Howard Hughes Holdings Inc. 10-K

Item 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 filed as a part of this Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties, assumptions, and other factors, including those described in Part I, Item 1A . Risk Factors and elsewhere in this Annual Report. These factors and others not currently known to us could cause our financial results in 2023 and subsequent fiscal years to differ materially from those expressed in, or implied by, those forward-looking statements. You are cautioned not to place undue reliance on this information which speaks only as of the date of this report. We are not obligated to update this information, whether as a result of new information, future events or otherwise, except as may be required by law. This section of our Form 10-K discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussion of 2021 and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of The Howard Hughes Corporation’s Annual Report Form 10-K for the year ended December 31, 2022. All references to numbered Notes are to specific Notes to our Consolidated Financial Statements included in this Annual Report and which descriptions are incorporated into the applicable response by reference. Capitalized terms used, but not defined, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) have the same meanings as in such Notes. Index Page Overview 39 Results of Operations 42 Operating Assets 42 Master Planned Communities 44 Seaport 49 Strategic Developments 52 Corporate Income, Expenses, and Other Items 55 Liquidity and Capital Resources 56 Critical Accounting Policies 60 Recently Issued Accounting Pronouncements and Developments 60 HHH 2023 FORM 10-K | 38 MANAGEMENT’S DISCUSSION AND ANALYSIS OVERVIEW Table of Contents Index to Financial Statements OVERVIEW General Overview Please refer to Item 1. Business for a general discussion of our business strategy, competitive strengths, and a general description of the assets contained in our four business segments and Item 2. Properties for details regarding the asset type, size, location, and key metrics about our various properties. Changes for monetary amounts between periods presented are calculated based on the amounts in thousands of dollars stated in our consolidated financial statements and then rounded to the nearest million. Therefore, certain changes may not recalculate based on the amounts rounded to the nearest million. We are primarily focused on creating shareholder value by increasing our per-share net asset value. Often, the nature of our business results in short-term volatility in our net income due to the timing of Master Planned Communities (MPC) land sales, recognition of condominium revenue, and operating business pre-opening expenses. 2023 Results During 2023, we maintained positive momentum and delivered solid financial results which met or exceeded our 2023 guidance expectations within each of our core businesses. This strong performance is a testament to our premier communities and best-in-class assets, further highlighting the strength of our unique business model. In our MPCs, a year-over-year increase of 45% in new homes sales in our communities, led to heightened demand and home builder interest for new land parcels as the year progressed. MPC earnings before taxes (EBT) increased 21% year over year, driven by solid land sales and high residential prices per acre. In Operating Assets, we delivered another full-year net operating income (NOI) record, outpacing 2022 results by 5%, excluding dispositions. This growth was led by strong leasing velocity at our newest multi-family developments, as well as increased occupancy and absorption within our office portfolio. In 2023, our leasing teams executed 581,000 square feet of new or expanded office leases, bringing our stabilized office assets to 88% leased at year-end and setting the stage for considerable NOI growth in the coming years. Ward Village had another strong year, selling out all remaining condo inventory at ‘A‘ali‘i and Kō'ula and contracting to sell 78 units at our three condo towers in pre-sales, The Park Ward Village, Ulana Ward Village, and Kalae. Together with Victoria Place, which is fully sold out and expected to be delivered in late 2024, these projects were 96% pre-sold at year-end and represent more than $2.6 billion of future contracted revenue that will be recognized as these projects are completed. 2024 Outlook Proceeding into 2024, we maintain a positive long-term outlook for our businesses. Across our MPCs, we see incredibly strong demand for our unmatched landbank, world-class portfolio of operating assets, and premier condo developments. The anticipated spin-off of Seaport Entertainment later in 2024 will allow Howard Hughes Holdings Inc. (HHH or the Company) to better focus on long-term opportunities within our renowned portfolio of master planned communities and enable considerable growth and value creation in the years to come. MPC EBT is projected to remain robust during 2024, aided by modest anticipated reductions in mortgage rates and tight supply of existing homes on the market. New home sales in Summerlin, Bridgeland, and The Woodlands Hills are expected to be strong, leading to continued homebuilder demand for residential land. The first land sales in Floreo, the first village in Teravalis, are also expected to contribute incremental EBT in 2024. These year-over-year gains are expected to be more than offset by reduced EBT associated with exceptional commercial land sales and builder price participation during 2023, as well as reduced inventory of custom lots available to sell at Aria Isle in The Woodlands and the Summit in Summerlin. As a result, 2024 MPC EBT is expected to modestly decline 10% to 15% year-over-year. Operating Assets NOI is projected to benefit from increased occupancy at new multi-family developments in Downtown Columbia, Summerlin, and Bridgeland, as well as improved retail leasing and new tenants in Downtown Columbia, Ward Village, and The Woodlands. The office portfolio is expected to benefit from strong leasing momentum experienced since mid-2022, but free rent periods on many of the new leases and the impact of some tenant vacancies and new office developments expected to be completed in 2024 will likely result in office NOI being relatively flat year-over-year. Overall, 2024 Operating Assets NOI is expected to be in a range of up 1% to 4% year-over-year. This includes projected NOI from The Las Vegas Aviators and the Las Vegas Ballpark, which are expected to be included in the spin-off of Seaport Entertainment. Condo sales revenues are projected to range between $675 million and $725 million, with gross margins between 28% to 30%. Projected condo sales revenues will be driven by the closing of units at Victoria Place, our 349-unit upscale development in Ward Village, which is 100% pre-sold and expected to be completed late in the fourth quarter of 2024. This guidance contemplates a portion of condo sales revenues for Victoria Place occurring in the first quarter of 2025 due to the timing of condo closings. HHH 2023 FORM 10-K | 39 MANAGEMENT’S DISCUSSION AND ANALYSIS OVERVIEW Table of Contents Index to Financial Statements 2023 Highlights Overall – Net income attributable to common stockholders decreased to a net loss of $551.8 million in 2023, including an after-tax impairment of $548.5 million related to the Seaport. This compares to net income of $184.5 million for the prior year. Excluding the after-tax impairment, the year-over-year reduction was primarily attributed to the timing of condo sales as the prior year included the delivery of Kō'ula in Ward Village. – We continue to maintain a strong liquidity position with $631.5 million of cash and cash equivalents, $1.0 billion of undrawn lender commitment available to be drawn for property development, and limited near-term debt maturities. – During 2023, we completed the sale of two land parcels in Honolulu, Hawai‘i, including an 11,929-square-foot building at the Ward Village Retail property, two self-storage facilities in The Woodlands, and Memorial Hermann Medical Office in The Woodlands for total net proceeds after debt repayment of $43.3 million. Operating Assets – Operating Assets NOI totaled $233.6 million in 2023, a $7.9 million increase compared to $225.8 million in the prior year. Excluding the impact of dispositions in 2022 and 2023, Operating Assets NOI increased $11.5 million compared to the prior-year period. – Multi-family NOI increased $7.3 million primarily due to continued lease-up at our newer properties, Marlow in Downtown Columbia and Starling at Bridgeland, and rent growth across our portfolio. – Office NOI increased $6.6 million, primarily due to continued lease-up activity and abatement expirations at various properties in The Woodlands, most notably at 9950 Woodloch Forest and Lakefront North, and one-time lease termination fees at 1725 Hughes Landing. These increases are partially offset by decreases related to lower occupancy at One Hughes Landing, 1725 Hughes Landing, and various properties in Downtown Columbia, rent abatements at 3 Waterway Square, and initial operating losses from 1700 Pavilion in Summerlin. – Retail NOI remained relatively flat in 2023 compared to the prior year. MPC – MPC EBT totaled $341.4 million in 2023, a $58.4 million increase compared to $283.0 million in the prior year. – The increase in EBT was primarily due to increased residential land sales in Summerlin, a higher overall residential price per acre in our MPCs, and higher equity earnings at The Summit primarily related to Phase II land inventory. Seaport – During 2023, the Company recorded an impairment charge related to the Seaport segment. For additional information, refer to Note 4 - Impairment in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. – Seaport NOI totaled a loss of $15.5 million in 2023, a $5.7 million