Q1 2020 Earnings Call
Good morning, welcome to the first quarter 2020 earnings call.
All participants will be.
The new it systems placed at no cost, especially start person starchy sold by zero.
Today's presentation, there will be an opportunity to ask questions.
Two questions My first store than one on your cost Uh huh.
To withdraw your question. Please press Star then too.
Please note this event is being recorded.
Let's turn the conference over to David strike.
Please go ahead.
Good morning, welcome to the Howard Hughes Corporation's first quarter 2020, <unk> earnings call.
With me today are all <unk>, Chief Executive Officer, David O'reilly, Chief Financial Officer, and Peter Riley General Counsel.
Before we begin I'd like to direct you to our website Www Dot Howard Hughes.
Well you can download both our first quarter earnings press release in or supplemental package.
The earnings release and supplemental package include reconciliations of non-GAAP financial measures Koby discussed today in relation to their most directly comparable GAAP financial measures.
Certain statements made today that are not in the present tense, but that discuss the company's expectations are forward looking statements within the meaning of the federal securities laws.
Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions.
We can give no assurance that these expectations will be achieved.
Please see the forward looking statement disclaimer not first quarter earnings press release under risk factors in our FCC filings for factors that could cause material differences between forward looking statements and actual results.
We're not undertake any duty update forward looking statements unless required by law.
I will now turn the call our CEO, calling.
Thank you, Dave and thank you all for joining us today.
Welcome to our first quarter 2020 earnings call.
These are unprecedented times and it's safe to say that we.
That's all been affected in some significant way by the Koby 19 pandemic.
None of us have ever experienced anything like this before.
I want to begin by extending my sincere except they all have lost a family member.
Our loved one during this pandemic and express all of our gratitude to the frontline workers.
Who are risking their own health and safety on a daily basis.
As I have an extended family member dues and he our physician.
I know the stress on the family, but also the extreme pride of service.
At the Howard Hughes Corporation, our team members across the country have risen to meet the challenge of this crisis.
Both in their personal lives.
On behalf of the company.
I'm grateful.
Each of them.
Their dedication.
Hello.
Safety and well being over employees.
And that's and customers has always been our top priority.
As a pandemic unfolded, we probably instituted a work from home policy for employees and put our executive crisis team into immediate action.
His team connects daily to stay abreast of the rapidly evolving issues.
To ensure a strategic and consistent response throughout all the regions Although company.
We also assembled our H.C. task force consisting of experts.
In various disciplines to prepare and implement best practices and guidelines in alignment with the C. D C.
Protocols sit by state and local government.
And to help ensure that we have a safe and healthy environment for our employees tenets and customers to return to when they reoccupy ore properties at the appropriate time.
We are implementing actions such as requiring office tenants to where face masks in the common areas of our office buildings, a requiring all of our employees worked face basket upon returning to the office.
We're also working on creating what is known as the six split office, which helps people with physical distancing.
A bomb other safety measures.
During the crisis, our team members across the portfolio had been rolling up their slaves to support local first responders frontline workers and those in Nate.
As an example.
In the woodlands, we re purpose or valet line at the Westin hotel and used it as a drive through pickup line for food prepared by our hospitality team for first responders and for those temporarily laid off employees.
In summary, one.
New York and Columbia employees have all deliberate food to first responders and medical workers in Hawaii H.C. employees went to work running <unk> farmers market boots.
Local residents to support her during the pandemic.
In New York R.A.J.T. team members stepped in to help operate a seaport store.
For the owners who are in.
The at risk category.
We have partnered with local community philanthropic organization said, the woodlands and at the seaport to help our fellow H.C. hospitality team members across the country, who are facing a financial strain due to the cobot 19 pandemic, which.
He has had a devastating impact on the hospitality industry. This cause countless layoffs nationwide.
I am proud of how our company has responded to the challenges of this crisis.
Although we have physically separated we remain denied in our commitment.
And collaborative in our efforts to continue to serve our communities in anyway, we can.
For anyone who would like to know more.
I encourage you to take.
Hey look at the many inspiring images across our social media channels.
Now, let's take a look at how our businesses performed.
And some of the actions we have taken.
When we look at our first quarter numbers. They will obviously show the immediate effect that the crisis has had on our results.
But they also tell a larger story.
The successful company that acted quickly to proactively protect its employees communities and businesses while positioning itself.
Or an expedited recovery and any quick return to its business of development and growth.
The results from the fourth quarter of 29 chain were among the strongest in our company's history.
And our momentum continued through much of the first quarter of 2020.
We were well on our way to eclipsing our Q4 results when the Corona virus pandemic Scott down the country.
Operating asset in a why was up 35% sequentially.
When compared to the fourth quarter up 29 King.
This performance is due to the woodlands towers the waterway acquisition.
And the continued stabilization of our assets.
Losing this recent acquisition.
Sequential increase was 10.4%.
In our MPC segment, we saw strong 5.7% growth in our price for residential acre sold during the quarter across our portfolio.
Net new home sales increased 24% during the first quarter of 2020 compared to the first quarter 29 team led by a 41% increase at Richland and a 27% increase that someone a great leading indicator for future land sales.
In our strategic development segment.
We successfully launched public Presales of our newest project at Ward village, Victoria place, where we sold 225 homes during the quarter, bringing the project to 64.5% pre sold as of March 31st.
We sold five additional homes in April although some of the April sales are still in their rescission period.
We did however.
I have to take a charge of 98 million <unk>.
For our general contractors construction defects.
We do expect to recover this amount however, but it may take some time.
All in all our company's performance.
In quarter one.
Indicates that despite the challenges facing our country, our core business is solid and well position to move forward our path to success.
Much of our momentum can be attributed to the implementation of our transformation plan, which we announced back in October.
Plan as you recall.
Is built upon three strategic pillars.
First we set.
And have already significantly executed on our goal to reduce our overhead expenses by 45 50 million.
