Release Date: November 05, 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 its entire portfolio, showcasing the resilience of its unique business model.
- The company experienced elevated homebuilder demand for new acreage, leading to a significant increase in residential land sales revenue.
- Operating assets delivered a strong 8% year-over-year NOI growth, with notable increases in office and multifamily sectors.
- The strategic development demand for premier condos in Ward Village and the Woodlands continued at a solid pace, contributing to future revenue.
- Howard Hughes Holdings Inc (HHH) raised its full-year guidance across each segment, reflecting confidence in continued strong performance.
Negative Points
- New home sales across master planned communities (MPCs) saw a 19% year-over-year decline, primarily due to reduced inventory of finished homes in Summerlin.
- The reduction in inventory is temporary, but it highlights a current bottleneck in meeting demand due to fewer floor plans available for sale.
- The office portfolio faced challenges with lower occupancy at certain properties, despite overall strong performance.
- Retail NOI growth was modest at 2% year-over-year, indicating potential challenges in this segment.
- G&A expenses increased year-over-year, raising concerns about cost management despite the spin-off of Seaport Entertainment.
Q & A Highlights
Q: Can you explain how you arrived at the $3.9 billion valuation for the MPCs? Does it include costs and margins?
A: We use a methodology similar to our Annual Investor Day NAV update, multiplying remaining acres by price per acre, factoring in margins, and discounting to present value. This includes costs, margins, and timing, with variations based on community maturity and topography.
Q: Any updates on the timeline for the Board's special committee regarding Bill Ackman (Trades, Portfolio) and Pershing Square's process?
A: I can't comment on the process. Any updates will be filed publicly for all shareholders to see.
Q: How do you view the operating portfolio, particularly in Summerlin retail and office assets like Merriweather?
A: Summerlin retail is undergoing tenant upgrades, which may temporarily impact NOI. We expect improvements as new tenants open. Merriweather's older assets face office market pressure, but recent investments in amenities are starting to show positive leasing momentum.
Q: How do your communities' land and home inventories compare to national dynamics, especially given current mortgage rates?
A: Our communities have one month or less of new home supply, compared to the national average of about two months. Vacant developed lots are below equilibrium, with Summerlin at 11 months and Bridgeland at 12. Despite high mortgage rates, demand remains strong, and new communities will increase inventory in 2025.
Q: With the Seaport spin-off and upcoming condo sales, how are you thinking about capital allocation for new developments?
A: We prioritize high risk-adjusted returns, balancing between share buybacks and new developments. Multifamily is attractive due to strong demand, while office development is unlikely due to existing vacancies. Retail developments are considered when they enhance community value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
