Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Howard Hughes Holdings Inc (HHH, Financial) reported exceptional results across core business segments, highlighting strong demand in master-planned communities.
- Residential land sales achieved a new record average price per acre, contributing to robust MPC EBT.
- Operating assets delivered solid NOI, with strong performance in office, retail, and multi-family segments.
- Significant buyer interest in premier condos, with 94 units contracted for future revenue of $207 million.
- Reiterated full-year guidance for MPC EBT and raised guidance for operating asset and condo sales.
Negative Points
- Seaport segment generated net operating losses of $9.4 million in the second quarter, primarily due to costs associated with the standup of Seaport Entertainment and reduced revenues from poor weather.
- New home sales were down 4% from the prior year, although year-to-date sales are pacing 7% higher.
- Commercial land sales and builder price participation are expected to be reduced, impacting overall MPC EBT.
- The spin-off of Seaport Entertainment will result in a $23 million cash infusion from Howard Hughes Holdings Inc (HHH) to Seaport Entertainment.
- Office lease termination fees received in the prior year led to a 1% year-over-year reduction in operating asset NOI.
Q & A Highlights
Q: With the Seaport spin-off finally here, can you clarify the financial impact on Howard Hughes Holdings going forward?
A: (David O'Reilly, CEO) The Seaport segment will be removed from our financials effective August 1. This includes all associated losses and G&A expenses. There will be a $23 million one-time cash infusion from us to Seaport Entertainment at the completion of the spin-off. (Carlos Olea, CFO)
Q: Can you provide more details on the current state of the housing market and inventory levels?
A: (David O'Reilly, CEO) Nationally, completed new home inventory is at a two-month level. In our communities, it's even tighter, with half a month in Summerlin and one month in Bridgeland. Despite national headlines, the new home market remains resilient, supported by strong homebuilder results and low cancellation rates.
Q: How should we think about capital allocation over the next 12 to 18 months?
A: (David O'Reilly, CEO) Given inflationary pressures and the current market environment, we are taking a more selective approach to new developments. Share buybacks are becoming a more realistic and executable opportunity, especially as development returns have been squeezed.
Q: Any updates on the Nevada studio project and the required equity?
A: (David O'Reilly, CEO) The studio bill is being drafted and we aim to get it on the legislative session in February. The project could be in the $450 million to $500 million range, with a typical 60% construction loan. The remaining equity would be shared between Sony and Howard Hughes.
Q: Why did you keep the MPC guidance unchanged despite strong results?
A: (David O'Reilly, CEO) Our guidance already implies the best year ever for residential land sales. While the first half was remarkable, we prefer to take a prudent approach and not overpromise. The second half is expected to be consistent with the first half.
Q: What impact have interest rates had on home sales?
A: (David O'Reilly, CEO) Home sales have been strong and consistent throughout the year. We haven't seen a significant uptick due to recent modest decreases in mortgage rates. The market remains resilient despite high interest rates.
Q: What are the expectations for the Seaport's future performance under new management?
A: (David O'Reilly, CEO) The Seaport has faced weather-related challenges and a drop in sponsorship and event revenue. The new management team is focused on maximizing margins and profitability. We believe it's just a matter of time before the business starts performing as expected.
Q: How do you see office occupancy trending over the next 12 to 18 months?
A: (David O'Reilly, CEO) We expect occupancy to trend higher, especially in The Woodlands where demand is strong. We have about $8 million of leases in abatement periods for 2024, growing to $19 million by 2025. The recent acquisition of Waterway Plaza II adds much-needed inventory and is expected to achieve double-digit returns upon stabilization.
Q: What would make you comfortable raising MPC guidance?
A: (David O'Reilly, CEO) An acceleration of new home sales or a sharp uptick in home prices would give us the confidence to raise guidance. Currently, our guidance already implies a record year for residential land sales.
Q: What is the timing for condo closings at Victoria Place and Ulana?
A: (David O'Reilly, CEO) We expect most Victoria Place closings in 2024, with less slipping into 2025 than previously anticipated. Ulana, scheduled for 2025, is a workforce housing tower and will be a breakeven project.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
