Howard Hughes Holdings Inc. Q2 FY2025 earnings call

• Second quarter was an exceptional quarter with adjusted operating cash flow of $91 million or $1.64 per diluted share. Pershing Square invested $900 million in exchange for 9 million shares, to transform Howard Hughes into a premier diversified holding company.
• MPCs saw strong homebuilder demand with land sales at record prices per acre. Operating assets set new record quarterly NOI across office and multifamily. Strategic developments had solid condo presales and launched new presales for luxury towers in Honolulu.
• Raised full year guidance for adjusted operating cash flow driven by strength in MPC land sale business and operating asset NOI. Discussed balance sheet details including cash, lines of credit, debt outstanding, and refinancing progress.
• Executive Chairman Bill Ackman discussed strategy to acquire a diversified insurance operation, aiming to follow Berkshire Hathaway's model of a low-leverage insurance operation with smart investment of float and equity in common stocks.

MPC Segment

• Second quarter MPC EBT was $102 million. Land sales of 111 acres of residential land at a new record high average price per acre of $1.35 million, a 29% increase year-over-year. Summerlin led with 2 superpad sales totaling 65 acres at a record average price per acre of $1.6 million, and 2 custom lots in Astra, Summerlin's newest luxury community sold at an average price of $7.7 million per acre. New home sales totaled 487 homes in the second quarter, with demand expected to remain strong in the second half of the year.

Operating Assets Segment

• Record quarterly NOI across office and multifamily, with 5% year-over-year segment growth. Office NOI was $35 million, a 6% year-over-year increase, driven by strong lease-up at 9950 Woodloch Forest, 6100 Merriweather, and 1700 Pavilion. Multifamily portfolio delivered record NOI of $17 million, a 19% year-over-year increase. Retail portfolio NOI was $13 million, a 7% year-over-year reduction primarily due to nonrecurring collections on tenant reserves in the prior year, but excluding that, there would have been a modest increase.

Strategic Developments

• Condo presales were solid with 17 units contracted, representing incremental future revenue of approximately $35 million, with nearly all presales at The Launiu bringing it to 67% presold. Presales at other condo projects under construction were largely unchanged, and Ulana, a workforce housing development, is 100% sold and on track for delivery in the fourth quarter of 2025. Presales launched for Melia and ’Ilima in Ward Village saw exceptional demand.

• Increased adjusted operating cash flow guidance to range between $385 million and $435 million, midpoint approximately $410 million or $7.32 per diluted share.
• MPC EBT midpoint expected to be approximately $430 million, an increase of $55 million from prior guidance.
• Operating assets full year guidance raised from $262 million midpoint to $267 million.
• Reiterated cash G&A guidance in range of $76 million to $86 million, midpoint $81 million, and condo sales guidance of approximately $375 million.
• Balance sheet details: $1.4 billion cash and $515 million undrawn lines of credit, $5.2 billion outstanding debt with 92% fixed or hedged, reduced near-term maturities through refinancing and extensions, and sold MUD receivables generating $180 million cash proceeds.

• Macro economic environment changes affecting real estate market demand and home sales.
• Interest rate fluctuations impacting financing costs and refinancing risks for debt maturities.
• Uncertainty associated with acquiring an insurance company, including finding the right target, terms, and execution.
• Risks related to real estate development and sales, such as market competition and regulatory changes affecting project timelines and profitability.

Q: About MPC business performance despite macro challenges and Bill's thoughts on acquiring vs homegrown insurance entity A: David R. O'Reilly emphasized MPCs' quality and desirability making homebuilders likely to buy land despite macro concerns. Bill Ackman said they are increasingly confident in finding the right insurance acquisition, seeing advantages in buying an existing well-run entity over building from scratch, expecting it to become a material part of the business over time Q: On leverage, deal sizes for insurance acquisition, and changes to real estate portfolio A: William Albert Ackman said Howard Hughes' real estate operation is appropriately financed, excess cash could be used for insurance acquisition, and they aim to acquire a $1-2 billion insurance entity, with no plans to change the real estate operation currently Q: On market comfort with Howard Hughes' complexity and long duration of value unlocking, and office leasing demand in Woodlands A: Bill Ackman discussed that they embrace complexity, bringing Pershing Square's investment expertise to transition to a diversified holding company, and David R. O'Reilly talked about the leased-up office assets in the Woodlands and the opportunity to lease the newly acquired 7 Waterway office building to meet demand in the submarket