Q4 2021 Howard Hughes Corp Earnings Call
[music].
Good morning, and welcome to the Howard Hughes Corporation fourth 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 note this event is being recorded.
I would now like to turn the conference over to John Saxon. Please go ahead.
Good morning, and welcome to the Howard Hughes corporations fourth quarter 2021 earnings call with me today are David O'reilly, Chief Executive Officer, Jay Krause President.
Carlos <unk> Chief Financial Officer.
Stripes head of operations and Peter Riley General Counsel before we begin I would like to direct you to our website Www Dot Howard Hughes Dot Com, where you can download both our fourth quarter earnings press release, and our supplemental package and the earnings release and supplemental package include reconciliations of non-GAAP financial.
That will be discussed today in relation to their most directly comparable GAAP financial measures.
Certain statements made today that are not in the present tense or 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 in our fourth 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 are 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 good morning, everyone welcome to our fourth quarter 2021 earnings call. We're glad you could join us today.
Before we dive into the results there are few things I'd like to mention first today, we welcome our new CFO Carlos a lay up to his first HFC earnings call Carlos has been with Howard Hughes since 2017 and was appointed to the CFO position in January .
It's been an integral part of our senior leadership team over the past few years. Most recently, having served as our Chief accounting officer. He has an extensive understanding of our business and we are very fortunate to have Carlos his talent and expertise on our executive team. So welcome Carlos and we look forward to hearing from you later on the call.
Second we're always striving to make it easier for you our investors to evaluate our performance with this in mind, we are making some upgrades to our quarterly disclosures that we hope you will find helpful.
In our fourth quarter earnings release, we've introduced two notable additions.
The first is a link to our HFC quarterly spotlight video.
Every quarter, we will be releasing a new video that takes a look at some of the ongoing development activity taking place in our communities. This will help provide a visual sense of the progress taking place across the country and our various development projects an aspect that cannot easily be presented on the earnings call.
We're also now including in the earnings release, our full year guidance by segment for 2022, we feel that disclosing these metrics with our release will allow you to readily view our expectations.
Lastly in our supplemental package, we have added a new page to include the same store NOI of our operating assets to help provide additional clarity to the performance of our properties.
We hope that all of these new additions to our disclosures will add transparency and be helpful. In providing the clearest possible view into the value creation opportunities at Howard Hughes.
Alright, let's move on to 2021 results.
I will begin with a recap of the incredible year, we had at AAC and cover the highlights of our master planned communities in the seaport.
I'll, then hand, the call over to our head of operations, David stripe, who will cover the results of our operating asset segment.
Our President Jay Cross, we will provide updates on our development projects in Ward village and then Carlos will conclude the call with a review of our financial results before we open the lines for Q&A.
I am pleased to report that 2021 was the strongest year in Howard Hughes 11 year history.
Our performance during the year was nothing short of outstanding with record breaking results across virtually every segment of our business.
Even after facing numerous headwinds that impacted several industry throughout the year, our various segments prevail and either met or exceeded all guidance expectations for the full year.
Land sales within our MPC has generated record high earnings that rose, 51% year over year.
Our operating assets not their highest NOI figure to date with a 19% increase from 2020.
Ward village saw its highest condo sales volume in the communities history during 2021 and at the Seaport Pier 17 foot traffic increased 68% compared to the pre pandemic levels seen in 2019.
Even more impressive is that all of these results were achieved with 33% less overhead compared to 2019, representing $40 million in G&A cost reductions.
Over the last two years the communities in our portfolio have seen an influx of people playing high density cities as they migrate to lower cost areas offering a better quality of life.
This migration pattern has persisted for some time and the pandemic has only helped accelerate the trend further which was a significant contributing factor to the record high results. We produced this past year.
Our strong operating results generated significant cash flow and our balance sheet equipped with nearly $850 million of cash that we were able to deploy into our business, our new acquisition and our shares over the last year.
We started 2021 with the launch of over 2 million square feet of new developments, including office multifamily and for sale condominium projects.
Throughout the year, we continued to see strong signs of underlying demand in our communities and announced additional developments, including three medical office buildings are single family for rent community and another condo tower, which we will begin construction in 2022.
In October we acquired Douglas Ranch in Phoenix West Valley for $600 million.
This new shovel ready MPC spans 37000 acres and one of the nation's fastest growing regions and becomes the largest MPC and our portfolio.
We were able to recycle the capital generated from our noncore asset sales into this fully entitled MPC that will develop from the ground up over the next several decades.
In Trillium, the first 3000 acre village of Douglas Ranch, we have been working at a breakneck pace to install the infrastructure needed to contract. The first thousand lots to homebuilders in 2022.
In November we announced our $250 million share buyback program.
During the fourth quarter, we purchased over 1 million shares for $97 million, we continued buying back more shares after the new year and completed our full $250 million buyback program in early February .