We will start to see these reductions materialize in the coming quarters, especially following our corporate moved to the woodlands, which is planned for later this year and will result in our company's 40% reduction.
Office space.
Second.
We committed to selling approximately $2 billion gross of noncore assets generating approximately 600 million of net proceeds.
Fourth quarter of last year, we announced that we had closed on the sales of three noncore assets for a total of 95.5 million then recorded a net gain associated with these sales of 27.3 million.
This quarter, continuing our dispositions we closed on the sale of 100 Fellowship drive the build to suit cancer care facility was sold for $150 million, which resulted in net cash proceeds of 64.2 million.
And a total profit a 51.7 million. We also paid off that 50 million dollar loan associated with this project note that the cash received on the sale is being held in escrow at quarter end as it was part of reverse 10, 31 exchange and therefore was not in our cash.
Cash balances as of March 31st.
It has since been released H.C. and now sits on our balance sheet.
Obviously, the timing of the dispositions of the remaining noncore assets has been slowed by that pandemic, especially with regard to our hospitality properties and the outlet collection that Riverwalk in New Orleans, giving the closure of non essential retailed.
But we continue to press on with this initiative.
Third.
We moved to a decentralized operating model to allow us to accelerate growth in our core NBC business, which will drive value creation and our decades long development pipeline.
The increased autonomy of our regions and the power of our regional presidents allow our leadership across the country to react more nimbly and efficiently.
Model that was instituted pre cobot and has been especially beneficial as we navigate poured through this constantly.
Changing and rapidly unfolding time.
My weekly calls with our five regional presidents as well as the ongoing support provided by our streamline corporate team ensures that our company remains unified and guided by a clear strong and strategic vision.
Overall, the transformation plan has been quicklink implemented and it's already served us well and strengthening our company's defensive financial profile and helping answer like ourselves from market variances.
Now turning to our recent acquisition of the woodlands towers at waterway.
First off we.
We are thrilled to be able to announce that we executed a new lease or 134000 square feet.
At 90, 950 would lock for us and the Williams.
With this signing.
The building is now 35% leaves you can imagine given the recent volatility in oil prices, we're keeping a close eye on all of our energy related tenants in Houston.
Obviously, Occidental petroleum, which is our largest tenant representing approximately 27 million of annualized NOI.
He is one of those tenants.
The pandemic and oil fluctuations oxy has taken meaningful steps to increase their credit profile that we view as positive.
In short Oxy has reduced operating at corporate costs by 1.2 billion.
Reduce their 2020 capital budget by over 2.4 billing.
Hey, There April 2020, Berkshire Hathaway preferred dividends in common stock.
And today.
They have a 5 billion dollar credit facility available. In addition to 1 billion in cash and no remaining debt maturities in 2020.
However, on the heels of a great quarter, we experienced the confluence of the cobot pandemic.
And a global oil price war.
Which has created a situation that no one could have predicted.
Concerns regarding the unfolding crisis.
Were discussed at length and as early as mid February among our board of directors.
The strategy is always was to be prepared for the worst.
And positioned for the best.
Early on we saw that the storm seem to be uniquely position over the regions, where we operate and would affect many of the sectors that have been meaningful drivers of our financial results for example, in retail which accounted for approximately 20 acres.
Set of our Q4 2019 annualized NOI.
We only collected 44% of our billings in April and although the data is not in yet we appear to be on a similar pace for this month in.
In addition, our hospitality business was completely closed although we're currently looking at a slow reopening.
In light of these challenges we immediately reviewed our spending across the board to eliminate or reduce any expenditures that were not absolutely necessary and as David will explain we went to work on extending any short term debt matures.
Ladies.
The board also determined that our company would undergo an equity raise to ensure.
Our ability to prevail and solidify our position moving forward.
Equity raise provided meaningful benefits across the company of course, the most critical benefit of racing 600 million EUR 594 million that in equity is that we now have the capital.
The weather any store that this crisis persons. In addition equity raise gives us the ability to execute on great value, creating projects such as Victoria plates.
Fastest selling tower in the history aboard village.
This is a project, which we can now advance.
Even in this potentially more challenging lending environment and even if it requires more equity than weve traditionally invested.
Note that we have many months before we have completed our engineering and architectural design, including adding post cobot modifications to the building.
In fact.
Given our liquidity from the equity raise we're continuing to judiciously investing and.
He areas of our business.
Typically we're spending limited predevelopment dollars into Threed multifamily developments in our Mpcs.
So when demand presents itself development can commence immediately.
Personally I believe that our recent success and ward village can be partially attributed to our strong balance sheet.
As our buyers, though that there counterparty is a well capitalized public company has the financial wherewithal to deliver.
On its commitments.
David will detail a bit later, the incredible volume of financings, we executed during the quarter.
Subsequent to the crisis, causing a broad market disruption.
Our equity raise provides both a certainty of execution.
And allows us.
Execute on meaningfully better terms.
Dennis want to know that their landlord will be there for the full term for their lease a great case study. This was our recently to western midstream and the woodlands towers at the water.
Where equity raise helped us execute.
On our leasing strategy.
It's obvious that this pandemic has already impacted much of our business.
In the short term.
However.
There are also some potential silver linings.
We are just now starting to see states lift the stay at home restrictions and resume operations such as in Texas in Nevada, two of our largest markets.
While there are still many uncertainties on the road ahead, our company is extremely well position and we believe there are reasons to be optimistic.
We have great assets and excellent locations.
The majority of which are in low cost low tax states.
As state taxes increase and more people want to get out of the larger denser cities. Our properties offers a very attractive option.
And the case of Hawaii Island lifestyle that is increasingly compelling.
For many following this pandemic.
In addition that low taxes, we seek Texas in the bottom.
Among the first stage to resume operations at allow our customers to reopen their various businesses.
I'm not sure if you've heard.
