Q1 2023 The Howard Hughes Corporation Earnings Call
One of these 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 first 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 with that I will now turn the call over to our CEO David O'reilly.
Thank you Eric Good morning, everyone and welcome to our first quarter earnings call on our call today I'm going to start with a recap of the quarter and cover the segment highlights for our master planned communities and for the seaport.
Strife will cover operating assets, followed by J, who will update our development projects in Ward village. Then finally, Carlos will review our financial results before Q&A.
I am pleased to report that our MPC and operating asset segments had a strong start to the year with both reporting favorable financial results with year over year growth.
Considering the numerous market headwinds in the latter part of 2022, our first quarter results further exemplify the resiliency of our unique portfolio of assets, which continue to prove its ability to perform throughout various market cycles.
Compared to the prior year MPC EBT increased 5% aided by continued strength in our residential price per acre strong builder price participation and a sizable 109 acre commercial land sale Enbridge Lynn.
Our operating assets delivered NOI of $59 million or 6% year over year increase when excluding the impact of asset dispositions.
At Ward village, we contracted to sell 35 units and closed on the sale of five homes.
And at the Seaport. The Tin building has now opened seven days, a week, which drew improved efficiencies and significantly reduced equity losses, despite winter seasonality.
During the quarter, we experienced a positive shift in homebuyer sentiment with new home sales and our Mpc's rising 120% compared to the 2020 to fourth quarter.
Our listed not immediately translate into higher residential land sales. It did improve a homebuilder interest for new acreage, which points favorably to land sales going forward.
Looking at our MPC segment, we delivered $62 million of EBT of $3 million year over year improvement.
This performance was impacted by continued growth in residential price per acre, which rose 49% to $836000.
MPC land sales, which totaled $59 million reflected a modest 3% reduction primarily due to fewer residential acres sold.
The rising value of our residential acreage also carried over into new home sales and our mpc's.
As the value of the new homes rose the implied land value has also increased.
When new homes are sold we perceive our participation payment from the builder based on the increase in the implied land value.
In the first quarter, our builder price participation revenue remained strong at $14 million.
A 3% year over year reduction, despite a 9% decline in new home sales.
In our Houston region, Bridgeman delivered another excellent quarter with more than 22 residential acres sold at an average price of $542000 per acre.
We also closed on a significant 109 acre commercial land sale, which generated nearly $28 million of revenue.
With continued strong builder price participation fritzen reported over $31 million of EBT in the quarter.
In the woodlands, we continued to sell custom lots at ARIA IL, Unlike woodlands, which generated $10 million of revenue at nearly $2 $9 million per acre.
And the woodland Hills, we sold only five acres of land in the quarter. These lots were sold however at a record price of $431000 per acre.
Turning to Summerlin, we reported $28 million of EBT in the quarter. Much of these earnings were the result of strong builder price participation totaling $12 million.
And at the summit, we commenced selling the first custom lots in phase II, which includes another 54 acres of land for 28 custom home sites.
We expect this new phase of development will have a meaningful impact on summerlin DVT as the year progresses.
Finally in our newest community of Taro, Dallas, and Phoenix West Valley, We continue to lay the groundwork for florio mass grading and installing infrastructure needed to contract the first thousand residential lots.
We continue to expect these lots to be contracted in the second half of the year.
Looking at new home sales as we previously mentioned, we experienced 120% increase compared to the fourth quarter selling a total of 552 homes.
The sequential improvement was attributable to summerlin, which experienced a sharp, 229% recovery and bridging which more than doubled the number of homes sold in the fourth quarter.
These increases can be attributed to stabilizing mortgage rates as well as homebuilder incentives attracting new homebuyers.
Also contributing is the lack of available resale homes with many homeowners reluctant to sell their biggest asset there historically low mortgage rates.
As evidenced according to the National Association of Homebuilders, New construction in the U S. Currently makes up about one third of the available home inventory. This compares to the historical norms of a little bit more than 10%.
With many homebuyers force it turned to new construction spec home inventories are quickly depleted and cancellations have significantly declined.