decrease compared to the prior year. This change was primarily due to reduced restaurant performance as a result of poor weather conditions and elevated labor and overhead costs, and fewer private events in the current year, as well as COVID-related recoveries at the Fulton Market Building in the prior year. These decreases were partially offset by an increase in rental revenue driven by the opening of the Tin Building in 2022. – Seaport NOI excludes the impact of the Company’s equity ownership interest in the Tin Building by Jean-Georges managed business. Tin Building by Jean-Georges NOI was a loss of $38.8 million in 2023, compared to a loss of $36.2 million in the prior year. Strategic Developments – Strategic Developments EBT totaled a loss of $17.3 million in 2023, a $207.5 million decrease compared to income of $190.2 million in the prior year. – The decrease in EBT was primarily due to a $187.4 million decrease in profits from condominium sales. We closed on 31 units at ‘A‘ali‘i and 16 units at Kō'ula during 2023, compared to 549 units at Kō'ula, 56 units at ‘A‘ali‘i, and 2 units at Waiea during the prior year. The lower volume of condominium closings in 2023 was expected as our completed towers are now 100.0% sold and the next tower, Victoria Place, is not scheduled for completion until late 2024. – During 2023, the final units at ‘A‘ali‘i and Kō'ula were sold, resulting in our six completed towers being 100.0% sold. – As of December 31, 2023, 97.9% of the units at our three towers under construction, Victoria Place, The Park Ward Village, and Ulana Ward Village, are under contract, with Victoria Place and Ulana Ward Village being 100% sold. Kalae, which is still in presales, was 87.2% presold as of December 31, 2023. HHH 2023 FORM 10-K | 40 MANAGEMENT’S DISCUSSION AND ANALYSIS OVERVIEW Table of Contents Index to Financial Statements – In 2023, we placed Tanager Echo, a multi-family property in Summerlin, and the first phase of Wingspan, a single family build to rent property in Bridgeland, in service, representing a total of 368 multi-family units. The second phase of Wingspan, representing an additional 92 units, was placed in service in January 2024. The final phase of Wingspan, representing an additional 97 units, is expected to be placed in service in the second quarter of 2024. – In 2023, we began construction on Ulana Ward Village, our ninth condominium project in Ward Village, 1 Riva Row, a multi-family property in The Woodlands, and a retail center in Downtown Summerlin, which will be anchored by a new Whole Foods Market. These assets under construction represent 268 multi-family units, 696 condominium units, and 99,100 square feet of retail space. Corporate – Net expenses related to Corporate income, expenses, and other items decreased $217.3 million compared to the prior-year period primarily due to a decrease in income tax expense. Capital and Financing Activities – In 2023, our financing activity included draws on existing mortgages of $384.4 million, an additional draw of $200.0 million on the Secured Bridgeland Notes, refinancings of $161.0 million, and repayments of $48.4 million. For additional information, refer to Note 7 - Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. HHH 2023 FORM 10-K | 41 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements RESULTS OF OPERATIONS Operating Assets Segment EBT The following table presents segment EBT for Operating Assets for the years ended December 31: Operating Assets Segment EBT thousands 2023 2022 $ Change Rental revenue $ 383,238 $ 379,693 $ 3,545 Other land, rental, and property revenues 60,394 52,141 8,253 Total revenues 443,632 431,834 11,798 Operating costs (158,965) (141,678) (17,287) Rental property real estate taxes (53,817) (52,096) (1,721) (Provision for) recovery of doubtful accounts 2,616 (722) 3,338 Total operating expenses (210,166) (194,496) (15,670) Segment operating income (loss) 233,466 237,338 (3,872) Depreciation and amortization (170,731) (154,626) (16,105) Interest income (expense), net (127,388) (89,959) (37,429) Other income (loss), net 1,843 (1,140) 2,983 Equity in earnings (losses) from unconsolidated ventures 2,969 22,263 (19,294) Gain (loss) on sale or disposal of real estate and other assets, net 23,926 29,588 (5,662) Gain (loss) on extinguishment of debt (96) (2,230) 2,134 Segment EBT $ (36,011) $ 41,234 $ (77,245) Operating Assets segment EBT decreased $77.2 million compared to the prior-year period primarily due to the following: – Interest expense increased $37.4 million primarily due to new financings secured by our operating assets and higher interest rates on variable-rate debt. – Equity earnings decreased $19.3 million primarily as a result of a $11.8 million decrease related to the change in value of certain derivative instruments and a $4.9 million decrease related to the sale of 110 North Wacker in the first quarter of 2022. This decrease is due to the release of our share of accumulated other comprehensive income related to 110 North Wacker’s derivative instruments upon the sale in 2022. – Depreciation and amortization increased $16.1 million primarily related to new assets placed in service in the second half of 2022. – Gain on sale of real estate decreased $5.7 million as the combined gain on the sales of two self-storage properties and Memorial Hermann Medical Office in The Woodlands and certain properties in Ward Village in 2023 was lower than the combined gain on the sales of Creekside Village Green, Lake Woodlands Crossing, and Outlet Collection at Riverwalk in 2022. – Total revenues, net of operating costs decreased $5.5 million primarily due to COVID-related tenant recoveries at Ward Village in the prior year, and the sales of Creekside Village Green and Lake Woodlands Crossing in 2022, as well as increased insurance costs across our portfolio and increased labor and event costs for the Las Vegas Aviators in 2023. These decreases are partially offset by increased leasing activity and abatement expirations across our portfolio as well as one-time lease termination fees. Net Operating Income In addition to the required presentations using accounting principles generally accepted in the United States (GAAP), we use certain non-GAAP performance measures, as we believe these measures improve the understanding of our operational results and make comparisons of operating results among peer companies more meaningful. Management continually evaluates the usefulness, relevance, limitations and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change. We define NOI as operating revenues (rental income, tenant recoveries, and other revenue) less operating expenses (real estate taxes, repairs and maintenance, marketing, and other property expenses). NOI excludes straight-line rents and amortization of tenant incentives, net; interest expense, net; ground rent amortization; demolition costs; other income (loss); depreciation and amortization; development-related marketing costs; gain on sale or disposal of real estate and other assets, net; loss on extinguishment of debt; provision for impairment; and equity in earnings from unconsolidated ventures. HHH 2023 FORM 10-K | 42 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements We believe that NOI is a useful supplemental measure of the performance of our Operating Assets and Seaport segments because it provides a performance measure that reflects the revenues and expenses directly associated with owning and operating real estate properties. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that property-specific factors such as rental and occupancy rates, tenant mix, and operating costs have on our operating results, gross margins, and investment returns. A reconciliation of Operating Assets segment EBT to Operating Assets NOI is presented in the table below. Refer to the Seaport section for a reconciliation of Seaport segment EBT to Seaport NOI. Operating Assets NOI thousands 2023 2022 $ Change Total Operating Assets segment EBT $ (36,011) $ 41,234 $ (77,245) Add back: Depreciation and amortization 170,731 154,626 16,105 Interest (income) expense, net 127,388 89,959 37,429 Equity in (earnings) losses from unconsolidated ventures (2,969) (22,263) 19,294 (Gain) loss on sale or disposal of real estate and other assets, net (23,926) (29,588) 5,662 (Gain) loss on extinguishment of debt 96 2,230 (2,134) Impact of straight-line rent (2,256) (11,241) 8,985 Other 587 827 (240) Operating Assets NOI $ 233,640 $ 225,784 $ 7,856 The below table presents Operating Assets NOI by property type: Operating Assets NOI by Property Type thousands 2023 2022 $ Change Office $ 117,840 $ 111,210 $ 6,630 Retail 51,548 51,245 303 Multi-family 52,831 45,564 7,267 Other 10,489 12,711 (2,222) Redevelopments (a) (189) 280 (469) Dispositions (a) 1,121 4,774 (3,653) Operating Assets NOI $ 233,640 $ 225,784 $ 7,856 (a) Properties that were transferred to our Strategic Developments segment for redevelopment and properties that were sold are shown separately for all periods presented. Operating Assets NOI increased $7.9 million compared to the prior-year period primarily due to the following: – Multi-family NOI increased $7.3 million primarily driven by continued lease-up at our newer properties, Marlow in Downtown Columbia and Starling at Bridgeland, rent growth across our portfolio, and winter weather-related insurance recoveries. – Office NOI increased $6.6 million primarily due to continued lease-up activity and abatement expirations at various properties in The Woodlands, most notably at 9950 Woodloch Forest and Lakefront North, and one-time lease termination fees at 1725 Hughes Landing. These increases are partially offset by decreases related to lower occupancy at One Hughes Landing, 1725 Hughes Landing, and various properties in Downtown Columbia, rent abatements at 3 Waterway Square, and initial operating losses from 1700 Pavilion in Summerlin. – These