Q3 2021 Howard Hughes Corp Earnings Call
Okay.
Good morning, and welcome to the Howard Hughes third quarter 2021 earnings Conference call, all participants will be in listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over to John Saxon Investor Relations. Please go ahead.
Morning, and welcome to the Howard Hughes corporations third quarter 2021 earnings call with me today are David O'reilly, Chief Executive Officer, Jay Krause, President Correne, Loeffler, Chief Financial Officer, Dave Stripes head of operations and Peter Riley General Counsel.
Four we begin I would like to direct you to our website Www Dot Howard Hughes Dot Com, where you can download both our third quarter earnings press release, and our supplemental package. The earnings release and supplemental package include reconciliations of non-GAAP financial measures that will be discussed today in relation to their most directly comparable GAAP.
GAAP financial measures certain statements made today that are not in the present tense or that discuss the companys expectations are forward looking statements within the meaning of the federal 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 in our third quarter earnings press release, and the risk factors in our SEC filings for factors that could cause material differences between forward looking statements and actual results.
We're not under any duty to update forward looking statements unless required by law.
I will now turn the call over to our CEO David O'reilly.
Thank you John and thank you all for joining US today welcome to our third quarter 2021 earnings calls.
To start the call I'd like to provide a brief recap of our quarterly performance and cover the highlights of both our MPC segment and the seaport.
Our head of operations, David stripe will cover the results of our operating asset segment, followed by our President Jay Cross, who will provide details on our development activity and speak to the results at Ward village.
And finally, our CFO Correne Loeffler, who will conclude the call with a review of our financial results before we open the lines for Q&A.
Before we dive into the results of the quarter I would first like to highlight the release of how would use 2020 annual ESG report, which was published just a few days ago and can be found on the sustainability portion of our website.
This report displays the impactful ESG results, we have produced so far and reflects our commitment to environmental and social best practices, which are integrated throughout our communities across the country.
Now onto the highlights of the quarter we.
We closed out the third quarter of 2021 with strong results across all segments as Howard Hughes continues to capitalize on the high levels of demand that exists throughout our various mixed use communities.
To put our performance in perspective.
Most of <unk> year to date results in 2021 have surpassed the year to date pre COVID-19 activity of 2019.
MPC EBT is up 29%.
Operating asset NOI is higher by 1%, even with lingering impacts from the pandemic.
And ward village condo sales were just shy of 2019 levels, Despite having limited available inventory.
And this was all accomplished while reducing our G&A cost by 30%.
During the third quarter, we saw healthy land sales driven by Super pad sales in summerlin.
Our operating asset NOI grew for the fourth consecutive quarter.
Condo sales in ward village accelerated despite a shrinking supply of available units under construction and the seaport saw steady improvements from the return of the concert series at Pier 17, and the growing popularity of our unique restaurants.
We expect these results to grow stronger, especially with the recent addition of Douglas Ranch, our latest MPC spanning 37000 acres in Phoenix West Valley.
In October we announced our 600 million dollar all cash acquisition of this fully entitled and shovel ready MPC, which further adds to our depth of opportunities.
By strategically redeploying the net proceeds from our noncore asset dispositions, we now have the ability to transform this blank canvas into a leading community focus on sustainability and technology.
Community that is entitled for 100000 homes, 300000 residents and 55 million square feet of commercial development.
Following this transaction, we are still left with a healthy cash position to continue executing on our existing development pipeline to meet the growing demand within our npcs.
While we have already have approximately 2 million square feet of development underway. We're pleased to announce new commercial projects in the medical office and single family for rent sectors, which Jay will touch on in a moment.
But we're not stopping there.
We've long believed that Howard Hughes trades at a steep discount relative to its net asset value.
As such we are pleased to announce our recent board approved share buyback program amounting to $250 million.
We believe there is great value that is yet to be reflected in our stock price and view. This buyback initiative is an excellent use of capital that when coupled with our development projects will help deliver meaningful value.
All of these recent announcements put a significant amount of capital to work to unlock tremendous value for our dedicated shareholders.
Now, let's turn to the performance of our Master planned communities.
Mpc's had another great quarter, despite encountering headwinds, including supply constraints, the delta variant and weather delays, particularly in Houston.
Housing supply still remains low throughout Houston, and Las Vegas, while demand continues to persist at elevated levels, which leaves us well positioned to deliver residential land at appreciating prices.
Homebuilders are currently sitting on record low inventory and they will need to replenish their depleted land holdings in order to meet this outsized demand.
During the third quarter, our Mpc's recorded earnings before taxes of $54 $1 million.
48% increase compared to last year, largely driven by the robust super pad sales activity in summerlin.
As well as the strong performance of our summit joint venture.
In addition to these impressive results we continue to see a steady pace of new home sales proving the strength of our communities remains clearly intact.
So far in 2021 there've been 2163, new homes sold in our MPC is a 6% increase over last year, indicating further demand lies ahead.
Okay.
Overall, we're seeing a lot of positive momentum when it comes to land sales and looking ahead, we expect our fourth quarter to be the strongest quarter yet.
