Howard Hughes Holdings Inc. (HHH)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis by management should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes included in this Quarterly Report on Form 10-Q and with the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on February 19, 2026. All references to numbered Notes are to specific notes to our unaudited Condensed Consolidated Financial Statements included in this Quarterly Report. Capitalized terms used, but not defined, in this MD&A have the same meanings as in such Notes.

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FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Exchange Act). All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements. We claim the protection of the Safe Harbor contained in the Private Securities Litigation Reform Act of 1995 for forward-looking statements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance, or business. You can identify forward-looking statements by the fact that they do not relate strictly to current or historical facts. These statements may include words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “plan,” “project,” “realize,” “should,” “transform,” “will,” “would,” and other statements of similar expression. Forward-looking statements should not be relied upon. They give our expectations about the future and are not guarantees.

Forward-looking statements include statements regarding:

–    the expected changes to our strategy following the transactions with Pershing Square

–    accelerated growth in our core Master Planned Communities assets

–    expected performance of our stabilized, income-producing properties, and the performance and stabilization timing of properties that we have recently placed into service or are under construction

–    forecasts of our future economic performance

–    expected capital required for our operations and development opportunities for our properties

–    planned acquisitions, including the acquisition of Vantage Group Holdings Ltd. (Vantage), and our ability to integrate and realize the economic benefits of acquired businesses

–    impact of technology on our operations and business

–    expected performance of our segments

–    expected commencement and completion for property developments and timing of sales or rentals of certain properties

–    estimates of our future liquidity, development opportunities, development spending, and management plans; and

–    descriptions of assumptions underlying or relating to any of the foregoing

These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, and achievements to materially differ from any future results, performance and achievements expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

–our ability to realize the anticipated benefits of the transactions with Pershing Square and our new strategy of becoming a diversified holding company

–our ability to identify and consummate transactions as part of our new strategy of becoming a diversified holding company

–risks inherent in acquiring or making investments in operating companies, especially companies in industries unrelated to our existing real estate business

–our ability to satisfy the conditions to closing and consummate the proposed acquisition of Vantage (Vantage Transaction), integrate it into our operations, and realize the financial benefits currently anticipated from such acquisition

–our ability to realize the anticipated benefits of the spinoff of Seaport Entertainment Group Inc. that we completed in 2024

–macroeconomic conditions such as volatility in capital markets, unstable economic and political conditions within the U.S. and foreign jurisdictions, geopolitical conflicts, and a prolonged recession in the national economy, including any adverse business or economic conditions in the homebuilding, condominium-development, retail, and office sectors

–changes in trade policies, including tariffs or duties on construction or homebuilding materials, potential retaliatory actions by other countries, and related impacts on market conditions and business activity

–our inability to obtain operating and development capital for our properties, including our inability to obtain or refinance debt capital from lenders and the capital markets

–interest rate volatility and inflation

–the availability of debt and equity capital

–our ability to compete effectively, including the potential impact of heightened competition for tenants and potential decreases in occupancy at our properties

HHH 2026 FORM 10-Q | 31

–general inflation, including core and wage inflation; commodity and energy price and currency volatility; as well as monetary, fiscal and policy interventions in anticipation of our reaction to such events, including changes in interest rates

–mismatch of supply and demand, including interruptions of supply lines

–extreme weather conditions or climate change, including natural disasters, that may cause property damage or interrupt business

–the impact of water and electricity shortages

–contamination of our property by hazardous or toxic substances

–terrorist activity, acts of violence, or breaches of our or our vendors’ data security

–losses that are not insured or exceed the applicable insurance limits

–our ability to lease new or redeveloped space

–our ability to obtain the necessary governmental permits for the development of our properties and necessary regulatory approvals pursuant to an extensive entitlement process involving multiple and overlapping regulatory jurisdictions, which often require discretionary action by local governments

–increased construction costs exceeding our original estimates, delays or overruns, claims for construction defects, or other factors affecting our ability to develop, redevelop or construct our properties

–regulation of the portion of our business that is dedicated to the formation and sale of condominiums, including regulatory filings to state agencies, additional entitlement processes, and requirements to transfer control to a condominium association’s board of directors in certain situations, as well as potential defaults by purchasers on their obligations to purchase condominiums

–fluctuations in regional and local economies, the impact of changes in interest rates on residential housing and condominium markets, local real estate conditions, tenant rental rates, and competition from competing retail properties and the internet

–inherent risks related to disruption of information technology networks and related systems, including cyber security attacks

–our ability to attract and retain key personnel

–our ability to collect rent and attract tenants

–our indebtedness, including our $650,000,000 4.125% senior unsecured notes due 2029, $650,000,000 4.375% senior unsecured notes due 2031, $500,000,000 5.875% senior unsecured notes due 2032, and $500,000,000 6.125% senior unsecured notes due 2034, contain restrictions that may limit our ability to operate our business

