Q2 2022 Howard Hughes Corp Earnings Call
Hello, and welcome to the Howard Hughes Corporation second quarter earnings call.
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Now I would like to teleconference over to your host today, Eric Holcomb. Please go ahead Sir.
Good morning, and welcome to the Howard Hughes corporations second quarter 2022 earnings call with me today are David O'reilly, Chief Executive Officer, Jay Krause, President Carlos So layers, Chief Financial Officer, Dave strikes head of operations and Peter Riley General Counsel.
Before we begin I would like to direct you to our website at Www Dot Howard Hughes Dot Com, where you can download both our second 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 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 <unk>.
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 second 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'll now turn the call over to our CEO David O'reilly.
Thank you Eric Good morning, everyone and thank you for joining us on our second quarter earnings call before we begin I'd like to quickly welcome Eric Holcomb, who recently joined <unk> as our new senior Vice President of Investor Relations.
Eric brings over 25 years of financial experience to the team, including many years in Investor Relations and we're happy to have them on board as a fully dedicated resource for the Investor community.
John Saxon who previously headed up Investor Relations has transitioned to his new role as chief of staff for the company.
To start off today's call I'll provide a brief overview of our second quarter segment performance and highlight the results of our master planned communities in the seaport.
Strife will cover the performance of our operating assets followed by remarks from Jay Cros, who will provide updates on our development projects in ward village.
Finally, Carlos will lay it will provide a review of our financial results before we open up the lines for Q&A.
Looking at the results of the quarter each of our operating segments performed incredibly well despite a challenging economic backdrop.
MPC land sales revenue rose 46%.
Operating asset NOI increased 15% and.
And revenues at the Seaport increased 166% all compared to the second quarter of 2021.
At Ward village condo sales remained strong with 20 units sold in the quarter. In addition to the incredibly robust pre sales activity with 681 units contracted during the period largely driven by Juana following the launch of its pre sales campaign in March.
Our strong results, both this quarter and year to date demonstrate the resiliency of our business model and our unique portfolio of assets, which have proven their ability to withstand periods of economic volatility like we're experiencing today.
Our success would not be possible without the immense effort and work that has gone into growing and strengthening our assets over many years.
Today, one way. This effort is being recognized is with the recent lead pre certification of our Houston Mpc's, the woodlands Enbridge land, but the U S Green building Council.
This is a tremendous accomplishment as these communities are there first in Texas to achieve this prestigious status.
Further the woodlands is now the largest MPC in the world to earn this designation.
<unk> pre certification recognizes the many initiatives implemented over the years designed to promote a sustainable quality of life with extensive green space diverse home products highly acclaimed schools and extensive urban amenities.
We're extremely proud of this achievement and view it as an important driver of future growth as we develop sustainable communities that will attract new residents and tenants alike.
Yes.
Now looking at our MPC segment.
Revenue was up substantially in the second quarter, increasing 45% compared to the prior year.
Land sales totaled $85 million or <unk>, 46% increase year on year fueled by strong residential land sales predominantly in summerlin Enbridge land.
We also experienced continued growth in the average residential price per acre sold increasing 25% since this time last year.
Increasing home prices in our communities contributed to a sharp 62% increase in builder price participation revenue to $18 million.
While MPC revenue was significantly higher during the quarter segment EBT of $71 million was up only 2% compared to the second quarter of 2021.
This was primarily due to a $22 million reduction in earnings from Phase one of the summit, our 555 acre ultra luxury community in Summerlin, which is nearing completion.
During the quarter the summit did not close on any custom lots or units as inventory remains limited.
This is in comparison to the 16 unit sales that we saw in the year prior.
However, I am pleased to announce that subsequent to quarter end, we reached an agreement with our joint venture partner discovery land to launch phase two of the summit.
As part of this expansion, we contributed 54 acres of land, which will be used to sell an additional 27 custom home sites and this truly unique luxury community.
Okay.
Looking at Summerlin in more detail, we sold two residential super pad sites during the quarter, representing 48 acres for an implied price per acre of $1 1 million, a 33% increase from the prior year.
Summerlin also saw 38% increase in builder price participation revenue during the quarter as home values continued to escalate higher.
In Houston, where available lot inventory remains at all time lows, both bridge Linde and the woodland Hills posted strong results generating the second highest quarterly revenue in EBT and their histories.
Enbridge Linde land sales increased 136% compared to the prior year fueled by a 78% increase in residential acres sold as well as a 35% increase in price per acre at $576000.
As a result of these impressive results Richland EBT increased by a staggering 79% versus the second quarter of 'twenty one.
And the woodland Hills second quarter, EBT was 66% higher compared to the prior year.
This robust growth was driven by continued strong residential land sales.
By a 10% increase in the residential price per acre and our first commercial land sale for the sites communities first church.
Sure.
Finally, taking a look at Douglas Ranch, and Phoenix West Valley, We're working diligently in Trillium. The Mpc's first 3000 acre village to install the infrastructure needed to contract. The first thousand lots to homebuilders during the second half of the year.
