Howard Hughes Holdings Inc. Reports Third Quarter 2023 Results

Howard Hughes Holdings Inc.® (NYSE: HHH) (the "Company," "Howard Hughes," "HHH," or "we") today announced operating results for the third quarter ended September 30, 2023. The financial statements, exhibits, and reconciliations of non-GAAP measures in the attached Appendix and the Supplemental Information, as available through the Investors section of our website, provide further detail of these results.

Third Quarter 2023 Highlights:

• Quarterly net loss of $544.2 million, or $(10.97) per diluted share, including a $555.0 million or $(11.19) per share after-tax impairment charge at the Seaport
• MPC EBT of $85 million driven by a 16% increase in price per acre and complemented by a 113% year-over-year increase in new home sales—signaling continued strong demand for new homes and robust future land sales
• Full-year 2023 MPC EBT guidance increased to $325 million at the mid-point, up $55 million from prior guidance and $125 million from initial guidance
• Operating Assets NOI of $63 million driven by double-digit year-over-year growth in multi-family, contributing to increased full-year 2023 NOI guidance to $243 million at the mid-point, up $7 million from initial guidance
• In Ward Village®, 'A'ali'i® and Ulana are now sold out, with the final unit at Kō'ula® contracted on October 3rd; remaining towers under construction or in pre-sales are now 96% sold

• "The third quarter reflected exceptional results throughout our core businesses, further demonstrating the robust demand we are experiencing across our world-class portfolio of mixed-use assets," commented David R. O'Reilly, Chief Executive Officer of Howard Hughes. "During the quarter, we saw continued growth in new home sales and healthy land sales in our MPCs, solid year-over-year NOI improvement in Operating Assets, and impressive condo sales in Ward Village—including the complete sell-out of 'A'ali'i and Ulana.

  "During this time when credit markets are incredibly tight, we executed several important financing deals—including two new construction loans, the refinancing of 250 Water Street, and the extensions of two office loans and one retail center loan nearing maturity. These financings are a testament to the exceptional quality of the Howard Hughes portfolio, and they further strengthen our balance sheet—reducing our maturities through 2024 to only $17 million. Our new construction loans enable the start of projects in our pipeline, including 1 Riva Row—a new multi-family development in The Woodlands® that sets a new standard for luxury in the Howard Hughes portfolio.

  "Subsequent to quarter end, we announced our intent to establish Seaport Entertainment—a new division comprising our entertainment-related assets in New York and Las Vegas—which we expect to spinoff as an independent, publicly traded company in 2024. Anton Nikodemus, a veteran of the entertainment and hospitality industries, will serve as Chief Executive Officer and focus on delivering a world-class guest experience, improving operating performance, and exploring new strategic opportunities. The anticipated separation of Seaport Entertainment from Howard Hughes represents a tremendous opportunity to unlock the considerable value inherent in these unique assets and pursue new accelerated growth.

  "With the year nearly complete, we are extremely pleased with our performance thus far, and we maintain a robust near-term outlook. As a result, we have further increased our full-year guidance—most notably for MPC EBT and Operating Assets NOI. Beyond 2023, we are incredibly excited about the future of Howard Hughes. The anticipated spin off of Seaport Entertainment will allow HHH to operate as a pure play real estate company, focused entirely on long-term growth opportunities and value creation within our acclaimed portfolio of master planned communities—where families want to live and companies choose to thrive—for many generations to come."

  Click Here: Third Quarter 2023 Howard Hughes Quarterly Spotlight Video
  Click Here: Third Quarter 2023 Earnings Call Webcast

• Financial Highlights

  Total Company

  • HHH reported a net loss of $544.2 million, or $(10.97) per diluted share in the third quarter, including an after-tax impairment of $555.0 million or $(11.19) per share related to the Seaport. This compares to net income of $108.1 million or $2.19 per diluted share in the prior-year period. Excluding the after-tax impairment, the year-over-year reduction was primarily due to the timing of condo sales as the prior-year included the delivery of Kō'ula in Ward Village.
  • In August, the Company reorganized into a holding company structure to provide additional financial flexibility to fund future opportunities and segregate assets and related liabilities in separate subsidiaries. The new parent company—Howard Hughes Holdings Inc.—trades under the ticker symbol "HHH" on the New York Stock Exchange. HHH net income is substantially the same as its wholly owned subsidiary, The Howard Hughes Corporation, aside from immaterial costs incurred directly by HHH in the current period.
  • Subsequent to quarter end, Howard Hughes announced its intent to create Seaport Entertainment—a new division expected to include the Company's entertainment-related assets in New York and Las Vegas—including the Seaport in Lower Manhattan and the Las Vegas Aviators® Triple-A Minor League Baseball team, as well as the Company's ownership stake in Jean-Georges Restaurants and its 80% interest in the air rights above the Fashion Show Mall, which are intended to be used to create a new casino on the Las Vegas Strip. HHH intends to spinoff Seaport Entertainment into its own publicly traded company in 2024, which will be led by Anton Nikodemus, a known leader in the entertainment and resort industry.

