIONGeneralThe Howard Hughes Corporation's ("HHC" or the "Company") mission is to be the preeminent developer and operator of Master PlannedCommunities and mixed-use properties. We specialize in the development of master planned communities and the ownership, management anddevelopment or repositioning of real estate assets currently generating revenues, also called operating assets, as well as other strategic real estateopportunities in the form of entitled and unentitled land and other development rights, also called strategic developments. We are a Delaware corporationthat was formed on July 1, 2010 to hold, after receipt via a tax-free distribution, certain assets of General Growth Properties, Inc. ("GGP") and certainof its subsidiaries (collectively, the "Predecessors") pursuant to their plans of reorganization (the "Plan") under Chapter 11 of the United States Code("Chapter 11"). Pursuant to the Plan, certain of the assets and liabilities of the Predecessors (the "HHC Businesses") were transferred to us and ourcommon stock was distributed to the holders of GGP's common stock and common units (the "Separation") on a pro-rata basis (approximately32.5 million shares of our common stock) on GGP's date of emergence from bankruptcy, November 9, 2010 (the "Effective Date"). Also as part of thePlan, approximately 5.25 million shares of our common stock and 8.0 million warrants were purchased by certain of the investors sponsoring the Planfor $250.0 million. Unless the context otherwise requires, references to "we," "us" and "our" refer to HHC and its subsidiaries.Management has evaluated all material events occurring subsequent to the date of the consolidated financial statements up to the date and time thisAnnual Report is filed.NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of Consolidation and Basis of PresentationThe accompanying consolidated financial statements for the years ended December 31, 2013 and 2012 have been prepared in accordance withaccounting principles generally accepted in the United States ("GAAP"), with all intercompany balances eliminated. Certain amounts in 2012 have beenreclassified to conform to 2013 presentation. The presentation includes the accounts of the Company, and those entities in which we have a controllingfinancial interest. The noncontrolling equity holders' share of the assets, liabilities and operations are reflected in noncontrolling interests withinpermanent equity. The company consolidates certain variable interest entities ("VIEs") in accordance with Accounting Standards Codification ("ASC")810 ("ASC 810") Consolidations (see "Real Estate Affiliates" below).We account for investments in joint ventures where we own a non-controlling interest using the equity method, and investments in joint ventures wherewe 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 or losses of such Real Estate Affiliates from the date of investment and reduced bydistributions received. Generally, the operating agreements with respect to our Real Estate Affiliates provide that assets, liabilities and fundingobligations are shared in accordance with our ownership percentages. We generally also share in the profit and losses, cash flows and other mattersrelating to our Real Estate Affiliates in accordance with our respective ownership percentages. For cost method investments, we recognize earnings tothe extent of distributions received from such investments.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"),F-10Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSand The Woodlands Land Development Company, L.P. ("The Woodlands MPC", and together with The Woodlands Commercial and The WoodlandsOperating, "The Woodlands"), located near Houston, Texas. As a result of the acquisition, we now consolidate The Woodlands' operations in ourconsolidated financial statements. Prior to such acquisition, we accounted for The Woodlands using the equity method.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 financialstatements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates and assumptions have been madewith respect to useful lives of assets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivablesand deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to acquisitions andimpairment of long-lived assets. Estimates and assumptions have also been made with respect to fair value of warrants, options granted and debt,allowance for doubtful accounts, reserves for straight-line rent receivables and notes receivable, and cost ratios. Actual results could differ from theseand other estimates.On August 22, 2013, in conjunction with the Hawaii Community Development Authority's unanimous approval for two mixed-use towers at WardVillage, we reevaluated the useful lives of the existing buildings and improvements located on the sites where this future development will take place.As a result, we recognized an additional $1.2 million in depreciation due to the change in useful life of these buildings and improvements.Investment in Real EstateMaster Planned Community Assets, Land, Buildings and EquipmentReal estate assets are stated at cost less any provisions for impairments. Tenant improvements relating to our operating assets, are capitalized anddepreciated over the shorter of their economic lives or the lease term. Maintenance and repair costs are charged to expense when incurred. Expendituresfor significant improvements are capitalized.We periodically review the estimated useful lives of properties. Depreciation or amortization expense is computed using the straight-line method basedupon the following estimated useful lives:DevelopmentsDevelopment costs, which 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 adevelopment, the costs previously capitalized are expensed.F-11Asset Type Years Buildings and improvements 10-45 Equipment, tenant improvements and fixtures 5-10 Computer hardware and software, and vehicles 3-5 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSConstruction and improvement costs incurred in connection with the development of new properties or the redevelopment of existing properties arecapitalized. Real estate taxes and interest costs incurred during construction periods are also capitalized. Capitalized interest costs are based on qualifiedexpenditures and interest rates in place during the construction period. Demolition costs associated with these redevelopments are expensed as incurred.Our Developments are made up of the following categories:Real Estate AffiliatesIn the ordinary course of business, we enter into partnerships or joint ventures primarily for the development and operations of real estate assets whichare referred to as "Real Estate Affiliates". These partnerships or joint ventures are typically characterized by a non-controlling ownership interest withdecision making and distribution of expected gains and losses being generally proportionate to the ownership interest. We evaluate these partnershipsand joint ventures for consolidation in accordance with ASC 810 Consolidations.In accordance with ASC 810, 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 throughvoting or 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 rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receivethe expected residual returns of the entity, and substantially all of the entity's activities either involve or are conducted on behalf of an investor that hasdisproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, we reassess our initial determination of whether thepartnership or joint venture is a VIE.We also perform a qualitative assessment of each VIE to determine if we are the primary beneficiary, as required by ASC 810. Under ASC 810, acompany concludes that it is the primary beneficiary and consolidates the VIE if the company has both (a) the power to direct the economicallysignificant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially besignificant to the VIE. The company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks,responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the company is the primary beneficiary.As required by ASC 810, management's assessment of whether the company is the primary beneficiary of a VIE is continuously performed.We account for VIEs for which we are not considered to be the primary beneficiary, but have significant influence, using the equity method andinvestments in VIEs where we do not have significant influence on the joint venture's operating and financial policies using the cost method.F-12 December 31, 2013 2012 (In thousands) Land & improvements $194,282 $172,614 Development costs 293,874 78,198 Condominium rights — 22,801 Total Developments $488,156 $273,613 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAcquisitions of PropertiesWe account for business combinations in accordance with ASC 805 ("ASC 805") Business Combinations. The acquisition method of accountingrequires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business combination. Our consolidated financialstatements and results of operations reflect an acquired business from the acquisition date.ImpairmentGAAP related to accounting for the impairment or disposal of long-lived assets require that if impairment indicators exist and the undiscounted cashflows expected to be generated by an asset are less than its carrying amount, an impairment provision should be recorded to write down the carryingamount of such asset to its fair value. The impairment analysis does not consider the timing of future cash flows and whether the asset is expected toearn an above or below market rate of return. We review our real estate assets (including those held by our Real Estate Affiliates), operating assets, landheld for development and sale and developments for potential impairment indicators whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable.Impairment indicators for our assets 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 to40 years and have few long-term contractual cash flows. Further, Master Planned Community assets generally have minimal to no residual valuesbecause of their liquidating characteristics. Master Planned Community development periods often occur through several economic cycles. Subjectivefactors such as the expected timing of property development and sales, optimal development density and sales strategy impact the timing and amount ofexpected future cash flows and fair value.Impairment indicators for our Operating Assets segment are assessed separately for each property and include, but are not limited to, significantdecreases in net operating income, significant decreases in occupancy, or low occupancy and significant net operating losses.Impairment indicators for development costs in our Strategic Developments segment, which are typically costs incurred during the beginning stages of apotential development, and developments in progress are assessed by project and include, but are not limited to, significant changes in projectedcompletion dates, revenues or cash flows, development costs, market factors, significant decreases in comparable property sale prices and feasibility.If an indicator of potential impairment exists, the asset is tested for recoverability by comparing its carrying amount to the estimated future undiscountedcash flow. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current andprojected trends in rental, occupancy, pricing, development costs, sales pace and capitalization rates, and estimated holding periods for the applicableassets. Although the estimated fair value of certain assets may be exceeded by the carrying amount, a real estate asset is only considered to be impairedwhen its carrying amount is not expected to be recovered through estimated future undiscounted cash flows. To the extent an impairment provision isnecessary; the excess of the carrying amount of the asset over its estimated fair value is expensed to operations. In addition, the impairment provision isallocated proportionately to adjust the carrying amount of the asset. The adjusted carrying amount, which represents the new cost basis of the asset, isdepreciated over the remaining useful life of the asset or, for Master Planned Communities, is expensed as a cost of sales when land is sold. Assets thatF-13Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTShave been impaired will in the future have lower depreciation and cost of sale expenses, but the impairment will have no impact on cash flow.With respect to our investment in 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 Real Estate Affiliate 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 beother-than-temporary, our investment in such Real Estate Affiliate is reduced to its estimated fair value. In addition to the property-specific impairmentanalysis that we perform on the underlying assets of the Real Estate Affiliates' land held for development and sale and developments owned by suchReal Estate Affiliates, we also considered the ownership and distribution preferences and limitations and rights to sell and repurchase our ownershipinterests.Cash and Cash EquivalentsHighly-liquid investments with maturities at dates of purchase of three months or less are classified as cash equivalents.Revenue Recognition and Related MattersLand Sales RevenueRevenues from land sales are recognized using the full accrual method at closing, when title has passed to the buyer, adequate consideration for the landhas been received and we have no continuing involvement with the property. Revenue that is not recognized under the full accrual method is deferredand recognized when the criteria are met or using the installment or cost recovery methods. Revenue related to builder participation rights is recognizedwhen collected.Cost of land sales is determined as a specified percentage of the land sales revenues recognized for each community development project. These costratios are based on actual costs incurred and estimates of future development costs and sales revenues to 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 developmentplans, whether due to changes in market conditions or other factors, could result in changes to the cost ratio used for a specific project. For certainparcels of land, however, the specific identification method is used to determine the cost of sales, including acquired parcels that we do not intend todevelop or for which development was complete at the date of acquisition. Expenditures in our MPC business to develop land for sale are classified asan operating activity within Master Planned Community development expenditures in our Consolidated Statements of Cash Flows.Rental RevenueRevenue associated with our operating assets includes minimum rent, percentage rent in lieu of fixed minimum rent, tenant recoveries and overage rent.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 inlieu of fixed minimum rent. Percentage rent in lieu of fixed minimum rent recognized from tenants is included in minimum rents in our consolidatedfinancial statements. Minimum rent revenues also include amortization related to above and below-market tenant leases on acquired properties.F-14Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSRecoveries from tenants are stipulated in the leases and are generally computed based upon a formula related to real estate taxes, insurance and other realestate operating expenses and are generally recognized as revenues in the period the related costs are incurred.Overage rent is recognized on an accrual basis once tenant sales exceed contractual thresholds contained in the lease and is calculated by multiplying thetenant sales in excess of the minimum amount by a percentage defined in the lease.Condominium Rights and Unit SalesRevenue recognition for individual units in a condominium project are accounted for under the percentage of completion method when the followingcriteria are met: a) construction is beyond a preliminary stage; b) buyer is unable to require a refund of its deposit, except for non-delivery of the unit;c) sufficient units are sold to assure that it will not revert to a rental property; d) sales prices are collectible; and e) aggregate sales proceeds and costs canbe reasonably estimated. Those units that don't meet the criteria use the full accrual method or deposit method.