During the second quarter JDM partners exercised its first option on Douglas Ranch repurchasing a 9% ownership interest for $50 million.
They also paid Howard Hughes, a $10 million nonrefundable deposit to secure a second option to require up to an additional 41%.
Or a total of 50%, which will expire on August 18th.
Overall, we're very pleased with the strong results that we've seen in our mpc's, thus far in 2022.
While homebuilders are experiencing a decline in the number of new homes overall demand for housing, particularly Houston, Las Vegas, and Phoenix remains healthy and still outweighs the available supply of new homes.
In the quarter, New home sales and our Mpc's declined to 435 homes or a 37% reduction when compared to last year.
Although these sales results are down from the abnormally high levels experienced over the past two years home sales remains solid and our comparable to pre COVID-19 levels.
The drop in home sales during the second quarter is largely related to three factors.
First and the primary reason is rising mortgage rates and inflation are absolutely impacting home affordability for the average homebuyer.
The second is that we are starting to see seasonality come back into view.
Summer months are typically slower from a home sales perspective intend to ramp up in the fourth quarter and first quarter, but we did not see that seasonality in 2020 or in 2021 as demand for housing surge to all time highs.
The third factor is supply related.
While improving builders are still struggling to complete new homes due to the continued supply chain disruptions, putting pressure on their ability to deliver new homes quickly.
With these in mind, we continue to believe that the outlook for future land sales in our Mpc's remain positive.
People continue to be attracted to our highly desirable communities, which offer an unmatched quality of life and an opportunity to live work and play.
All in one cohesive setting.
These prospective buyers, which are often moving from higher cost states tend to have strong purchasing power, which allow them to better withstand rising mortgage rates and inflationary constraints.
This contributes to continued elevated demand for housing and is one of the primary reasons homebuilders continue to purchase additional lots in our npcs and appreciating prices. Despite the market turmoil that exists today.
Overall, the outlook that we have for our Mpc's remains strong.
And as we look forward into the remainder of the year. We expect this momentum to continue.
As a result, we are leaving our full year MPC guidance intact for 2022.
Shifting over to the seaport, we had a tremendous quarter with a significant increase in foot traffic throughout this historic neighborhoods.
The rooftop at Pier 17 recorded the highest number of visitors during the second quarter period in three years and then in over 210000 guests an increase of 85% over last year for.
For various events in our summer concert series, which is on pace to have its most successful year yet.
We also hosted several private events, including a takeover of the rooftop for APAC hosting over 12000 Board APE Yacht club and FTE owners for a four day activation headlined by several Atlas performers, including Snoop dog, and Eminem, which generated $1 $8 million of revenue for the seaport.
This foot traffic spilled over into our restaurants and retail operations further boosting the quarter's results as we continue to establish a seaport as a premier most exciting entertainment and dining venue in New York City.
Overall, the seaports revenue increased to $27 million <unk>.
166% increase over the same period last year, improving the net operating loss of $3 7 million for the quarter.
And finally, we signed a 15 year lease with Alexander Wang to transform 46000 square feet at the Fulton market building, including 5000 square feet of outdoor space into the iconic fashion brand New global headquarters in showroom.
With this lease the Fulton market building is now a 100% leased.
Yeah.
Now with that I'm going to turn the call over to Dave strife, our head of operations to review the operating asset segments results.
Yes.
Thank you David.
In the second quarter, the strong momentum that has been building in our operating asset segment continued with the delivery of $66 million and net operating income. This reflected a 15% increase over the same period last year and an 18% increase on a same store basis.
The year over year improvement was achieved despite reduced NOI from non core assets, including the three woodlands based hotels and the Riverwalk outlet in New Orleans, which had been sold.
The majority of this increase was seen in our multifamily assets, which produced quarterly NOI of $12 million, representing a strong 60% increase versus the prior year.
This is largely due to the continued lease up of our new communities and increased rents across the portfolio.
The strong demand for rentals in our markets was recently recognized by wallet hub, which named Colombia. The number one location in the U S to rent based on rental attractiveness and quality of life.
This recognition in Colombia, as well as favorable rankings and our other mpc's is helping boost demand for available units with all of our properties leased at or above 94%.
With additional multifamily projects under construction Enbridge Lynn Summerlin in downtown Columbia, We see significant opportunities to further capitalize on this momentum and drive positive results as we bring these new projects online over the coming quarters.
Office NOI of $30 million increased 13% versus the prior year.
This improvement was primarily the result of new leasing activity at our class a office towers in the woodlands in downtown Columbia.
As companies continue to recover from the pandemic and employers are seeking to bring their employees back into the office. We are seeing an increase in leasing activity.
Given the flight to quality in today's market, we are a clear beneficiary as a provider of Premier class a space located in one of a kind communities, which offer an exceptional lifestyle, including short commute unmatchable amenities quality housing and improved work life balance.
During the quarter, we executed over 88000 square feet in new and renewal office leases in the woodlands we.