  MPC

  • MPC EBT totaled $84.8 million in the quarter, or a 12% increase compared to $75.4 million in the prior-year period.
  • New home sales totaled 605 homes—surging 113% year-over-year—signifying strong future residential land sales.
  • MPC land sales totaled $75.4 million, or a 43% year-over-year increase, primarily related to the increased super pad sales in Summerlin® and residential lot sales in Bridgeland®.
  • Builder price participation revenue remained strong at $15.8 million, representing a $3.0 million year-over-year moderation from the all-time highs of 2022.
  • The average price per acre of residential land sold was approximately $913,000 during the quarter—representing a 16% year-over-year increase and an all-time record high for HHH.
  • MPC equity earnings were $14.3 million—representing a $0.6 million decrease year-over-year—primarily related to the sale of clubhouse condos at The Summit. Prior year earnings included a non-recurring $13.5 million gain related to HHH's contribution of an additional 54 acres of land to the joint venture.

  Operating Assets

  • Total Operating Assets NOI—including the contribution from unconsolidated ventures—totaled $62.8 million in the quarter, representing a 3% increase compared to $60.8 million in the prior-year period.
  • Office NOI of $29.3 million increased $0.8 million or 3% year-over-year largely due to strong lease-up activity and abatement expirations in The Woodlands. These increases were partially offset by tenant vacancies at various properties in Downtown Columbia® and initial operating losses at 1700 Pavilion in Summerlin. As of September 30th, the stabilized office portfolio was 87% leased, and 87,000 square feet of new or expanded leases were executed during the quarter.
  • Multi-family NOI of $13.8 million increased $2.1 million or 18% compared to the prior year period primarily due to strong lease-up at HHH's newest properties—Marlow in Downtown Columbia and Starling at Bridgeland—and 4.5% average in-place rent growth, partially offset by initial operating losses at Tanager Echo in Summerlin.
  • Retail NOI of $12.8 million increased $0.5 million or 4% year-over-year with modest improvements in all regions. At quarter end, the retail portfolio was 95% leased.
  • In July, HHH divested its two self-storage facilities in The Woodlands for a combined sales price of $30.5 million, generating a gain on sale of $16.1 million

  Strategic Developments

  • Closed on 26 condo units in the third quarter—including 16 at 'A'ali'i and 10 at Kō'ula—generating $26.0 million in revenue. At quarter end, 'A'ali'i and Kō'ula were 100% and 99.8% sold, respectively, with the final unit at Kō'ula contracted three days subsequent to quarter end.
  • Contracted to sell 13 units at the three towers in pre-sales—Ulana, The Park Ward Village, and Kalae. At quarter end, Ulana was sold out, and the Park Ward Village and Kalae were 94% and 85% pre-sold, respectively.
  • Commenced construction on 1 Riva Row in The Woodlands, a 268-unit luxury high rise multi-family development which is expected to contribute $9.9 million of NOI upon stabilization at a 6% yield on cost. The asset is expected to be completed in 2025.
  • Commenced construction on a new 67,000 square-foot retail center which will be anchored by a new Whole Foods Market in Downtown Summerlin. This new retail center is expected to be completed in 2024 and is expected to generate $1.8 million of NOI upon stabilization.

  Seaport

  • During the third quarter, HHH recorded a $555.0 million after-tax impairment charge related to the Seaport due to reductions in estimated future cash flows resulting from significant uncertainty of future performance as stabilization and profitability are taking longer than expected, pressure on the current cost structure, lower demand for office space, as well as an increase in the capitalization rate and a decrease in restaurant multiples used to evaluate future cash flows.
  • Seaport revenue of $29.5 million declined $3.0 million or 9% compared to the third quarter of 2022 primarily due to the absence of certain restaurant concepts in the current year, fewer private events, and poor weather conditions.
  • Seaport generated negative NOI of $0.9 million, representing a $2.5 million year-over-year reduction. Including $8.6 million of losses from unconsolidated ventures—primarily related to the Tin Building by Jean-Georges—Total Seaport NOI was a loss of $9.5 million.
  • At the Tin Building by Jean-Georges, equity losses were $8.1 million, or a $3.3 million year-over-year improvement primarily due to significantly increased sales revenues.

