Shareholder Letters 2010 - 2014 by Caryn Kboudi

*** FORWARD-LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES FORWARD-LOOKING STATEMENTS Statements made in this letter that are not historical facts, including statements accompanied by words such as “will,” “believe,” “expect,” “enables,” “realize,” “plan,” “intend,” “transform” and other words of similar expression, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These statements are based on management’s expectations, estimates, assumptions and projections as of the date of this letter and are not guarantees of future performance. Actual results may differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially are set forth as risk factors in our filings with the Securities and Exchange Commission, including its Quarterly and Annual Reports. We caution you not to place undue reliance on the forward-looking statements contained in this letter and do not undertake any obligation to publicly update or revise any forwardlooking statements to reflect future events, information or circumstances that arise after the date of this letter except as required by law. NON-GAAP FINANCIAL MEASURES The Company believes that net operating income, or NOI, a non-GAAP financial measure, is a useful supplemental measure of the performance of our Operating Assets because it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating real estate properties and the impact on operations from trends in occupancy rates, rental rates, and operating costs. We define NOI as revenues (rental income, tenant recoveries and other income) less expenses (real estate taxes, repairs and maintenance, marketing and other property expenses). NOI also excludes straight line rents and tenant incentives amortization, net interest expense, depreciation, ground rent, demolition costs, other amortization expenses, and equity in earnings from our real estate affiliates. We use NOI to evaluate our operating performance on a property-by-property basis because NOI allows us to evaluate the impact that factors such as lease structure, lease rates and tenant mix, which vary by property, have on our operating results, gross margins and investment returns. Although we believe that NOI provides useful information to the investors about the performance of our Operating Assets due to the exclusions noted above, NOI should only be used as an alternative measure of the financial performance of such assets and not as an alternative to GAAP net income (loss). No reconciliation of projected NOI is included in this letter because we are unable to quantify certain amounts that would be required to be included in the GAAP measure without unreasonable efforts and we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors.

CEO SHAREHOLDER LETTER

OUR VISION

TO THE SHAREHOLDERS OF THE HOWARD HUGHES CORPORATION FROM THE CHIEF EXECUTIVE OFFICER MARCH 13, 2014 — During his lifetime, Howard Hughes built a legacy that places him among the greatest entrepreneurs of the 20th Century. We are inspired by his namesake and driven by our own sharply focused ambitions. In last year’s letter, I compared the development of our company to the process of making a film. In 2012, we wrote the script, scouted locations and cast the talent. In 2013, the cameras began rolling and I am pleased to report from the field that our core developments are off to a strong start. We made substantial progress in creating value at our most important assets, increased the depth of our worldclass development team, delivered strong financial results and generated liquidity that further solidified our balance sheet. The Howard Hughes Corporation had an exceptional year. We have the preeminent master planned community business in the country, and under the skilled stewardship of our MPC leaders, this thriving business was primarily responsible for another year of exemplary financial results. Our consolidated revenues totaled $475 million, of which MPC land sales were up 36% to $246 million, and operating income and income from non-consolidated affiliates totaled $118

million compared to $76 million in 2012. Notwithstanding the fact that many of our most valuable assets are under construction and do not contribute to our bottom line, cash flow from operations was $129 million in 2013. We invested $376 million in pre-development and development to advance our projects to the point at which they will begin to generate recurring cash flow and their intrinsic value can begin to be recognized. We took advantage of low interest rates by raising $750 million of cash through the issuance of covenant-lite bonds which will allow us the flexibility to stay the course in developing assets that will have significant long-term value, regardless of short-term economic or capital markets disruptions during the development cycle. At the end of 2013, we had $895 million of unrestricted cash on hand, and just 28% net debt against the book value of our equity capital base, a value which we believe significantly understates our Company’s intrinsic value. We remain focused on a handful of core assets in which the majority of our value creation potential resides: The South Street Seaport in Lower Manhattan; the master planned communities in Columbia, Maryland, Houston, Texas, and Las Vegas, Nevada; the Shops at

Summerlin in Las Vegas; and Ward Village, an urban master planned community in Honolulu, Hawai'i. We are also redeveloping several assets that showcase how imaginative thinking can create value. The Outlet Collection at Riverwalk in New Orleans, Louisiana, represents such an example. We attribute our success in our ongoing progress in unlocking the value of our assets to the dedication and tireless efforts of our exceptionally talented employees, and the ongoing support, guidance and commitment of our board of directors. This year we continued to add talented professionals to our team who share our passion for excellence, have accomplished track records and have made immediate contributions. Together with the board, the senior management team and our 1000+ employees aspire to continue to grow the per-share value of The Howard Hughes Corporation at a high rate over the long term.

CEO SHAREHOLDER LETTER

CONSTRUCTION

An aerial view of The Shops at Summerlin under construction.

An aerial view of construction at Hughes Landing.

CEO SHAREHOLDER LETTER

Last year I mentioned that 2013 would be a pivotal year for the company as we transition from planning to building. We did just that by initiating construction from Wall Street to Waikiki: THE WOODLANDS • We completed construction of 3 Waterway Square and One Hughes Landing. Together these office buildings are approximately 430,000 square feet in size and are 98% occupied. • Two Hughes Landing, a 197,000 square foot office building, quickly followed on the heels of the two office buildings listed above, is almost complete. • We began construction of two office buildings totaling 647,000 square feet of which 478,000 square feet have been leased to Exxon Mobil Corporation. • We commenced construction of our Hughes Landing Retail project, which consists of approximately 122,000 square feet of retail, anchored by a Whole Foods Market. • In the Village of Creekside Park, we are now under construction on a 75,000 square foot retail center that will be complete in late 2014. • We began construction of One Lake’s Edge, a 390-unit multifamily project • We began the redevelopment of The Woodlands Resort and Conference Center, which will be completed by the third quarter of 2014. • We are approaching completion of Millennium Phase II, 314 apartment units which we are building in a joint venture with The Dinerstein Companies.

HAWAI'I • In Hawai'i, we completed the construction of The Ward Village Residential Sales Gallery and the Master Plan Information Center in the iconic IBM Building. • We completed Phase Two of Ward Village Shops, a 57,000 square foot retail building now occupied by Nordstrom Rack and Pier One. • We began construction of One Ala Moana, a 206-unit condominium tower that is 100% sold out and slated for completion at the end of 2014.

COLUMBIA • We are continuing the construction of The Metropolitan, a 380-unit multifamily development in Columbia, Maryland. The Metropolitan is being built in partnership with KettlerOrchard and is expected to begin pre-leasing in the second half of 2014. • In the fourth quarter of last year we entered into a joint venture with Kettler-Orchard to construct Phase II, a 437-unit apartment building on land currently known as Parcel C. • We continued the redevelopment and conversion of the old Rouse headquarters into a Whole Foods anchored center.

LAS VEGAS, NEW ORLEANS AND NEW YORK CITY • In Summerlin, we are continuing to develop and lease The Shops at Summerlin, a 1.6 million square foot retail downtown for the master planned community which we expect to be open for the holiday season. • In New Orleans, we began construction of the Outlet Collection at Riverwalk. The property is 95% preleased. This will be the first outlet center in the country located in an urban location expected to open in May 2014. • In New York, we commenced construction of the redevelopment of Pier 17 and the historic (Uplands) district, just west of the FDR Drive.

In the aggregate, the above developments represent 1.3 million square feet of office, 2.5 million square feet of retail, 1,725 multifamily units and a 406-room renovated hotel with total project costs, excluding the South Street Seaport and the One Ala Moana condominium development, of $1.3 billion. We expect to generate a stabilized yield of approximately 10% from these developments. We have excluded the South Street Seaport because we expect to generate a significantly higher yield on cost than 10% but do not have clear visibility yet.

CEO SHAREHOLDER LETTER

MASTER PLANNED COMMUNITIES The Howard Hughes Corporation has the best MPCs in some of the strongest markets in the country. Our seasoned management team took advantage of the continued demand for our land and obtained significant price and volume increases over 2012 thereby delivering outstanding results. This trend is continuing into 2014.

THE WOODLANDS George Mitchell was an icon of the energy industry and the visionary founder of The Woodlands. In the 1960s, he saw the need for a thoughtfully planned community where families and businesses could live in harmony with nature. He used the wealth he amassed in the energy industry to acquire 28,000 acres of raw land north of Houston. In his obituary, his children wrote “He led his life with a winning combination of confidence, risk, intellect, imagination, persistence, integrity and loyalty. He touched the lives of countless people and left the world a better place.” Mr. Mitchell’s passion and legacy survive as part of the culture of our team, led by Paul Layne – Executive Vice President Master Planned Communities, and Alex Sutton and Tim Welbes – Co-Presidents of The Woodlands. The following napkin sketch from 1972 depicts the original town center concept for The Woodlands. The creator of this drawing, Robert Heineman, is still a valued executive with HHC today. In this drawing, the red and orange areas between I-45 on the right and the blue residential plan on the left represent the acreage reserved for commercial development. Commercial buildings were not developed on this site until the 2000s, after a critical mass of residential homes had been built to generate demand for commercial product. Today, the most valuable opportunities still remain in Town Center. George Mitchell possessed the vision, foresight and courage to preserve the most valuable land for development until it really mattered. We continue to be a tremendous beneficiary of Mr. Mitchell’s vision. Demand for residential and commercial property in The Woodlands continues to grow at a tremendous pace, benefitting not only from a regional economic

The Woodlands Waterway.

tailwind but also from our team’s ability to identify and execute at the highest level on new commercial and residential opportunities. In 2011, we acquired the remaining 47.5% equity interest in The Woodlands that we did not already own for $117.5 million, implying a $247 million equity value for the entire asset. With the ongoing commercial development and with results from recent land sales, we believe that the equity value of The Woodlands today is far in excess of that valuation. The following

table illustrates the different elements of potential value at The Woodlands. Please note that this table does not adjust for the time value of money nor any potential increase in future value of The Woodlands assets and includes several assumptions regarding cap rates, net operating income, development costs and sales prices, which may or may not be accurate. Despite these caveats, we believe this back of the envelope analysis provides a good illustration of the potential magnitude of the value appreciation in this property since our 2011 acquisition.

The vision for The Woodlands Town Center sketched on a napkin.

CEO SHAREHOLDER LETTER

THE WOODLANDS VALUE ESTIMATES Asset

Amount

Valuation Metric

Year Stabilized

Estimated Value ($MM)

Land 2,064 Lots

Residential Land (1) Commercial Acres

791 Acres

(2)

316 417

Total Land

732

Stabilized Assets 5.8 Projected Annual NOI

2014

3 Waterway Square

6.3 Projected Annual NOI

2014

9303 New Trails

1.8 Projected Annual NOI

2014

1400 Woodloch

1.5 Projected Annual NOI

2014

20/25 Waterway

1.5 Projected Annual NOI

2014

One Hughes Landing

5.5 Projected Annual NOI

2015

4.6 Projected Annual NOI

2014

2016

229

4 Waterway Square

Millennium Waterway Apartments Woodlands Resort & Conference Center

16.0 Projected Stabilized NOI

(3)

0.4 Projected Annual NOI

Other Assets $

Total Stabilized Assets (4)

2014

43.4

6 $

620

Under Construction $

5.5 Projected Stabilized NOI

2015

Hughes Landing Retail

3.5 Projected Stabilized NOI

2016

One Lakeâ&#x20AC;&#x2122;s Edge Multifamily

7.8 Projected Stabilized NOI

2016

111

Creekside Park Village Center

1.9 Projected Stabilized NOI

2015

Millennium Six Pines Multifamily

4.4 Projected Stabilized NOI

2015

14.4 Projected Stabilized NOI

2016

262

592

Two Hughes Landing

ExxonMobil Build-to-Suit Total Under Construction

(5)

37.5

Additional Planned Development Commercial Development (6)

7.0 Square Feet (MM)

1,050

Total Additional Planned Development

7.0

1,050

2,994

Less: Cost to Complete (7)

(428)

Less: Existing Debt

(407)

2,159

Gross Asset Value

(8)

Estimated Undiscounted Value (9) 1. 2013 average price per lot less remaining net development costs. 2. Assumes $12.09 per square-foot. Excludes land in the Town Center. 3. Represents projected stabilized NOI upon completion of the redevelopment. 2013 actual NOI was $10.2 million. 4. Assumes a 7.0% cap rate on Projected Annual NOI. 5. Assumes a 7.0% cap rate on Projected Stabilized NOI excluding ExxonMobil, which assumes a 5.5% cap rate. 6. Future development valued $150 per square-foot net of development costs. 7. Estimated cost to complete projects under construction as of December 31, 2013. 8. Debt as of December 31, 2013.

9. The value derived does not account for timing of future developments or completion of existing developments. Future development projects assumed to be completed in this analysis may or may not actually be completed.

CEO SHAREHOLDER LETTER

Hughes Landing is being developed into a vibrant, walkable mixed-use environment.

THE WOODLANDS RESIDENTIAL AND COMMERCIAL LAND In my 2013 shareholder letter, I discussed the results of a competitive bid process for 375 residential lots in which pricing came in 49% higher than sale prices for comparable lots prior to the origination of this process. We continue to obtain competitive bids for residential lots and now command an average price per lot that is 98% higher than before the program was implemented in the second half of 2012. Based on the 2013 average lot price of $155,500 and the uninflated future net cash cost to deliver of approximately $2,600, we estimate a profit of $152,900 on the remaining 2,064 lots. Assuming no further price increases, this results in $316 million in total proceeds from residential lots. If we use the 2013 expected value of $12.09 per square foot for the 791 acres of our remaining commercial land outside The Woodlands Town Center district, we can expect $417 million in proceeds for a combined undiscounted land value of $732 million.