We had similar success in downtown Columbia, with an 80000 square foot lease with care first signed at 6100, Merriweather, which is a LEED gold property.
This lease largely completes the lease of this new office tower with 97% of the buildings office space now fully leased.
Retail NOI of $15 million reflected a slight increase over the prior year Ward village, a meaningful improvement with a 47% increase in NOI driven by stronger leasing activity in a post pandemic environment.
These gains were partially offset by reduced NOI in summerlin, which benefited from nonrecurring COVID-19 related payments in 2021.
Excluding these payments Summerlin NOI was up year on year with over 20% improvement in sales per square foot relative to pre Covid peaks.
And finally retail NOI was also reduced due to the sale of Riverwalk in New Orleans during the second quarter.
Another component of our increased operating performance is attributable to strong fan attendance at the Las Vegas ballpark home to <unk> Las Vegas Aviators AAA baseball team.
In the second quarter, the ballpark generated $5 million of NOI, representing a 74% increase from the prior year.
Thus far in the season, the aviators are leading the minor leagues and attendance surpassing levels from the same time in 2021, when COVID-19 restrictions we are still in place.
This also contributes to the improved performance at downtown Summerlin is baseball fans enjoyed the nearby shopping and dining before and after games.
Finally, our share of NOI from JV owned assets increased nearly $700000 almost entirely from the absence of net operating losses at 110, North Wacker, which was sold during the first quarter with that I will now turn the call over to our President Jay Cros.
Thank you, Dave and good morning, I am pleased to report that we continued to make good progress on our development projects under construction, including over 1100 multifamily units in Brisbane Summerlin in downtown Columbia at 267000 square foot office tower in Summerlin, and 53000 square feet in two medical office buildings.
The woodlands all of these projects, which are designated as green buildings remain on track for delivery. According to their respective completion schedules with the majority expected to deliver in the second half of 2022 early 'twenty three.
In addition to our projects already underway, we commenced construction during the quarter on wingspan our new single family build to rent community in British land. This first of its kind development for Howard Hughes will encompass 263 homes over 27 acres, which will complement the strong demand, we're seeing for single family and multifamily offerings in this MPC.
This unique product type will offer tenants one four bedroom floor plans as well as single family home benefits, including private outdoor spaces and attached garage. We're excited to bring this new product to bridge them and expect wingspan to begin welcoming its first residents in late 'twenty three.
Downtown Columbia, we expect to break ground later this quarter on our 86000 square foot Medical office building in the Lakefront district.
With the project already 20% pre leased we are aiming to make the link front district, the next health and wellness destination of downtown Columbia.
Seaport construction of the Tin building is substantially complete and we are actively hiring and training staff for this one of our client food Hall, which will offer over 20 unique restaurant experiences. In addition to an e-commerce platform for mobile ordering and delivery.
Although we had planned to celebrate the grand opening during the summer hiring has been challenging due to tight labor markets. As a result, we had to temporarily delay the grand opening, but we are now making great progress on hiring and onboarding process and expect to celebrate the $10 billion Grand opening later this quarter.
Also at the Seaport, we started site remediation work on 250 water Street commencing the long awaited transformation for this one acre parking lot into a world class 28 storey mixed use development.
So look forward to providing more details on this project as construction gets underway.
And now turning to ward village in Hawaii, we generated $21 million and condo sales during the quarter, including the closing of 19 units for $17 million.
Lee, which completed construction late last year. This tower ended the quarter, 95% sold with only 40 units remaining. Additionally, we sold one <unk> during the second quarter generating $4 million revenue, leaving just one unit remaining to be sold in this tower.
At our two towers under construction, we contracted 28 units, including 27, <unk> and one in Victoria place and we remain on track with our projected delivery schedules cooler, which we expect to deliver in the third quarter ended the second quarter, 96% pre sold with only 21 units remaining to be sold Victoria.
Place, which will be completed in 2024 is already fully sold out our first for ward village.
Pre sales activity at the parking you Lana our next two towers and the pipelines have remained robust we contracted 11 units at the park during the quarter with this tower now 91% pre sold.
Our expectation is to start construction of the park during the second half of this year.
At <unk>, our ninth condo tower, which will be fully dedicated to workforce housing we contracted 627 units during the quarter with the tower, 90% pre sold.
Strong pre sales of these towers represents significant future revenues that is secured by nonrefundable deposits. These projects will have a meaningful contribution to <unk> bottom line upon completion, which will fuel the acceleration of new developments to come within our pipeline and with that I would now like to hand, the call over to our CFO Carlos <unk>.
Yeah.
Thank you Jay.
During the second quarter, we were able to carry forward the strong momentum generated in the first quarter delivering strong results across all of our segments.
But that does despite ongoing economic headwinds, which have generated growing levels of uncertainty and volatility in the real estate market.
In summary, during the second quarter.
We reported net income of $21 6 million or <unk> 46 cents per diluted share compared to net income of $4 8 million or <unk> <unk> per diluted share during the prior year period.
