September 2017

Conduent, Inc.
The Howard Hughes Corporation
 GICS Sector: Information Technology
April 3, 2017

Conduent, Inc. Dow Jones Indus:

S&P 500:
Russell 2000:
20,650.21
2,358.84
1,369.65
NYSE: CNDT Index Component: NA

AAF History
Report Type New
Initially Probed
Last probed
Trigger
Situation Spin-Off

Selected Financial Summary ($MM)

2014 2015 2016 TTM
Revenues: $6,938 $6,778 $6,491 $6,491
Operating Income $447 $326 $357 $357
Capitalization and Trading Multiples ($MM) Margin (%) 6.4% 4.8% 5.5% 5.5%
Share Price $16.43 2015 2016 TTM EBITDA $809 $639 $635 $635
Diluted Shares (MM) 202.8 EV/EBITDA 7.9x 7.9x 7.9x Margin (%) 11.7% 11.7% 11.7% 11.7%
Market Cap $3,332 P/E 23.8x 15.5x 15.5x Capex $216 $193 $188 $188
Debt $2,041 P/FCF 11.1x 9.7x 9.7x Capex (% of Revenues) 3.1% 3.1% 3.1% 3.1%
Cash $(329) EV/Sales 0.7x 0.8x 0.8x Free Cash Flow $449 $300 $341 $341
Enterprise Value $5,044 Price/Book 1.0x 1.0x 1.0x FCF Yield (%) 13.5% 13.5% 13.5% 13.5%
Net Debt/EBITDA 2.1x 2.7x 2.7x 2.7x
Trading Statistics Share Repurchases (MM) NA NA NA NA
Dividend Rate NA Avg. Daily Volume (3mo) (MM) 4.5 EPS $0.17 $0.69 $1.06 $1.06
Dividend Yield NA Short % of Float 2% Fiscal Year End: December
Payout Ratio NA
High Low Overview
52-Week $17.44 $13.10 The newly independent Conduent Inc.
5-Year NA NA (CNDT or the Company) was spun off from Xerox
(XRX) in January. The spin-off followed a strategic
Valuation review conducted by XRX in response to pressure
Intrinsic Value $23 Time Horizon 2019 from activist investor Icahn Capital Management.
Implied Upside 40% Icahn remains the largest investor in CNDT (~10%
stake), and it holds 3 board seats. In preparation for
Hidden Assets No
the spin-off, CNDT assembled a new management
Description Conduent operates in the business process outsourcing
team (including recruitment of a CEO from outside of
industry, and was recently spun off from Xerox.
the Company), and the team outlined its new stand-
alone strategy in a meeting with investors in
December 2016.
Share Ownership Conduent is in the business process
Economic outsourcing (BPO) industry. CNDTs services and
Officers & Directors ~10% capabilities include customer care, human resources,
Major Shareholders (12/31/16) payments, transaction processing, and transportation
services. During 2016, CNDTs revenue was derived
Icahn Capital Management 10%
from the following segments: Commercial (41%),
Vanguard Group 9%
Public Sector (27%), Healthcare (26%), and Other (6%).
State Street 4% Last year, revenue and EBITDA totaled $6.3 billion and
$635 million, respectively. Conduent has built a large
and diversified client base characterized by high levels
Clients of Boyar Asset Management, Inc. do not own shares of Conduent, Inc. of customer retention (86% renewal rate) and long-
common stock.
term contracts. Its customer base includes 76
Analysts employed by Boyars Intrinsic Value Research LLC do not own members of the Fortune 100, as well as over 500
shares of Conduent Inc. common stock.
government agencies.

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Conduent, Inc.

XRXs track record in the BPO business was not very impressive. Margins and sales growth were
disappointing, and they lagged industry averages. In our view, this likely reflected a combination of factors which
included poor management execution and inadequate investments in the business (which the spin-off could
potentially address). CNDT should have ample opportunity to improve its operations during the coming years,
and management has already set an objective of achieving $700 million in cost savings by the end of 2018 (over
10% of the expense base).

In our view, CNDT possesses many of the traits that have allowed spin-offs to outperform historically. In
addition to the significant cost reduction opportunity, there should be meaningful potential to enhance margins
by addressing underperforming businesses and boosting investment in higher-return areas. Moreover,
management believes that it can return the firm to sales growth by 2019 via a combination of internal
investments and M&A. CNDT operates in a fragmented industry with ample potential for consolidation. The
Companys total addressable market is approximately $260 billionand this market is growing at 6% per year.

Our estimate of intrinsic value for CNDT is approximately $23 per share, implying 40% upside potential
from a 2-3 year point of view. This estimate assumes an EV/EBITDA multiple of 8.0x and a P/E ratio of 14.0x
applied to our 2019 financial projections. In our view, this estimate of intrinsic value could prove to be
conservative from a long-term perspective, and it is conceivable that CNDT could become an acquisition
candidate at some point. Given Icahn Capital Managements continued involvement, we would expect
maximization of shareholder value to remain a high priority at Conduent.

Background & Recent Spin-off

Prior to its spin-off earlier this year, CNDT was a part of Xerox Corporation (ticker: XRX). XRX had
received pressure from activist investor Icahn Capital Management to consider strategic alternatives in order to
enhance shareholder value. Icahn had accumulated a 7% stake in XRX during 2015, becoming XRXs second
largest shareholder at the time (Icahn later increased its stake to nearly 10%, becoming the largest
shareholder). That same year, XRX launched a review of its portfolio of businesses and of its capital allocation
practices. By early 2016, XRX determined that a spin-off of its business processing outsourcing (BPO) division
would be in the best interests of its shareholders. The spin-off was scheduled for January 2017, and XRX spent
2016 making preparations. These efforts included recruitment of a new CEO and management team, creation of
the Conduent brand, and formulation of a stand-alone strategy for the soon-to-be-independent company
(communicated to investors last December).

XRX managements rationale for the spin-off cited 5 primary considerations: (1) enhanced strategic and
operational focus, (2) simplified organizational structure and resources, (3) distinct and clear financial profiles
and compelling investment cases, (4) performance incentives, and (5) capital structure. In our view, this was a
sound decision by XRX management. In many ways, this scenario is comparable to spin-offs that we have
assessed in other issues of Asset Analysis Focus. The performance history of spin-offs remains impressive (as
discussed later in this report), and this area remains a recurring source of new investment opportunities. Under
the terms of this tax-free spin-off, XRX shareholders received 1 share of Conduent for every 5 shares of Xerox
owned (distributed on December 31, 2016). Conduent began trading on January 3, 2017 (the closing price of
$14.30 per share equated to a market capitalization of approximately $2.9 billion).

XRXs track record in the BPO business has been mixed at best. Much of the current Conduent entity
originates from XRXs 2010 acquisition of Affiliated Computer Services, or ACS (that acquisition was valued at
over $6 billion). Prior to the acquisition, ACS had achieved a mid-teens revenue CAGR dating back over a
decade. ACS was founded in 1988 and completed its IPO in 1994. ACS built scale through a combination of
internal investments and M&A. By 2003, ACS was generating revenue of nearly $4 billion, and it joined the
Fortune 500. At the time of the 2010 acquisition, XRX viewed the acquisition of services-oriented ACS as
synergistic with its document technology business, creating a combined entity with significant exposure to stable
and recurring revenue. However, the performance of XRXs BPO business during recent years has reflected the
disappointing reality that followed the acquisition. In 2015, XRX completed the sale of its Information
Technology Outsourcing business to Atos for approximately $930 million. As the following table depicts, XRXs
BPO business reported sales comparisons and margin trends which have been disappointing during recent
years. In our view, this likely reflects a combination of factors, including poor management execution and
inadequate investments in the business (which the spin-off could potentially address).

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Conduent, Inc.

BPO Business Record under Xerox

2014 2015 2016 3-Year Average

Revenue % 0.9% (2.3%) (4.2%) (1.9%)
EBITDA Margin 11.7% 9.4% 9.8% 10.3%
Operating Margin 6.4% 4.8% 5.5% 5.6%

Business Overview
The newly independent Conduent is a formidable entity in its own right. Its annual revenue and EBITDA
totals $6.3 billion and $635 million, respectively. CNDTs services and capabilities include customer care,
human resources, payments, transaction processing, and transportation services. The Company has
approximately 96,000 employees, about half of whom are domestically based (the balance are based mainly in
India, the Philippines, Guatemala, and Mexico). CNDT has 290 delivery centers around the world, and its
market presence spans several industries and regions (22% of sales are derived from international markets, and
Europe is CNDTs largest foreign market). During 2016, CNDTs revenue was derived from the following
segments: Commercial (41% of sales), Public Sector (27%), Healthcare (26%), and Other (6%). The
Commercial segment (2.2% operating margin in 2016) provides business-to-business and business-to-customer
services across a wide range of industries. Commercial areas of specialty include customer service, human
resources, finance, and accounting. The Companys Public Sector segment (12.9% operating margin) provides
various types of processing services (government program administration, tolls, parking, public transportation,
etc.) to local, state, and federal government agencies, and about half of this segments revenue relates to
transportation solutions. CNDTs Healthcare segment (9.4% operating margin) serves clients such as healthcare
providers, payers, employers, and pharmaceutical companies with capabilities that include quality control,
analytics, benefits administration, and customer service. The Other segments areas of specialization include
Medicaid administration (CNDT is not planning on adding new clients) and student loan servicing (in run-off
mode). The Other segment reported an operating loss of $84 million in 2016. A more detailed description of
CNDTs services offerings can be found in the appendix to this report.

Conduent has built a large and diversified client base characterized by high levels of customer retention
(86% renewal rate) and long-term contracts. Its customer base includes 76 members of the Fortune 100, as well
as over 500 government agencies. Average contract lengths for commercial clients and government clients are
3 years and 5 years, respectively. Over 80% of CNDTs total revenue is considered recurring. CNDTs
customers include well-known firms such as General Motors, Procter & Gamble, RBC, SunTrust, and Hertz.
CNDTs customer relations are supported by an internal sales and marketing team as well as by solution
architects who develop deeper relationships so that services can be customized to meet the needs of individual
clients. Importantly, CNDTs largest client accounts for only 4% of its revenue, and its top 10 clients represent
approximately 20% of revenue. Although CNDT has built meaningful scale in its businesses, it warrants mention
that the industry is fragmented, suggesting that meaningful opportunities for future consolidation likely exist. The
largest competitors of CNDT include Accenture, Aon Hewitt, Hewlett-Packard Enterprise, Cognizant, and IBM.

As the following graph illustrates, CNDTs ~$6 billion in annual revenue is modest relative to its
addressable market, which is roughly $260 billion. CNDTs total addressable market has an annual growth rate
of approximately 6% per year (~$15 billion per year of industry growth, more than double CNDTs total annual
revenue). Within CNDTs $260 billion addressable market are attractive segments where the firm is particularly
well positioned. These segments include healthcare (such as payment operations), transportation, and prepaid
cards. Within the healthcare segment, CNDT has relationships with 19 of the top 20 managed U.S. healthcare
plans and with 9 of the top 10 pharmaceutical and life sciences companies. Within the transportation segment,
the firm holds a 49% share of electronic toll collection and has a leading position in parking management within
the United States. In the prepaid cards segment, CNDT is the largest provider of services to the U.S.
government.

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Conduent, Inc.

Source: Conduent Investor Presentation

A majority (~80%) of CNDT revenue is related to transaction-based processing in which reliability and
technological capabilities (CNDT has about 1,100 patentswhich typically expire after 20 years) are among
customers primary concerns. Although building such capabilities can require meaningful capital investments in
technology, facilities, and staff (representing potential barriers to entry), this type of business has meaningful
operating leverage and has relatively modest maintenance capital requirements. CNDT builds software that it
can deploy as part of its client solutions (examples include Midas+ and Vector) and that can be customized to
address the needs of individual customers. This software is easily scalable, helps to differentiate CNDT from its
competitors, and is less capital-intensive relative to some of CNDTs legacy hardware businesses that had been
emphasized within Xerox. Software development is supported by both CNDTs internal resources and third
parties. Annual R&D investment is typically in the $40 million to $50 million range (less than 1% of sales) and is
focused on 3 main areas: automation, personalization, and analytics. Automation serves to reduce reliance on
manual labor, thus lowering costs and enhancing service reliability. Personalization includes technological
capabilities that complement CNDTs existing services so that value for the client is maximized. Analytics is
designed to transform large quantities of data into usable information in order to better understand and address
market needs. The services that Conduent provides have increasingly been outsourced by many companies
and government entities as these organizations have sought operational efficiencies and recognized the
specialized expertise that these services require. CNDT highlights the following as its competitive strengths:

Leadership in attractive growth markets

Global delivery expertise
Differentiated suite of multi-industry service offerings at scale
Innovation and development
Stable recurring revenue model supported by a loyal customer base

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Conduent, Inc.

Management & Governance

Executive Officer
Ashok Vemuri, CEO
Brian Webb-Walsh, CFO
James Peffer, General Counsel
Dave Amoriell, President: Public Sector
Jeff Friedel, Chief People Officer
Management Team
Prior Position/Background
Joined Xerox in 2016, former CEO of iGate Corporation
Has held various positions at Xerox since 1997
Former general counsel at Xerox and ACS
Former executive at Xerox, IBM, and Lockheed Martin
Former executive at iGate Corporation

The management team for the newly independent Conduent is a combination of Xerox veterans and
executives recruited from the outside. Given the role that Icahn Capital Management played in the spin-off, it
seems likely that the activist investor had some influence on the selection of CEO Ashok Vemuri, (Icahns
agreement with Xerox allowed participation in the search process). The 48-year-old Vemuri joined Xerox last
July ahead of the spin-off as CEO of Xerox Business Services and as an executive vice president of Xerox
Corporation. In his previous role, Vemuri was president and CEO of iGate Corporation from 2013 to 2015. iGate
Corporation, a publicly traded global technology and outsourcing company, was sold to Capgemini in 2015 for
$4 billion. As a result of the transaction, shareholders realized a return of approximately 70% during Vemuris 22
month tenure as CEO. Prior to joining iGate Vemuri was an executive at Infosys for 14 years (his last position
there was head of Americas), and he was also an investment banker earlier in his career. Given that the time
frame for CNDT to fully achieve its turnaround is expected to be at least 3 years, we would expect Vemuris
tenure at Conduent to be more extended than his history at iGate. Vemuri has a base salary of $1 million and
another $2.5 million in targeted long-term incentive compensation (consisting of performance shares and
RSUs). Vemuri is eligible for additional payments in a company change of control scenario (as are other
executive officers). Total annual stock-based compensation expense has been in the $19 million to $28 million
range.

As the following table illustrates, the vast majority (8 of 9) of CNDT board members are independent of
the Company. It is the firms policy that a substantial majority of directors be independent, that the number of
board members totals 8-12, and that all independent board members are to establish meaningful ownership
positions in CNDT stock. It is also worth noting that activist investor Icahn Capital Management (CNDTs largest
shareholder, with a nearly 10% stake) has 3 board seats. As part of the agreement between Icahn and Xerox,
several other policies have been instituted, including annual elections of board members and a requirement that
any shareholders rights plan be ratified by shareholders. It is worth highlighting that Icahn has only 1 board
seat at Xerox, perhaps signaling a preference for the long-term value potential at Conduent.

Board of Directors
Board Member Independent Background
Ashok Vemuri CEO of Conduent
William Parrett Retired CEO of Deloitte Touche Tohmatsu
Vincent Intrieri Retired managing director, Icahn Capital
Michael Nevin Financial analyst, Icahn Enterprises
Courtney Mather Portfolio manager, Icahn Capital
Michael Nutter Former mayor of Philadelphia
Virginia Wilson CFO of Teachers Insurance & Annuity
Joie Gregor Retired managing director from Warburg Pincus
Paul Galant CEO of Verifone Systems

Recent Developments
CNDT reported 4Q-2016 financial results this February (its last quarter as part of XRX). Adjusted 4Q
EPS totaled $0.29, up about 4% year over year and 4 cents above consensus. However, revenue for the period
disappointed, declining 8% year over year. 4Q EBITDA increased modestly (up 2%) as a 110 basis point
increase in EBITDA margin (to 10.8%) was partially mitigated by weak sales comparisons. Overall comparisons

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were also mixed from a full-year perspective as a 4% decrease in revenue was partially offset by a 40 bps
increase in EBITDA margin (to 9.8%); total EBITDA was roughly flat, but adjusted operating income was up
nearly 10% for the year. Adjusted EPS totaled $1.06 in 2016, up 28% from 2015. Sales comparisons across
CNDT business segments were generally flat to down (consistent with CNDTs record in recent years), but
margins benefited from the Companys ongoing cost reduction efforts. The firms contract renewal rate for the
full year was 86%, roughly in line with previous years. However, CNDT took a pretax charge of $161 million
during 4Q-2016 related to its project for the New York Medicaid Management Information System (NY MMIS).
CNDT does not expect to complete the NY MMIS project, and this charge is the best estimate of the impact on
the Companys financial results. Investor reaction to the earnings report was largely positive (share price up
about 8% on the day of the release), and management provided some additional commentary during CNDTs
first earnings call with investors.