And our Mpc's alone cancellations declined from 39% in the fourth quarter to 18% in the first quarter.
When combined with a 28% year over year decline in new home starts in March negotiations for purchases of new residential acres have increased.
As a result, we anticipate improved residential land sales in the coming quarters as homebuilders will need to purchase new lots to meet this sustained demand.
Shifting over to the Seaport, we achieved seven day per week operations at the Tin building throughout the first quarter with strong foot traffic and sales despite the normal winter seasonality.
Although we continued to experience increased employee expenses and elevated startup cost equity losses from this joint venture improved by $6 $5 million sequentially for a total loss of $9 2 million.
We remain confident that we are on the right path and anticipate considerable financial improvement in the coming quarters.
Overall for the Seaport, we reported 27% year over year revenue growth in the first quarter generating $12 million in sales.
Excluding losses from unconsolidated joint ventures of $9 6 million, which primarily relates to the tin building.
Seaport NOI losses improved to $5 6 million.
With that I'll hand, the call over to Dave stripe to review the performance of our operating assets.
Thank you David good morning.
And our operating asset segment, we started the year on a strong note delivering.
Delivering $59 million of total NOI.
Excluding the retail assets that we divested in 2022 total NOI increased 6% year over year with meaningful growth in our office retail and multifamily portfolios.
We also experienced continued favorable leasing momentum across the portfolio with sequential improvement in overall leasing percentages in each of our three core property types.
The most significant year over year improvement was seen in our office portfolio, which generated first quarter NOI of $28 million.
This reflected a $2 6 million or 10% year over year improvement was primarily the result of strong lease up activity rent.
Rent abatement explorations and increased tenant recoveries at several properties in the woodlands.
These increases were partially offset by a 2022 tenant bankruptcy that resulted in lower occupancy at one Hughes landing in the woodlands as well as some lease explorations at various assets in downtown Columbia.
During the quarter, we continued to outperform the market executing new or expanded office leases totaling approximately 130000 square feet, including 68000 square feet in the woodlands 34000 square feet in downtown Columbia, and 27000 square feet and some of them.
This strong leasing performance clearly exemplifies the flight to quality and heightened demand we are seeing from companies seeking highly monetized environments for their employees a trend we do not expect to see subside anytime soon.
And retail first quarter, NOI was $15 million, reflecting a 20% increase compared to the prior year.
This improvement was primarily related to a stronger tenant base and retail sales growth in downtown Summerlin, which continued to perform exceptionally well and finished the quarter 99% leased.
We also experienced improved occupancy and increased tenant recoveries in the woodlands in ward village.
At quarter end, our stabilized retail portfolio was 96% leased representing a 6% increase compared to the prior year and a 1% sequential improvement.
Our multifamily portfolio also performed well in the quarter, delivering NOI of $13 million or 13% year over year increase.
This growth was primarily driven by insurance recoveries related to the 2021 freeze in the Houston region as well as increased rental revenue as a result of 7% in place rent growth.
These improvements were partially offset by expected losses from our latest multifamily developments Sterling at Brisbane and Marlow in downtown Columbia, which are in the early stages of lease up both properties have experienced strong initial demand with Sterling at bridge, Linda already 47% leased at Marlow, 25% leased.
Overall, our stabilized multifamily assets finished the quarter, 95% leased with sequential gains in summerlin and downtown Columbia.
Finally, our share of NOI from unconsolidated ventures declined 28% in the first quarter.
This reduction was almost entirely the result of lower annual cash distributions from our investment in Summerlin hospital, which totaled $3 million in the first quarter.
I will now turn the call over to our President Jay Cross.
Thanks, Dave and good morning to everyone in the first quarter, we continued to make good progress on our projects under construction, including Tanja Echo 294 unit multifamily complex in downtown Summerlin, which is expected to be completed next quarter wingspan our first single family for rent development located in Brisbane, which is slated to welcome its first.
<unk> late in the year.