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.Other IncomeOther income for the year ended December 31, 2013 includes $12.2 million from the gain on insurance recoveries related to casualty losses at SouthStreet Seaport from Superstorm Sandy, $4.5 million from a legal settlement at Riverwalk, a gain of $8.5 million from our sale of Head Acquisition, LP,and $0.6 million from our sale of Rio West.Accounts ReceivableAccounts receivable includes tenant and other receivables, and straight-line rent receivables.Straight-line rent receivables represent rental revenues recognized in excess of amounts currently due under lease agreements. Such amounts totaling$10.2 million as of December 31, 2013 and $6.9 million as of December 31, 2012, are included in Accounts receivable, net in our Consolidated BalanceSheets.We record allowances against our rent receivables from tenants and other receivables that we consider uncollectible. These allowances are reviewedperiodically and are based on management's estimate of receivables that will not be realized in subsequent periods. We also maintain an allowance forreceivables arising from the straight-lining of rents. Management exercises judgment in establishing these allowances and considers payment history,current credit status and if the tenant is currently occupying the space in developing these estimates. The allowance against our straight-line rentreceivable is based on historical experience with early lease terminations, as well as specific review of significant tenants and tenants that are havingknown financial difficulties.F-15Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the changes in allowance for doubtful accounts against our accounts receivables:Municipal Utility District receivablesIn Houston, Texas, certain development costs are reimbursable through the creation of Municipal Utility District ("MUDs", also known as WaterControl and Improvement Districts) receivables, which are separate political subdivisions authorized by Article 16, Section 59 of the Texas Constitutionand governed by the Texas Commission on Environmental Quality ("TCEQ"). MUDs are formed to provide municipal water, waste water, drainageservices, recreational facilities and roads to those areas where they are currently unavailable through the regular city services. Typically, the developeradvances funds for the creation of the facilities, which must be designed, bid and constructed in accordance with the City of Houston's and TCEQrequirements.The developer initiates the MUD process by filing the applications for the formation of the MUD, and once the applications have been approved, aboard of directors is elected for the MUD and given the authority to issue ad valorem tax bonds and the authority to tax residents. The MUD Boardauthorizes and approves all MUD development contracts and pay requests. MUD bond sale proceeds are used to reimburse the developer for itsconstruction costs, including interest. MUD taxes are used to pay the debt service on the bonds and the operating expenses of the MUD. The Companyestimates the costs it believes will be eligible for reimbursement as MUD receivables. MUD receivables are pledged as security to creditors under theBridgeland and TWL facilities. MUD receivables are shown net of an allowance of $5.3 million as of both December 31, 2013 and 2012, in theaccompanying Consolidated Balance Sheets.Notes ReceivableNotes receivable includes amounts due from builders for previously sold lots, primarily at our Maryland Master Planned Community and a note fromGGP received at the Effective Date in connection with the Plan. The GGP note, also known as the Arizona II lease, had a balance of $13.2 million and$19.3 million as of December 31, 2013 and 2012, respectively. The GGP note is fully amortizing, carries an interest rate of 4.41%, and cash paymentsunder the note are approximately $6.9 million per year through the end of 2015. Also included in Notes receivable are notes receivable from varioustenants, net of an allowance for uncollectible notes receivable, of $0.4 million as of December 31, 2013 and $0.8 million as of December 31, 2012.We estimate the allowance for uncollectible notes receivable based on our assessment of expected receipts of future cash flows with consideration givento any collateral securing the respective note.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 inF-16 2013 2012 2011 (In thousands) Balance as of January 1 $8,914 $8,496 $10,966 Change in provision * 2,008 1,224 (235)Write-offs (3,532) (806) (2,235) Balance as of December 31 $7,390 $8,914 $8,496 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSthe financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between thefinancial reporting and tax basis of assets and liabilities using enacted tax rates currently in effect. Deferred income taxes also reflect the impact ofoperating loss and tax credit carryforwards.A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Anincrease or decrease in the valuation allowance that results from a change in circumstances, and which causes a change in our judgment about therealizability of the related deferred tax asset, is included in the deferred tax provision. There are events or circumstances that could occur in the futurethat could limit the benefit of deferred tax assets. In addition, we recognize and report interest and penalties, if necessary, related to uncertain taxpositions within our provision for income tax expense.In two 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 statementpurposes. In addition, the same two Master Planned Communities report gains with respect to sales of land for single family residences using thecompleted contract method. Under the completed contract method, a gain is recognized for tax purposes when 95% of the costs of our contractualobligations are incurred or the contractual obligation is transferred.Tax Indemnity ReceivableAs further described in Note 9 "Income Taxes", GGP has indemnified us from and against a portion of taxes related to sales of certain assets in ourMaster Planned Communities segment as well as any interest or penalties assessed by the Internal Revenue Service that are attributable to those taxes.We recognize a tax indemnity receivable for an amount equal to the indemnified liability we have recorded, including interest and penalties, reduced forour cumulative utilization of certain of our tax assets that contractually limits the amount we can receive pursuant to the Tax Matters Agreement. Interestincome related to the tax indemnity receivable is recognized as interest income in our Consolidated Statements of Operations. Reductions to the taxindemnity receivable attributable to a corresponding indemnified liability or recognition of contractual limitations incurred are recorded as Reduction intax indemnity receivable in our Consolidated Statements of Operations.Deferred ExpensesDeferred expenses consist principally of financing fees and leasing costs and commissions. Deferred financing fees are amortized to interest expenseusing the effective interest method (or other methods which approximate the effective interest method) over the terms of the respective financingagreements. Deferred leasing costs and commissions are amortized using the straight-line method over periods that approximate the related lease terms.Deferred expenses in our Consolidated Balance Sheets are shown at cost, net of accumulated amortization, of $36.6 million and $12.9 million as ofDecember 31, 2013 and 2012, respectively.WarrantsThe valuation of our Sponsors and Management warrants require significant judgment and complex valuation. The fair values were estimated using anoption pricing model and Level 3 inputs due to theF-17Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSunavailability of comparable market data, as further discussed in Note 7 – Fair Value of Financial Instruments. Decreases and increases in the fair valueof the Sponsors Warrants and the Management Warrants are recognized as either warrant liability gains or losses, respectively, in the ConsolidatedStatements of Operations.Stock PlansWe apply the provisions of ASC 718 ("ASC 718") Stock Compensation in our accounting and reporting for stock-based compensation. ASC 718requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fairvalues. All unvested options outstanding under our option plans have grant prices equal to the market price of the Company's stock on the dates ofgrant. Compensation cost for restricted stock is determined based on the fair market value of the Company's stock at the date of grant.Earnings Per ShareBasic earnings (loss) per share ("EPS") is computed by dividing net income (loss) available to common stockholders by the weighted-average numberof common shares outstanding. Diluted EPS is computed after adjusting the numerator and denominator of the basic EPS computation for the effects ofall potentially dilutive common shares. The dilutive effect of options and nonvested stock issued under stock-based compensation plans is computedusing the "treasury stock" method. The dilutive effect of the Sponsors Warrants and Management Warrants is computed using the if-converted method.Gains associated with the Sponsors Warrants and Management Warrants are excluded from the numerator in computing diluted earnings per sharebecause inclusion of such gains in the computation would be anti-dilutive.F-18Table of ContentsTHE HOWARD HUGHES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information related to our EPS calculations is summarized as follows:The diluted EPS computations as of December 31, 2013 exclude 965,440 stock options, 122,334 shares of restricted stock, 1,916,667 shares ofcommon stock underlying the Sponsor Warrants and 2,862,687 shares of common stock underlying the Management Warrants because their inclusionwould have been anti-dilutive.Additionally, stock options of 861,940, restricted stock of 57,933, 1,916,667 shares of common stock underlying the Sponsor Warrants, and 2,862,687shares of common stock underlying the Management Warrants were not included in the computation of diluted EPS above as of December 31, 2012because their inclusion would have been anti-dilutive.Additionally, stock options of 715,137 and restricted stock of 42,553 were not included in the computation of diluted EPS above as of December 31,2011 because their inclusion would have been anti-dilutive.Recently Issued Accounting PronouncementsWe have implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financialstatements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that mighthave a material impact on our financial position or results of operations. Years Ended December 31, 2013 2012 2011 (In thousands, except per share amounts) Basic EPS: Numerator: Net income (loss) $(73,695)$(127,543)$148,470 Net income attributable to noncontrolling interests (95) (745) (1,290) Net income (loss) attributable to common stockholders $(73,790)$(128,288)$147,180 Denominator: Weighted average number of common shares outstanding 39,449 38,127 37,908 Diluted EPS: Numerator: Net income (loss) attributable to common stockholders $(73,790)$(128,288)$147,180 Less: Warrant liability gain — — (101,584) Adjusted net income (loss) available to common stockholders $(73,790)$(128,288)$45,596 Denominator: Weighted average number of common shares outstanding 39,449 38,127 37,908 Warrants — — 1,074 Weighted average diluted common shares oustanding 39,449 38,127 38,982 Basic earnings (loss) per share $(1.87)$(3.36)$3.88 Diluted earnings (loss) per share $(1.87)$(3.36)$1.17 F-19Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 3 SPONSORS AND MANAGEMENT WARRANTSOn November 9, 2010 (the "Effective Date"), we issued warrants to purchase 8.0 million shares of our common stock to certain of our sponsors (the"Sponsors Warrants") with an estimated initial value of approximately $69.5 million. The initial exercise price for the warrants of $50.00 per share andthe number of shares of common stock underlying each warrant are subject to adjustment for future stock dividends, splits or reverse splits of ourcommon stock or certain other events. On December 7, 2012, the affiliates of Blackstone Real Estate Partners and the Fairholme Fund and theFairholme Focused Income Fund, each sold their portion of the Sponsors Warrants totaling 333,333 and 1,916,667, respectively, to HHC for $30.00cash per warrant. These transactions were accounted for as the settlement of a liability for cash consideration of $67.5 million. On November 9, 2012,affiliates of Brookfield Asset Management, Inc. ("Brookfield"), one of our sponsors, exercised their warrants to purchase 1,525,272 shares of ourcommon stock at an exercise price of $50.00 per warrant, or $76.3 million. In addition, Brookfield sold their remaining warrants to purchase 2,308,061shares of our common stock to HHC for $89.3 million. The cash consideration paid to Brookfield net of the exercise price was $13.0 million. As aresult of these transactions, $108.6 million of additional paid-in capital was recorded in our financial statements in the year ended December 31, 2012.The Sponsors Warrants expire on November 9, 2017.In November 2010 and February 2011, we entered into certain 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, topurchase shares of our common stock. The Management Warrants representing 2,862,687 underlying shares, which may be adjusted pursuant to a netsettlement option, were issued pursuant to such agreements at fair value in exchange for a combined total of approximately $19.0 million in cash fromsuch executives at the commencement of their respective employment. Mr. Weinreb and Mr. Herlitz's warrants have exercise prices of $42.23 per shareand Mr. Richardson's warrant has an exercise price of $54.50 per share. Generally, the Management Warrants become exercisable in November 2016and expire in February 2018.The estimated $141.8 million fair value for the Sponsors Warrants representing warrants to purchase 1,916,667 shares and estimated $163.8 million fairvalue for the Management Warrants representing warrants to purchase 2,862,687 shares outstanding as of December 31, 2013, have been recorded asliabilities because the holders of these warrants could require us to settle such warrants in cash upon a change of control. The estimated fair values forthe outstanding Sponsors Warrants and Management Warrants were $58.5 million and $65.1 million, respectively, as of December 31, 2012. The fairvalues were estimated using an option pricing model and Level 3 inputs due to the unavailability of comparable market data, as further discussed inNote 7 – Fair Value of Financial Instruments. Decreases and increases in the fair value of the Sponsors Warrants and the Management Warrants arerecognized as either warrant liability gains or losses, respectively, in the Consolidated Statements of Operations.NOTE 4 ACQUISITIONS AND DISPOSITIONSOn September 30, 2013, we sold the Rio West Mall, a 521,194 square foot shopping center on 50 acres of land, located in Gallup, New Mexico for$12.0 million. The sale includes our ground lease interest, all buildings, structures and improvements, machinery, equipment and furnishings, and allleases and security deposits. The pre-tax gain recognized on the sale was $0.6 million.On August 15, 2012, we acquired 70 Columbia Corporate Center ("70 CCC"), a 169,590 square foot Class A office building located in the Columbia,Maryland Town Center by assuming a mortgage noteF-20Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSfrom its lender, which encumbered the property and provided a participation right to the lender for 30% of the appreciation in the market value of theproperty after our preferred return. The note bears interest at 4.25% and matures on August 31, 2017. The building was approximately 23.7% leased atclosing. Simultaneous with the closing of the transaction, we executed a lease for 76,308 square feet that will increase occupancy to approximately68.7%. As part of the transaction, we deposited approximately $5.0 million into an escrow account for capital expenditures, tenant improvements andleasing costs at the property. To the extent available, we are entitled to a 10% cumulative preferred return, after debt service, on our invested capital inthe property. Cash flow is then split pro-rata based on our original contributed equity of $5.0 million plus any additional equity contributed and the loanamount. Excess proceeds from a capital event, after repayment of outstanding debt and the preferred return will be split 30% to the lender and 70% tous. The acquisition was recorded at fair value of $17.5 million and consists of land and a building that was valued as if it were vacant and the "as-if-vacant" value was allocated between the land and building. The "as-if-vacant" value was derived by estimating the value of the property assuming it wasgenerating stabilized cash flows using market lease, capitalization and discount rates based on recent comparable market transactions, reduced by theestimated lease-up and carrying costs that we would incur to achieve stabilized cash flow if the property were vacant. The fair value of the liabilitiesassumed was determined using a discounted cash flow analysis. 