increases were partially offset by a $3.7 million decrease related to the retail asset dispositions of Creekside Village Green, Lake Woodlands Crossing, and Outlet Collection at Riverwalk in 2022 and two self-storage properties in The Woodlands in 2023. – Other NOI decreased $2.2 million primarily due to higher labor and event costs related to the Las Vegas Aviators. HHH 2023 FORM 10-K | 43 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements Master Planned Communities Segment EBT The following table presents segment EBT for MPC for the years ended December 31: MPC Segment EBT thousands 2023 2022 $ Change Master Planned Community land sales (a) $ 370,185 $ 316,065 $ 54,120 Other land, rental, and property revenues 17,278 20,539 (3,261) Builder price participation (b) 60,989 71,761 (10,772) Total revenues 448,452 408,365 40,087 Master Planned Communities cost of sales (140,050) (119,466) (20,584) Operating costs (53,420) (54,439) 1,019 Total operating expenses (193,470) (173,905) (19,565) Segment operating income (loss) 254,982 234,460 20,522 Depreciation and amortization (418) (394) (24) Interest income (expense), net 64,291 50,305 13,986 Other income (loss), net (102) 23 (125) Equity in earnings (losses) from unconsolidated ventures 22,666 (1,407) 24,073 Segment EBT $ 341,419 $ 282,987 $ 58,432 (a) MPC land sales include deferred revenue from land sales closed in a previous period that met criteria for recognition in the current period and excludes amounts deferred from current period land sales that do not yet meet the recognition criteria. (b) Builder price participation revenue is earned when a developer that acquired land from us develops and sells a home to an end user at a price higher than a predetermined breakpoint. The excess over the breakpoint is shared between us and the developer at the time of closing on the sale of the home based on a previously agreed-upon percentage. This revenue fluctuates based upon the number and the prices of homes closed that qualify for builder price participation payments. The following table presents MPC segment EBT by MPC for the years ended December 31: MPC Segment EBT by MPC thousands 2023 2022 $ Change Bridgeland $ 101,835 $ 94,912 $ 6,923 Columbia (a) — (2,297) 2,297 Summerlin 227,409 179,063 48,346 Teravalis (b) (3,777) (1,975) (1,802) The Woodlands 4,036 (4,406) 8,442 The Woodlands Hills 11,916 17,690 (5,774) Segment EBT $ 341,419 $ 282,987 $ 58,432 Floreo (c) $ (4,150) $ (2,848) $ (1,302) (a) Columbia MPC land development is complete and the sale of remaining land or development of additional commercial assets will occur as the market dictates. As such, the remaining Columbia land was transferred to the Strategic Developments segment in the first quarter of 2023. (b) As of December 31, 2023, the Company owns an 88.0% interest and consolidates Teravalis. For additional detail, refer to Note 3 - Acquisitions and Dispositions in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. (c) These amounts represent 100% of Floreo EBT. The Company owns a 50% interest in Floreo. Refer to Note 2 - Investments in Unconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for a description of the joint venture and further discussion. HHH 2023 FORM 10-K | 44 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements MPC Segment EBT increased $58.4 million compared to the prior-year period primarily due to higher superpad land sales and price per acre in Summerlin, higher equity earnings of $24.1 million, primarily related to The Summit, and higher capitalized interest, partially offset by lower builder price participation of $10.8 million in all MPCs. Summerlin EBT increased $48.3 million compared to the prior period. – MPC sales, net of MPC cost of sales increased $28.5 million primarily due to the following activity: – increase in superpad acres sold, with 169.2 acres sold at an average price of $1.3 million per acre in 2023, compared to 94.6 acres sold at an average price of $1.1 million per acre in 2022 – decrease in commercial acres sold, with no acres sold in 2023, compared to 16.6 acres sold at an average price of $1.6 million in 2022 – decrease in custom lots sold, with one lot sold at a price of $2.0 million in 2023, compared to four lots sold with an average price of $2.2 million in 2022 – Equity earnings at The Summit increased $24.8 million primarily related to higher sales in 2023 as a result of additional available Phase II inventory and the close-out of clubhouse condominium units. – Builder price participation decreased $8.1 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for participation revenue in the current period. This reflects price moderation from all-time highs in 2022. The Woodlands EBT increased $8.4 million compared to the prior period. – MPC sales, net of MPC cost of sales increased $6.2 million primarily due to the following activity. – increase in commercial acres sold, with 8.4 acres sold at an average price of $646,000 in 2023, compared to no acres sold in 2022 – increase in residential acres sold, with 9.8 acres sold in Aria Isle, an exclusive gated community, at an average price of $2.5 million per acre in 2023, compared to 7.4 acres sold at an average price of $3.0 million per acre in 2022 – Operating costs decreased $4.7 million due to higher legal fees in the prior year, primarily related to the flood litigation. – Builder price participation decreased $1.6 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for participation revenue in the current period. This reflects price moderation from all-time highs in 2022. Bridgeland EBT increased $6.9 million compared to the prior period. – Increase of $6.2 million primarily due to higher capitalized interest inclusive of derivatives. For additional detail, refer to Note 9 - Derivative Instruments and Hedging Activities in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. – MPC sales, net of MPC cost of sales increased $3.5 million primarily due to the following activity: – increase due to more revenue recognized out of deferred revenue in 2023, compared to 2022 – decrease in commercial price per acre, with 121.3 acres sold at an average price of $249,000 per acre in 2023, compared to 110.7 acres sold at an average price of $433,000 in 2022 – decrease in residential acres sold, with 151.0 acres sold at an average price of $564,000 per acre in 2023, compared to 156.8 acres sold at an average price of $544,000 per acre in 2022 – Operating costs increased $3.0 million primarily due to higher real estate taxes. The Woodlands Hills EBT decreased $5.8 million compared to the prior period. – MPC sales, net of MPC cost of sales decreased $4.7 million primarily due to the following activity: – decrease in residential acres sold, with 44.7 acres sold at an average price of $427,000 per acre in 2023, compared to 61.9 acres sold at an average price of $382,000 per acre in 2022 – decrease in commercial acres sold, with no acres sold in 2023, compared to 8.0 acres sold at an average price of $175,000 in 2022 – Builder price participation decreased $1.2 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for participation revenue in the current period. This reflects price moderation from all-time highs in 2022. HHH 2023 FORM 10-K | 45 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements MPC Equity Investments The Summit The Summit, our joint venture with Discovery, offers a mix of custom lots, single-family homes, and clubhouse suites in our Summerlin MPC. The original 555-acre community (Phase I) is nearing completion and consists of approximately 270 homes including 32 condominiums. In 2022, the Company contributed an additional 54 acres (Phase II) to The Summit adjacent to the existing Summit community to develop approximately 28 custom home sites. We recognized equity earnings of $24.8 million and received cash distributions of $15.1 million in 2023, compared to equity losses of $30.0 thousand and no cash distributions in 2022. Floreo Land development is currently underway at Floreo, our joint venture with Trillium Development Holding Company, LLC. The first Floreo land sales were contracted as of December 31, 2023, and are expected to close in the first quarter of 2024. For additional detail, refer to Note 2 - Investments in Unconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. Residential and Commercial Land Sales The following tables detail our residential and commercial land sales for the years ended December 31: Summary of MPC Land Sales Closed Land Sales Acres Sold Average Price Per Acre thousands, except acres sold 2023 2022 2023 2022 2023 2022 Residential Land Sales Closed Bridgeland Single family $ 85,156 $ 85,320 151.0 156.8 $ 564 $ 544 Summerlin Superpad sites 223,583 108,196 169.2 94.6 1,321 1,144 Custom lots 2,000 8,910 0.7 2.0 2,857 4,455 The Woodlands Single family 24,421 21,864 9.8 7.4 2,492 2,955 The Woodlands Hills Single family 19,103 23,659 44.7 61.9 427 382 Total residential land sales closed (a) $ 354,263 $ 247,949 375.4 322.7 $ 944 $ 768 Commercial Land Sales Closed Bridgeland Commercial $ 30,536 $ 47,971 123.5 110.7 $ 247 $ 433 Summerlin Commercial — 26,016 — 16.6 — 1,567 The Woodlands Commercial 5,424 — 8.4 — 646 — The Woodlands Hills Commercial — 1,396 — 8.0 — 175 Total commercial land sales closed (a) $ 35,960 $ 75,383 131.9 135.3 $ 273 $ 557 (a) Excludes revenues related to sales closed in a previous period and deferred for recognition that met criteria for recognition in the current period. Please see the Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue table below which reconciles Total residential and commercial land sales closed to Land sales revenue for the years ended December 31, 2023 and 2022. HHH 2023 FORM 10-K | 46 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements Reconciliation of MPC Land Sales Closed to GAAP Land Sales Revenue The following table reconciles residential and commercial land sales closed in