South Lake Medical and 86000 square foot Medical office building in downtown Columbia expected to be completed in 2024, and Summerlin South office 147000 square foot three storey office complex, which started construction late in 'twenty to 'twenty two.
Together. These four projects are expected to generate meaningful stabilized NOI of more than $18 million with a yield on cost of approximately 7%.
Looking at the Seaport, we resumed remediation work at 250 water Street during March following an interim appellate court order, which allowed for site work to continue pending a full hearing during its June 2023 term, we will keep you apprised as more information becomes available.
At Ward village, we are making great progress on the construction of Victoria place, where we recently celebrated the topping off of the tower together with the park Ward village, which commence construction late in 2023, and you Lana which started construction during the first quarter. We now have three condo projects underway Victoria place is.
100% pre sold park Ward village and 92% pre sold and Youll add on 99% pre salt.
Condo presale sales were steady in the quarter with a combined 35 units contracted at coli Yolanda and the park Ward village.
As of quarter end coli, which has not yet started construction was already 80% pre sold after just six months of pre sales.
These four projects are expected to generate combined future revenue of nearly $2 $5 billion between 2024 and 2026.
During the quarter. We also closed on the sale of the four units at Aalii in one year at cooler generated combined revenue of $6 million.
At the end of the quarter Aalii was 96% sold with 27 units remaining and Colo is 98% sold with just 14 units remaining.
Finally in the first quarter, we announced our plans to develop the land new our 11th condo project in more village, which will encompass 498 residences. When this project is currently expected to commence pre sales late this year early next year with completion in 2027.
I'd now like to hand, the call over to our CFO , Carlos <unk>, who will provide a high level overview of our financial results.
Thank you, Dave and good morning, everyone.
In the first quarter.
Our embassies produced $62 million of bvd aided by strong residential price per acre build their price participation in commercial land sales.
Our operating assets delivered $59 million of NOI with year over year growth in office retail and multifamily.
Excluding dispositions this represented a 6% year over year increase.
At Ward village with growth from five condo units, which generated $6 million of Contra revenue at 25% gross margins.
At the Seaport, we reported $12 million of revenue up 27% year over year.
As expected the tin building continues to generate equity losses, but they improved $6 5 million compared to the fourth quarter with the marketplace now open seven days a week.
We anticipate continued improvement in the spring and summer months ahead.
Lastly, we reported cash G&A of $20 million.
Given this positive result, we remain confident about our expectations for the full year and reiterate our 2023 full year guidance as outlined in the first quarter earnings release.
Shifting to the balance sheet.
We ended the quarter with $418 million of cash with leaves us well positioned to deploy capital into our development pipeline.
At the end of the first quarter the remaining equity contribution needed to fund our current project was $254 million before a pending $27 million anticipated construction financing for the Summerlin South offers.
From a debt perspective, we had $4 8 billion outstanding at the end of the quarter with only $226 million of maturities through 2024, and approximately 87% due in 2026 or later.
Additionally, 100% of our debt is either fixed cap or swapped to a fixed rate, which significantly mitigates our interest rate risk.
With respect to any of that we closed on one new financing in the quarter at $264 million construction loan for Lana and Ward village.
With that I would now like to turn the call back over to David for closing remarks.
Thank you so much Carlos and before we open up the lines for Q&A I wanted to announce the date of our next Investor day, which will be held in New York on Wednesday September six.
More information will be coming in the coming weeks and months, but please mark your calendars to join us now.
Now just a few final thoughts.
First we started the year on solid footing, particularly within our MPC and operating asset segments.
With this financial performance, our full year guidance remains intact.
Next improved homebuilder sentiment and corresponding growth in new home sales are significant positive for our MPC segment.
With increasing demand for new homes shrinking spec inventory and limited lot availability, we expect to see residential land sales ramp up as we go out throughout the year.
And finally, we continue to advance our development pipeline, but we are doing this with a laser focus to ensure we allocate our capital appropriately to achieve the highest risk adjusted returns.
All of this bodes well for the future of Howard Hughes and we are excited for what lies ahead now.