70 CCC is included in Columbia Office Properties in our Operating Assets segment.On July 6, 2012, we sold 11.5 acres including 104,705 square feet of mostly vacant retail space at Alameda Plaza in Pocatello, Idaho for $4.5 million.Our profit on the sale was $2.0 million. As the sale of certain development assets is an integral part of our business strategy, we recognize the proceedsas revenue in the Consolidated Statements of Operations.On May 31, 2012, we acquired our partner's interest in the 393-unit Millennium Waterway Apartments for $6.9 million, following the funding of a$55.6 million ten-year non-recourse mortgage bearing a 3.75% interest rate. Total assets of $78.6 million and liabilities of $56.4 million, including therecently funded loan, were consolidated into our financial statements at fair value as of the acquisition date, and no gain or loss was recognized. Prior tothe acquisition, we accounted for our investment in Millennium Waterway Apartments under the equity method. We now own 100% of this stabilizedClass A multi-family property located in The Woodlands Town Center. Included in the Consolidated Statements of Operations are revenues of$4.4 million and net loss of $1.3 million since the acquisition date, for the year ended December 31, 2012. Following this acquisition, we entered into anew joint venture with the same partner to construct a 314-unit Class A multi-family property. Please refer to Note 5 – Real Estate Affiliates forinformation about the new joint venture.On 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. Wemade the acquisition so that we could control attractive residential and commercial assets and to internalize The Woodlands platform to benefit our MPCbusiness. As a result of the acquisition, we now consolidate The Woodlands operations and our consolidated financial statements are therefore notcomparable to prior periods. Please refer to Note 18 – Segments for a presentation of the results as if we consolidated The Woodlands for all periodspresented. On the acquisition date, The Woodlands had approximately 1,324 acres of unsold residential land, representing approximately 4,395 lots, andapproximately 962 acres of unsold land for commercial use. The Woodlands also had full or partial ownership interests in commercial propertiestotaling approximately 434,328 square feet of office space, 203,282 square feet of retail and service space, 865 rental apartment units, 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 thepurchase price was represented by a non-interest bearing promissory note which we repaid fromF-21Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSavailable cash on hand on December 1, 2011. There was no contingent consideration 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 thefollowing methodologies:•The fair value of the Master Planned Community assets, which consists of residential and commercial land held for development andsale, was determined 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 itwere vacant, and the "as-if-vacant" value was then allocated between land and buildings. The "as-if-vacant" values were derived fromseveral sources which primarily included a discounted cash flow analysis using discount and capitalization rates based on recentcomparable market transactions, where available. The buildings are depreciated over the estimated useful life of 40 years using thestraight-line method; •The value of above-market and below-market in-place leases for The Woodlands operating assets was based on the present value (usinga discount rate that reflects the risks associated with the leases acquired) of the difference between: (1) the contractual amounts to be paidpursuant to the in-place leases; and (2) management's estimate of current market lease rates, measured over the remaining non-cancelablelease term. We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively,and amortize them as an adjustment to minimum rents over the lease term. None of the below market in-place leases at The Woodlandscontained fixed rate renewal options, and as a result, the fair value calculation of the below market lease intangibles at acquisition was notimpacted by options to renew; •The estimated fair value for in-place leases included an estimate of carrying costs during the expected lease-up periods. In estimating thecarrying costs that would have otherwise been incurred had the leases not been in place, we included such items as real estate taxes,insurance and other operating expenses as well as lost rental revenue during the expected lease-up period based on current marketconditions; •The fair value for working capital items such as cash, Municipal Utility District receivables, prepaid expenses, accounts payable andaccrued expenses 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 tobe the carrying 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 whichhad 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 ourConsolidated Statements of Operations. For periods prior to July 1, 2011, our investment in The Woodlands was accounted for using the equitymethod.F-22Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes amounts recorded for the assets acquired and liabilities assumed at the acquisition date:Included in the Consolidated Statement of Operations since the acquisition date are revenues of $84.6 million and net income of $0.5 million for the sixmonths ended December 31, 2011. The net income includes the impact of purchase accounting adjustments, including a $6.1 million increase in cost ofsales to reflect the step-up in basis of finished lot inventory sold during the six months ended December 31, 2011.Pro Forma InformationThe following pro forma information for the year ended December 31, 2011 was prepared as if The Woodlands acquisition had occurred as of thebeginning of such period: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) 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 proforma net income (loss). The pro forma information is not necessarily indicative of the results that would have occurred had the acquisition occurred asof the beginning of the period presented, nor is it necessarily indicative of future results.F-23 (In thousands) Master Planned Community Assets $267,251 Land 44,597 Buildings and equipment 116,061 Investments in Real Estate Affiliates 36,764 Cash 25,492 Accounts receivable 7,548 Notes receivable 3,189 Municipal Utility District receivables 61,700 Other assets 24,956 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 Year EndedDecember 31, 2011 (In thousands) Total revenues $357,472 Net income (loss) 157,520 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 5 REAL ESTATE AFFILIATESOur investment in real estate affiliates which are reported on the equity and cost methods are as follows:(a)On April 19, 2012, the joint ventures owning the Forest View and Timbermill Apartments completed their sale to a third party. Our share of thedistributable cash, after repayment of debt and transaction expenses, was $8.6 million.(b)These entities were previously considered VIEs, whose reassessment in 2013 caused them to no longer be considered VIEs. Please refer todiscussion in section following the table.(c)On May 31, 2012, we acquired our partner's interest for $6.9 million and consolidated this property.(d)Equity method VIEs.(e)As of July 1, 2011, The Woodlands is consolidated and no longer a Real Estate Affiliate (please refer to Note 4 – Acquisitions andDispositions). Prior to July 1, 2011, we owned a 52.5% economic interest in The Woodlands.(f)Includes distribution received from Summerlin Hospital Medical Center.(g)The lower carrying value as of December 31, 2013 is attributable to the sale of our interest in Head Acquisition, LP (Hexalon) on October 30, Economic/ LegalOwnership Carrying Value Share of Earnings/Dividends December 31, December 31, December 31, 2013 2012 2013 2012 2013 2012 2011 (In percentages) (In thousands) (In thousands) Equity MethodInvestments: Circle T Ranch andPower Center 50.00% 50.00%$9,004 $9,004 $— $— $(1)Forest View /TimbermillApartments (a) — — — — — 4 5 HHMKDevelopment, LLC (d) 50.00% 50.00% 13 1,257 732 — — KR Holdings, LLC (d) 50.00% 50.00% 19,764 — 9,877 — — Millennium WaterwayApartments (c) 100.00% 100.00% — — — 407 682 Millennium WoodlandsPhase II, LLC (d) 81.43% 81.43% 2,174 2,190 (74) — — Parcel C (d) 50.00% — 5,801 — — — — Stewart Title 50.00% 50.00% 3,843 3,871 1,223 902 204 Summerlin Las VegasBaseball Club (d) 50.00% — 10,636 300 (13) — — The MetropolitanDowntown ColumbiaProject (b) 50.00% 50.00% 3,461 4,330 — — — The Woodlands (e) 100.00% 100.00% — — — — 3,731 Woodlands Sarofim #1 20.00% 20.00% 2,579 2,450 180 (6) 64 57,275 23,402 11,925 1,307 4,685 Cost basis investments(g) 3,746 8,777 2,503(f) 2,376(f) 3,893(f) Investment in RealEstate Affiliates $61,021 $32,179 $14,428 $3,683 $8,578 2013 that resulted in a gain of approximately $8.5 million.Millennium Woodlands Phase II, LLC, Parcel C, KR Holdings, HHMK Development, LLC, and Summerlin Las Vegas Baseball Club entities includedin the table above are VIEs. We are not the primary beneficiary of any of these VIEs because we do not have the power to direct activities that mostsignificantly impact the economic performance of such joint ventures and therefore we report our interests on the equity method. Our maximumexposure to loss as a result of these investments is limited to the aggregate carrying value of the investment as we have not provided any guarantees orF-24Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSotherwise made firm commitments to fund amounts on behalf of these VIEs. The aggregate carrying value of the unconsolidated VIEs were$38.4 million and $7.8 million as of December 31, 2013 and 2012, respectively, and was classified as Investments in Real Estate Affiliates in theConsolidated Balance Sheets. As of December 31, 2013, approximately $69.2 million of indebtedness was secured by the properties owned by our RealEstate Affiliates of which our share was approximately $39.0 million based upon our economic ownership. All of this debt is without recourse to us.As of December 31, 2013, the Company determined that it was the primary beneficiary of two VIEs. The creditors of the consolidated VIEs do nothave recourse to the Company's general credit. As of December 31, 2013, the carrying values of the assets and liabilities associated with the operationsof the consolidated VIEs were $31.7 million and $0.8 million, respectively. As of December 31, 2012, the carrying values of the assets and liabilitiesassociated with operations of the consolidated VIEs were $28.3 million and $1.0 million, respectively. The assets of the VIEs are restricted for use onlyby the particular VIEs and are not available for our general operations.Our recent and more significant investments in Real Estate Affiliates and the related accounting considerations are described below.Bridges at Mint Hill Joint VentureOn September 8, 2011, we entered into a joint venture with the owner of land adjacent to our property, located near Charlotte, NC to develop ashopping center on our combined properties. On October 30, 2012, we contributed $4.5 million in cash to the Bridges at Mint Hill joint venture inaccordance with the joint venture's operating agreement. The cash was used to repay a mortgage secured by the land contributed by our partner. As aresult of our additional contribution, our ownership percentage increased from 79.0% to 90.5%, and we attained the ability to direct the significanteconomic activities of the entity; therefore, we began consolidating this joint venture in the fourth quarter of 2012.Parcel COn October 4, 2013, we entered into a joint venture agreement with Kettler, Inc., to construct a 437 unit, Class A apartment building with 31,000 squarefeet of ground floor retail on Parcel C in downtown Columbia, MD. We contributed approximately five acres of land having an approximate book valueof $4.0 million to the joint venture. The transaction values our land at $23.4 million or $53,500 per constructed unit. When the venture closes on theconstruction loan and upon completion of certain other conditions, including obtaining completed site development and construction plans and anapproved project budget, our partner will be required to contribute cash to the venture.ONE Ala Moana Condominium ProjectOn October 11, 2011, we and an entity jointly owned by two local development partners formed a joint venture called HHMK Development, LLC("HHMK Development") to explore the development of a luxury condominium tower at the Ala Moana Center in Honolulu, Hawaii. On June 14, 2012,we formed another 50/50 joint venture, KR Holdings, with the same partner. We own 50% of each venture and our partners jointly own the remaining50%.On September 17, 2012, KR Holdings closed on two $20.0 million non-recourse mezzanine loan commitments with List Island Properties, LLC andA & B Properties, Inc. These loans have a blended interest rate of 12%, were drawn in full on May 15, 2013 and mature on April 30, 2018 with theoption to extend for one year. In addition to the mezzanine loans, A & B Properties and List Island Properties both have profit interests in KR Holdings,which entitles them to receive a share of theF-25Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSprofits, up to a maximum of $3.0 million, after a return of, and a 13.0% preferred return on, our capital.KR Holdings closed the first mortgage construction loan on May 15, 2013. Upon closing and under the terms of the venture agreement, we sold to KRHoldings our interest in the condominium rights for net cash proceeds of $30.8 million and a 50% equity interest in KR Holdings. Our partnercontributed $16.8 million of cash for their 50% equity interest.The construction loan will be drawn over the course of construction with the total proceeds not to exceed $132.0 million. The loan is secured by thecondominium rights and buyers' deposits, has no recourse to us, matures on May 15, 2016, and bears interest at one-month LIBOR plus 3.00%. KRHoldings summarized financial information as of December 31, 2013 includes total assets of $189.0 million, total liabilities of $135.7 million, revenuesof $131.2 million and net income of $19.7 million. The venture uses the percentage of completion method to recognize earnings and we recorded$9.9 million in equity in earnings from Real Estate Affiliates related to KR Holdings in the Consolidated Statement of Operations for the year endedDecember 31, 2013. Our investment balance includes deferred profit of $6.9 million related to the partial sale of land to the joint venture which is beingrecognized on the same percentage of completion basis as KR Holdings.Millennium Woodlands Phase II, LLCOn May 14, 2012, we entered into a joint venture, Millennium Woodlands Phase II, LLC ("Millennium Phase II"), with The Dinerstein Companies, thesame joint venture partner in the Millennium Waterway Apartments I project, for the construction of a new 314-unit Class A multi-family complex inThe Woodlands Town Center. Our partner is the managing member of Millennium Phase II. As the managing member, our partner controls, directs,manages and administers the affairs of Millennium Phase II. On July 5, 2012, Millennium Phase II was capitalized by our contribution of 4.8 acres ofland valued at $15.5 million to the joint venture, our partner's contribution of $3.0 million in cash and a construction loan in the amount of $37.7 millionwhich is guaranteed by our partner. The development of Millennium Phase II further expands our multi-family portfolio in The Woodlands TownCenter.Summerlin Las Vegas Baseball ClubOn August 6, 2012, we entered into a joint venture for the purpose of acquiring 100% of the operating assets of the Las Vegas 51s, a Triple-A baseballteam which is a member of the Pacific Coast League. We own 50% of the venture and our partners jointly own the remaining 50%. Unanimous consentof the partners is required for all major decisions. In August 2012, we contributed $0.3 million to the joint venture pending final approval of theacquisition by Major League Baseball. In May 2013, after approval was received, we funded our remaining capital obligation of $10.2 million and thejoint venture completed the acquisition of the baseball team. Our strategy in acquiring an ownership interest is to pursue a potential relocation of theteam to a to-be-built stadium in our Summerlin master planned community. There can be no assurance that such a stadium will ultimately be built.The Metropolitan Downtown Columbia ProjectOn October 27, 2011, we entered into a joint venture, Parcel D Development, LLC ("Parcel D"), with a local developer, Kettler, Inc., to construct aClass A apartment building with ground floor retail space in downtown Columbia, Maryland. We and our partner each own 50% of the venture, andunanimous consent of the partners is required for all major decisions. On July 11, 2013, the joint venture closed a $64.1 million construction loan whichis non-recourse to us. The loan bears interest at one-month LIBOR plus 2.4% and matures in July 2020. At loan closing, our land contribution wasvalued atF-26Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS$53,500 per unit, or $20.3 million, and Kettler contributed $13.3 million in cash, of which $7.0 million was distributed to us. Both we and Kettler arerequired to each make future contributions of $3.1 million to the joint venture in accordance with the loan agreement, thus increasing our total capitalaccount to $16.4 million. This transaction was accounted for as a partial sale of the land for which we recognized a net profit of $0.7 million. As ofDecember 31, 2013, we have contributed the $3.1 million to the joint venture.Upon formation of the joint venture, we determined that Parcel D was a VIE, and that we were not the primary beneficiary. Accordingly, we accountedfor our investment in Parcel D using the equity method. Upon closing of the first mortgage construction loan, the entity was recapitalized resulting in areconsideration of the initial determination of VIE status. As of a result of the reconsideration, we determined that Parcel D was no longer considered aVIE. We still account for our investment in Parcel D using the equity method.OtherOur interest in Westlake Retail Associates, Ltd. ("Circle T Ranch") and 170 Retail Associates ("Circle T Power Center"), and together with Circle TRanch, ("Circle T"), located in the Dallas/Fort Worth, Texas area are held through joint venture entities in which we own non-controlling interests.Woodlands Sarofim #1 Ltd. ("Woodlands Sarofim") industrial buildings and Stewart Title of Montgomery County, Inc. ("Stewart Title"), are located inThe Woodlands, and are reflected in our financial statements as non-consolidated joint ventures and are accounted for on the equity method.NOTE 6 IMPAIRMENTThere were no impairment charges for the years ended December 31, 2013, 2012 and 2011. We continually evaluate our strategic alternatives withrespect to each of our properties and may revise our strategy from time to time, including our intent to hold the asset on a long-term basis or the timingof potential asset dispositions. For example, we may decide to sell property that is held for use and the sale price may be less than the carrying amount.As a result, changes in strategy could result in impairment charges in future periods.No provisions for impairment were recorded for the years ended December 31, 2013, 2012 and 2011 related to our investments in Real EstateAffiliates.NOTE 7 FAIR VALUE OF FINANCIAL INSTRUMENTSThe following table presents, for each of the fair value hierarchy levels required under ASC 820 ("ASC 820") Fair Value Measurement, our assets andliabilities that are measured at fair value on a recurring basis.