Management plans to eventually issue annual financial guidance (in conjunction with the 1Q-2017
earnings release) as well as more detailed operating metrics in upcoming quarters. However, the Companys
long-term guidance and objectives, communicated during the spin-off process, remain unchanged. Management
remains committed to achieving total cumulative cost savings of $700 million by the end of 2018, derived from
the following areas: General Procurement, G&A, and IT (~50%), Commercial segment (~30%), Public Sector
segment (~10%), and Healthcare segment (~10%). Importantly, only a portion of these savings will directly
benefit future profit comparisons as some savings will be absorbed by reinvestment and by margin headwinds in
underperforming businesses (discussed later in this report). Other key elements of CNDTs future guidance
include the following:

Unchanged Financial Performance Goals

Source: Conduent Investor Presentation

Setting the Stage for Improved Margins & Growth

Conduent just started a new chapter as an independent company earlier this year, but formulation of the
firms strategic direction was among the key priorities of its parent company, Xerox. In addition to building a new
management team for Conduent, several other transition initiatives received significant emphasis during the
period preceding the spin-off. These initiatives included the following:

Realign Delivery: Conduent began to restructure its business segments last year in preparation for its
post-spin-off operations. For example, the Company took steps to more effectively align its go-to-
market approach with its client relationships to ensure that solutions can be fully tailored to the needs of
individual customers.

Divest Non-Core Assets: Prior to the spin-off, the Company was already exiting non-core businesses in
order to sharpen its operational focus on areas of competitive advantage. As referenced earlier in this
report, XRX elected to sell its Information Technology Outsourcing business to Atos for approximately
$930 million.

Refocus the Government Healthcare Business: Starting in 2015, XRX management began to shift the
emphasis of the government healthcare business toward more profitable, higher-growth areas, such as

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Conduent, Inc.

pharmacy benefits management, while reducing exposure to less attractive opportunities, such as
servicing Medicaid platforms.

Increase Automation: The firm has increasingly incorporated software-based automation tools as part of
its client services operations. Overall, these initiatives reduce manual labor requirements and enhance
the efficiency and accuracy of its operations.

Looking beyond the near-term transition, CNDTs new management has outlined its strategic vision for
the next several years in the following terms (as stated in Conduents 2016 10-K filing):

Our strategy is to drive leadership in attractive markets by leveraging and building our
competitive strengths. We intend to execute our strategy through increased business portfolio
focus and operating discipline, enhanced sales and delivery capabilities and tightly aligned
investments. Our strategy is designed to deliver value by delivering profitable growth, expanding
operating margins and deploying a disciplined capital allocation strategy.

As the Companys past financial results clearly demonstrate, performance needs to improve from both a
profitability and growth perspective. During the next 1-2 years, the firm will likely focus on enhancing the
performance of its existing portfolio. The Commercial segment (2.2% operating margin, 41% of sales last year)
is CNDTs largest segment from a revenue perspective, and is an area that management is targeting for
improvement. The firms exposure to the customer care business is the most significant obstacle to achieving
better financial results. Within the customer care business, management is in the process of trying to implement
price increases as underperforming contracts come up for renewal (management indicates that clients have
been at least partially receptive to price increases in this area). However, the growth profile for the Commercial
segment should hold significant long-term promise. Trends such as outsourcing, globalization, and corporations
constant search for new efficiencies should yield opportunities to attract new clients and capture a greater share
of existing clients business (CNDTs customer base includes 76 members of the Fortune 100). In addition to its
already formidable presence within the healthcare space, management views financial services and
technologies as the most promising sources of potential long-term growth. Management plans to focus on North
America and Western Europe as its core geographic regions for the Commercial segment.

CNDT has exposure to several other underperforming businesses that have negatively affected
financial results. These legacy margin pressures include areas such as customer care, student loans, and
health enterprises (such as Medicaid platforms). Management has already launched efforts to address or exit
these types of underperforming businesses, including consolidating facilities and increasing investment in
automation and other IT infrastructure. The student loan servicing business is now in run-off mode. Within the
health enterprise area, CNDT is no longer accepting new clients, as management has determined this area to
be a less attractive investment opportunity. These areas of reduced emphasis are now captured within the
Companys Other segment, which represented about 5% of total revenue during 2016. The Other segment
posted a $100 million loss in 2015 and an $84 million loss in 2016. Eventually returning this segment to break-
even would add approximately 150 basis points to CNDTs overall EBITDA margin. Although declining
contributions from these areas will be a near-term headwind for revenue comparisons, CNDT should also be
well positioned for a more profitable sales mix during the coming years.

Another aspect of improving CNDTs current operations is managements commitment to significant cost
reduction. CNDT has already been executing on various efficiency initiatives for several quarters, and this is
should be an ongoing process. This expense reduction program was initiated in 2016 and is expected to be a 3
year process. Cumulative cost savings were projected by CNDT to total approximately $220 million in 2016,
$430 million in 2017, and $700 million in 2018 (over 10% of the expense base), and management reiterated this
guidance in March 2017. It is conceivable that management is attempting to be conservative with its cost
savings goals so as to effectively manage investor expectations. Headcount for this business (the former ACS)
increased over 20% during its time within the XRX portfolio, during a period of declining profits. General
procurement, G&A, and IT are expected to account for about half of these savings, with the balance derived
from initiatives within specific business segments. However, only a portion of these savings will directly flow to
EBITDA. Stand-alone company costs (resulting from CNDTs recently established independence) and other
ongoing cost pressures are expected to absorb about $230 million of the $700 million in cumulative savings
along with losses from underperforming businesses. Some of the remaining $470 million in incremental savings

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Conduent, Inc.

will be used for Company reinvestment opportunities, with the balance directly benefiting profits (management
plans to more precisely quantify this breakdown). Reinvestment priorities are likely to include the hiring of
additional sales staff (about a 20% increase from the current headcount of 300), employee training, and other
high-return opportunities such as adoption of new technologies and automation that improve the Companys
existing service platform. Cost savings were likely among the primary drivers of margin expansion during
CNDTs most recent quarter and are projected to be the primary driver of EBITDA growth during the next 12-18
months.

Management recognizes that CNDT must close the margin gap between its operations and those of its
peers. CNDTs EBITDA margin during the most recent fiscal year was under 10% (9.8%), while several of its
peers achieved EBITDA margins of 15% or more. As the future guidance suggests (discussed earlier in this
report), management expects the 2017-2018 period to be a time of renewal, refocus, stabilization for
Conduent. Cost savings are expected to drive annual EBITDA of at least 5-10% as sales comparisons are
expected to be negative in the near term, eventually stabilizing by 2018. These efficiency gains should help the
Company achieve additional margin expansion to some extent, but future sales growth will be essential if CNDT
is to reach its full profit potential. By 2019, management plans to pivot the firm into a growth phase. In addition
to capitalizing on organic growth opportunities, we expect CNDT to use bolt-on M&A throughout this period as a
way of supplementing growth and realizing cost synergies. Given that CNDT has an addressable market of
$260 billion that is growing 6% per year, pivoting to a sales growth phase is not an unrealistic objective, in our
view. However, the recent track record of the Company illustrates that such a scenario is achievable only
through appropriate strategy and investments. Assuming that revenue can gain positive momentum, the
corresponding operating leverage should allow the Company to further narrow the margin gap relative to its
industry peers.

Weve concluded that the issues restraining our performance are addressable and not
systemic. They are concentrated within specific segments like customer care and our Other
segment, where we have already begun making progress in addressing them. If I look beyond
these specific challenge areas, I see we hold leadership positions in many high-growth market
segments with attractive margins which we intend to amplify.

Conduent CEO Ashok Vemuri, investor meeting, December 5, 2016

We believe that CNDT has the potential to materially improve margins during the coming years. In the
near term, the substantial cost savings already outlined by management should serve as the primary catalyst for
improved profitability. Secondarily, we highlight the positive impact of gradual improvements to the
underperforming businesses referenced earlier in this report. These headwinds should abate at least somewhat
during the next 2-3 years as restructuring and price increases take hold, and these businesses should represent
a shrinking component of the Companys overall sales mix going forward. Even assuming that only about $200
million of net savings ultimately flows through to EBITDA (implying that reinvestment and various headwinds
absorb a majority of the $700 million in cumulative cost savings), this would imply a total EBITDA potential of
~$835 million by 2019. It bears repeating that this assumption may prove conservative, and it is conceivable that
CNDT could eventually exceed managements original forecast for cumulative cost savings. This level of
EBITDA would suggest growth of over 30% relative to 2016 and roughly corresponds with firm guidance for
yearly EBITDA increases. Our 2019 projection implies an EBITDA margin of 12.8% for 2019 (an improvement of
about 300 bps from the most recent year). This projection also suggests a potential operating margin of 8.4%
(up nearly 300 basis points from 2016 levels, but still materially below the peer average of ~12%). These
margins would still be somewhat below those of peer firms and suggest that additional improvements could be
realized beyond 2019. Based on our projected level of EBITDA for 2019, we believe that free cash flow of $250
million and EPS of $1.60 (excluding potential cuts to future corporate tax rates) could also be achievable by that
time (which implies an ~8% free cash flow yield and ~10.0x P/E multiple based on CNDTs current market
capitalization).

For the purposes of formulating sales projections, our estimates roughly approximate management
guidance for the coming years: a low single-digit sales decline in 2017, a flat sales comparison in 2018, and a
low single-digit sales increase in 2019. It warrants mention that our sales and profit projections could prove
conservative, as we believe that CNDT has sought to manage investor expectations during the coming years.
Moreover, our projections incorporate no potential growth or synergy benefits from M&A (to be financed by

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Conduent, Inc.

Company cash flow), which is likely to be among the top priorities during the coming years (CNDT plans no
dividends or buybacks for the foreseeable future). Certainly economic weakness or complications related to
CNDTs transition to an independent entity could disrupt its future financial progress, but the firms solid record
of client retention (86% renewal rate last year) does provide relatively strong long-term visibility for its business.
In our view, CNDT should be well positioned to achieve significant profit improvements during the coming years
which are likely to exceed investor expectations.

Balance Sheet and Financial Position

CNDT inherited a significant amount of debt from the Xerox spin-off, but we believe that leverage is at
manageable levels and that it will gradually decline during the coming years. Management provided investors
with an updated view of Company net debt levels during the 4Q-2016 conference call (as of late February). After
adjusting for a spin-off-related payment to XRX and entrance into a $100 million loan (both completed in
January), CNDTs net debt stood at approximately $1.7 billion. This debt translates to a net leverage ratio (net
debt/adjusted EBITDA) of 2.7x. The Company is targeting a net leverage ratio of under 2.5x over the long term,
and CNDTs guidance for EBITDA growth during the coming years suggests that this should be a feasible
scenario (net leverage would be roughly 2.1x based on our 2019 EBITDA projection). It is also important to
mention that there are no debt maturities until 2021, and the average debt maturity is roughly 6.5 years. Annual
interest expense is expected to be in the $155-$165 million range (implies ~8% interest rate). We expect
management to eventually pursue debt refinancing opportunities as CNDTs financial leverage lessens over
time. In connection with the spin-off, the Company also issued $120 million of convertible preferred stock with
an 8% dividend yield (~$10 million per year in dividends). In addition, the Company has about $61 million in
unfunded pension obligations. The firm periodically contributes to its pension plans, and a $10 million payment
to the plan is scheduled for 2017.

CNDTs free cash flow was strongly positive in 2016, but was down somewhat compared to 2015 levels
due to several one-time items (2015 FCF was ~$300M). Management projects free cash flow to be 20-30% of
EBITDA in 2017 and 25-35% of EBITDA during 2018-2019. This suggests that free cash flow should be
approaching at least $250 million per year by 2019 based on our EBITDA projections (equating to an 8% free
cash flow yield relative to current market value). Management regularly expressed its commitment to disciplined
capital allocation during its initial communications with investors. Management has described its capital
allocation philosophy as being focused on high-return, low-risk opportunities that enhance shareholder value.
Capital spending requirements for CNDT are relatively modest. Annual capital spending averaged $190 million
over the past 2 years (representing ~3% of revenue). In our view, these relatively modest capital requirements
help to demonstrate one of the attractive aspects of CNDTs business. However, capital investment at CNDT
may have been somewhat insufficient as part of Xerox, and some uptick in capital investment could be likely
following the spin-off.

The Company does not plan to pay a dividend or initiate a share repurchase program for the
foreseeable future. Management plans to focus capital allocation on internal investment and M&A during the
coming years. CNDT did not complete any M&A transactions in 2016 but did acquire 4 companies in 2015 for
total cash considerations of $197 million. M&A in 2017 is expected to comprise of modestly sized tuck-in deals.
Given CNDTs expected level of free cash flow generation going forward, modestly sized transactions would be
unlikely to require issuance of additional debt. CNDT may begin contemplating larger transactions in 2018 once
near-term restructuring and other post-spin-off considerations are more fully addressed. Considering the
fragmented nature of CNDTs industry, there should be ample opportunities to realize synergies via
consolidation.

Valuation & Conclusion

We have highlighted spin-offs as an attractive area for investors in several past issues of Asset Analysis
Focus. Several stocks profiled in past issues of Asset Analysis Focus (MSG, AMCX, CDK, WBT, etc.) have
been examples of attractive spin-offs which went on to achieve strong performance as stand-alone companies.
This trend has persisted through recent years as this area continues to outperform broader market averages.
During the past decade, the S&P 500 Spin-Off Index has appreciated 227% compared to S&P 500 appreciation
of 61%. Just over the past 12 months, the S&P 500 Spin-Off Index has appreciated 23% compared to S&P 500
appreciation of 17%. Although spin-off investing has received increasing attention over the years, there still
appear to be meaningful opportunities within this space. As our past reports have highlighted, operating as a

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Conduent, Inc.

stand-alone entity can create several means of enhancing shareholder value via improved capital allocation,
restructuring, growth opportunities, and better performance incentives for management.

CNDTs history as an independent entity is still limited at this stage. The spin-off from XRX was just
completed on January 3rd. Since then, its shares have appreciated 20%, outperforming the S&P 500 by 15
percentage points. Going forward, we believe CNDT is well positioned to maintain this initial record of
outperformance. In our view, CNDT possesses many of the traits that have allowed spin-offs to outperform
historically. In addition, synergies from potential M&A should act as a catalyst for improved growth and
profitability during the coming years. The case for additional future upside is further supported by CNDTs
valuation relative to industry peers. As the following table depicts, CNDT trades at an EV/EBITDA multiple
(TTM) of 9.0x, a 24% discount relative to industry peers. Certainly, the firms lack of growth and disappointing
margins of recent years would warrant a discounted at this point in its history. However, the Companys new
stand-alone strategy and the numerous catalysts for improved financial performance (cost savings, addressing
underperforming businesses, investing in growth opportunities, etc.) should allow CNDT to gradually narrow the
operational and valuation gaps relative to its competitors during the coming years.