Now with that let's start the Q&A portion of the call. Operator can you. Please open the line for our first question.
We will now begin the question and answer session.
Again to ask a question you May press star one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two.
At this time, we will take our first question, which will come from Anthony <unk> with Jpmorgan. Please go ahead with your question.
Hi, Thanks, and good morning.
My first question relates to the commercial land sale Enbridge land and you also did some I think in the fourth quarter as well can you talk to.
What slightly to happen at those sites, if those are going to be sort of any sort of corporate relocation or what that does to the overall area.
Good morning, Tony I Love the question. Thank you.
There were two sites that we've sold and bridges and recently won.
Is a site that we sold to an adjacent landowner that is developing a large scale distribution industrial center and I think that will help modestly in terms of job creation and those that would want to live close by within the original deal.
Other side to a user that is a corporate relocation thats going to bring meaningful jobs and meaningful activity and we think that that is going to be a tremendous catalyst.
I'd Love to tell you more information beyond that but I'm bound by confidentiality right now in terms of who that user is but once we're able to talk about it believe me I'll be screaming at from history.
Okay.
This is something that we.
We will start to.
Get built on or start to.
Move ahead fairly soon or is this something like years out.
No. This was a near term need and I expect that they will they have done their design work and theyre getting through their final entitlement and approval process and we're hopeful that they will start construction this year.
Okay.
And then second question out in West Phoenix, It looked like you changed pricing on those lots pretty dramatically from <unk>, having some changing changes to the acreage just wondering what's happening there.
Yes, absolutely.
So the residential price per acre that we previously reported which was 302000 per florio and 332000 retired Dallas, we're done basically with our original land model, which included non salable land right of way for parks open spaces.
As we finalized planning and land mapping and laying out streets in lots and parks and.
Water detention.
We're now revising our reported price per acre to account for the net land, which only includes the salable residential lots to be sold to builders in the calculation.
Another factor in there, but it's modest relative to the other factors.
Just the amount of.
Where we think we can sell these acres to builders and I think thats gone up modestly even relative to last year. Despite the headwinds we saw in the fourth quarter. These new prices at 648690 6000, a representative of the net saleable acre is not the gross acreage.
Okay, and so just adjusting for all of that just real Simplistically like was the change kind of.
No change up or down.
I would say a couple of percent.
The change in kind of our expectation of what homebuilders would pay us modestly very modestly higher the majority of that difference is driven by taking out the non salable acres.
Okay got it and then just last one in the office portfolio.
The leasing in the quarter, just trying to think through the rest of the year does occupancy.
Still trend upward due expirations or move outs kind of offset or what happens to office occupancy the rest of this year.
Wow.
Youre going to test my Crystal ball Tony.
Look I think that I'm optimistic that we'll continue to see positive improvement.
Improvement in specifically here in some of our trophy assets in the woodlands.
At some of our better assets in Colombia, and the new <unk> hundred property.
Summerlin.
And if everything else goes as expected I feel very good that we will see positive increases.
That said, it's very difficult to predict.
Bankruptcy or tenant default or something that would have a negative impact on that and thats part of what we saw despite the positive results. It was kind of two steps forward one step back because last year over the past several quarters, we had a decent sized bankruptcy here in the woodlands and other other away from that bankruptcy. These results would have been much better.
Okay. Thank you.
Thanks, Tony.
And our next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead with your question.
Yes.
Good morning.
Good to hear that you guys are continuing progress on $2 50, hopefully that goes the right way it'd certainly be a good addition of more housing, which the city definitely needs.
So David My question is on the homebuilders in general.
Not a surprise that existing home sales are down given legacy embedded mortgages, but curious given that mortgages are up are you seeing that the builders are like literally adjusting the product that they build to make the price point work or is it more of that combination of <unk>.
Those are just accepting reality of today and to the incentives builders are offering is such that they are basically still building and offering the same product, but it's just that you have buyers accepting the higher mortgages and two there is enough of an incentive there from the builders that they really don't have to change.
What they are what they are offering to the customer.
Yes, I would tell you that I.