As such we are raising our full year 2021, MPC EBT guidance by $60 million at the midpoint.
To a range of 275 million to $285 million Pri.
Primarily due to stronger than expected Super pad sales in summerlin.
This is our second time, raising MPC guidance in 2021 as this segment continues to exceed our expectations.
Speaking of Summerlin. This MPC drove a substantial portion of the positive results for the quarter selling 47 acres, mostly made up of Super pets.
This MPC generated $45 $6 million in EBT, a staggering, 130% increase compared to the prior year period.
Additionally year to date, new home sales of Eclipse over 200 units and are 20% higher over the same period in 2020, which if you recall was one of the strongest years in Summerlin is history.
Another significant driver to <unk> results has been our joint venture at the summit, our exclusive 550 acre community and Summerlin.
The total earnings from our share of equity during the quarter totaled $8 3 million driving year to date earnings to $54 $6 million versus only $4 $4 million during the first nine months of 2020.
The activity at the summit over the last year, it's been tremendous and these positive results have been primarily attributed to an influx of California buyers purchasing these custom lots and build product.
Turning over to Houston, our Brooklyn, MPC experienced a decline in land sales as supply constraints continues to have an impact.
As we highlighted last quarter, a majority of the homebuilders have extended their lead times for home deliveries due to ongoing supply disruptions that have resulted in higher material costs and delayed delivery times.
We've started to see some of these bottlenecks subsides and expect a more normalized environment heading into next year.
This quarter's land sales were also impacted by inclement weather as significant rainfall in the Houston area delayed horizontal development, resulting in slower lot deliveries to homebuilders.
Despite these factors demand in the area remains incredibly strong.
We view the significant imbalance between under supply and robust demand as a strong catalyst for elevated activity as we move into 2022.
Yeah.
Lastly, in the woodland hills, despite lower quarterly land sales due to the similar impacts experienced in British land.
The residential price per acre grew 18% over the prior year period to $353000.
While new home sales were up 15%, which points to future growth ahead, as we accelerated activity across this MPC.
Moving over to the seaport, we saw heightened activity throughout the quarter as events and concerts at Pier 17 helped draw in spectators.
During the quarter NOI improved 43% compared to the same period in 2020, indicating the return to normalcy is near.
In July we launched our 11 week Summer concert series on the Pier 17 rooftop.
Of the 30 concerts hosted 20 were fully sold out.
It turned out for these contracts proved to be very strong with approximately 74000 guests in attendance, representing 90% of our available ticket inventory.
We were glad to welcome back the series after canceling as last year's lineup due to the pandemic and we look forward to building on this momentum for next year.
In addition to concerts, we hosted several other major events, including the Sp's in July and the World Tour for the Fuji's, who debuted at Pier 17 for their first showed together in 15 years.
It's these type of special events that continues to set the seaport apart from other destinations in Manhattan.
All of these events helped drive substantial traffic to our restaurants, we saw an uptick in activity as more and more locals and tourists experience our variety of cuisines from a claim in New York City chefs.
As a result, our restaurants saw their average monthly sales increased 65% versus last quarter.
While labor constraints have marginally improved.
We continue to see improvements in this space quarter after quarter.
Many of our restaurants are now closely approaching their stabilization targets as higher volume is contributing meaningfully to the growth of our bottom line.
Overall, we see the seaport heading in the right direction and the upcoming completion of the Tin building followed by its Grand opening in the first half of 2022 will help bring the seaport closer to stabilization.
With that I'm going to stop and hand, the call over to Dave strike Dave.
Thank you David.
Our operating assets had a standout quarter as our portfolio delivered strong sequential and year over year NOI growth for the third quarter, we reported $66 million of NOI.
When you layer in the activity from our three hotels that were sold in September this segment generated $62 $9 million.
This marks the fourth consecutive increase in quarterly NOI as our portfolio of income producing assets continues to expand.
And as the economy continues to reopen and activity within our regions improves we have seen a corresponding increase in our retail NOI.
These assets generated $16 $1 million of NOI during the third quarter, the highest level since the first quarter of 2019.
This is in large part due to a stronger tenant base coming out of the pandemic. In addition to consistent increases in collections.
For the third quarter, we collected 83% of our retail rents with summerlin, leading the charge for the highest collections in our portfolio.
As we've highlighted previously our retail at ward village has been materially impacted over the last several quarters due to sharp declines in tourism as a result of the pandemic.
However, as travel restrictions to Oahu have been recently eased we've seen a corresponding improvement in our retail performance and.
In fact word was the largest contributor to the sequential increase in retail NOI, partly as a result of a onetime payment of deferred rent of approximately $1 $4 million.
We expect our retail portfolio to continue on this path of growth as collections work back to pre pandemic levels, coupled with the continuous lease up of our remaining space to credit worthy tenants.
At the Las Vegas ballpark, we were able to host the remainder of the aviator season at 100% capacity.
This resulted in $5 $4 million of NOI of 74% increase over last quarter or the beginning of the season was limited to 50% capacity to comply with COVID-19 protocols.