THE WOODLANDS COMMERCIAL OPERATING PROPERTIES We continue to expand the platform of stabilized operating assets in The Woodlands. Our commercial properties currently encompass over 1,000,000 square feet of office space, 50,000 square feet of retail space, 393 luxury multifamily units, a 406-key resort and conference center and a country club. Once redevelopment of The Woodlands Resort & Conference Center has been completed and stabilized, we expect the combined annual NOI from these properties to be in excess of $43 million. Applying a conservative 7.0% cap rate to this portfolio of assets, results in a value before debt of $620 million.

Whole Foods will bring fresh gourmet food options to Hughes Landing.

The Woodlands Resort & Conference Center is currently under construction undergoing a $75 million redevelopment. We are adding 184 new rooms and expect to demolish the older 218 rooms, which were built in the 1970s. Our future plans include replacing these at a later date with luxury townhomes. Occupancy prior to the start of construction was approximately 57.6% comprised of 62.9% during the week and 46.3% during the weekend. With the addition of an 865-foot â&#x20AC;&#x153;lazy riverâ&#x20AC;? we expect to attract families on the weekend which will increase average occupancy to 67% comprised of 71% during the week and 58% on the weekend. While the property continues to perform well during construction, we expect NOI to increase by over 50% to $16 million once the redevelopment has been completed and occupancy stabilizes.

THE WOODLANDS COMMERCIAL PROPERTIES UNDER DEVELOPMENT As the demand for commercial space and new amenities continues to exceed supply, we are advancing development plans for several strategic assets located within The Woodlands. Most notably, in July 2012, we announced plans for Hughes Landing, a 66-acre mixed use development located on Lake Woodlands. The development is ultimately planned for 1.6 million square feet of office, 250,000 square feet of retail, restaurant and entertainment space, up to 1,500 multifamily units and a 175-room hotel. We recently announced 650,000 square feet of office currently under construction at Hughes Landing, of which 478,000 square feet were leased to the Exxon Mobil Corporation. Once the commercial properties under development are completed and stabilized, we expect them to generate approximately $37.5 million in NOI and we estimate their value at approximately $600 million.

Due to strong demand for hotel rooms at premium rates, we intend to develop a 300-room hotel located in Town Center. Located adjacent to 4 Waterway Square and across the street from 3 Waterway Square, this hotel will serve as the newest generation Four Diamond hotel in an underserved market and will complement The Woodlands Resort & Conference Center. This $100+ million project is expected to break ground in the first half of 2014 and will welcome its first guests in late 2015.

THE WOODLANDS COMMERCIAL PROPERTY DEVELOPMENT OPPORTUNITY The Woodlands commercial office vacancy rate at less than 5% is one of the lowest in the country. In light of this demand, we continue to work to identify future potential development sites in The Woodlands. We have identified an additional seven million square feet of fut ure co mmercial developm ent opportunities since we obtained 100% ownership of The Woodlands. Using current market values of $400 per square foot and a cost to complete (excluding land value) of $250 per square foot, we estimate that we can achieve more than $1 billion of value from these new development opportunities. Strong economic trends are expected to continue to provide us with a unique opportunity to accelerate growth, density, and development. The time is now for The Woodlands and we understand the unique opportunity in front of us.

CEO SHAREHOLDER LETTER

A block of homes in a Bridgeland residential neighborhood.

A kayaker enjoys one of the many waterways and lakes in Bridgeland.

BRIDGELAND Bridgeland finished 2013 with 7,350 residents in 2,100 homes, and demand for finished lots remains robust. While we sold 143 residential lots at an average price of $77,000 and 16.6 commercial acres generating $13.6 million in revenue, we were unable to fully capitalize on demand due to an unforeseen delay in obtaining a development permit from the US Army Corps of Engineers. By comparison, in 2012, we sold 389 lots and generated revenue of $21.9 million. I am pleased to report that on February 27, 2014 we received the development permit. As a result, we should be able to deliver over 500 finished lots to builders within 180 days and develop an additional 806 acres of land in Bridgeland, representing approximately 1,300 finished lots. There are a few reasons why we are confident that sales momentum will return to Bridgeland and lot sales will accelerate. First, Segment E of the Grand Parkway, which bisects the future downtown of Bridgeland, is now open to vehicular traffic. The Grand Parkway will reduce the commute time between Bridgeland and The Woodlands and other areas of the Houston Metropolitan Statistical Area (MSA). Next, as Houston continues to grow northwest, many of Bridgelandâ&#x20AC;&#x2122;s competitors are running out of lot inventory. With approximately 18,000 remaining developable lots and a 2013 average price per lot of $77,000, we are positioned to capitalize on Bridgelandâ&#x20AC;&#x2122;s potential for growth. Finally, with an increasing number of residents, we continue to invest in infrastructure so that we can stay ahead of expected growth. In 2013, we invested $29.2 million in the development of future residential sections and critical support items such as waste water treatment plants, roads, sewers and community amenities.

CEO SHAREHOLDER LETTER

SUMMERLIN When I became CEO of The Howard Hughes Corporation near the depth of the housing recession in 2010, Summerlin had just $11 million of revenues. At its peak, Summerlin generated $260 million of annual revenues. Because of this potential, we dubbed Summerlin the Sleeping Giant, and in 2013, this Sleeping Giant awoke. Summerlin generated $112 million of land sales in 2013 compared with $32 million in 2012, and the average price per superpad acre increased to $323,000 from $226,000 in 2012. In 2013, Summerlin sold 157 finished lots, nine superpads (totaling 257 acres) and 12 custom lots. At December 31, 2013, Summerlin had ten active subdivisions containing 290 lots, down from 13 at the end of 2012. Summerlin’s new home sales increased to 589 in 2013 from 471 in 2012. Kevin Orrock, President of Summerlin, and his team are energized by the recovery of this market and growing demand for land in Summerlin. Our patience paid off and now our community is once again blossoming as the premier community where homebuilders want to build. In 2013, median new home sales prices in the Las Vegas Valley increased approximately 37% over the prior year. According to the Las Vegas Review Journal, resale inventory at the end of 2013 represented 2.8 months of inventory, less than half the six month supply of a normal market. Visitors to the Las Vegas strip were 39.7 million, just shy of the 2012 record. Construction activity is also on the upswing, with almost $8 billion of investment proposed or under construction in Las Vegas. To give some context to the rebound in values at Summerlin, in 2010 we took an impairment charge against the approximately 2,000 acres in Summerlin South. The $203 million fair value determined at that time for accounting purposes was computed using a discounted cash flow model containing projected future sales prices and costs to deliver parcels to homebuilders. In the second half of 2013, we sold superpads for an average of approximately $365,000 per acre. Our model from 2010 did not assume we would reach this price until

2025, so from a pricing standpoint we are 12 years ahead of our assumptions in the 2010 valuation model. You may remember from our Chairman’s letter in 2011, Bill Ackman stated “small changes in assumptions on discount rates, lot pricing and sales velocity, inflation etc. can have an enormous impact on fair value.” Calculating the positive impact of pricing increases and sales velocity would dramatically change the carrying value of Summerlin, but under GAAP accounting, we do not “write up” assets if they increase in value, we only write them down if we believe we cannot recover our book value from the future cash flows we expect to receive from the property. In light of the recent rapid increase in sales prices, one might ask whether we are approaching peak pricing in Summerlin, but we believe we are far from it. The following chart shows historical annual superpad sales and price per acre for superpads. We are now at 2003/2004 pricing levels and one-third of the peak. We also believe that the creation of a downtown in Summerlin will have a substantial positive impact on land values. We believe the future is very bright for Summerlin.

As the Las Vegas economy continues its recovery, we expect Summerlin to further differentiate itself as the top MPC in the region. Summerlin, which is equipped with the best amenities of any MPC in the Las Vegas market, is adjacent to the Red Rock Canyon National Conservation Area and has neighborhoods connected by a 150-mile trail network. The community also boasts the best public and private schools in the state. Eleven out of the 12 public schools in Summerlin received one of two top scores according to the Nevada Department of Education’s 2013 statewide assessment. I believe that anything really worth doing, whether in life or in business, requires persistence and perseverance. Staying the course means having the necessary foresight, capital and, most importantly, courage to stick to your plan. The Shops at Summerlin in Downtown Summerlin was an abandoned mall site that our predecessor had invested over $150 million in infrastructure before suspending construction during the financial crisis. It had an all-star line-up of tenants and if previous management had the capital and courage to stay the course, despite how badly Las Vegas was

HISTORICAL SUPERPAD SALES

SALES

(THOUSANDS)

PRICE PER ACRE (THOUSANDS)

$90,000

$1,200 $83,191

$81,266

$80,000

$1,059 $72,754

$1,000

$973

$70,000

$67,122

$65,176 $60,621

$60,000

$822 $54,936

$800 $720

$50,000 $600 $40,000

$37,635

$30,000

$323

$289

$20,000

$10,000

$400

$26,116

$24,372

$169

$160

$170

$203

$226 $12,505

$14,657 $7,042

$108 -$

-$ 1998

$200

1999 2000

-$ $0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

SUMMERLIN SUPERPAD SALES

CEO SHAREHOLDER LETTER

hit by the downturn, it would be a fortress mall today. I am excited about launching the development of the downtown in Summerlin because we are not building a mall or a town center but instead a small city just like we did at The Woodlands. Part of a 400-acre site, this downtown will initially be home to over 1.35MM square feet of national retailers, a 200,000 SF Class A office building, and in the coming years, thousands of residents in apartments and condos in addition to more office buildings to meet the demands of companies wanting to enjoy this world class community where their employees can work, live, and play. A 200,000 square foot Class-A office building, originally begun by our predecessor, will be located in the center of our city. The partially completed structure that we inherited provided us the opportunity to profitably develop this building at an attractive economic return. This building will be a catalyst for additional office development on our site as tenants throughout the Las Vegas Valley are drawn to the amenities offered by our downtown development.

A view of the Summerlin master planned community in Las Vegas, Nevada.

Dave Kautz â&#x20AC;&#x201C; Senior Vice President of Development, is responsible for building the downtown Summerlin project. Dave has over 30 years of development experience in a diverse range of retail projects. His talent, enthusiasm, tireless energy and no nonsense approach are a

COLUMBIA In Columbia, Maryland we began construction on the first two important commercial developments in Downtown Columbia. The 50/50 joint venture with Kettler-Orchard to develop a 380-unit Class A apartment building called The Metropolitan began construction last year and is expected to be completed on schedule by the end of 2014. Kettler-Orchard has been a great partner on the project and we therefore decided to do a 50/50 joint venture with Kettler on a new 437-unit Class A apartment building adjacent to The Metropolitan. We contributed approximately five acres of land with a book value of $4.0 million at a valuation of $4.8 million per acre, or $53,500 per unit which equates to $23.4 million in total value. We expect construction on this second apartment building to begin in 2014. The renovation of the Frank Gehry-designed Columbia Headquarters building began in 2013. Anchored by Whole Foods and the Columbia Association, this 89,000 square foot building, when complete, will re-energize the Downtown Columbia lakefront area. We obtained a $23.0 million nonrecourse construction loan at LIBOR plus 2.00% to fund

perfect fit for a project of this scale and complexity. When you visit this site, you will find it bustling with activity with as many as 600 workers onsite daily. We expect the opening of The Shops at Summerlin to be a huge success.

nearly all of the $24.6 million renovation. The project is expected to be completed by the end of 2014 and reach stabilized annual net operating income of $2.1 million in the second quarter of 2015. John DeWolf, Senior Vice President Development, and his team continue to develop a master plan for the 13 million square feet of entitlements that we have surrounding the Columbia Mall and in the adjacent 40-acre area called the Crescent, which also contains the Merriweather Post Pavilion, ranked the fourth best amphitheater in America by Rolling Stone Magazine in 2013. Columbia is the oldest MPC in our portfolio, and was developed by Jim Rouse in the 1960s and early 1970s. Since that time, very little development has occurred in Columbia and most of its commercial buildings are dated. Rouse is widely recognized as the father of the MPC business, and since Columbia was developed, Howard County, which comprises Columbia, has become the sixth-most affluent county in the U.S. according to Forbes. Downtown Columbia is poised for new development, and during 2014 we expect to unveil our master plan for its redevelopment.