Our MPC is generated land sales revenue of $85 million or 46% increase over the second quarter of 2021 and.
$71 million of EBIT at 2% increase compared to the prior year period, despite at $22 million reduction in equity earnings from the summit in Summerlin.
Our operating Athens delivered $66 million of NOI, a 15% increase compared to the prior year period.
At Ward village, we closed on 20 condo units, resulting in $4 6 million upon the profit up from a $574000 loss in the prior year period.
At the Seaboard, we recorded $3 $7 million net operating loss of $716000 improvement compared to the prior year period.
Despite this operating loss quarterly revenue of $27 million rose, 106% to 6% over the prior year period.
Overall, we are very pleased with the performance of our business segments together.
Together with our continued favorable outlook for our businesses.
We reiterate our full year guidance for 2022.
Outside of our segments were recently complete our commitment to divest noncore assets with the sale of the outlet collection at Riverwalk in New Orleans.
With all of this week or property for $34 million and generating net proceeds of $8 million.
Since the announcement of our transformation plan in the fourth quarter of 2019, we have sold 15 noncore assets generating $578 million in net proceeds which have been redeployed back into our core MPC to fund new development and repurchase stock at prices far below net asset value.
With respect to share buyback during the second quarter, we reported $2 2 million shares for $192 million.
These shares were purchased at an average price of $89, which is well below intrinsic value.
Subsequent to quarter end, we repurchased an additional 369000 shares for $25 million, leaving.
Leaving us with $15 million in available buyback capacity.
Okay.
Looking at our balance sheet at the end of the quarter, we had $573 million of cash on hand provide.
Providing us with plenty of capital to continue executing on our development projects.
Even with an extensive pipeline of projects currently underway the remaining equity contribution needed to fund those developments is only $232 million.
In other words, we have sufficient liquidity to launch additional developments throughout the remainder of this year and into 2023.
From a debt perspective, we had $4 8 billion outstanding at the end of the quarter with limited near term maturities and approximately 79% due in 2026 or later.
On the financing side, we closed on $213 million in refinancings for four properties.
This $194 million was related to three non recourse interest only loans were three multifamily assets in the woodlands with maturities in 2032.
During this rising rate environment. It is important to note that 83% of our debt is either fixed or swapped to a fixed rate, which significantly mitigates our interest rate risk.
With that I would like to turn the call back over to David for closing remarks.
Thank you Carlos to wrap up the call before we start Q&A I want to touch on a few key points.
First our financial results, thus far in 2020 to reflect the strength of our business model and our unique ability to withstand headwinds during periods of economic volatility.
Housing lot inventory remains at historical lows, while prices for our land continues to rise signifying the outsized demand that exists in our mpc's.
Our operating asset portfolio is outperforming with growing demand and rising rents for our high end multifamily office and retail space with.
With a full slate of new projects nearing the completion of construction, we have a steady pipeline to grow our stream of recurring income that will continue to drive our NAV higher.
At the Seaport one of its best quarters is now in the history books, but the best is yet to come with the Grand opening of the Tin building lease up of our remaining office space and continued growth in demand for our unique dining experiences.
Overall, we continue to see solid fundamentals in our business going forward.
Second despite incredible headwinds throughout the pandemic, we had successfully completed on our noncore asset disposition plans announced in 2019, we've used the net proceeds of $578 million.
To fuel new development projects within our core mpc's and to repurchase more than five 3 million shares and a sizable discount.
Unlocking meaningful shareholder value and driving our NAV higher.
And finally, our balance sheet remains incredibly strong despite allocating a considerable amount of capital to new projects and share repurchases.
Our disciplined capital allocation approach is paying dividends, leaving us with considerable liquidity to fund additional opportunities for future growth.
With that we'd now like to begin the Q&A portion of the call. We will start by answering a few questions that have been generated by safe technology, which will be read by Eric Holcomb, Eric can you read the first question.
Yes. Thanks, David the first question is the seaport segments had negative NOI of $8 3 million in the first quarter can management comment on the trajectory of earnings for the Seaport and also when is the tin building expected to open Carlos you want to take this one.
Thanks, Eric and good morning, everybody yes.
Yes, so that the loss of $8 3 million in the first quarter was still impacted by the omicron and Delta variance that had a very severe impact in the city and in the seaport as well however in the second quarter, we saw a very significant swing to the upside with the impressive start to the concert series and specials.
Private events, such as <unk>, both of which drove significant foot traffic to the area and our concert series continues to drive significant foot traffic to the area.
That resulted in the loss decreasing by 55% from the $8 3 million noted to $3 7 million in the second quarter with a very impressive revenue increase of 172% sequentially and 166% on a year on year basis.
Then from the leasing standpoint, we signed 41000 square foot lease with Alexander Wang of default and market building, which fully leases out that building, leaving us only with 88000 square feet of office space remaining to a lease.
Pier 17.
And then one of the last remaining milestones during the super closer to stabilization as the Tin building.