Haven't seen a dramatic shift in the product that the builders are buying Alex what we have seen as a buyer acceptance of higher rates.
What we've seen is some of the premiums that existed in before mortgage rates increased like view premiums lot premiums upgrades to the homes. Those are are shrinking without a doubt or going away altogether.
Incentives at the homebuilders are offering are helping spur demand and sometimes those are rate buy downs for one three or even determined the mortgage depending on the homebuilder in the situation.
And builders have albeit reluctantly in certain instances, even lowered prices of the homes.
I think all in all it's incredibly.
Positive, especially over the past 90 days.
As the retail inventory has dried up.
New set new production homes are those that are the only game in town and therefore getting gobbled up.
The spec inventory that built up in the fourth quarter due to the high cancellation rate fell so dramatically that debt.
That buyer that's coming in at once to close right away gobbled up those specs and therefore, our homebuilders are down too.
Pretty.
Meaningfully meaningful decrease in there of standing inventory.
And that has brought them back like we saw in Britain with some land sales.
I think we've seen a great interest in <unk>.
Our super pads in Summerlin and I feel good that we will.
Hit our numbers and leaving our guidance intact.
Despite what has been pretty challenging fourth quarter and a modest rebound here in the first quarter.
Okay. The second question is on the Oakland A's, obviously, you guys do a great job with the aviators.
But saw recently the Doj's have in fact.
Land I'm sure this was probably well known within the market.
What does this mean to you guys in the aviators I know years ago. Yes. There was a view that if a major league baseball comes in they'd have to buyout the minor leagues, but my understanding is that contract has since changed.
Do you think the net impact to the aviators and the profitability of downtown Summerland.
The ASR coming to town.
From our perspective, we think it's usually beneficial.
Not just for the aviators.
The Las Vegas Valley for Southern Nevada.
And for some of them.
<unk> moving their entire organization to Las Vegas.
Is nothing short of incredible positive for the entire valley.
We have an agreement in place with the Athletics, where we've agreed to let both teams operate side by side in Southern Nevada, and this is going to be pretty similar to the way the Vegas Golden Knights work with they are minor league team to Henderson Silver nights.
Really setup to be beneficial to both organizations, where you have a family friendly lower priced option to see tomorrows MLB players today in our ballpark and we will see I think a greater tourism population are much higher price point to go see the A's.
Down by the strip.
There's a lot of minor league teams in baseball that have this in place and whether it's the Minnesota Twins and the St Paul saying the Astros in sugar.
Sugarland space Cowboys are the Seattle Mariners and the Docomo <unk>, where the AAA team being right down the street hedged not only proven to be beneficial for the major league teams because they get access to their players very quickly, but for the minor league teams because it increases the interest in that team and actually drives more ticket purchases.
And just final question down to seaport.
It feels a little like.
You are well versed in the restaurant business labor seems to be a perennial issue and it doesn't seem to be getting better as you guys look at your business plan, but John George and your F&B offering down there what you guys originally modeled versus what you're experiencing now.
Is it still lining up or.
Is labor more of an issue or maybe its something else, but it seems to be labor has always been talked about issue or is that more of an issue that could push out.
Profitability timeline that you guys versus what you originally penciled.
Yes, so I'm going to break that question down into two components one between the more stabilized restaurant operations on the Pier and then the Tyndall.
And for the stabilized restaurants on the peer like to Fulton the gross sales and net profitability of those restaurants are performing incredibly well and if you did kind of what's the implied rent that we earn from the Fulton I think it is better than any retail lease that we signed today in fact, I know it was because I'd sign those leases if I could.
Yes Lee.
Labor is impacting margins and it's coming in a point or two as a result of higher labor costs, but we're still very profitable in those restaurants are driving not only a good cash flow to our juice, but great traffic to the peer and a great activation for lower Manhattan.
Now the tin building on the other hand, we are still in the ramp up period, we're still.
Finalizing menus getting recipes correct.