CEO SHAREHOLDER LETTER

STRATEGIC DEVELOPMENTS WARD VILLAGE It is critical that we have a strong sense of who we are, both as a company and in our plans for specific markets and developments. This allows us to be authentic to the communities we serve. It is this drive for authenticity that has guided our vision for Ward Village, our vertical master planned community in urban Honolulu. During 2013, we began the transformation of Ward Centers into Ward Village, an urban master planned community that will include approximately 4,000 residential units and over one million square feet of retail and commercial space. Ward Village will be a vibrant neighborhood complete with diverse retail experiences and exceptional residences set among dynamic public open spaces and pedestrian-friendly streets. We recently completed the redevelopment of the onsite iconic IBM Building into the world-class Ward Village residential sales gallery and master plan information center, which showcases the urban master planned community that we are creating. In November, Ward Village was awarded LEED Neighborhood Development Platinum certification. Ward Village is the only LEED-ND Platinum certified project in Hawai'i and the largest LEED-ND Platinum certified project in the U.S. This designation confirms our commitment to sustainability of the projects that we develop. Consistent with our goal of creating a thriving community at Ward Village, we established the non-profit Ward Village Foundation with an initial $1 million commitment to support the local community over the next two years, and committed the first $100,000 grant to Kupu, a local non-profit that provides experiential education and life skills development opportunities to help youth and young adults succeed in life and create lifelong community servants. These investments in sustainability and

community are long-term investments. We believe that over time this approach will contribute to our goal of making Ward Village the most desirable place to live in Honolulu. Earlier this year, we began pre-sales of the first two residential towers at Ward Village called Waiea, meaning “water of life” in Hawaiian and Anaha, meaning “reflection of light”. Waiea will contain 171 residential units and Anaha will contain 311 units. The strong demand for units at ONE Ala Moana and the demand we are experiencing for Waiea and Anaha are consistent with numerous data sources indicating strong housing demand fundamentals in Hawai'i. A study published in February 2014 by The Economic Research Organization at the University of Hawai'i predicts a 35% increase in median condominium pricing by 2018 due to a lack of supply and hurdles to new development. In addition to strong local demand fundamentals, Hawai'i has strong international appeal to second home buyers. In addition to demand from the mainland U.S. and Japan, visits by Chinese and Korean tourists, which had been small in the past, are increasing substantially. Visits from Korean and Chinese tourists have increased on an annual compounded basis by over 20% since 2007. While still less than 5% of total annual visitors to Hawai'i, many believe that these numbers could become much larger with the establishment of additional non-stop service between Mainland China and Hawai'i. In January 2014, Air China began the first non-stop service between Beijing and Honolulu, and Hawaiian Airlines has announced it will begin non-stop service in April. An influx of tourists from areas of the world, such as China and Korea, that had not traditionally been visitors to Hawai'i in the past, will further increase demand for residential housing.

The ground floor at one of the two luxury towers in the first phase of Ward Village.

CEO SHAREHOLDER LETTER

SOUTH STREET SEAPORT The South Street Seaport in Lower Manhattan is one of our most valuable and recognizable assets. The Seaport is an important catalyst for the revitalization of Downtown Manhattan as it continues to recover from Superstorm Sandy. Our vision is to transform the Seaport area into the most vibrant community in Lower Manhattan that will become a premier destination for local New Yorkers and tourists for entertainment, culture, shopping, dining and living.

A view of the FDR entering the Tin Building that will be redeveloped as part of our Seaport master plan.

Pier 17.

Lower Manhattan was severely impacted by Superstorm Sandy in October 2012. Many local businesses struggled to re-open or closed permanently, and the area is still recovering to this day. As a result of the storm, last year we created innovative programming called SEE/ CHANGE to re-energize and re-activate the Seaport community and create a gathering place for the community that did not exist in the aftermath of the storm. The program includes bringing an array of new retail, culinary and cultural events to the Seaport each season to attract local New Yorkers and tourists, and an intensive social media campaign to advertise the events. SEE/CHANGE launched Memorial Day weekend with over 30 small businesses opening in containers and pop-up retail spaces for the summer. Between Memorial Day and Labor Day we had approximately 20,000 people attend 30

Thousands gather for a free movie screening at South Street Seaport Front Row Cinema program.

outdoor movie nights and Smorgasbar, a collection of pop-up restaurants that generated over $2,000 per square foot in sales. SEE/CHANGE is just the beginning of the transformation of this area into the South Street Seaport District. We donated 100% of SEE/CHANGE revenues to the old Seaport Alliance to help businesses that were hard hit by Sandy and continue to be impacted by the storm. As described in Travel and Leisure, “The words South Street Seaport and hip have never been strung together by a New Yorker … That’s changing: the cool factor is rising.” This is just the beginning as we have made SEE/ CHANGE a part of each season of the year and launched our winter campaign that included an ice-rink and an inflatable cube that can hold several hundred people with live music performances, food, and drinks. Our initial project includes the redevelopment of Pier 17 and renovation of the historic area west of the FDR Drive. During 2013, we obtained all necessary entitlements needed to begin the project and in September, we began construction on the complete transformation of Pier 17. The redevelopment plan balances the pier’s iconic waterfront location with its unique ability to provide a much-needed community anchor for the rapidly growing residential population in Lower Manhattan—a population that has nearly tripled in the past 15 years.

CEO SHAREHOLDER LETTER

12,000 skaters visited the outdoor ice rink at the Seaport.

The redeveloped pier will be highlighted by a 1.5-acre rooftop that will include a world-class restaurant, two outdoor bars, and an amphitheater that will hold up to 4,000 people for concerts and special events becoming the premier boutique entertainment venue in the world. Larger open spaces on the pier level along with the new rooftop venue will showcase breathtaking views of the city skyline. The structure will contain approximately 182,000 square feet of leasable space, not including the rooftop. The South Street Seaport District will have a character unique from the rest of Manhattan. Its location and views of the Brooklyn Bridge, the East River and New York Harbor, and its storied history as the birthplace of New Yorkâ&#x20AC;&#x2122;s maritime history, will make the customer experience unique. We are curating a tenant mix that will complement these unique attributes to further differentiate the South Street Seaport District and create a destination unlike any other in the city. One of our new anchor tenants is a great illustration of this strategy. In late 2013, we announced that we will be bringing world-class cinema operator iPic to the Seaport in what will be the first of many tenant announcements. Along with the redevelopment of Pier 17, the theater will be part of a dynamic lineup of retail, dining, entertainment

and culture at the Seaport that will transform this district into the most desired place to be in Manhattan. Containing eight-screens and 505 seats, iPicâ&#x20AC;&#x2122;s guests will enjoy reserved luxury seating, in-theater dining and a level of comfort and service offered nowhere else in Manhattan. The iPic theater will be located in the historic Seaport. We estimate our initial project will cost approximately $425 million to complete, which includes the costs of fully replacing the concrete Pier 17 structure. We have chosen initially to fund the project from unrestricted cash on an unleveraged basis. We believe that initially developing this project without construction debt provides the most flexibility and allows us to make decisions quickly for this unique project. A s development and leasing advances, we expect to obtain project level financing for this development. In November, we presented to the public preliminary plans for a second project, which, together with our initial project, completes our vision and master plan for transforming the entire South Street Seaport District. Designed by the renowned architectural firm SHoP, led by principal Greg Pasquarelli, the proposed second project is expected to encompass nearly 700,000 square feet of space and will be fully integrated into the

East River Esplanade and enhance the neighborhood connectivity to the water while preserving and enhancing views. The project will include a LEED-certified building with hotel and residential uses, the replacement of deteriorated wooden platform piers adjacent to Pier 17, a complete restoration of the historic Tin Building into a world-class food market open to the public seven days a week, and a marina with public access and a myriad of maritime activities. The South Street Seaport District and Ward Village developments are urban siblings of our core suburban master planned community business. Thoughtful planning, with an emphasis on sustainability, creates a virtuous development cycle where one property type generates demand for other property types, which attracts more residents, creates more demand for development, and so forth. These urban planned communities, containing retail, entertainment, residential, office, and hotel with public open spaces, become desirable communities where residents can live, work, learn and play.

CEO SHAREHOLDER LETTER The Seaport will be highlighted by a 1.5-acre rooftop that will include an amphitheater that will hold up to 4,000 people for concerts and special events in becoming the premier boutique entertainment venue in the world.

CEO SHAREHOLDER LETTER

THE OUTLET COLLECTION AT RIVERWALK The Outlet Collection at Riverwalk demonstrates the creativity and tenacity of our development, leasing, operations and marketing teams in navigating complex projects to drive shareholder value. I discussed the unique attributes of this project in my 2013 letter. The development is slated to become the first upscale urban outlet center in the United States and will be the first, new, large-scale retail development in downtown New Orleans since Hurricane Katrina hit in 2005. The project solidifies downtown New Orleansâ&#x20AC;&#x2122; resurgence as a retail destination for residents and tourists alike.

The Outlet Collection is centrally located in New Orleansâ&#x20AC;&#x2122; business and tourist districts and sits on several long-term ground leases and easements owned and controlled by multiple government and commercial constituencies. Navigating these complexities, the development team successfully entitled the project and the leasing team has executed leases for over 95% of the rentable space. The Outlet Collection will include marquee tenants such as Neiman Marcus Last Call Studio, Forever XXI and Coach.

A view of the interiors of the Outlet Collection at Riverwalk.

This development is a case study which demonstrates the potential value that can be created with unconventional and innovative approaches to development. In 2010, we took an impairment charge to write down Riverwalk to its then fair value of $10 million. Its redevelopment into an upscale urban outlet center, which will cost approximately $82 million, will open in 2014 with approximately $8.5 million of annual net operating income. Given the scope of the project, we believe the stabilized value of this asset will approach $150 million.

CEO SHAREHOLDER LETTER

Spanish Plaza, The Outlet Collection at Riverwalk.

The Outlet Collection at Riverwalk is located in the heart of New Orleansâ&#x20AC;&#x2122; central business and tourist districts.

CEO SHAREHOLDER LETTER

TALENT I have always believed that all companies need two things to be successful—great assets and great people. We are constantly looking to add world-class talent that share our values and commitment. Both Grant and I spend a great deal of time recruiting top notch talent to our company. As the lifeblood of any good organization, we have a deep appreciation for the interconnectivity of people and how important chemistry, commitment and character are to executing on our vision. We have embedded in our culture the importance that every current and future employee share our passion and our values. Below I have identified some of our key 2013 recruits. In preparation for the impending operation and management of our soon-to-be stabilized properties, we hired Sarah Vasquez, Senior Vice President of Management and Operations, in February 2013. Sarah’s broad experience managing retail centers at Westfield provides her with an excellent background to effectively and efficiently maximize the operations of our stabilized developments while adhering to and advancing the latest trends in customer service and sustainability. Sarah’s electric energy and infectious enthusiasm have already made a huge imprint in the fabric of our organization. It is almost as if she started with the company in November of 2010. In August 2012, we engaged Cornwell Design, an Australian branding and marketing firm, to develop a brand strategy for our Ward Village development. The work developed by Steven Cornwell, CEO and Founder, and his team gave us insight into his marketing brilliance and showed us the potential impact great content can have in bringing the vision for our properties to life. While working with Steve I realized that we needed to develop our intellectual property in house, and that Steve’s ability to translate powerful ideas into content would be invaluable to us in unlocking the potential of the Howard Hughes brand. To that end, led by Steve Cornwell, we launched the HHC Studio at the beginning of this year. HHC Studio is our in-house design, marketing and branding group. Steve relocated his family from Australia to New York and HHC Studio will be headquartered at our Seaport offices. In February of this year we hired Brent Habeck as EVP Strategic Leasing. Prior to joining our team Brent was directly responsible for leasing the World Trade Center. In partnership with Keith Laird – EVP Leasing, Brent will help uncover the many undiscovered jewels within our portfolio, the results of which will be shared with you in the coming years. In March of 2013, we received all of the necessary approvals to begin the redevelopment of the South Street Seaport. Our redevelopment efforts began in earnest at the beginning of October but in the interim, we have been hard at work hiring the necessary expertise to ensure that the reconstruction and operation of Pier 17 is in great hands. Phillip St. Pierre joined

Tim Welbes, Robert Heineman, and Alex Sutton, accept the Vision Award for Exemplary Leadership from the Urban Land Institute in Houston.

us as General Manager in March 2013. Previously he was responsible for managing Century City Mall in Los Angeles, California. Phillip has already made a valuable contribution, leading our dynamic SEE/CHANGE programming. We are actively leasing the Seaport with the help of Jonathan Lauren – Vice President of Leasing who began working for us in January 2014. Jonathan has over 25 years of leasing experience at retail centers such as Century City Mall, Topanga Mall and Valley Fair, all in California. His knowledge of and key relationships with national, international and local retailers will be pivotal as we continue to announce the many outstanding tenants we believe will be part of this iconic project. Also in New York, Susi Yu joined us as Senior Vice President of Development. In this role, she is leading the planning efforts for the future mixed-use development at the Seaport. Prior to joining Howard Hughes in August, 2013, Susi served as Senior Vice President for Forest City Ratner Companies. During her 12year tenure with Forest City Ratner, Susi led the development of large scale, mixed-use urban projects, including the development of 8 Spruce Street, a 1.1 million square foot, 896-unit rental building designed by Frank Gehry, and the development of B2, the first residential building of Atlantic Yards. I am pleased that these very talented and accomplished individuals have joined the deep bench we already have in place. I expect that these new additions will make their mark in the coming years and collaborate effectively with our growing family of employees.

CEO SHAREHOLDER LETTER

The Board of Directors and HHC executives ring the bell at the New York Stock Exchange in March 2011.