Just had a soft opening for our friends and family in the last week of July and we expect to celebrate the Grand opening of the Tin building later this quarter.
And while in the near term, we might see some operating losses as we ramp up operations in the long term. We believe that this unique marketplace will deliver tremendous value for the seaport.
Okay. Thanks, Carlos second.
Second question is do you expect your retail spaces to see higher are maintained rental occupancy with the COVID-19 virus slowing and more customers returning to physical retailing and shopping.
Dave.
Good morning, everybody.
Yeah, I think our retail centers are performing much better in this in this new environment.
As you've heard me say many times ward village retail has lagged behind the rest of our portfolio due to strict travel restrictions in Hawaii and really since those restrictions have lifted.
A strong comeback with leasing levels, increasing to 89% this quarter compared to 82% last year.
Addition across the portfolio, we've been able to replace tenants who didn't make it through the pandemic with what's really a much stronger tenant we're producing significantly higher sales per square foot.
Yes.
Okay great.
The third question, how does the recession affects your business.
David.
Sure Eric Thanks Happy to answer the question look the Howard Hughes Corporation, and you've heard me say time and time again, we live breed eat and sleep, increasing the intrinsic value of the NAV of our company on a per share basis.
And the largest driver of increasing that NAV is converting our raw commercial land into income producing assets at outsized risk adjusted returns.
Our ability to execute on that NAV growth is limited by the cash that comes into the company and demand to fill those buildings.
If there is a recession that could impact home sales and shrink the amount of cash that comes in or there is less demand in any of our regions. Our pace of growth are right, which we would increase on a per share basis. The NAV of the company could slow.
With that said the first half of the year is showing no signs of that with incredible strength in our MPC EBT incredible lease up of all of our assets in same store results across the operating portfolio that are incredibly strong.
To answer the question directly it could slow the pace of growth of our NAV, but we don't see signs of that today.
The fourth question is how do you balance the opportunity to repurchase shares pay down debt and maintained enough liquidity to handle stressful economic conditions like the spring of 2020 growth.
Well, it's a continuous process in which I spend a lot of a lot of time on as does the rest of the management team will look at different factors. We look at the cash on hand, which we ended our quarter with $573 million of unrestricted we'll look at our development commitments, which we have $232 million of remaining development.
Costs will look at our debt, where we have 79% of our debt not due until 2026 or later we will.
Look at our at the price of our stock. We believe is still very attractive relative to intrinsic value and then we'll decide which one of this areas or other on our business will have the highest risk adjusted return and we'll deploy capital to those opportunities.
Great.
Through one last question from say.
Are there any plans to buy new properties.
Thanks, Eric of course, we're always looking at development opportunities because we are first and foremost and development company. However, when we think of significant land acquisition opportunities of scale quality and product type there are few and far between so a good example was our purchase of Douglas Ranch last year and now we've embarked on a decades long.
<unk> opportunity there, we're very pleased that we're able to get into the market quickly Douglas ranch already negotiating with homebuilders for our first thousand lots and Thats. An example of a long pipeline. So that if we werent to buy another MPC. We also have decades worth of residential and commercial development opportunities within our existing town centers and we feel.
But that pipeline with strong demand from those mpc's will keep us going for a long long time.
Great Alright.
Alright, Thanks, Jay with that operator, we're going to open up the lines to Q&A.
Yes. Thank you at this time, we will begin the question and answer session on the phone.
I'll ask a question you May press Star then one on your Touchtone phone.
Speaker phone.
Please pick up the handset before pressing the keys to withdraw your question. Please press Star then two at this time we will.
Pause momentarily to assemble the roster.
And the first question comes from John Kim with BMO.
Prepared remarks, the impact of mortgage rates on home sales, but I was wondering if you could talk about the impact it's had on land values in land sales and in particular, a bridge Lynn the price per acre went up 16% sequentially in the face of rising mortgage rates.
And so can you comment on what it does do too.
The mix of the land that was sold during the quarter.
And also remind us when those prices were negotiated.
Great question, John and John Welcome welcome to the call and welcome to coverage. It is Howard Hughes, we're grateful to have you.
It's a it's an excellent question and I would tell you that in my view the largest driver of what has seen us show strength and land sales not just the number of acres, but in price per acre is what we see as a meaningful supply demand imbalance as it relates to finished lots and land in the home in the hands of homebuilder.
And they are even with the slower home sales as we mentioned in our prepared remarks. They are still playing catch up to get to an inventory level that they feel comfortable with and an inventory level that we want them to have so that they have enough product on the ground to sell as a result, the demand has not taper.
And the results this quarter and for the first half of this year I think demonstrate that that there are a lot of homebuilders out there within our communities and a lot of homebuyers moving to our communities that want to be there and they are willing to pay that price to be there and that has translated into a great price per acre of our residential land.
Can you give us an indication of our price per acre will be further remainder of the year or is that can that continue to.
Increase or price growth to decelerate or any other guidance you can provide.