But a few days ago, Tesla announced that they would be moving their headquarters from California to either Texas or in Nevada.
Well you unmask, if you're listening.
We have some great real estate options for you.
I believe there is a flight to quality.
During times of crisis.
A trend that has always helps Howard Hughes during market downturns.
I strongly believe that we will see this anticipated flight to quality in our multifamily office space and MPC home and condo purchases moving forward.
We've also been pleased to see some pockets of resilience.
In home sales Enbridge lunch, and Summerland, where our builders sold 38, and 30 net homes, respectively and April also in our leasing velocity at our multifamily units across the country, where we leased 92 apartments and I pool.
We believe it's possible that these homes sales during stayed home periods could be indicative of and larger trend that could emerge from the pandemic.
Those who have previously delayed home purchases will now seek the freedom and extra indoor and outdoor living space that comes with home ownership.
If this proves to be the case, our master plan communities and bridge when the woodlands woodland Hills and someone are incredibly well positioned.
The beneficiaries of this potential trend.
I'm happy to report that despite the challenges of the pandemic our rent collections April for multifamily and office have performed exceedingly well both in excess of 94%.
At the Seaport, we are taking advantage of this opportunity to make changes that will better serve our goals.
We look to reopen and began our next chapter is a new tenant mix.
We made the difficult decision to close to of course, a combo New York.
And look forward to sharing news.
As it comes available.
All in all we have reason to believe that we will come out of this crisis better positioned.
For the future.
We have faced crisis and tenuous situation before albeit never won the severe or we have seen or business endure they continue to thrive.
For example.
With oil last dropped to the mid Twentys per barrel the woodlands office portfolio enjoyed tremendous outperformance.
In 2016, and 17, when the overall Houston class a office market had negative absorption of 1.4, and 1.5 million square feet respectively.
Rental rates collapsed and vacancy.
Excluding sublease space.
Approach 20%.
However.
And our woodlands office portfolio.
We enjoyed positive absorption.
325000 square feet, and 144000 square feet, respectively, and only a modest temporary decline in rental rates.
And we finished the year.
2017 at only 10% vacancy.
And now I'm going to turn the call over.
Through our CFO David O'reilly.
Thank you Paul and good morning, everyone.
He served.
And our segments performance during the quarter.
Discussed at the pandemic is impacted these segments performance for April and May before I turn to our recent equity raise balance sheet upcoming maturities and liquidity.
First starting with our operating assets segment or total NOI for the quarter increased by 24% compared to the same quarter 2090.
In addition sequentially increased 35% compared to the fourth quarter 2090.
This of course is largely due to the will lose towers at the waterway acquisition.
Excluding this acquisition are in Hawaii increased 1.2% year over year and 10.4% sequentially.
You know in PC segment.
Home sales during the first quarter over 688 compared to 557 in the first quarter 2019, 24% increase.
This was led by 41% increase it Bridgend and a 27% increase if someone.
We saw strong growth in the price the residential acres sold during the quarter across our portfolio.
Bridges average price Greek or increased by 58000 or 50% to 439000.
In summary, we saw the average price per custom lot increased 23% to $925000.
And at the Woodland Hills, the price for acre increased 8.2% to 303000.
These strong results demonstrate the demand for best in class MPC bodes well for when home sales normalized.
Moving to Hawaii in our strategic development segment.
During the first quarter, we say 239 homes at Ward village.
Our latest project began sales in December 2019, Victoria place, we 64.5% pre sold as of March 31st 2020.
And there continues to be moments housing shortage on a walk.
The projects that are under construction was completed a wall sold at approximately 90% your 20% hard deposits from our buyers and we don't have any building delivering until late 2021.
2022.
We really couldn't be in a better position given the current circumstances.
Thank you with white.
During the quarter, we recorded a $98 million charge associated with our general contractors alleges construction defects that why it.
The majority of this is for Winder wall issues that create poppy noise that we previously disclosed and took a charge for it.
We expect to reach a settlement with the buildings homeowners Association under which we will agree to fund the expected cost of certain alleges defects relating to the construction of the project.
We expect to believe it covered these costs from the general contractor, where the other responsible parties.
So all in all as Paul noted it was a tremendous first quarter per hour news and why we're appealing impacts of the pandemic. We believed that our best in class assets and irreplaceable community as potentially provided a bit of installation from the impact on the broader market.
To that end and our operating assets segment, our office portfolio, which accounted for approximately 39% of our Q4 19 in Hawaii is performing well and our collections for equal had been strong collecting approximately 95%.
Month to date May we're in a similar track April we're monitoring that tenant on daily basis.
We believe that there's generally a flight to quality during difficult times, which would benefit us in all of their office markets and we remain optimistic about the continued performance in our office segment.
Multifamily had a similarly strong performance in April in so far in May.
Multifamily, which represented approximately 13% of our fourth quarter 19 in a wine.
Has been excellent mucosa historical norms.
In April reflected 95% of our billings and so far in May want a similar trajectory.
Well, there's potential for softening in the coming months as unemployment gross.
Our portfolio of newly constructed highly amenitized assets are among the highest quality and the respective markets.
Which we expect will benefit from the traditional flight to quality you challenging times.
Our retail in Hawaii, which accounts for approximately 28% of our Q4 19 in a light has experienced a more dramatic drop in collections as a number of our tenants are close.
We've actively engaged with all of our tenants, particularly with our small businesses our local tenants.
Need assistance than most and where our health in the form of rent deferrals can make a real difference in their ability to survive.
For the month of equal we've collected approximately 44% of the amounts build so far in May our collections are similar to where we were at the same point in April.
With the banning of most travel and business conferences across the country, our hospitality portfolio was our hardest hit asset class.
Almost overnight or occupancy was reduced to a point where did not make sense to keep our properties open.
Consequently, we closed all three hotels in a temporary laid off the majority of our sat there.