A LEADING AMERICAN COMPANY FOR THE ST 21 CENTURY

The Howard Hughes Corporation has built the foundation for our future success. Our unique assets have drawn world-class talent to the company who will create a myriad of future possibilities to grow our business. First and foremost, however, there is a lot of work yet to be done to maximize the value of our existing real estate assets. In 2014, you will see ongoing vertical development in our largest core assets as they get closer to completion. We will begin to generate significant stabilized recurring cash flows from our commercial properties and realize sales proceeds from sales of condominiums and residential and commercial land. At The Howard Hughes Corporation, we love real estate, but our brand is about so much more than bricks and mortar. We are about creating something great and transformational that will outlast us. In order to achieve this, I encourage each of our employees, consultants, and partners to THINK BIG. I am grateful for the continued confidence and support you have shown as we continue our mission to create timeless places and memorable experiences that inspire people while driving sustainable, long-term growth and value for our shareholders. Warm Regards,

David R. Weinreb Chief Executive Officer

TO THE SHAREHOLDERS OF THE HOWARD HUGHES CORPORATION FROM THE CHIEF EXECUTIVE OFFICER

MARCH 5, 2013 for the dedication and tireless efforts that have made these achievements possible, and sharply focused on continuing our outstanding performance. 2013 is pivotal for The Howard Hughes Corporation as we transition from planning to building and continue to unlock the value of our portfolio.

$76 million compared to $36 million in 2011. These strong operating results permitted us to invest $155 million in pre-development, construction, and to retire the majority of the outstanding Sponsor warrants, while ending the year with a cash balance $2 million higher than at the end of 2011. We have a strong balance sheet with only 19.9% net debt against the book value of our assets. We generated $153 million of opportunities that we believe have the most potential for creating extraordinary value. Our long-term goal is to increase the value of the company on a per-share basis. We do this by improving our assets through the development process and by opportunistically deploying excess cash. In the fourth quarter, we purchased approximately 6.1 million of the 8 million Sponsor warrants issued as part of our emergence as a public company. These warrants had a strike price of $50.00 per share and a November 2017 expiration date. They were the most expensive and dilutive security in our capital structure. Before their retirement, the warrants represented an economic drag on our per-share progress as every dollar of appreciation of our stock price above $50.00 would require us to generate $1.16 of value. The repurchase of these warrants in exchange for $81 million of cash and 1.5 million shares is a break-even proposition for the company if our stock price equals $81.10 in 2017, a price which we expect will be well below the potential value of our stock at that time. As a result of retiring the warrants, our shareholders now own 10.1% more of the company. Our board of directors continues to be an integral part of the governance, development and operating activities of our business. Their commitment to the company, our employees, our mission and development plans is unwavering. The board consistently provides strong leadership and direction and is a guiding force in maximizing value for our shareholders. I am thankful for the boardâ&#x20AC;&#x2122;s strong commitment and their wise stewardship of the company.

The majority of our value creation potential resides in a handful of core assets: South Street Seaport, in Lower Manhattan, the master planned communities in Columbia, Maryland, The Woodlands and Bridgeland in Houston, Texas, and Summerlin in Las Vegas, Nevada, The Shops at Summerlin, and Ward Village, an urban master planned community in Honolulu, Hawaii. We are focusing our resources on these core assets while repositioning the remaining assets of the portfolio in order to maximize their value for potential disposition or other forms of monetization.

SOUTH STREET SEAPORT, NEW YORK, NY

In 2013, The Howard Hughes Corporation enters a new phase in its evolution as we move from an intense focus on planning and design to concentrating on vertical construction. We expect to commence construction this year on all core development assets within the portfolio. In Hawaii, we are already under construction on a 57,000 square foot retail project at Ward Centers and will commence construction this summer on the ONE Ala Moana condominium tower. We have multiple commercial developments underway at The Woodlands and expect to break ground on our new downtown in Summerlin. Other initiatives in 2013 include the redevelopment of Pier 17 at the South Street Seaport in New York City, the transformation of the Riverwalk new Class-A apartment units and the renovation of the Columbia Headquarters Building in Columbia, Maryland.

STRENGTHENING THE BENCH During 2012, we continued to build our team. In April, we hired Paul Layne as Executive Vice President

and business relationships in the Houston area have been invaluable in not only attracting commercial tenants to The Woodlands, but also in integrating The Woodland’s leading master planned community development platform into the company. I have known Paul for over 15 years and have seen him successfully manage large and diverse portfolios around the country. It has been 11 short months, but the results of his efforts can already be seen in Bridgeland, The Woodlands and Summerlin. Recently, we hired Steve Robinson, Senior Vice President Construction, to run our construction division. Steve worked on developments that my former company completed in Houston in the late 90’s in addition to the construction of other complex large-scale projects. He is dedicated, detailed and meticulous in his approach to project development. In 2013, we expect to begin construction on a number of our key developments. Steve’s knowledge and expertise will be critical in ensuring these developments are constructed to the highest standards at or below their budgeted costs. In true Howard Hughes spirit, our team continues to show no limits to their tenacity and commitment to the cause. Christopher Curry, Senior Executive Vice President Development, has agreed to relocate to New York as we begin the construction phase of the South Street Seaport and set our sights on expanding our platform in the city. In addition, Nick Vanderboom, who was recently promoted to Senior Vice President, has moved his family to Honolulu, Hawaii as Ward Village’s development gears up.

WARD VILLAGE, HONOLULU, HI

MASTER PLANNED COMMUNITIES Our master planned communities (“MPC’s”), continue to be ranked as the leading MPC’s in the U.S. According to a Robert Charles Lesser & Co. LLC study, The Woodlands was ranked third with 1,007 home sales, Summerlin 12th with 471 home sales, and Bridgeland 15th with 423 home sales.

THE WOODLANDS The Woodlands, led by co-presidents Alex Sutton and Tim Welbes, remains the top performer in our MPC the United States as a leading MPC. At the end of 2012,The Woodlands had 2,750 residential lots remaining. With the expected addition of over 10,000 new direct jobs to the area at ExxonMobil’s 385-acre campus located just south of The Woodlands, the market is recognizing the scarcity and value of these remaining lots. We are hearing the comment, “buy in The Woodlands while lots are still available,” with increasing frequency and are adjusting pricing accordingly. In my 2011 letter to shareholders, I described the value proposition of The Woodlands investment. Based on the most recent transactions, I believe that the estimated proceeds from residential land sales in that letter were understated. During the second half of 2012, we conducted an auction of 375 lots comprising seven different lot sizes and invited nine additional home builders who were not already building homes in The Woodlands to participate. This auction was extremely successful, resulting in an overall 49% price increase over the previous sale prices for comparable lots. Applying the realized increase in pricing across 3,125 lots (2,750 at the end of 2012 plus the 375 in the auction) results in $196 million of incremental proceeds above our previous forecasts. This assumes we are only able to obtain the same premium for all of our remaining lots. I believe residential land prices at The Woodlands have room to increase substantially given the demand for lots, their scarcity, and the growing commercial base within the Town Center.

THE WOODLANDS RESORT, HOUSTON, TX

businesses relocating to The Woodlands in order to better serve the new ExxonMobil campus and by companies who want to be in a community where their employees can “live, work, play and learn.”

ONE HUGHES LANDING, HOUSTON, TX

In May 2012, we purchased our partner’s interest in Millennium Phase I, a 393 unit Class-A multi-family interest rate. The proceeds from this transaction were used to repay the interim construction loan, purchase our partner’s interest, and make a $4.1 million distribution to Howard Hughes. Today, Millennium I generates $4.8 million in net operating income. At current market cap rates we estimate that this asset is worth about $30 million more than we paid for it less than one year ago. Contemporaneous with this transaction, we entered into a joint venture with The Dinerstein Companies, our partner on Phase I, to begin the next phase of the development and construct 314 new Class A units. We contributed our land at $75 per square foot, nearly and we are working hard to make sure that we receive fair value as we sell off our remaining parcels. Recently, we announced the redevelopment of The Woodlands Resort & Conference Center. We are repays the existing $36 million facility set to mature this year and provides capital for our redevelopment. The resort generated $10.7 million in net operating income for 2012, $6.3 million more than in 2010. The redevelopment will encompass the renovation of 222 existing guest rooms; the replacement of the 206 room Lodge with a new wing consisting of 184 guest rooms and suites, a new, expanded arrival area with a porte‐cochere and lobby featuring native Texas stone, massive, three-story windows; a new 3,036 squarefoot “Living Room” connecting the three guest room wings, ideal for informal gatherings; a new 1,000-foot long Lazy River winding through a tree-lined outdoor area; renovation of the entire meeting and event facilities, including the ballroom, boardrooms and breakout space; an updated 13,000 square-foot spa and redevelopment will solidify the property’s position as the premier resort and conference center in Texas and meet burgeoning demand from corporate clients.

RESTAURANT ROW AT HUGHES LANDING, HOUSTON, TX

In July, we announced a 66-acre mixed use development called Hughes Landing at Lake Woodlands. The retail, restaurant and entertainment space, up to 1,500 multi-family units, of which 400 units will be in phase one, and a 175-room hotel. The decision to have this development carry the signature of Howard Hughes illustrates our expectation that this will be a legacy development for the company. One year ago, this development was not even on the horizon. This past fall we began construction of One Hughes Landing, a of 2013. To date, we have pre-leased 28% of the building with an additional 7% out for signature. The total project cost will be approximately $52.8 million and the projected stabilized net operating income is anticipated to be $5.2 million. At a 7.0% cap rate, the value of this building is approximately $74.3 million, implying $21.5 million of additional value creation. While the timing of the Hughes Landing development depends on many factors, using current market conditions, the value we believe can be created once this project is fully developed. As of this writing, we have planned continue to explore ways to increase total densities. If the current robust market conditions continue, driven by the 2015 opening of ExxonMobil’s campus, we believe that there will be demand for several million square

The Woodlands is in high performance mode, and it is incumbent on us to deliver as much value as possible from this asset during this period of its life cycle. In summary, on a “same store” basis, commercial net operating income (including golf membership deposits) has grown from $12.7 million in 2011 to $26.4 million in 2012, a 108% increase. More information on The Woodlands can be found at www.thewoodlands.com.

BRIDGELAND, HOUSTON, TX

BRIDGELAND Fueled by the sustained growth of the energy sector, the Houston-area housing market was once again among the leaders in the United States. Bridgeland had another record year and ranked fourth in Houston and 15th nationally in residential land sales in 2012. Land sales increased 30.9% to $21.9 million, and lot sales increased to a record number of 389 in 2012. We expect lot sales to continue to accelerate in 2013 and beyond as competitors run out of inventory and the Grand Parkway, which bisects the future town center, stays on track for a late 2014 completion. In anticipation of accelerated infrastructure investment needs to meet this growing demand, we obtained a non-recourse revolving credit facility with a total

in planning for commercial development in the town center. The extensive experience and track record of that Bridgeland’s future town center will rival that of The Woodlands. To see all that Bridgeland has to offer visit our website at www.bridgeland.com.

COLUMBIA In Columbia, Maryland, John DeWolf, Senior Vice President Development, and his team achieved several important objectives during 2012 that will enable us to advance our redevelopment of Downtown Columbia. At full build-out, the area will include up to 13 million square feet of mixed-use development. Our joint venture with Kettler-Orchard to develop a 380-unit apartment complex received all necessary approvals during 2012, and we began construction in February of 2013. This joint venture valued our contributed land at approximately $4.8 million per acre. We contributed our land to this project at a value of $53,500 per unit or $20.3 million. Our partner is responsible for all additional equity, cost overruns, and construction guarantees related to this project, which is a 50/50 joint venture with no promote to our partner. In July, we secured Whole Foods as an anchor tenant for our to-be-redeveloped Columbia Headquarters Building, the former Rouse Company headquarters that was originally designed by renowned architect Frank Gehry. In November 2012, we secured The Columbia Association as another anchor tenant, which important building, which we expect will begin during the second quarter of 2013, will energize the redevelopment of the downtown by providing important amenities to the community. It is worth noting that this building currently loses $0.8 million per year, but when stabilized, it should generate approximately project. The adaptive reuse of this building is important for several reasons. First, it signals to the local community that we respect and honor its history. Second, it validates our development teamâ&#x20AC;&#x2122;s capability to execute on innovative and transformative developments. Finally, the repurposing of this building will act as a catalyst to the further development of Downtown Columbia.

was 26% occupied. We simultaneously executed a lease to relocate Enterprise Business Partners with 100% of the cost provided by the previous lender on the site. We expect to invest $7 million of equity into this development for renovations and re-tenanting. At stabilization, we expect our investment will deliver an estimated 28% cash-on-cash return. 70 Corporate Center is at the gateway to The Crescent area, a 40-acre parcel that will contain the majority of our future development in Columbia. Visit this development at www.columbiamd.com

SUMMERLIN

THE SHOPS AT SUMMERLIN, LAS VEGAS, NV

As of December 31, 2012, Summerlin had 13 active subdivisions of which only six neighborhoods had more than ten units remaining to be sold and not more than 50 units in the other subdivisions. Several new neighborhoods will open this year introducing 508 additional lots to the market. There is little resale inventory available in Summerlin, which should bode well for an increase in land sales revenue as we move through 2013.

The Las Vegas Valley housing market went through a major transition in 2012. New home sales in 2012 saw an increase of approximately 42% over 2011 sales. According to a recent article in the Las Vegas Review Journal, there were 44,902 resale homes sold in 2012, the third best year on record. At the end of 2012, the number of single-family homes available for sale on the Multiple Listing Service had declined 24.1% from the

Summerlin’s net new home sales for 2012 were 471, an increase of 120% over 2011. 2013 has started on a positive note as our builders have sold 45 units versus 26 units for the same period in 2012. Led by Kevin Orrock, President of Summerlin, the team continued to deliver solid results with $32 million of land sales in 2012. Having kept the supply of land in builders’ hands low during the housing recession, the

THE SHOPS AT SUMMERLIN, LAS VEGAS, NV

drawing on lessons from The Woodlands to implement our development strategy at Summerlin. The early development of a regional shopping mall in The Woodlands was critical to establishing the longterm success of The Woodlands Town Center. The mall increased demand for residential lots and helped spur additional commercial development in the Town Center. Similarly, we expect that completion of therefore made development of this project a top priority. For more information you can learn more about Summerlin on the web at www.summerlin.com.