In total we repurchased two 6 million shares or nearly 5% of Hac's total shares outstanding at an average price of $96 <unk> per share a sizable discount to our intrinsic value.
Now, let's turn to the results that our master planned communities. Our MPC segment had a tremendous year generating $317 million of Earth.
Earnings before taxes, the highest in the history of the company.
As more and more residents walked through our communities homebuilders race to replenish our land holdings and in 2021. These builders purchased an aggregate 565 acres of residential land a 50% increase over 2020.
During a period when most experts thought home sales would taper we saw an acceleration.
<unk> thousand 761, new homes sold in our communities.
37 homes ahead of 2020, which was a record year at that time.
Summerlin had a standout year and made up 78% of the total MPC earnings generated in 2021.
The most notable performance driver was a sale of a massive 216 acres super pad that closed in December for $135 million.
It's important to keep in mind that large super pad sales of this size only occur once every few years.
This is 216 acre Super pad was unique and that we were able to deliver the parcel folding undeveloped, allowing us to bypass the cost and added time of installing the infrastructure ourselves.
Because we did not incur additional costs on this bulk sale the pricing was altered accordingly, causing summerlin as residential price per acre in 2021 to decrease by 9% year over year.
Had we taken the typical approach of putting the infrastructure in ourselves we would have achieved a higher price per acre.
But it would have taken an additional two years to deliver with net proceeds almost identical to the undeveloped super pads.
Robust results in Summerlin, we're also fueled by the summit our exclusive gaming community developed in partnership with discovery land.
2021, we saw an accelerated pace of the closings of custom lots and condos driving $59 million of earnings to <unk>, an increase of over three times what was generated in 2020.
In Houston, we saw continued strength in our bridge loan and the woodland hills, despite facing a challenging year with inclement weather slower permitting and supply constraints Briggs and saw an uptick in activity during the fourth quarter, driving <unk>, 4% higher year over year.
As this community matures, we continue to see steady increases in its price per acre and in 2021, the price of bridge loans residential land increased nearly 7% over the previous year to $468000 per acre.
And the woodland Hills EVP for the full year rose, 66% compared to 2020 as more and more residents migrated to this community new home sales increased rapidly by 50% versus the prior year signifying the strength of demand in this MPC.
This robust pace this corresponded to higher prices as we saw the residential price per acre rise, 9% over 2020 to $337000 per acre.
Despite all of this heightened activity there still remains a significant housing imbalance between supply and demand.
On the supply side, we see a severe lack of lot inventory on the ground that is reached all time lows in Houston and Las Vegas.
The demand side of the equation. However remained strong and we don't expect to see this slowing anytime soon.
At the Seaport, we saw a tremendous increase in activity in 2021, we had $2 6 million visitors appear 17 versus $1 5 million in 2019 prior to the pandemic.
This increase is a testament to the iconic destination and the appeal of what we are creating through our revitalization efforts at this historic neighborhood.
With the opening of two new restaurants in 2021 as well as the reopening of the summer concert series and the attraction of the Greens on the Pier 17 rooftop.
<unk> has generated a lot of excitement and attention throughout the city.
In 2021, the seaport reported a 4% greater NOI loss from 2020, primarily related to our landlord operations due to the lingering impacts from the pandemic.
Our restaurants events and sponsorships, however saw a meaningful increase in activity driving seaport revenue higher by 130% year over year as this one of a kind location continues to draw crowds.
The increase in our topline is impressive, especially when considering the constrained labor market and adverse effects that the delta in omicron variant that impacted in New York City.
The seaport closed out 2021 with two huge milestones on the development front, including the completion of the core and shell the Tin building and the final approval of our ULA at $2 50 water Street.
Both of which Jay will speak to in more detail.
And with that good news I'm going to turn the call over to Dave strike.
Thank you David in 2021, our operating assets delivered their highest NOI on record, bringing in $227 million.
We ended the year with all stabilized asset types leased above 90% largely ahead of pre pandemic levels.
On a same store basis NOI grew 14% over 2020, primarily driven by continuous improvements in retail accelerated leasing at our latest multifamily developments and the return of minor League baseball at a ballpark in downtown Summerlin.
And you can see we have public same store NOI for the first time.
However, we do not believe this is the best way to measure our progress.
Unlike most real estate companies, we have the enviable ability to continually develop new product as demand dictates at outsized risk adjusted returns in our master planned communities.
When these new projects go through their initial lease up we do expect a slightly negative impact on our existing supply, which obviously affect same store NOI.
The long term value, we are creating by developing these new assets far exceeds any short term impact on same store NOI.
So when you see a decline in same store result, it likely means that we are creating additional long term value for our shareholders.
Our retail assets have made a substantial recovery with NOI rising 44% year over year to $58 million in 2021.