Peer Comparison: Valuation & Margins

TTM EV/EBITDA TTM P/E TTM Operating Margin

Accenture 12.4x 17.4x 14.7%
CGI Group 11.4x 17.9x 14.7%
Cognizant 12.0x 22.8x 17.0%
Computer Sciences 12.4x NM 4.7%
IBM 10.7x 14.1x 17.7%
Teleperformance 14.5x 27.9x 9.4%
Teletech 9.6x NM 7.0%
Peer Average 11.9x 20.0x 12.2%
Conduent 9.0x 15.5x 5.5%

In addition to spin-off related catalysts, we believe that several other fundamental factors should benefit
CNDTs financial results and valuation during the coming years. As mentioned earlier, the Company has an
addressable market of $260 billion with an annual growth rate of approximately 6%. CNDT is a meaningful
player in a highly fragmented landscape, and the firm should be well positioned to capitalize on consolidation
opportunities. Moreover, the long-term business outlook for the Company is boosted by a high degree of client
retention and recurring revenue, providing additional visibility for CNDTs profits and cash flows going forward.
Yet the shares still trade at a very reasonable valuation, and this becomes even more apparent when
considering CNDTs potential financial results for 2019. Based on our projections, the Company should be
capable of generating ~$835 million in EBITDA and EPS of $1.60 by 2019. These estimates imply a P/E ratio of
approximately 10.0x and an EV/EBITDA multiple of roughly 6.3x.

CNDT Estimate of Intrinsic Value

FY 2019 Value ($MM)
EV/EBITDA 8.0x 6,661
Net Debt (1,712)
Pension Obligation (61)
Equity 4,888
Shares Outstanding (million)* 211.0

Intrinsic Value Per Share $23.17

Implied Upside Potential ~40%

*reflects dilution from convertible issue

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Conduent, Inc.

Our estimate of intrinsic value for CNDT is approximately $23 per share, implying 40% upside potential
from a 2-3 year point of view. This estimate assumes an EV/EBITDA multiple of 8.0x and a P/E ratio of 14.0x
applied to our 2019 financial projections. In our view, this estimate of intrinsic value could prove to be
conservative from a long-term perspective. As the peer comparison table depicts, an 8.0x EV/EBITDA multiple
is still fairly modest relative to industry averages. Moreover, our 2019 projections imply an EBITDA margin of
12.8% for 2019 (an improvement of about 300 bps relative to the most recent year). This EBITDA margin would
still be somewhat below peer firms, suggesting that additional improvements could be realized beyond 2019. In
our view, CNDT has ample opportunities to create shareholder value as an independent entity, but this is likely
to be a multi-year process. However, it is conceivable that CNDT could eventually become an attractive
consolidation target in its own right, given the fragmented industry landscape in which it operates. According to
a report by Fifth Third Capital Markets, median transaction multiples (LTM EV/EBITDA) for the business
services space have been in the 8.5x-9.0x range during recent years, suggesting that a take-out value of at
least $26 could be a feasible scenario for CNDT using a 2-3 year time horizon. Given Icahn Capital
Managements nearly 10% stake in the firm, along with its 3 board seats, we expect maximization of
shareholder value to remain a high priority at Conduent. Near-term results for the Company will continue to
show a firm that is in transition, but we expect patient investors to reap significant rewards from CNDT over the
coming years.

Risks
Changes to governmental policies or planned spending could negatively affect CNDTs government
contracts.
Management attempts to implement price increases may reduce renewal rates.
Future M&A could be unattractive from a financial or strategic perspective.
CNDT could fail to achieve its targeted cost savings, future growth, margin expansion, or other financial
objectives.
Economic weakness could cause Company clients to reduce spending on CNDT services.
Uncertainty in the U.S. healthcare sector could adversely impact CNDTs healthcare segment.
The Companys exit from Xerox may result in less favorable pricing from third party service providers.
Any potential sale of shares by Icahn Management could cause an overhang on near-term stock
performance.
Failure to reduce financial leverage over time could adversely affect shareholder value.

Appendix

Industry-Specific Services

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Conduent, Inc.

Multi-Industry Services

(Source: Conduent 2016 10-K)

Analyst Certification
Asset Analysis Focus certifies that the views expressed in this report accurately reflect the personal
views of our analysts about the subject securities and issuers mentioned. We also certify that no part of our analysts
compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this report.

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Conduent, Inc.

CONDUENT, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share data in thousands)

December 31,
ASSETS 2016 2015
Cash and cash equivalents $390 $140
Accounts receivable, net 1,286 1,246
Related party notes receivable 248
Other current assets 241 240
Total current assets 1,917 1,874
Land, buildings and equipment, net 283 280
Intangible assets, net 1,144 1,425
Goodwill 3,889 4,872
Other long-term assets 476 607
TOTAL ASSETS $7,709 $9,058
LIABILITIES AND EQUITY
Short-term debt and current portion of long-term debt $28 $24
Related party notes payable 1,132
Accounts payable 164 264
Accrued compensation and benefits costs 269 249
Unearned income 206 227
Net payable to former parent company 124
Other current liabilities 611 845
Total current liabilities 1,402 2,741
Long-term debt 1,913 37
Pension and other benefit liabilities 172 153
Deferred taxes 619 764
Other long-term liabilities 173 201
TOTAL LIABILITIES 4,279 3,896
Commitments and Contingencies (See Note 15)
Series A Convertible Preferred Stock 142
Common stock 2
Additional paid-in capital 3,812
Former parent company investment 5,343
Accumulated other comprehensive loss (526) (181)
TOTAL EQUITY 3,288 5,162
TOTAL LIABILITIES AND EQUITY $7,709 $9,058
Shares of common stock issued and outstanding 202,875
Shares of Series A convertible preferred stock issued and outstanding 120

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 GICS Sector: Real Estate
The Howard Hughes Corporation June 9, 2017

Dow Jones Indus: 21,271.97

S&P 500: 2,431.77
NYSE: HHC Russel 2000: 1,421.71
Index Component: N/A

AAF History
Report Type New
Initially Probed
Last Probed
Trigger No
Situation Business Value; Hidden Assets

Selected Financial Summary ($MM)

2014 2015 2016 TTM
Revenues: $635 $797 $1,035 $1,027
Capitalization and Trading Multiples ($MM) NOI $71 $119 $140 $153
Net Debt/Total Capital 34% 42% 39% 41%
Share Price $125.95 2014 2015 2016
Core FFO per share $4.86 $8.21 $8.23
Diluted Shares (MM) 42.7 P/FFO 25.9x 15.3x
EPS ($0.60) $1.60 $4.73 $2.17
Market Cap $5,385 P/E 78.7x 26.6x 58.0x
Fiscal Year End: December
Debt $2,750 EV/Sales 12.0x 9.5x 7.3x
Cash $(542) Price/Book 2.2x 2.3x 2.1x Overview
Enterprise Value $7,594
We operate with a long-term mindset
Trading Statistics and are dedicated to working tirelessly to
making extraordinary assets that we would
Dividend Rate N/A Avg. Daily Volume (3mo) (MM) 0.2 want to own forever and are positioned to
Dividend Yield N/A Short % of Float 5.8% stand the test of time. We love real estate, but
Payout Ratio N/A our brand is about so much more than bricks
and mortar. We are about creating something
High Low
great and transformational that will outlast us.
52-Week $130.00 $103.30
5-Year $160.00 $58.58 David Weinreb, Howard Hughes CEO,
March 2016 letter to shareholders
Valuation
The Howard Hughes Corporation
Net Asset Value $171 Time Horizon N/A
(Howard Hughes, HHC, or the Company)
Implied Upside 36%
specializes in developing master planned
Hidden Assets Yes communities (MPCs); owning, managing, and
Description HHC has various hidden assets including the redeveloping revenue-generating commercial
Seaport District in NYC and Ward Village in Hawaii
real estate; and developing other real estate
assets in the form of entitled and unentitled land
Share Ownership (3/31/2017) and residential condominium projects (i.e.,
Economic Voting putting its assets to a higher and better use).
Bill Ackman ~27% 13.6%
Howard Hughes emerged as a public company
in November 2010 following its spin-off from
General Growth Properties and comprised 34
Horizon Kinetics 7.0%
disparate assets in 18 states; although many
Vanguard Group 6.9%
were unique and considered irreplaceable, a
Baillie Gifford & Co. 4.2%
number were not optimal within a REIT structure
and therefore were not fully appreciated by
Clients of Boyar Asset Management, Inc. do not own shares of The
investors. Howard Hughes reports the results of
Howard Hughes Corporation common stock. its operations in three segments, including
Analysts employed by Boyars Intrinsic Value Research LLC do not own shares
Master Planned Communities (MPCs),
of HHC common stock. Operating Assets, and Strategic Developments.

- 15 -
The Howard Hughes Corporation

A key component of the HHC business model is the synergistic relationship between the Companys three
segments, which helps generate a large amount of shareholder value (more on this later).

During 2016, the MPC segment reported $253 million in revenues, with the vast majority (~85%) derived
from the sale of land to homebuilders. The Companys Operating Assets segment generated $140 million in net
operating income (NOI) from its 54 properties and investments, and this amount is expected to increase to ~$241
million of NOI by ~2020, when recently completed developments are stabilized (i.e., reach their full potential) and
projects currently under construction are completed. It should be noted that the aforementioned stabilized NOI
projection excludes any contribution from the Seaport District, which is currently undergoing redevelopment and
is poised to become a meaningful contributor to the Companys future results. The Companys Strategic
Developments portfolio currently contains over 50 million square feet of vertical development entitlements
(commercial real estate development potential), including over 8 million square feet of vertical entitlements at
Ward Village, which is located on the south shore of Oahu (between Honolulu and Waikiki) and consists of 60
acres of beachfront property that is expected to experience meaningful redevelopment/development in the coming
years.

In our 2011 summer issue, we examined the then depressed/out-of-favor U.S. housing industry and
1
identified a number of businesses, including Howard Hughes, that we believed would be a beneficiary of what
we expected to be an eventual industry recovery. Shares of HHC have increased by 164% since that report (vs.
a 108% gain for the S&P 500), reflecting a number of factorsincluding the Companys progress in developing
and repositioning its assets (HHCs run rate NOI as of 1Q 2017 has increased more than three fold, from $49
million to $169 million); improved housing conditions in key markets, including Las Vegas and Houston,
notwithstanding recent weakness in Texas from lower oil prices; and increased visibility into the Companys
development/redevelopment activities associated with the South Street Seaport and Ward Village. While shares
have increased markedly, we believe that the reward/risk scenario may actually be better now than it was back in
2011. At current levels, we believe that investors are effectively acquiring the Companys current operating assets
and land associated with its MPCs at a conservative value and receiving the Companys Ward Village, Seaport
District, and collection of other assets, including valuable air rights on the Las Vegas strip and assets with
meaningful future development opportunities (West Windsor, the Elk Grove Collection, Landmark Mall, etc.), for
free. In our view, these assets could be worth upward of $66 a share, translating to a net asset value (NAV) of
$171 a share, representing over 36% upside from current levels.

The interests of HHCs management and board are tightly aligned with shareholders as insiders (officers
and directors) currently own ~21% of the Companys outstanding shares. Upon joining the Company in 2010,
CEO Weinreb purchased a $15 million long-term warrant, and he will be acquiring a new $50 million warrant at
some point during 2017. Notably, the new warrant will have a term of 6 years, and CEO Weinreb will not derive
any benefit from the warrant unless the HHC share price rises significantly above current levels (i.e., there is no
downside protection!). Other members of HHCs senior management team have also recently committed to
investing a meaningful amount of their own capital in the form of similarly structured long-term warrants. HHC
shares are underfollowed on Wall Street, with just 6 analysts providing formal coverage of the stock, which is quite
low in light of the Companys $5.4 billion market capitalization. However, the Company has recently begun to
make a concerted effort to increase investor awareness (HHC commenced quarterly earnings calls in early 2017
and held its inaugural investor day in May 2017).

HHC shares are currently trading over 20% below their all-time high, reached in late 2014. In our view,
the share price selloff reflects a number of factors, including the Companys current exposure to commercial real
estate in Houston (40% of stabilized NOI of $241 million) in light of the recent oil/energy industry downturn; the
uncertain outlook for brick-and-mortar retailers, to which HHC is not immune, as highlighted by recent
bankruptcies/restructurings of two HCC tenants, including Sports Authority (two locations) and Golfsmith;
increased costs and a reduced long-term return outlook associated with a key redevelopment property (South
Street Seaport); and the fact that a meaningful amount of shareholder value remains to be unlocked in the red-

11
Note well: We are technically classifying the Howard Hughes Corporation as a new idea within the AAF universe, since
we previously devoted only a few pages detailing our investment thesis for the security, compared with more comprehensive
reports on Home Depot, Watsco, Equifax, and Whirlpool in that same issue.

- 16 -
The Howard Hughes Corporation

hot real estate markets of New York, Las Vegas, and Hawaii, which some industry pundits have viewed as
overheated and primed for a correction. We examine many of these potential headwinds later in this report.

Based on our projections, we estimate HHCs current NAV at $171 a share, representing 36% upside
from current levels. We believe that we have taken a conservative approach to valuation and would not be
surprised if the Companys shares were to exceed our projection by a wide margin. Management is heavily
incentivized to unlock shareholder value over the next 5-6 years, and therefore the monetization, repositioning,
and redevelopment of the Companys assets is likely to be accomplished at a much quicker pace than we are
currently forecasting.

History/Background
The Howard Hughes Corporation traces its roots to three prominent businessmen and entrepreneurs
whose real estate ventures would ultimately fall under the ownership of a single entity: Howard Hughes, well
known for his passions for the silver screen and aviation; Jim Rouse, credited with the development of the first
enclosed shopping mall east of the Mississippi River in the late 1950s and who would later become a noted
developer and so-called father of master planned communities; and George Mitchell, widely regarded as the
pioneer of hydraulic fracturing and the founder of Mitchell Energy & Development Corp.

In 1924, Howard Hughes assumed control of the family business with a nearly debt-free portfolio of assets.
In the 1930s, the IRS began assessing a 37.5% penalty tax on unnecessary accumulated surpluses, so Howard
2
Hughes accountant began deploying profits into undeveloped land. In the early 1950s, the Hughes Aircraft
Company acquired 25,000 acres of land adjacent to the Las Vegas strip, the majority of which (22,500 acres) is
known as Summerlin after Howard Hughes paternal grandmother; it is one of the Companys key MPCs. The
specific land that would become Summerlin is believed to have been acquired in a land swap with the federal
government. In the early 1970s, Hughess Las Vegas real estate was placed in Summa Corp, which began
developing the Summerlin property in the 1990s. In 1996, the Rouse Company acquired the privately held Howard
Hughes Corporation (until 1994 known as Summa) in a complex transaction valued at over $520 million, including
$176 million in Rouses stock for the Hughes heirs. The assets that Rouse acquired included Summerlin (a 22,500-
acre community in northwest Las Vegas), the Fashion Show Mall on the Las Vegas Strip, and several other
commercial and industrial sites.

Jim Rouse was regarded as a visionary developer who created the Columbia master planned community
in the late 1960s on 14,000 acres of farmland located between Baltimore, Maryland, and Washington, DC. The
Columbia MPC was Mr. Rouses response to the postwar sprawl and was intended to be an integrated, self-
contained community of nine villages, each with its own shopping area. On the 15th anniversary of the Columbia
MPC, Jim Rouse called it not an attempt at a perfect city or utopia, but rather an effort to simply develop a better
city, an alternative to the mindlessness, the irrationality, the unnecessity of sprawl and clutter as a way of
3
accommodating the growth of the American city. Although the Rouse Company sold all of the single-family
housing inventory at the Columbia MPC many years ago, it retained the central core for the last phase of
development so that it could become an urban-oriented business and cultural hub. At year end 2016, Columbia
held over 11 million square feet of vertical development rights. It should also be noted that Jim Rouse also
redeveloped the South Street Seaport in the early 1980s, including Pier 17, where he constructed a glass shopping
pavilion that opened in 1983.

After attending a seminar by the Rouse Company in the early 1970s on how to develop towns like
Columbia, Maryland, George Mitchell came up with the idea for the Woodlands MPC outside of Houston, Texas.
The Woodlands MPC was designed as a place for mixed-income residential development with jobs and amenities
nearby that would preserve the East Texas forest and other natural resources that covered the ~27,000 acres.