STRATEGIC DEVELOPMENTS During 2012, we substantially completed the design for Downtown Summerlin. The development will include city street grids and an outdoor shopping and entertainment district with an authentic Las Vegas sophistication and glamour. The design incorporates much of the $150 million of infrastructure improvements that our predecessor invested in the property. Building on the positive residential momentum in Las Vegas, the development of The Shops at Summerlin made substantial progress in 2012. This 106-acre project sits within a 400-acre site located in Downtown Summerlin. Upon completion of phase one, The Shops at Summerlin will include approximately 1.5 million square feet of commercial development, integrating retail, secured anchor commitments from Dillard’s and Macy’s for approximately 380,000 square feet of space. Angelia Powell, Vice President Leasing, is in the process of obtaining lease commitments from retailers for the small shop space. Her passion and energy is contagious, and the line-up we expect to announce rivals the best regional centers in the country. Mike Zoob, Director of Leasing, joined us in March. He is many of the major big box retailers.

This project represents a strategically important development opportunity for the company and a catalyst for increases in residential land sale pricing and velocity. We estimate, based on current market conditions, that the opening of The Shops at Summerlin will lead to an increase of $100 million of additional revenue from residential land sales. In the coming years, thousands of residents in apartments constructed to meet the demands of companies wanting to enjoy this world class community where their employees can “live, work, play and learn”.

ONE ALA MOANA, HONOLULU, HI

In Honolulu, we are preparing to break ground this summer on ONE Ala Moana (www.onealamoana.com), a 206-unit luxury condo tower that is being developed in partnership with Honolulu-based developers Kobayashi Group and The MacNaughton Group. These talented and highly respected local developers led the acceleration of this development which sold out in two days during the month of December. Units at ONE Ala Moana sold for an average price of $1.6 million, or approximately $1,170 per square foot. At an assumed cost of approximately $900 per square foot, including the value of our air rights, the project is Howard Hughes Corporation will receive $47.5 million of proceeds for its air rights. In addition, at project completion, we expect that the company will have received approximately $73 million of total proceeds. This asset has a book value of $22.8 million. The strong response at ONE Ala Moana is good news for Ward Village, one of the company’s key value creation opportunities. In its current state, Ward Village generates approximately $23 million of annual net

WARD VILLAGE, HONOLULU, HI

operating income. However, Ward has an approved master plan that allows for up to 9.3 million total square feet of mixed-use development, including more than 4,000 residential units and approximately 1.5 million square feet of retail and other commercial space. Ward Village has development rights for 22 high-rise towers in an urban master planned community setting. Over the next decade, Ward Centers will transform into Ward Village, a vibrant neighborhood complete with unique retail experiences and exceptional residences set among dynamic public open spaces and pedestrian-friendly streets. In October 2012, we announced rate condominium units and at least 125 workforce housing units. We also commenced the redevelopment of the historic IBM Building into a contemporary information and sales center, which will showcase the unparalleled neighborhood we are creating at Ward Village.

existing “front row” product with unobstructed ocean views re-sold in 2012 at an average price of approximately $1,400 per square foot. Hokua, which is a condominium tower adjacent to Ward, resells at the highest average price per foot of any condominium tower in Honolulu, approximately $1,400 per square foot. Hawaii’s residential market is challenged by supply. Economic forecasts indicate approximately 20,000 housing units must be delivered to meet demand by 2020.This has led economists to project home prices will increase as much as 40% in the next few years.The market will be extremely challenged to deliver this supply given the hurdles that must be overcome

In the same way that buyers pay substantial premiums to live in Summerlin or The Woodlands, by delivering a comprehensive master planned community environment that no other competitor can deliver, we expect Ward Village to capture similar premiums and generate substantial value over the life of the project not only for our shareholders, but also for the new residents. I encourage each of you to follow our progress by visiting our website www.avisionforward.com.

SOUTH STREET SEAPORT, NEW YORK, NY

OPERATING ASSETS Chris Curry leads our redevelopment of the South Street Seaport in Lower Manhattan. In June 2012, we entered into an agreement with the New York City Economic Development Corporation to amend the South Street Seaport ground lease. This agreement will enable us to proceed with the redevelopment of a new design for the new Pier 17 building, a contemporary structure with an open rooftop and glass façade encompassing retail, restaurant and entertainment space. The design balances the Pier’s iconic waterfront location with its unique ability to provide a much needed community anchor for the rapidly growing residential population in Lower Manhattan. The ultimate objective is to create an unmatched New York experience that is compelling to residents, local workers and tourists. The New York City Planning Commission along with The Landmarks Preservation Commission with support from Community Board 1 approved our design. We expect all necessary approvals will be obtained this year.

The South Street Seaport (www.southstreetseaport.com), like many other businesses and residents of downtown Manhattan, was impacted by Superstorm Sandy. The storm caused ongoing hardships for everyone who lives and works in Lower Manhattan, particularly small business owners who might not have had the resources to withstand such an event. Today, more than ever, we believe in the potential of the South Street Seaport to become a dynamic destination for residents and visitors. In November 2012, The Howard Hughes Corporation, along with several other property owners in the area, worked with by Sandy. In addition, we supported New York City Council Speaker Christine Quinn and The United Federation of Teachers who provided 30,000 displaced New York City students with backpacks, school supplies and books. We are committed to beginning the Pier 17 redevelopment this year and look forward to transforming the South Street Seaport into a unique and vibrant urban destination. The Riverwalk Marketplace (www.riverwalkmarketplace.com) demonstrates the creativity of our development team and highlights their ability to deal with complicated redevelopments. The property is well located in the central business district of New Orleans, is adjacent to the New Orleans Ernest N. Morial Convention Center, Harrahâ&#x20AC;&#x2122;s Casino, The Audubon Aquarium, and is connected to two passenger cruise terminals that support over one million passengers per year. Michelle Waak, one of our talented Vice Presidents in our Leasing group, analyzed these challenges and, in collaboration with Mark Bulmash, Senior States. We announced the project in July 2012, and are in the process of converting retailer commitments into leases. Concurrently, we are working with multiple constituencies to solve the access, parking and ground lease issues associated with the redevelopment. We expect to launch construction in early 2013.

THE OUTLET COLLECTION AT RIVERWALK, NEW ORLEANS, LA

The health of the United States economy is critical to our success especially in the master-planned community business. As the housing market continues to recover, we should see exponential growth in our revenue. As The redevelopment of Pier 17, the construction of The Shops at Summerlin, and the construction of our capital primarily from third-party joint venture partners, as we have successfully done with all of our other

NEW OPPORTUNITIES Occasionally, I have been asked whether or not the company intends to acquire other companies and/or assets outside of the existing portfolio. Because we have so many opportunities to invest capital at high rates of return in the existing portfolio, the standard for new acquisitions is extraordinarily high. The opportunity set within our existing portfolio is exceptionally attractive. Our investment in One Hughes Landing is a good example. By contributing our land to the development, we were able to raise non-recourse construction contribution, we are projecting a 10.3% return on cost at completion, more than 300 basis points above market cap rates. Because of the limited equity required and the high projected returns, we anticipate that

THE OUTLET COLLECTION AT RIVERWALK, NEW ORLEANS, LA

SOUTH STREET SEAPORT, NEW YORK, NY

on cash invested, and a 35% internal rate of return over a ten-year hold period. We will continue to exploit opportunities within the existing portfolio and only pursue new opportunities if the returns are exceptional relative to the risk incurred.

THE EVOLUTION OF HOWARD HUGHES script, scouted locations, cast the talent, and in 2013, we are ready to begin shooting the movie.

strong market or is in a market that is experiencing a strong recovery. Our cast is second to none. Each of our important assets is overseen by talented senior leadership, who are supported by a dedicated and growing team of experts. I am pleased that we have continued to recruit an extremely talented team who are attracted to the culture, opportunity, challenges and mission of The Howard Hughes Corporation.

places and memorable experiences that inspire people while driving sustainable, long-term growth and value for our shareholders. Sincerely,

DAVID R. WEINREB CHIEF EXECUTIVE OFFICER

FEBRUARY 29, 2012

TO THE SHAREHOLDERS OF THE HOWARD HUGHES CORPORATION FROM THE CHIEF EXECUTIVE OFFICER: In our first full year as a company, The Howard Hughes Corporation made impor tant strides in moving our assets closer to the point at which they can generate maximum potential value. We hired talented people, formed strategic joint ventures and made a substantial acquisition. These initiatives have positioned our company to create meaningful long-term value for our shareholders and our financial statements are beginning to reflect these effor ts. We star ted 2011 with the foundation of a great team, and have since hired a few more key professionals in order to complete our executive roster. It was critical to find experienced talent who shared our core values. Our people are passionate, committed to excellence, and immersed in a culture that treats the company’s money as if it were their own. We found these values and more in our Chief Financial Officer, Andy Richardson, our General Counsel, Peter Riley, and in the development executives who joined our team this past year. These industr y veterans bring decades of experience and a track record of success working for prominent real estate companies across the countr y. In 2011, we formed joint venture par tnerships on three assets: Ala Moana Tower, Parcel D at Columbia Town Center and The Bridges at Mint Hill. In each case, we par tnered with local developers who have strong reputations and a histor y of successful projects. Leveraging each group’s local knowledge and development exper tise has already helped to accelerate our business plans for these assets. The highlight of 2011, which I will discuss in greater detail below, was completing our acquisition of Morgan Stanley’s 47.5% economic interest in The Woodlands Master Planned Community (“MPC”) located in Houston, TX. The Woodlands is one of the most successful large-scale MPC’s in the U.S, comprising over 28,000 acres, 97,000 residents and 1,700 employers. To learn more about this vibrant community visit www.thewoodlands.com. The Woodlands is now a wholly owned subsidiar y of The Howard Hughes Corporation, and we are confident that this acquisition will create significant shor t and long-term value for our shareholders.

SETTING THE TABLE Before telling you about our class of 2011 executive hires, I wanted to reiterate the outstanding job the entire Howard Hughes team has done to advance the company’s goals in 2011. I am personally grateful for all of their hard work and inspired by the way they have embraced the oppor tunity and challenges of being a new company. Grant Herlitz, President of the company and my par tner for the past 12 years, has worked by my side to provide exceptional leadership in bringing together the diverse talent within the company and in driving results. Grant’s analytical skills and detailed knowledge of all our assets has been invaluable in guiding our development and asset management teams as they move forward with pre-development activities. Among his responsibilities, he is working closely with The Woodlands leadership team to har vest the many oppor tunities on the horizon from this strategic investment. Grant’s passion for our company, our people and the example he sets for excellence in ever ything he does embodies the core values of our company. Our Chief Financial Officer, Andy Richardson, has done an exceptional job of leading the accounting team since joining us in March of 2011. Andy also fully embraced our owner’s mentality by making a substantial, long-term personal investment in the company. Andy was formerly CFO and Treasurer of Nor thStar Realty Finance Corp. (NYSE: NRF), a publicly traded commercial real estate finance company focused on investment in real estate loans, fixed income securities and net-leased real estate proper ties. Andy’s track record and public company experience are great assets to our growing company. Peter Riley joined us as General Counsel in May. However, his involvement with the company dates back to its inception where he was outside counsel representing our interests during the company’s formation and emergence. Peter brings with him over 30 years of experience working in both the public and private sector. A par tner at K&L Gates LLP since 2004, Peter placed a significant focus on the tax aspects of fund formation, joint ventures and the acquisition, disposition, operation and financing of real estate assets. Prior to earning his law degree, Mr. Riley worked for Amerada Hess Corporation (NYSE:AHC) where he became Chief Financial Officer of its Abu Dhabi subsidiar y. Andy and Peter played critical roles in executing our acquisition and transition of The Woodlands. They also work alongside Grant and me in negotiating and forming our joint venture par tnerships. They have shown an ability to execute on difficult tasks in shor t time frames and we are excited about the chemistr y of our senior executive team.