This is a stark comparison to the same period in 2020, where the ballpark loss nearly $1 million as the season was canceled entirely due to the pandemic.
So needless to say, we were glad to welcome back fans into a stadium and look forward to another strong season next year.
Our multifamily assets produced $9 $2 million of NOI during the third quarter, a 24% sequential increase almost exclusively attributable to strong leasing momentum at our most recent developments.
In 2020, we completed construction on three multifamily projects between the woodlands and Columbia and during the third quarter. These new developments made up two thirds of the increase in sequential NOI growth.
In addition to this robust leasing velocity, we've been able to push rents higher and are currently commanding some of the highest rents compared to our surrounding metro areas.
In addition to our existing products, we have three more multifamily developments underway in downtown Columbia, <unk> and Summerlin to meet this ongoing demand, which will drive our NOI even higher.
Our office assets have experienced steady increases in NOI over the past few quarters, despite a sluggish recovery and the return to office environment.
For the third quarter, we generated $27 8 million in NOI, a 6% increase sequentially and a 17% increase compared to the same period last year.
The bulk of this increase was driven by the roll off of free rent.
Assets, including 6100, Merriweather, our latest office building in downtown Columbia.
Overall, we are seeing a noticeable increase in leasing activity and expect our pipeline of opportunities to accelerate into 2022 as tenants look for additional space and folks continue to return to an office setting.
And now with that I'll turn the call over to our President Jay crossed.
Thanks, Dave and good morning, everyone to build on the momentum we are seeing within our operating asset portfolio. We're pleased to announce some new product types. In addition to our traditional mix recently, we've expanded into the medical office space to continuing to provide residents with the highest quality convenient medical care, we've noticed a growing need for this type of asset.
As the volume of residents in our communities continues to grow.
With that we are pleased to announce the launch of two medical facilities spanning 106000 square feet throughout downtown Columbia, and the woodlands in downtown Columbia, We will launch our first medical office building on the shoreline at Kitimat.
<unk> this new development will sit adjacent to our successful whole foods in the former <unk> headquarters building, helping to establish downtown Columbia as a prominent health and wellness destination.
Encompassing approximately 86000 square feet, we have already secured an anchor tenant for roughly 20% of the entire space and we expect to break ground on this project during the first half of 2022, and this will kickstart, our major development pipeline in the lakefront district.
In the woodlands, we will launch development on a 20000 square foot build to suit medical office building for Memorial Hermann. This project will serve as a primary local facility to cater to the medical needs of nearby residents and is expected to break ground by the end of this year.
Lastly, enbridge than we will be constructing our first single family for rent community, which will commence in the first half of 2022.
These 263 homes will span a combined 328000 square feet and offer a unique hybrid between single family homes for sale in multifamily for rent, adding yet another new product to our operating asset portfolio. Given this is an extension of multifamily we plan to leverage the expertise of the property managers, who oversee our existing.
Portfolio in Houston to assist in managing this build to rent community.
In total these three projects represent over 430000 square feet and $114 million of development as we continue to put our capital to work and enhanced our stream of recurring income.
We have already had a number of developments under construction in Summerlin Columbia Enbridge Lynne. So the announcement of these additional developments demonstrates the immense demand we're seeing throughout all our regions.
Moving to the seaport construction of the Tin building is now in the final stages and will be substantially complete by the end of the year. The launch of the Tin building has been highly anticipated and our team has been working in close partnership with Georgia team to prepare for the Grand opening of this 53000 square foot food Hall, and the first half of 2022.
Lastly, we continue to make great strides through New York city's yogurt process to obtain the necessary approvals for the development of a 26 storey mixed use building at 250 water Street in.
October the city Planning Commission granted US approval for this project another hurdle passed through this rigorous land use process.
We are nearing the end of the review, which we expect to conclude before the end of the year at the New York City Council.
The prospective development would replace the one acre parking lot with market rate and affordable residences commercial and community space further enhancing the character and vibrancy of this neighborhood.
We look forward to updating you on our continued progress as we continue to close in on the final stages of this process.
At Ward village the pace of condo sales continues to exceed all expectations, despite having less inventory under construction the number of condos contracted during the quarter has only grown across our three recent towers Ali E Cola and Victoria place, we are 90% pre sold as of the end of the <unk>.
<unk> with cooler in Victoria place still under construction.
This robust velocity has led to the pre sales launch of our eighth tower the park.
Pre sales activity at the park began in July and as of the end of October we have already contracted 64% of the total units.
The sales activity across these four towers just in the third quarter translate to 316 contracted units secured by hard deposits. During a period of time when travel to the island of Oahu was discouraged surrounding delta variant concerns. The pace of these sales is truly remarkable we've been able to establish a mark on this community where <unk>.
<unk> want to live in our historical sales pace has reflected increasingly faster silo with the launch of each new tower.
Subsequent to the end of the quarter, we completed construction.
And began welcoming residents to their new homes in October as of November 2nd we closed on 495 units totaling $332 million in net revenue.