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 thewarrants, exercise price of the warrants, term, expected volatility, risk-free interest rate and dividend yield.F-27 December 31, 2013 December 31, 2012 Fair Value Measurements Using Fair Value Measurements Using Total QuotedPrices inActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total QuotedPrices inActiveMarkets forIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) (In thousands) (In thousands) Liabilities: Warrants $305,560 $— $— $305,560 $123,573 $— $— $123,573 Interestrateswaps $4,164 $— $4,164 $— $7,183 $— $7,183 $— Table of ContentsTHE HOWARD HUGHES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments andthe discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates derived from observablemarket interest rate curves.The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs(Level 3) which are our Sponsors and Management Warrants:(a)The unrealized losses during 2013 and 2012 related to the Sponsors and Management warrants held as of December 31, 2013 and 2012, of$182.0 million and $73.8 million, respectively. The gain for 2011 was also unrealized.(b)Settlements were for $80.5 million in cash and 1,525,272 shares of our common stock. Please refer to Note 3 – Sponsors and ManagementWarrants.The fair values were estimated using an option pricing model and Level 3 inputs due to the unavailability of comparable market data. Changes in the fairvalue of the Sponsors Warrants and the Management Warrants are recognized in earnings as a warrant liability gain or loss.The significant unobservable input used in the fair value measurement of our warrants designated as Level 3 as of December 31, 2013 is as follows:(a)Based on the asset volatility of comparable companies.The expected volatility in the table above is a significant unobservable input used to estimate the fair value of our warrant liabilities. An increase inexpected volatility would increase the fair value of the liability, while a decrease in expected volatility would decrease the fair value of the liability.F-28 December 31, 2013 2012 2011 (In thousands) Beginning of year $123,573 $127,764 $227,348 Warrant liability loss (gain) (a) 181,987 185,017 (101,584)Settlements (b) — (189,208) — Purchases — — 2,000 End of year $305,560 $123,573 $127,764 Fair Value ValuationTechnique UnobservableInput Volatility (In thousands) Warrants $305,560 Option PricingValuation Model ExpectedVolatility (a) 32.9%Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following tables summarize our assets and liabilities that were measured at fair value on a non-recurring basis and include Investment in Real EstateAffiliates related to the fair value based on purchases of our previously held equity investments.(a)We measured our equity interest in Millennium Waterway Apartments based on our purchase of our partner's 23.5% economic interest inMillennium Waterway Apartments. We used Level 1 inputs for the cash payment.The estimated fair values of our financial instruments that are not measured at fair value on a recurring basis are as follows:(a)It is not practicable to estimate the fair value of the tax indemnity receivable, including interest, as the timing and ultimate amount received undercontract is highly dependent on numerous future events that cannot be reliably predicted.(b)As more fully described below, $172.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt.Notes receivable are carried at net realizable value which approximates fair value. The estimated fair values of these notes receivable are categorized asLevel 3 due to certain factors, such as current interest rates, terms of the note and credit worthiness of the borrower.The fair value of debt, not including our Senior Notes, in the table above was estimated based on a discounted future cash payment model using Level 2inputs, which includes risk premiums for loans of comparable quality and a risk free rate derived from the current London Interbank Offered Rate("LIBOR") or U.S. Treasury obligation interest rates. The discount rates reflect our judgment as to what the approximate current lending rates for loansor groups of loans with similar maturities and credit quality would be if credit markets were operating efficiently and assuming that the debt isoutstanding through maturity.F-29Investment in Real Estate Affiliates Total FairValueMeasurementas ofDecember 31, QuotedPrices inActiveMarketsforIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Total LossYear EndedDecember 31, (In thousands) 2012 $22,405(a)$22,405 $— $— $— December 31, 2013 December 31, 2012 CarryingAmount EstimatedFair Value CarryingAmount EstimatedFair Value (In thousands) Assets: Notes receivable, net $20,554 $20,554 $27,953 $27,953 Tax indemnity receivable, including interest 320,494 (a) 319,622 (a)Liabilities: Fixed-rate debt $971,786 $1,012,461 $158,636 $158,879 Variable-rate debt (b) 509,737 509,737 479,964 479,964 SID bonds 33,100 32,837 49,712 56,475 Total mortgages, notes and loans payable $1,514,623 $1,555,035 $688,312 $695,318 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe fair value of our Senior Notes in the table above was estimated based on quoted market prices for similar issues.The carrying amounts of cash and cash equivalents and accounts receivable approximate fair value because of the short-term maturity of theseinstruments.NOTE 8 MORTGAGES, NOTES AND LOANS PAYABLEMortgages, notes and loans payable are summarized as follows:(a)As more fully described below, $172.0 million of variable-rate debt has been swapped to a fixed rate for the term of the related debt.F-30 December 31, 2013 2012 (In thousands) Fixed-rate debt: Collateralized mortgages, notes and loans payable $971,786 $158,636 Special Improvement District bonds 33,100 49,712 Variable-rate debt: Collateralized mortgages, notes and loans payable (a) 509,737 479,964 Total mortgages, notes and loans payable $1,514,623 $688,312 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table presents our mortgages, notes, and loans payable by property:(a)Maturity date includes any extension periods which can be exercised at our option.(b)Loan is fixed at 5.50% through June 2017 and is floating based on three-month LIBOR +2.75% thereafter.(c)Revolving development loan provides for a maximum of $30.0 million outstanding balance at any one time with all draws not exceeding $140.0 million. The loan bears interestat the greater of 5.00% or LIBOR + 3.25%.(d)On August 8, 2013, the loan was modified and extended to a August 2018 final maturity date. The interest rate was reduced from one-month LIBOR + 4.00%, with a 5.00%minimum rate to a LIBOR + 2.75% with no floor. The maximum available balance was reduced to $250.0 million from $270.0 million.F-31 Carrying Value December 31, December 31, InterestRate MaximumFacilityAmount $ In thousands Maturity (a) 2013 2012 (In thousands) Master Planned Communities Bridgeland Land Loan (b) June 2022 5.50% $18,066 $18,066 Bridgeland Development Loan (c) June 2015 5.00%$30,000 — — Summerlin West SID Bonds – S808/S810 April 2031 7.13% 11,168 22,185 Summerlin South SID Bonds – S151 June 2025 6.00% 6,623 10,501 Summerlin South SID Bonds – S128C December 2030 6.05% 5,511 5,739 Summerlin South SID Bonds – S132 December 2020 6.00% 3,962 4,822 Summerlin South SID Bonds – S108 December 2016 5.95% 823 1,067 Summerlin South SID Bonds – S128 December 2020 7.30% 707 787 Summerlin South SID Bonds – S124 December 2019 5.95% 285 324 The Woodlands Master Credit Facility (d) August 2018 2.92% 250,000 176,663 176,704 Master Planned Communities Total 223,808 240,195 Operating Assets 110 N. Wacker (e) October 2019 5.21% 29,000 29,000 20/25 Waterway Avenue May 2022 4.79% 14,450 14,450 3 Waterway Square (f) August 2028 3.94% 52,000 9,150 4 Waterway Square December 2023 4.88% 39,237 40,140 70 Columbia Corporate Center August 2017 4.25% 16,287 16,037 9303 New Trails December 2023 4.88% 13,398 13,706 Columbia Regional Building (g) March 2018 2.17% 23,008 9,207 — Millennium Waterway Apartments June 2022 3.75% 55,584 55,584 One Hughes Landing (h) November 2017 2.82% 38,000 19,128 10 Riverwalk Marketplace (i) October 2018 2.92% 64,400 — — The Woodlands Resort & ConferenceCenter (j) February 2019 3.67% 95,000 36,100 36,100 Victoria Ward (k) September 2016 3.35% 250,000 238,716 229,000 Capital lease obligation various 3.60% 205 41 Operating Assets Total 523,312 443,218 Strategic Developments Hughes Landing Retail (m) December 2018 2.12% 36,575 913 — One Lake's Edge (l) November 2018 2.67% 73,525 — — The Shops at Summerlin SID Bonds – S128 December 2030 6.05% 3,569 3,701 The Shops at Summerlin SID Bonds – S108 December 2016 5.95% 452 586 Two Hughes Landing (h) September 2018 2.82% 41,230 10 — Strategic Developments Total 4,944 4,287 Other Corporate Financing Arrangements (n) Various 3.00% 22,700 21,309 612 Senior Notes (o) October 2021 6.88% 750,000 — Unamortized underwriting fees n/a n/a (8,750) — Total mortgages, notes, and loans payable $1,514,623 $688,312 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(e)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 through maturity.(f)On August 2, 2013, the loan was refinanced with a $52.0 million loan bearing interest at 3.94% and maturity in August 2028.(g)Loan bears interest at prime rate for draws less than $0.5 million. For draws over $0.5 million, we elect to use one-month LIBOR + 2.00% or the prime rate.(h)Loan bears interest at one-month LIBOR + 2.65%.(i)On October 24, 2013, we closed on a $64.4 million partial-recourse construction loan bearing interest at one-month LIBOR plus 2.75% with an initial maturity date ofOctober 24, 2016, with two, one-year extension options.(j)Loan was refinanced in February 2013 and bears interest at one-month LIBOR + 3.50%.(k)Loan has a stated interest rate of one-month LIBOR + 2.50%. $143.0 million of the outstanding principal balance is swapped to a 3.80% fixed rate through maturity.(l)On November 25, 2013, we closed on a $73.5 million non-recourse loan bearing interest at one-month LIBOR plus 2.50% with an initial maturity date of November 25, 2016,with two, one-year extension options.(m)On December 20, 2013, we closed on a $36.6 million non-recourse loan bearing interest at one-month LIBOR plus 1.95% with an initial maturity date of December 20, 2016, withtwo, one-year extension options.(n)Includes the partial funding of a $22.7 million loan used to acquire a company airplane, of which $21.3 million is drawn as of December 31, 2013. The loan bears interest at3.00% and requires approximately $1.0 million annual amortization through maturity in July 2018.(o)On October 2, 2013, we issued $750.0 million in aggregate principal amount of 6.875% Senior Notes due 2021 (the "Senior Notes"). Interest is payable semiannually, on April 1and October 1 of each year starting in April 2014. At any time prior to October 1, 2016, we may redeem up to 35% of the Notes using the proceeds from equity offerings or wemay redeem some or all of the Notes at a price equal to 106.875% of the principal amount. We may redeem all or part of the Notes at any time on or after October 1, 2016 with adeclining call premium thereafter to maturity.The weighted average interest rate on our mortgages, notes and loans payable excluding interest rate hedges was 5.25% and 4.49% as of December 31,2013 and 2012, respectively.The following table summarizes the contractual obligations relating to our mortgages, notes and loans payable as of December 31, 2013 based on initialmaturity dates:All of our mortgage debt is secured by the individual properties as listed in the table above and is non-recourse to us, except for a $7.0 million parentguarantee associated with the 110 N. Wacker mortgage. The $750.0 million of Senior Notes and $21.3 million of Other Corporate Financingarrangements are also recourse to us. In addition, we have $32.2 million of recourse guarantees associated with undrawn construction financingcommitments as of December 31, 2013. The Woodlands Master Credit Facility and Resort & Conference Center loans are recourse to the entities thatdirectly own The Woodlands operations. Certain of our loans contain provisions which grant the lender a security interest in the operating cash flow ofthe property that represents the collateral for the loan. Such provisions are not expected to impact our operations in 2014. Certain mortgage notes may beprepaid, but may be subject to a prepayment penalty equal to a yield-maintenance premium,F-32 Mortgages, notesand loans payableprincipal payments (In thousands) 2014 $5,462 2015 26,958 2016 470,784 2017 25,885 2018 26,683 Thereafter 958,851 Total $1,514,623 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSdefeasance or a percentage of the loan balance. As of December 31, 2013, land, buildings and equipment and developments in progress with a costbasis of $1.6 billion have been pledged as collateral for our mortgages, notes and loans payable. On July 26, 2013, we closed on a $22.7 million loan toacquire an airplane, which is recourse to us as noted above. The loan bears interest at 3.00%, requires approximately $1.0 million annual amortizationand matures in July 2018.As of December 31, 2013, we were in compliance with all of the financial covenants related to our debt agreements.Master Planned CommunitiesOn August 8, 2013, The Woodlands refinanced its existing Master Credit Facility with a $250.0 million credit facility consisting of a $125.0 millionterm loan and a $125.0 million revolver (together, the "TWL Facility"). The TWL Facility bears interest at one-month LIBOR plus 2.75% and has aninitial three-year term with two one-year extension options. The extension options require a reduction of the total commitment to $220.0 million for thefirst extension and $185.0 million for the second extension. The TWL Facility also contains certain covenants that, among other things, require themaintenance of specified financial ratios, limit the incurrence of additional recourse indebtedness at The Woodlands, and limit distributions from TheWoodlands to us based on a loan-to-value test. There was $73.3 million of undrawn and available borrowing capacity under the TWL Facility based onthe collateral underlying the facility and covenants as of December 31, 2013.During the second quarter of 2012, we refinanced $18.1 million of existing debt related to our Bridgeland Master Planned Community with a ten-yearterm loan facility at a fixed interest rate of 5.50% for the first five years and three-month LIBOR plus 2.75% for the remaining term and maturing onJune 29, 2022. Beginning on June 29, 2014, annual principal payments are required in the amount of 5.00% of the then outstanding principal balance.In addition, we simultaneously entered into a three-year revolving credit facility with aggregate borrowing capacity of $140.0 million of which$39.2 million has been utilized and which has a $30.0 million maximum outstanding loan amount at any time. New residential lot development wasdelayed while we pursued a permit from the U.S. Army Corps of Engineers to develop an additional 806 acres of land in Bridgeland. Due to thedelayed lot development and low level of lot inventory, we can no longer draw upon the revolving credit facility until we develop new finished lots. Therevolving loan bears interest at the greater of 5.00% or one-month LIBOR plus 3.25% and matures on June 29, 2015. This loan is intended to provideworking capital at Bridgeland to accelerate development efforts to meet the demand of homebuilders for finished lots in the community. The Bridgelandloans are cross-collateralized and cross-defaulted and the Bridgeland Master Planned Community serves as collateral for the loans. The loans alsorequire that Bridgeland maintain a minimum $3.0 million cash balance and a minimum net worth of $250.0 million. Additionally, we are restricted frommaking cash distributions from Bridgeland unless the revolving credit facility has no outstanding balance and one year of real estate taxes and debtservice on the term loan have been escrowed with the lender.The Summerlin Master Planned Community uses Special Improvement District ("SID") bonds to finance certain common infrastructure improvements.These bonds are issued by the municipalities and, although unrated, are secured by the assessments on the land. The majority of proceeds from eachbond issued is held in a construction escrow and disbursed to us as infrastructure projects are completed, inspected by the municipalities and approvedfor reimbursement. Accordingly, the Special Improvement District bonds have been classified as debt, and the Summerlin Master Planned Communitypays the debt service on the bonds semi-annually. As Summerlin sells land, the buyers assume a proportionate share of the bond obligation at closing,and the residential sales contractsF-33Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSprovide for the reimbursement of the principal amounts that we previously paid with respect to such proportionate share of the bond.Operating AssetsOn October 24, 2013, we closed on a $64.4 million partial recourse construction loan for Riverwalk Marketplace. The loan bears interest at one-monthLIBOR plus 2.75%, with an initial maturity date of October 24, 2016 with two, one-year extension options.On March 15, 2013, we closed on a non-recourse financing totaling $23.0 million for the redevelopment of The Columbia Regional Building (alsoknown as The Rouse Building), an office building located in Columbia, Maryland. The loan bears interest at one-month LIBOR plus 2.00% and isinterest only through the initial maturity date of March 15, 2016. The loan has two, one-year extension options.On February 8, 