RIVERWALK, NEW ORLEANS, LA

ELK GROVE PROMENADE, SACRAMENTO, CA

On the development side of the business, we began expanding our bench in May when we hired John Dewolf to run the Nor theast region. John brings over 30 years of real estate experience to the team, which includes time spent with The Limited, The Disney Stores, Inc., Woolwor th Corporation, New York & Company, and New England Development. John is responsible for our projects in Columbia, Mar yland, Alexandria, Virginia, and Princeton, New Jersey. He is also playing a critical role in the redevelopment of the South Street Seapor t. Beyond these specific assets, Johnâ&#x20AC;&#x2122;s unique blend of retail and development exper tise has brought valuable perspective to our por tfolio of strategic developments. Mark Bulmash also joined the company in May, and is overseeing the Central and Southeast region, which includes projects in Charlotte, Miami, Birmingham, New Orleans and Dallas. Mark is an impressive retail veteran who spent time at the Taubman Company, Related Companies, and most recently Forest City Enterprises where he oversaw all commercial development east of the Mississippi. Mark brings an analytical perspective and experience steering large projects through the entire development cycle. The third member of our development triumvirate, Chris Curr y, is not a new hire, but an established member of the team who played a vital role in guiding the company into existence. Chris oversees our Western region, which currently spans Salt Lake City, Phoenix, Las Vegas, Sacramento and Honolulu. Chris has over twenty years of retail and mixed-use development experience, including time spent at Westfield and Forest City Enterprises where he oversaw the redevelopment of regional shopping centers as well as ground up development of projects throughout the West. Chris is based in our Los Angeles office and epitomizes the passion of the Howard Hughes culture. Our most recent addition to this seasoned group of developers is John Simon, Executive Vice President of Strategic Planning. John has over 35 years of experience in vir tually ever y aspect of real estate development, spending a majority of that time at the Taubman Company. At Taubman, John was Senior Vice President and Managing Director and, for 10 years, he oversaw all development activities. John worked on over 40 major projects including overseeing the unprecedented task of opening four regional centers in the same year totaling over $1 billion in project costs. All projects were opened on time and within budget. I have great confidence that John, Mark, Chris and John will accelerate our development pipeline, from New York to Hawaii, and create meaningful value across the por tfolio. While on the topic of people, I want to thank our Board of Directors. Their involvement as a resource to management in strategic decisions has led to a collaborative environment where we engage in spirited debates and ultimately determine how to best optimize the value of our assets.

They act like owners because they are owners, and you can take great comfor t in knowing your money is in the hands of people whose interests are aligned with yours. This past year also brought changes to the make-up of our board. David Ar thur moved on to focus on his role as President and Chief Executive Officer of Brookfield Real Estate Oppor tunity Fund. We thank David for his wise counsel during the vital launch phase of the company. Concurrently, we welcomed two new members to our board: Mar y Ann Tighe, currently Chief Executive Officer of CBRE’s New York Tri-State Region and Bur ton M. Tansky, currently Non-Executive Chairman of The Neiman Marcus Group and its former Chief Executive Officer. Mar y Ann has been credited with transforming New York’s skyline during her 26 years in the real estate industr y. She has been responsible for over 77 million square feet of commercial transactions, and her deals have anchored more than 9.2 million square feet of new construction in the New York region. Bur t was Chief Executive Officer and President of The Neiman Marcus Group Inc. from May 2004 to October 2010. Prior to May 2004, Mr. Tansky ser ved in several executive roles at Neiman Marcus and ser ved as the Chairman and Chief Executive Officer of Bergdorf Goodman from 1990 to 1994. Previously, Bur t ser ved as the President of Saks Fifth Avenue. We will benefit tremendously from Mar y Ann’s and Bur t’s exper tise as we fine tune the strategic plans for the company and work to maximize the value of our assets.

MASTER PLANNED COMMUNITIES Our master planned community business consists of the ownership, development and sale of proper ty at four MPC’s: Bridgeland in Houston, Summerlin in Las Vegas, various MPC’s in the Mar yland region and The Woodlands in Houston. Nationally housing statistics show a slow recover y, but these statistics fail to show the divergent directions of local housing markets. In this regard, our company benefits from a diversity of geography that mitigates our exposure to the health of any one local economy. In Houston, the energy industr y continues to fuel economic growth, making it one of the strongest housing markets in the countr y. Our Bridgeland MPC had a record year and finished the year ranked 4th in Houston and 13th nationally in MPC residential land sales. Since construction star ted in 2004, our predecessors invested over $300 million into this asset. We are poised to begin har vesting those investments as major competitors run out of residential lots to sell and our on-site team, led by Peter Houghton, continues to deliver a great community to our customers. If you are

SUMMERLIN MASTER PLANNED COMMUNITY, LAS VEGAS, NV

looking for a home in western Houston then please visit www.bridgeland.com. Fur ther fueling Bridgeland’s growth, a new beltway, commonly known as Grand Parkway, is under construction and is scheduled to be complete by 2014. This freeway will link Interstate 10 to Interstate 45, bisect Bridgeland and open up oppor tunities to develop commercial land in our planned Town Center. It will also create a direct link from Bridgeland to The Woodlands, shor tening a sixtyminute drive to twenty-five minutes. Near term, we expect 2012 to be another year of record sales, after our 2011 revenues and average price per acre exceeded the 2007 “top of the market levels” previously established at Bridgeland. The following graph demonstrates steady performance of land sales revenue over the last six years. We will continue to look for ways to enhance the performance of Bridgeland through its association with The Woodlands brand and leverage our resources at The Woodlands to help guide the strategic direction of the asset. In Las Vegas, the housing market is lagging the national recover y, but the economy is seeing continuing improvement especially in the leisure and hospitality sector. The local housing market continues to suffer from substantial distressed inventor y, tight lender underwriting, underwater borrowers unable to trade up or down and weakened demand for new homes. In 2011, the total number of new home closings was the lowest in 23 years at 3,894 units. Our Summerlin MPC has not been immune to these impacts, and as expected, cer tain home builders did not close on lot takedowns. Through this challenging year, Kevin Orrock and his team have done a commendable job of managing this MPC for the company. Kevin is currently the Chairman of the Las Vegas Chamber of Commerce. This position within the Las Vegas community brings additional gravitas to our effor ts. We do not know when this market will recover, but recognize that we control the largest piece of land in a land constrained market, with vir tually no debt. We will continue to stay the course until the market returns, and long term, we believe that Summerlin’s future is ver y bright. Go to www. summerlin.com for more information on this dynamic community. Within Summerlin, we are focused on one of our key strategic projects, Summerlin Centre. This project is widely acknowledged in the industr y as one of the best regional shopping center sites

in the countr y. It is also an oppor tunity to launch the downtown development for our Summerlin MPC, which will spur demand, grow market share and enhance the value of the 7,000 acres of land remaining to be sold in Summerlin. During 2011, we spent a considerable amount of time replanning the 400 acre downtown. We expect that during 2012, we will be in a position to announce a date on which construction should star t and a targeted opening date for the center. In Columbia, Mar yland we are transitioning from a traditional master planned community to focus on the redevelopment of Columbia Town Center. This November we took an impor tant step in launching the Town Center redevelopment when we announced a joint venture agreement with Kettler and Orchard Development to develop the first phase of the Columbia Town Center Master Plan, which at full build out will include up to 13 million square feet of mixed-use development. This first phase includes approximately 375 units and is targeted to be completed by the end of 2013. Our par tners, Kettler and Orchard are highly regarded in the greater Washington D.C. metro region with a successful histor y in developing high-end residential products. Columbia Town Center has strong potential for continued multifamily development, which we plan to pursue as we build a new high-density urban neighborhood in the hear t of Jim Rouse’s original master planned community. In this process, John Dewolf will continue working with the local community to deliver a vision that will make us proud. As mentioned above, the headline of 2011 for our master planned community business was our acquisition of Morgan Stanley’s 47.5% economic interest in The Woodlands for $117.5 million, including the assumption of $297 million in debt. A simple analysis of this investment based solely on The Woodland’s histor y of land sales builds a convincing case that this acquisition will be ver y profitable for the company. The char t that follows shows actual residential and commercial land sale revenues and average price per acre in The Woodlands over the last ten years. This ten year track record of steady revenues through one of the worst recessions of the last centur y demonstrates the stability of Houston and The Woodlands’ submarket. Fur thermore, average residential lot selling prices are above 2005 levels and increasing. As of December 31, 2011, The Woodlands had approximately 1,164 acres of unsold residential land, representing approximately 3,669 lots, and approximately 961 acres of unsold land for commercial use, of which 36 acres are categorized as institutional land. Assuming land sales alone and no ver tical development, we anticipate that we will run out of residential lots for sale in 2017 and commercial land in 2022. The following paragraphs outline the value proposition for the acquisition of The Woodlands. This is impor tant for two reasons. First, it outlines to you the future potential profitability of the asset.

HOWARD HUGHES DURING A TICKER TAPE PARADE UP BROADWAY, NEW YORK, NY, 1938

Second, it allows you a glimpse into the way we view our investments and the reasons for this acquisition and potentially others. The value proposition is a sum of the par tâ&#x20AC;&#x2122;s value but does not take into account the following: (i) future ver tical development oppor tunities, (ii) existing and future joint venture agreements, (iii) a change in density of uses and (iv) the time value of money. Based on an average 2011 residential lot price of $88,987 and an average uninflated cost to deliver of $23,848 per lot, we anticipate $65,139 in average net cash per lot on the remaining 3,669 lots, for total proceeds from residential lot sales alone of $239.0 million. With respect to the commercial land, we have three classes: 69 acres in The Woodlands Town Center, 856 acres outside of the Town Center and 36 acres of institutional land. Obviously, there is a wide divergence in land values given their proximity to The Town Center, which is the most valuable land. Without giving away too much competitive information, suffice it to say that average land prices for the remaining commercial land approximates $13.66 per square foot or $572 million. Based on the above land pricing, the total gross proceeds to be derived from the sale of the remaining residential and commercial land in The Woodlands is expected to be approximately $811 million in the aggregate. Our income-producing operating proper ties, including our newest office building 3 Waterway have a current NOI of approximately $16.3 million and a stabilized NOI estimated to be $29.2 million. Valuing the operating proper ties using stabilized NOI and a cap rate of 7% yields a value net of completion costs of $365 million, which brings the combined gross asset value of the acquired land and operating proper ties to approximately $1.176 billion. As mentioned above, an example of the additional value potential not included in the analysis is value created through ver tical development. While this is harder to price than land sales, The Woodlands has an established histor y of developing commercial assets in its Town Center. As of the four th quar ter of 2011, the vacancy rates for Class A office and multifamily were at less than five percent. We will break ground on 3 Waterway Square, a 232,774 square foot office building in The Woodlands Town Center in March 2012. The total project cost will be approximately $50 million (exclusive of the land cost and existing parking garage). It is currently 67% pre-leased, with another 15% of the space in active discussions. It will take approximately 15 months to deliver, and is anticipated to have a stabilized NOI of approximately $6.0 million. At a 7% cap rate, the value of this building is wor th approximately $85.7 million, creating $35.7 million of value for the company. 3 Waterway is a great example of how a change in density can increase value. Originally designed as a nine stor y office building, we quickly realized that demand was outpacing supply. We subsequently increased the size of the building by two floors representing 45,000 square feet. At stabilization, this will create an additional $7 million in value net of completion costs. If we extrapolate this across the entire commercial land available for sale, you can quickly see how a change in density can magnify the outcome. In the coming 18 months we plan to break ground on 800 multi-family units.Â Following that, we have plans for nearly 2.1 million square feet of Class A office space, another 150 multi-family units, 900 condominium units, 328,000 square feet of retail space and 300 hotel rooms.

It is impor tant to recognize that this total does not account for the time value of money. This is dependent on determining an appropriate discount rate, which is directly correlated with risk. The greatest risk for any MPC is at inception where hundreds of millions of dollars are expended prior to collecting any revenue. When looking at an MPC from inception, a 15% to 20% discount rate range would be appropriate; however, once initial infrastructure is invested and a track record of performance has been established, as is the case with The Woodlands, a much lower discount rate is justified. In addition, as we sell land, it stands to reason that in a growing vibrant community, the remaining land will continue to appreciate in value. As we continue to build in the legacy communities of Summerlin, Bridgeland and The Woodlands, it is clear that our remaining land holdings will increase in value. This is a cyclical business and we know we cannot count on linear growth. However, we are confident that staying the course will deliver meaningful value both in current operating income and in the residual value of our assets. I hope by this point I have communicated the magnitude of this acquisition, but Iâ&#x20AC;&#x2122;m not done yet! In studying this investment it was clear that we would also be acquiring an established team of professionals who were underutilized in the former ownership structure. Co-Presidents Alex Sutton and Tim Welbes have 18 and 27 years respectively at The Woodlands, and we have already begun to see the impact that the their experience and vision will have on the balance of our por tfolio. As mentioned above, we believe the association of The Woodlands brand with Bridgeland and the ability to tap into The Woodlands team for strategic planning will create additional upside at Bridgeland. Finally, the construction of a new 385-acre ExxonMobil campus immediately south of The Woodlands Town Center is anticipated to hold a total of approximately 8,000 employees by the end of 2015, and an undetermined number of additional employees at full build-out, which will only fur ther supplement strong demand for office, retail and residential product in The Woodlands and Bridgeland.

WATERWAY SQUARE, THE WOODLANDS, HOUSTON, TX

OPERATING ASSETS The requirement to maintain flexibility for future redevelopment of our major assets like Ward Centers, South Street Seapor t and Landmark Mall constrains our ability to execute long-term leases and is causing these proper ties to perform below their potential. In the face of these constraints, we still managed to deliver $51.1 million of NOI in 2011 from our operating assets. This was accomplished with hard work from our asset management, leasing and operations teams who preser ved income by aggressively managing costs and increasing specialty income revenues.