Look we don't provide guidance on price per acre and certainly not on a quarterly basis, there's just too much volatility in there relative to super pads are custom lots that could skew that data a little bit higher a little bit lower look I feel really good that the pricing that we've achieved year to date.
Is the pricing that we should expect to see for the rest of the year.
In general I'm, not going to say exactly down to the dollar, but I feel very good that what we've achieved to date is illustrative of what the value of our land is and it's not a one time event.
Okay moving to condo sales the margins on.
Condos that were closed in the quarter.
It's relatively low at 8% and I know thats specific to the one project I Ali.
Sorry, if I butcher the name, but I was wondering if you could comment on margins that Victoria place in Cola and how that compares to what you closed during the second quarter.
Yes, so John I think that the 8% headline that you probably pulled from the income statement includes a couple of one timers that are associated with the remediation efforts at Wyeth.
And on page eight of the supplemental.
Pull out that footnote E highlights of $2 $7 million of the expenses were associated with that.
And the actual margin when you back out that one timer was just north of 20%, which is more consistent with expectations, albeit perhaps even lower than what we're expecting to see on these new towers, we've always targeted and average margin across the entire.
Ward village portfolio of approximately 30% and we still think that we're going to be able to achieve that on a go forward basis.
Great and then my final question is on the joint.
Joint venture with discovery and expanded it.
At Summerlin, where are those 54 acres where are they located.
They are readily summer yes.
Theyre directly sell and they are connected through an internal road within the main gate to the summit. So it is actually part of the overall community. It is not a separate area or a separate gate or separate entrance. It's all it's all connected and we're able to incorporate in a pretty seamless way.
That land that we just closed on in joint venture with discovery is in the process of getting final plat approval, we're hopeful to get that at the end of 'twenty, two which would allow us to start officially.
Officially contracting those large selling and closing them late this year early next year.
Really appreciate it thank you.
Happy to do it thanks John .
Thank you and our next question comes from Alexander Goldfarb with Piper Sandler.
Hey, good morning, good morning down there.
So David on the on the landfill business, obviously, that's a key part of Howard Hughes value creation, you spoke about return to seasonality you spoke about the homebuilder shortages youre trying to catch up on inventory price appreciation in that home sales are back to 2019.
Ari.
I guess as best as your Crystal ball is.
Do you think the existing environment is sort of where you see a normalization like from here you would say hey, as far as we can see this looks to be where we're leveling out or do you see a change going on meaning.
Mortgage rates rise further inflation continues that eventually.
This could curtail the impact of people moving into your mpc's buying homes et cetera.
Well, it's really difficult for me to prognosticate, where mortgage rates are going to be for the rest of the year, where inflation is going to be for the rest of the year. What the federal reserve is going to do and what that impact will be on home sales.
What I'm very comfortable prognosticating is how our communities and our MPC sit within their regions and how attractive they remain relative to quality of life and affordability.
We still see meaningful in migration from the coasts from the northeast Pacific Northwest and Midwest into Sumerlin into bridge Linde and some of those folks that are leaving California are getting <unk>.
Mr House for half the money and I honestly don't think that those buyers are concerned with a five 5% mortgage rate or a three 5% mortgage rate because theyre, making that quality of life trade.
And thats that to remain consistent.
And I think that our relative positioning our relative affordability and the quality of life that we can offer within our communities is appealing to buyers despite higher home cost despite higher mortgage cost and thats translated into our financial results year to date.
And then do you have a breakout or maybe an updated breakout.
In migration to your communities versus people moving into your communities from the local market.
And how that.
That moves quarter to quarter I would say, we are still seeing north of 25% in summerlin slightly lower percentage Enbridge linde and a much lower percentage in the woodland Hills, which is more of a starter home community typically.
The more local buyer then an in migration there, but it still remains very strong and we're excited to appeal to those potential buyers and welcome those new residents into our communities that just not just helped generate land sales in MPC EBT, but they eventually sharpen the centers rent office space in our buildings and they contribute to the overall <unk>.
Brinci for our community and therefore, the overall financial results of how reduced.
Okay, and then Carlos a question on <unk>.
On the accounting always a fun topic.
A lot of your floating rate debt I believe is tied around the construction loans that used to fund development.
Net interest.
Gets capitalized.
Obviously rates are rising.
How does this rising rates on your floating rate debt tied to development, how does that impact the balance sheet in any way is that higher capitalized interest does that low.
Just sort of curious how it really manifest in the P&L.
Right. Thanks, Thank you Alex so yes, the floating rate debt on construction projects and stop being capitalized to the balance sheet basis. So when we ultimately if you look at our developments line. Therefore, youll see it while it's under construction and then when it gets placed in service those interests will carryover to the land and building components that.
We have on the balance sheet. So for for a construction project, we're really not carrying that risk on the income statement because it gets capitalized to the balance sheet in the future basis of the assets where it does.
Potentially impact us Alex is that it could.
Reduce the yield on cost of these assets that we have under development.