Overstaffing a bit to make sure that customer experience is incredible as we ramp up our customer base and build that customer loyalty that wants to come back over and over again over the coming months and coming quarters, we will start to dial back that labor and get it to a more rationalized level that will drive hopefully.
Our cash flow results for the tin building throughout the remainder of this year and labor challenging Youre accurate as you highlight that Alex, but we're talking about a point or two on margin.
And I would tell US tell you that the pendulum from six months ago feels like it's swung back a little bit in the kind of.
Employers.
Of the ledger versus the employees.
Okay. Thank you David.
Thanks, Alex.
Yes.
And our next question will come from John Kim with BMO Capital markets. Please go ahead with your question.
Thank you and good morning.
Just on the MPC sales, David you talked about homebuilders looking at it.
Build back inventory.
I was wondering when you think that would be as far as.
When that translates into higher sales and any commentary on price per acre going forward.
Yes so.
Look what we've always said is that home sales within our MPC as are the best leading indicator for future home buying and as you saw kind of on a quarter over quarter basis, we had meaningful increases in our master planned communities from a home sale perspective.
And we think that that bodes well for future land sales.
Do I think that the price per acre is going to continue to go up dramatically.
I think thats, a tough tough assumption to make I think that we'll see like we saw this past quarter strong price per acres do we envision double digit growth no because mortgage rates are higher affordability is compressed and we need to make sure we maintain velocity and building out. These communities. So pricing one lot at the absolute maximum price does more harm.
Good if we can price a.
Meaningful number of lots a meaningful number of acres with a meaningful number of new residents at an appropriate price per acre like we saw this past quarter. So we're really optimistic we think home sales. This as a leading indicator will drive strong land sales for the remainder of the year.
Hopefully those price per acres will continue to stay at this level or increase modestly.
Now I will also highlight John and for all of our listeners that the average price per acre.
In our community that we reported this quarter is impacted by a couple of custom lot sales that we had on <unk> Island and the woodlands for $2 8 million per acre and that takes the average of the overall for the company up higher.
If you exclude those custom lot sales the residential price per acre was up 14%, which is a bit less than kind of the headline number if you will and even that percentage is very strong I don't imagine seeing that continue in two three and <unk>.
Okay. That's helpful.
Just switching off to ward village.
Clive condo sales trended up to 79, 6% this quarter.
But compared to the fourth quarter.
Last quarter at 73% can you just provide any commentary on what seems like deceleration on sales there is that because the luxury end is getting softer or are you pushing.
Prices higher.
Look I would love to be 100% sold out, but we havent even started construction yet.
Going from the low to mid <unk> to almost 80% over a quarter when we're into tempo sales on a building we're not delivering for 24% to 30 months is exceptional.
John We also have.
<unk>.
Great News that we only have a handful of units left and as your inventory dwindles, it becomes harder and harder to sell that theres very just there's just less units to sell so I think that a week clip away at 6% quarter over quarter between now and when we complete the building will be out of units long before we finish so.
We're excited by that look not every quarter youre going to sell 60% of the building we do that in a launch and then after that launches over the subsequent quarters, we just chip away a little by little So we tried to get to a spot where were almost entirely sold out by the time, we complete.
And can you remind us do you typically sell the highest price point units towards the end of the cycle.
Or is it.
Kind of in between.
I would tell you that our percentage of units sold and as a percentage of revenue are tracking very very closely on all of these towers.
And I would tell you that and as part of what we had our Investor day in Hawaii, you met the sales team with Doug and Jim who runs the region and Bonnie who runs our sales operations nationally.
You highlighted how they like to get a full diversity of units at launch.
Stacks different heights across the building because it establishes prices for all pieces of the building and from there we can start to drive prices higher where we see the greatest demand. So I would say the percentage of units a percentage of revenue tend to track within a couple of points up or down.
Or lower per quarter, but it's usually a very tight.
Okay final question is on operating assets.
Brent any.
Commentary on the improvement in same store growth, particularly in office multifamily, where the occupancy went down year over year.
I was just wondering if you could.
At any commentary.
Commentary on that.