2
Antoine Gara, How a Howard Hughes Tax Dodge Landed in Bill Ackmans Portfolio, Forbes, May 6, 2015,
https://www.forbes.com/sites/antoinegara/2015/05/06/how-a-howard-hughes-tax-dodge-landed-in-bill-ackmans-
portfolio/#ca39f8f4e21c
3
Paul Goldberger, James W. Rouse, 81, Dies; Socially Conscious Developer Built New Towns and Malls, The New York
Times, April 10, 1996, http://www.nytimes.com/1996/04/10/us/james-w-rouse-81-dies-socially-conscious-developer-built-
new-townsand-malls.html

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The Howard Hughes Corporation

(Mr. Mitchell would later call the Woodlands his most satisfying achievement.) In 1997, the Woodlands Corporation
was acquired by Morgan Stanley and Crescent Real Estate Equities, and in 2003, the Rouse Company acquired
Crescents interest in the property for $387 million (including assumption of $185 million of debt). In 2004, the
Rouse Company was sold to General Growth Properties. Today, the Woodlands boasts over 100,000 residents
and meaningful amounts of commercial development opportunities.

Bill Ackman and General Growth Properties

The #2 US mall REIT General Growth Properties (GGP) was performing well prior to the financial crisis,
and strong performance at its retail properties as well as optimism about the companys expansion projects drove
the value of GGP shares above $20 billion (~$70/share) by mid-2007. However, the retail environment quickly
soured as the Great Recession set in, and the freezing of the credit markets struck GGPwhich had $27 billion
in debt in 1Q 08 and was heavily reliant on the CMBS marketparticularly hard. By November 2008, GGPs
market cap had plunged to $100 million as bankruptcy looked nearly inevitable. Around the same time, Bill
Ackmans hedge fund, Pershing Square, began to snap up GGP shares. After failing to restructure its debt outside
of the courtroom, GGP formally filed for Chapter 11 bankruptcy in April 2009. Pershing Square offered GGP an
initial debtor-in-possession financing facility of $375 million that also included warrants to obtain a 4.9% fully
diluted stake in any surviving GGP equity (GGP ultimately obtained superior DIP financing). Pershing Squares
stake reached 25% (including total return swaps) by early 2010, around which time Brookfield Asset Management
(BAM), with Pershings support, submitted a recapitalization offer to GGP. Brookfield was soon embroiled in a
bidding war with mall REIT Simon Property Group (SPG) for control of the GGP reorganization. Brookfields
revised February 2010 offer included full repayment of GGP debt, ~$10/share for existing GGP shareholders, and
the spin-off of certain lowincome-producing and highlong-term potential assets which were not suitable for a
REIT structure into a new company, which was initially named General Growth Opportunities (GGO).

In May 2010, BAM submitted what ultimately was the winning offer in the form of a non-controlled
recapitalization plan in partnership with Pershing and Fairholme Capital Management, beating out SPGs
~$15/share offer to acquire the whole company. The reorganization plan was substantially similar to the February
2010 offer with the additional issuance of GGP warrants to the sponsors in exchange for up to $6.8 billion in equity
commitments. Prior to separation of the GGO assets and completion of the reorganization, GGP had to settle
outstanding obligations due to the Hughes heirs, dating to Rouses acquisition of Hughes Corporation in 1996. A
final payment and settlement of claims totaling $230 million was ultimately reached in September 2010. On
November 1, 2010, GGP completed the reorganization, including the distribution of shares (0.0983 ratio) in a new
company housing the GGO assets, named the Howard Hughes Corporation. As part of the reorganization, BAM
purchased 2.4 million HHC shares (at $47.62/share) and received 3.8 million warrants, and Pershing Square
purchased 1.2 million shares and received 1.9 million warrants ($50/share strike). Fairholme and Blackstone also
purchased shares and received warrants in HHC in connection with its separation from GGP. In total, the plan
sponsors (Brookfield, Fairholme, Pershing Square) and Blackstone acquired $250 million of common stock at
$47.62 a share. After the spin-off, BAM held a 15% effective stake in HHC and Pershing a 13.8% stake, and Mr.
Ackman assumed the chairman position at HHC. In 2012, HHC acquired the majority of the warrants issued to
the plan sponsors and Blackstone.

Management Team with Strong Real Estate Track Record Selected to Operate Howard Hughes
David and Grant are money makers 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
corporations capital as their own and who were willing to invest a meaningful amount of their own
money alongside shareholders.
William A. Ackman, Howard Hughes Corporation chairman, April 2011 letter to shareholders

In the wake of the Great Recession, David Weinreb, a successful real estate entrepreneur, contacted Bill
Ackman about raising a pool of money to capitalize on the opportunities created by the crisis. Mr. Weinreb and
Bill Ackman had met during high school (Weinreb graduated two years ahead of Ackman), and the two
reconnected during the early 2000s. Mr. Weinreb had led TPMC Realty (its name an acronym for the slogan
Turnaround Properties Make Cash), a successful distressed real estate firm in Texas, and was primarily managing
his own capital at TPMC at the time, along with Grant Herlitz. When Mr. Weinreb contacted Mr. Ackman about

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The Howard Hughes Corporation

raising a fund, Mr. Ackman mentioned the assets that would be included in Howard Hughes, and Mr. Weinreb and
Mr. Herlitz became intrigued and worked on spec to help Pershing Square negotiate on behalf of legacy GGP
shareholders in establishing HHC. After working on the assets that were to constitute Howard Hughes, Mr.
Weinreb and Mr. Herlitz were selected to run HHC, with Mr. Weinreb serving as CEO and Mr. Herliz as president.
Both individuals committed a meaningful amount of capital upon joining the business, with Mr. Weinreb and Mr.
Herlitz investing $15 million and $2 million, respectively, in 7-year warrants. Messrs. Weinreb and Herlitz have
helped unlock a significant amount of shareholder value since joining the Company: shares have risen by more
than threefold under their watch. The following are just a few of managements many accomplishments to date:

Acquisition of the Woodlands Stake: Just after its spin-off from GGP, Howard Hughes acquired Morgan
Stanleys 47.5% stake in the Woodlands for $117.5 million ($20 million in cash and a $117.5 million
promisory note) and the assumption of Morgan Stanleys share in the $261 million of total community debt.
This would prove to be a very timely and attractive acquisition by the new Howard Hughes management
team. Subsequent to buying out Morgan Stanleys stake through year end 2016, HHC has sold over 3,000
residential lots for $390 million and 169 acres of commerical land for $141 million. After spending nearly
$900 million to develop or redevelop property in the Woodlands, the asset was generating $64 million of
annual NOI (with $89 million of expected NOI, representing a stabilized yield of 10% on its total project
cost). While most of the residential lots at the Woodlands have been sold (314 acres remaining), the asset
still boasts significant commercial real estate development potential with approximately 7 million square
feet of vertical entitlements.

The Outlook Collection at Riverwalk: In 2010, HHC took an impairment to write down its Riverwalk
property located in New Orleans to its then fair value of $10 million. However, in the ensuing years, the
development team at HHC successfully navigated the complexities of developing the asset (long-term
ground leases and easements owned by multiple government agencies and commercial constituencies).
After spending approximately $82 million to redevelop the property into an upscale urban outlet mall
located in close proximity to the citys convention center, cruise terminals of the port of New Orleans, and
other key destinations, including the French quarter, the property opened in 2014 fully leased and with
~$8.5 million in annual NOI. HHC estimates that the value of this asset will approach $150 million.

Monetization of Lower Manhattan Assemblage: In 2016, HHC sold its 80 South Street Assemblage,
which is currently zoned for an ~818,000 square foot mixed-use building, to China Oceanwide Holdings
for $390 million ($477 per square foot ). The development potential of that site could possibly increase,
however, with the City Planning Commissions having recently approved the transfer of 426,000 in square
feet of air rights from a nearby property. The sale of the assemblage generated a profit of $141 million in
a very short time (~15 months). The future development of this property by the Chinese investor could
provide a nice boost for HHCs existing assets in the Seaport District.

Repurchase of Sponsor Warrants: In 2012, HHC repurchased 6.1 million of the 8 million sponsor
warrants that had been issued to Brookfield, Fairholme, and Blackstone. HHC acquired the warrants for
$81 million per share and 1.5 million shares. The warrants were acquired at a favorable time/price with a
break-even price of $81.01 a share, significantly below the current share price. The transaction has
minimized a meaningful amount of shareholder dilution that the shares associated with the warrants would
have ultimately created.

Generation of Strong Return on Investment: Overall, management has demonstrated its ability to
deploy capital and earn attractive returns. Since the spin-off through December 31, 2016, HHC has
completed $1.6 billion of completed development that is expected to deliver a 9.2% yield on cost, or a
nearly 22% ROE on the $358 million of invested cash equity.

Business Description
Howard Hughes reports the results of its operations in three segments: Master Planned Communities,
Operating Assets, and Strategic Developments. The following provides an overview of the Companys assets by
segment as of March 31, 2017:

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The Howard Hughes Corporation

Master Planned
Operating Assets Strategic Developments
Communities
Retail Office Under Construction
Bridgeland Columbia Regional Building 10-70 Columbia Corporate Aeo
Maryland Cottonwood Square Center Anaha
Summerlin Creekside Village Green Columbia Office Properties Creekside Park Apartments
The Woodlands Hughes Landing Retail One Hughes Landing 100 Fellowship Drive
The Woodlands 1701 Lake Robbins Two Hughes Landing (a) HHC 2978 Self-Storage
Hills Lakeland Village -Center at 1725-35 Hughes Landing Ke Kilohana
Bridgeland (a) Boulevard Two Merriweather
Other
Outlet Collection at Riverwalk 2201 Lake Woodlands Drive m.flats / TEN M
The Summit South Street Seaport Historic One Mall North 33 Peck Slip (Grandview
District / Uplands One Merriweather (b) SHG, LLC) (d)
Ward Village Retail 110 N. Wacker South Street Seaport Pier
20/25 Waterway Avenue 9303 New Trails 17 (d)
Waterway Garage Retail ONE Summerlin Waiea
3831 Technology Forest Drive Other
Multifamily
3 Waterway Square Allen Towne
Constellation(a) 4 Waterway Square American City Building
Millennium Waterway Apartments 1400 Woodloch Forest Bridges at Mint Hill
Millennium Six Pines Apartments Century Plaza Mall
One Lakes Edge Other Circle T Ranch and Power
85 South Street HHC 242 Self-Storage (b) Center
The Metropolitan Downtown Las Vegas 51s (c) Cottonwood Mall
Columbia Kewalo Basin Harbor 80% Interest in Fashion
Stewart Title of Montgomery Show Air Rights
Hospitality
County, TX Kendall Town Center
Embassy Suites at Hughes Landing Summerlin Hospital Medical Lakemoor (Volo) Land
The Westin at The Woodlands (a) Center Landmark Mall (e)
The Woodlands Resort & The Woodlands Parking Maui Ranch Land
Conference Center Garages The Elk Grove Collection (e)
2000 Woodlands Parkway West Windsor
Woodlands Sarofim #1

(a) Asset was placed in service and moved from the Strategic Developments segment to the Operating Assets segment during 2016.
(b) Asset was placed in service and moved from the Strategic Developments segment to the Operating Assets segment during 2017.
(c) Asset was held as a joint venture until HHCs acquisition of its partners 50% interest on March 1, 2017.
(d) Asset is in redevelopment and moved from the Operating Assets segment to the Strategic Developments segment during 2017.
(e) Formerly known as The Outlet Collection at Elk Grove.

Master Planned Communities: The Master Planned Communities segment consists of five MPCs
(Bridgeland, Columbia, Summerlin, the Woodlands, and the Woodlands Hills) that comprise nearly 81,000
acres and that currently include over 342,000 residents. During 2016, the MPC segment generated over
$253 million in revenues, with the vast majority (~85%) derived from the sale of land to homebuilders within
the Companys MPCs. As of December 2016, the Companys MPCs included approximately 11,500 acres
of land remaining to be sold or developed. Over the years, the Companys MPCs have garnered numerous
awards and distinctions. The Woodlands was recently rated by Niche.com as Texass best city in which to
live and also as the sixth-best city in the United States in which to live. Columbia, Maryland, was ranked
first on Money magazines 2016 list of the best places to live in America, while Summerlin has consistently
ranked among the nations top-selling master planned communities for nearly two decades.

Operating Assets: HHCs current operating assets consist of 54 properties and of investments in joint
ventures and other assets and include a mix of retail (13 properties), office (24 properties), multi-family (6
properties), hospitality (4 properties, of which 1 is closed for redevelopment), and 7 other assets and
investments. HHC believes that there are opportunities to redevelop or reposition a few of its properties so
as to increase operating performance. The Companys South Street Seaport property, which is one of
HHCs crown jewel assets, is currently undergoing a major redevelopment but is poised to become a
significant contributor to the Companys Operating Assets segment when it is completed.

Strategic Developments: The Companys Strategic Developments segment consists of 23 development

projects, many of which will require substantial future development to reach their full potential. The
Companys Strategic Developments portfolio currently contains over 50 million square feet of vertical

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development entitlements, including over 8 million square feet of vertical entitlements at Ward Village,
which is located on the south shore of Oahu (between Honolulu and Waikiki) and which is poised to become
a premier vertical MPC. In fact, Ward Village recently garnered a mention as the best-planned community
in the US. by Architectural Digest.

HHCs Operating Modela Virtuous Cycle

The synergistic relationship between the three segments that form the core of HHCs business strategy
results in a powerful virtuous cycle. Specifically, land sales from the MPCs help fund HHCs strategic
developments. The Operating Assets segment provides amenities (retail shopping plazas, office space, outdoor
recreation opportunities, etc.) to the residents of the MPCs, which increases demand for the MPCs and helps
future land sales command higher prices. The recurring cash flow from the operating assets provides additional
funding for strategic developments, which generate recurring revenue streams when fully developed. A key feature
of the HHC business model is the ability to self-fund its development and redevelopment initiatives; accordingly,
the Company has not had to raise any additional equity.

Self-Funded Business Model Provides Synergies and Offers Meaningful Competitive Advantages

Source: Company Presentation

We believe that HHC operates a unique business model that benefits from a number of competitive
advantages. The following provides additional detail on the Companys competitive positioning.

Dominant Market PositionsControl of MPCs Provides Pricing Power and Other Strategic Benefits
Howard Hughes is positioned as the dominant owner within many of its core assets, including the
Woodlands, Summerlin, Bridgeland, Columbia, Ward Village, and the Seaport District. The Companys dominant
market position is especially attractive in its master planned communities, where it owns the vast majority of the
real estate and therefore is able to control the supply of land and real estate development to ensure that the
Company maximizes pricing and is able to maintain future pricing power (almost like a local monopoly!). The
ability to make investments based on market supply/demand conditions rather than speculation helps to reduce
downside risk and preserve the value of the Companys existing assets.

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The Howard Hughes Corporation

Conservative Balance Sheet and Self-Funding Provide Key Advantages

We seek to limit capital market conditions from influencing or disrupting our ability to
create long-term value. In order to mitigate this risk, we finance our projects conservatively and
maintain substantial corporate cash balances.
Howard Hughes Corporation March 2016 letter to shareholders

HHCs dominant market position, coupled with strong liquidity, also enables it to prudently manage its
supply when industry conditions slow down. In addition, the Companys strong balance sheet provides it with key
advantages when redeveloping and repositioning its assets. A prime example of this is the Companys
redevelopment of the South Street Seaport, which to date the Company has funded without the use of financing.
While near-term equity returns may be compromised, the ability to make decisions that are in the best interest of
the long-term value of the assets should ensure meaningful value creation. It should be noted that HHC doesnt
self-fund every asset/property or development activity and currently has $2.8 billion of debt, with approximately
70% non-recourse to the Company. In addition, the Companys current robust cash balance of $542 million is
enough to cover all of its near-term development requirements.

Balance Sheet Well Positioned to Fund Future Development

Source: Company presentation

HHC recently refinanced a large portion of its existing debt by raising $800 million via a senior notes
offering at 5.375% with a March 2025 maturity that replaced $750 million of existing senior notes (2021 maturity).
The refinancing has reduced HHCs coupon by 1.5% resulting in over $8.5 million of savings in annual interest
expense.

Strong Pipeline of Future Development Activity

HHC has a strong future development pipeline within its existing portfolio of assets. As part of the
Companys strategy within its master planned communities, the best real estate is often reserved for
sale/development toward the end of a projects completion. This is especially true for each of the Companys key
MPC assets. At present, the Company has a preeminent development portfolio, with over 50 million square feet
of vertical entitlements across its portfolio, representing more than 12x the 3.9 million square feet of development
that the Company has delivered over the past six years. The ability to not have to make open market purchases
of real estate to fund future growth places HHC in an enviable position relative to its peers.