We retain key personnel, who will be required to efficiently startup operations and the timing is right.
You know why will drop from the Q4 19 run rate of approximately $28.8 million on annual basis were 13% of the total.
To an estimated negative $3 million in the second quarter, if we remain close.
Obviously, we're working to keep that number as low as possible.
On a positive note we're already actively engaged with our team detailing plans for reopening our hotels falling state and local guidelines.
One with hotel flag recommendations, which you could enhance clean safety protocols.
You are looking at opening a limited number of rooms at the Willdans resort in conference Center, a long little pooled Lazy River on May 20.
And possibly reopening embassy suites on June Onest.
Well keep you posted on our progress we of course will take all the necessary precautions to protect our employees and guest.
Our ballpark in downtown Summerlin, which accounted for $8 million what percent of our Q4 2019 annualized NOI will also be impacted by the pandemic.
We are uncertain, if and when major League baseball will resume a minor league season, and what the eventual impact would be for the year.
I am I know if you want a minor league baseball franchise. The plays we are sitting there.
We have no control over the season and will follow whenever the league. Besides his best.
The why we saw meaningful drop in retail hospitality, you're not the Las Vegas ballpark, we're really pleased with how we're performed in April so far in me specifically in office and multifamily.
Turning to our APC segment during the last six weeks, we've seen a slowdown in both the sale of new homes and correspondingly our builders appetite to take that land.
As we've always said, we continually endeavor to limit the amount of land that is in our builders hands at any one time.
Well, the allowing enough plan to be sold on current home sales.
All priced maker not a price taker are continually appreciating residential land.
And as Paul noted.
Mean optimistic about the prognosis for recovery future Homesales as many apartment dwellers are feeling that having more space is more important than ever.
In April we saw new home sales across our communities dropped sequentially 47, and 8% from 158 home sold in March.
The 83 in April.
Year over year, we still 218 homes in April 2019, as compared to be above noted 83 homes. This April.
Turning to Hawaii post pandemic I want to commend our team on the ground there.
Not just on the amazing efforts with the successful launch of Victoria place, but also for the continued ingenuity and immediately creating a virtual sales experience that has led to a new sales in April.
Now one in terms of Seaport district.
As you all know New York has been among the hardest hit areas of our country <unk>.
You got to close down the seaboard.
At this time, we do not know how long it will remain close a timing will depend bolt on government lippi restrictions and the demand for travel dining shopping and entertainment that ensues. Following this pandemic.
After careful study and as part of a review of the project as a whole we didn't make it difficult decision to permanently closed down the 10 of course, the Como retail and restaurant operation.
Which resulted in a $17.4 million charge.
Construction has been stop by the city of New York, We do not know when the band will be lifted the team and the support is continuing to work hard to move things forward and control costs wherever they can.
Now I'd like to do tell or equity raise the provided the meaningful liquidity that will allow us to continue to execute on our business plan.
And our last full board meeting in the Middle of February we became very cautious on the potential economic impact to cope with 19 could happen our business.
We plan for the worse I hope for the best.
As it became clear that our concerns were unfortunately materializing.
We move to action.
We built multiple stress downside cash flow models, we conservative assumptions to try to gauge how much additional capital we would need if the conditions persisted.
Our stock traded down from the mid 120 dollar range at the beginning of the quarter to a low in the mid Thirtys likely the result of market participants questioning or long term financial viability.
After consulting with our investment bankers, who it's clear that the high yield debt market was close and then are only option for capital would be equity.
With limited visibility into the death or the length of the current economic crisis.
Numerous downside cashless scenarios, a lack of alternatives in capital markets a delay in the sale of noncore assets.
And given our upcoming short term debt maturities.
Independent directors of our board decided that an equity raise was a prudent action to ensure that we would always be in a position to make the best long term decisions for our shareholders.
Therefore on March 27.
We completed an offering of 2 million shares at $50 per share plus an additional 270900 shares as part of the underwriters greenshoe.
In addition, we entered into a simultaneous purchase agreement with Pershing Square capital management for 10 million shares of common stock also at $50 per share.
We received net proceeds of approximately $593.7 billion from these transactions.
He was clear you confirmed by our investment bankers at the equity raise would not have been possible at the size what price, but we executed without the support of Persian square.
Also I'd like to note the Pershing square was only willing to do this if we resolved the maturity issues for both the Aki bridge loan and the downtown Summerlin financing, which I'll touch on in a minute.
Now with this incremental liquidity IGI is positioned to weather the storm even in a koning scenario.
Even in a situation, where we do not sell any residential land or condos.
People are hotels close.
No retail or ballpark revenues, we have enough liquidity to be completely demand through the end of 2022.
I'm going to pause there and spend a minute and talk about the right hand side of our balance sheet little more detail.
As of the ended the quarter, we had approximately $4.3 billion and total debt of which approximately 2.4 billion this floating rate.
Of that amount 706 million has been swapped to fixed.
An additional 230 million is subject to an interest rate color.
That leaves approximately 1.5 billion unhedged.
The vast majority of this that is associated with our women's towers bridge facility.
Construction loans, including 110 North Wacker.
And our downtown Summerlin mortgage loan.
In terms of maturity profile, we have approximately $627 million and debt maturing in 2020, and 163 million maturing 2021.
As part of the modeling and liquidity analysis that I mentioned earlier, we of course reviewed all of our short term debt maturities and immediately worked to execute extension discussions with many of our lenders.
As of today, we're working on the following.
We're documenting a three year extension for the loan facility for downtown Summerlin and the attached one Summerlin office building, which represents 257 million about $627 million maturing in 2020.
The existing loan which matures in September as a built in one year extension option through September 2021.
However, it contains test it would likely require significant paydown, especially in light of the pandemic.
The new extension provides three additional years attorney and immediately smaller paydown of approximately $35.7 billion.
We're also finalizing documentation on an extension to the corporate bridge facility with Bank of America that was used to purchase the oxy buildings and the woman's last December.