the years ended December 31, 2023 and 2022, to Master Planned Community land sales for the respective periods. Total net recognized (deferred) revenue includes revenues recognized in the current period which are related to sales closed in prior periods, offset by revenues deferred on sales closed in the current period. thousands 2023 2022 Total residential land sales closed $ 354,263 $ 247,949 Total commercial land sales closed 35,960 75,383 Net recognized (deferred) revenue: Bridgeland 10,467 (18,388) The Woodlands (782) — The Woodlands Hills 22 (172) Summerlin (44,174) 3,248 Total net recognized (deferred) revenue (34,467) (15,312) Special Improvement District revenue 14,429 8,045 Master Planned Community land sales $ 370,185 $ 316,065 Although our business does not involve the sale or resale of homes, we believe that net new home sales are an important indicator of future demand for our superpad sites and finished lots. Therefore, we use this statistic where relevant in our discussion of MPC operating results herein. Net new home sales reflect home sales made by homebuilders, less cancellations. Cancellations generally occur when a homebuyer signs a contract to purchase 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. Net New Home Sales Median Home Sales Price thousands except percentages 2023 2022 % Change 2023 2022 % Change Bridgeland 985 566 74.0 % $ 477 $ 525 (9.1) % Summerlin 1,071 775 38.2 % 696 722 (3.6) % The Woodlands (a) 5 32 (84.4) % 1,565 1,285 21.8 % The Woodlands Hills 228 201 13.4 % 478 429 11.4 % Total 2,289 1,574 45.4 % (a) New home sales in The Woodlands are not expected to be significant as residential land development is nearing completion. MPC Net Contribution MPC Net Contribution is a non-GAAP financial measure derived from EBT, adjusted for certain items as discussed below. Management uses this measure because it captures current period performance through the velocity of sales, as well as current period development expenditures based upon demand at our MPCs, which varies depending upon the stage of the MPCs development lifecycle and the overall economic environment. MPC Net Contribution is defined as MPC segment EBT, plus MPC cost of sales, Depreciation and amortization, and net collections from Special Improvement District (SID) bonds and Municipal Utility District (MUD) receivables, reduced by MPC development expenditures, land acquisitions, and Equity in earnings from unconsolidated ventures, net of distributions. MPC Net Contribution is not a GAAP-based operational metric and should not be used to measure operating performance of the MPC assets as a substitute for GAAP measures of such performance nor should it be used as a comparison metric with other comparable businesses. Below is a reconciliation of segment EBT to MPC Net Contribution for the years ended December 31: thousands 2023 2022 $ Change MPC segment EBT $ 341,419 $ 282,987 $ 58,432 Plus: Master Planned Communities cost of sales 140,050 119,466 20,584 Depreciation and amortization 418 394 24 MUD and SID bonds collections, net (a) 136,409 131,126 5,283 Distributions from unconsolidated ventures 15,050 — 15,050 Less: MPC development expenditures (403,633) (396,102) (7,531) Equity in (earnings) losses from unconsolidated ventures (22,666) 1,407 (24,073) MPC Net Contribution $ 207,047 $ 139,278 $ 67,769 (a) SID collections are shown net of SID transfers to buyers in the respective periods. HHH 2023 FORM 10-K | 47 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements MPC Net contribution increased $67.8 million for the year ended December 31, 2023, primarily due to higher MPC land sales and an increase in distributions from unconsolidated ventures. MPC Land Inventory The following table summarizes MPC land inventory activity: thousands Bridgeland Columbia (a) Summerlin Teravalis The Woodlands The Woodlands Hills Total MPC Balance December 31, 2021 $ 520,153 $ 16,625 $ 931,724 $ 510,541 $ 187,418 $ 116,307 $ 2,282,768 Development expenditures (b) 189,752 — 161,540 195 14,844 29,771 396,102 MPC Cost of sales (32,746) — (64,183) — (12,310) (10,227) (119,466) MUD reimbursable costs (c) (145,995) — — — (110) (24,521) (170,626) Transfer to Strategic Developments and Operating Assets Segments (777) — (12,424) — (4,433) — (17,634) Other 8,537 — (2,146) 33,810 (53) 234 40,382 Balance December 31, 2022 538,924 16,625 1,014,511 544,546 185,356 111,564 2,411,526 Development expenditures (b) 222,268 — 144,041 225 4,514 32,585 403,633 MPC Cost of sales (40,533) — (77,068) — (13,289) (9,160) (140,050) MUD reimbursable costs (c) (172,120) — — — (1,200) (25,688) (199,008) Transfer to Strategic Development and Operating Assets Segments (4,530) (16,625) (4,073) — (3,226) — (28,454) Other (10,978) — 2,516 53 497 5,938 (1,974) Balance December 31, 2023 $ 533,031 $ — $ 1,079,927 $ 544,824 $ 172,652 $ 115,239 $ 2,445,673 (a) Columbia MPC land development is complete and the sale of remaining land or development of additional commercial assets will occur as the market dictates. As such, the remaining Columbia land was transferred to the Strategic Developments segment in the first quarter of 2023. (b) Development expenditures are inclusive of capitalized interest and property taxes. (c) MUD reimbursable costs represent land development expenditures transferred to MUD Receivables. HHH 2023 FORM 10-K | 48 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements Seaport Seaport Entertainment On October 5, 2023, HHH announced the intent to form a new division, Seaport Entertainment, that is expected to include all of the assets in the Seaport segment, as well as the Las Vegas Aviators Triple-A Minor League Baseball team, the Las Vegas Ballpark, and our 80% interest in the air rights above the Fashion Show Mall in Las Vegas. HHH is establishing Seaport Entertainment with the intention of completing its spinoff as an independent, publicly traded company in 2024, but there can be no assurance regarding the ultimate timing of the spinoff or that the spinoff will ultimately occur. General The Seaport is part non-stabilized operating asset, part development project, and part operating business. As such, the Seaport has a greater range of possible outcomes than our other projects. The greater uncertainty is largely the result of: (i) seasonality; (ii) potential sponsorship revenue; (iii) potential event revenue; and (iv) business operating risks from various start-up businesses. We operate and own, either directly, through license agreements, or in joint ventures, many of the tenants in the Seaport. As a result, the revenues and expenses of these businesses, as well as the underlying market conditions affecting these types of businesses, will directly impact the NOI of the Seaport. This is in contrast to our other retail properties where we primarily receive lease payments and are not as directly impacted by the operating performance of the underlying businesses. This causes the financial results and eventual stabilized yield of the Seaport to be less predictable than our other operating real estate assets with traditional lease structures. Further, as we open new operating businesses, either owned entirely or in partnership with third parties, we expect to incur pre-opening expenses and operating losses until those businesses stabilize, which likely will not happen until the Seaport reaches its critical mass of offerings. Given the factors and uncertainties listed above, we do not currently provide guidance on our expected NOI yield or stabilization date for the Seaport. We primarily categorize the businesses in the Seaport segment into the following groups: Landlord Operations, Managed Businesses, the Tin Building, and Events and Sponsorships. Landlord Operations Landlord Operations represent physical real estate in the Historic District and Pier 17 that we have developed and own, and is inclusive of our office, retail, and multi-family properties. Managed Businesses Managed Businesses represent retail and food and beverage businesses in the Historic District and Pier 17 that the Company owns, either wholly or through partnerships with third parties, and operates, including license and management agreements. These businesses include, among others, The Fulton, Mister Dips, Carne Mare, and Malibu Farm. The Fulton and Malibu Farm are managed by Creative Culinary Management Company, LLC (CCMC), a Jean-Georges company, and Mister Dips and Carne Mare are managed by Seaport F&B LLC, an Andrew Carmellini company. These management companies are responsible for employment and supervision of all employees providing services for the food and beverage operations and restaurant as well as day-to-day operations and accounting for food and beverage operations. The Company owns a 25% interest in Jean-Georges Restaurants, which currently operates over 40 restaurant and hospitality offerings around the world. This ownership interest is reported in accordance with the equity method. In the fourth quarter of 2023, we expanded our Managed Businesses portfolio with the launch of The Lawn Club, a new joint venture concept that transformed over 20,000 square feet of the Fulton Market Building into an immersive indoor and outdoor experience that includes an extensive indoor grass area, a stylish clubhouse bar, and a wide variety of lawn games. Tin Building The Tin Building includes both landlord operations and managed business. The Company owns 100% of the Tin Building, which was completed and placed in service during the third quarter of 2022. The Company leased 100% of the space to the Tin Building by Jean-Georges joint venture, a managed business in which the Company has an equity ownership interest and reports its ownership interest in accordance with the equity method. Based on capital contribution and distribution provisions for the Tin Building by Jean-Georges, the Company currently recognizes all of the economic interest in the venture. The Company recognizes lease payments from the Tin Building by Jean-Georges in Rental revenue and recognizes its share of the offsetting rent expense in Equity earnings. As the Company currently recognizes 100% of operating income or losses from the Tin Building by Jean-Georges, the Tin Building lease has no net impact to Seaport EBT. However, Seaport NOI includes only rental revenue related to the Tin Building lease payments, and does not include the offsetting rent expense in Equity earnings. The Tin Building by Jean-Georges opened in late September 2022, with an expanded focus on experiences including in-person dining, retail shopping, and delivery and is managed by CCMC, a Jean-Georges company. HHH 2023 FORM 10-K | 49 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements Events and Sponsorships Our events and sponsorships businesses include our concert series, event catering, private events, and sponsorships. Food and beverage operations associated with concert concessions and catering are operated under management agreements with CCMC. The 2023 summer concert series, which began in May and ran through the end of October, included 63 shows with over 204,000 tickets sold, representing over 93% of available ticket inventory. This represents a modest increase from the 2022 summer concert series, which included 60 shows with over 188,200 tickets sold, representing over 90% of available ticket inventory. 