–our directors’ involvement or interests in other businesses, including real estate activities and investments

–our inability to control certain of our properties due to the joint ownership of such property and our inability to successfully attract desirable strategic partners

–our dependence on the operations and funds of our subsidiaries, including The Howard Hughes Corporation

–catastrophic events or geopolitical conditions, such as international armed conflicts, or the occurrence of epidemics or pandemics; and

–other risks and uncertainties described herein, as well as those risks and uncertainties discussed from time to time in our other reports and other public filings with the SEC

Any factor could, by itself, or together with one or more other factors, adversely affect our business, results of operations, plans, objectives, future performance, or financial condition. Other factors not described in this Quarterly Report also could cause results to differ from our expectations. Given these uncertainties, we caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update or revise any of our forward-looking statements for events or circumstances that arise after the statement is made, except as otherwise may be required by law.

The above list of risks and uncertainties is only a summary of some of the most important factors and is not intended to be exhaustive. Additional information regarding risk factors that may affect us is included in our 2025 Annual Report. The risk factors contained in our 2025 Annual Report are updated by us from time to time in Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings that we make with the SEC.

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OVERVIEW

Description of Business

Overview Howard Hughes Holdings Inc. (HHH or the Company) is a holding company that owns a real estate development subsidiary that operates a large‑scale, mixed‑use real estate platform focused on the development of master planned communities (MPCs), the investment in strategic real estate development opportunities, and the ownership and operation of income‑producing properties. We create some of the most sought-after communities in the country by curating an environment tailored to meet the needs of our residents and tenants.

Throughout this section, changes for monetary amounts between periods presented are calculated based on the amounts in thousands of dollars stated in our condensed 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.

Segments The Company operates through three business segments: Operating Assets, MPCs, and Strategic Developments. In our MPC segment, we plan, develop, and manage small cities and large-scale, mixed-use communities, in markets with strong long-term growth fundamentals. This business focuses on the horizontal development of residential land. The improved acreage is then sold to homebuilders who build and sell homes to new residents. New homeowners create demand for commercial developments, such as retail, office, and hospitality offerings. We build these commercial properties through Strategic Developments at the appropriate times, which helps mitigate development risk, using the cash flow harvested from the sale of land to homebuilders. Once the commercial developments are completed, the assets transition to Operating Assets, w

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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 on Form 10-K (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 2025 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 Annual Report discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussion of 2023 and year-to-year comparisons between 2024 and 2023 that are not included in this Annual Report can be found in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

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.

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OVERVIEW

General Howard Hughes Holdings Inc. (HHH or the Company) is a holding company that owns a real estate development subsidiary, The Howard Hughes Corporation (HHC). Through HHC, the Company operates a large‑scale, mixed‑use real estate platform focused on the development of master planned communities (MPCs), the investment in strategic real estate development opportunities, and the ownership and operation of income‑producing properties. References to HHH, the Company, we, us, and our refer to Howard Hughes Holdings Inc. and its consolidated subsidiaries, which includes The Howard Hughes Corporation, unless otherwise specifically stated. References to HHC or Howard Hughes Communities refer to The Howard Hughes Corporation and its consolidated subsidiaries unless otherwise specifically stated.

In 2025, the Company began executing a long-term strategy to transition from a pure-play real estate company to a diversified holding company. On May 5, 2025, the Company issued 9,000,000 shares of newly issued common stock to Pershing Square for an aggregate purchase price of $900 million (Pershing Square Issuance). In connection with the investment, the Company and Pershing Square entered into related agreements, including a Services Agreement, Shareholder Agreement, Standstill Agreement, and Registration Rights Agreement. The Company intends to use the proceeds from the transaction to acquire or invest in operating businesses.

As previously disclosed in our Current Report on Form 8‑K filed on December 18, 2025, the Company entered into a definitive agreement to acquire 100% of Vantage Group Holdings Ltd. (Vantage), a privately held specialty insurance and reinsurance company, for cash consideration of approximately $2.1 billion. The transaction remains subject to regulatory approvals and other customary closing conditions, and is expected to close in the second quarter of 2026. To support the funding of the acquisition, the Company also entered into an equity commitment letter with Pershing Square Holdings, Ltd. under which Pershing Square committed to purchase up to $1.0 billion of the Company’s preferred stock, prior to and contingent upon the closing of the Vantage acquisition. Over time, the Company will have the right, but not the obligation, to repurchase the preferred stock during specified periods and upon certain triggering events. The acquisition is expected to be funded through the Company’s cash on hand, and proceeds from the issuance of the preferred stock.

Refer to Item 1. Business for a general description of the assets contained in our three business segments and Item 2. Properties for details regarding the asset type, size, location, and key metrics about our various properties.