The original alone was reduced by 63.5 million to 280.3 million March when we refinanced the 596000 square foot 90, 950 would look course office building.
The loan extension includes two six month extensions for the remaining balance and are priced at LIBOR, plus 235 in 290 basis points respectively.
The final maturity will be June 2021.
The only other loans maturing 2020 or tumor or whether it's for use landing.
To marry weather has a one year extension the loan, which we should qualify for with little to no pay down.
With regard to three use lending, which now matures in September of this year, we've started extension discussions with existing lender and do not anticipate any issues getting that accomplished.
As for our 2021 maturities of 163 million Weve extension options for 133 moved those loans.
We do not anticipate any issues refinancing we're extending these property level loans.
From a liquidity perspective, we finished the fourth quarter with approximately 972 million of cash on.
64 million in escrow from the sale of MD Anderson, which has since been released agency.
As you can see from the projects under construction table on page 48 of the 10-Q.
Even equity requirement of $248 million.
Approximately 159 million of that to 48 million I've met equity requirements are for the Seaport District, where construction this stock due to state ordered restrictions.
Does this leaves in net equity requirement $89 million.
<unk> increased liquidity from the equity raised in the failed MD Anderson, we have enough cash on hand to meet all of our current funding commitments.
And with that I'm going to turn the call back over to Paul for some closing remarks.
Thank you David.
I remain optimistic that we are quickly coming out of this period of great uncertainty.
A lot depends upon the timing of potential vaccine and advances and successful treatments for the virus.
Oh, no one knows what exactly recovery will look like.
Being well capitalized will surely put h. I see a strong position to take advantage whatever recovery will look like as we emerge from this pandemic.
People may choose to say homework and travel less.
They will want larger nicer homes with more amenities.
We know that millennials are looking for walkable suburban communities with all the urban conveniences.
After sheltering in place many people are seeking wide open spaces with walking trails in green space and a high quality of life and ever paired to pay for it I believe we have the ideal solution.
For the Howard Hughes Corporation or Mpcs at the core of our business has always been extremely desirable place to live.
And our perfectly suited to meet this growing demand.
Our communities offer some of the best health care systems in the country.
We provide safe walkable environments.
With extensive amenities.
Our communities are in beautiful natural settings.
Fancy open green space.
The woodlands for example.
His 28000 acre forced did community.
With over 130 parks.
More than 200 miles of hiking bike trails.
With nearly 8000 acres.
That's 28% of remaining dedicated.
Open space.
For those of you have not had the opportunity to visit the woodlands.
Our any of our other communities.
I invite you to visit our web sites to view photographs and to get a better visual sense of what our communities offer.
And what makes us so successful in attracting and retaining today's top employees.
Tenants.
And business.
If not for the unforeseen pandemic.
We would be talking this morning about our two recent consecutive quarters.
With the most successful results in our history.
While we cannot ignore the realities that today.
We are.
Doing the right things.
We're keeping our employees are tenets customers.
Other safe.
Helping does less fortunate in our communities.
And reinforcing the trust.
And goodwill.
Of our stakeholders.
In addition.
I have created our future studies think tank to ensure that our company.
Is that the forefront of our industry as we explore and evaluate best practices with regard to design architecture in construction and how they will.
Continue to evolve in the post Kobin world.
And.
We have the capital.
Actually $1 billion in cash to position us to thrive for the future.
We are in the strong position now for two primary reasons.
One we've always dedicated ourselves to acting as the stewards of our communities not just a developer our commitment to all of our stakeholders.
Has established a longstanding legacy of trust.
<unk>.
Our financial discipline and prudent actions.
We have established our company is being on solid footing.
And here for the long term.
In subsequent quarters I believed that we will look back and see.
At the steps we're taking.
We'll have served us well and our ongoing pursuit.
Of the long term growth for the Howard Hughes Corporation.
We will now turn to queuing day.
Before we open up the lines to those who called in.
The first few questions have been generated by our investors over the past week to our newly implemented say technology application and will be read by day strides Dave.
Can you read the first question.
Sure Paul It appears that we've answered most of the say generated questions in her prepared remarks, I'm only going to read a few of the ones that we haven't touched upon.
The first question is burn rate current estimated in Hawaii and expense run rate.
Thank you Dave.
Why don't we let our CFO David O'reilly take this.
Thanks, Dave.
Have you taken Paul and thanks for the question. It's a great question is one that's front and center a lot of investors' minds and candidly at this point given that we're only five and a half weeks into the second quarter, it's very difficult to say, what we think that rate will be in fact, even too early.
Just a whether they will be a burn or surplus.
Like we mentioned the prepared remarks, we're really excited about their collections in office and multifamily.
And while retail has lagged we're hopeful that as these stay at home orders are lifted in Nevada in Texas, we're able to start receiving more and more retail rents.
Again, it's a little bit too early to talk about where that burn rate will be for to Q I do think it's really important though and one.
Item, that's worth highlighting again is that a ramp it given the fact that we were able to raise the equity that we did and raise just under $600 million in net proceeds.
Even if the storm clouds of economic uncertainty created by Corbett 19 persist in a long consistent manner in a very draconian scenario, where there's no land sales no condo sales or hotels are close and the retailing ballparks really have no revenue, we had more than enough liquidity to be comfortably finance at the end to 20.
The 22.
Dave back to you.
Okay. Next question are you considering using 110, north Wacker type deal structures to generate better risk adjusted returns in the future.
That seems like a home run deal in terms of high returns a minimal capital.
Thank you Dave and thank you for the question.
That particular deal was great structure for one off deal outside of our core assets.
There are unlikely to do this again given that we're selling noncore assets.
And would not entertain a JV type structure in our mpcs other than possibly for a non core asset types like.
Hospitality or possibly senior living for example, a JV on an office building and one of our Mpcs would introduce competition into the market that would create issues. For example, if we want to move tenets between our buildings, which we.