The increase in NOI was driven by our tenant mix with strengthened coming out of the pandemic. In addition to the consistent improvement in retail collections, which rose to 89% during the fourth quarter.
The majority of this recovery has occurred in downtown Summerlin in ward village, which together make up two thirds of our retail footprint.
We are hopeful that the impacts of COVID-19 will continue to dissipate, which should further support improved travel and tourism in areas like Ward village on the island of Oahu and contribute to additional retail growth in 2022.
Turning to multifamily these assets produced NOI of $33 million in 2021, representing a 75% increase compared to 2020.
While a portion of these results was driven by achieving higher rents at our existing properties. The majority of the increase was attributed to the lease up of new product.
To put this in perspective in 2020, we had four newly constructed multifamily developments in the woodlands vigilant in downtown Columbia that we are in the beginning stages of leasing up.
These assets generated a combined $398000 of NOI in 2020.
Last forward to 2021 and these assets were leased up and fully stabilized just a year later generating $13 million of NOI during the full year.
These types of results clearly demonstrate the level of demand in our communities and with over 1100 additional units actively under construction. We can expect to continue to see a multifamily NOI expand.
In downtown Summerlin, Las Vegas ballpark generated NOI of $6 million in 2020 , one well above the $3 $6 million loss reported in 2020.
During the second and third quarters of 2021, our minor League baseball team the Las Vegas aviators hosted a full season of games at the stadium most of which were at full capacity.
This drove NOI significantly higher year over year as there was no minor league baseball season in 2020 due to COVID-19 , causing the ballpark to report a loss for that year.
Our office assets produced NOI of $110 million in 2021, a 4% decline from 2020.
This decline was primarily related to one of our office towers in the Woodlands 90, 950 would like forest, which had a short term leaseback agreement in place with Occidental petroleum for five floors of temporary space during the first half of 2020.
Excluding the reduction due to the ending of this short term lease our office NOI was largely flat year over year.
In the back half of 2021 the office environment began showing signs of strength as more and more companies had employees returning to the office.
In the fourth quarter alone, we signed a full floor leases with two companies in the energy Tech and crypto space in the woodlands.
In downtown Columbia, a leading investment bank recently signed a lease to relocate its headquarters to one of our office buildings and.
And in Summerlin, we're developing a new spec office building with pre leasing activity already underway.
We view these trends as strong catalyst for additional office leasing in 2022, which we expect to intensify as more residents and businesses migrate to our communities.
With that I will now turn the call over to our President Jay Cros.
Thanks, Dave and good morning, everyone two.
2021 was also an excellent year from a development standpoint, with the launch of several new projects across various product types within our communities.
Because we only build to meet the demand and the fact that we have over 2 million square feet of new development underway with additional projects coming down the pipeline that speaks to the immense growth we are experiencing in our regions. We.
We currently have three multifamily projects under construction totaling 1100 units in downtown Columbia, Summerlin Enbridge line, along with a 267000 square foot office building and some of them, but it is already 25% pre leased.
<unk> supply disruptions and escalating material costs, we remain on time and on budget and expect to deliver these projects between the middle of 2022 in early 2023.
Also in 2021, we announced the introduction of a new product to <unk> portfolio of medical office buildings.
We recently commenced construction on two medical office buildings in the woodlands totaling 53000 square feet, which we expect to be delivered in early 2023. These projects bring additional health and wellness amenities to the community and reinforce health care as the number one unemployment sector in the woodlands.
Building on the success of the Merriweather District, we have turned our attention to the lakefront district in downtown Columbia, and last month announced the $325 million development opportunity consisting of medical office residential and retail offerings for.
The first phase of development, we are launching a state of the art medical office buildings, encompassing 86000 square feet, which is 20% pre leased and with strong interest for the balance. This project will commence construction during the first quarter of 2020 to kickstart, our major development pipeline and the lakefront district and establishes the area is a prominent.
Health care destination.
As part of the lakefront Rejuvenation, we will also bring 675 multifamily units to market to capture the growing residential demand in downtown Columbia.
Lake front north represents over 600000 square feet of residential development divided among three buildings. We expect construction for these units to begin within the next 12 months.
All of the projects that we either have underway or will be commencing soon represent $3 4 million square feet of development and this is just to keep up with the pace of demand in our communities.
At the Seaport, we have completed construction on the corner shallow the tin building, our 54000 square foot marketplace curated in partnership with Sean George The 10 buildings spread over three stories will offer 21 different restaurant experiences. In addition to an e-commerce platform for mobile ordering and delivery, we continue to make steady progress and remain on track celebrates.
Grand opening this spring.
As David mentioned in December we obtained the final approval from the city of New York for 250 Water Street development project after navigating through the rigorous process.
This approval allows for the transformation of an underutilized parking lot into a mixed use development.