We are primarily focused on creating stockholder 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.

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.

2025 Results During 2025, we delivered exceptional results across our core business lines. Operating Assets net operating income (NOI) and MPC earnings before taxes (EBT) both reached record highs, while our condo and strategic development activities extended the runway for future growth.

In our MPCs, we continued to experience heightened demand and home builder interest for new land parcels. As a result, MPC EBT increased 36% year-over-year, driven by a new full-year record number of residential acres sold.

In Operating Assets, we delivered another full-year NOI record, outpacing 2024 results by 7%, excluding dispositions. This growth was led by our office portfolio, which continued to benefit from strong lease-up activity and abatement expirations at various properties in The Woodlands, Merriweather District, and Summerlin. In 2025, the Company executed 484,000 square feet of new or expanded office leases including 334,000 square feet in The Woodlands, 88,000 square feet in Merriweather District, and 62,000 square feet in Summerlin. Our multifamily portfolio also contributed meaningfully to the outperformance due to continued lease-up at our newer properties in Summerlin, Bridgeland, and Merriweather District.

In Strategic Developments, Ward Village had another strong year, closing 690 units at Ulana Ward Village, a workforce tower that generated $369.5 million of condominium revenues at a break even gross margin, which is consistent with our typical target for workforce towers. Pre-sales activity for our under construction condominiums progressed, and these projects were 93% pre-sold at year end and represent more than $1.9 billion of future contracted revenue. Leasing activity at The Launiu remained strong and we launched pre-sales for two new Ward Village condominiums, Melia and ‘Ilima in June 2025, with 66% of the units at these predevelopment towers pre-sold at year end representing $2.0 billion of future contracted revenue. Future contracted revenues will be recognized as projects are completed.

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2026 Outlook Proceeding into 2026, we maintain a positive long-term outlook for our businesses and believe we are well positioned to create value across cycles. We remain focused on maintaining liquidity, managing near‑term maturities, and allocating capital to the highest‑return opportunities across our business segments. Development spending will continue on a disciplined basis, and we will evaluate opportunities to recycle capital and enhance balance‑sheet flexibility as market conditions evolve.

Across our master planned communities, we expect demand for new homes, retail, and office space to remain resilient, supported by constrained inventories of existing homes, continued migration to our communities, and the quality and scale of our offerings. MPC EBT is expected to normalize in 2026 following a record year of land sales in 2025 and Operating Assets performance is expected to be stable to modestly positive. We expect condominium activity during the year to be driven primarily by The Park Ward Village, which is substantially pre-sold and positioned to contribute meaningful revenue and gross profit as it is delivered.

Additionally, the Pershing Square investment and the pending agreement to acquire Vantage mark important steps in broadening our strategic reach. We expect to make meaningful progress in 2026 toward building a durable foundation to compound long-term shareholder value across multiple platforms, while maintaining our focus on liquidity, disciplined capital allocation, and balance sheet flexibility. The Company’s expectations will be updated as applicable throughout 2026, and as additional information becomes available regarding the pending Vantage acquisition and its expected contribution to the consolidated business.

Our outlook is subject to risks and uncertainties, including those related to interest rates, capital markets conditions, general economic and housing trends in our key regions, and other factors described in Part I, Item 1A. Risk Factors and elsewhere in this Annual Report.

2025 Highlights

Overall

–Net income from continuing operations decreased to $123.8 million in 2025, compared to net income of $285.2 million in the prior year. The year-over-year decrease was primarily attributed to a change in the product mix of condominium closings as we closed units at a workforce tower in the current year, compared to closing units at a luxury tower in the prior year, and the receipt of insurance proceeds in the prior year following the execution of a settlement agreement related to the construction defect claims at Waiea. These decreases were partially offset by an increase in residential acres sold in Summerlin.

–We continue to maintain a strong liquidity position with $1.5 billion of cash and cash equivalents, $515.0 million of undrawn capacity on our Secured Bridgeland Notes, and $686.6 million of undrawn lender commitment available to be drawn for property development, and limited near-term debt maturities.

Operating Assets

–Operating Assets EBT increased $1.0 million, with a loss of $27.4 million in 2025, compared to a loss of $28.5 million in the prior year.

–Operating Assets NOI was $262.0 million in 2025, a $16.5 million increase compared to $245.5 million in the prior year.

–Office NOI increased $13.6 million, primarily due to strong leasing activity and abatement expirations at various properties in The Woodlands, Merriweather District, and Summerlin, most notably at 9950 Woodloch Forest, 6100 Merriweather, and 1700 Pavilion, partially offset by decreases related to lower occupancy at certain properties in The Woodlands, most notably at 3831 Technology Forest and Two Hughes Landing.