250 Water Street In 2021, the Company received the necessary approvals for its 250 Water Street development project, which includes a mixed-use development with affordable and market-rate apartments, community-oriented spaces, and office space. In May 2021, the Company received approval from the New York City Landmarks Preservation Commission (LPC) on its proposed design for the 250 Water Street site. The Company received final approvals in December 2021 through the New York City Uniform Land Use Review Procedure known as ULURP, which allowed the necessary transfer of development rights to the parking lot site. Also in December 2021, an amendment to the Seaport ground lease was executed giving the Company extension options, at the discretion of the Company, for an additional 48 years from its current expiration in 2072 until 2120. We received a building foundation permit from the New York City Department of Buildings and began initial foundation work and remediation in the second quarter of 2022. Remediation of the site as a volunteer of the New York State Brownfield Cleanup program was completed in December 2023. Various lawsuits have been filed challenging the governmental approval of our development project. For additional information regarding these lawsuits, see Note 10 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. Segment EBT The following table presents segment EBT for the Seaport for the years ended December 31: Seaport Segment EBT thousands 2023 2022 $ Change Rental revenue (a) $ 21,746 $ 19,410 $ 2,336 Other land, rental, and property revenues 60,225 69,058 (8,833) Total revenues 81,971 88,468 (6,497) Operating costs (102,725) (102,271) (454) Rental property real estate taxes (686) (885) 199 (Provision for) recovery of doubtful accounts (55) (1,237) 1,182 Total operating expenses (103,466) (104,393) 927 Segment operating income (loss) (21,495) (15,925) (5,570) Depreciation and amortization (37,791) (36,338) (1,453) Interest income (expense), net 3,065 3,902 (837) Other income (loss), net (1,290) 245 (1,535) Equity in earnings (losses) from unconsolidated ventures (81,485) (36,273) (45,212) Gain (loss) on extinguishment of debt (48) — (48) Provision for impairment (672,492) — (672,492) Segment EBT $ (811,536) $ (84,389) $ (727,147) (a) Lease payments for the Tin Building included in Rental revenue and offset in Equity losses were $11.6 million for the year ended December 31, 2023, and $4.6 million for the year ended December 31, 2022. No rental payments were made during the first or second quarter of 2022 as the lease had not yet commenced. Refer to the Tin Building discussion above for additional detail. Seaport segment EBT decreased $727.1 million compared to the prior-year period primarily due to the following: – Provision for impairment includes $672.5 million and Equity losses includes $37.0 million related to the Seaport impairment. For additional information, refer to Note 4 - Impairment in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. – Equity losses increased $8.2 million, excluding the impact of the $37.0 million impairment charge above, primarily due to operating losses for the Tin Building by Jean-Georges, which opened in the third quarter of 2022. – Total revenues, net of Operating costs decreased $7.0 million primarily due to reduced restaurant performance as a result of poor weather conditions and elevated labor and overhead costs, and fewer private events in the current year, as well as COVID-related recoveries at the Fulton Market Building in the prior year. These decreases were partially offset by an increase in rental revenue driven by the opening of the Tin Building. HHH 2023 FORM 10-K | 50 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements – Depreciation expense increased $1.5 million primarily due to the Tin Building being completed and placed in service in the third quarter of 2022, partially offset by a decrease as a result of the Seaport impairment. Net Operating Income A reconciliation of Seaport segment EBT to Seaport NOI is presented below: Seaport NOI thousands 2023 2022 $ Change Total Seaport segment EBT $ (811,536) $ (84,389) $ (727,147) Add back: Depreciation and amortization 37,791 36,338 1,453 Interest (income) expense, net (3,065) (3,902) 837 Equity in (earnings) losses from unconsolidated ventures 81,485 36,273 45,212 (Gain) loss on extinguishment of debt 48 — 48 Impact of straight-line rent 1,927 456 1,471 Other (income) loss, net 5,341 5,456 (115) Provision for impairment 672,492 — 672,492 Seaport NOI $ (15,517) $ (9,768) $ (5,749) The Seaport, including Managed Businesses, Events and Sponsorships, and the Tin Building, is approximately 69% leased. We may continue to incur operating expenses in excess of rental revenues while the remaining available space is in lease-up, as the Seaport continues to move toward its critical mass of offerings. The below table presents Seaport NOI by category: Seaport NOI by Category thousands 2023 2022 $ Change Landlord Operations $ (21,506) $ (15,702) $ (5,804) Landlord Operations - Multi-family 133 110 23 Managed Businesses (3,516) (85) (3,431) Tin Building 9,486 4,015 5,471 Events and Sponsorships (114) 1,894 (2,008) Seaport NOI $ (15,517) $ (9,768) $ (5,749) Seaport NOI decreased $5.7 million compared to the prior-year period. The decreases in Landlord Operations NOI are primarily due to increased labor and overhead costs, insurance expense, and franchise tax expense in the current year as well as COVID-related recoveries at the Fulton Market Building in the prior year. The decreases in Managed Businesses and Events and Sponsorships NOI are due to reduced restaurant performance as a result of poor weather conditions and elevated labor and overhead costs, fewer private events, and increased marketing and production costs related to the concert series in the current year. These decreases were partially offset by an increase in Tin Building NOI resulting from the opening of the Tin Building in the third quarter of 2022. Tin Building in the table above represents NOI from our landlord business and, as defined, excludes the impact of the Company’s equity ownership interest in the Tin Building by Jean-Georges managed business which opened in the third quarter of 2022. The table below presents the above NOI related to the Tin Building, which primarily represents lease payments from the Tin Building by Jean-Georges, as well as the Company’s share of NOI related to its investment in the Tin Building by Jean-Georges, which primarily represents the operations of the Tin Building marketplace and includes rent expense paid to the Company. thousands 2023 2022 2023-2022 $ Change Tin Building $ 9,486 $ 4,015 $ 5,471 Tin Building by Jean-Georges (38,798) (36,183) (2,615) Total $ (29,312) $ (32,168) $ 2,856 Tin Building by Jean-Georges NOI losses during 2022 relate to costs incurred prior to the marketplace opening in the third quarter of 2022 and elevated operating losses during the early months of operation. In 2023, the Tin Building by Jean-Georges was open seven days per week, with strong foot traffic and sales. However, operating losses remained elevated in 2023, as the Company continues to refine the operating model during the marketplace’s first year in operations, and the Seaport experienced poor weather conditions throughout the year. HHH 2023 FORM 10-K | 51 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements Strategic Developments Our Strategic Developments assets generally require substantial future development to maximize their value. Other than our condominium properties, most of the properties and projects in this segment do not generate revenues. Our expenses relating to these assets are primarily related to costs associated with constructing the assets, selling condominiums, marketing costs associated with our Strategic Developments, carrying costs including, but not limited to, property taxes and insurance and other ongoing costs relating to maintaining the assets in their current condition. If we decide to redevelop or develop a Strategic Developments asset, we expect that with the exception of the residential portion of our condominium projects, upon completion of development, the asset would likely be reclassified to Operating Assets when the asset is placed in service and NOI would become a meaningful measure of its operating performance. All development costs discussed herein are exclusive of land costs. Segment EBT The following table presents segment EBT for Strategic Developments for