Spanning 547000 zoning square feet. The project will include affordable market rate apartments office space and community R&M spaces. In 2022, we expect to begin a comprehensive remediation of the site and commenced construction of foundations.
In December we also received approval for a 48 year ground lease extension at the Seaport moving this exploration date from 2072 to 'twenty, one 'twenty, which is a significant long term value enhancement.
Shifting over to Ward village 2021 saw the highest volume of condo sales and the community's history with $869 million in sales for units either closed or under contract during.
During the fourth quarter, we completed construction on the fifth tower.
E and closed on a remarkable 663 units generating $453 million and net revenue.
Closing on this many units in less than three months is a logistical feat and speaks volumes about our talented team at ward village.
We're also making great headway in our two towers under construction cooler and Victoria place both remain on time and on budget cooler ended the year, 89% pre sold and we are on track to deliver this tower during the third quarter of 2022.
It's really a place is now 99% pre sold with only three units remaining for tower that will not be delivered until 2024 and truly incredible sales pace.
Pre sales at the Park Ward village the communities eight mixed use tower launched in the middle of 2021 and after just six months of sales activity ended the year with 84% of its units under contract we've yet to even put a shovel in the ground for this tower and to track 459 units in such a short amount of time is unprecedented to say.
Pace has been so robust that the park now holds the record for the fastest selling tower in the history of Ward village titled previously held by Victoria place.
Towards the end of 2021, we announced the plants relaunch of you on the ward village the company's ninth condo project. These tower will consist of 696 units fully dedicated to workforce housing and satisfies our remaining reserved hasn't requirements in the community.
Between our towers under construction and our latest tower pre sales we contracted 603 units in 2021. This represents significant future revenue that was secured by nonrefundable deposits and will have a meaningful contribution to hfcs bottomline. Upon the completion of these towers it will fuel the acceleration of new developments to come within our pipeline.
I would now like to hand, the call over to our CFO Carlos <unk>, who will review our full year financial results.
Thank you Jay good morning, everyone and thank you for the kind of welcome.
In 2021, our business was able to navigate and adapt to the changing market dynamics that surface throughout the year and we delivered tremendous results across the board.
In summary, our MPC has produced $317 million of EBIT in 2021, 51% increase compared to 2020 and generated $129 million of EBIT during the fourth quarter of 2021, 49% increase compared to the prior year period.
Our operating assets recorded $227 million of NOI during the year, representing a 19% increase compared to 2020 and produced $57 million of NOI during the fourth quarter of 2021, and 22% increase compared to the prior year period.
What village, we generated annual condo profit of $121 million upon the completion of I E. A substantial increase in profit over the prior year as there were no condo closings in 2020.
Finally at the Seaport, we recorded an $18 million loss in NOI during the full year, resulting in a $717000 decline over 2025.
$5 $8 million loss in NOI during the fourth quarter of 2021, and $2 $6 million decline compared to the prior year period.
Yeah.
Now, let's take a look at how our actual results compared to guidance expectations and what we anticipate delivering in 2022.
As David mentioned in his opening remarks for the first time. We have included full year 2020 do guidance in our fourth quarter earnings release and in doing so we have slightly altered the lay out to arrive at similar metrics provided in 2021.
Over the last year, we raised our MPC earnings target of three times, that's land sales continued to tick higher.
MPC EBT of $317 million came in well above our target of $275 million to $285 million.
2021 was certainly an outsized year for land sales, particularly due to the 216 acres Super pad sales in summerlin that closed in December .
I mentioned earlier, our Super Bad sale of this size is not something that of course every year with that in mind, we expect MPC EBT to decline, 25% to 30% in 2022.
Even with this projected decline the implied EBIT range is still noticeably higher compared to our run rate over the last few years, which has been closer to $200 million.
Our operating assets also exceeded guidance expectations with NOI of $227 million in 2020 , one compared to our guidance range of $200 million to $210 million.
In 2022, we project NOI to decline between negative, 2% and <unk> percent year over year.
While we expect the leasing velocity and recovery in certain asset types to continue certain items reflected in our 2021 results will not be recognized in 2022 for example, during the third quarter of 2021, we sold our three hotels in the woodlands, which produced $5 million of NOI during the year and we will obviously not be present in 2012.
You too.
In addition, we received $3 1 million and Covid related deferrals payments from tenants and $1 $7 million from this termination fees in 2021, Doug Weaver U S nonrecurring items.
In total we received $10 4 million from items that will not be represented in our 2022 NOI results or at least not represented to the same magnitude.
Fueled by the closing of our lead during the fourth quarter will deliver corns, a profit of $121 million in 2021, achieving the top end of our guidance range of $115 million to $125 million.
In 2022, we expect to deliver condo sales of $650 to $700 million.