–Multifamily NOI increased $3.9 million primarily due to continued lease-up at Tanager Echo in Summerlin, Wingspan in Bridgeland, and Marlow in Merriweather District.

–In 2025, the Company completed the sale of four land parcels and retail spaces in Ward Village for total proceeds of $18.2 million, and a combined gain on sale of $14.4 million.

MPC

–MPC EBT totaled income of $476.1 million in 2025, a $127.0 million increase compared to income of $349.1 million in the prior year.

–The increase in EBT was primarily due to higher residential land sales at Summerlin and Bridgeland, higher commercial land sales in The Woodlands, and lower equity losses at The Summit.

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Strategic Developments

–Strategic Developments EBT totaled a loss of $13.9 million in 2025, a $296.7 million decrease compared to income of $282.8 million in the prior year.

–The decrease in EBT was primarily due to a decrease in condominium sales net cost of sales due to the change in the product mix of condominium closings as we closed units at a workforce tower in the current year, compared to closing units at a luxury tower in the prior year, and a decrease in other income related to accruing a charge for a legal judgment in Columbia in the current year, compared to the receipt of insurance proceeds for the Waiea remediation in the prior year. These decreases were partially offset by an increase in gain on sale of real estate assets due to a land swap in The Woodlands and the sale of a land parcel near Merriweather District in the current year.

–Leasing activity at The Launiu remained strong and we launched pre-sales for two new Ward Village condominiums, Melia and ‘Ilima in June 2025. During 2025, we contracted 283 pre-development units and as of December 31, 2025, 66% of the units at our three pre-development towers are under contract.

–In 2025, we placed three properties in service, including Grogan’s Mill Retail, a retail property in The Woodlands; One Bridgeland Green, an office property in Bridgeland; and 1 Riva Row, a multifamily property in The Woodlands. These properties represent 268 multifamily units and approximately 81,000 square feet of retail and office space.

–In 2025, we began construction on Memorial Hermann Medical Office, an office building in Bridgeland, and the redevelopment of 7 Waterway, an office building in The Woodlands. These properties represent approximately 237,000 square feet of office space.

Corporate

–Net expenses related to Corporate income, expenses, and other items decreased $7.3 million compared to the prior year primarily due to a decrease in income tax expense, partially offset by an increase in general and administrative expenses, primarily related to the Pershing Square advisory fee and a strategic reduction in force in the current year.

Capital and Financing Activities

–In 2025, our financing activity included draws on existing mortgages of $573.5 million, refinancings of $184.2 million, and repayments of $365.7 million. In addition, we repaid $198.0 million on the Secured Bridgeland Notes using the proceeds from the sale of Municipal Utility District (MUD) receivables. For additional information, refer to Note 9 - Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report.

–Subsequent to year end, on February 17, 2026, HHC, the Company’s wholly owned subsidiary, issued $500.0 million of 5.875% senior unsecured notes due 2032 and $500.0 million of 6.125% senior unsecured notes due 2034. HHC used the net proceeds to redeem its outstanding $750.0 million 5.375% senior unsecured notes due 2028, including premiums, accrued and unpaid interest and related expenses, and will use the remaining proceeds for general corporate purposes. Refer to Note 9 - Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional detail.

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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 increased $1.0 million compared to the prior year primarily due to the following:

–Rental revenues, net of Operating costs increased $12.5 million primarily due to increased leasing activity across our portfolio.

This increase to EBT was partially offset by the following:

–Gain on sale of real estate decreased $8.6 million primarily due to the sale of four land parcels and retail spaces in Ward Village in 2025, compared to the sale of Lakeland Village Center at Bridgeland, Creekside Park Medical Plaza, and four non-core ground leases in The Woodlands in 2024.

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.

We believe that NOI is a useful supplemental measure of the performance of our Operating Assets segment 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.

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A reconciliation of Operating Assets segment EBT to Operating Assets NOI is presented in the table below.

NM Not meaningful.

The below table presents Operating Assets NOI by property type:

(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 $16.5 million compared to the prior year primarily due to the following:

–Office NOI increased $13.6 million primarily due to strong leasing activity and abatement expirations at various properties in The Woodlands, Merriweather District, and Summerlin, most notably at 9950 Woodloch Forest, 6100 Merriweather, and 1700 Pavilion, partially offset by decreases related to lower occupancy at certain properties in The Woodlands, most notably at 3831 Technology Forest and Two Hughes Landing.

–Multifamily NOI increased $3.9 million primarily due to continued lease-up at Tanager Echo in Summerlin, Wingspan in Bridgeland, and Marlow in Merriweather District.

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Master Planned Communities

Segment EBT The following table presents segment EBT for MPC for the years ended December 31:

(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.

NM Not meaningful.