Revenue that will be recognized on our fourth quarter income statement and will contribute meaningfully to our bottomline.
With that I'd like to now hand, the call over to our CFO Correne Loeffler, who will review our third quarter financial performance.
Thank you James the results of the third quarter clearly demonstrates the strength of our business as we continued to benefit from the strong demand throughout our communities across the country and.
In summary, our Mpc's produced $54 1 million of earnings before tax or EBT during the third corner.
And 22% decrease compared to the last quarter, and a 48% increase compared to the prior year period. It's important to note that while EBIT decreased from the last quarter that was largely attributed to nonrecurring cost.
The early extinguishment of debt upon the retirement of our woodlands Enbridge line credit facility. In addition, the top line only declined slightly due to the lack of commercial land sales in summerlin compared to the last quarter, our operating assets required a $62 $9 million of NOI, when including the contribution from that.
Three woodlands space hotels, which represented a 9% increase compared to the last quarter and 65% increase compared to the prior year period as Dave touched on earlier.
<unk> performance was due to a continued improvement across our retail portfolio a strong minor league season on a ballpark robust lease up activity at our multifamily assets.
And the roll off of free rent and select office assets.
At Ward village, we contracted 316 condo units, which were made up of 61 units from our three towers under construction and 255 units at the <unk>.
Park, which launched <unk> during the quarter.
<unk> sells at all the E coli and Victoria place were up 36% compared to the prior quarter and increased 154% compared to the prior year period.
Finally at the Seaport, we recorded a $3 6 million dollar loss in NOI, resulting in a 19% improvement over the last quarter and a 43% improvement compared to the prior year period.
Taking a look at GAAP earnings for the third quarter, we reported net income of $4 1 million or seven cents per diluted share.
Parents, and net income of $139 7 million.
Or $2.31 per diluted share in the prior year period.
The decrease in net income from the prior year was attributed to a one time noncash gain of $267.5 million for the third quarter of 2020, which was related to the deconsolidation of our 110, North Wacker office tower in Chicago.
If we remove this onetime gain our quarterly earnings were substantially higher than our prior year period due to strong activity displayed throughout the entire business.
With only one quarter remaining to finish out the full year, we remain on track to meet or exceed our previously disclosed guidance targets for 2021.
As David mentioned earlier, our MPC segment has done, particularly well, which has led us to raise our EBT target for the second time this year.
Our previous guidance range for 2021 with $210 million to $230 million.
We are now raising our guidance by $60 million at the midpoint.
Revising our range to $275 million to $285 million and we are expecting a strong into the year.
Given the recovery we are experiencing in our operating assets, we are raising our full year NOI guidance.
$5 million to a range of $200 billion to $210 billion. We are raising this segment's guidance. Despite the fact that we will not receive any hospitality related NOI during the fourth quarter.
As we just sold our woodland hotels in September for $252 million.
So some of these assets generated $120 million of net proceeds.
And brings our total net proceeds from noncore asset sales to $376 million since the announcement of our strategic transformation plan in late 2019.
We are also revising our full year conduct profit guidance and at ward village $575 million at the midpoint.
Our previous guidance <unk> guidance range for 2021 was $100 million to $125 million.
With elevated condo sales following the completion of all Lee in October we are expecting condo profits to range between $115 million to $125 million.
Please note that this target excluding the $20 million a repair costs incurred at <unk> during the first quarter, which we fully expect to be reimbursed for.
Lastly, we remain on track to meet our previously disclosed G&A guidance of $80 million to $85 million for 2021.
Now, let's take a look at our balance sheet for the quarter. We ended the third quarter with $1 billion of cash on hand, leaving us plenty of runway to execute on our recent capital initiatives, we discussed earlier.
Additionally, we closed on several financings at attractive rates, while at the same time, extending our maturity profile.
A couple of our recent financings included two construction loans for our latest project in downtown Summerlin.
$95 million alone for our 1700 Pavilion office development and $59 5 million for our Tanger Echo multifamily development.
In addition, we refinanced the woodlands Enbridge line credit facility into a new $275 million loan secured by bridge Lynn <unk> receivables and land to support future horizontal development.
Lastly, subsequent to quarter end, we closed on a 250 million alone for 12 O. One like Robbins, resulting in net proceeds of $248 million, which helps elevate our overall cash position.
Additional activity following the close of the quarter included the repayment of all lease construction loan upon the completion of the project as Jay mentioned earlier.
We welcomed residents in October and paid off the $230 million outstanding on this line using proceeds from the closing on the tower.
We continue to push out our near term maturities and remain focused on executing new financings to support our latest development projects as well as securing long term funding for a stabilized asset.
Please refer to our third quarter 10-Q, and supplemental package for additional details on this activity now I'd like to turn the call back over to David for some closing remarks.
Thank you Corey we're going to open up the lines for Q&A, but before we do I just want to hit on a few key points.
First we remain committed to driving our net asset value higher on a per share basis and are laser focused on closing the gap between our stock price and the true inherent value of Howard Hughes.
And the actions taken over the last quarter to deploy capital into projects that we believe will achieve outsized risk adjusted returns reflect that strategy.