With a gross margin between 26, five and 27, 5% the implied kind of profit projected in 2022 reflects a 51% increase at the midpoint compared to 2021.
The increase is primarily attributed to the closing of our $6 cooler, which is set to complete construction during the third quarter as well as additional closings on elite, which ended the year, 90% sold.
Yes.
Lastly, we reported full year G&A of $82 million, which came in at the lower end of our 80% to $85 million guidance range.
This represents significant cost reductions compared to our pre COVID-19 run rate of $122 million as we continued to streamline our business and followed the strategic plan, we outlined in 2019 and.
In 2020, do we expect cash G&A to range between $75 million to $80 million for comparison purposes cash G&A in 2021 was $72 million.
I would now like to provide a recap of noncore asset disposals in 2021.
During the year, we sold five non core assets generating $196 million in net proceeds after debt repayment.
Since announcing our noncore asset strategy back in October of 2019, we have disposed of 13 noncore assets with net proceeds after debt repayment of $401 million.
We are now two thirds of the way to our goal of $600 million in net proceeds.
Which we expect to achieve upon the eventual sales a 110, north Wacker in Chicago and the Riverwalk retail outlet in New Orleans.
Turning to our balance sheet.
We ended the year with $843 million of cash <unk>.
Subtle stockpiled that leaves us well positioned to deploy capital into additional opportunities in 2022.
On the financing side, we were able to effectively take advantage of the capital markets given the low interest rate environment, and we close to $2 7 billion in financings to further strengthen our balance sheet.
This activity was made up of $2 1 billion in permanent financing and $628 million of construction financing to support the development spending at our latest projects under construction.
Please refer to our 10-K and supplemental package for additional details on specific financing activity in 2021.
With that I would now like to turn the call back over to David for closing remarks.
Thank you Carlos before we open up the lines for Q&A I want to highlight just a few key points.
The record results delivered in 2021 proved just how uniquely positioned we are to generate outsized returns through various market cycles.
When inflation interest rates and supply pressures have disrupted some businesses, we have experienced an acceleration.
And are positioned for additional growth thanks to our diversified self funding business model.
Second our strategy remains clear how you with how we built.
The development activity, taking place in our communities is a testament to the level of demand we are actively trying to capture.
And we don't expect that trend to abate anytime soon.
Third the desirability of our communities continues to become more and more apparent as individuals seek to find a better quality of life, where they can live work and play all in one cohesive setting and.
In 2021, the woodlands was ranked as the best place to live in America.
Summerlin was ranked as the third top selling MPC in the country in Colombia was rated the best city defined a new high paying job in the U S.
Finally, 2021 was a perfect example of how our capital allocation strategy drives meaningful value creation.
We used the free cash flow from our NOI MPC EBT as well as condo and noncore asset sales to reinvest into our business by announcing three 4 million square feet of new development at outsized risk adjusted returns investing $600 million to acquire Douglas Ranch.
And repurchasing $250 million of our own shares.
All of which will increase our net asset value on a per share basis.
With that I'd now like to begin the Q&A portion of the call. We will start by answering the first few questions that have been generated by state technology and will be read by John <unk>.
John can you. Please read the first question.
Yeah sure David our fresh question asked can you comment on the state of the rental market in Summerlin external reports show that broader Las Vegas rent is up double digits and is there a potential to accelerate the build out of downtown summerlin to add more multifamily supply.
Dave do you want to take a crack at that question sure Great question.
We have had tremendous rent growth in summerlin with 2021, asking rents increasing about 14, 5% over 2020, and our two existing properties constellation of Tanger.
Even with rents that are among the highest in the valley are nearly 400 units.
In Summerlin.
Ended the year essentially fully leased.
This is clearly a sign of robust underlying demand, which is why we started our third project in summerlin in 2021 tenants Echo.
Echo brings an additional 294 units to the market, we expect delivery in the first quarter of 2023.
Thanks, Dave. Our next question has <unk> considered funding are improving schools into elite college theaters as a way to make npcs more desirable to live in an increase in land values. Jay would you like to answer that question sure.
Obviously, we consider schools and houses of worship is very critical to MPC success.
In the case of Summerlin and woodlands, the K 12 education systems that we've developed over time are among the best in their metropolitan regions.
The case in the woodlands, which is our most mature community. We have over 30 schools across 28000 acres and Enbridge line. We recently, so Atlanta, a top private school, who are relocating their campus to Brisbane in house up to 1000 K through 12 students. This is in addition to Bruce's on high which has already set a football team to the state Championship in elementary school, which is on <unk>.
Its way in.
And finally, we also plan to pursue in addition to lower school education community colleges and universities and a good example of that is in Summerlin, where we recently sold a 17 acre commercial parcel to Roseman University, who are building a medical school for over 800 students and employees. So we clearly consider this to be a priority in all of our Mpc's.