Kept on in the past.
The next question.
Thanks, Paul.
Could you please provide an update on asset sales what's on ice hotels.
What may still happen.
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Thank you another great question.
Hospitality, obviously is closed and unlikely to sell the near future.
Since we closed the hotels for the safety of our employees cats customers community.
I think one Chen North Wacker.
Could definitely sell given the quality extreme high quality the building strength of the tenants in a fantastic location in Chicago.
Some of the land deals like monarch city could potentially sell.
But I think we're looking at a general slowdown and what we anticipated last year.
Dave The next question.
Could you please provide a revised guesstimates or timing of seaport completion.
Thank you.
We're not sure or the timing.
Given that we were ordered by the city of New York to shut down all construction.
We're not sure when this will be lifted and even after it is lifted how easy it will be to obtain labor and materials.
Given likely slowdown in construction.
We may be able to obtain better pricing.
Clearly a positive.
This is the asset most affected by the current crisis.
It is completely closed.
His entertainment focused with retail outdoor bars, and as you know the concert venue.
Good news is that this gives us a chance.
Look at how to position the asset for the future.
Most significant action.
Was making the hard decision to close to of course to come up.
Dave Thank you.
I think now we'll open it up to question and answers correct.
Yes, operator, we're ready to open the lines. Please thank you.
All right at this point will begin the question answer session. So asking questions any press Star then one on your touch sensors.
Seriousness speakerphone, please pick up your handset before pressman cheese.
Withdraw your question. Please press Star then to at this time, a pause momentarily to assemble a roster.
Our first question comes from Alexander Goldfarb of Piper Sandler Alexander Please proceed.
Thank you and burning down there on the first question is David as you've had discussions with your lenders and various that capital providers and Oh, yeah for the refinancing. There's this year and into next has there been any indication from them that the refinancings would be less than.
The current levels meeting you guys would have to contribute more capital or there would be or are there would be change and the metrics covenants et cetera.
Oh, great. Good question, Alex can I tell you that there isn't kind of a one size fits all as it relates to that question.
You know when downtown Summerlin for example, when you have the one year extension option, but it's subject to the in place I know why at that moment in time and when you're at that moment in time happens to coalesce went to stay at home order when a lot of our tenants are close obviously, there's meaningful pay downs and something that was very challenging to work through we're thrilled to variable.
We get a three year extension there with a relatively modest pay down of just over $35 million for other assets like a three years landing or tumor or whether office buildings with a great rent roll and solid cash flows. We don't expect any sort of meaningful changes in getting extensions there Alex I think there's the short answer your question is largely dependent on the asset performance the asset.
Type and geography, where it's located and there's like I said not a one size fits all approach its unique case by case basis, but we're thrilled that we were able to execute a incredible number of financings that we did and get the number done that we did post really did the crisis baking old. So I think it was a great.
Success for the team and I'm really proud of the capital markets group premium execute as well as that.
And then as far as a word village goes well. They are the windows that you guys are taking care of obviously did that you guys are stepping in and remedying that but as far as the contractor goes.
How confident are you guys and the contractor has basically 110 million of capital or insurance for that amount tour to a two to you know pay you back versus that it's maybe a permanent capital charge that you guys take.
Dave you want to continue with that.
Sure thing Paul I'm, No look I think it's my question, Alex and we do feel good that the financial viability of our counterparty there for general contractor Nordic Tcl has the financial wherewithal to stand up and do the right thing and fix their defects.
We don't feel they pay at the high risk item at all at this point and it's a good question now it's because it really it really talks about what we're doing and our commitment to our projects and.
Our view why it is one of the most desirable residents and incredible board builds community and we are incredibly committed to why a into weren't builds community overall and to believe that is a premier place to live in all Hawaii.
And I think the evidence of our commitment were agreed to fund the cost of these repairs to correct certain construction defects.
Bite. The fact that were not the responsible party and we have no legal obligation do this really cement start kind of commitment.
We're also agreed to work with the way Homeowners Association majority pursue Nordic to recover these costs and all other repaired in construction defects that they are legally liable for.
Oh, you know look I think this level of commitment shown by being more village is unprecedented for developer and it's another example of how important are homeowners are two are and how dedicated Howard uses the health welfare and success of our community in all of her customers.
Okay, but David just for those who aren't familiar with Nordic are they like Aatish band like there at large you know multinational are extremely well capitalized density or they just an entity on the island.
I would say that they aren't they.
I'll go back to my earlier answer Alex and say that we believe that they are well capitalize enough that they can do the right thing here correct, there defects and execute the way they were supposed to when you originally hired to do the job.
Thank you David.
Appreciate it Alex.
Our next question comes from the he correspondent be FW. He please proceed.
Hi, Good morning. Thanks for taking my question first question Hum concessions and I know you have comparatively on the long term spectrum roughly about $13 million of renewals.
For rents. This year is are you in communications in terms of concessions of any kind and similarly.
On your Unstabilized properties and Lisa mode.
Are you, having conversations with potential tenants on concessions.
Yes. This is Paul Lane I. Appreciate your question, it's a good one with specific to office renewals.
We have found that.
If you look back.
As I mentioned in some of my prepared remarks.
The last oil downturn.
The woodlands was substantially stronger both from absorption.
And or our strong occupancy numbers and this flowed through to.
Maintaining a higher net effective rents or face right and fewer concessions than Houston for instance.
We are tracking all of our renewals or on the office side and retail course, but on the office side very closely and.
I'm expecting slight increases in concessions, but not substantial if it's anything compared to all the other ups and downs in our market.
Okay, and I have two more questions different and one's going to be about the ballpark and the other one about support on the ballpark and they have the sponsorship agreement with the Convention Center authority is that something that still continues to get paid even if the ballpark is close.
Yes, thank you for that question.