We acquired a new fully entitled Shovel ready MPC, we announced the launch of three new development projects, and we announced that $250 million share buyback.
All of these initiatives will unlock tremendous value for our shareholders in the near medium and long term.
Second our balance sheet remains strong even after allocating capital to the various projects I just mentioned our disciplined capital allocation approach has allowed us to conserve capital and leaves us with sufficient excess liquidity to evaluate additional opportunities to further expedite growth.
In addition to cash flow generated by future land sales condo sales and recurring NOI combined with the proceeds from our remaining noncore asset sales will only drive our cash position higher.
Third our financial results through 2021 represents the strength of our business as we are now exceeding pre COVID-19 levels and the guidance targets. We have established for the full year points to an even stronger fourth quarter ahead.
With that we'd now like to begin the Q&A section of the call. We will answer the first few questions that have been generated by <unk> technology and will be read by John Saxon.
John can you. Please read the first question.
Sure David our first question asked what potential material effects are expected if the woodlands township voting causes it to incorporate into a city.
Thanks, Jon and I appreciate the question that came in from our shareholder here.
Biggest impacts or potential impacts of a corp incorporation in the woodlands were really safety and cost.
And according to multiple law enforcement experts in financial experts if the city were to incorporate we would've compromise the security in low tax rate that has helped make the women's and number one place to live.
And that vote for incorporation was held this past Tuesday on the second and I'm thrilled to announce that almost 70% of the residents voted against incorporation.
And they saw that we don't need to fix what wasn't broke and kind of stood side by side with us as fellow residents and as the developer to maintain the woodlands is according to <unk> dot com the number one place to live.
Thanks, David Our next question as management wants to be more focused on npcs to accelerate developments there what activity could have been done in the past and what can be done in the future in order to reach the endpoint faster.
Thanks, John for this one we only just reached our 11th anniversary of the company and I think as we look back I would say the results produced over that last decade, I've indicated our constant focus on executing quickly to meet as much market demand as possible. If one looks at our operating asset portfolio, we've increased NOI from 46 million.
In 2000 $11 million to $240 million of annualized NOI today by monetizing our raw land, we develop commercial assets, we now own and operate several million square feet, a diversified real estate and office retail and multifamily and so we're constantly focused on accelerating these development pipeline through the introduction of new product types.
Such as the medical office and single family to rent as we mentioned on today's call and we will continue to look to see how we can expand our portfolio within our mpc's.
Thanks, Jay for next question, how do you think about the $2 billion in non segment that and does it make sense to pay down to further protect yourselves from the eventual recession appear.
Appreciate the question just to be clear the non segment that is made up of our three tranches of unsecured senior notes that we actually went out and issued last September as well as earlier. This year, we did that by taking advantage of the capital markets opportunities to jump in there and really be able to cure this long term.
That has some attractive rate that allows us to take out short term maturities are at higher rate. So net net it actually was an improvement to our overall balance sheet. So we feel very comfortable with where we are today and our debt maturities and the overall levels of debt.
Thank you Corinne I only have a couple of questions related to Douglas Ranch. The first one do you still anticipate J D M in El Dorado coming back into Douglas Ranch, how will personnel costs be split if HFC employees are doing most of the work.
To help understand the relationship with J D M in El Dorado, when it comes to cost and earnings is appreciated.
Sure. It's a good question and as we announced next quarter, we will get into more details. As this is a transaction that closed after the end of the quarter, but big picture JDM non El Dorado, but JDM only has the option to require 50% in <unk>.
Put in $34 million for their deposits to require that 50% stake while I very much expect to JDM will come back in as our partner we view either scenario was favorable for agency.
When it comes to personnel costs yet.
<unk> is a managing member and will be on boots on the ground team executing there and will be paid to cover that overhead. So it should not be a cost center for us in any way.
<unk>.
Assuming the JDM does come back in our partnership will be a 50 50 split so will receive 50% of the earnings 50% of the cost and the same holds true for Trillium. The first village of Douglas Ranch.
Thanks, David and then continuing on with Douglas Ranch can you discuss the challenges that water scarcity presents in Phoenix and what if anything the company has done to secure water for this MPC. It's a great question and we thoroughly investigated Douglas ranch access to water, leading up to this acquisition and announcement it was one.
One of the main points in our diligence over the past six months. There is an actual Ford directly under Douglas Ranch that we can tap into and we have water rights for Trillium, along with a meaningful portion of Douglas ranch already in hand, and our Master plan at Douglas Ranch is going to integrate the best and water conservation and sustainability it'll be woven throughout the design and <unk>.
Into the community from the very early stages. As this is just a blank canvas under which we can put in the best.
Processes are day one.
And we have experienced developing large scale master planned communities in desert environments like Summerland.
And those state of the art technologies will be replicated at Douglas Ranch.
Summerlin with Novartis first community to implement water Smart conservation guidelines and it was the earliest adopter of desert landscaping, we've gone beyond the imposed restrictions for new construction, improving low water use techniques, it's a millions of gallons of water each year.
