Howard Hughes Holdings Inc. Q3 FY2024 earnings call

• Quarter Recap: Third quarter results were exceptional, with the portfolio exemplifying the resilience of the business model. MPCs saw elevated homebuilder demand, operating assets had strong NOI growth, and strategic developments had solid demand.
• MPC Highlights: Record MPC EBT, land sales at near record prices, and expectation of new neighborhoods in Q4 and 2025.
• Operating Assets Highlights: Office, multifamily, and retail all had positive NOI growth, with strong leasing performance in office and successful lease-up in multifamily.
• Strategic Developments Highlights: Completion of Victoria Place, solid pre-sales in various projects, and ongoing construction of new developments.

MPC Segment

• Recorded record MPC EBT of $145 million in Q3, with land sales of 191 acres across communities at an average price per acre of $1 million. Land sale revenues totaled $198 million in the quarter, a 163% year-over-year increase. New home sales were solid but saw a 19% year-over-year decline due to reduced finished home inventory, though new neighborhoods are expected in Q4 and 2025.
• Revenue contribution: Land sales and home sales are key components, with land sales driving significant growth.

Operating Assets Segment

• Delivered $65 million of net operating income, an 8% year-over-year increase. Office NOI grew 9% to $32 million, multifamily NOI had a 15% year-over-year increase to $16 million, and retail NOI was $13 million, up 2% year-over-year. Stabilized office portfolio was 88% leased, multifamily 95% leased, and retail 94% leased at quarter end.
• Revenue contribution: Each property type contributes, with office, multifamily, and retail all playing roles.

Strategic Developments

• Strategic development demand for premier condos and Ward Village in The Woodlands continued at a solid pace with 29 units contracted ($57 million+ future revenue). Victoria Place completed, expected to generate $760 million of revenue in Q4 with 27%-28% gross margins. Projects under construction were 88% pre-sold, representing $3.4 billion of future revenue.
• Revenue contribution: Future revenue from contracted units and completed projects like Victoria Place is significant.

• MPC EBT: Now expects MPC EBT to be down 1%-6% for 2024, midpoint $330 million, driven by record residential land sales.
• Operating Assets NOI: Expect record full year NOI of approximately $257 million at midpoint, 5%-8% year-over-year increase.
• Condo Sales: Expected to range between $755 million and $765 million, with gross margins 27%-28%.
• Cash G&A: Now expected to range between $83 million and $88 million for full year.

• Risks related to forward-looking statements, including factors that could cause material differences between forward-looking statements and actual results, such as market dynamics, interest rate changes, and project execution uncertainties.

Q: On Slide 26, how is the $3.9 billion value for MPCs calculated?

A: Similar to Annual Investor Day NAV update, taking remaining acres times price per acre against margin, discounting back to today, considering factors like community topography, maturity, etc.

Q: Any comment on the Board's special committee process regarding Bill Ackman and Pershing Square?

A: Can't comment, as it's a publicly filed process and updates will be filed publicly.

Q: Regarding operating portfolio, context on Summerlin retail and Merriweather office?

A: Summerlin retail has expirations and renewal opportunities, with recent leases like Lego and Chanel; Merriweather office has seen leasing momentum improvement after capital expenditures.

Q: How are communities positioned for land and homes vs national dynamics?

A: Bridgeland and Summerlin have 1 month or less new home supply vs national average 2 months, vacant developed lots at 11 and 12 months vs equilibrium 20 months; home sales decline due to past strong sales and homebuilder pausing, but demand remains strong.

Q: Allocation of capital to new development starts and most attractive operating asset segment?

A: Allocate to highest risk-adjusted return opportunities, considering market and demand specifics; hard to generalize, but condo developments, multifamily, and targeted retail are considered.

Q: Comment on retail leasing demand and G&A moderation?

A: Retail leasing demand has positive spread in mid-single digits; G&A expected to moderate over next year as business stabilizes after Seaport spin-off.

Q: Detail on Hawaii office leasing?

A: No significant office portfolio in Hawaii, primarily occupying IBM building and sales galleries for condo sales.