The leases, we signed were at higher rates, we manage our operating expenses as well and we drove more cash flow to the bottom line and it's something that we take a ton of Friday and what we do we may operate across three different segments three different asset classes, but wed like to think that we do them all.
All really really well and I think this quarter is a great representation to that and it's a huge.
A huge amount of kudos and thanks to our entire operating team that I know it comes into work every day and grinds like heck to cut our operating expenses delivered great tenant experiences and it's a complement to our leasing team that is driving higher leasing rates every day at these assets that have been in the most desirable communities across this country and it's showing.
Our results.
Was there anything one time in terms of expenses or revenue.
So that same store number higher.
We had some modest.
Real estate tax refund this quarter.
Not.
There wasn't a major termination fee buried in there that's going to drive everything we had.
I think we'll see slightly higher insurance costs throughout the remainder of the year that will continue to impact that and look you never know sometimes a year ago, we had a deep freeze which impacted the operating expenses, we didn't experience that again this year.
I think that there is a number of small things, but overall, it's just about managing assets and managing them really well.
Got it thank you.
And our next question will come from <unk> <unk> with Dws financial. Please go ahead with your question.
Good morning first question was.
A few more office.
Okay.
Properties into stabilized NOI, so I'm, just trying to understand if going forward.
What is the operating efficiency look like for the company.
It was only about 8% operating margin. If you are looking at a stabilized.
Operating structure. So I'm just trying to understand how do you find efficiencies in your operating expenses when more and more properties are reaching a stabilized rate.
Oh, I think the more and more properties that we introduced into a market the better we can drive efficiencies and the Best example that I can give you is when we talk about our multifamily assets as we build more and more assets in the woodlands and Columbia in Summerlin that are immediately adjacent to each other we have the ability to use the same staff.
Cover multiple properties, we have the ability to extend our property management organization over a greater square amount of square footage and I think by having concentration of assets in tight submarkets really drives better operating results in terms of artificially.
Correct.
Didn't seem like it was showing up in this quarter.
Does it start to show up in Q2.
I think over time as buildings lease up it will I mean look we have new as new buildings deliver a new multifamily buildings deliver theyre going to be low occupied for a period of time and then as they hit their maturity that occupancy will increase to a stabilized rate, which you will see the real efficiency in the NOI margin fall to the bottom line, but <unk>.
That lease up period negative headwinds that will behoove us to the long term benefit as those properties stabilize this.
Same is true for retail and office as well.
And during Q1.
New York didn't have much of a winter the weather helped you and does that roll into Q2 as to any traffic momentum for you.
In easy winter is better than a hard winter.
But spring summer and fall is definitely better than even an easy winter.
So there are definitely headwinds throughout the winter regardless of whether it's good or bad I think we did a little bit better than we would have if it were.
More difficult winter and I think that helped attract more folks out to come experience. It 10 buildings come experience the seaport and pier 17, and we're hopeful that that.
Traffic that we saw continues throughout the remainder of the year and continues to grow as more and more people find out just how amazing.
The lower east side of Manhattan in the Seaport District is.
Last question is there any change here in your strategy, given where interest rates are I mean, your interest expense is up 50% year over year. So I'm, just trying understand how youre going to manage the business given this kind of environment.
Look higher interest rates increase our cost of capital and increase the retired required returns that we need on new developments and new investments I set the bar higher on part of the increase in our interest expense year over year is not just higher rates, but also an increasing size of our company as we've added more and more assets to the top line and have financed and concern.
<unk> with that on the bottom line so yes.
Yes, we continue to hedge cap and swap as much as we can and limit our exposure.
Pardon me speakers is your line muted.
Pardon me, ladies and gentlemen, it appears we have lost connection to our speaker line. Please standby, while we reconnect. Thank you very much for your patience.
[music].
Okay.
Yes.
Pardon me this is the operator again.
We will actually conclude the question and answer session here and we will also conclude today's call.
We want to thank everyone for attending today's presentation, and we will see them all next quarter. Thanks.
You very much for your participation you may now disconnect your lines.