We took advantage of capital market oppor tunities to extend existing debt, lower borrowing costs and fund additional development by completing approximately $377 million of financings in 2011. This included a $250 million financing for Ward Centers that will save the company approximately $3.6 million in annual interest charges, create flexibility for phased development of the master plan and fund up to $38 million of future development expenditures. We also closed a $29 million refinancing of our mor tgage debt on 110 N. Wacker, which matched our new debt maturity with the lease expiration date. At The Woodlands we completed a $55 million financing for 4 Waterway and 9303 New Trails office buildings and in Januar y 2012 closed a $43.3 million construction financing of 3 Waterway Square, the 232,774 square foot office building mentioned earlier. As a company it is our philosophy to be disciplined about the way we use leverage. From the outset, both Grant and I knew that managing this company would require low leverage, and it is with this in mind that we structure the various components of debt at the company. We believe that each development must stand on its own. We have therefore to date ensured that the leverage we have be in silos and that to the extent possible, we maintain its non-recourse nature.

STRATEGIC DEVELOPMENTS Senior management has spent the last year assessing the feasibility of each strategic development and prioritizing those oppor tunities with the greatest potential. We entered into joint venture par tnerships with strong local developers at Ala Moana Tower, Bridges at Mint Hill and, as discussed above, Parcel D at Columbia Town Center. In Honolulu, we par tnered with local developers The MacNaughton Group and Kobayashi Group to pursue the development of Ala Moana Tower, a luxur y condo tower above the Nordstrom parking garage at Ala Moana Center. In recent years, MacNaughton and Kobayashi teamed up to develop Hokua, a luxur y condo tower directly adjacent to Victoria Ward. Completed in 2006, Hokua is widely recognized as the best high-rise condo address in Honolulu with units currently reselling for $1,200 - $1,300 per square foot. With their strong knowledge of the Hawaii market and experience developing first-class condominium towers, MacNaughton and Kobayashi are ideal par tners to work with to maximize the value of this development oppor tunity. In Charlotte, we teamed with local developer Childress Klein Proper ties to pursue development oppor tunities for The Bridges at Mint Hill. This 210-acre parcel is currently zoned for approximately 1.3 million square feet of retail, hotel and commercial development, and is positioned in the

COLUMBIA PARCEL D, COLUMBIA, MD

underser ved southeast corner of the Charlotte metropolitan area. Par tnering with Childress Klein enables us to build from their knowledge in the local market, joins two proper ties that each company separately owned, aligns our interests and positions the project to be the most attractive retail development site in the Charlotte area. Childress Klein Proper ties is one of the largest real estate development, investment and management companies in the Southeastern U.S. with owned real estate assets in excess of $1 billion. During 2011, we leveraged the resources of the company by entering into these joint ventures. We expect that we will continue to use these arrangements where appropriate. Before making this decision, each development is viewed by assessing our available resources, the regulator y environment in that market, the leverage required to move forward and our experience with that product type. Joint venture structures provide the following advantages. First, the par tners we choose will be able to navigate the local markets with expediency. Second, we mitigate our risk and preser ve cash by essentially selling our land at the fair market value and contributing it to the venture. Third, the debt that is taken on by the joint venture insulates the balance sheet of the company. By doing all of this, we reduce risk, accelerate the business plan and still maintain upside potential. Granted, we no longer have all of the pie. However, in such cases we believe the gain on the upside is not wor th the risk for continuing to go it alone. While classified as operating proper ties, Ward Centers and the South Street Seapor t represent substantial redevelopment oppor tunities that are at the top of our priority list. At Ward Centers, we continue to make progress with our master plan strategy. The oppor tunity for residential and retail development at Ward is the most exciting development oppor tunity in the state of Hawaii. However, developing over 9 million square feet of potential mixed-use development requires thoughtful planning to maximize the long-term value of this asset while preser ving in-place income that suppor ts the company today. We expect to make substantial progress in 2012 as details of our phasing strategy cr ystallize and we begin implementing our plan to commence the redevelopment. At South Street Seapor t, in lower Manhattan, we reached a critical milestone in December 2011 when we executed a non-binding Letter of Intent with the New York City Economic Development Corporation that will enable us to pursue redevelopment plans. The letter of intent describes the terms of future amendments to the lease, which must be finalized by June 30, 2012. We believe the redevelopment of Pier 17 holds significant potential to create a dynamic destination in lower Manhattan for both local residents and tourists that will reshape the identity of the area and significantly enhance the value of this currently underutilized proper ty.

THE FUTURE OF HOWARD HUGHES In assessing the potential of each proper ty, it is clear that a majority of the companyâ&#x20AC;&#x2122;s value lies in a handful of assets. Accordingly, our team is sharply focused on maximizing the potential value of these key assets while monitoring oppor tunities to selectively monetize those less impactful assets at appropriate timing and pricing. We recognize that we will never be able to fully predict what might go wrong or when another recession might strike. We also recognize that down markets donâ&#x20AC;&#x2122;t last forever. Our asset base is

THE SEAPORT, NEW YORK, NY

geographically diverse, but concentrated in some of the nation’s most desirable markets. We also own a broad range of proper ty types and an unmatched pipeline with over 20 million square feet of ver tical development oppor tunities not including the millions of square feet of potential ver tical oppor tunities in our MPC’s. This diversity of location and asset class affords us valuable flexibility to focus on those market and product specific oppor tunities that make sense at any given time in an economic cycle. As oppor tunities materialize, we expect capital requirements to be substantial. Where appropriate, we will seek joint venture capital or operating par tners. In my experience there is no shor tage of capital for a great oppor tunity, and our por tfolio is full of unique real estate oppor tunities in the best markets in the countr y. In the year ahead, you can expect us to balance the need for thoughtful planning with a sense of urgency to move projects forward as fast as possible. We are driven and inspired by our belief in a common purpose to create timeless places and memorable experiences. Delivering superior results in this regard will maximize long-term value for our shareholders. The Howard Hughes name is synonymous with the relentless pursuit of achievement. We are inspired by that legacy and are systematically and strategically positioning our por tfolio. While we are at the star t of a long journey together, we look forward to continuing to earn your trust as we confront the many challenges ahead. I stated this in last year’s shareholder letter, and I believe that it is still an authentic description of the character of our growing organization. With exceptional people, irreplaceable assets, and a collective commitment to excellence, The Howard Hughes Corporation is well positioned for success.

DAVID R. WEINREB CHIEF EXECUTIVE OFFICER

APRIL 7, 2011

TO THE SHAREHOLDERS OF THE HOWARD HUGHES CORPORATION FROM THE CHIEF EXECUTIVE OFFICER: When Howard Hughes assumed control of the family business in 1924, he was well-positioned for success with a nearly debt-free portfolio of assets. While Howard Hughes’ passions for aviation and the silver screen are legendary, it was his visionary investments in real estate that form the bedrock of our company today. With the benefit of his acumen and vision, he created one of the great American empires of the Twentieth Century. As we publicly launch The Howard Hughes Corporation, the story is much the same. We are well capitalized and own some of the most sought after properties in the nation. The Howard Hughes Corporation was re-born on November 9, 2010 as an independent, publicly traded real estate company with an irreplaceable collection of assets and a talented team of professionals. Our assets span 18 states from New York to Hawaii. They include best-in-class master planned communities, operating properties with tremendous potential, and a diverse pipeline of strategic development opportunities in some of the country’s most desirable locations. I am honored to have the opportunity to lead a team of more than 175 employees who are committed to making this company a top performing owner and developer of real estate in our industry. Because I strongly believe in the quality of our people and assets, I have made a substantial personal investment in the company. Throughout my career in real estate, I have always invested my own capital. This commitment to having “skin in the game” is at the core of my investment philosophy and has been critical to my past success. Grant Herlitz, our President, shares this philosophy. It was clear to Grant and me that the only way we could properly lead this company was to make substantial, long-term personal investments. In doing so, we affirmed our belief in the business and our commitment to creating long-term stockholder value. You can be certain that Grant and I will treat your money as if it is our own. This culture of ownership is further augmented by our board of directors, many of whom have made personal investments in the company. The directors and the companies they represent, along with senior management have invested a combined $269 million of new capital. On a fully diluted basis, this group owns over 43.5% of the company. We are fortunate to have a board of directors with the passion, good judgment, and substantial real estate expertise that will contribute materially to our success.

The Howard Hughes name is synonymous with the relentless pursuit of achievement. We are inspired by that legacy and are systematically assessing and strategically positioning our portfolio. While we are at the start of a long journey together, we look forward to earning your trust as we confront the many challenges ahead.

PRE-EMERGENCE PREPARATION While Grant and I were not appointed as President and Chief Executive Officer until November 22, 2010, we gained considerable experience while serving as the company’s interim management. Since early August 2010, our team has tirelessly focused on preparing the company to emerge from the bankruptcy of our parent as an independent entity. We methodically worked to understand all operational facets of the organization, assessed the current and potential value of the assets, and established the infrastructure necessary for future success. Through this “total immersion” process, we gained a deep knowledge of the assets and the infrastructure, and positioned ourselves to successfully transition the company. I am proud of what our team accomplished and grateful to everyone who helped to make the spin-off a success. Spin-off related initiatives included negotiating the agreements required for a successful separation from GGP; assuming control of development, leasing and asset management; assembling teams in key functions including accounting, human resources, legal and information technology; engaging in an open dialogue with cities, partners and consultants to assess the status of each project; and creating a strong brand identity. Successfully completing these initiatives made it possible for us to be here today. However, we also understand that these accomplishments are in the past and significant work remains. Since the spin-off, our team has embraced new objectives and is sharply focused on the future.

TEAM HOWARD Ninety-four members of our 177 person team are dedicated to the company’s master planned community business, 51 work with our operating assets, and 32 are at corporate. Those employees dedicated to the master planned community and operating assets have significant tenure. Their history and understanding of the assets have allowed us to achieve a seamless transition. Our executive team comes from an entrepreneurial culture. While focused on creating value for the company as quickly as possible, we also recognize the importance of process and systems required to efficiently manage the company. Our goal is to balance these disciplines while staying flexible enough to take advantage of opportunities as they arise.

Recently, Andrew Richardson joined HHC as CFO. Andy has also made a substantial, long-term personal investment in the company. I believe our continued practice of substantial investments by corporate officers further strengthens our commitment to the company’s long-term success

MASTER PLANNED COMMUNITIES With over 14,000 acres of land remaining to be sold in some of the country’s most dynamic markets, our master planned communities (“MPC’s”) are the core of our current business. This business consists of the ownership, development and sale of property at four communities including three wholly owned MPC’s: Summerlin in Las Vegas, Bridgeland in Houston, and the Maryland region, based in Columbia. The company also owns a substantial ownership interest in The Woodlands in Houston. The collapse of the national housing market had a significant impact on land sales in our MPC’s. As the market recovers, our communities are well positioned to capitalize. Excessive leverage and lower quality offerings caused many of our competitors to suffer during the downturn. Both the quality of our product and the strength of our balance sheet put our MPC’s in a position to benefit when demand for new homes begins returning to historical norms. Although the recession has hit the Las Vegas market particularly hard, we are confident that growth will return and absorption will accelerate. To the casual observer, Las Vegas appears to have unlimited land available. In reality, this market is supply constrained due to the topography of the surrounding

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mountains, land set aside for conservation and recreational purposes, and the federal government’s ownership of the majority of the land surrounding the city. With over 7,000 acres of land remaining, Summerlin is the dominant land owner in the market. Going forward we are well positioned to capture additional market share. Even a modest increase in pricing could result in large increases in revenue compared to historical performance. Long-term, the MPC’s have the potential to generate the cash flow necessary to accelerate the growth of the company’s strategic development segment. Furthermore, each community possesses additional opportunities for vertical development. We will not only focus on selling land, but will also look for opportunities to joint venture retail, residential and commercial developments with the potential to create recurring income.

OPERATING ASSETS The companyâ&#x20AC;&#x2122;s operating assets are primarily retail properties including South Street Seaport (Manhattan, NY), Ward Centers (Honolulu, HI), various properties in Columbia Town Center (Columbia, MD), Landmark Mall (Alexandria, VA), Riverwalk Marketplace (New Orleans, LA), Rio West Mall (Gallup, NM), Cottonwood Square (Holladay, UT) and Park West (Peoria, AZ). We are focused on the operational performance of each of these assets, and have hired an experienced and passionate group of leasing professionals to drive income. To date, we have seen significant interest across the portfolio from many national and local retailers for both operating properties and our strategic developments. We are working with our tenants and their customers to ensure that they are receiving the best experience possible when they visit a Howard Hughes property. We are in the process of reducing costs by re-bidding every vendor contract and reviewing every line item in the budget in addition to appealing the property tax value of each asset. These appeals have achieved positive results with reductions to date totaling over $100 million in assessed value.

STRATEGIC DEVELOPMENTS Our Company has a substantial portfolio of large and small-scale developments in our pipeline. These strategic developments provide opportunities for near, mid and longterm value creation. Senior management and the development team are currently assessing the feasibility of each strategic development, and as this occurs, we are beginning to prioritize those opportunities with the greatest development potential. Ward Centers and South Street Seaport are operating properties, but also represent substantial redevelopment opportunities. Notable strategic developments include projects such as Summerlin Centre in Las Vegas, Cottonwood in Salt Lake City, and Ala Moana Tower in Honolulu. Ward Centers is just one example of the untapped value within our portfolio. Today, this 60-acre property contains 1.1 million square feet of retail, office and industrial space in the heart of urban Honolulu. The company has land use approvals to redevelop the property with up to 9.3 million square feet of mixeduse development. This future development has the potential to expand upon and materially enhance the propertyâ&#x20AC;&#x2122;s retail presence. It also presents an opportunity to develop thousands of residential units with unobstructed ocean views in one of the marketâ&#x20AC;&#x2122;s most desirable residential locations. The Columbia Town Center master plan is another important example of the potential for value creation within the portfolio. While currently a part of our MPC segment, Columbia Town Center has an approved master plan to develop up to 5,500 new residential units, approximately one million square feet of retail, approximately five million square feet of commercial office space and 640 hotel rooms. Columbia Town Center, located in Howard County, Maryland between Baltimore and Washington D.C., has over 261,000 people living within a seven-mile radius with an average annual household income exceeding $120,000. Depending on the scale, complexity and capital requirements of each asset, we will either develop assets internally or seek joint venture capital or operating partners. We recognize that development projects of significant scale have long-lead times and require a substantial investment of both time and capital. Rest

assured that we are being thorough in our due diligence and thoughtful in our analysis so that those projects that are prioritized for development will be structured and financed to maximize value for the company and minimize our risk.