The following table presents MPC segment EBT by MPC for the years ended December 31:

(a)As of December 31, 2025, the Company owned an 88.0% interest in and consolidates Teravalis. For additional detail, refer to Note 1 - Presentation of Financial Statements and Significant Accounting Policies in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report.

(b)These amounts represent 100% of Floreo EBT. As of December 31, 2025, the Company owned a 50% interest in Floreo. Refer to Note 4 - Investments in Unconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for a description of the joint venture and further discussion.

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MPC segment EBT increased $127.0 million compared to the prior year, primarily due to higher residential land sales at Summerlin and Bridgeland, higher commercial land sales in The Woodlands, and lower equity losses at The Summit.

Summerlin EBT increased $100.3 million compared to the prior year.

–MPC sales, net of MPC cost of sales increased $72.5 million primarily due to the following activity:

–increase in superpad acres sold, with 412.3 acres sold at an average price of $970,000 per acre in 2025, compared to 216.5 acres sold at an average price of $1.3 million per acre in 2024

–decrease due to $6.0 million less revenue recognized out of deferred revenue, net of associated deferred costs in 2025, compared to 2024

–decrease in custom lot acres sold partially offset by an increase in price per acre, with 2.7 acres sold at an average price of $7.5 million per acre in 2025, compared to 3.8 acres sold at an average price of $6.0 million per acre in 2024

–Equity earnings at The Summit increased $15.2 million. This was primarily due to higher losses in 2024 related to changes to the development model.

–Builder price participation increased $4.9 million as homes earned higher participation revenue per home, partially offset by fewer homes closing with sales prices above the predetermined breakpoint necessary for participation revenue in 2025, compared to 2024.

–Increase of $4.0 million primarily due to higher capitalized interest inclusive of derivatives.

–Other land, rental, and property revenues increased $3.5 million primarily due to higher advertising revenue related to superpad acres sold in 2025, compared to 2024.

Bridgeland EBT increased $22.8 million compared to the prior year.

–Increase of $9.4 million primarily due to higher capitalized interest.

–MPC sales, net of MPC cost of sales increased $8.9 million primarily due to the following activity:

–increase in price per acre offset by a slight decrease in residential acres sold, with 177.1 acres sold at an average price of $669,000 per acre in 2025, compared to 178.1 acres sold at an average price of $591,000 per acre in 2024

–decrease due to $3.0 million less revenue recognized out of deferred revenue, net of associated deferred costs in 2025, compared to 2024

–decrease in commercial acres sold, with no acres sold in 2025, compared to 13.5 acres sold at an average price of $369,000 per acre in 2024

–Operating costs decreased $7.6 million due to lower real estate taxes, primarily from the finalization of prior-year accrual estimates.

–Builder price participation decreased $3.1 million as fewer homes were closed with sales prices over the predetermined breakpoint necessary for participation revenue in 2025, compared to 2024.

The Woodlands EBT increased $16.2 million compared to the prior year.

–MPC sales, net of MPC cost of sales increased $13.2 million primarily due to the following activity:

–increase in commercial acres sold, with 30.1 acres sold at an average price of $670,000 per acre in 2025, compared to no acres sold in 2024

–decrease due to $2.1 million less revenue recognized out of deferred revenue, net of associated deferred costs in 2025, compared to 2024

–Gain on sale or disposal of real estate and other assets, net increased $3.7 million due to an eminent domain settlement related to the condemnation of a 9.9-acre parcel of non-saleable land in 2025, with no similar activity in 2024.

Teravalis EBT decreased $6.8 million compared to the prior year.

–Equity earnings at Floreo decreased $6.7 million primarily related to lower land sales in 2025 compared to 2024. Our Floreo joint venture sold a total of 10.6 residential acres at an average price of $793,000 per acre in 2025, compared to 115.4 acres sold at an average price of $777,000 per acre in 2024.

The Woodlands Hills EBT decreased $5.6 million compared to the prior year.

–MPC sales, net of MPC cost of sales decreased $4.7 million primarily due to the following activity:

–decrease in residential acres sold partially offset by an increase in price per acre, with 28.4 acres sold at an average price of $479,000 per acre in 2025, compared to 47.0 acres sold at an average price of $458,000 per acre in 2024

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MPC Equity Investments

The Summit

The Summit, our joint venture with Discovery Land Company, 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 expected to consist of approximately 245 homes and 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 losses of $1.6 million and received no cash distributions in 2025, compared to equity losses of $16.8 million and cash distributions of $4.9 million in 2024.

Floreo

Land development is currently underway at Floreo, our joint venture with Trillium Development Holding Company, LLC. In late 2025, the Company welcomed the first residents and celebrated the grand opening of the community.

For additional detail, refer to Note 4 - Investments in Unconsolidated Ventures in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report.

Master Planned Communities Land Sales The following table presents the detail of MPC land sales recognized for the years ended December 31, 2025 and 2024. 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.