With that said, we have always projected our future interest costs and how much of that that gets capitalized into the asset value, which is a relatively small amount to over to the overall construction site using our best estimate of the forward curve historically speaking we've over.
Almost always overestimated our interest costs on a construction project and these most recent projects are actually coming in right around pro forma so I think the conservative nature of the way that we modeled it has insulated us from changing any yield on cost as it relates to rising rates.
Thank you.
Okay.
Thank you and the next question comes from Anthony <unk> with Jpmorgan.
Yes, Thank you and good morning.
I guess to start with the land sales part of the business So I understand the.
Normalization of seasonality and also the comps against like Super patent stuff like that but David can you talk maybe just about what the builder behavior has been in say like the recent weeks or months because it seems like some of the broader housing data points have slowed considerably on a real time basis here and so I'm just trying to understand if theres any real.
Shift that Youre seeing.
Yes, we're having real time dialogue with all of our builders in all of our communities and all of the conversations.
To accompany have been that they still remain.
Excited and they still want to close on the land and the lots that we have available to sell.
We still have a spot where they are under supplied finished lots they're under supplied lands in summerlin and our land sales to date and what I expect our land sales to be for the balance of the year really will get them back to equilibrium.
It has been just so hot for two years that we have been scrambling to get them finished lots and land and accelerating that to the best we can and unfortunately, we couldn't quite keep up all the way and this year, we're going to be able to get that back to a steady state.
I would tell you that the homebuilders are.
David like US report quarterly and they're worried about quarterly results, but they're also thinking about where that product is going to come not just next quarter, but next year.
And they have to start thinking about those land acquisition decisions today to make sure that they are ahead of it.
So would it be fair to say that that's sort of the.
The catch up in your communities.
Offset with Broadway, we're seeing as kind of things slowing down.
Yeah, I think nationally a slower home sales absolutely consistent and yes, we've seen fewer home sales in our communities I still think that our communities have outperformed not just the national averages, but the overall broader markets that they sit and we expect that outperformance to continue.
Okay, and then on the builder participation side does that will go the other way if home sale prices.
Come out to be lower.
Could you be on the hook for anything or is it just upside.
It's a one way option.
A little bit a schmuck insurance when do we get in an environment like this where home prices are rising as fast as they are that we're getting paid an appropriate amount for our land, which is a considerable value component of why people are paying that much for the home. It's the location and then adjourn.
Got it Okay, and then on Douglas Ranch.
Does anything change in the way you think about spending there are operating at if you end up with 90%.
Versus say 50.
No not at all our our strategy remains consistent regardless of our ownership percentage. We're in it for the long haul we're in it for the long term net asset value creation that developing a master planned community can deliver.
And if we owned 10% or 100% our philosophy doesn't change.
Okay, and then just last one.
Just related to the expanded.
Deal with discovery it seems like that that's been pretty successful in summerlin is there.
Is there opportunity to do more with them and other mpc's of yours or is this is what they do really just more germane to summerlin.
I think there are some limited rifle shot opportunities, where we could continue to collaborate and partner.
And we have those discussions real time.
Yes.
Okay. Thank you.
Thank you.
Thank you and our next question comes from Peter Abramowitz with series.
Thank you.
Wanted to ask about your multifamily portfolio can you track rent to income ratios.
So could you quantify that and just talk about.
How you rather than things just kind of been able to absorb these rent increases.
Yeah, Peter it's a great question and it is something we do track the average income in the median income of our tenants all the time.
It's shocking.
Most of our properties are approaching triple digit average incomes.
And even though we have some meaningful rate increases across our portfolio for the vast majority of our residents is remains affordable.
Those at the lower end of the spectrum those that are.
In that.
40% to 60000 average annual income those are the watch list tenants those are the ones that we have to keep an eye on.
And if this recession potentially materializes the way it could that could be the segment of the population that feels this heart.
The inflationary pressures impact that segment of our population more dramatically than others and that's the area that we are keeping a very close eye on.
Got it so and so I guess do you have.
Have a number of free rent to income ratio or I guess, what I'm wondering if the average income of your multifamily customer we don't we don't publish it across the portfolio.
Okay.
I guess what about the.
Publisher average income number either.
Okay.
Got it and then my second question is on the food.
Sure.
So I guess it looks like.
Pier 17, the historic District.
Lee.
Breakeven this quarter.
We're isolating that from the Tin building I guess, how much of that is seasonality.
Sutter going on there.
And kind of continue to maintain that momentum and improve.
Or is that something that.
Specific to the summer season.
And might you expect that to take a step back and the remainder of the year.
No.
Historically speaking the seaport has been highly seasonal asset.
And having summer concert series in Activations and people out on the peer drives better results in the warmer months no doubt about it.
Think the amount of volatility we've seen driven by seasonality historically speaking has been greater because there's been less of the consistent recurring income since we have not leased at 80000 plus square feet on Pier 17.
With each incremental office lease, we sign and whether that was ESPN Nike and now Alexandra Wang.