Irreplaceable/Trophy Assets
HHCs portfolio of assets would be difficult, if not impossible, to replicate. Whether in Las Vegas, where
the Company is the largest private landholder and where barriers to acquiring development land are extremely

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high due to federal government ownership and the presence of conservation land and mountains; in Ward Village
in Hawaii, where land is constrained due to a number of factors; or amid the Companys waterfront real estate in
Lower Manhattan with its unrivaled views, each location has its own uniqueness that provides a significant entry
barrier for potential competition.

Capitalizing on Investment of Prior Owners

HHCs unconventional route to becoming a public company has embedded a number of significant
advantages for HHC. As the second or third owner of a number of the potential development assets in its portfolio,
HHC benefits from the significant investment made by prior entities. For example, Bridgelands prior owner
(Rouse/GGP) spent over $300 million on the property before HHC gained control of the asset. Meanwhile, GGP
made a significant investment, to the tune of $150 million of infrastructure, in Downtown Summerlin before HHC
inherited the asset. These are just a few of the actions from which HHC benefits snd should enable HHC to return
outsized returns on a number of its current operating assets and future development opportunities.

A Closer Look at HHCs Master Planned Communities

Our core business is selling residential land to homebuilders and commercial
development. Because of their integrated lifestyle and strong amenity base, our communities
attract a wide range of home buyers and obtain a significant premium over comparable homes
outside of our master planned environment.
Howard Hughes Corporation March 2016 letter to shareholders

The Companys MPCs are at various stages of their respective development life cycles. In Houston, the
Woodlands MPC has sold most of its residential acres (just 307 acres remain, with a community sell-out date of
2022), but the MPC still has a meaningful amount of commercial development potential. HHCs two other MPCs
in Houston, Bridgeland and the Woodlands Hills, are much earlier in their development history, with projected
community sellout dates of 2036 and 2029, respectively. The Summerlin MPC in Las Vegas, Nevada, still has a
meaningful amount of residential acres to sell and a strong pipeline of both short- and long-term commercial
development activity. The Companys Columbia, Maryland, MPC is the oldest MPC in HHCs portfolio, with
residential development having been largely complete in the 1960s and early 1970s. However, Columbias
downtown district is at the beginning of a major refresh, and HHC controls most of the development rights in the
area.

The following table provides a summary of the Companys MPCs as of March 31, 2017:

MPC Gross Sales Value

Average
Remaining Saleable and Average Price per Acre Projected Undiscounted / Uninflated
Cash
Developable Acres ($ in thousands) Community Value ($ in millions)
Margin
Sell-Out
Community Residential Commercial Residential Commercial Residential Residential Commercial Total
Date
Bridgeland 2,474 1,530 372 394 2036 86% 787 603 1,390
Maryland - 108 316 - 34 34
Summerlin 3,740 826 577 759 2035 67% 1,442 627 2,068
The Woodlands 307 752 560 957 2022 97% 166 720 886
The Woodlands 1,439 207 552 80% 238 94 333
171 2029
Hills
Total 7,960 3,387 $ 2,633 $ 2,078 $ 4,711

Source: Company presentation

Pent-Up Housing Demand

While the housing market has been fairly robust in recent years, housing starts are not enough to keep
up with future demand. One of the factors attributed to housing price increases is the limited supply of housing,
which has boosted the prices of both new and existing homes.

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The Howard Hughes Corporation

Housing Starts Have Remained Below Long-Term Averge for Multiple Years

According to many economists, housing starts need to be in the 1.4 million annual range just to keep pace
with the current demand. In our view, the supply and demand imbalance is particularly good news for the
Summerlin and Houston markets, as these are two regions of the country that should experience favorable long-
term population growth, notwithstanding recent challenges in Houston associated with the oil price correction. It
is also interesting to note that both Nevada and Texas do not have state income taxes, which increases the appeal
of these markets, as do their climates. In the following sections, we take a closer look at each of the Companys
MPCs by region/market, including Houston, Summerlin, and Columbia.

Houston MPCs:
Howard Hughes has three MPCs in the Houston region, including the Woodlands, Bridgeland, and the
Woodlands Hills. All of these MPCs are located north or northwest of downtown Houston.

Location of Houston Area MPCs

Source: Company Presentation

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The Woodlands
The Woodlands MPC was launched in 1974 by George Mitchell and comprises ~28,5000 acres and
115,000 residents. Most of the residential land has been sold, and the MPC is expected to include 132,000
residents at full buildout, which is expected in 2022. The community has won numerous awards over the years
and in 2017 was listed as one of the best places to buy a forever home by GoodCall. The Woodlands amenities
include a first-class school system, 7 championship golf courses, upscale shopping and dining options, a top-
rated amphitheater for outdoor concerts, a strong medical district featuring 5 hospital systems, over 200 miles of
hiking/biking trails, and over 140 neighborhood parks. The Woodlands Town Center is a large employment center
in the Houston region and includes over 2,150 companies and over 64,000 employees. HHCs hospitality assets
at the Woodlands include the Woodlands Resort & Conference Center (406 keys), the Westin at the Woodlands
(302 keys), and Embassy Suites (205 keys). The Woodlands Resort & Conference center recently underwent a
major overhaul, including the renovation of 222 existing guest rooms and the addition of a new wing with 184
guest rooms and suites. The Embassy Suites at Hughes Landing was opened in 2015 and has been ranked as
the top hotel in the Embassy network. The Westin at the Woodlands opened in 2016. The demographics of the
Woodlands residents are very favorable compared with those of the Houston metro area.

The Woodlands Offers Attractive Demographics

The Woodlands Houston MSA

Median Household Income $110,000 $61,000

Median New Home Price $607,500 $349,000

Median Resale Home Price $317,000 $293,000

Median Resident Age 39 34

College Educated 61% 35%

Households with Children 44% 35%

Source: Company presentation

Although the residential real estate opportunity is winding down, the commercial real estate opportunity
is almost limitless given the absence of zoning requirements in the region. HHC has invested approximately $890
million in the development/redevelopment of ~1.7 million square feet of office, 224,000 square feet of retail, 704
multi-family units, and 914 hotel rooms. These assets generated NOI of $64 million (based on 4Q 2016 run rate)
and $89 million of expected NOI when stabilized, representing a 10% yield on total project costs. In total, HHCs
portfolio of commercial real estate in Houston is currently generating $81.2 million in NOI (based on 1Q 2017 run
rate) and is expected to reach about $119.4 million in NOI when current portfolio and under construction assets
are stabilized. This base of commercial property currently comprises roughly 4.4 million square feet and includes
a mix of office (52%), hotel (20%), multi-family (20%), and retail (8%). HHC has identified over 7 million square
feet for short-term opportunities, including 1 million square feet of office, 500,000 square feet of retail, 1000+ multi-
family units, and 600 hotel rooms, all of which are expected to be completed within the next 10 years. As a
testament to its development pipeline, the Company recently announced a 206,000 square foot build-to-suit that
is 100% preleased to a University of Texas Health System organization (MD Anderson) that boasts a AAA credit
rating and that has signed a 15-year lease. Longer-term, the Company has 780+ acres, fully entitled for
commercial development, that it expects to develop over a 20-year horizon.

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The Howard Hughes Corporation

Bridgeland
The vast majority of the land that now makes up the Bridgeland MPC was acquired in 2003 and is located
northwest of Houston (between Highway 290 and Interstate 10) in close proximity to Houstons Energy Corridor.
The Bridgeland MPC originally included over 10,000 acres, but an additional 1,200 acres were acquired in 2007.
Differentiating features of the Bridgeland MPC are the more than 3,000 acres dedicated to open space and the
900 acres of lakes. Bridgeland currently consists of 2,800 homes with 8,300 residents, but is expected to comprise
20,000 homes and 65,000 residents at full buildout (~2036). The recent completion of the Grand Parkway Section
E, which bisects the future downtown of Bridgeland and reduces commute times between Bridgeland, Houston,
and other communities, including the Woodlands, has provided a nice boost to lot sales in recent years.
Unemployment in the local trade area is 5.2%, and the median household income is approximately $100,000. As
homebuilders in the region work through their supply, Bridgeland is likely to be a beneficiary of northern growth in
the Houston area spurred by prospective residents who find the MPC environment appealing. Despite the
economic conditions in the region, 2016 new home sales were up 67% from 2015 levels. HHC has made slight
changes to its business model to accommodate the strong demand for homes priced below $400,000. At
Bridgeland, HHC has been the beneficiary of significant investment in the asset by its predecessor (infrastructure,
entitlements, etc.), which deployed over $300 million after construction began in Bridgeland in 2004. HHC expects
that lot sales will eventually exceed 800 lots per year, which will not only generate meaningful cash flow but also
provide the impetus for development of its commercial real estate and thus ultimately generate a recurring revenue
stream. Given that almost all of Bridgelands infrastructure work is reimbursable through municipal utility district
(MUD) receivables, its cash margin is expected to be between 65% and 75% over the life of the MPC, depending
on the Companys ability to maximize the reimbursable amounts.

The Woodlands Hills

Between 2014 and 2015, HHC assembled a parcel consisting of 2,100 acres at a cost of $101 million
along Interstate 45 in Montgomery County, situated approximately 13 miles north of the Woodlands. Under HHCs
master plan for the location, the Company expects to allocate ~1,500 acres to residential lots that will yield 4,900
lots, with 161 acres reserved for commercial development. In 2016, the city of Conroe approved HHCs
development plans for the Woodlands Hills; the Company has begun infrastructure improvements. The first phase
will consist of 193 single-family detached lots of various sizes, including a model home complex and a 17.5-acre
amenity center/community park. The first home sales at the Woodlands are expected to occur during late 2017.

Houston Market Review

The decline in oil prices has adversely impacted HHCs MPC assets in the region. The Houston MPCs
have experienced reduced land sales, while its commercial real estate portfolio is currently performing below
expectations. It should be noted that HHCs commercial real estate portfolio in the Woodlands is outperforming
the Houston region, with vacancy of ~11% (up from 5% a few years ago) compared with Houston at 15.5%, while
the Woodlands has been able to absorb 238,000 square feet of Class A space compared with a negative 1 million
square foot absorption in Houston. The recent signing of MD Anderson as a tenant helps to reinforce the
attractiveness of the Woodlands as a desirable location. Arguably, MD Anderson could have selected another
location in the Houston area at much better terms given the current vacancy situation, but it selected the
Woodlands. Although the Companys recently developed/refurbished hospitality offering in the region is
performing below expectations, these properties are showing good signs of stabilizing, with $3.4 million of NOI
growth on a Y/Y basis in the first quarter of 2017. The Woodlands boasts a roster of high-quality tenants (Apple,
Whole Foods, Exxon Mobil) and it is interesting to note that there is no space in HHCs portfolio that is currently
under sublease in the MPC. Accordingly, we believe that HHCs exposure to the region should continue to
outperform.

Although the uncertain energy outlook, coupled with HHCs currently large exposure to the region, may
give some investors pause, we would note the following: Going forward, the region may prove more resilient than
it has historically. The Houston market has experienced good growth in recent years in areas outside of the energy
industry, with good job growth in professional services, construction, and health care. The list of top employers in
the Houston area also includes a number of nonenergy-related industries, including Sysco and Toyota, and six
major medical complexes are in the region. There are also indications that the energy sector may be beginning to
increase employment, with an estimated 3,000 such jobs added in November and December 2016, as reported
by the Houston Chronicle. In addition, ExxonMobil subsidiary XTO recently announced that it would be moving

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1,600 jobs from Fort Worth to the ExxonMobil campus near Houston, which should bode well for future land sales
at the Houston MPCs.

Houston MPC Valuation Summary

The following is a summary of our valuation for HHCs Houston MPCs:

Houston MPC Valuation Summary:

Value ($MM)

Houston MPC Land $1,342

Houston MPCs Future Development $248

Subtotal: $1,590

Houston Operating Assets $1,694

Houston Total: $3,284

We have made certain key valuation assumptions:

Land: We have utilized the Companys recent undiscounted/uninflated values for its residential and
commercial land and have assumed that these values will be received in equal installments through the
respective community sellout dates. We have applied an appropriate discount rate to reflect the respective
community sellout date to derive a present value, for which we applied a tax rate of 20%.

Operating Assets: Our valuation for the Companys operating assets in the Woodlands (vast majority of
the Houston operating assets) reflects HHCs current outlook of $119 million in stabilized NOI. We have
applied a 6.5% cap rate to this amount to determine the current valuation of these assets. The operating
assets in Houston are expected to stabilize in 2019.

Future Development: We valued the future commercial development opportunities at the Woodlands and
Bridgeland MPCs and applied an appropriate cap rate (The Woodlands: 6.5%; Bridgeland: 7%) and
discount rate (both at 10%). For both communities, we assume that the future development value will be
realized in approximately 7.5 years on average.

Summerlin:
Summerlin Community Description
The Summerlin MPC is located just 9 miles west of the Las Vegas Strip and is regarded as one of the
best places to live in Las Vegas. The community includes 25 of the citys top-rated public and private schools and
boasts more than 250 neighborhood and village parks, 150-plus miles of award-winning trails, 14 houses of
worship, 10 golf courses, a state-of-the-art hospital campus, shopping centers, business parks, and cultural
facilities. At present, there are approximately 100,000 residents in Summerlin, but the population is expected to
top out at approximately 200,000 at full build (2035).

Summerlin has consistently ranked among the nations top-selling master planned communities for nearly
two decades. Summerlin encompasses 22,500 acres, with approximately 6,600 gross acres remaining (~3,800
remaining saleable residential acres translating to ~15,700 residential lots) to accommodate future growth,
including infrastructure, open space, and common areas. Summerlins 400-acre downtown offers multi-family
residential, fashion, dining, and entertainment options, including the future NHL Practice Facility for the Vegas
Golden Knights, the first professional sports franchise in Nevada. HHC also recently bought out its JV partners
interest in the Las Vegas 51s minor-league baseball team for $16.4 million in early 2017 with an eye toward
securing another long-term tenant in Downtown Summerlin.

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Las Vegas Market Overview

The Las Vegas market has been booming, which has been good news for residential land sales at
Summerlin as well as for commercial development. Tourism traffic to the region is at an all-time high, and the
unemployment rate, at 5%, is down markedly from the post-recession highs. At present, $18 billion in commercial
real estate development is under way in Las Vegas, including the future Raiders NFL stadium. HHC currently
expects that its residential land sales will surpass $100 million in 2017, which would represent the fifth consecutive
year that they will have done so. The recent results mark quite an improvement from the depths of the housing
crisis, when Summerlin reported just $11 million in revenues. While sales have been strong, the current sales
volume of 7,000 new homes per year in Las Vegas is about half of the historical forecast, which called for ~14,000
new homes by 2016-2017. HHC has recently made a couple of tweaks in its business model in Summerlin to
capitalize on homes priced below $400,000, which represent about 70% of home sales in the Las Vegas region,
without compromising the brands image. HHC believes that this could provide a boost to near-term cash flow
while increasing the NPV of the MPC. At the ultra-high end of the market, Summitwhich is the Companys JV
with Discovery Land Company, created to develop a 555-acre luxury golf course community in Summerlin (lots
priced in the $2 million to $20 million range)has enjoyed early success, selling 77 lots for $247 million. The
strong early results of this project have a number of favorable implications, for HHCs business plan had not
projected monetization of this land for another 10 years; moreover, the addition of the high-end residential
community should boost the attractiveness of the Companys land for homebuilders and consumers.

The Las Vegas market has a number of favorable attributes for HHC, the largest private landholder in the
region, including its favorable climate, its lack of state income tax, and the inherent land constraints of the region
(mountains, government-owned land, and restricted conservation land). Some investors may be uneasy about the
exposure to the Las Vegas market at this stage of the recovery given the historical booms and busts of the
economy in ths market, but the past 10 years have seen a number of nongaming-related enterprises, including
education, healthcare, government services, retail trade, and professional services, become drivers of the areas
economy. According to the Nevada gaming board, over half of Clark County casino revenue now comes from non-
gaming sources (rooms, F&B, entertainment, and other ancillary revenues).