2013, we closed on a $95.0 million non-recourse construction loan which repaid the existing $36.1 million mortgage and providesfunding for the redevelopment of The Woodlands Resort and Conference Center. The loan bears interest at one-month LIBOR plus 3.50% and has aninitial maturity of February 8, 2016, with three one-year extensions at our option. The loan is secured by a 440-room and 40-acre conference center andresort located within The Woodlands, and requires the maintenance of specified financial ratios after completion of construction.On November 14, 2012, we closed on a non-recourse financing totaling $38.0 million for the construction of One Hughes Landing, an eight-story,197,000 square foot office building in The Woodlands. The loan matures on November 14, 2015 and has two, one-year extension options. The loanbears interest at one-month LIBOR plus 2.65%.On August 15, 2012, we assumed a $16.0 million loan as part of the acquisition of 70 Columbia Corporate Center ("70 CCC"), located in Columbia,MD. The non-recourse, interest only promissory note matures on August 31, 2017, has a fixed rate of 4.25% and is secured by the property. The loanincludes a participation right to the lender for 30% of the appreciation in the market value of the property after our 10% cumulative preferred return andrepayment of the outstanding debt and our contributed equity. The fair value of the participation obligation is remeasured each quarter and the resultingchange in the fair value of the participation right is recorded through interest expense. For the year ended December 31, 2013, $1.4 million relating tothe estimated increase in value of the participation right is due to increased leasing of the property and was recorded in interest expense.On May 31, 2012, as part of the acquisition of our former partner's interest in Millennium Waterway Apartments, located within The Woodlands, weconsolidated a $55.6 million non-recourse first mortgage loan. The proceeds from the mortgage were used to refinance the joint venture's existing debtand to fund our acquisition of the partner's interest in the property. The loan matures on June 1, 2022 and has a fixed interest rate of 3.75%. Paymentsare interest only until September 2017, then monthly principal and interest payments of $257,418 with the unpaid principal balance due at maturity.On April 26, 2012, we closed on a $14.5 million non-recourse financing secured by 20/25 Waterway Avenue, located within The Woodlands. The loanbears interest at 4.79% and matures on May 1, 2022.On February 2, 2012, we closed on a non-recourse financing totaling $43.3 million for the construction of 3 Waterway Square, an 11-story, 232,000square foot office building in The Woodlands. The loan matures on January 31, 2015 and has two, one-year extension options. The loan bears interestat one-month LIBOR plus 2.65%. On August 2, 2013, we refinanced the loan with a $52.0 million non-recourse first mortgage financing bearinginterest at 3.94% and maturing on August 11, 2028.F-34Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSOn December 5, 2011, we obtained a $41.0 million loan for 4 Waterway Square and a $14.0 million loan for 9303 New Trails, both located within TheWoodlands. These non-recourse mortgages mature on December 11, 2023 and have fixed interest rates of 4.88%.On September 30, 2011, we closed on a $250.0 million non-recourse first mortgage financing secured by Ward Centers in Honolulu, Hawaii, that bearsinterest at one-month LIBOR plus 2.50%. The loan may be drawn to a maximum $250.0 million to fund capital expenditures at the property, providedthat the outstanding principal balance cannot exceed 65% of the property's appraised value, and the borrowers are required to have a minimum 10.0%debt yield to draw additional loan proceeds under the facility. The loan permits partial repayment during its term in connection with property releases fordevelopment. In the third quarter of 2013, certain properties securing the loan were approved for condominium development. As a result, the propertieswere removed from the collateral pool and a minor principal paydown of the loan was required. The loan matures on September 29, 2016, and$143.0 million of the principal balance was swapped to a 3.80% fixed rate for the term of the loan. The loan had a weighted-average interest rate of3.35% as of December 31, 2013. The unused portion of this mortgage was $11.3 million as of December 31, 2013.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, IL.The loan term is coterminous with the expiration of the first term of the existing tenant's lease. The loan has an interest-only period through April 2015and, thereafter, amortizes ratably to $12.0 million through maturity. We provided a $7.0 million repayment guarantee for the loan, which is reduced on adollar for dollar basis during the amortization period.Strategic DevelopmentsOn December 20, 2013, we closed on a $36.6 million non-recourse loan for the construction of Hughes Landing Retail, a 123,000 square foot retailcomponent of Hughes Landing. The loan bears interest at one-month LIBOR plus 1.95% with an initial maturity date of December 20, 2016, with two,one-year extension options.On November 25, 2013, we closed on a $73.5 million non-recourse loan for the construction of an eight-story, Class A, multi-family project withinHughes Landing called One Lake's Edge. One Lake's Edge will be comprised of 390 multi-family units (averaging 984 square feet per unit), 22,289square feet of retail and an approximately 750 space parking garage, all situated on 2.92 acres of land. The loan bears interest at one-month LIBOR plus2.50% with an initial maturity date of November 25, 2016, with two, one-year extension options.On September 11, 2013, we closed on a non-recourse financing totaling $41.2 million for the construction of Two Hughes Landing, the second Class Aoffice building in the 66-acre mixed-use development of Hughes Landing on Lake Woodlands, located in The Woodlands. Two Hughes Landing willbe a 197,000 square foot, eight-story office building with an adjacent parking garage containing approximately 630 spaces and is the second of up to 11office buildings planned for Hughes Landing. The loan matures on September 11, 2016 and has two, one-year extension options. The loan bearsinterest at one-month LIBOR plus 2.65% due monthly.CorporateOn October 2, 2013, we issued $750.0 million in aggregate principal amount of 6.875% Senior Notes due 2021 (the "Senior Notes") and received netcash proceeds of $739.6 million. We intend to use the net proceeds for development, acquisitions and other general corporate purposes. Interest ispayable semiannually, on April 1 and October 1 of each year starting in April 2014. At any time prior toF-35Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSOctober 1, 2016, we may redeem up to 35% of the Notes at a price equal to 106.875% using the proceeds from equity offerings. We may redeem all orpart of the Notes at any time on or after October 1, 2016 with a declining call premium thereafter to maturity. The Notes contain customary terms andcovenants for non-investment grade senior notes and have no maintenance covenants.NOTE 9 INCOME TAXESThe provision for (benefit from) income taxes for the years ended December 31, 2013, 2012 and 2011 was as follows:(*)A component of the tax benefit recorded for the year ended December 31, 2011 relates to an adjustment to true-up the deferred tax assets andliabilities that were received by us upon the spin-off from GGP.Income tax expense is computed by applying the Federal corporate tax rate for the years ended December 31, 2013, 2012 and 2011 and is reconciled tothe provision for income taxes as follows: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 2033. Some of the net operating loss carry-forward amounts are subject to the separate returnlimitation year rules (SRLY). It is possible that we could, in the future, experience a change in control pursuant to Section 382 that could put limits onthe benefit of deferred tax assets. On February 27, 2012, we entered into a Section 382 Rights Agreement to protect us from such an event and protectour deferred tax assets. The section 382 Rights Agreement has a three-year term.F-36 2013 2012 2011 (In thousands) Current $1,218 $2,439 $936 Deferred 8,352 4,448 (19,261)(*) Total $9,570 $6,887 $(18,325) 2013 2012 2011 (In thousands) Tax at statutory rate on earnings from continuing operations before income taxes $(22,477)$(42,490)$45,099 Increase (decrease) in valuation allowance, net (88,826) (32,172) (13,110)State income taxes, net of Federal income tax benefit 1,562 1,328 2,243 Tax at statutory rate on REIT entity earnings not subject to Federal income taxes (2,648) (3,087) 1,204 Tax expense (benefit) from change in rates, prior period adjustments and otherpermanent differences 4,339 13,908 (20,829)Record deferred tax liability on captive REIT and REIT land distribution 53,973 — — Non-deductible warrant liability (gain) loss 63,695 65,311 (35,859)Non-taxable interest income (363) (2,863) (2,990)Uncertain tax position expense, excluding interest (1,034) 1,765 364 Uncertain tax position interest, net of Federal income tax benefit 1,349 5,187 5,553 Income tax expense (benefit) $9,570 $6,887 $(18,325) Table of ContentsTHE HOWARD HUGHES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013, the amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes are as follows:As of December 31, 2013 and 2012, we had gross deferred tax assets totaling $336.6 million and $410.5 million, and gross deferred tax liabilities of$413.4 million and $386.1 million, respectively. We have established a valuation allowance in the amount of $12.6 million and $101.5 million as ofDecember 31, 2013 and 2012, respectively, against certain deferred tax assets for which it is more likely than not that such deferred tax assets will notbe realized.Deferred tax assets related to our investment in Head Acquisition, LP in the amount of $76.4 million that we previously believed had only a remotepossibility of realization were recorded in 2012 due to tax planning that made realization possible. Due to the uncertainty that the tax planning wouldresult in the realization of the deferred tax asset we established a 100% valuation allowance. During the fourth quarter 2013, the tax planning wassuccessfully implemented and over 90% of the deferred tax asset was realized and the remaining amount will likely be realized in 2014; therefore, wedetermined that it was appropriate to release the entire valuation allowance in 2013.The tax effects of temporary differences and carry-forwards included in the net deferred tax liabilities at December 31, 2013 and 2012 are summarizedas follows:F-37 Amount ExpirationDate (In thousands) Net operating loss carryforwards – Federal $94,715 2024-2033Net operating loss carryforwards – State 254,533 2014-2033Capital loss carryforward 16,397 2018Tax credit carryforwards – Federal AMT 2,045 n/a 2013 2012 (In thousands) Deferred tax assets: Operating and Strategic Development properties, primarily differences in basis of assetsand liabilities $201,993 $291,845 Interest deduction carryforwards 85,671 86,963 Operating loss and tax credit carryforwards 48,971 31,643 Total deferred tax assets 336,635 410,451 Valuation allowance (12,624) (101,518) Total net deferred tax assets 324,011 308,933 Deferred tax liabilities: Property associated with Master Planned Communities, primarily differences in the taxbasis of land assets and treatment of interest and other costs $(137,930) (172,914)Operating and Strategic Development properties, primarily differences in basis of assetsand liabilities (48,007) — Deferred income (227,439) (213,166) Total deferred tax liabilities (413,376) (386,080) Net deferred tax liabilities $(89,365)$(77,147) Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe deferred tax liability associated with the Master Planned Communities is largely attributable to the difference between the basis and valuedetermined as of the date of the acquisition by our predecessors of The Rouse Company ("TRC") in 2004 adjusted for sales that have occurred sincethat time. The cash cost related to this deferred tax liability is dependent upon the sales price of future land sales and the method of accounting used forincome tax purposes. The deferred tax liability related to deferred income is the difference between the income tax method of accounting and thefinancial statement method of accounting for prior sales of land in our Master Planned Communities.One of our consolidated entities, Victoria Ward, Limited, elected to be taxed as a REIT and intended to continue to operate so as to qualify as a REITgoing forward. Consequently, deferred taxes were not recorded on book and tax basis differences of Victoria Ward, Limited as it was believed thesedifferences would ultimately be realized at a zero percent tax rate. In connection with the planned condominium development of Victoria Ward that wasapproved by the Hawaii Real Estate Commission during the fourth quarter of 2013, the Company now intends to revoke its REIT election within thenext few years, before future phases of condominium development commences. The Company now believes that the book and tax basis differences inthe land and buildings of Victoria Ward, Limited will be realized after such time REIT status is revoked and will be taxed at the applicable corporate taxrates. As a result of these fourth quarter events, deferred tax liabilities of $48.0 million have been recorded due to the excess book over tax basis relatingto land and buildings as of December 31, 2013.Although we believe our tax returns are correct, the final determination of tax examinations and any related litigation could be different than what wasreported on the returns. In our opinion, we have made adequate tax provisions for years subject to examination. Generally, we are currently open toaudit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2009 through 2013 and are open to audit by statetaxing authorities for years ending December 31, 2009 through 2013.Two of our subsidiaries are involved in a dispute with the IRS relating to years in which those subsidiaries were owned by General Growth Properties("GGP"), and in connection therewith, GGP has provided us with an indemnity against certain potential tax liabilities. Pursuant to the Tax MattersAgreement with GGP, GGP has indemnified us from and against 93.75% of any and all losses, claims, damages, liabilities and reasonable expenses towhich we become subject (the "Tax Indemnity"), in each case solely to the extent directly attributable to certain taxes related to sales of certain assets inour Master Planned Communities segment prior to March 31, 2010 ("MPC Taxes"), in an amount up to $303.8 million, plus interest and penaltiesrelated to these amounts (the "Indemnity Cap") so long as GGP controls the action in the United States Tax Court (the "Tax Court") related to thedispute with the IRS as described below. We recorded the Tax Indemnity receivable at the Indemnity Cap amount as of the spinoff date. Theunrecognized tax benefits and related accrued interest recorded through December 31, 2013 are primarily related to the taxes that are the subject of theTax Indemnity. We have recorded interest income receivable on the Tax Indemnity receivable in the amounts of $38.6 million and $36.4 million as ofDecember 31, 2013 and 2012, respectively.The timing of the utilization of the tax assets attributable to indemnified and non-indemnified gains results in changes to the Tax Indemnity receivableand is dependent on numerous future events, such as the timing of recognition of indemnified and non-indemnified gains, the amount of each type ofgain recognized in each year, the use of specific deductions and the ultimate amount of indemnified gains recognized. These non-cash changes could bematerial to our financial statements. Resolution of the Tax Court case noted below could also result in material changes to the Master PlannedCommunity deferred gains and the timing of utilization of the tax assets, both of which could result in material changes to the Tax Indemnity receivable.We record the Tax Indemnity receivable based on the amountsF-38Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSindemnified which are determined in accordance with the provisions set forth in ASC 740 ("ASC 740") Income Taxes. The amounts indemnified areincluded in the deferred income component of deferred tax liability and in Uncertain tax position liability in our Consolidated Balance Sheets.During the year ended December 31, 2013, the reduction in the Tax Indemnity receivable of $1.2 million related to interest income that was offset byour utilization of tax assets that contractually limit the amount we can receive pursuant to the Tax Matters Agreement and changes to our deferred taxliability for the MPC Taxes.During the year ended December 31, 2012, the reduction in the Tax Indemnity receivable of $20.3 million, $8.8 million of which related to 2011 and toa lesser extent 2010, related to our utilization of tax assets that contractually limit the amount we can receive pursuant to the Tax Matters Agreement andchanges to our deferred tax liability for the MPC Taxes.On May 6, 2011, GGP filed Tax Court petitions on behalf of the two former taxable REIT subsidiaries of GGP seeking a redetermination of federalincome tax for the years 2007 and 2008. The petitions seek to overturn determinations by the IRS that the taxpayers were liable for combineddeficiencies totaling $144.1 million. On October 20, 2011, GGP filed a motion in the Tax Court to consolidate the cases of the two former taxable REITsubsidiaries of GGP subject to litigation with the IRS due to the