Is that percentage of that impact of that seasonality starts to diminish and if we're able to get.
A little bit more leasing done and get that fourth floor of the peer put away that seasonality adjustment will become a much smaller portion of what we expect to see over time.
Got it that's it for me thank you.
Thanks Peter.
Thank you and the next question comes from coarse sand with Gws financial.
Hi, Good morning first question was could you just talk about the reason for G&A dropping from last year. It seems like quite a bit of a drop.
Yes sure so.
There were some onetime items.
In a prior period in our DNA.
But then we've also does.
With the increase in our development pipeline will become more.
More of that more of our internal costs have been allocated to development projects ending up on our balance sheet instead of our DNA as they are related to the construction of those projects.
And so you're just going to be capitalizing costs from hereon.
Well it is driven by the development pipeline so.
It is strictly related to that and to the activity on our MPC. So I can tell you there will always be a significant component that gets capitalized as direct cost to this to the development projects.
That is exactly.
Hard to tell but it will it will always be correlated to our pipeline and our investment in <unk>.
Okay, and then related to the summer could you just remind us on how the JV works with the land that you are providing and what kind of.
Income you're expecting now that you are providing more land.
The summit.
So we provide land on a fixed price per acre through the waterfall, we get our capital back our implied price per acre, we get a preferred return discovery gets their capital a multiple of their capital and then we split the profits after that.
<unk> long term implied price of or long term profitability of that will be dependent on what we sell per acre.
And when we first started out at the summit, we were selling lots at $2 million to $4 million per acre and that number has crept up over the past couple of years to eight to 12, So I don't want to.
Kind of set expectations on what we could achieve since we haven't sold any of those lots yet in the second phase yet and I think there's some meaningful pent up demand because we have such limited inventory.
<unk> phase one of the summit.
And my last question was there any change in your Douglas Ranch timeline for development.
No I think everything remains on pace, where in the process of getting all the infrastructure done to contract those first thousand lots.
And start hopefully building homes in the next year or so everything remains on track. We are still looking at some early commercial development, there were and whether Thats a grocery anchored center.
A modest single family for rent community or multifamily I think that will be next after we get those first.
Homes on the ground or so.
Okay, great. Thank you.
<unk>.
Thank you and the next question is a follow up from Anthony <unk> with Jpmorgan.
Plus.
Thank you I just had a couple more if I could the.
The seaport.
We saw a sort of a flywheel effect of getting events and stuff like that back growing again, how would you characterize what you saw there on the managed side with events in the restaurants and such versus what you think it would look like on a stabilized basis like did you get there in the second quarter or is there still more to go.
Oh, I'd hate to say that we have.
Hit the pinnacle of what we're able to achieve with the seaport I don't want to.
Limit the team's imagination nor mine.
I think that we have the opportunity to do better to be more efficient I think that the margins right now are tighter than they have historically been because of the increased cost of labor the increased cost of food.
But we do think that we are getting to a spot where people are starting to recognize this is a wonderful entertainment and culinary destination in Manhattan, and I think that will only be further exemplified when we open up the tin building.
And Thats a asset here in the Seaport district, and will just fuel more and more traffic.
I think that we can do better I think we have room to continue to stabilize these restaurants drive better revenue per foot higher margins.
And this is a great glimpse into.
The roadmap of what could be long term.
Got it.
And then second one.
On the buyback should we anticipate an additional authorization and then also.
As you outlined sort of liquidity that if you if you want to do more you got the liquidity to do it but if you do decide to do more should we anticipate.
You're doing something less somewhere else in the business or.
Or any other asset sales to consider to fund it.
Well, we as we said in prepared remarks, we have we still have the $15 million left so we can we can exercise that remaining authority, but I mean to your point, though if we were to decide to do more of a buyback what we have to do less of something else, what but yes, I mean with with gasoline.
And that resource we would have to go through that process that I described where we determine what's going to give us.
The highest risk adjusted return and if it is buybacks and that does mean that we passed on some of the other options that we're evaluating.
Yes.
Okay. So it doesn't sound like there's anything that's been lined up on that front quite yet.
Yes.
The board discussion that we have all the time and to the extent that in our next discussion with the board, we reauthorized, a new buyback we will communicate it expeditiously.
Okay, great. Thank you.
Thank you Tony.
And the next question comes from Alex Barron with <unk> Research Center.
Yes, thanks, guys.
I wanted to ask some some builders have discussed from their second quarter call that they've started to kind of renegotiate land deals or walk away from some land options.
Others that theyre, starting to cut prices and increased incentives have you guys.
Have those types of conversations are having any builders tried to renegotiate any of the landfills.
We don't have options.
So that we don't take that type of risk.
And we have not had any discussions to date of changing any pricing for a lot our per acre with any of our builders.
Okay, well great. Thanks.
Thank you Alex I appreciate it.
Thank you and as that was the last question I would like to return the floor to David O'reilly for any closing comments.
France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.