They are contractually obligated to continue to pay.
The naming rights sponsorship.
Okay.
Then in Seaport have you approached the Port Authority I believe that's who owns the land and your leasing it from but if not please correct me, but have you approached them about concession to in terms of lease payments or extensions. Since you know, it's a mandate closure and you can't do any work on the site.
Good. Thank you for that David do you want to take this one.
Sure I would tell you that.
It's a good question in any part of an overall dialogue and we're having with all of the officials in New York City, and it's not just around the ground lease payments that we have but we're also in discussions as you are aware around the air rights around some of the uses that we have and other items that were trying to.
Change around the seaport.
They again, it's on the table is.
Very early in any sort of dialogue and I wouldn't want to come in one way. The other on what are we think we'll get that any sort of benefit whatsoever. There I think as you know from the detail in the back of our supplemental our ground lease payments.
As it relates to the seaport are not.
You know a.
Order of magnitude that creates a tremendous amount of financial strain for us.
Obviously, we're going to continue to make those being payments because that's our obligation, but having the dialogue to see if there are other ways of a finding concessions or something that we're always.
In the market to try to do.
Thank you.
Our next question comes from Alex Vernon.
Of housing Research Center Alex.
Steve.
Yeah. Thank you you guys are all well.
Thank you I wonder.
I wanted to ask about I'm, sorry, if I methods and in your prepared comments, because I I got disconnected, but.
I wanted to address I guess, that's subject about land.
Purchases by the builders.
I know most of the builders have indicated they were going to talk to the land sellers about was falling in take downs and stuff like that so I was curious you know whether how you know what's happening on that front.
Whether builders are asking for lower prices birds are just asking to postpone.
Dave.
And you know whether you're starting to see signs that their reengaging start buying again or whether maybe I never stops.
Yeah. Thank you Alex I was always good to get your questions.
Let me start and then I'll turn it over to David.
We have been surprised the last few weeks and so pleasantly surprised in the sales for instance said it bridge lending Houston.
The last two weeks, there's been a 14 16 net sales home sales.
And obviously the home sales directly will tie to the the willingness or the take downs, we believed that the strength of our master plan communities, such as Richland, the woodlands woodland Hills.
Summerland.
The builders wants to be there they want to have a appropriate.
Number of lots are super pads to build on and so as home sales increased we think we're very very well position.
The other thing I'd like to say Alex is that.
Coming out of this quarantined.
Slowly and safely.
I believe that.
We're going to see more demand for people coming out of apartments.
People are coming out of smaller homes.
People coming out of.
Non masterplan communities and wanting to.
Take advantage of that flight to quality that we've seen and other downturns the flight to quality to master plan communities like ours, frankly, they have that open space the green space the walking trails.
The some of the best hospital systems in the country. So I.
I think that we're very well position to get this uptick and new demand as a silver lining.
From the Cobot Nike brand day.
David you Wanna add comments.
Hi, Paul I think that was really went well said the only thing I'll tell you in terms of the discussions with builders.
We are as you said repeatedly where price make or not a price taker.
And if a builder who has a contract with us things that they have a REIT to come back and modify the price and it will accept that absolutely not.
We have incredible amount of belief in our land, we know that it continually appreciates and if they're not willing to pay the appropriate price today, we're not willing to sell it.
Again, we're only going to continue to sell Landa homebuilders to keep up with underlying home sales. The we limit the amount of land that's in the builders hands at any one time.
With that said if there are certain situations, where homesales you're going after we've seen here recently, although you know what its candidly, it's refreshing to see 38 <unk> home sales an equally bridged during the stay at home period 30 home sales in Summerland in April during the state owned period, albeit that's well off.
All of their case of April last year, but enough homesales that indicates that we shouldn't be selling some land to builders and making sure we're getting a full price for that land that we do so.
Okay. That's a that's helpful.
And then on your comments about selling land to Tesla.
Have you guys gift, giving them some thought where they wouldn't be you know potentially best position.
I'm guessing that would be maybe headquarters and what Ben.
And the actual brand and the British land, but I don't know I love to hear your thoughts on that.
Alex Thank you so much for that softball, that's.
And it fraud.
If teslas listening we'd love to.
Connect with you directly and show you all of our outstanding sites that we have as potential.
You know Alex's you know.
We have not only the woodlands. We also have bridge loans in Houston, we have in Dallas Monarch City, which is a in excess of 200 acres and Alan Texas. We kept circle Ci Ranch has a potential headquarters that we sold land to patrol swap and they've expanded.
They're campus there and then of course summer one has a number of options for headquarters.
So we think we have a full array of opportunities, but not only for Tesla. This is for any company that wants to move to a low tax environment like Texas in Nevada.
For a master planned community like Colombia, So we're excited about what the future could bring.
Again looking for the silver linings. Thank you for your question.
Yeah, Thanks, where you guys are definitely well position to offer many of those options. So congrats on that thanks.
[music].
Your next question, how some of them for the away Securities Marlin. Please proceed.
[noise] apologies for next question, Jon Petersen Jefferies.
Sean Please proceed.
Great. Thank you no first of all say if someone who's been hold up with my family in a small New York City apartment for two months I definitely agree with your sentiment that people are considering moving to houses for the first time.
I guess I'm curious on [laughter] God.
I just got a week, we can help you out there.
[laughter], no nothing and moved to Houston, but I'm curious about.
You know just the Houston market. You know you guys are in that market, you know where all in different parts of the country I'm curious just what you're seeing and hearing on the ground there.
I guess, what you know, what's kind of the west or the talk of where oil prices need to go for everything to bounce right back in how do you kind of feel like the woodlands community fits into the whole oil price.
I guess problems that we're having right now irrespective of the cobot 19 environment.
Sure I appreciate it there was.
No that double black Swan event as some people are calling it.
Houston is resilient.
We've been through downturns before never won this severe.