common nature of the cases' facts and circumstances and the issues being litigated. TheTax Court granted the motion to consolidate. The case was heard by the Tax Court in November 2012. We expect the Tax Court to rule on the casewithin the next 12 months.We apply the generally accepted accounting principle related to accounting for uncertainty in income taxes, which prescribes a recognition threshold thata tax position is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification,interest and penalties, 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 related to the unrecognized tax benefits of $2.1 million, $8.2 million and $8.5 million for the years ended December 31, 2013,2012 and 2011, respectively. At December 31, 2013, we had total unrecognized tax benefits of $90.5 million, excluding interest of $38.7 million, ofwhich none would impact our effective tax rate. At December 31, 2012 and 2011, we had total unrecognized tax benefits of $95.9 million and$101.4 million, respectively, excluding interest, of which none would impact our effective tax rate.Based on our assessment of the expected outcome of existing examinations or examinations that may commence, or as a result of the expiration of thestatute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits, excluding accrued interest, for taxpositions taken regarding previously filed tax returns will materially change from those recorded at December 31, 2013. A material change inunrecognized tax benefits could have a material effect on our statements of operations. As of December 31, 2013, there is approximately $90.5 millionofF-39 2013 2012 2011 (In thousands) Unrecognized tax benefits, opening balance $95,917 $101,408 $120,816 Gross increases – tax positions in prior period 9,162 841 — Gross decreases – tax positions in prior periods (14,547) (6,332) (19,408) Unrecognized tax benefits, ending balance $90,532 $95,917 $101,408 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSunrecognized tax benefits, excluding accrued interest, which due to the reasons above, could significantly increase or decrease during the next twelvemonths.NOTE 10 COMMITMENTS 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. Inmanagement's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material effect on ourconsolidated financial position, results of operations or liquidity.We had outstanding letters of credit and surety bonds totaling $58.7 million and $49.3 million as of December 31, 2013 and 2012, respectively. Theseletters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.We lease land or buildings at certain properties from third parties. Rental payments are expensed as incurred and have, to the extent applicable, beenstraight-lined over the term of the lease. Contractual rental expense, including participation rent, was $6.3 million, $5.4 million and $5.2 million for2013, 2012 and 2011, respectively. The amortization of above and below-market ground leases and straight-line rents included in the contractual rentamount, was not significant.The following table summarizes the contractual obligations relating to our long-term commitments:(a)Refinanced The Woodlands Credit Facility $250.0 million, new financing for 3 Waterway $52.0 million, One Hughes Landing $38.0 million,Columbia Regional Building $23.0 million and Other Corporate financing $21.3 million.(b)Executed new lease at South Street Seaport.(c)Please refer to Note 9 – Income Taxes for our obligations related to uncertain tax positions for disclosure of additional contingencies.South Street SeaportOn June 27, 2013, the City of New York executed the amended and restated ground lease for South Street Seaport. The restated lease terms provide forannual fixed rent of $1.2 million starting July 1, 2013 with an expiration of December 30, 2072, including our options to extend. The rent escalates at3.0% compounded annually. On July 1, 2048 the base rent will be adjusted to the higher of the fair market value or the then base rent. In addition to theannual base rent of $1.2 million, we are required to make annual payments of $210,000 as additional rent through the term of the lease. The additionalrent escalates annually at CPI. Simultaneously with the execution of the lease, we executed a completion guaranty for the redevelopment of Pier 17. The 2014 2015 2016 2017 2018 Subsequent/ Other Total (In thousands) Mortgages,notes andloanspayable (a) $5,462 $26,958 $470,784 $25,885 $26,683 $958,851 $1,514,623 Ground leaseand otherleasingcommitments(b) 5,152 7,152 8,787 7,883 6,744 332,867 368,585 Uncertainty inincometaxes,includinginterest (c) — — — — — 129,183 129,183 Total $10,614 $34,110 $479,571 $33,768 $33,427 $1,420,901 $2,012,391 completion guaranty requires us to performF-40Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTScertain obligations under the lease, including the commencement of construction with a scheduled completion date in 2016.In the fourth quarter of 2012, as a result of Superstorm Sandy, the historic area of South Street Seaport (area west of the FDR Drive) suffered damagedue to flooding, but the Pier 17 structure was not significantly damaged. Reconstruction efforts are ongoing and the property is only partially operating.We have received $20.5 million in insurance proceeds through December 31, 2013 at South Street Seaport related to our claim of which we recognizeda $12.2 million in Other income during the year ended December 31, 2013. We believe that our insurance will reimburse substantially all of the costs ofrepairing the property and will also compensate us for substantially all lost income resulting from the storm.NOTE 11 OTHER ASSETS AND LIABILITIESThe following table summarizes the significant components of Prepaid expenses and other assets:The $30.5 million increase as of December 31, 2013 compared to 2012 primarily relates to a $22.0 million increase in equipment related to an airplanepurchase, a $4.4 million increase in tenant and other receivables primarily related to lease incentives at Ward Centers, and a $15.2 million increase insecurity and escrow deposits related primarily to approximately $14.7 million in escrow deposits for the South Street Seaport project. These increasesare offset by a decrease of $7.2 million in condominium deposits due to the sale of our condominium rights for ONE Ala Moana.F-41 December 31, 2013 2012 (In thousands) Special Improvement District receivable $39,688 $39,659 Equipment, net of accumulated depreciation of $0.7 million 21,978 — Tenant incentives and other receivables 6,757 2,346 Federal income tax receivable 6,053 5,367 Prepaid expenses 4,744 4,757 Below-market ground leases (Note 12) 20,002 20,341 Condominium deposits 12,405 19,616 Security and escrow deposits 28,082 12,865 Above-market tenant leases (Note 12) 1,095 1,896 Uncertain tax position asset 13,528 12,801 In-place leases (Note 12) 9,306 11,516 Intangibles 3,714 3,714 Other 6,588 8,592 $173,940 $143,470 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the significant components of Accounts payable and accrued expenses:The $113.5 million increase as of December 31, 2013 compared to 2012 is primarily due to the increase of $89.2 million in construction payables,which relates to construction and renovation activities primarily for The Shops at Summerlin, Ward Village and Riverwalk properties that are underdevelopment, an increase of $11.2 million in deferred income primarily due to increased land sales and the deferral of a portion of the income for post-sale land development obligations at our Summerlin MPC, and a $15.0 million increase in accrued interest mainly from the Senior Notes. Theseincreases were partially offset by the decrease of $7.2 million in condominium deposits as of December 31, 2013 compared to 2012 due to the sale ofour ONE Ala Moana condominium rights.F-42 December 31, 2013 2012 (In thousands) Construction payables $106,741 $17,501 Accounts payable and accrued expenses 46,998 39,634 Condominium deposits 12,405 19,616 Membership deposits 24,830 20,248 Above-market ground leases (Note 12) 2,431 2,590 Deferred income 18,963 7,767 Accrued interest 17,463 2,425 Accrued real estate taxes 8,581 6,622 Tenant and other deposits 9,490 8,096 Insurance reserve 1,417 9,037 Accrued payroll and other employee liabilities 15,666 11,514 Interest rate swaps 4,164 7,183 Special Assessement 2,603 2,868 Other 12,239 15,420 $283,991 $170,521 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 12 INTANGIBLESIntangible Assets and LiabilitiesThe following table summarizes our intangible assets and liabilities:The gross asset balances of the in-place value of tenant leases are included in Prepaid expenses and other assets in our Consolidated Balance Sheets andare amortized over periods that approximate the related lease terms. The above-market and below-market tenant and ground leases are included inPrepaid expenses and other assets and Accounts payable and accrued expenses as detailed in Note 11 – Other Assets and Liabilities and are amortizedover the remaining non-cancelable terms of the respective leases.Amortization/accretion of these intangible assets and liabilities decreased our income (excluding the impact of noncontrolling interest and the provisionfor income taxes) by $3.0 million in 2013, $2.5 million in 2012 and $2.0 million in 2011.Future amortization/accretion is estimated to decrease income (excluding the impact of noncontrolling interest and the provision for income taxes) by$2.3 million in 2014, $2.1 million in 2015, $1.8 million in 2016, $1.6 million in 2017, $1.1 million in 2018, and $18.6 million thereafter.NOTE 13 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIESWe are primarily exposed to interest rate risks related to our variable interest debt, and we manage this risk by utilizing interest rate derivatives. Ourobjectives in using interest rate derivatives are to add stability to interest costs by reducing our exposure to interest rate movements. To accomplish thisobjective, we use interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedgesinvolve the receipt of variable amounts from a counterparty in exchange for the Company's fixed-rate payments over the life of the agreements withoutexchange of the underlying notional amount. Interest rate caps designated as cash flow hedgesF-43 Gross Asset(Liability) Accumulated(Amortization)/ Accretion NetCarryingAmount (In thousands) As of December 31, 2013 Tenant leases: In-place value $14,633 $(5,327)$9,306 Above-market 1,596 (501) 1,095 Below-market (482) 150 (332)Ground leases: Above-market (3,546) 1,115 (2,431)Below-market 23,096 (3,094) 20,002 As of December 31, 2012 Tenant leases: In-place value $20,348 $(8,832)$11,516 Above-market 1,904 (8) 1,896 Below-market (319) (35) (354)Ground leases: Above-market (3,546) 956 (2,590)Below-market 23,096 (2,755) 20,341 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSinvolve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-frontpremium.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 in the period that the hedged forecasted transaction affects earnings.The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the years ended December 31, 2013, 2012and 2011, the ineffective portion recorded in earnings was insignificant.As of December 31, 2013 and 2012, we had gross notional amounts of $172.0 million for interest rate swaps and a $100.0 million interest rate cap thatwere designated as cash flow hedges of interest rate risk. The fair value of the interest rate cap was insignificant.If the interest rate swap agreements are terminated prior to their maturity, the amounts previously recorded in AOCI would be recognized into earningsover the period that the hedged transaction impacts earnings. If the hedging relationship is discontinued because it is probable that the forecastedtransaction will not occur according to the original strategy, any related amounts previously recorded in AOCI would be recognized in earningsimmediately.Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. Overthe next 12 months, we estimate that an additional $2.3 million will be reclassified as an increase to interest expense.The table below presents the fair value of our derivative financial instruments which are included in accounts payable and accrued liabilities in theConsolidated Balance Sheets:The tables below present the effect of our derivative financial instruments on the Consolidated Statements of Operations for the years endedDecember 31, 2013 and 2012:F-44 As of December 31, 2013 2012 (In thousands) Interest rate swaps $4,164 $7,183 Total derivatives designated as hedging instruments $4,164 $7,183 Year Ended December 31, Year Ended December 31, 2013 2012 2013 2012 Cash Flow Hedges Amount ofIncomeRecognizedin OCI Amount of(Loss)Recognizedin OCI Location of(Loss)ReclassifiedfromAOCI intoEarnings Amount of(Loss)ReclassifiedfromAOCI intoEarnings Amount of(Loss)ReclassifiedfromAOCI intoEarnings (In thousands) (In thousands) Interest rateswaps $1,306 $(4,703)Interestexpense $(1,236)$(1,933) $1,306 $(4,703) $(1,236)$(1,933) Table of ContentsTHE HOWARD HUGHES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)The following table summarizes AOCI for the year ended December 31, 2013:Changes in Accumulated Other Comprehensive Income (Loss) by Component (a) Gains and (Losses) on Cash Flow Hedges(In Thousands) (a)All amounts are net of tax.The following table summarizes the amounts reclassified out of AOCI for the period indicated:Reclassifications out of Accumulated Other Comprehensive Income (Loss)(In Thousands) NOTE 15 STOCK BASED PLANSIncentive Stock PlansOn November 9, 2010 (the "Effective Date"), 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 were reserved for issuance. The Equity Plan provides for grants of options, stockappreciation rights, restricted stock, other stock-based awards and performance-based compensation (collectively, "the Awards"). Directors, employeesand consultants of HHC and its subsidiaries and affiliates are eligible for awards.The Equity Plan is administered by the Compensation Committee of the Board of Directors ("Committee"). Option grant amounts are awarded by theCommittee. Generally, options granted vest over requisite service periods, expire ten years after the grant date and generally do not becomeF-45 For the Year EndedDecember 31, 2013 Balance as of January 1, 2013 $(9,575) Other comprehensive income (loss) before reclassifications 117 Amounts reclassified from accumulated other comprehensive income (loss) 1,236 Net current-period other comprehensive income 1,353 Balance as of December 31, 2013 $(8,222) Amounts reclassified from Accumulated OtherComprehensive Income (Loss)Accumulated Other ComprehensiveIncome Components For the Year EndedDecember 31, 2013 Affected line item in the Statement ofOperationsGains and losses on cash flow hedges Interest rate swap contracts $(967)Interest (expense) (269)Provision for income taxes Total reclassifications for the period $(1,236)Net of tax Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSexercisable until their restrictions on exercise lapses after the five-year anniversary of the grant date. In May 2013, certain key employees were grantedrestricted stock and stock options whereby half vest after four years of service and the remaining half vest on a graduated scale based on totalshareholder return in 2017. Compensation cost for share-based payment arrangements totaled $5.7 million and $4.3 million for 2013 and 2012,respectively.As of December 31, 2013, there were a maximum of 2,577,795 shares available for future grant under our various stock plans.Stock OptionsThe following tables summarize stock option activity:Information related to stock options outstanding as of December 31, 2013 is summarized below:F-46 Shares Weighted AverageExercise Price Weighted AverageRemainingContractual Term AggregateIntrinsicValue (In years) Stock options outstanding atJanuary 1, 2012 712,640 $57.72 Granted 200,000 64.19 Exercised — — Forfeited (50,700) 58.62 Expired — — Stock options outstanding atDecember 31, 2012 861,940 $59.17 Granted 132,100 99.38 Exercised — — Forfeited (28,600) 62.40 Expired — — Stock options outstanding atDecember 31, 2013 965,440 $64.57 7.8 $53,607,886 Stock options exercisable atDecember 31, 2013 400 57.77 3.5 24,932 Remaining unvested options outstandingand expected to vest 936,680 $64.48 7.8 $52,101,542 Range of Exercise Prices NumberOustanding Weighted AverageExercise Price Weighted AverageRemainingContractual Term NumberExercisable (In years) $46.49 – 55.82 64,500 $51.19 7.8 — $57.77 – 60.33 597,400 57.98 7.3 — $61.64 – 69.75 175,440 66.26 8.2 — $81.80 – 110.50 128,100 99.77 9.5 — 965,440 $64.57 7.8 — Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe fair value on the grant date and the significant assumptions used in the Black-Scholes option-pricing model are as follows:The computation of the expected volatility assumption used in the Black-Scholes calculations is based on the median asset volatility of comparablecompanies as of each of the grant dates.The balance of unamortized stock option expense as of December 31, 2013 is $12.4 million, which is expected to be recognized over a weighted-average period of 3.1 years. Expense associated with stock options for the year ended December 31, 2013, which is included in general andadministrative expense in the accompanying Consolidated Statements of Operations, totaled $3.5 million.Restricted StockRestricted stock awards issued under the Equity Plan provide that shares awarded may not be sold or otherwise transferred until restrictions have lapsedas established by the Committee. In addition to the granting of restricted stock to certain members of management, we award restricted stock to our non-employee directors as part of their annual