Commercial Real Estate Boast Strong Outlook Notwithstanding Recent Retail Headwinds
HHCs shopping center in Downtown Summerlin has continued to gain traction since its opening in 2014
but has encountered some recent headwinds. During 2016, HHC continued to improve the tenant mix at downtown
Summerlin with the opening of H&M, Dave and Busters, and Maggianos, which helped drive a 20% increase in
traffic with approximately 16 million total visitors reported for the full year. Despite this progress, there have been
some headwinds associated with the recent bankruptcies of Sports Authority and Golfsmith, soft sales from a
handful of tenants, and lower leasing velocity than management originally projected. At the end of the first quarter,
88% of the 796,000 square feet at Downtown Summerlin was leased.

The recently completed One Summerlin commercial office space, located in Downtown Summerlin, was
77% leased at the end of 1Q 2017, with another 16% of leases in negotiation. There are an additional 175 acres
remaining to be developed in downtown Summerlin, with the potential to build a new stadium for HHCs AAA
baseball team. In total, HHC has identified parcels that could accommodate over 5 million square feet of vertical
entitlements, to be completed within 10 years, and has another 600+ acres for longer-term development, with a
completion date within 20-25 years.

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Summerlin Valuation Summary

The following provides our summary valuation for the Summerlin MPC.

Summerlin Summary Valuation:

Value ($MM)
Summerlin MPC Land $868
Summerlin MPCs Future Development $64
Total: $932

Summerlin Operating Assets $552

Summerlin Total: $1,484

For the value of Summerlins land and its future development opportunities, we have utilized a similar
framework as for the Houston MPCs, already discussed. For Summerlins operating assets, we have utilized
managements projection of $41.4 million in stabilized NOI and have applied a 7.5% cap rate to derive a current
value. Summerlins current operating assets are expected to stabilize by the end of 2018.

Columbia Maryland:
Community Description
The Columbia MPC was the brainchild of Jim Rouse and is strategically located between Baltimore,
Maryland (15 miles away), and Washington, DC (22 miles away); it is home to over 112,000 residents. Columbia
is located in Howard County, Maryland, which is one of the wealthiest counties in the United States (average
household income over $110,000) and which consistently ranks as one of the top school districts in the nation. (In
2016, three of the top 10 high schools in Maryland were located in Howard County.) Given its proximity to Fort
George G. Meade, U.S. Cyber Command, and the National Security Agency, Howard Country is emerging as a
major presence in the rapidly growing cybersecurity industry. The downtown Columbia region currently consists
of 2.7 million square feet of office space, and HHC owns about 1.1 million, located close to shopping, restaurants,
and entertainment venues.

Columbia Market Overview

The unemployment rate in Howard County was just 2.7% as of December 2016. In addition to its growing
presence in the cybersecurity industry, major employers in Howard County include Johns Hopkins (research
institution), W.R. Grace, Accuvant Federal Solutions, Tenable, and the Coastal Companies.

TIF Approval and Pavilion Donation Pave the Way for Meaningful Development
Although the residential component at Columbia was completed many years ago, commercial
development in the area has been minimal over the years, reflecting historical community opposition. However,
sentiment in the region has changed recently, with downtown Columbia undergoing a major redevelopment in
order to bolster its tax base and maintain a vibrant and walkable community. HHC has been fairly active in the
region in recent years, acquiring strategically located properties and redeveloping properties. One of its first
redevelopments was the repositioning of the former Rouse Company headquarters, designed by noted architect
Frank Gehry, into a Whole Foodsanchored destination in 2014. As part of Columbias redevelopment initiatives,
the intention is to create six new and reconfigured neighborhoods, including Warfield, the Mall, the Lakefront, and
Lakefront Core, the Crescent, Merriweather-Symphony Woods, and Symphony Overlook.

Existing entitlements obtained in 2010 were for ~13 million square feet which could accommodate 5,500
residential units, 4.3 million square feet of commercial office space, 1.3 million square feet of retail space, and
640 hotel rooms. Notably, the majority of these entitlements are controlled by HHC. In November 2016, the
Howard County Council approved up to $90 million in tax incremental financing (TIF) to fund meaningful
infrastructure improvements (parking lots, etc.), which should further Columbias redevelopment initiatives. (Note:
one of the measures that helped ensure this financing was the decision by Howard Hughes to donate the
Merriweather Post Pavilion, a large outdoor venue, to the Downtown Columbia Arts and Culture Commission.) As
part of the TIF financing, an additional 744 affordable residential units could be built and would increase the density

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The Howard Hughes Corporation

to over 6,000 residential units. During 2015, HHC received county approval for its development plans in the
Merriweather district, which would enable HHC to build up to 4.9 million square feet of office, residential, and retail
space. The Company completed construction of One Merriweather (a 200,000 square foot office building) in March
2017 and is currently constructing its second project in the region (Two Merriweather), a mixed-use building
(100,000 square feet of office and 30,000 of retail). HHC plans to accelerate development in downtown Columbia
in 2017 as part of a plan to build a corporate employment center that will attract businesses and residents to the
region.

Columbia Valuation Summary

The following provides our summary valuation for the Columbia MPC:

Columbia Valuation Summary:

Value ($MM)
Columbia Operating Assets $470
Columbia Future Development $250
Total: $720

We have valued Columbias current operating assets by applying a 7% cap rate to HHCs projection for
$32.9 million in stabilized NOI, which is expected to occur in ~2018. Columbia has significant future development
opportunity, but we have only projected a present value for 1.5 million square feet of future office space, 250 hotel
rooms, 2,300 multi-family units, and ~300,000 square feet of retail, which we anticipate will be completed in
approximately 5 years.

Operating Assets
Since the Companys separation from GGP, HHC management has done a good job of converting its
portfolio of eclectic assets into income-producing properties. In December 2016, HHCs portfolio of operating
assets comprised 54 properties, including retail, office, multi-family, and hospitality assets, which generated NOI
of approximately $140 million during 2016, up from approximately $49 million in 2010. These assets, along with
properties currently under construction, are expected to generate fully stabilized NOI of approximately $241 million
based on their 1Q 2017 annualized run rate.

Meaningful Increase in Recurring NOI Since Inception

Source: Company presentation

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The Howard Hughes Corporation

It should be noted that the Companys expectation of stabilized NOI excludes HHCs Seaport assets,
discussed in greater detail in a later section of this report. We believe that the Seaport could provide a meaningful
boost to HHCs recurring NOI. The Companys projected stabilized NOI is expected to be diversified in terms of
property type, although office (40%) and retail (30%) will account for ~70% of the total. At the currently expected
NOI stabilization, office and retail are expected to comprise 7.1 million square feet with 2,351 multi-family units,
985 hotel keys, and 1,438 other units (self storage, etc.). The following provides a breakdown of the Companys
project NOI by property type and by geography.

HHC Stablized NOI By Property Type and Geography

Although nearly 50% of the Companys projected NOI is derived from Houston, this markets contribution
will likely decline in the near term as the assets associated with the redeveloped Seaport District come online over
the next 1-3 years. Assuming that the Seaport generates a stabilized NOI of approximately $51 million,
representing the midpoint of the Companys estimate (6% to 8% yield on the projects ~$731 million cost net of
Superstorm Sandy insurance proceeds), Houstons overall NOI contribution would decline to about 40% of HHCs
total. The development potential at the Companys nonHouston-based MPCs, as discussed previously; HHCs
strategic developments, including Ward Village (discussed later); and the potential develop of HHCs other assets
(discussed later) could also reduce HHCs overall exposure to the Houston market. However, it should be noted
that Houston currently has nearly 13 million square feet of remaining entitlements (the Woodlands: 7.0 million;
Bridgeland: 5.8 million) for commercial real estate development, which represents about 26% of HHCs total long-
term development potential. Accordingly, over the medium to long term, Houston will likely continue to be a
significant contributor to the Companys overall results.

110 N. Wacker DevelopmentExisting Operating Asset with Meaningful Redevelopment Potential

HHC owns GGPs headquarters at 110 N. Wacker Dr. in Chicago. Located on prime real estate by the
waterfront in the Chicago Loop (CBD), the current 226,000 leasable square foot building was built in 1957 and
generates $6.1 million in annual rent ($27/SF) for HHC. On May 2, 2017, HHC announced that it had obtained
Bank of America as lead anchor tenant for a redeveloped 51-floor, 1.35 million square foot high-rise at 110 N.
Wacker. Construction is expected to begin in 2018, with completion in 2020. HHC also plans to sell naming rights
to the building.

The redevelopment could drastically boost the annual income generated by the property. According to
CBRE, strong demand and a shortage of supply led to a 20% increase in rental costs for prime new building
4
Chicago office space to $39/SF in 2016. While new supply is expected to blunt further increases in the coming

4
Ryan Ori, Office Rents in Chicago Rose 20% in 2016 2nd-Highest Increase in the World, Chicago Tribune, March 20,
2017, http://www.chicagotribune.com/business/columnists/ct-prime-office-rents-ryan-ori-0321-biz-20170317-column.html

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The Howard Hughes Corporation

years, the new building at 110 N. Wacker should be able to generate comparable or superior rental rates by 2021.
At $40/SF, NOI could increase >8x from current levels, to $51 million. Using a cap rate of 6% (current Chicago
Class A cap rates are ~5.5-6%), this translates to future value of $1 billion. Backing out estimated construction
costs and the value of the current income stream, we estimate that the redevelopment project could create $230
million in incremental value (2017 dollars) for HHC.

110 N. Wacker Redevelopment Value ($000s)

Future office space SF (MM) 1,350

2020E NOI @ $40 per SF, 95% occupancy $ 51,300

Value @ 6% cap rate $ 1,026,000

Less cost to complete @ $400/SF $ (540,000)

2021E value $ 486,000

2017E value @ 10% discount rate $ 331,945

Less current value at $6.1MM NOI, 6% cap rate $ (101,667)

PV of Redevelopment $ 230,278

Crown Jewel AssetsInvestors Receiving South Street Seaport and Ward Village for Free
Based on our projections, we derive an NAV for the Companys MPCs and Operating Assets segments
that approximates the current market cap of the Company. (Note: see the complete HHC NAV calculation toward
the end of this report.) It should be noted that our valuation for these two segments reflects the net debt attributed
to them. At the current share price, we believe that investors are acquiring the Companys MPC and operating
assets at a very conservative valuation and receiving a number of valuable assets for free, including the Seaport
District in NYC and Ward Village in Hawaii.

Seaport District:
HHCs assets in Lower Manhattan at the Seaport District are in the midst of being repositioned and
redeveloped by the Company. Gone is the street performer with green body paint who resembled the Statue of
Liberty and who contorted his way into a small box; in his place are, or soon will be, a collection of high-end dining,
office, and entertainment options. Although HHCs redevelopment plans for the Seaport District have been scaled
back from the Companys initial ambitions (the Company scrapped its plans to build a large tower next to Pier 17
due to community opposition), we believe that this asset is a crown jewel and that it will become increasingly
valuable for the Company in the coming years. The Companys vision for the Seaport is to create a destination
and property that it will want to own for a lifetime on a site whose location and architecture are irreplaceable, an
iconic part of the heart of one of the fastest-growing neighborhoods in the worlds most vibrant city.

Seaport District Redevelopment

Our objective is to create an authentic New York experience that draws the
neighborhoods fast growing population and workforce, as well as tourists who already consider
the Seaport a vital attraction.
Howard Hughes Corporation 2014 annual report

HHCs current Seaport District redevelopment involves seven buildings located on several city blocks
along the East River in Lower Manhattan. The development consists of three distinct areas, including Pier 17, the

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Historic District (also referred to as the Uplands), and the Tin Building. The following provides an overview of
HHCs key Seaport District assets.

The Seaport District Summary

Location Square Feet Completion
Pier 17* 170,000 Summer 2018
Uplands/Historic
180,000
Area**
Tin Building 50,000
Air Rights*** 658,000
1,058,000

*Pier 17: Also includes a 1.5 acre outdoor event and

entertainment venue.
**Uplands/Historic Area: Area is expected to be
substantially repositioned by mid-2018.
***Air Rights: Air rights associated with 2 buildings; A
nearby HHC parcel was recently sold for a valuation of
$477 per square foot.

Source: Company presentations, filings, and the Wall Street Journal

HHC has embarked on an ambitious plan to rebuild and revitalize Pier 17 after it was damaged during
Superstorm Sandy. (Insurance proceeds received as a result of damage sustained during the storm helped
finance the Companys redeveloppment initiatives). The Company broke ground on Pier 17 in October 2013 and
is expected to open in summer 2018. The new building on Pier 17 will comprise approximately 170,000 square
feet and have four levels overlooking the East River; it will offer views of the Brooklyn Bridge, the Statue of Liberty,
and the World Trade Center. The first two levels of the building are expected to include a mix of dynamic
restaurants and experiential retail, including dining concepts from acclaimed restaurateurs Jean Georges
Vongerichten and David Chang (founder of the Momofuku Group). The third and fourth levels of the pier are
expected to include a mix of creative office space, experiential retail, and event space. A key feature of Pier 17
will be its 1.5-acre rooftop with its unrivaled views and world-class restaurant; it will also serve as an event and
entertainment venue that will be able to accommodate 4,000 people standing (2,600 seated). The entertainment
venue is expected to host corporate, private, concert, sporting, and a variety of other events year-round, including
a winter village that will feature an ice skating rink. The Company believes that there could be meaningful
corporate sponsorship for the building and/or rooftop, and management noted at its recent investor day that this
potential revenue stream will likely be in the millions of dollars.

As part of the redevelopment in the region, HHC is also repositioning a significant amount of the 180,000
square feet in the Uplands, which includes the 100,000 square foot Fulton Market building. The Uplands was also
damaged during Superstorm Sandy and has required a significant amount of reconstruction. In October 2016,
HHC welcomed its first anchor tenant in the revitalized district when iPic Theaters, a luxury movie theater exhibitor,
opened. The iPic at the Seaport is Manhattans first new commercial multiplex movie theater to open in over a
decade and is currently iPics only Manhattan location. iPic has a 20-year lease on 46,000 square feet in the
Fulton Market Building. Other recent tenant signees in the historic district include 10 Corso Como, an iconic Italian
retailer; McNally Jackson Books; Scotch and Soda; By Chloe; and Big Gay Ice Cream. HHC expects the historic
district to be substantially repositioned by 2018.

The Tin Building is scheduled to be taken down piece by piece, its pieces relocated, and then the structure
reconstructed east of its current location, away from the FDR Drive, to restore its visibility and move it above the
flood plain. Once relocated, the building will have approximately 53,000 square feet on three levels and will contain
a market featuring high-end/upscale food experiences by well-known chefs. The total cost estimate for completing
the reconstruction is approximately $162 million; it is expected to be complete in 2019.

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HHC is taking a non-traditional approach to leasing its property in the Seaport District. Management
believes that it is prudent to do so as a result of the changing retail landscape, where consumers are increasingly
5
purchasing online and not visiting brick-and-mortar companies to make transactions as they once did. To
maximize the assets value, the Company has structured its leases to provide for a meaningful component of
percentage rent (rent tied to tenant success) or to give HHC a partnership in the business. During HHCs 1Q 2017
earnings call, CEO Weinreb detailed the Companys strategy for the Seaport and stated, The national retailers
have suffered significantly. Our strategy has never been to attract those. From our perspective, attracting F&B,
entertainment, sponsorship- and event-driven income is the way to drive this asset and make it a very valuable
asset. People are looking for experience retail and experience economy, and I think the South Street Seaport is
exactly what were going to deliver for them. HHC could have adopted a more traditional approach by signing
tenants with a large component of base rents, although management believes that it can achieve greater risk-
adjusted returns and build a more valuable asset by creating a destination with unique experiences and by
participating in the success of its tenants.

In contrast to many of its other development/redevelopment projects, HHC has chosen to self-fund its
Seaport District projects to date and not incur any construction financing so as to maintain flexibility. HHC believes
that this approach is in the best interest of the asset for the long term. During WeiserMazarss 2016 Commercial
Real Estate Summit, CEO Weinreb stated, We didnt want to have the burden of a lender who was going to have
various requirements about, you know, when you were going to be leased, the timing, etc. Because when youre
resuscitating an asset, often the best decisions are not signing a lease, not doing something, just being patient.
And when you have a lender thats behind you, they often are pressuring you to make decisions that are not good
6
for the long term.