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Residential and Commercial Land Sales Closed The following tables detail our residential and commercial land sales closed for the years ended December 31:

(a)Excludes revenues recognized in the current period which are related to sales closed in prior periods and includes revenues deferred on sales closed in the current period. Please see the summary of MPC land sales table above which reconciles total residential and commercial land sales closed to MPC land sales revenue recognized for the years ended December 31, 2025 and 2024.

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.

(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 MPC’s 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 MUD and Special Improvement District (SID) bonds 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.

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Below is a reconciliation of segment EBT to MPC Net Contribution for the years ended December 31:

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

MPC Net Contribution increased $16.8 million for the year ended December 31, 2025, primarily due to higher MPC land sales, partially offset by lower MUD and SID bonds collections, net, higher MPC development expenditures, and no distributions from unconsolidated ventures in 2025 compared to 2024.

MPC Land Inventory The following table summarizes MPC land inventory activity:

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

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

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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, 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:

NM Not meaningful.

Strategic Developments segment EBT decreased $296.7 million compared to the prior year primarily due to the following:

–Condominium sales, net of cost of sales decreased $195.3 million, primarily due to a change in the product mix of condominium closings executed in the current year. Although unit closings were higher with 690 units closed at Ulana Ward Village in the current year, compared to 349 units closed at Victoria Place in the prior year, condominium sales, net of cost of sales decreased as Ulana is a workforce tower and closed at a breakeven gross margin as expected. Ulana is our second workforce tower and fulfills our current reserved housing guaranty in the community. See Note 12 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information on the reserved housing requirements in Ward Village.

–Other income (loss), net decreased $109.0 million primarily due to the accrual of a $19.8 million charge in the current year for a legal judgment in Columbia, compared to the receipt of $90.0 million of insurance proceeds in the prior year following the execution of a settlement agreement related to the construction defect claims at Waiea. See Note 12 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information on the legal judgment in Columbia.

These decreases to EBT were partially offset by the following:

–Gain on sale of real estate increased $11.7 million due to the land swap in The Woodlands and the sale of a land parcel near Merriweather District in the current year. See Note 5 - Acquisitions and Dispositions in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information on these transactions.

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Strategic Developments Projects The following describes the status of our major construction projects as of December 31, 2025. These properties will be transferred to the Operating Assets segment upon completion of construction, unless otherwise noted below.

Bridgeland

Memorial Hermann Medical Office This will be a 50,895-square-foot medical office property. Total development costs are expected to be approximately $23.7 million. We began construction in the third quarter of 2025, and anticipate project completion in the second quarter of 2026. We expect this property to reach projected annual stabilized NOI of $1.9 million by 2029.

The Woodlands

7 Waterway We acquired this 186,369 square-foot office property in the second quarter of 2025 for $16.3 million, and commenced a redevelopment project in the third quarter of 2025. Total redevelopment and tenant lease-up costs are expected to be approximately $22.9 million, bringing total expected cost for this property to $39.2 million. We anticipate project completion in the second quarter of 2026, and expect this property to reach projected annual stabilized NOI of $4.8 million by 2029.

Condominiums 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.

For all Ward Village condominium units, sales contracts are subject to a 30-day rescission period. The buyers are 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 then required to make a final deposit within approximately 90 days of our receipt of their second deposit. Buyers are required to deposit the remainder of the sales price on a predetermined pre-closing date. Contracted units disclosed below represent sales that are past the 30-day rescission period.

For The Woodlands condominium units, sales contracts are subject to a 6-day rescission period. The buyers are required to make an initial deposit at signing and a final deposit 60 days later at which point their total deposit becomes non-refundable. Buyers are required to deposit the remainder of the sales price on a predetermined pre-closing date. Contracted units disclosed below represent sales that are past the 6-day rescission period.

Completed Condominiums

Ward Village As of December 31, 2025, our eight completed condominiums, Ae`o, Ke Kilohana, Anaha, Waiea, ‘A‘ali‘i, Kō‘ula, Victoria Place, and Ulana are completely sold. Ulana was completed in the fourth quarter of 2025, and 690 of the 696 units were closed prior to year end. The remaining 6 units are expected to close in early 2026.

Condominiums Under Construction

Ward Village As of December 31, 2025, 96% of the units at our two towers under construction, The Park Ward Village and Kalae, are under contract.

We broke ground on The Park Ward Village in October 2022, and expect to complete construction in the second quarter of 2026. The Park Ward Village will consist of 545 studio, one-, two-, and three-bedroom residences. As of December 31, 2025, we have entered into contracts for 529 units, representing 97% of total units.

We broke ground on Kalae in June 2024, and expect to complete construction in 2028. Kalae will consist of 329 one-, two-, and three-bedroom residences. As of December 31, 2025, we have entered into contracts for 307 units, representing 93% of total units.