THE FUTURE OF HOWARD HUGHES As we look to the future of The Howard Hughes Corporation, there are two simple maxims that apply to our portfolio. First, we recognize the importance of location and quality. South Street Seaport is one of the top five most visited sites in New York City, Ward Centers is 60 acres of fee simple oceanfront land in the heart of Honolulu, and Summerlin Centre is arguably one of the best regional mall sites in the country. When the US economy recovers, those assets that are best located will be primed for development. Second, we understand that down cycles donâ&#x20AC;&#x2122;t last forever. Current revenue from our Summerlin MPC is well below its long-term average. Even a gradual return to this long-term average will generate significant cash flow for the company. As a largely unlevered company we have the time and resources to maximize the value of our portfolio. As of December 31, 2010, we held over $285 million in cash versus approximately $318 million of assetspecific, limited recourse debt excluding our proportionate share of The Woodlands debt. With over $3 billion in total assets, the health of our balance sheet allows for flexibility in making investment decisions. Therefore, we will be pragmatic in pursuing only those investments that meet our high return thresholds. While we are only in our fifth month of existence as a company, we possess a powerful brand, an irreplaceable collection of assets and a sound corporate infrastructure. We have implemented the backbone that has allowed the company to immediately focus on the continued development and execution of its strategic plan. As we pursue our goal of becoming the preeminent developer of master planned communities and mixeduse properties in the country, we acknowledge that many challenges lie ahead. As with any great endeavor, we know that achieving our goal will take significant time and effort. I am grateful for the hard work and steadfast dedication our team has given thus far. With exceptional people, irreplaceable assets, and a collective commitment to excellence, The Howard Hughes Corporation is well positioned for success.

David R. Weinreb Chief Executive Officer

APRIL 7, 2011

TO THE SHAREHOLDERS OF THE HOWARD HUGHES CORPORATION FROM THE CHAIRMAN OF THE BOARD: The Howard Hughes Corporation (‘HHC’) began its existence as a public company when it was spun off from General Growth Properties Inc. (‘GGP’) when it emerged from bankruptcy on November 9th of last year. Having joined the board of GGP shortly after the company filed for bankruptcy, my first priority was to work with the other directors of GGP to stabilize the company, extend the maturity of its debts and raise sufficient capital to emerge from bankruptcy as an independent publicly traded real estate investment trust. During that process, as I learned more about the disparate assets of GGP, I considered the idea of creating a new company to own certain assets hidden within GGP whose value would not likely be realized while these properties remained at GGP. While the REIT structure is an excellent corporate form with which to own stabilized income producing assets like GGP’s mall properties, it is less than ideal for owning development assets, master planned communities (‘MPCs’), and other assets whose current cash flows are not reflective of their long-term potential.This is due to REIT ownership limitations on assets held for sale in the ordinary course of business, the large amount of capital and time required for development assets, and the fact that investors principally value REITs based on their distributable free cash flow. We decided to set up a new company to own these assets so we could realize their long-term potential while maximizing the value of GGP in the short term. While the short term is not usually a time period that most public company executives are willing to acknowledge that they even consider, in this case it was critical for GGP shareholders to create value in the short term so we could participate in value creation over the long term. GGP was subject to a series of takeover bids from Simon Properties that undervalued the company and had material risk of transaction failure because of antitrust issues. By creating and then committing to spin off HHC, we were able to create about $7 per share in value for GGP shareholders for a total combined value of approximately $22 per pre-bankruptcy GGP share. Once we had selected the assets that were to be contributed to HHC and negotiated the separation arrangements with GGP, our highest priority was identifying the senior management team that would run the

company. Typically, such a process involves hiring a search firm, which then attempts to recruit executives at competitors with relevant experience. In this case, there are few truly comparable companies to HHC and a less than obvious pool of candidates to select from. While there are a number of publicly traded non-REIT real estate corporations (so-called C corporations) that own development assets in some cases that are similar to HHC, their track records in creating shareholder value leave much to be desired. While I believed that so-called real estate opportunity fund managers had the experience to oversee HHCâ&#x20AC;&#x2122;s assets, I had no interest in hiring an external manager on a 2% and 20% basis to run the company, particularly in light of the ongoing conflicts they would have with other investments in their portfolios.The key criteria we used to find senior management were: character, energy, intelligence, and experience profitably investing in a diverse collection of real estate assets. In addition, I wanted someone who had made money already, without having lost any of the passion and drive to succeed, and without significant outside interests and assets that would compete for his or her attention. We found our leader in David Weinreb, a Dallas-based real estate entrepreneur, whom I had known (but not well) since high school, but only in recent years gotten to know in a business and personal context. David had contacted me a year or so ago for advice on raising a real estate opportunity fund about which we had an ongoing dialogue. He had been investing and developing real estate assets largely on his own since leaving college (just like Bill Gates but in real estate) more than 25 years ago and had sold or monetized the vast majority of his assets before the recent downturn in the markets. While over the last 10 or so years he had largely been investing his own capital in real estate and investment securities with his partner, Grant Herlitz, and a team based in Dallas, Houston and Los Angeles, David was considering raising a larger pool of capital to participate in opportunities created by the credit crisis. It was in this context that I mentioned the assets that would become HHC, and David and Grant were intrigued. They spent the next 30 or so days inspecting the properties that would be contributed to HHC. They then worked on spec to assist Pershing Square in negotiating the best possible deal for old GGP shareholders in setting up HHC. As we worked together on the HHC portfolio and negotiated arrangements for the companyâ&#x20AC;&#x2122;s eventual spinoff, it became clear to us that these were the right partners to oversee the company going forward. David and Grant are moneymakers with a clear understanding of risk and reward. While there are real estate executives with more public company experience, more master planned community experience, and/or more development experience, we were principally interested in selecting a management team we trusted with relevant experience, who would think of the corporationâ&#x20AC;&#x2122;s capital as their own, and who were willing to invest a meaningful amount of their own money alongside shareholders.

date,

David,

Grant,

and our new CFO Andy Richardson have committed $19 million of their own capital to purchase longterm warrants on HHC at their fair value at the time of purchase. Under the terms of the warrants, they cannot be sold or hedged for the first six years of their sevenyear life, a provision which meaningfully reduces their value compared with warrants without liquidity or hedging restrictions. In light of the long-term nature of the company’s assets, I cannot think of a better way to align the interests of and incentivize our management team to create value for shareholders. If the stock price stays flat from the time they joined the company, they will lose their entire investment in the warrants. If the stock price makes a sustained increase in value over the next seven years, management will participate to a leveraged extent in the increase in the stock price. Other than the warrants, our senior management receives relatively modest cash compensation particularly when compared with real estate private equity compensation levels. While on the subject of compensation and alignment of incentives, I thought it worth mentioning that the funds that I manage currently own a 23.6% fully diluted economic interest in HHC including stock, total return swaps, and seven-year warrants that we received in exchange for our backstop commitment to HHC. I receive no salary for serving as your chairman, and I have waived all board compensation. As a result, you can be comfortable that my interests are aligned with yours. That is not a guarantee of success, but rather it will ensure that we will succeed or fail together. In a partnership, getting the right team in place with the right incentives puts you on good footing for future success. On this basis, we are off to a good start. Now you might ask how one should calculate the value of HHC and judge our future progress. While these are two critical questions for any investor, in the case of HHC, the answers are not nearly as straightforward as in a more typical real estate or other public company. With respect to the valuation of HHC, the easy answer is that you should calculate the value of our assets – cash, real estate, and tax attributes – subtract our liabilities and then divide by fully diluted shares outstanding. The difficulty is that the real estate assets owned by HHC are notoriously difficult to value. First, you should consider that their long-term value –

the value that can be achieved by a long-term owner â&#x20AC;&#x201C; is, in my opinion, materially higher than their liquidation value. Some, albeit not ideal, evidence of this is to compare the value of GGP just before the spinoff of HHC to the value of the combined companies today. Approximately $7 per GGP share in value has been created by the contribution of the properties to an entity that has the capability to hold these assets forever. For our MPC assets, one can make assumptions about the timing and number of future lot sales and then discount back these cash flows over the 30-or-so-year life of the project at a discount rate you deem appropriate.The problem with such an approach is that small changes in assumptions on discount rates, lot pricing and selling velocity, inflation, etc. can have an enormous impact on fair value. For our development assets, one needs to make assumptions about what will be built, when it will it be built, to whom it will be leased, what rents it will achieve, what expenses it will incur, and what multiple an investor will place on these cash flows. Again, even highly sophisticated real estate investors will assign substantially divergent values to the same assets when using their own assumptions. Some investors look at book value, but book values, particularly for HHC are in most cases largely unreliable measures of value. For example, South Street Seaport, one of our more valuable assets, is carried on the books of HHC at $3.1 million. Last year, it generated more than $5 million in cash net operating income, and this number meaningfully understates the potential future cash generating potential of this property as GGP generally discontinued granting long-term leases to tenants as it prepared the property for a major redevelopment. Even using the $5 million NOI number, one can get to values approaching $100 million using cap rates appropriate for New York City retail assets, and we would likely leave a lot of money on the table if we sold it for this price. We could attempt to calculate net asset value and publish a number as some public real estate companies have done. I am not a huge fan of this approach because of the widely diverging estimate of values that even the most informed, best-intentioned evaluators will generate. So therefore, the best we can do is to give you as much information as we can provide (bearing in mind that there is some information that we will elect to withhold for competitive reasons) so that you can form your own conclusion. While we have just begun the public reporting process and we are still learning that art, you can expect over time that we will release more information to assist you in forming your own assessment. With respect to judging our business progress going forward, the usual metrics like net income, operating cash flow, EBITDA, AFFO, earnings per share, etc. are not going to offer much help. (By the way, when you read this sentence in the annual letter of a typical company, you should usually take your money elsewhere.) Our reported net income and cash flows will largely depend on gains and losses

from sales of assets and the book value of those assets on our balance sheet. We could generate large amounts of income for example by selling South Street Seaport and other assets for which book value is less than market value. While this would generate material accounting gains and require us to pay large amounts of taxes, we might be destroying long-term shareholder value by doing so, particularly if we believe materially more value can be created through redeveloping and releasing these assets over time. We will also generate larger profits from our Summerlin MPC as a result of the more than $300 million write down the company recognized at year end, but this should not make you feel richer as a result. Simply put, I will judge our progress based on our managementâ&#x20AC;&#x2122;s ability to move each of our assets closer to the point at which it can generate its maximum potential cash as an operating asset, and to manage our MPCs to once again begin to generate material amounts of cash from sales of lots to builders and the development or sale of their commercial parcels. Because of (1) the large

number

assets we own, (2) the large amounts of capital required to redevelop these proper ties to enable them to achieve their full potential, (3) our relatively limited cash resources, (4)

our

aversion to the use of large amounts of recourse leverage, (5) our high return requirements for our own capital, and (6) the availability of large amounts of lower-cost real estate equity capital for developments like the ones owned by HHC, you should expect that we will raise outside capital and/or joint venture many of our properties with other investors, operators, and/or developers. This approach should enable us to manage risk and increase our return on invested capital. We will do our best to keep you informed as to our progress with each asset in the portfolio as we obtain necessary approvals, design and build projects, lease space, and generate cash flows. Over time, our goal will be to turn each of our non- or modestly income-producing assets into an incomegenerating property, while selectively monetizing assets when we believe a sale will generate more value for HHC on a present value basis than holding the asset for the long term. In light of the complexity of our asset base and the inadequacy of GAAP accounting to track our progress, you should now understand how important it is to get the right management team in place with the right incentives. Furthermore, while most public company boards are comprised of experienced executives with typically minimal expertise in the business of the company on whose

board they sit, HHCâ&#x20AC;&#x2122;s board is largely comprised of real estate experts with broad expertise in MPC and retail development, residential and office ownership and development, institutional investment in real estate, and other real estate disciplines relevant to HHC. Importantly, our directors do not need their director fees to pay their rent, and have chosen to participate for the experience, reputational benefits, and camaraderie from working to create value for our shareholders. We will act in your best interests to the best of our ability and look forward to the opportunity to impress you with HHCâ&#x20AC;&#x2122;s success over the coming years. Lastly, in a world where investors are concerned about the future value of paper money and inflation that have caused many investors to turn to gold to hedge that risk, I am quite comforted by the assets of HHC. We own the gold and blue white diamonds of the real estate business, assets that have traditionally performed well in inflationary environments. Welcome aboard. Sincerely,

WILLIAM A. ACKMAN CHAIRMAN