retainer. The management awards vest over five years, and the restriction on the non-employee director shareslapse in June of each year. Generally, upon termination of employment or directorship, restricted stock units and restricted shares which have not vestedare forfeited. For the year ended December 31, 2013, recognized compensation expense of $2.2 million is included in general and administrativeexpense related to restricted stock awards. The fair value of restricted stock that vested during 2013 was $1.4 million. The balance of unamortizedrestricted stock expense as of December 31, 2013 was $6.5 million, which is expected to be recognized over a weighted-average period of 3.48 years.The following table summarizes restricted stock activity:F-47 2013 Weighted Average Range Grant date fair value $28.04 $18.12 – $36.55 Expected life of options (in years) 7.34 7.0 – 7.5 Risk-free interest rate 1.8% 1.26% – 2.30%Expected volatility 22% 18% – 26%Expected annual dividend per share — — Shares Weighted AverageGrant DateFair Value Restricted stock outstanding at January 1, 2012 42,553 $65.18 Granted 27,933 63.86 Vested (12,553) 59.77 Cancelled — — Restricted stock outstanding at December 31, 2012 57,933 $65.72 Granted 77,434 $79.77 Vested (13,033) 60.15 Cancelled — — Restricted stock outstanding at December 31, 2013 122,334 $75.21 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 16 RENTALS UNDER OPERATING LEASESWe receive rental income from the leasing of retail, office and other space under operating leases. Such operating leases are with a variety of tenants, themajority of which are national and regional retail chains and local retailers. The minimum future rentals based on operating leases of our consolidatedproperties held as of December 31, 2013 are as follows:Minimum future rentals exclude amounts which are payable by certain tenants based upon a percentage of their gross sales or as reimbursement ofoperating expenses and amortization of above and below-market tenant leases.Percentage rent in lieu of fixed minimum rent recognized from tenants for the years ended December 31, 2013, 2012 and 2011 was $2.2 million,$3.8 million and $3.9 million, respectively. These rents are declining primarily due to the non-renewal and cancellation of leases at the Outlet Collectionat Riverwalk and South Street Seaport for their redevelopments.Overage rent of approximately $2.6 million, $2.8 million, and $3.0 million for 2013, 2012 and 2011, respectively, is included in Other rental andproperty revenues in our Consolidated Statements of Operations.NOTE 17 RELATED PARTY TRANSACTIONSIn January 2011, we entered into a Transition Agreement with TPMC Realty Services Group, Inc. ("TPMC"). David Weinreb, a director and our CEO,is the sole equity owner of TPMC and the chief executive officer of TPMC and Grant Herlitz, our president, is the president of TPMC. The TransitionAgreement provided for, among other things, certain mutual transactions and the services that facilitated the continuity of Company management, the netvalue of which were not material for the year ended December 31, 2011. Additionally, TPMC was reimbursed a total of $0.9 million in August 2011for expenses related to Mr. Weinreb's employment agreement with us. Such reimbursements are reflected in General and administrative expense for theyear 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 affiliateof TPMC, which commenced on May 1, 2011. Annual rental expenses relating to the lease is approximately $111,965 per year and the lease expires inJuly 2016.NOTE 18 SEGMENTSWe have three business segments which offer different products and services. Our three segments are managed separately because each requiresdifferent operating strategies or management expertise and are reflective of management's operating philosophies and methods. In addition, oursegments or assets within such segments could change in the future as development of certain properties commences or other operational ormanagement changes occur. We do not distinguish or group our combinedF-48Year TotalMinimumRent (In thousands) 2014 $60,158 2015 57,543 2016 50,478 2017 45,111 2018 39,322 Subsequent 140,910 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSoperations on a geographic basis. Furthermore, all operations are within the United States and no customer or tenant comprises more than 10% ofrevenues. Our reportable segments are as follows:•Master Planned Communities ("MPCs") – includes the development and sale of land, in large-scale, long-term community developmentprojects in and around Las Vegas, Nevada; Houston, Texas; and Columbia, Maryland. •Operating Assets – includes retail and office properties, a multi-family property, The Woodlands Resort & Conference Center, The Clubat Carlton Woods and other real estate investments. These assets are currently generating revenues, and we believe there is anopportunity to redevelop or reposition many of these assets to improve operating performance. •Strategic Developments – includes all properties held for development or redevelopment which have no substantial operations.As more fully discussed in Note 4, on July 1, 2011, we acquired our partner's interest in The Woodlands. We now own 100% of The Woodlands andconsolidate its operations. As such, The Woodlands operating results for historical periods when this investment was a Real Estate Affiliate are nowanalyzed internally on a non-GAAP consolidation basis by management in order to provide management comparability between periods for analyzingoperating results.As our segments are managed separately, different operating measures are utilized to assess operating results and allocate resources among thesegments. The one common operating measure used to assess operating results for the business segments is Real Estate Property Earnings BeforeTaxes ("REP EBT") which represents the operating revenues of the properties less property operating expenses and adjustments for interest, as furtherdescribed below. We believe that REP EBT provides useful information about the operating performance of all of our properties.REP EBT, as it relates to our business, is defined as net income (loss) excluding general and administrative expenses, other income, corporate interestincome, corporate interest and depreciation expense, provision (benefit) for income taxes, warrant liability gain (loss), the reduction in tax indemnityreceivable, equity in earnings from Real Estate Affiliates, and Investment in Real Estate Affiliate basis adjustment. We present REP EBT because weuse this measure, among others, internally to assess the core operating performance of our assets. We also present this measure because we believecertain investors use it as a measure of a company's historical operating performance and its ability to service and incur debt. We believe that theinclusion of certain adjustments to net income (loss) to calculate REP EBT is appropriate to provide additional information to investors.F-49Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSegment operating results are as follows: Year Ended December 31, 2013 2012 2011 SegmentBasis SegmentBasis ConsolidatedProperties Real EstateAffiliates SegmentBasis (In thousands) Master Planned Communities Land sales $251,217 $182,643 $114,610 $46,773 $161,383 Builder price participation 9,356 5,747 3,816 1,108 4,924 Minimum rents 781 576 659 14 673 Other land revenues 13,416 18,073 13,133 3,924 17,057 Total revenues 274,770 207,039 132,218 51,819 184,037 Cost of sales – land 124,040 89,298 70,108 23,932 94,040 Land sales operations 30,826 32,817 24,533 7,432 31,965 Land sales real estate and business taxes 7,588 7,558 7,713 1,906 9,619 Depreciation and amortization 32 72 2 46 48 Interest income (16) (45) (144) (364) (508)Interest expense (*) (18,678) (14,598) (11,920) 2,132 (9,788) Total expenses 143,792 115,102 90,292 35,084 125,376 Venture partner share of The Woodlands EBT — — — (7,949) (7,949) MPC EBT 130,978 91,937 41,926 8,786 50,712 Operating Assets Minimum rents 80,124 81,140 69,602 2,803 72,405 Tenant recoveries 20,901 23,210 19,193 1,061 20,254 Resort and conference center revenues 39,201 39,782 15,744 19,106 34,850 Other rental and property revenues 20,360 20,959 14,072 6,992 21,064 Total revenues 160,586 165,091 118,611 29,962 148,573 Other property operating costs 64,608 60,072 46,522 9,223 55,745 Rental property real estate taxes 12,065 11,292 9,666 972 10,638 Rental property maintenance costs 7,552 8,073 6,405 517 6,922 Resort and conference center operations 29,454 29,112 13,220 13,904 27,124 Provision for (recovery of) doubtful accounts 835 1,335 (98) (9) (107)Demolition costs 2,078 — — — — Depreciation and amortization 31,427 23,318 16,341 3,968 20,309 Interest income (135) (185) (125) (2) (127)Interest expense 19,146 16,289 10,586 2,316 12,902 Early extinguishment of debt — — 11,305 — 11,305 Equity in Earnings from Real Estate Affiliates (3,893) (3,683) — (3,926) (3,926) Total expenses 163,137 145,623 113,822 26,963 140,785 Venture partner share of The Woodlands EBT — — — 425 425 Operating Assets EBT (2,551) 19,468 4,789 3,424 8,213 Strategic Developments Minimum rents 763 905 917 — 917 Tenant recoveries 167 141 130 — 130 Condominium rights and unit sales 32,969 267 22,067 — 22,067 Other land revenues 3,899 — — — — Other rental and property revenues 1,456 3,443 1,746 — 1,746 Total revenues 39,254 4,756 24,860 — 24,860 Condominium rights and unit cost of sales 16,572 96 14,465 — 14,465 Other property operating costs 8,578 3,094 5,428 — 5,428 Real estate taxes 2,226 2,351 604 — 604 Rental property maintenance costs 531 582 671 — 671 Provision for (recovery of) doubtful accounts 1 (111) (137) — (137)Depreciation and amortization 189 225 234 — 234 Interest expense (*) (4,318) 219 323 — 323 Equity in Earnings from Real Estate Affiliates (10,535) — — — — (*)Negative interest expense amounts relate to interest capitalized on debt assigned to our Operating Assets Segment and Corporate for the years ended December 31, 2013, 2012and 2011.F-50Equity in Earnings from Real Estate Affiliates (10,535) — — — — Total expenses 13,244 6,456 21,588 — 21,588 Strategic Developments EBT 26,010 (1,700) 3,272 — 3,272 REP EBT $154,437 $109,705 $49,987 $12,210 $62,197 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following reconciles REP EBT to GAAP-basis income (loss):The following reconciles segment revenues to GAAP-basis consolidated revenues:F-51Reconciliation of REP EBT to GAAP-net income (loss) Year Ended December 31, 2013 2012 2011 (In thousands) Real Estate Property EBT: Segment basis $154,437 $109,705 $62,197 Real Estate Affiliates (14,428) (3,683) (12,210) REP EBT 140,009 106,022 49,987 General and administrative (48,466) (36,548) (32,342)Corporate interest income, net (10,575) 10,153 8,595 Warrant liability gain (loss) (181,987) (185,017) 101,584 Benefit (provision) for income taxes (9,570) (6,887) 18,325 Reduction in tax indemnity receivable (1,206) (20,260) — Equity in earnings from Real Estate Affiliates 14,428 3,683 8,578 Investment in Real Estate Affiliate basis adjustment — — (6,053)Other income 25,869 2,125 — Corporate depreciation (2,197) (814) (204) Net income (loss) $(73,695)$(127,543)$148,470 Reconciliation of Segment Basis Revenues to GAAP Revenues Year Ended December 31, 2013 2012 2011 (In thousands) Master Planned Communities $274,770 $207,039 $184,037 Operating Assets 160,586 165,091 148,573 Strategic Developments 39,254 4,756 24,860 Total revenues 474,610 376,886 357,470 Less: The Woodlands Partnerships revenues — — (81,781) Total revenues – GAAP basis $474,610 $376,886 $275,689 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe assets by segment and the reconciliation of total segment assets to the total assets in the Consolidated Balance Sheets are summarized as follows:(a)Certain assets included in our Operating Asset segment are in various stages of redevelopment and are included in Developments on ourConsolidated Balance Sheets. (b)Assets included in Corporate and other consist primarily of the Tax Indemnity receivable, including interest, and Cash and cash equivalents.Capital expenditures in 2013 for the strategic developments, operating assets and corporate were $221.1 million, $22.2 million and $26.8 million,respectively. Capital expenditures in 2012 for the strategic developments, operating assets and corporate were $58.9 million, $14.2 million and$1.3 million, respectively. Capital expenditures in 2011 for the strategic developments, operating assets and corporate were $35.2 million, $8.5 millionand $0.7 million, respectively.F-52 Year Ended December 31, 2013 2012 2011 (In thousands) Master Planned Communities $1,760,639 $1,756,625 $1,780,596 Operating Assets (a) 1,344,005 944,562 871,549 Strategic Developments 462,525 288,287 189,807 Total segment assets 3,567,169 2,989,474 2,841,952 Corporate and other (b) 1,000,699 513,568 557,641 Total assets $4,567,868 $3,503,042 $3,399,593 Table of ContentsTHE HOWARD HUGHES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (a)Revenues in the fourth quarter of 2012 were higher than the same period in 2011 by $23.3 million primarily due to the lot bid program that wasimplemented at The Woodlands in the third quarter of 2012.F-53 2013 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except for per share amounts) Total revenues $90,091 $147,052 $103,514 $133,953 Operating income 9,294 47,790 10,700 43,430 Net income (loss) (23,170) (76,496) 7,433 18,538 Net income (loss) attributable to commonstockholders (23,124) (76,554) 7,335 18,553 Earnings (loss) per share: Basic (0.59) (1.94) 0.19 0.47 Diluted (0.59) (1.94) 0.17 0.44 Weighted average shares outstanding: Basic 39,441 39,445 39,454 39,454 Diluted 39,441 39,445 42,439 42,529 2012 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except for per share amounts) Total revenues $79,765 $93,939 $94,815 $108,367(a)Operating income 9,104 19,057 17,362 26,942 Net income (loss) (111,522) 34,992 (50,192) (821)Net income (loss) attributable to commonstockholders (112,258) 34,310 (49,411) (929)Earnings (loss) per share: Basic (2.96) 0.91 (1.30) (0.01)Diluted (2.96) 0.27 (1.30) (0.01)Weighted average shares outstanding: Basic 37,903 37,907 37,916 39,778 Diluted 37,903 40,251 37,916 39,778 Table of ContentsTHE HOWARD HUGHES CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2013F-54($ in thousands) 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 (f) Land BuildingsandImprove-ments (f) Land BuildingsandImprove-ments (e) Total AccumulatedDepreciation (f) Date ofConstruction DateAcquired/Completed Bridgeland TheWoodlands,TX $18,066 $257,222 $— $144,678 $1,770 $401,900 $1,770 $403,670 $994 2004 MarylandCommunities HowardCounty,MD — 457,552 — (398,295) 197 59,257 197 59,454 75 2004 Summerlin LasVegas, NV 29,079 990,179 — (111,179) 919 879,000 919 879,919 342 2004 TheWoodlands TheWoodlands,TX 176,663 264,141 — (65,707) 14,977 198,434 14,977 213,411 11 2011 20/25WaterwayAvenue TheWoodlands,TX $14,450 $2,346 $8,871 $— $481 $2,346 $9,352 $11,698 $770 2011 CottonwoodSquare Salt LakeCity, UT — 1,558 4,339 — 862 1,558 5,201 6,759 1,370 2002 LandmarkMall Alexandria,VA — 28,396 67,235 (19,408) (39,354) 8,988 27,881 36,869 3,036 2003 Park West Peoria, AZ — 16,526 77,548 1,201 1,252 17,727 78,800 96,527 17,576 2008 OutletCollection atRiverwalk NewOrleans,LA — — 94,513 — (53,903) — 40,610 40,610 915 2004 South StreetSeaport New York,NY — — 7,884 — 29,013 — 36,897 36,897 283 2004 Ward Centers Honolulu,HI 238,716 164,007 89,321 (21,158) 215,154 142,849 304,475 447,324 38,916 2002 WaterwayGarageRetail TheWoodlands,TX — 1,342 4,255 (1) 994 1,341 5,249 6,590 266 2011 110 N.Wacker Chicago,IL 29,000 — 29,035 — 5,315 — 34,350 34,350 12,491 1997 1400WoodlochForest TheWoodlands,TX — — — 1,570 13,423 1,570 13,423 14,993 6,225 1981 2201 LakeWoodlandsDrive TheWoodlands,TX — 3,755 — — — 3,755 — 3,755 — 2011 3 WaterwaySquare TheWoodlands,TX 52,000 748 — — 42,044 748 42,044 42,792 1,020 2012 4 WaterwaySquare TheWoodlands,TX 39,237 1,430 51,553 — 6,712 1,430 58,265 59,695 4,904 2011 9303 NewTrails TheWoodlands,TX 13,398 1,929 11,915 — 1,934 1,929 13,849 15,778 997 2011 ColumbiaOfficeProperties HowardCounty,MD 9,207 1,575 28,447 1,571 24,796 3,146 53,243 56,389 12,021 2004 70 ColumbiaCorporateCenter HowardCounty,MD 16,287 1,281 14,523 — 5,286 1,281 19,809 21,090 749 MillenniumWaterwayApartments TheWoodlands,TX 55,584 15,917 56,002 — — 15,917 56,002 71,919 3,632 2012 One HughesLanding TheWoodlands,TX 19,128 — — 2,366 33,184 2,366 33,184 35,550 19 2012 The Club atCarltonWoods TheWoodlands,TX — 13,796 457 393 1,412 14,189 1,869 16,058 199 2011 TheWoodlandsResort andConferenceCenter TheWoodlands,TX 36,100 13,258 37,983 — 26,217 13,258 64,200 77,458 2,391 2011 WoodlandsParkingGarages TheWoodlands,TX — 5,857 — — — 5,857 — 5,857 — 2011 Table of ContentsF-55($ in thousands) 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 (f) Land BuildingsandImprove-ments (f) Land BuildingsandImprove-ments (e) Total AccumulatedDepreciation (f) Date ofConstruction DateAcquired/Completed ExxonMobilBuild-to-Suit TheWoodlands,TX $— $— $— $— $6,595 $— $6,595 $6,595 $— — Creekside ParkVillage Center TheWoodlands,TX — — — — 2,941 — 2,941 2,941 — — HughesLandingRetail TheWoodlands,TX 913 — — — 5,995 — 5,995 5,995 — — ONE AlaMoana Honolulu, HI — — — — 86 — 86 86 — 2002 One Lake'sEdge TheWoodlands,TX — — — — 6,099 — 6,099 6,099 — — TheMetropolitanDowntownColumbiaProject Columbia, MD — — — — 1,500 — 1,500 1,500 — — The Shops atSummerlin Las Vegas, NV 4,021 — — — 141,383 — 141,383 141,383 — 2004 Two HughesLanding TheWoodlands,TX 10 — — — 22,380 — 22,380 22,380 — — Alameda Plaza Pocatello, ID — 740 2,060 (740) (1,368) — 692 692 — 2002 AllenTowne Dallas, TX — 25,575 — (25,575) 25,464 — 25,464 25,464 — 2006 Bridges at MintHill Charlotte, NC — — — — 20,619 — 20,619 20,619 — 2007 Century PlazaMall Birmingham,AL — 3,164 28,514 (3,164) (24,059) — 4,455 4,455 — 1997 Circle T Ranchand PowerCenter Dallas/FortWorth, TX — — — — 60 — 60 60 — 2005 CottonwoodMall Salt Lake City,UT — 7,613 42,987 (4,713) (25,562) 2,900 17,425 20,325 — 2002 Elk GrovePromenade Elk Grove, CA — — — — 6,254 — 6,254 6,254 4 2003 Kendall TownCenter Miami, FL — — — — 18,135 — 18,135 18,135 — 2004 Lakemoor(Volo) Land Volo, IL — 320 — (320) 321 — 321 321 — 1995 RedlandsPromenade Redlands, CA — — — — 2,951 — 2,951 2,951 — 2004 Redlands Mall Redlands, CA — — — — 6,453 — 6,453 6,453 — 2008 2004 West Windsor Princeton, NJ — — — 53 22,985 53 22,985 23,038 2004 Corporategeneral andadministrative 762,764 885 1,027 (885) 12,648 — 13,675 13,675 2,522 Total HHC $1,514,623 $2,281,112 $658,469 $(499,313)$584,565 $1,781,799 $1,243,034 $3,024,833 $111,728 Table of ContentsTHE HOWARD HUGHES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (a)See description of mortgages, notes and other debt payable in Note 8 of the 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 write-downs. For Master Planned Communities, costscapitalized subsequent to acquisitions are net of land sales.