the years ended December 31: Strategic Developments Segment EBT thousands 2023 2022 $ Change Condominium rights and unit sales $ 47,707 $ 677,078 $ (629,371) Rental revenue 379 — 379 Other land, rental, and property revenues 1,901 2,685 (784) Total revenues 49,987 679,763 (629,776) Condominium rights and unit cost of sales (55,417) (483,983) 428,566 Operating costs (21,908) (19,001) (2,907) Real estate taxes (3,147) (1,052) (2,095) Total operating expenses (80,472) (504,036) 423,564 Segment operating income (loss) (30,485) 175,727 (206,212) Depreciation and amortization (3,963) (5,319) 1,356 Interest income (expense), net 16,074 17,073 (999) Other income (loss), net 690 1,799 (1,109) Equity in earnings (losses) from unconsolidated ventures 142 868 (726) Gain (loss) on sale or disposal of real estate and other assets, net 236 90 146 Segment EBT $ (17,306) $ 190,238 $ (207,544) Strategic Developments segment EBT decreased $207.5 million compared to the prior-year period primarily due to the following: – Condominium sales, net of cost of sales decreased $187.4 million, excluding the change in remediation costs of $13.4 million discussed below, due to the timing of condominium closings, including the completion of Kō'ula in the third quarter of 2022, and pricing reductions in 2023 at ‘A‘ali‘i and Kō'ula to facilitate the close-out of remaining units. We closed on 31 units at ‘A‘ali‘i and 16 units at Kō'ula during 2023, compared to 549 units at Kō'ula, 56 units at ‘A‘ali‘i, and 2 units at Waiea during the prior year. The lower volume of condominium closings in 2023 was expected as our completed towers are now 100.0% sold and the next tower, Victoria Place, is not scheduled for completion until late 2024. – Condominium cost of sales also includes an increase of $13.4 million due to charges related to the defect remediation accrual at Waiea. We charged $16.1 million in 2023, related to additional anticipated costs, compared to $2.7 million charged in 2022. HHH 2023 FORM 10-K | 52 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements Strategic Developments Projects The following describes the status of our major construction projects and announced Strategic Developments projects as of December 31, 2023. Columbia 10285 Lakefront Medical Office 10285 Lakefront Medical Office (formerly South Lake Medical Office) will be an 86,000 square foot medical office property. Total development costs are expected to be approximately $49.9 million, which will be partially financed with a $28.2 million construction loan. We began construction in the third quarter of 2022 and anticipate project completion in the second quarter of 2024. We expect to reach projected annual stabilized NOI of $3.2 million by 2027. Summerlin Meridian Meridian (formerly Summerlin South Office) will be a 147,000 square foot office property. Total development costs are expected to be approximately $55.5 million, which will be partially financed with a $27.8 million construction loan. We began construction in the fourth quarter of 2022 and anticipate project completion in the first quarter of 2024. We expect to reach projected annual stabilized NOI of $4.3 million by 2027. Summerlin Grocery Anchored Center This 67,000 square foot retail property in Downtown Summerlin will be anchored by a new Whole Foods Market. Total development costs are expected to be approximately $46.4 million, which will be partially financed with an $18.0 million construction loan. We began construction in the third quarter of 2023 and anticipate project completion in the third quarter of 2024. We expect to reach projected annual stabilized NOI of $1.8 million by 2027. The Woodlands 1 Riva Row 1 Riva Row will be a 268-unit multi-family property and will consist of studio, one-, two-, and three-bedroom units. Total development costs are expected to be approximately $156.0 million, which will be partially financed by a $93.3 million construction loan. We began construction in the third quarter of 2023 and anticipate project completion in 2025. We expect to reach projected annual stabilized NOI of $9.9 million by 2028. Ward Village We continue to transform Ward Village into a vibrant neighborhood offering unique retail experiences, dining, and entertainment, along with exceptional residences and workforce housing set among open public spaces and pedestrian-friendly streets. We believe we have found the optimal mix of price point and product in the Honolulu market for condominium development as evidenced by the demand for our condominium projects discussed below. The ongoing and completed construction at our mixed-use condominium projects includes 232,020 square feet of retail to serve our new residents and the community at large. As we progress the buildout of the master plan, which ultimately contemplates a total of approximately 1,000,000 million square feet of commercial space at completion, we will periodically redevelop, reposition, or replace the existing retail spaces as part of new mixed-use projects. Condominium revenue is recognized when construction of the condominium tower is complete and unit sales close, leading to potentially significant variability in revenue recognized between periods. Sales contracts for condominium units are subject to a 30-day rescission period, and the buyers are typically required to make an initial deposit at signing and an additional deposit 30 days later at which point their total deposit becomes non-refundable. Buyers are typically then required to make a final deposit within approximately 90 days of our receipt of their second deposit. Certain buyers are required to deposit the remainder of the sales price on a predetermined pre-closing date, which is specified in the sales contracts for each condominium project. Contracted units disclosed below represent sales that are past the 30-day rescission period. During 2023, we achieved 100% presold status at Ulana Ward Village, achieved 100% sold status at ‘A‘ali‘i and Kō‘ula, and began construction at Ulana Ward Village. Completed Condominiums As of December 31, 2023, our six completed condominiums, Ae‘o, Ke Kilohana, Anaha, Waiea, ‘A‘ali‘i, and Kō‘ula, are completely sold. Condominiums Under Construction As of December 31, 2023, 97.9% of the units at our three towers under construction, Victoria Place, The Park Ward Village, and Ulana Ward Village, are under contract. We broke ground on our seventh condominium project, Victoria Place in February 2021, and expect to complete construction in the fourth quarter of 2024. Victoria Place, which is 100.0% presold, will consist of 349 one-, two-, and three-bedroom units. HHH 2023 FORM 10-K | 53 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements We broke ground on our eighth condominium project, The Park Ward Village, in October 2022, expect to complete construction in 2026. The Park Ward Village will consist of 545 studio, one-, two-, and three-bedroom residences. As of December 31, 2023, we have entered into contracts for 512 units, representing 93.9% of total units. We broke ground on our ninth condominium project, Ulana Ward Village, in January 2023 and expect to complete construction in 2025. Ulana Ward Village, which is 100.0% presold, will consist of 696 studio, one-, two-, and three-bedroom units. All units are designated as workforce housing units and are being offered to local residents who meet certain maximum income and net worth requirements. Predevelopment Condominiums We launched public presales of our tenth condominium project, Kalae, in September 2022. Kalae will consist of 329 one-, two-, and three-bedroom residences. As of December 31, 2023, we have entered into contracts for 287 units, representing 87.2% of total units. The following provides further details for Ward Village as of December 31, 2023: Units Closed Units Under Contract Total Units Total % of Units Closed or Under Contract Completion Date Completed Waiea (a) 177 — 177 100.0 % Q4 2016 Anaha (a) 317 — 317 100.0 % Q4 2017 Ae‘o (a) 465 — 465 100.0 % Q4 2018 Ke Kilohana (a) 423 — 423 100.0 % Q2 2019 ‘A‘ali‘i (a) 750 — 750 100.0 % Q4 2021 Kō‘ula (b) 565 — 565 100.0 % Q3 2022 Under Construction Victoria Place — 349 349 100.0 % Q4 2024 The Park Ward Village (c) — 512 545 93.9 % 2026 Ulana Ward Village (d) — 696 696 100.0 % 2025 Predevelopment Kalae (e) — 287 329 87.2 % 2027 (a) The retail portions of these projects are 100% leased and have been placed in service. (b) The retail portion of this project has been placed in service and is 56% leased. (c) There will be approximately 26,800 square feet of retail space as part of this project. (d) There will be approximately 32,100 square feet of retail space as part of this project. (e) There will be approximately 2,000 square feet of retail space as part of this project. HHH 2023 FORM 10-K | 54 MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Table of Contents Index to Financial Statements Corporate Income, Expenses, and Other Items The following table contains certain corporate-related and other items not related to segment activities and that are not otherwise included within the segment analyses. Variances related to income and expenses included in NOI or EBT are explained within the previous segment discussions. Significant variances for consolidated items not included in NOI or EBT are described below for the years ended December 31: thousands 2023 2022 $ Change Corporate income $ 60 $ 58 $ 2 General and administrative (91,193) (81,772) (9,421) Corporate interest expense, net (87,243) (88,394) 1,151 Gain (loss) on extinguishment of debt — (147) 147 Corporate other income (loss), net 3,143 982 2,161 Corporate depreciation and amortization (3,215) (3,684) 469 Other (13,383) (11,977) (1,406) Income tax (expense) benefit 163,735 (60,500) 224,235 Total Corporate income, expenses, and other items $ (28,096) $ (245,434) $ 217,338 Corporate income, expenses, and other items was favorably impacted compared to the