The Woodlands We broke ground on The Ritz-Carlton Residences in October 2024, and expect to complete construction in 2027. The Ritz-Carlton Residences will consist of 111 one-, two-, three-, and four-bedroom residences. The development sits on the last available large-scale residential site on Lake Woodlands, spanning roughly eight acres across approximately 1,200 feet of premier lakefront shoreline. As of December 31, 2025, we have entered into contracts for 84 units, representing 76% of total units.

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Predevelopment Condominiums

Ward Village We launched public pre-sales for The Launiu in February 2024. The Launiu will consist of 485 studio, one-, two-, and three-bedroom residences. As of December 31, 2025, we have entered into contracts for 346 units, representing 71% of total units. Construction is expected to commence on The Launiu in early 2026.

We launched public pre-sales for Melia in June 2025. Melia will consist of 220 one-, two-, three-, and four-bedroom residences. As of December 31, 2025, we have entered into contracts for 144 units, representing 65% of total units.

We launched public pre-sales for ‘Ilima in June 2025. ‘Ilima will consist of 148 one-, two-, three-, and four-bedroom residences. As of December 31, 2025, we have entered into contracts for 76 units, representing 51% of total units.

The following provides further detail for all condominium projects as of December 31, 2025:

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Corporate Income, Expenses, and Other Items

The following table contains certain corporate-related and other items not related to segment activities and that are not otherwise included within the segment analyses. Variances related to income and expenses included in NOI or EBT are explained within the previous segment discussions. Significant variances for consolidated items not included in NOI or EBT are described below for the years ended December 31:

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

–Income tax expense decreased $42.6 million primarily due to a decrease in Income before income taxes in 2025 as compared to 2024 as well as the net impact of the 2024 spinoff of Seaport Entertainment Group Inc. which included a net increase in tax expense in 2024 related to the revaluation of deferred tax assets and liabilities, partially offset by a partial release of valuation allowances on the Company’s deferred tax assets. Refer to Note 14 - Income Taxes in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information.

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

–General and administrative expenses increased $30.5 million primarily due to a $17.1 million increase in Pershing Square advisory fees, $14.2 million of expenses related to a strategic reduction in force, and $10.5 million of legal and consulting fees related to the planned acquisition of Vantage. These increases were partially offset by a decrease in compensation and benefits, including those from the strategic reduction in force, as well as other cost reduction initiatives.

–Other expenses increased $5.0 million primarily due to increased marketing costs across our condominium projects.

Pershing Square Advisory Fees Pershing Square will support the Company’s new diversified holding company strategy by providing certain investment and advisory services. The Company will pay Pershing Square a quarterly advisory fee that includes base and variable components. Refer to Note 2 - Pershing Square in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information on the advisory fee.

The base and variable components of the quarterly advisory fee are detailed below:

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Income Taxes

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.

The Company’s effective tax rate for the year ended December 31, 2025, was 23.3% compared to 21.9% for the year ended December 31, 2024. The increase was primarily due to a partial release of valuation allowances on the Company’s deferred tax assets in 2024.

For additional information on income taxes, see Note 14 - Income Taxes in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report.

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LIQUIDITY AND CAPITAL RESOURCES

We continue to maintain a strong balance sheet and endeavor to ensure we maintain the financial flexibility and liquidity necessary to fund future growth. As of December 31, 2025, we had $1.5 billion of cash and cash equivalents, $515.0 million of undrawn capacity on our Secured Bridgeland Notes, and $686.6 million of undrawn lender commitments available to be drawn for property development, subject to certain restrictions.

Cash Flows

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. Operating cash is utilized to fund ongoing development expenditures in our Strategic Developments and MPC segments.

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 provided by operating activities of continuing operations was $462.4 million in 2025, and $447.8 million in 2024. The increase in cash provided by operating activities of $14.6 million was primarily due to an increase in MPC land sales, a decrease in condominium development expenditures, and a net decrease in interest payments, partially offset by a decrease in condominium deposits and cash from closings, the receipt of an insurance reimbursement for the Waiea remediation in the prior year, a decrease in MUD receivable collections, and a decrease in MPC development expenditures.

Investing Activities Net cash used in investing activities of continuing operations was $219.1 million in 2025, and $430.7 million in 2024. The $211.6 million decrease in cash used in investing activities was primarily due to a decrease in cash used related to the net parent investment in discontinued operations and a decrease in cash used for property development, partially offset by a decrease in proceeds from the sale of properties.

Financing Activities Net cash provided by financing activities of continuing operations was $855.4 million in 2025, and net cash used in financing activities was $27.8 million in 2024. The change in financing activities of $883.1 million was primarily due to $862.8 million of net proceeds received in the current year related to the Pershing Square Issuance and a $25.1 million decrease in principal payments on mortgages, notes, and loans payable.