(d)The aggregate cost of land, building and improvements for federal income tax purposes is approximately $3.0 billion.(e)Includes all amounts related to Developments.(f)Depreciation is computed based upon the following estimated lives: F-56 YearsBuilding and improvements 10-45Equipment, tenant improvements and fixtures 5-10Computer hardware and software, and vehicles 3-5 Reconciliation of Real Estate 2013 2012 2011 (In thousands) Balance at beginning of year $2,746,596 $2,589,730 $2,161,977 Change in Land 90,124 66,889 69,110 Additions 352,141 179,372 452,161 Impairments — — — Dispositions and write-offs and land costs of sales (164,028) (89,395) (93,818) Balance at end of year $3,024,833 $2,746,596 $2,589,430 Reconciliation of Accumulated Depreciation 2013 2012 2011 (In thousands) Balance at beginning of year $112,491 $91,605 $78,931 Depreciation Expense 29,637 19,457 14,012 Dispositions and write-offs (30,400) 1,429 (1,338) Balance at end of year $111,728 $112,491 $91,605 Table of ContentsExhibit No. 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 Land Development, LLC, TWC Land Development, LP and MS TWC, Inc.,MS/TWC Joint Venture (incorporated by reference to Exhibit 21 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) 3.3 Certificate of Designations of Series A Junior Participating Preferred Stock, filed with the Secretary of State of Delaware onFebruary 29, 2012 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed February 29, 2012 4.1 Section 382 Rights Agreement, dated as of February 27, 2012, by and between The Howard Hughes Corporation and ComputershareTrust Company, N.A., as rights agent (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filedFebruary 29, 2012) 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 andGeneral Growth Management, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filedNovember 12, 2010) 10.4 Employee Leasing Agreement, dated November 9, 2010, between The Howard Hughes Corporation, GGP Limited Partnership andGeneral Growth Management, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filedNovember 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 GrowthProperties, 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)Table of ContentsExhibit No. Description of Exhibit 10.8 Warrant Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Mellon Investor Services LLC(incorporated by 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(incorporated by 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) 10.11 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 onForm 8-K, filed November 12, 2010) 10.13 Registration Rights Agreement, dated November 9, 2010, between The Howard Hughes Corporation and Brookfield RetailHoldings LLC, Brookfield Retail Holdings II LLC, Brookfield Retail Holdings III LLC, Brookfield Retail Holdings IV-A LLC,Brookfield Retail Holdings IV-D LLC, Brookfield Retail Holdings V LP and Brookfield US Retail Holdings LLC (incorporated byreference to Exhibit 99.2 to the Company'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* Form of Restricted Stock Agreement for Nonemployee Directors under The Howard Hughes Corporation 2010 Amended and RestatedIncentive Plan (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K, filed April 18, 2011) 10.17* Form of Restricted Stock Agreement for Executive Officers under The Howard Hughes Corporation 2010 Amended and RestatedIncentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed August 8, 2013) 10.18* Employment Agreement, dated as of November 22, 2010, between The Howard Hughes Corporation and David R. Weinreb(incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed November 29, 2010) 10.19* Amendment No.1 to Employment Agreement, dated as of August 17, 2012, between The Howard Hughes Corporation and David R.Weinreb (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed November 9, 2012)Table of ContentsExhibit No. Description of Exhibit 10.20* Amendment No. 2 to Employment Agreement, dated as of December 17, 2013, between The Howard Hughes Corporation and David R.Weinreb (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 17, 2013) 10.21* Warrant Purchase Agreement, dated November 22, 2010, between The Howard Hughes Corporation and David R. Weinreb(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed November 29, 2010) 10.22* Amendment No.1 to the Warrant Purchase Agreement dated as of August 23, 2011, between The Howard Hughes Corporation andDavid R. Weinreb (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K, filed February 29, 2012). 10.23* 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) 10.24* 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) 10.25* 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) 10.26* 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) 10.27 Third Amended and Restated Master Credit Agreement dated as of August 8, 2013, by and among The Woodlands CommercialProperties Company, L.P., The Woodlands Land Development Company, L.P., Keybank National Association, the other lenders that area party thereto, and the other lending institutions which may become a party thereto, as lenders, and Keybank National Association, asadministrative agent for the lenders (incorporated by reference to Exhibit 10.1 to the Company's Currrent Report on Form 8-K filed onAugust 14, 2013) 10.28 Loan agreement dated as of September 29, 2011, by and among Victoria Ward, Limited along with certain 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) 10.29* The Howard Hughes Corporation 2010 Amended and Restated Incentive Plan (incorporated by reference to Exhibit 10.1 to theCompany's Current Report on Form 8-K, filed June 14, 2012) 10.30 Warrant Purchase Agreement, dated as of November 9, 2012, by and among The Howard Hughes Corporation and the parties listed onSchedule I attached thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed November 16,2012) 10.31 Warrant Purchase Agreement, dated as of December 6, 2012, by and among The Fairholme Fund, Fairholme Focused Income Fund andThe Howard Hughes Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filedDecember 11, 2012)Table of Contents*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 Consolidatedand Combined Statements of Operations for the years ended December 31, 2013, 2012 and 2011, (ii) the Consolidated Balance Sheets at December 31,2013 and 2012, (iii) the Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011, (iv) theConsolidated and Combined Statements of Shareholders' Equity for the years ended December 31, 2013, 2012 and 2011. Users of this data are advisedpursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposesof 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.Exhibit No. Description of Exhibit 10.32 Warrant Purchase Agreement, dated as of December 6, 2012, by and among the parties listed on Schedule I attached thereto and TheHoward Hughes Corporation (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filedDecember 11, 2012) 21.1† List of Subsidiaries 23.1† Consent of Ernst & Young, LLP 23.2† Consent of Deloitte & Touche LLP 24.1† Power of Attorney 31.1† Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2† Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1† Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.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 101.PRE† XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase DocumentQuickLinks -- Click here to rapidly navigate through this documentExhibit 21.1 THE HOWARD HUGHES CORPORATIONLIST OF SUBSIDIARIES 3 Waterway Holdings, LLC Texas4 Waterway Holdings, LLC Delaware20 & 25 Waterway Holdings, LLC Delaware70 CC, LLC Delaware80 South, LLC Delaware110 Holding, LLC Delaware110 Wacker, LLC Delaware117 Beekman Street Holdings, LLC Delaware170 Retail Associates, Ltd. Texas170 Retail Holding, LLC Delaware988 Halekauwila, LLC Delaware1108 Ouahi, LLC Delaware1118 Ala Moana, LLC Delaware1240 Ala Moana, LLC Delaware1701 Lake Robbins, LLC Delaware9303 New Trails Holdings, LLC DelawareACB Parking Business Trust MarylandAlameda Plaza, LLC DelawareAllenTowne Mall, LLC DelawareAmerican City Building Business Trust MarylandBeverage Operations, Inc. Texas Bridgeland Construction, LLC DelawareBridgeland Development, LP MarylandBridgeland GP, LLC DelawareBridgeland Holding Company, Inc. DelawareBridges at Mint Hill, LLC DelawareBridges at Mint Hill Member, LLC DelawareCarlton Woods Holdings, LLC DelawareCentury Plaza L.L.C. DelawareClover Acquisitions LLC DelawareCottonwood Mall, LLC DelawareCottonwood Square, LLC DelawareCSPV Holdings, 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 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 MarylandHexalon Real Estate, LLC DelawareHHC Travel, LLC DelawareHHMK Development, LLC DelawareHL Champion Holding Company, LLC DelawareHL Amenities Holdings, LLC DelawareHL Multi-Family Holdings, LLC DelawareHL Restaurant Row, LLC DelawareHL Retail Row, LLC DelawareHoward Hughes Management, Co. LLC DelawareHoward Hughes Management Services Company, LLC DelawareHoward Hughes Properties, Inc. NevadaHRD Parking Deck Business Trust MarylandHRD Parking, Inc. MarylandKapiolani Residential LLC DelawareKR Holdings, 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. MarylandMerchant Wired, LLC DelawareMerriweather Post Business Trust MarylandMillennium Woodlands Phase II, LLC DelawareMillennium Woodlands Phase II Member, LLC DelawareNatick Residence LLC DelawareOakland Ridge Industrial Development Corporation MarylandOne Hughes Landing, LLC DelawareParcel C Business Trust MarylandParcel C Development, LLC DelawareParcel C Property, LLC DelawareParcel 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. DelawareRiva Row Woodlands Member, LLC DelawareRiverwalk Marketplace (New Orleans), LLC DelawareSeaport Management Development Company, LLC DelawareSeaport Marketplace Theatre, LLC MarylandSeaport Marketplace, LLC MarylandSouth Street Seaport Limited Partnership MarylandSSV Nevada, LLC DelawareStewart Title of Montgomery County Inc. TexasStone Lake, LLC MarylandSummerlin Baseball Club Member , LLC DelawareSummerlin Centre, LLC DelawareSummerlin Corporation DelawareSummerlin Development, LLC DelawareSummerlin Development Management Company, LLC DelawareSummerlin Hospital Medical Center, L.P. DelawareSummerlin Las Vegas Baseball Club, LLC DelawareSummerlin North LP, LLC DelawareSummerlin South LP, LLC DelawareThe Downtown Columbia Partnership, Inc. MarylandThe Howard Hughes Company, LLC DelawareThe Howard Research And Development Corporation MarylandThe Hughes Corporation DelawareThe Shops at Summerlin North, LP DelawareThe Shops at Summerlin South, LP 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 Holding Company, Inc. DelawareThe Woodlands Land Development Company, L.P. TexasThe Woodlands Management Development Company, LLC DelawareThe Woodlands Operating Company, L.P. 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, L.L.C. TexasTWCPC Holdings, L.P. TexasTWLDC Holdings GP, L.L.C. TexasTWLDC Holdings, L.P. TexasVictoria Ward Center L.L.C. DelawareVictoria Ward Entertainment Center L.L.C. DelawareVictoria Ward Services, Inc. DelawareVictoria Ward, Limited DelawareVolo Land, LLC DelawareVW Condominium Development, LLC DelawareWard Condominium Holdings, LLC DelawareWard Gateway-Industrial-Village, LLC DelawareWard Management Development Company, LLC DelawareWard Plaza-Warehouse, LLC DelawareWaterway Ave Partners, L.L.C. TexasWaterway Hotel Holdings, LLC DelawareWECCR 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. TexasWPC 17-RRA, LLC DelawareWRCC Holdings, LLC DelawareQuickLinksExhibit 21.1THE HOWARD HUGHES CORPORATION LIST OF SUBSIDIARIESQuickLinks -- Click here to rapidly navigate through this documentExhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-3 No. 333-184466), of The Howard Hughes Corporation, and (2)Registration Statements (Form S-8 No. 333-170431, Form S-8 No. 333-170432, Form S-8 No. 333-171909, and Form S-8 No. 333-171910) pertaining to the 2010 Amended and Restated Incentive Plan of The Howard Hughes Corporation;of our reports dated February 27, 2014, with respect to the consolidated financial statements and schedule of The Howard Hughes Corporation, and theeffectiveness of internal control over financial reporting of The Howard Hughes Corporation, included in this Annual Report (Form 10-K) for the yearended December 31, 2013./s/ Ernst & Young LLPDallas, TexasFebruary 27, 2014QuickLinksExhibit 23.1Consent of Independent Registered Public Accounting FirmQuickLinks -- Click here to rapidly navigate through this documentExhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-170431, 333-170432, 333-171909 and 333-171910 on Form S-8 andRegistration Statement No 333-184466 on Form S-3 of our report dated February 28, 2013, relating to the consolidated financial statements, andfinancial statement schedule as it relates to information included therein as of and for the years ended December 31, 2012 and 2011, of The HowardHughes Corporation and subsidiaries (the "Company"), appearing in this Annual Report on Form 10-K of the Company for the year endedDecember 31, 2013./s/ Deloitte & Touche LLPDallas, TexasFebruary 27, 2014QuickLinksExhibit 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMQuickLinks -- Click here to rapidly navigate through this documentExhibit 24.1 POWER OF ATTORNEY Each 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 Reporton Form 10-K of The Howard Hughes Corporation for the year ended December 31, 2013 and any and all amendments thereto, and to file the same,with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney andagent full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as theundersigned might or could do in person, hereby ratifying and confirming all that said attorney and agents, or his substitute or substitutes, may lawfullydo or cause to be done by virtue hereof.Dated: February 27, 2014/s/ WILLIAM ACKMANWilliam Ackman /s/ R. SCOT SELLERSR. Scot Sellers/s/ ADAM FLATTOAdam Flatto /s/ STEVEN SHEPSMANSteven Shepsman/s/ JEFFREY FURBERJeffrey Furber /s/ BURTON M. TANSKYBurton M. Tansky/s/ GARY KROWGary Krow /s/ MARY ANN TIGHEMary Ann Tighe/s/ ALLEN MODELAllen Model QuickLinksExhibit 24.1POWER OF ATTORNEYQuickLinks -- Click here to rapidly navigate through this documentExhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, David R. 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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, 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 inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance 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 theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant'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 arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 27, 2014 /s/ DAVID R. WEINREBDavid R. WeinrebChief Executive OfficerQuickLinksExhibit 31.1QuickLinks -- Click here to rapidly navigate through this documentExhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I Andrew C. 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 thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, 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 inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers 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 oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance 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 theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant'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 arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 27, 2014 /s/ ANDREW C. RICHARDSONAndrew C. RichardsonChief Financial OfficerChief Financial OfficerQuickLinksExhibit 31.2QuickLinks -- Click here to rapidly navigate through this documentExhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. 1350 ADOPTED PURSUANTTO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the filing of the Annual Report on Form 10-K of The Howard Hughes Corporation, a Delaware Corporation (the "Company"), forthe period ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersignedofficers, in their capacity as officers, of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that, to such officer's knowledge:(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 Companyas of the dates and for periods expressed in the report./s/ DAVID R. WEINREBDavid R. WeinrebChief Executive OfficerFebruary 27, 2014 /s/ ANDREW C. RICHARDSONAndrew C. RichardsonChief Financial OfficerFebruary 27, 2014 QuickLinksExhibit 32.1

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