prior-year period by the following: – Income tax expense decreased $224.2 million primarily due to a decrease in income before income taxes. – Corporate other income increased $2.2 million primarily related to the receipt of insurance proceeds. Corporate income, expenses, and other items was unfavorably impacted compared to the prior-year period by the following: – General and administrative expenses increased $9.4 million primarily attributable to an increase in compensation costs and increased legal and consulting fees related to the holding company reorganization and planned spinoff of Seaport Entertainment. Income Taxes thousands except percentages 2023 2022 Income tax expense (benefit) $ (163,735) $ 60,500 Income (loss) before income taxes $ (715,265) $ 245,136 Effective tax rate 22.9 % 24.7 % The Company’s effective tax rate for the year ended December 31, 2023, was 22.9% compared to 24.7% for the year ended December 31, 2022. The Company’s effective tax rate is typically impacted by non-deductible executive compensation and other permanent differences as well as state income taxes, which cause the Company’s effective tax rate to deviate from the federal statutory rate. For additional information on income taxes, see Note 12 - Income Taxes in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. HHH 2023 FORM 10-K | 55 MANAGEMENT’S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Table of Contents Index to Financial Statements LIQUIDITY AND CAPITAL RESOURCES We continue to maintain a strong balance sheet and ensure we maintain the financial flexibility and liquidity necessary to fund future growth. In 2023, our financing activity included draws on existing mortgages of $384.4 million, an additional draw of $200.0 million on the Secured Bridgeland Notes, refinancings of $161.0 million, and repayments of $48.4 million. As of December 31, 2023, we have $1.0 billion of undrawn lender commitment available to be drawn for property development, subject to certain restrictions. In 2022, the Company sold its ownership interest in 110 North Wacker for net proceeds to the Company of $168.9 million and sold the Outlet Collection at Riverwalk for net proceeds of $8.2 million. Additionally, during the fourth quarter of 2022, the Company completed the sale of two retail properties in The Woodlands, Lake Woodlands Crossing and Creekside Village Green, for combined net proceeds after debt repayment of $38.8 million. In 2023, the Company completed the sale of two land parcels in Honolulu, Hawai‘i, including an 11,929-square-foot building at the Ward Village Retail property, two self-storage facilities in The Woodlands, and Memorial Hermann Medical Office in The Woodlands for total net proceeds after debt repayment of $43.3 million. Cash Flows Year Ended December 31, thousands 2023 2022 Cash provided by (used in) operating activities $ (258,482) $ 325,254 Cash provided by (used in) investing activities (336,143) (220,695) Cash provided by (used in) financing activities 548,745 (222,259) Operating Activities Each segment’s relative contribution to our cash flows from operating activities will likely vary significantly from year to year given the changing nature of our development focus. Other than our condominium properties, most of the properties and projects in our Strategic Developments segment do not generate revenues, and the cash flows and earnings may vary. Condominium deposits received from contracted units offset by other various cash uses related to condominium development and sales activities are a substantial portion of our operating activities in 2023. Operating cash continued to be utilized in 2023 to fund ongoing development expenditures in our Strategic Developments and MPC segments, consistent with prior years. The cash flows and earnings from the MPC business may fluctuate more than from our operating assets because the MPC business generates revenues from land sales rather than recurring contractual revenues from operating leases. MPC land sales are a substantial portion of our cash flows from operating activities and are partially offset by development costs associated with the land sales business and acquisitions of land that is intended to ultimately be developed and sold. Net cash used in operating activities was $258.5 million in 2023 and net cash provided by operating activities was $325.3 million in 2022. The change in operating activities of $583.7 million was primarily due to a $693.9 million increase in net cash used associated with our condominiums due to timing, as we continued development activity on our three under construction projects and did not complete a condominium project in 2023. This change was also impacted by a $35.1 million increase in interest payments, partially offset by a $20.2 million increase in MUD receivable collections and a $14.4 million decrease in income tax payments. Investing Activities Net cash used in investing activities was $336.1 million in 2023 and net cash used in investing activities was $220.7 million in 2022. The $115.4 million increase in cash used in investing activities was primarily due to a $194.7 million decrease in distributions from unconsolidated ventures and a $42.2 million decrease in proceeds from sales of properties. The decrease in distributions primarily related to distributions received from the sale of the Company’s interest in 110 North Wacker in the first quarter of 2022, which resulted in a net increase to the Company’s liquidity of $168.9 million after the payment of transaction costs and distributions to our partner. The impact of these changes was partially offset by a decrease in cash used related to investments in unconsolidated ventures of $54.9 million, primarily attributable to the Company’s investment in Jean-Georges Restaurants in the first quarter of 2022, and a $78.0 million decrease in cash used for property development and redevelopment expenditures. HHH 2023 FORM 10-K | 56 MANAGEMENT’S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Table of Contents Index to Financial Statements Financing Activities Net cash provided by financing activities was $548.7 million in 2023 and net cash used in financing activities was $222.3 million in 2022. The change in financing activities of $771.0 million was primarily due to a decrease in cash used related to principal payments on mortgages, notes, and loans payable of $815.9 million and repurchases of common shares of $403.9 million in 2022, with no similar activity in 2023. These decreases in cash used were partially offset by a decrease in proceeds from mortgages, notes, and loans payable of $443.5 million. Short- and Long-Term Liquidity Short-Term Liquidity In the next 12 months, we expect our primary sources of cash to include cash flow from MPC land sales and condominium closings, cash generated from our operating assets, first mortgage financings secured by our assets, and deposits from condominium sales (which are restricted to funding construction of the related developments). We expect our primary uses of cash to include condominium pre-development and development costs, debt principal payments and debt service costs, MPC land development costs, other strategic developments costs, and general operating costs. We believe that our sources of cash, including existing cash on hand, will provide sufficient liquidity to meet our existing obligations and anticipated ordinary course operating expenses for at least the next 12 months. Long-Term Liquidity The development and redevelopment opportunities in Strategic Developments and Operating Assets are capital intensive and will require significant additional funding, if and when pursued. Any additional funding beyond those sources listed above would be raised with a mix of construction, bridge, and long-term financings, by entering into joint venture arrangements, as well as future equity raises. We cannot provide assurance that financing arrangements for our properties will be on favorable terms or occur at all, which could have a negative impact on our liquidity and capital resources. In addition, we typically must provide completion guarantees to lenders in connection with their financing for our projects. Summary of Remaining Development Costs The following table summarizes remaining development costs and related debt for projects held in the Operating Assets and Strategic Developments segments as of December 31, 2023. Total cost remaining to be paid net of debt and buyer deposits consists of $88.0 million related to substantially completed projects, $36.9 million related to projects with estimated completion dates within the next 12 months, and $114.6 million related to projects with estimated completion dates in 2025 and 2026. Projects that are substantially complete and have been placed into service in the Operating Assets segment and completed condominium projects in the Strategic Developments segment are included in the following table if the project has more than $1.0 million of estimated costs remaining to be incurred. As of December 31, 2023, $23.4 million primarily relates to warranty repairs at Waiea in Ward Village. However, we anticipate recovering a substantial amount of these costs in the future, which is not reflected in the table below. The remaining cost related to substantially completed projects primarily represent costs associated with the completion of common areas at our completed condominium towers and budgeted tenant allowances necessary to bring our completed operating assets to stabilized occupancy. HHH 2023 FORM 10-K | 57 MANAGEMENT’S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Table of Contents Index to Financial Statements We expect to be able to meet our cash funding requirements with a combination of existing and anticipated construction loans, condominium buyer deposits, free cash flow from our Operating Assets and MPC segments, net proceeds from condominium sales, and our