On top of that eats Melton, who will be the president in Phoenix and run Douglas Ranch has led the development of bridge limit and they won multiple awards for integrating locally ecology and low impact sustainable design and.
And we're going to continue to work with industry experts to make sure that we are at the leading edge of sustainability and conserving all of our natural resources.
Thanks, David This is going to be our last question that was pre submitted through say how's the outlook for 2021 through 2022.
<unk>.
We're not providing guidance today for 'twenty, one to 'twenty two.
As we announced during the call we have raised guidance across our Mpc's operating assets and condos for the remainder of this year.
As a result, I think it is clear that we very much expect to close out 2021, with a very strong fourth quarter and I believe that this momentum will carry us into 2022.
In 2022, we will begin lot sales at Douglas Ranch, we will continue to execute on our incredible development pipeline that Jay is growing every day, we're going to complete construction of cooler in ward village and we will have the grand opening of the Tin building at the seaport.
Sitting here today on this call I have no reason to believe that 2022 will be nothing short of another excellent year for Howard Hughes and all of our segments.
Thanks, David Alright, operator, we can open up the lines for those with questions on the call.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question is from Daniel Santos with Piper Sandler. Please go ahead.
Hey, good morning, everyone. Thank you for taking my questions. My first one is on <unk>, North Wacker and apologies if you've covered this during your prepared remarks, but can you walk us through what the rest of the lease up for that at that asset looks like and when you expect the asset to stabilize.
Sure. So we're approximately 80% leased at 110, North Wacker and as you know it's anchored by Bank of America and the vast majority of the building is on long term leases. So we have a weighted average lease term there over 12 years, which is we.
We think tremendous.
Majority of the remaining lease up space in smaller chunks and some auction space at our larger tenants have so we only have the ability to lease those for some shorter durations.
I think that.
Given that the leasing pipeline has started to rebuild post pandemic in Chicago I'm hopeful that we can get some more leases done over the next quarter or two but as you know.
Dan we are in the market with that asset and we talked about this last quarter, we're hopeful to get some.
Sure.
Potential bidders on that over the next several months and be able to execute on a sale of that noncore asset.
Quickly as we can at the right outcome for the company and as Corrine highlighted with our liquidity position, we're not in a rush, we're going to wait for the right price and not the first price.
Got it I appreciate that I was wondering if you could give some more color on the large.
Pads out summerlin, there seems like a $13 million department.
Deposit it would seem like a pretty significant sales. So just any color on that would be helpful.
I think the best color I can give you Dan is back to the remarks, we made regarding the increased guidance and our MPC EBT for the remainder of the year.
And obviously by taking that guidance up as much as we did at the mid point, we feel very confident that there is great demand for builders for our land both in Summerlin and Houston.
And that increased guidance reflects that deposit and as well as other transactions that we believe will come in during the fourth quarter.
Thank you and just one last one if I may over at Ward village would you consider accelerating the development, maybe two towers a year I'm.
Just given the strong demand or do you still feel.
Pretty comfortable at that one tower, a year kind of pace.
Well look our job is to build as quickly as we can to meet market demand.
And I think that while we launched one tower already this year, we have the opportunity to launch a second that would not be competitive and that may be more of a workforce housing tower.
And then hopefully.
Towards the early to middle of next year and launch our next tower, but.
We're thrilled with the progress I can't believe that I'm sitting here only three months later after our launch in July.
The percent pre sold that we are it's really a testament to the team.
And that has been with with three price increases over this three month period.
And despite those increases demand continues to remain strong. So we we feel great sitting where we are we're always trying to accelerate to meet market demand. If we could launch two with the exact same moment I think that may be a little bit too much but if we can get them every six to nine months. Instead of every 12 to 15 months that <unk>.
Be a way to better tap into that demand.
Appreciate the comments. Thank you that's it for me.
The next question is from Peter Abramowitz with Jefferies. Please go ahead.
Okay.
Hey, Peter Hi, Thank you and good morning, How's it going.
Good.
Oh, that's good.
Wanted to ask.
At the seaport.
Could you give an update just on <unk>.
Leasing prospects for some of the retail vacancies there as.
As well as some of the office space that you have left.
Thanks, Peter I appreciate the question clearly retail in New York City coming out of the pandemic has been impacted.
And we've been impacted like so many of those other areas in the city, we've been able to backfill a lot of the vacancies the bankruptcies and those tenants that haven't survived like 10, Corso Como with some great new concepts like the long club and restaurant by wildly do frame and Thats been great in those spaces are getting built out now and we're hopeful that we'll be able to open those in the next.
Several months and then some some of the other smaller spaces in the historic district, we've been able to bring in some great shorter term tenants. Some activations that have helped keep it alive and drive some revenue for us which has been great. As we continue to look for the right long term users in that space.
From an office leasing perspective on the peer.
We are.
Continuing to market that space and at this point, we are waiting for the right tenant that's going to appreciate that space. The way that we do and someone like Nike and ESPN that sees the value of having water views on three sides.
And we do think that as the Tin building opens next spring in the construction fence comes down and we really open up the peer.