Thank you Jay.
Our next question will more stores be built around the woodland hills in the near future JV.
Jay would you also like to answer that.
Sure. So the woodland hills is our youngest MPC, which only began selling homes a few years ago. So generally speaking the retail follows form in the case of Woodland Hills. We currently have 2000 residents and so we will expect to soon begin to build some convenience retail in the case of someone like bridges them or we have 8000 homes.
We bought we have now progressed from strip retail into supermarket retail and as we build up more homes will eventually move into high Street in town Center retail so retail has to follow the growth of the homes.
Yes.
Thank you Jim.
Our next question can you summarize the current non contra revenue such as retail and ward village and outlined how as ward village gets denser with more towers. The company can generate recurring profits rather than the one time profits that condo sales generate.
Carlos would you like to answer that sure. Thank you John .
Outside of condominium sales income on ward village is primarily derived from a REIT their portfolio that has a stabilized NOI target of $26 million.
This portfolio is made up of 1 million square feet and it consists of existing retail that will be eventually redevelop and newly constructed retail.
When we deliver a new tower the ground floor typically includes premier retail that commands higher rents and drive NOI.
Out of our 1 million square foot retail in ward village, we still have 550000 square feet pending insulated for redevelopment.
Thank you Carlos.
We have another question on Ward village, how does the company priced the ward village condos more amazing pre sales, which is great, but doesn't the syndicate robust demand and perhaps an opportunity to price. These condos higher David would you like to answer that question yes.
Yes, sure John It's a great question and.
I'm always asking the team the same question because as much as we love selling selling fast and hitting our margin targets. We do want to make sure that we're pricing as close to perfection as we can and we determine pricing not just based on where those towers located first row second row third row with the front row closest the ocean getting the highest price premium but.
We're looking at all of the recent sales of our existing units and other units across the island.
When we first launch a tower, we are a little bit more conscious because we want to generate those pre sales those pre sales that get deposits in construction financing that will allow us to move forward on these projects with what we think is a nominal equity investment.
The sales pace at Victoria place in the park, it's been nothing short of a tremendous and it has been tremendous despite multiple price increases across both towers throughout their sale process. So as we see certain stacks in certain units become more popular we're driving prices higher theyre almost reviewing them on a daily base.
And we haven't hit that point, where were really slowing down sales because it's not from a lack of price increases.
Thank you David.
So now I'll ask our last.
Submit a question through say.
How and when the company decided to sell super pads versus smaller parcels when selling smaller parcels. How many acres are typical or they sold to a single builder are they auctioned. Please help us understand how the land sale process works, David would you like to answer that.
John and I think this question is probably driven around our most recent superpower had sale of 216 acres in summerlin and what drives the decision, making there. So I'll address that first and then I'll take a step back and talk a little bit about the process that we go through when we sell land in summerlin.
<unk> Super pad sale as I said in my prepared remarks, we were able to deliver that to the homebuilders and was two builders that bought that pad.
Raw and we were able to get that sale done much sooner than we would have had we invested in that infrastructure to deliver a more finished products to builder. So from a net proceeds perspective, we feel like we did better than we would have had we invested the capital and waited a year and a half two years to sell it and absolutely from a net present value perspective.
In general with all of our Super pads, which can range anywhere from 20% to 25 acres to in this case 216 acres, we're running an auction process and we're having multiple bidders multiple home builders bid on those parcels on those super pads, and we're looking to maximize price per acre or price participation on.
The backend maximize deposits in the shortest timeframe to close so theres a lot of factors that go into it but we're always trying to drive the highest net present value in terms of that cash as it comes to the company as part of that bid process.
Yeah.
Thank you David Okay. Operator, we can open up the lines for those with questions on the call.
We will now begin the question and answer session too.
To ask a question you May press Star then one on your telephone keypad.
You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Our first question is from Anthony payload with J P. Morgan. Please go ahead.
Great. Thanks, good morning.
First question is I was wondering if you could spend a minute on capital allocation for 2022 and can you start by giving a sense as to what do you plan on development starts.
And then also.
Perhaps spending in the year and then on the flip side.
Non core sales and room for buybacks.
It's a great question.
Anthony and I wish I had the perfect prescription to give you the exact dollar amount for 2022, but so much of our new developments will be driven by the market demand in each one of our communities and will be driven by the amount of free cash flow that we generate I would expect that 2022 will be similar to 2021 and that youll see us allocated meaning.
Full amount of capital into new development some of the multifamily that Jay referenced earlier, specifically in downtown Columbia, <unk> and summerlin as well as here in the woodlands.
But I think that if we're able to generate incremental proceeds and hit our guidance targets and potentially generate some capital from noncore asset sales. We could also be back in the market with another buyback as well.