  Financing Activity

  • In August, HHH closed on a $93.3 million construction financing for the 1 Riva Row multi-family project, bearing interest at a fixed rate of 7.39% with an initial maturity in 2030.
  • In August, the Company closed on a $50.0 million loan to fund new infrastructure projects in Ward Village including park development and street, sewer, and electrical improvements. The loan bears interest at SOFR plus 3.75% and has an initial maturity in 2025.
  • In September, the Company closed on a $115.0 million refinancing for 250 Water St. at the Seaport. The loan bears interest at SOFR plus 3.875% with a maturity in 2026.
  • In October, subsequent to quarter end, the Company closed on a three-year extension of the 4 Waterway and 9303 New Trails office buildings loan in The Woodlands. The refinancing required a principal pay down of $8 million and has a new principal balance of $29.0 million bearing interest at a fixed rate of 8.08%. The Company also closed on a two-year extension of the Creekside Park West retail center construction loan in The Woodlands. The extended loan has a total commitment of $17 million, bears interest at SOFR plus 3.00%, and has an initial maturity in 2026.

  Full-Year 2023 Guidance

  • MPC EBT, which was revised in the prior quarter to be flat to down 10% year-over-year, has continued to benefit from increased sales of new homes in Bridgeland, Summerlin, and The Woodlands Hills® year-to-date. With low inventories of new homes and vacant lots, homebuilder interest in new acreage continues to strengthen, and the Company expects material land sales during the fourth quarter. As a result, 2023 MPC EBT is now expected to be up 10% to 20% year-over-year, with a mid-point of approximately $325 million. This represents a $125 million improvement at the mid-point compared to the initial full-year guidance issued in early 2023.
  • Operating Assets NOI, which was previously projected to be in a range of up 1% to 4% year-over-year, has benefited from strong multi-family rent growth and lease-up at new developments in Bridgeland, Downtown Columbia, and Summerlin which encompass nearly 1,400 units. The office portfolio has also delivered solid financial performance year-to-date, benefiting from expiring abatements; however, strong leasing momentum in recent quarters is not expected to have a material impact on 2023 results due to free-rent periods on many of the new leases. Overall, excluding the $3.4 million contribution from divested retail assets in the prior year, Operating Assets NOI is now expected to be in a range of up 2% to 4% year-over-year, with a mid-point of approximately $243 million. This represents a $7 million improvement at the mid-point compared to the initial full-year guidance issued in early 2023.
  • Condo sales revenues, which were previously projected to range between $40 million and $45 million with gross margins between 10% to 13%, are now expected to be $47 million to $48 million with gross margins of 13% to 14%. 2023 condo sales revenues and gross margins are entirely driven by the closing of remaining units at 'A'ali'i and Kō'ula, which were 100% and 99.8% sold, respectively, as of September 30, 2023. The final unit at Kō'ula closed in the fourth quarter. Despite lower margins on these remaining units in the current year, overall gross margins for 'A'ali'i and Kō'ula remained in a range of 25% and 30%. The next major condo project scheduled to be completed is Victoria Place, which is expected to be delivered in 2024 and is 100% pre-sold.
  • Cash G&A guidance is unchanged and is projected to range between $80 million and $85 million, which excludes anticipated non-cash stock compensation of approximately $5 million.

  Conference Call & Webcast Information

  Howard Hughes Holdings Inc. will host its third quarter 2023 earnings conference call on Tuesday, November 7, 2023, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). Please visit the Howard Hughes website to listen to the earnings call via a live webcast. To access the call via telephone, please dial 877-270-2148 within the U.S., 866-605-3850 within Canada, or +1 412-902-6510 when dialing internationally. All participants should dial in at least five minutes prior to the scheduled start time using 10173050 as the passcode.

  We are primarily focused on creating shareholder value by increasing our per-share net asset value. Often, the nature of our business results in short-term volatility in our net income due to the timing of MPC land sales, recognition of condominium revenue and operating business pre-opening expenses, and, as such, we believe the following metrics summarized below are most useful in tracking our progress towards net asset value creation.

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