Luckily we have a detailed oxy as the largest oil and gas synergy tenet detailed that what they're doing.
The next largest tenant at a approximately 500000 feet as exon, which we're certainly comfortable with their credit.
And there are a fantastic customer.
We are watching and have built a very strong relationships with.
Our Senate customers, they they trust us as a landlord and we work closely with them.
It will be a challenging time, depending on where oil prices go.
I recently was studying this the history of oil prices and in 2016, the low was in the mid Twentys, but the average for the year was.
I think $43 so.
It certainly has bounced around a lot over the last 10 years, but I believe.
Houston is in the woodlands, especially is well positioned.
I'm not saying, we have a moat around the woodlands, but we definitely are better positioned than anywhere else in Houston in my opinion or for that.
Chamberlain. So you know strong energy companies that can rebound.
Our office space.
David do you Wanna add anything.
No look I would agree that having been through this and not just with Howard Hughes, but with Parkway before you know look I'm finely tuned to what goes on in the Houston office market news the multifamily market as it relates to oil.
And I think the difference this time than last time.
It's a couple of things in one last time whittling down to Twentys in 2016, it was coming off of a high north of 100, and I don't think companies were equipped or prepared for this type of downturn and why we may not have predicted. This downturn you. There's we're not that far from the new from the last one so that these companies are not at the same store.
Staffing level overhead in capex spend that they were at over $100 barrel oil.
I think that their memories are you know long enough that they remember that last downturn. The remember that moves that they need to June to stay profitable to stay positive cash flow and most if not all have reacted very quickly to do that I do think there will probably be some farm out some M&A, but we spend a lot of time underwriting credit in our portfolio.
No I'm happy to say that during the last downturn in 16 and 17, we had zero default I think part of that is good underwriting and part of that is just luck and we're hopeful that will come out of this one around the same place to be did the last time.
You know if I could just had one other comment thank you David.
With.
35, plus years of running large regions.
[music].
All around the country with this is my third publicly traded.
Real estate company.
Our company is extremely positions to collect rent we do it well we have built trust with our customers that pay us rent.
Not only office, but multifamily retail et cetera, and the fact that as David mentioned in his prepared remarks, the approximately 95% recovery of rents.
Last month.
In both office and multifamily I.
I think is representative of of that so and that's nationwide, but the.
The numbers for Houston in both categories that I mentioned had been very strong.
So we watch it every day.
We monitor it every day and.
Probably I mean, I don't know if you could ever be two excessive in these difficult times to monitor your customers and your rent collections, but we've got a great team around the country that does that and we are absolutely be on top of it.
Great appreciate all that all that color yeah, there's been a lot of talk about kind of the capital raising you guys mentioned that you know the high yield market was closed and that's why you had to do the equity raise some is kind of curious and position today, but if we think multiple years in the future is there a goal to get towards an investment grade rating. So you know the next time, we have a down.
Turn you have that.
You know that source of capital open to you.
What does it take to get there.
Yeah, It's a great question Nonetheless, David checked out.
Yeah look I think that improves us and no better than market than a market right now to demonstrate the power of having a better credit rating and what the impact of a better credit rating has your overall wage weighted average cost to capital because your cost of that is dramatically different when markets are dislocated from single B to double b to.
Triple B.
I can't comment on you know how long I think or what that track will be for the rating agencies do or think about upgrading hopefully are the moves that we've done over the past several months with raising equity sort of solidifying our balance sheet, making absolutely the right thing to do.
To preserve the long term value creation for our shareholders. In this company help demonstrate our commitment to maintain your great credit profile and it can be incrementally helpful.
But I do think that really your question, we would like it better credit rating, we know they're better credit rating trades translates into a better cost of debt, which is a better cost of capital and that's important to us it increases our axle accessibility to capital markets and that's important to us.
But I don't have a good a roadmap.
Because as you know were public fear of one and there's not a lot of other public companies I can point to that or like how are used corporation.
That have an investment grade ratings I know, what I need to do from here to there. So we keep continuing to hopefully improve our credit profile. A every quarter every year over time and improve our operating results by increasing our recurring cash flow by driving and Hawaii higher and higher every quarter and for US I think that's the best.
Method that we can do to try to improve that credit quality.
Got it all right. Thank you very much appreciate it.
Thank you.
Oh last question comes from the line Heartland Pereira feeling.
Brian. Please proceed.
Thank you I apologize if I missed that I've been having a little bit technical difficulty, but just to clarify. This takes 27. It's got you hadn't maturing this year. The to 57, you originally had a one year extension and just to be Craig you said, you actually got a three year extension in were only required.
To pay down 36 million is that correct.
Yeah.
[laughter], Yeah, let me I'm.
Back up and kind of taken at a pretty high level, because I think we might be crossing wise in terms of what loans have been extended and which ones haven't so we had fixed 27 of with debt maturing in 2021 of those with the 257 million dollar loan downtown.
No one.
That 257 million had a one year extension, but we are finalizing our negotiation in documentation to get a three year extension on that with a 35 million dollar pay that.
Got it yep.
And then just largest piece is the 280 million dollar bridge loan that was associated with the Oxy acquisition.
Concurrent with our equity offering we were able to negotiate a one year extension on that to get us to June 2021.
Great and you had mentioned that was actually going like to six month or pieces to that one year extension exactly exactly okay that is right in our next six month extension.
And are there any conditions around getting you know those extensions.
<unk> almost you or you know or in general what are the conditions to going from one of the six month period for the back.
Paying the fee and increasing script.
Got it great. Thank you Simon clarifying.
No problem. Thanks for your question really.
This concludes our question answer session I'll now turn the conference back over for any closing remarks.
Thank you very much.
I just want to say on behalf of our company and our entire Howard Hughes team.
Thank you for your support.
We are here to build a legacy of trust.
With you.
Well I want you to be safe and be well.
Thank you for joining our call today.
<unk>.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.