And as we've talked about in the past, we think one of the greatest benefits of Howard Hughes is that we're able to self fund this development self fund our buybacks and self fund what we do.
By generating that net proceeds from NOI MPC EBT profits from condo sale and profit from noncore asset sales so depending on the magnitude of those noncore asset sales and the demand for new developments and where we see the highest risk adjusted returns that will drive the most accretion to net asset value per share Thats, where we will continue to allocate capital.
Sitting here today, not knowing where our share price will be throughout the year and not knowing what the demand will be in the back half of the year for new developments, it's tough to say that we have specific targets in terms of what we would allocate in terms of those capital allocation buckets.
Okay can you give any update on north Wacker.
Any other non core sales that you think are a little bit further along that we could expect.
110, North Wacker and Riverwalk in New Orleans are the two noncore assets that are at the top of the list in terms of potential dispositions in 2022, and as we get to a point where.
We have a transaction that we can announce we'd be happy to communicate that as of today. There is no further update other than what we've said previously.
Yes.
Okay and then the other question I had was just at 90 950 would work.
I think it shows in the shop and expectation to stabilize in 2020 to say yes.
How realistic is that and if it is and you get that leased this year.
When do you think the actual NOI is captured because I think that's probably one of the biggest variances between like in place and expected stabilized NOI through the portfolio.
Oh, absolutely and Thats a building that we bought with a very short term lease.
From Occidental for only six months of.
The year when we bought it.
And really inherited the building entirely empty and we've gotten it to where it is today on a floor by floor basis in the face of the pandemic in a very challenging leasing market for office product in Houston.
I'm still optimistic that we can get the balance of the building leased and get to a stabilized occupancy by the end of the year I do think that the stabilized NOI, we will take a little bit beyond that as there is free rent in the market and we don't see that going away anytime soon so that NOI probably won't begin until late 'twenty three early 'twenty four assuming the leasing velocity continues the way we.
You've seen over the past six months.
Okay, great. Thank you.
The next question is from Jon Petersen with Jefferies. Please go ahead.
Great. Thanks.
Just a couple of questions for me so on your guidance for <unk>.
Sales at Ward village I think the margin is a little bit lower than what we've seen in recent years.
Thank you said you're doing some workforce housing are there I mean is that kind of the the reason why you kind of think in the current housing environment, maybe margins would be higher.
Well, we're driving pricing higher which.
And given the demand that we've seen as you would expect margins to potentially grow but we're also dealing with some some cost inflation and some increased construction costs and labor costs that are impacting the cost side of the equation.
That said the balance of the units that were expecting to record in 'twenty. Two are both cooler, which is entirely market rate and <unk>, which has a mix of both market rate and reserved housing in the building.
That combination of both market and reserved housing has had a modest impact on those margins, which is taken at a tick below that 30% that we like to achieve on all of our towers.
Okay.
Alright, and I guess sticking with development margins and on the multifamily side I think we noticed.
At Starling Enbridge land in a tanager echo the costs look like they were up so I'm sure in line with the cost pressures you were talking about.
But I think we saw the expected yield at Starling go down to seven from a I guess with where apartment rents or are moving I kind of would have thought those would offset each other's maybe I don't know if you can talk a little bit more about what we're seeing there.
Yeah, I would say that we're always updating our cost in terms of how we're underwriting things in terms of what we're seeing in the market and not necessarily changing our underwritten rents and the projections of stabilized yield I think we have a great opportunity to outperform that 7% with higher rents.
But I think our job here is to under promise and over deliver and that's what we're going to continue to try to do.
And then I really appreciate the same store NOI.
Numbers, so of course I'm going to ask you. If you can put it in your guidance.
As always never enough.
You talked about the total portfolio growing at zero to 2% and I realize you have some of the kind of the back of the Covid back rents you've gotten 21 falling off but I don't know if you could kind of level set the with the kind of a noncore moving pieces I mean, what is kind of a rough same store NOI.
Portfolio growth number as we look into 'twenty two.
Yeah. So there was a couple of factors that impacted the guidance that Carlos mentioned in his prepared remarks. The first is the sale of the hotel portfolio.
And that generated $5 million of NOI. This past year that wont, obviously won't come in in 2022.
As well as the $4 $2 million of Covid onetime rent catch ups at last year and lease termination fees of just over $1 million. So it's just north of $10 million in terms of.
Nonrecurring amount that won't come in.
From it.
The makeup of what's driving it obviously retail will be negatively impacted by those onetime hits hotels have terrible same store and will be falling off the chart all together of course.
Office, we expect to be roughly flat.
It means that growth, that's going to offset that negative $10 million hit will be generated almost entirely by our multifamily portfolio.
Yeah.
Got it okay that makes sense alright. Thank you I appreciate it.
Or worse.
Again, if you have a question. Please press Star then one.