existing cash balances. thousands Estimated Remaining to be Spent Remaining Buyer Deposits/Holdback to be Drawn Debt to be Drawn (a) Costs Remaining to be Paid, Net of Debt and Buyer Deposits/Holdbacks to be Drawn (b) Operating Assets Columbia $ 33,197 $ — $ 9,747 $ 23,450 The Woodlands 1,916 — — 1,916 Bridgeland 31,790 — 30,961 829 Summerlin 23,936 — 18,133 5,803 Total Operating Assets 90,839 — 58,841 31,998 Strategic Developments Columbia 27,045 — 23,758 3,287 The Woodlands 146,443 — 93,299 53,144 Summerlin 70,041 — 45,762 24,279 Ward Village (b) 1,010,730 147,201 736,731 126,798 Total Strategic Developments 1,254,259 147,201 899,550 207,508 Total $ 1,345,098 $ 147,201 $ 958,391 $ 239,506 (a) Refer to Note 7 - Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information on debt. (b) Estimated remaining to be spent includes amounts for Waiea warranty repairs. However, we anticipate recovering a substantial amount of these costs in the future, which is not reflected in this schedule. Contractual Cash Obligations and Commitments The following table aggregates our contractual cash obligations and commitments as of December 31, 2023: thousands 2024 2025 2026 2027 2028 Thereafter Total Mortgages, notes, and loans payable $ 214,526 $ 527,478 $ 968,964 $ 298,601 $ 835,522 $ 2,507,519 $ 5,352,610 Interest Payments (a) 297,880 250,482 204,598 156,897 131,891 280,733 1,322,481 Ground lease commitments (b) 2,883 2,937 2,992 3,049 3,108 240,242 255,211 Total $ 515,289 $ 780,897 $ 1,176,554 $ 458,547 $ 970,521 $ 3,028,494 $ 6,930,302 (a) Interest is based on the borrowings that are presently outstanding and current floating interest rates. (b) Ground lease commitments totaling $247.5 million relate to the Seaport ground lease, which has an initial expiration date of December 31, 2072, and is subject to extension options through December 31, 2120. Future cash payments are not inclusive of extension options. The remaining $7.7 million in ground lease commitments relates to Kewalo Basin Harbor. Debt As of December 31, 2023, the Company had $5.3 billion of outstanding debt and $1.0 billion of undrawn lender commitment available to be drawn for property development, subject to certain restrictions. Refer to Note 7 - Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional detail. Our proportionate share of the debt of our unconsolidated ventures totaled $134.9 million as of December 31, 2023. All of this indebtedness is without recourse to the Company, with the exception of the collateral maintenance obligation for Floreo. See Note 10 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information related to the Company’s collateral maintenance obligation. Debt Compliance As of December 31, 2023, the Company was in compliance with all property-level debt covenants with the exception of five property-level debt instruments. As a result, the excess net cash flow after debt service from the underlying properties became restricted. While the restricted cash could not be used for general corporate purposes, it could be used to fund operations of the underlying assets and did not have a material impact on the Company’s liquidity or its ability to operate these assets. Additionally, one property-level debt instrument that was not in compliance as of September 30, 2023, is in compliance as of December 31, 2023, but requires two consecutive quarters of compliance to remove the cash flow restriction. HHH 2023 FORM 10-K | 58 MANAGEMENT’S DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Table of Contents Index to Financial Statements Net Debt The following table summarizes our net debt on a segment basis as of December 31, 2023. Net debt is defined as Mortgages, notes, and loans payable, net, including our ownership share of debt of our unconsolidated ventures, reduced by liquidity sources to satisfy such obligations such as our ownership share of Cash and cash equivalents and SID, MUD, and TIF receivables. Although net debt is a non-GAAP financial measure, we believe that such information is useful to our investors and other users of our financial statements as net debt and its components are important indicators of our overall liquidity, capital structure, and financial position. However, it should not be used as an alternative to our debt calculated in accordance with GAAP. thousands Operating Assets Master Planned Communities Seaport Strategic Developments Segment Totals Non- Segment Amounts December 31, 2023 Mortgages, notes, and loans payable, net $ 2,315,743 $ 536,127 $ 112,999 $ 307,795 $ 3,272,664 $ 2,029,956 $ 5,302,620 Mortgages, notes, and loans payable of unconsolidated ventures 90,593 44,209 76 — 134,878 — 134,878 Less: Cash and cash equivalents (11,393) (92,821) (1,952) (13,164) (119,330) (512,218) (631,548) Cash and cash equivalents of unconsolidated ventures (1,649) (16,763) (9,308) (650) (28,370) — (28,370) Special Improvement District receivables — (74,899) — — (74,899) — (74,899) Municipal Utility District receivables, net — (547,952) — (2,932) (550,884) — (550,884) TIF receivable — — — (6,371) (6,371) — (6,371) Net Debt $ 2,393,294 $ (152,099) $ 101,815 $ 284,678 $ 2,627,688 $ 1,517,738 $ 4,145,426 Unconsolidated Ventures We have interests in certain unconsolidated ventures which, as of December 31, 2023, have mortgage financing totaling $273.1 million, with our proportionate share of this debt totaling $134.9 million. All of this indebtedness is without recourse to the Company, with the exception of the collateral maintenance obligation for Floreo. See Note 10 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information related to the Company’s collateral maintenance obligation. The following table summarizes our share of affiliate debt and cash as of December 31, 2023: thousands Company’s Share of Unconsolidated Ventures’ Debt Company’s Share of Unconsolidated Ventures’ Cash Operating Assets The Metropolitan $ 40,200 $ 604 Stewart Title of Montgomery County, TX — 401 Woodlands Sarofim 1,188 141 TEN.m.flats 49,205 503 Master Planned Communities The Summit 7,699 15,858 Floreo 36,510 905 Seaport The Lawn Club — 40 Tin Building by Jean-Georges — 5,191 Jean-George Restaurants 76 4,062 Ssäm Bar — 15 Strategic Developments HHMK Development — 10 KR Holdings — 487 West End Alexandria — 153 Total $ 134,878 $ 28,370 HHH 2023 FORM 10-K | 59 MANAGEMENT’S DISCUSSION AND ANALYSIS CRITICAL ACCOUNTING POLICIES Table of Contents Index to Financial Statements CRITICAL ACCOUNTING POLICIES The preparation of financial statements in accordance with GAAP requires management to make informed judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates. Below is a discussion of the accounting policies that we consider critical to an understanding of our financial condition and operating results that may require complex or significant judgment in their application or require estimates about matters which are inherently uncertain. A discussion of our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 1 - Presentation of Financial Statements and Significant Accounting Policies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K. Impairments Methodology We review our long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Although the carrying amount may exceed the estimated fair value of certain properties, a real estate asset is only considered to be impaired when its carrying amount is not expected to be recovered through estimated future undiscounted cash flows. To the extent an impairment provision is necessary, the excess of the carrying amount of the asset over its estimated fair value is expensed to operations and the carrying amount of the asset is reduced. The adjusted carrying amount, which represents the new cost basis of the asset, is depreciated over the remaining useful life of the asset or, for MPCs, is expensed as a cost of sales when land is sold. Judgments and uncertainties An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, pricing, development costs, sales pace, capitalization rates, selling costs, and estimated holding periods for the applicable assets. As such, the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions that could differ materially from actual results in future periods. Unfavorable changes in any of the primary assumptions could result in a reduction of anticipated future cash flows and could indicate property impairment. Uncertainties related to the primary assumptions could affect the timing of an impairment. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. Master Planned Communities Cost of Sales Methodology When residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold. When land is sold, costs are allocated to each sold superpad or lot based upon the relative sales value. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated throughout the year, with adjustments being allocated prospectively to the remaining parcels available for sale. For certain parcels of land, including acquired parcels that the Company does not intend to develop or for which development was complete at the date of acquisition, the specific identification method is used to determine the cost of sales. Judgments and uncertainties MPC cost of sales estimates are highly judgmental as they are sensitive to cost escalation, sales price escalation, and pace of absorption, which are subject to judgment and affected by expectations about future market or economic conditions. Changes in the assumptions used to estimate future development costs could result in a significant impact on the amounts recorded as cost of sales. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS Please refer to Note 1 - Presentation of Financial Statements and Significant Accounting Policies in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information about new accounting pronouncements. HHH 2023 FORM 10-K | 60 MARKET RISK QUANTITATIVE AND QUALITATIVE DISCLOSURES Table of Contents Index to Financial Statements