Seaport/Lower Manhattan Market Overview

Prior to HHCs redevelopment initiatives, the South Street Seaport was one of the five most visited
locations in Manhattan, with 12-15 million tourists visiting the site each year. Management notes that there are
still millions of visitors coming to the property each year, even though Pier 17 has been closed since 2013. As a
testament to the locations traffic, retailer Abercrombie & Fitch was generating approximately $1,300 a square foot
in the area at its peak, with the beleaguered retailer still doing ~$600 in sales per square foot at its location in the
Uplands. The Lower Manhattan area has been undergoing a renaissance in recent years and is one of the fastest-
growing areas in New York City. The residential population in the neighborhood has more than doubled since 9/11
and currently stands at ~60,000. Notably, the demographics of residents are extremely favorable: the population
is young, highly educated, and wealthy, with average household incomes above $200,000. The prospect for
further population growth is strong, with 27 residential buildings totaling more than 4,100 units under construction
or planned for completion in Lower Manhattan. The outlook for tourism in the area is also bright, with ~4,600 hotel
rooms under construction or planned for completion. There are currently 500,000 workers in Lower Manhattan,
up from ~350,000 in 2005. Although financial services companies have traditionally dominated the Lower
Manhattan office landscape, a diverse mix of tenants is now calling the neighborhood home, ranging from media
to technology companies. Approximately 535 corporations have recently relocated to the area. The redevelopment
of the World Trade Center site has increased the amount of office space in Lower Manhattan, with the three
completed towers adding 7 million square feet of office space. An additional 2 million square feet of office space
is under construction, scheduled to be completed by 2018, that could help drive additional employment growth in
the region. The accessibility of Lower Manhattan has improved significantly with convenient access to all major
subway lines thanks to the new Fulton Center, which opened in 2014, and the World Trade transportation hub,
which was completed in 2016. In our view, the improved transit access bodes well for future tourism, employment,
and population growth and could be a boon for the Companys Seaport District assets.

Seaport District Valuation

Given the Seaports layered possibilities, it is currently more complicated to value than
other core assets, and as such, well likely take time to see this. Our vision is to create a

5
Keiko Morris, Seaport Developer Looks to Make a Splash, The Wall Street Journal, November 13, 2016,
https://www.wsj.com/articles/seaport-developer-looks-to-make-a-splash-1479079965
6
Kathryn Brenzel, The Seaports Sea Change, The Real Deal, October 3, 2016,
https://therealdeal.com/issues_articles/the-seaports-sea-change/

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The Howard Hughes Corporation

destination and property that is irreplaceable as it relates to location, architecture, and iconic
nature in the heart of one of the fastest-growing neighborhoods in the worlds most vibrant city.
David R. Weinreb, Howard Hughes Corporation CEO, 4Q 2016 earnings call

In early 2017, HHC stated that total costs for its redevelopment at the Seaport would be ~$55 million
greater than previously expected (during 3Q 2016) and that total costs, including for the Tin Building, would be
$785 million, or $731 million net of $54 million of insurance proceeds from Superstorm Sandy. The cost increase
was attributed to the increased scope of the programming on the Pier 17 roof top and to additional improvements
in the historic area. Management is currently targeting a stabilized annual return between 6% and 8% of its net
cost estimate of $731 million, which would imply an annual NOI of between $44 million and $58 million.

A significant portion of the Companys Seaport District assets are located on property that is subject to a
ground lease. The lease was amended in 2013 and included a fixed base rent of $1.2 million beginning in 2013,
with increases at a rate of 3% compounded annually. In July 2048, the base rent will be adjusted to the higher of
fair market value or the then base rent. In addition, HHC is also required to make annual payments of $210,000
for the esplanade through the term of the lease. The initial lease expires in 2031, but HHC has options to extend
the lease through 2072.

Our current valuation for the Seaport is $1.6 billion and is broken down between the Pier and Historic
District ($1.3 billion) and development rights (~$300 million). In determining a value for the Pier and Historic
District, we have utilized the midpoint of managements NOI outlook for the property and applied a 4% cap rate,
then discounted the value by 3 years at a 7.5% discount rate. We have valued the Companys ~658,000 square
feet of air/development rights at $450 per square foot, which represents a discount to the $477 per square foot in
development rights that HHC recently garnered for its nearby assemblage. We would not be surprised if these
values were to prove conservative. HHC is currently in discussions with the city about its excess development
rights a the Seaport, and we believe that meaningful value could be generated if the Company can come up with
an acceptable development solution for those rights.

Ward Village, Hawaii:

In 2002, General Growth Properties purchased the privately held Hawaiian real estate corporation Victoria
Ward, Limited, for $250 million, including the assumption of $50 million in debt. The Ward assets included a 65
fee simple acre master planned community in Kakaako, Central Hawaii. The plot is centrally situated on the island
of Oahu, between the Waikiki beach/tourist destination and Ala Moana shopping areas to the east and downtown
Honolulu/Honolulu Harbor to the west. GGP already controlled the nearby Ala Moana shopping mall, which is the
largest mall in Hawaii as well as the largest open-air shopping center in the world. At the time of the acquisition
by GGP, the assets included the Victoria Ward Centers entertainment, shopping, and dining district,
encompassing the Ward Entertainment Center, Ward Warehouse, Ward Village, and Village Shops, with 695,000
square feet of mall retail space and 538,000 square feet of freestanding space developed or under development.
Anchor tenants included Borders, Consolidated Theatres, Dave & Busters, Nordstrom Rack, Office Depot, Ross,
and Sports Authority. Overall, at the time of the acquisition, the Victoria Ward assets included 17 properties subject
to ground leases, 29 owned buildings with 878,000 square feet of retail space, and 441,000 square feet of office,
commercial, and industrial leasable area.

GGP/HHC have periodically invested capital in multiple expansion projects since acquiring the Ward
assets. Around 2007, GGP unveiled plans to invest ~$150 million in Ward Centers by 2009, including through the
addition of a 67,000 square foot retail space to be occupied by Whole Foods, a parking structure, and additional
retail space at Ward Centers. This was part of a much larger master plan for Ward Village. Approved by the Hawaii
Community Development Authority (HCDA) in 2009, the plans allowed for up to 9.3 million square feet of mixed-
use development, including 4,000 approved residences and 1 million square feet of retail space. GGP spent $111
million in 2008 on the project, but it faced numerous delays, in part due to the discovery of Native Hawaiian
7
remains on the site. The financial crisis created a much greater challenge and ultimately pushed GGP into
bankruptcy proceedings in March 2009. Whole Foods pulled out of the project in December 2009.

7
Andrew Gomes, Ward Centers Gets Growing, Honolulu Star-Advertiser, July 26, 2012,
http://www.pressreader.com/usa/honolulu-star-advertiser/20120726/281487863477734

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Howard Hughes slowly resumed efforts to expand the Ward Village following the recession. In 2012, T.J.
Maxx took over half of the original Whole Foods space, and Howard Hughes began developing 57,000 square
feet of additional retail space nearby. In 2015, HHC completed a 50/50 joint venture for a 206-unit condo tower
called ONE Ala Mona. HHC is now moving forward with a much larger expansion of the Ward Village featuring
five residential and mixed-use projects. This includes three luxury condominium tower projects named Waiea,
Anaha, and Gateway Towers; an upscale tower named Aeo; and a reserved (affordable) housing tower named
Ke Kilohana.

The Waiea project was completed in December 2016 and includes 174 ultra-luxury residences priced at
an average of $1,900-$1,950 per square foot as well as an outpost of the famed Nobu sushi restaurant in the
ground floor retail space. Anaha features 317 luxury units (priced at $1,110-$1,150 per square foot) and is
expected to be completed in 2017. Aeo is a 466-unit high-end condominium tower ($1,300-$1,350 per square
foot) anchored by 67,000 square feet of retail space. Aeo was approved by HCDA in early 2015, and construction
began in early 2016, with completion projected in 4Q 2018 or early 2019. In 2014, HCC announced that Whole
Foods would finally be coming to Ward Village to fill the Aeo retail space (expected to open in early 2018). The
reserved housing building Ke Kilohana (988 Halekauwila) is a 44-floor, 425-unit condo building with 375 affordable
housing units ($700-$750 per square foot) and a 23,000 square foot retail space. Ke Kilohana is expected to be
completed in 2019.

The fifth project in the current development plan is Gateway. Approved by HCDA in November 2014,
Gateway will include a public park, two high-end mixed-use towers designed by Richard Meier & Partners with
236 residences, and 20,000 square feet of retail space. The first tower, Cylinder, is expected to open in 2020, with
available units priced from $1.5 million to $23 million.

Ward Village Condo Development Plans

Source: Company presentation

Attractive Development Marginsand Risks Appear Manageable

Overall, the initial 4 projects (excluding Gateway, which is not yet under construction) will create nearly
1,400 residential units and 113,000 square feet of prime retail space. Development costs are material, at ~$1.4
billion, $707 million of which had yet to be funded as of 1Q17. But the risk posed to HHC equity investors by the
initial projects appears limited at this point. HHC has already pre-sold 82.5% of the units. The Company has closed
149 units at Waiea with proceeds of $551 million, and only 11 units are not yet sold or under contract. HHC
expects to generate very attractive margins on the sales at Waiea, above its 30% target. HHC has pre-sold another
976 units across the other 3 properties under construction, with $178 million deposited on units under contract
and expected final proceeds of $955 million. Overall, HHC projects it will generate an average sale price of $1,300-

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The Howard Hughes Corporation

$1,325 per square foot on the 4 properties, translating to healthy gross profit margins on completion of ~30%. We
estimate that the present value of remaining net cash flow from sales on the properties could exceed $360 million:

Four Condos Under Development Value ($000s)

Square footage 1,511.1
Price per SF $ 1,312.5
Sale value $ 1,983,298
Less cash received $ (725,504)
Cash from future sales/closures $ 1,257,794

Less total development cost $ (1,462,900)

Development cost already funded $ 755,500
Remaining development costs $ (707,400)

Net cash flow from future sales $ 550,394

Present value @ 10% discount rate, 2 years, 20% tax $ 363,897

Assessing the Potential Value of Future Condo Development

HHC still has plenty of additional developable residential space at Ward after these projects. As noted,
Ward Village has already gained entitlement for a total of 4,000+ residential units. The Gateway Cylinder will be
the next project to break ground. Most recently, in January 2017, HHC received HCDA approval to develop a sixth
mixed-use project in Ward Village located next to Aeo, named Aalii. Current plans for Aalii include 751 condo
units and 13,200 square feet of retail space. Pre-sales are expected to commence later in 2017.

While there is always macro risk in the real estate development business, and although only the Waiea
pre-sales have closed (86% closed), the Oahu residential market has been considered undersupplied for many
years, and demand has been strong. According to HHC and the Hawaii Department of Business, Economic
Development & Tourism, since 2008 annual new housing additions have averaged only ~50% of the rate required
to keep up with household formation (~3,500). Additionally, although ~80% of buyers in Kakaako are locals, these
household formation figures do not include incremental demand from mainland U.S. and international buyers.
Structural conditions unique to Oahuland scarcity, strict development/permitting processes, elevated
construction costs, etc.should present high barriers to supply growth over the long term. Within the luxury
oceanfront segment, Ward Village is practically the only source of new supply, which limits external risks.

Current conditions remain relatively favorable. According to Hawaiian real estate researcher Locations
and MLS data, the median price of a condo in Oahu increased 8.3% in 2016, to $390,000. As of May 2017, the
average condo in the Ala Moana-Kakaako region of Oahu was on the market for just 25 days and sold for
8
$478,000, up 19% Y/Y. Existing inventory remains relatively limited, at ~4 months. Ward Village is targeting the
upper end of the market, with the average condo priced above $1 million. The Company saw extremely heavy
demand for its first two towers given the lack of existing supply. Absorption has subsequently slowed a bit for units
above $2 million but is still well within the Companys projections. Within Kakaako, the average unit was on the
market for 54 days in 2Q 2017.

Looking forward, Oahu marketwide forecasts are for ~15% cumulative price appreciation over the next 3
years. This would be roughly in line with the long-term performance of the Oahu market as well as of the larger
U.S. residential real estate market. As illustrated in the following chart, the median price of an Oahu condo
increased at a 4.9% average annual rate between 1986 and 2016. Honolulus current economic conditions appear
supportive. The unemployment rate is 2.4%, the fourth-lowest in the country.

8
Oahu Real Estate ReportMay 2017, Locations.com, https://www.locationshawaii.com/news/research/oahu-real-estate-
report-may-2017/

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The Howard Hughes Corporation

Source: Honolulu Board of Realtors via Company presentation

In estimating the potential value of future condo properties at Ward Village, we project that the Company
will take another 20 years to fully build out and sell ~6.5 million square feet of additional developable residential
space. This translates to a slightly slower pace than the Companys one tower per year target, assuming that each
tower is ~400,000 square feet on average. We utilize the average price per square foot of the first 4 condos and
30% sales margins as the baseline. We assume that real estate prices will appreciate slightly below historical
averages, at 4.5% per annum, over the next 20 years, and we conservatively apply a 15% discount rate to
projected cash flows (translating to a 10% net discount rate) to account for macro uncertainty. This translates to
a present value of ~$870 million for future condo developments.

Future Condo Developments Value ($000s)

Future condo development SF 6,500
Annual condo sales (SF) over 20 years 325
Price per SF $ 1,312.5
Annual sale volume (2017 base) $ 426,563
Annual cash flow @ 30% margin $ 127,969
PV @ 20 year development timeline, 10% net discount rate,
$ 871,576
20% tax

Commercial Redevelopment
As illustrated in the following aerial map, HHC also has at least 10 additional sites within the Ward Village
footprint that are currently low-yielding light industrial and commercial space but that are earmarked for
commercial development over the next 10 years. HHC projects current space and future development will yield
approximately 1 million square feet of prime commercial operating assets in Ward Village, repositioned from 57%
retail space and 43% office space currently to 93% retail by 2027. HHC management believes that the
repositioned space will be capable of generating rent of $50-$100 per square foot, or $50-$100 million of annual
NOI, up from $22 million of NOI expected to be generated in 2017.

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The Howard Hughes Corporation

Future Ward Village Expansion Opportunities Into 2027

Source: Company presentation

While it is impossible to precisely project the market value of this real estate at its maturity in 10 years,
the first-class location should almost undoubtedly translate to a premium valuation. Of particular note, in 2015
GGP sold a minority stake in the nearby Ala Moana shopping center at a $5.5 billion valuation, or a 2.9% cap rate.
Adjusted for an additional 660,000 square feet of expansion in development, Ala Moana was still valued at a
9
premium 3.9% cap rate. While Ward Villages retail space might not be able to match the Ala Moana price tag, it
would likely command a material premium to the broader retail index. In our base case, we project that the
Company will earn NOI of $75 million in 2027, or $53 million above the current rate. At a slightly discounted 5%
cap rate, this translates to a future value of nearly $1 billion (after assuming modest incremental costs to
complete), or a present value of $370 million. In the interim, HHCs current Ward Village NOI run rate is enough
to substantially cover the carrying costs on future development projects.

Retail/Commercial Space Value (000s)

Future NOI on commercial real estate @ $75/SF, 1MM SF $ 75,000
Less current NOI $ (22,000)
Incremental NOI 2027E $ 53,000
Cap rate 5%
Future value 2027E $ 1,060,000
Less incremental cost to complete $ (100,000)
PV @ 10% discount rate $ 370,122

But Wait, Theres MoreAdditional Redevelopment and Development Presents Long-Term Opportunity
Other Assets
Howard Hughes also has numerous fallow/underperforming properties across the United States
earmarked for disposal or future development. Individually, none of these properties is a meaningful contributor

9
Robbie Whelan, Hawaii Mall Draws Hefty Price, Australian Investor, The Wall Street Journal, March 10, 2015,
https://www.wsj.com/articles/hawaiian-mall-draws-hefty-price-australian-investor-1426023192

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to HHCs book value, but as a group, these properties could prove to be valuable over time. The following table
highlights the assets as most recently disclosed by HHC (4Q16) and includes the brief notes provided by HHC in
its 1Q17 supplemental disclosure, which indicate that several of the properties are currently being reevaluated for
potential value creation in the relatively near term. Collectively, they were carried on HHCs balance sheet at a
value of approximately $163 million at year-end 2016. While the intrinsic value of these assets will not become
fully evident for many years (or decades), it is not difficult to imagine that they are worth at least 2x book value
considering the potential upside from redevelopment at numerous projects, as described hereafter.