The world, we're going to see that demand growth.
Okay got it that's helpful.
And then in your office portfolio.
And your core Mpc's.
Utilization physical utilization.
Looking like currently.
And kind of how is the return to work.
That's that's slowly happening how is that impacting some of the.
The vacancies that you are looking to lease up in your office portfolio.
Sure. So we are.
Like most markets were seeing utilization rates picking up every week every day.
Sitting here in Houston I can tell you that there are more and more cars in the parking lots here on a daily basis and Thats great.
And the leasing velocity here in Houston has continued to grow as well and probably three quarters ago. Peter I would have told you that we were talking to tenants that were $5 to 10000 square feet in quarter.
A quarter or two ago, we started working on some full floor deals here, which are the 20% to 30000 square feet and now the tenants that are touring are even larger in size. So we see that momentum continuing to grow here in Houston.
In Vegas, it really never stop because our two office buildings. There are entirely full in addition to the two buildings that are 100% leased to aristocrat and our new construction 1700 has over 50% of the building under LOI already so that pipeline has been great and in Colombia very similar story in that.
10 through 70 continue to perform very very well, one and two merriweather are basically entirely full and we're working on a deal as we speak that hopefully will take the balance of 6100.
So we're feeling very good on the office leasing front as that momentum continues to gain steam coming out of the pandemic and folks get back to the office.
Got it and are you able to quantify kind of what physical utilization is as that.
Something like 40% or is it.
Closer to 60 or 80.
I would say between 50 and 60, but it depends on the building and it depends on the market. If we have a building that has a tenant for 50% and they're not back to the office yet clearly that building is not in that same range, but in general across our portfolio I would say, it's in the 50% to 60% range.
Okay got it that's helpful.
And then final one for me.
Could you just are you able to quantify kind of the yields that you're underwriting to on on the single family for rent in the medical office product.
And then for the medical office building is that something you view as a long term hold or is that something you could develop and then look to take advantage of the <unk>.
The depth of private market demand.
I would say we will as we start construction on those projects and they get into the supplemental the yields at stabilization dates and expected timing will all be.
Thoroughly disclosed I think it's safe to say that with any new development that we're doing we're trying to achieve those outsized risk adjusted returns and develop but a yield well in excess of underlying cap rates and for these projects you should expect nothing different than what we've done in the past for the past 11 years.
In terms of medical office as a core hold I think.
But those buildings that are the multi tenant users that are synergistic with having a dominant market share that's something that we want to continue to hold I think the unique situations, where we have a build to suit for MD Anderson for a very unique use like <unk>.
<unk> treatment center versus.
Traditional medical office.
<unk> presents a different opportunity for us to create value.
Got it that's all for me thank you.
Thanks.
The next question is from Vahid <unk> with BW as financial please go ahead.
Hi, good morning, Thanks for taking the question.
First question.
David you were talking about in Texas properties, there the MPC.
The homebuilder sentiment.
Not necessarily something that I guess, but.
Are there supply issues in their build out issues, whereas in summerlin, there seems to be.
A difference.
Could you just talk a little bit about why some related to seeing it.
Different.
Homebuilding.
Era right now versus.
Woodlands in Brooklyn.
So I would say that Williams and <unk> compared to summerlin.
Has some similarities and those supply constraints there.
We are seeing and whether it's front doors or windows or appliances have been very consistent.
There had been also some meaningful differences as well and that one in summerlin, we're selling super pads, whereas in virtual and woodland hills in woodlands, we saw loss. So therefore, the lead time for a builder is much longer when they buy a super pad and therefore, they are buying their super pads today for those home sales.
Out into the future versus buying a lot today to sell that home tomorrow.
So their appetite remains strong because they are buying a little bit further into the future. The other big difference in the two has been just the weather and that it has been so wet this summer in Houston that has slowed down our ability to deliver lots to builders by about three months.
Approval and permitting process has been backlog because there is a rush to supply lots.
We're at an all time low in terms of developed lots on the ground for builders and we are in a sub eight months supply across the region and in the far northwest where bridge lenses that supply is below six months.
So we're working hard and trying to get caught up but the weather has put us behind some of the approvals have put us behind and there was a tremendous demand from the builders, we just have to.
Expedite our delivery to meet that demand.
So in the same vein I think I brought this up and when you first brought up the idea of single family rental homes and British land has there been any pushback from the homebuilders or is there so much demand that.
200, and something I think it was 200 and something homes doesn't really make that much of an impact.
No theres been no pushback from the builders and I think that if you look at some of the public builders there actually.
Either working directly or in venture to get into this business because they see what we see which is the home renter is not the same person as the homebuyer and it's not necessarily directly competitive it's meeting our segment of the market is not necessarily a homebuyer because it's a.
Merrell issue or it's a temporary job or someone who doesn't have a deposit but there is a meaningful component of the population out there that is looking for a single family for rent.
Option that is not necessarily looking at it instead of a home purchase.
Okay and then my.
Last question, it's about ward village and I think the.
The park.
I don't see an income.