The next question comes from Vahid <unk> with Dws financial Please go ahead.
Good morning, Thanks for taking the question first question on the summit could you provide an update on what is left in the partnership agreement in terms of acreage or timeline.
We still have a little bit of product left to sell there theres a couple of lots. There is some built product in terms of spec homes and condos that have not sold yet.
And we're trying to think of if there are creative ways that we may be able to potentially expand.
That partnership and increase the size of the project.
It's really difficult to do.
To prognosticate.
That high end of a level in terms of how many sales will generate and what that will lead to in terms of earnings. If you go back in terms of the structure of the partnership agreement. We are into the profit split the waterfall works, where we received our capital preferred return our partner received their capital and a multiple on that capital and then we've got into.
Where we split all that incremental dollars of profit we are very much into the split range right now so everything that we're able to execute on over the coming year will accrue to the benefit of our shareholders on a 50 50 split again, it's very difficult to project when youre going to sell that $8 million loss for $10 million Conde.
Those are just.
Les programmatic then.
Production homes.
Is that a relationship that you've explored to type pursue in the other M. P series, whether it's the woodland hills or originally.
Yes.
Have a great relationship with discovery land and we couldnt be more pleased with our execution in summerlin at the summit.
And if there are ways to continue to expand it into other locations. We will absolutely try to exploit that I don't know that we see the buyer makeup where the demographics that would support a discovery like community Enbridge Linda the woodland Hills.
But it's something that we're going to continue to push and see if there are ways that we can.
Re create what has been an incredible partnership with summit.
Thanks for that one last question just looking at the supplemental on the ward village.
Condominiums and in Q3, you had for Lee.
$411 million in total development costs and then in Q4, it's now at $3 95.
Yeah, but you are still projecting lower gross margin could you just provide.
Some color into why the total development cost went down and how that factors into a lower gross margin.
Well I.
I would say that the gross margins for all we are remaining consistent with what we've expected all along I don't know that anything has changed there.
Of course, we have meaningful contingencies with all of our large scale development and if we're able to not spend those contingencies and realized cost savings. We will absolutely do that just because we have a contingency we're not intent on spending it.
So.
As we're able to hopefully deliver without using those contingencies that cost savings will materialize and what you see in the supplemental and with the completion of that project last year.
Obviously, if we haven't spent that you had a chance to talk we won't spend it other than some reserves for.
Whatever small defects could arise over the course of the next year or so.
So I think hopefully, we'll able to realize other cost savings on other towers in the future, but those are very unpredictable to think about it.
Had a mix of both market rate and workforce housing within the tower. So the overall profit margin of that building was slightly lower than with what we see in a building that's 100% market rate like a cool off Victoria place or Park Ward village.
Okay. Thank you.
Thank you.
The next question is from Conor Mitchell with Piper Sandler. Please go ahead.
Great. Thank you.
Could you guys. Please speak to the housing and rental markets in Hawaii, just seems like there was some may still be a housing boom similar to the other markets mentioned.
But clearly the apartment sales are not slowing so are people moving between the two and just how much you think of the residential markets moving forward.
It's an interesting question corner I appreciate you're asking I would say that.
What we've seen in Hawaii has not changed over the past several years and that there is a meaningful shortfall of housing units on the island just to meet the.
Local demand just to meet the population growth.
And part of what we're able to do by building. This master planned community vertical is to add to that housing stock to meet that inherent demand.
Over the course of time, we've seen over just over 50% of our buyers are local to Hawaii.
And I think that speaks volumes to how this product is meeting that local demand in helping to address that housing shortfall that exists in Hawaii.
Yes.
Great. Thank you and then just going back to the capital allocation as well.
How much you guys be thinking about any future buybacks and we'll have more coincide with any noncore asset dispositions.
Or primarily marketed stock price conditions.
It will be a combination of dissolve those as well as the realization of cash flow from our land sales and NOI and as that capital comes into the home team. If you will from noncore sales from NOI from MPC land sales and condo profit, that's where we think about our capital allocation strategy and theyre going to be times, where you'll see us invest in new developments it out.
<unk> risk adjusted returns and times like you just saw this past quarter, where we see a great opportunity to buy our own shares.
And it's not all one or the other.
We will in all likelihood would be a combination, but I think it's challenging to sit here today and say how much that buyback will be what the timing will be without having great visibility into where our share price will be and the exact timing of some of those land sales of noncore assets.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to David O'reilly for any closing remarks.
We appreciate everyone joining today hopefully you've gotten a correspondence on our Investor day in April if not please reach out to John Saxon we'd love to have you attend we will be doing an on site tour in summerland getting a chance to see all the incredible developments, including that Super pad that we contracted and sold this past quarter and hope to see as many of you there.
Possible. Thanks again for your participation and look forward to talking to you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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Great.
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Yes.
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Okay.
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