Other Assets

Date Carrying
%
Property Name City, State Acres Acquired/ Value 4Q16 Notes
Owned
Completed ($MM)
Future
Development
Plan to build a 400,000 SF outlet retail
The Elk Grove Elk Grove,
100% 64 2003 13.8 center. Recently sold 36 acres for $36 million
Collection CA
in total proceeds.
Plan to transform the mall into an open-air
Alexandria, mixed-use community. In January 2017,
Landmark Mall 100% 33 2003 30.4
VA acquired the 11.4-acre Macy's site for $22.2
million.
Under contract to sell in pieces. First closing
Cottonwood Mall Holladay, UT 100% 54 2002 21.5
expected in 2017.
Century Plaza Birmingham, Mall is completely vacant. Evaluating
100% 59 1997 4.2
Mall AL potential redevelopment opportunities.
50/50 joint venture with Hillwood
Circle T Ranch
Westlake, TX 50% 207 2005 1.0 Development Company. Sold 72 acres to an
and Power Center
affiliate of Charles Schwab Corporation.
Kendall Town Zoned for 730,000 SF of commercial space.
Kendall, FL 100% 70 2004 19.5
Center Going through re-entitlement process.
West Current zoning allows for approximately 6
West Windsor 100% 658 2004 24.9
Windsor, NJ million SF of commercial uses.
Located 27 miles north of downtown Dallas.
Agricultural property tax exemptions are in
AllenTowne Allen, TX 100% 238 2006 25.5
place for most of the property, significantly
reducing carrying costs.
Bridges at Mint Zoned for approximately 1.3 million SF of
Charlotte, NC 91% 210 2007 21.7
Hill commercial uses.
Located 50 miles north of Chicago. The
Lakemoor Land Volo, IL 100% 40 1995 0.3
project is currently designated as farmland.
Two non-adjacent 10-acre parcels zoned for
Maui Ranch Land Maui, HI 100% 20 2002
native vegetation.
Fashion Show Las Vegas, Air rights above the Fashion Show Mall,
80% N/A 2004
Mall Air Rights NV located on the Las Vegas Strip.
Source: Howard Hughes supplement and SEC filings

As an example of the potential upside to book value of these assets, HHC carries the Companys air rights
(80% owned) above the Fashion Show Mall on the Las Vegas Strip at zero value. HHC expected to gain effective
control over the air rights upon GGPs refinancing of the mall (among other undisclosed conditions) which was
expected in 2017. GGP sold its 50% stake in the mall for $1.25 billion in 2016. The mall was renovated in 2013,
and 99.5% of the 1.9 million square feet of retail space is now leased, with no current plans for building above the
mall. But it is in a prime location on the Vegas Strip, across from the Wynn and Treasure Island casinos. It may
take multiple decades, but when the conditions are right, HHC foresees a casino above the mall as an obvious
outcome.

The West Windsor property represents another potentially undervalued asset when taking a long-term
view. The blighted former industrial site encompasses 658 acres located near Princeton, New Jersey, and the I-
95 corridor. HHC recently filed initial plans with the township for a mixed-use redevelopment project that would be
built in phases over 15 years and include ~2,000 residential units in addition to retail, office, hospitality, and other
uses. Current zoning allows for 6 million square feet of commercial space, and HHC expects the rezoning process
to take many years, but the acreage could ultimately be worth multiples of the current $25 million book value.

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The Howard Hughes Corporation

Various other currently unproductive assets are progressing toward development or liquidation. At the
Circle T Ranch in Westlake, Texas, the Company recently sold a 72-acre plot to Charles Schwab, which will help
the Company eventually move forward with mixed-use development for the remainder of the land. At the Elk
Grove, the sale of 36 acres for $36 million (closed in January 2017) should also allow mixed-use redevelopment
of the remaining 66 acres in addition to generating a $38 million tax loss. The Cottonwood Mall in Utah was
demolished by GGP and remained vacant since 2008except for a lone Macys which is set to closeas GGPs
plans to develop the property into a mixed-use site were shelved during the recession. HHC recently reached an
agreement (price undisclosed) to sell the property to a local developer in pieces beginning in January 2017. The
Lakemoor, Illinois, land parcel is located near a growing suburb. No utilities are in place, but it is near two planned
regional centers.

Management Team Has Meaningful Equity Ownership/Incentive to Unlock Shareholder Value

Throughout my career in real estate, I have invested my own capital in ventures I
support. This commitment to having skin in the game is at the core of my investment philosophy
and has been critical to my past success.
David Weinreb, Howard Hughes Corporation CEO, March 2016 letter to shareholders

Top members of Howard Hughes management have a meaningful equity position in Howard Hughes that
helps align their interests with those of shareholders. During 2017, CEO Weinreb is expected to purchase a new
$50 million warrant in the Company that will enable him to acquire 2.5 million shares of HHC stock. Notably, the
new warrant will be a long-term one (6 years) and will be exercisable only after 5 years, and Mr. Weinreb will be
unable to sell/hedge shares associated with the warrant for the majority of its term. It should be noted that the
new warrants (as was the case with the initial warrants) will not have any value if shares do not rise meaningfully
above the current price; if the share price remains flat, CEO Weinreb will stand to lose the entire investment. Mr.
Weinreb has also committed to holding at least $50 million in shares of the Company, so he will effectively have
$100 million of capital tied up in the business. Mr. Weinreb is expected to purchase the new warrant as soon as
he exercises the $15 million warrant that he acquired upon joining the Company in 2010, which will provide him
with ~2.4 million shares, or ~6% of HHCs outstanding shares.

Weinrebs 2010 Warrant Summary

Amount (MM)
Warrant cost $15.0
Warrant shares 2.4
Exercise price $42.2
Exercise value $100
HHC price (June 2017) $125.89
Warrant value $298
Warrant gain $183
~Shares issued if net share
1.5
settled (MM)

Mr. Weinrebs 2010 warrant became exercisable in November 2016 and expires in November 2017. Mr.
Weinreb has the ability to exercise the warrants and settle in shares, but HHCs most recent proxy filing states
that it is likely that Mr. Weinreb will have to sell some or all of the Existing Weinreb Warrant shares in order to
pay the purchase price of the New Weinreb Warrant and the taxes that may result from the exercise of the Existing
Weinreb Warrant or the sale of the Existing Weinreb Shares. HHC notes that it may consider purchasing some
portion of Weinrebs warrant shares directly from him if it determines that this is a good use of capital and is in the
best interest of the Company and its shareholders.

In addition to Mr. Weinreb, HHC president Grant Herlitz is expected to purchase a new $2 million warrant
during 2017. In early 2017, Mr. Herlitz net share settled the $2 million warrant he purchased upon joining the
Company in 2010. Mr. Herlitz received 198,000 shares when he exercised the warrant and sold 110,000 shares.

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The Howard Hughes Corporation

In October 2016, new CFO David OReilly purchased a $1 million long-term warrant from the Company to acquire
~50,000 shares, and the warrant has an exercise price of $112.08 a share.

Pershing Square
According to HHCs most recent proxy filing, Bill Ackman beneficially owns ~5.5 million shares (13.6%) of
the Company. In addition to the common shares owned, Pershing Square also has additional economic exposure
to 5.4 million shares via total return swaps. (These were established because of foreign ownership/asset class
restrictions embedded in the funds managed by Pershing Square.) Factoring in the shares associated with the
total return swaps, Bill Ackman/Pershing Square currently owns ~27% of HHCs outstanding shares. Although Bill
Ackman has faced some challenges in other securities he owns within Pershing Square funds, he has not sold
any of his Howard Hughes shares. Bill Ackman has previously stated that HHC is a security that he would like to
own for a very long time, and his ability to maintain his position in the face of challenges in his portfolio reflects
his access to a pool of long-term capital (though not as large as it once was) as the result of his hedge fund
ownership structure.

REIT Conversion?
With members of management highly motivated to unlock shareholder value, we believe that they will
take the necessary steps to optimize the Companys common equity share price. This could involve conversion
to a REIT, but given the current nature of the business, such a conversion at the present time would not likely be
optimal considering that the vast majority of its assets/value are still not suitable for the REIT structure.
Furthermore, given the uncertainty of potential tax law changes coming out of the new administration, it would
likely be prudent for management to wait before making a decision. At the Companys 2017 investor day, members
of management indicated that they will likely wait until there is more clarity on corporate tax issues before
committing to a decision.

Underfollowed and Overlooked

HHC shares are underfollowed on Wall Street, with just 6 analysts providing formal coverage of the stock,
according to FactSeta figure that is quite low in light of the Companys $5.4 billion market capitalization. Its not
uncommon for shares of companies that post uneven results (e.g., land sales within HHC MPCs) and that have a
meaningful amount of value attributed to fallow/nonincome-producing assets to be overlooked by Wall Street.
Although there is no good peer comparison for Howard Hughes, the following table illustrates the disconnect
between HHC and the analyst coverage of various other real estaterelated businesses.

HHC Shares are Underfollowed on Wall Street

Equity Boston SL Toll Taubman Howard

Macerich Vornado CBRE Lennar
Residential Properties Green Brothers Centers Hughes

Market cap
$8.1 $19.0 $11.7 $26.1 $21.7 $10.9 $6.0 $12.1 $3.5 $5.4
($ B)

Analyst
21 14 9 25 24 20 19 21 16 6
coverage*

*Source: FactSet

However, HHC has recently begun to make a concerted effort to increase investor awareness. The
Company began hosting quarterly earnings calls following the release of its 4Q 2016 earnings and held its
inaugural investor day in May 2017. HHC does not screen well given the lumpiness of sales, but we believe that
the Company is on the cusp of generating a meaningful amount of recurring revenues and cash flows.

Valuation
The following summarizes our NAV calculation for HHC. Based on our projections, we estimate the
Companys NAV at $171 per share, representing 36% upside from current levels.

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The Howard Hughes Corporation

HHC NAV Calculation

Amount Per
($MM) Share
MPC Land and Future Development
Houston $1,590
Las Vegas $932
Columbia $250
$2,771

MPC net cash $72

MPC land and future development total: $2,843 $66.49
Operating Assets
Houston $1,694
Summerlin $552
Columbia $470
Hawaii $440
New York $54
Other $340
$3,550

Cost to complete (excluding Seaport) ($95)

Operating assets net debt ($1,520)

Operating assets total: $1,936 $45.27

Total MPCs + Operating Assets $4,779 $111.77

Seaport (Pier 17 and Uplands/Historic District) $1,263

Cost to complete Seaport ($259)
Air rights $296
Seaport: $1,300 $30.40
Ward condo (existing) $364
Ward retail (incremental value) $370
Ward condo (future) $872
Ward value: $1,606 $37.55
110 North Wacker (incremental value) $230
Other assets @ 2x current carrying value $245
Other assets: $475 $11.10

Seaport + Ward + other assets $3,380

Strategic Developments and non-segment net debt ($555)
Total Seaport + Ward + Other Assets $2,825 $66.07

HHC G&A expenses @ 3.5x avg. of past 3 years ($282)

Total NAV $7,321.92
Diluted shares (MM 3/31/2017) 42.76
NAV (Per Share) $171.24
Implied upside to NAV 36.0%

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The Howard Hughes Corporation

Overall, we believe there is more upside potential to our NAV projection. The following details where we
could be conservative:

Land Values: Our estimate of HHCs land values reflects HHCs undiscounted/uninflated value, which
reflects current prices for the sale of residential and commercial land as well as a projected cash margin.
However, we have assumed that these values will be recognized in equal increments over the respective
community sellout dates and have discounted these amount over the relevant time frames to obtain a
present value. Given the management incentives in place, we would not be surprised if monetization were
to occur at a much quicker pace.

Future Development: HHC has a meaningful amount of future development potential, but we have given
the Company credit for only near- to intermediate-term development opportunities (up to ~10 years). For
example, commercial development potential at the Woodlands is virtually limitless due to the absence of
zoning restrictions. Another example would be the Seaport District, where we have not given the Company
credit for the full potential of unlocking its valuable development/air rights.

Capitalization of G&A Expenses: We have capitalized HHCs G&A expenses, but we believe that this
could prove to be a conservative approach if the Company pursues opportunistic acquisitions that leverage
the Companys corporate infrastructure and that do not require any substantial additional corporate
overhead.

Seaport District: Our current valuation for the Seaport reflects the midpoint of managements estimate for
its future yield on the cost of the project. We believe there could be meaningful upside as the pier reopens
and the rooftop is placed into service. In our view, the rooftop has the potential to become an unrivaled
entertainment venue. Should the rooftop gain meaningful traction, it would not be unreasonable for the
value of the rooftop to be as much as our current estimate of value for all of the pier and historic district. In
addition, HHC has valuable development rights that will likely be unlocked in the coming years.
Negotiations with the city are ongoing.

Risks
The Companys primary risks include, but are not limited to, the following:

An economic downturn could impact any of the Companys key markets.

The Companys key markets could be adversely impacted by natural disasters, including hurricanes and
earthquakes that could impair their value.

Cap rates could rise, which would negatively impact the valuation of the Companys various operating
assets as well as future development.

Rising interest rates could negatively impact demand for housing, causing proceeds from future land sales
to be below expectations.

Difficulties could be encountered in obtaining entitlements for future development opportunities.

Further deterioration in brick-and-mortar retailing could negatively impact the Companys commercial real
estate assets and future development plans.

A downturn in tourism in the key markets of New York, Las Vegas, and Hawaii could negatively impact
development, the value of the Companys operating assets in these markets and future development
prospects.

Analyst Certification
Asset Analysis Focus certifies that the views expressed in this report accurately reflect the personal views
of our analysts about the subject securities and issuers mentioned. We also certify that no part of our analysts
compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this report.

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The Howard Hughes Corporation

THE HOWARD HUGHES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share amounts)

March 31, December 31,

ASSETS 2017 2016
Investment in real estate:
Master Planned Community assets $1,672,484 $1,669,561
Buildings and equipment 2,131,973 2,027,363
Land 314,259 320,936
Less: accumulated depreciation (266,260) (245,814)
Developments 994,864 961,980
Net property and equipment 4,847,320 4,734,026
Investment in real estate and other affiliates 70,381 76,376
Net investment in real estate 4,917,701 4,810,402
Cash and cash equivalents 541,508 665,510
Accounts receivable, net 10,177 10,038
Municipal utility district receivables, net 160,189 150,385
Deferred expenses, net 64,155 64,531
Prepaid expenses and other assets, net 714,412 666,516
TOTAL ASSETS $6,408,142 $6,367,382
LIABILITIES:
Mortgages, notes, and loans payable $2,750,254 $2,690,747
Deferred tax liabilities 210,043 200,945
Warrant liabilities 313,797 332,170
Accounts payable and accrued expenses 516,742 572,010
TOTAL LIABILITIES 3,790,836 3,795,872
Equity:
Preferred stock
Common stock 404 398
Additional paid-in capital 2,893,042 2,853,269
Accumulated deficit (272,253) (277,912)
Accumulated other comprehensive loss (6,428) (6,786)
Treasury stock (1,231) (1,231)
Total stockholders' equity 2,613,534 2,567,738
Noncontrolling interests 3,772 3,772
TOTAL EQUITY 2,617,306 2,571,510
TOTAL LIABILITIES AND EQUITY $6,408,142 $6,367,382

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 Disclaimers

Asset Analysis Focus is not an investment advisory bulletin, recommending the purchase or sale of any security. Rather it
should be used as a guide in aiding the investment community to better understand the intrinsic worth of a corporation. The
service is not intended to replace fundamental research, but should be used in conjunction with it. Additional information
is available on request. The statistical and other information contained in this document has been obtained from official
reports, current manuals and other sources which we believe reliable. While we cannot guarantee its entire accuracy or
completeness, we believe it may be accepted as substantially correct. Boyars Intrinsic Value Research LLC its officers,
directors and employees may at times have a position in any security mentioned herein. Boyars Intrinsic Value Research
LLC Copyright 2017.

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