Short- and Long-Term Liquidity

Short-Term Liquidity In the next 12 months, we expect to continue executing our strategy to transition from a pure-play real estate company to a diversified holding company.

From our real estate operations, 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.

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As previously disclosed, in December 2025, we entered into a purchase agreement to acquire Vantage for $2.1 billion in cash consideration. The transaction remains subject to regulatory approvals and other customary closing conditions, and is expected to close in the second quarter of 2026. To support the funding of the acquisition and to allow for an additional equity contribution to Vantage post acquisition to be used for working capital and general corporate purposes, the Company entered into an equity commitment letter with Pershing Square Holdings, Ltd. under which Pershing Square committed to purchase up to $1.0 billion of the Company’s preferred stock, prior to and contingent upon the closing of the Vantage acquisition. The acquisition is expected to be funded through the Company’s cash on hand, and proceeds from the issuance of the preferred stock. We also expect to incur additional transaction-related expenses prior to the closing and will reimburse all reasonable and documented expenses incurred by Pershing Square in connection with the preferred stock issuance. We believe we have adequate liquidity to meet these acquisition-related obligations; however, the timing of regulatory approvals and closing conditions may affect the timing of cash outflows associated with the transaction.

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.

The preferred stock issued by HHH to Pershing Square will become convertible into the common stock of Vantage if not redeemed by the end of the seventh fiscal year post-transaction. HHH will receive a series of call options giving it the right but not the obligation to redeem the preferred stock over the next seven years. The acquisition is expected to have other long‑term implications for the Company’s liquidity profile, although the magnitude and timing of these impacts cannot yet be determined.

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, 2025. Total cost remaining to be paid net of debt and buyer deposits consists of $56.0 million related to substantially completed projects, $35.5 million related to projects with estimated completion dates within the next 12 months, and $118.7 million related to projects with estimated completion dates in 2027 and 2028.

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. The remaining cost related to substantially completed projects typically 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. The $56.0 million of remaining cost related to substantially complete projects is primarily comprised of $24.6 million for Ulana Ward Village for lease up and tenant buildout of the ground floor retail space and $23.7 million for 1 Riva Row which is being placed in service in phases with only 61% of the property in service as of December 31, 2025.

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We expect to be able to meet our cash funding requirements with a combination of existing and anticipated construction loans, condominium buyer deposits, cash flow from our Operating Assets and MPC segments, net proceeds from condominium sales, and our existing cash balances.

(a)Refer to Note 9 - Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information on debt.

(b)Negative balance relates to costs paid by HHH, but not yet reimbursed by our lenders. We expect to receive funds from our lenders for these costs in the future.

Contractual Cash Obligations and Commitments The following table aggregates our contractual cash obligations and commitments as of December 31, 2025:

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

Debt As of December 31, 2025, the Company had $5.1 billion of outstanding debt and $686.6 million of undrawn lender commitment available to be drawn for property development, subject to certain restrictions. Our proportionate share of the debt of our unconsolidated ventures totaled $215.5 million as of December 31, 2025. All of this indebtedness is without recourse to the Company, with the exception of the collateral maintenance obligation for Floreo. See Note 12 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information related to the Company’s collateral maintenance obligation.

On February 17, 2026, HHC, the Company’s wholly owned subsidiary, issued $500.0 million of 5.875% senior unsecured notes due 2032 and $500.0 million of 6.125% senior unsecured notes due 2034 (collectively the New Notes). The New Notes will pay interest semi-annually, in each case payable on March 1 and September 1 of each year, beginning on September 1, 2026. HHC used the net proceeds to redeem its outstanding $750.0 million 5.375% senior unsecured notes due 2028, including the payment of premiums, accrued and unpaid interest and expenses related to such redemption, and will use the remaining proceeds for general corporate purposes.

Refer to Note 9 - Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional detail.

Debt Compliance As of December 31, 2025, the Company was not in compliance with certain property-level debt covenants due to not meeting certain debt service coverage ratios caused by lease expirations, vacancies, rent abatements, and other factors. 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 therefore there was no material impact on the Company’s liquidity or its ability to operate these assets.

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Net Debt The following table summarizes our net debt on a segment basis as of December 31, 2025. 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 Tax Increment Financing (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.

Unconsolidated Ventures We have interests in certain unconsolidated ventures which, as of December 31, 2025, had mortgage financing totaling $434.0 million, with our proportionate share of this debt totaling $215.5 million. All of this indebtedness is without recourse to the Company, with the exception of the collateral maintenance obligation for Floreo. See Note 12 - Commitments and Contingencies in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report 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, 2025:

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 and estimates 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 Annual Report.

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 Annual Report for additional information about new accounting pronouncements.

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