Type of building category like I know in Victoria place, its ultra luxury and cooler as upscale but as Youre now seeing this extra demand that youre, saying is coming in and prices going higher or do you. Do you are you entitled or is there any limitations on maybe the next one being workforce versus the ultra luxury.
Or do you have the freedom to just go ultra luxury if thats, where the market is.
So other than we have a limitation that 20% of the units need to be workforce and the first portion of that was met with Kate Johanna.
And we expect our next tower that we're working on right now to meet the remaining requirement for all workforce housing.
Other than that our ability to build is up to us and we can do ultra luxury upscale.
Margaret wherever we see the deepest pockets of market demand.
And for US if we're able to have a balance in the type of product we're delivering between the first second and third row, we can hit the widest potential pocket of demand. The most potential buyers that are out there in the market and accelerate the value creation as fast as we can.
Got it thank you very much.
The next question is from Alex Barron with housing Research Center. Please go ahead.
Thank you and good morning, and great job on the quarter.
I wanted to ask.
A question on.
On the new Phoenix MPC.
Thank you indicated you could sell about 1000 lots in the first year.
Wondering if you could give more specifics on what quarter do you think those first sales would happen.
Is there any guidance you can offer as far as.
Approximate.
Price of those lots are in the 75000 or 100000.
The approximate range.
So when we announced the transaction Alex we said that we expected to transact on at least 1000 lots in the first half of next year and Thats, probably about as granular as I can get at this point in time.
But I feel very good that we're going to be able to get that done in the first half.
And we had talked on our announcement of the Douglas Ranch call at about that 70% to 75000 range per lot.
But that will depend on lot size and.
Density etcetera, depending on which neighborhood.
We really focus on price per acre, we think thats kind of a great equalizer in terms of the variability in terms of what size and density.
Okay, and when you say that.
In the first half.
<unk>.
Is that meant to imply that in the second half.
There could be nothing or you just don't have enough visibility in other words I'm trying to get a sense of is it going to be consistent sales.
Every quarter pretty much where is it going to be more spotty kind of like the way Summerlin works, where you sell a big part of land and then maybe not seen for a few quarters.
Yes, I think that you could expect it to be a little bit more lumpy.
I think all of our landfill business is lumpy, but I would expect that we would work hard in Phoenix in a Douglas ranch to use the same methodology that we use in summerlin, which we think creates the most value for the company and that does create a little bit more lumpiness in the results, but it drives much better cash flow to Howard Hughes. So I would expect that if we're <unk>.
To transact at those thousand lots in the first half of next year, we might not sell much more for the remainder of the year.
And 1000 losses.
Meaning full amount of supply for our new community just getting started and if you think of summerlin selling 1400 homes.
Last year or bridge loan selling about 900 homes last year.
To be in a position, where we could do a 1000 a year as our first year as a new community.
It's exciting, but it's a lot so to think that we could do 1000 lots every six months I think it was a little bit aggressive for communities first year in existence.
Right well the good news is.
That market is pretty land constrained so I think youll find.
Plenty of demand from builders.
Might be agree with you wholeheartedly Alex.
Yeah.
Well, Yeah, you guys got a good deal there.
Second question is on the Hawaii condos.
So congratulations on the first closings on time in a.
<unk>.
Can you give us a sense on Cola and on Victoria place in on this New Park Ward village what are the expected.
Close closing dates on those three towers.
So we expect to close at the end of next year.
And then Victoria place should be about a year after that.
Okay.
Now.
The park, which we just started pre sales on in July we haven't started construction yet so until we have a construction start date, it's tough for me to pin down a closing date of our completion date.
Because again, we don't start construction until we're 50% pre sold which.
While most of their basically their.
So we have a construction loan and process, which we don't have yet for the park and a GMP from our contractor, which we don't have yet.
Every time, we start a new tower Theres, a great internal race between our construction team and the sales team in terms of who can get done first 50% pre sold or GMP contract.
And our sales team has won I think for the last four towers in a row, which is great news for US we love that so, but we do want to make sure that we are prudent and thoughtful before we start construction that we have our cost completely buttoned down and we have financing in place. So that we can deliver that project through the appropriate amount of equity.
It makes sense on this park village can you give us a sense of where the prices are.
Some type of price range for that debt.
Condo tower.
So the part ward village is directly across from the Victoria Ward Park.
<unk> cooler. So it is a second row tower with great sweeping views right behind Victoria place and I think that you should expect pricing there to be.
A little bit higher than cooler, but perhaps not as high as Victoria place in the front row.
And the passage of time and appreciation that we've seen in ward village has allowed us to make sure every time, we sell that next front row project or that next second room project, we've been able to achieve a meaningful premium from the last one.
Okay. Thanks, a lot and best of luck.
Thank you I appreciate it.
This concludes our question and answer session I would like to turn the conference back over to David O'reilly for any closing remarks.
Thank you again for joining us today, hopefully we will see a lot of you at our upcoming conference schedule in non deal Roadshow, and if theres any questions between now and then we're always available to help. Thank you again talk soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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