Q3 2023 Howard Hughes Holdings Inc Earnings Call
Okay.
Good day and welcome to Howard Hughes Holdings, Inc. Third quarter 2023 earnings call today, all participants will be in a listen only mode should you need assistance during todays call. Please signal for a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask any question. You May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note that today's event is being recorded I would now like to turn the conference over to Eric Holcomb Senior Vice President of Investor Relations. Please go ahead Sir.
Good morning, and welcome to Howard Hughes Holdings third quarter 2023 earnings call with me today are David O'reilly, Chief Executive Officer, Jay Cross President.
Carlos the lay of Chief financial Officer, and Dave Stripes head of operations before.
Before we begin I would like to direct you to our website Howard Hughes Dot Com, where you can download both our third quarter earnings press release, and our supplemental package. The earnings release and supplemental package include reconciliations of non-GAAP financial measures that will be discussed today in relation to their most directly comparable GAAP 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 meanings 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 statements disclaimer in our third quarter earnings press release, and the risk factors in our SEC filings for factors that could cause material differences between forward looking.
Statements and actual results, we 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'brien.
Thank you Eric Good morning, and welcome to our third quarter earnings call I'm going to begin today with a recap of the quarter and covered the segment highlights for our Masterplan communities in the seaport Dave.
Dave strike will cover our operating assets followed by Jay Cross, we will update our development projects in Ward village and then finally Carlos away I will provide an update on our full year guidance and review our balance sheet.
For the third quarter I'm pleased to report that our company continued to deliver strong financial results in our businesses with a resilient underlying demand across our world class portfolio of assets looking quickly around our core segments. We reported strong MPC EBT, which was highlighted by meaningful land sales and a record average price per acre.
Our MPC results were complemented by a sharp increase in new homes sold which is a leading indicator of future land sales further providing assurance for robust land sales activity in the quarters ahead.
Our operating assets continue to deliver incredible results with year over year NOI growth in all three core property types, including double digit increases in multifamily.
And more village our sales team delivered another quarter of exceptional condo sales selling out.
Lana and all but one unit a cooler which was contracted in early October.
At quarter end more than 98% of all condo units in ward village were sold or under contract, which is simply an amazing achievement.
With these strong results and our favorable outlook for the fourth quarter. We further increased our full year guidance expectations for MPC EBT, an operating asset NOI. We've also expanded our projected condo sales and gross margins to include the sellout, whereby we eat and cooler.
At the seaport results remain challenging with third quarter revenues declining $3 million or 9% compared to the prior year in.
In total seaport reported a net operating loss of $9 $5 million, which was essentially.
Essentially unchanged year over year and included losses of $8 $1 million for the $10 billion.
Yeah.
Year over year performance was impacted by the closure of restaurant concepts fewer private events and poor weather conditions in September alone New York received more than 14 inches of rain with more than 50% of peak Thursday to Sunday periods affected, including 60% of Saturdays and 75% of Sundays.
The continued challenges of the seaport led us to conduct an impairment analysis and record a significant noncash after tax charge of approximately $555 million.
Carlos will provide additional details in a few moments.
Subsequent to the quarter end, we announced our intent to create seaport Entertainment, a new division, which is expected to comprise each HHS entertainment related assets in New York, and Las Vegas, most notably, including the seaport in the Las Vegas Aviators Minor League baseball team.
We intend to spin off seaport entertainment into its own publicly traded company in 2024.
This planned separation from Howard Hughes will ultimately refine the identity of Howard Hughes H H H as a pure play real estate company focused solely on the significant pipeline of growth opportunities within our portfolio of acclaimed Masterplan communities.
Similarly, Seaport entertainment, which will operate independently as an entertainment focused enterprise will have greater opportunities to unlock the inherent value within these assets and pursue growth within the entertainment industry.
Turning to our MPC segment, we delivered $85 million of EBT or a 12% year over year increase primarily due to increased super pad sales in summerlin and residential lot sales in Brooklyn.
In total we sold more than 84 acres of residential land in the quarter at an average price of $913000 per acre.
Representing an all time record high for Howard Hughes.
We also sold an additional 13 acres of commercial land to bridge, Linda Chevron, which in September and announced plans to build an R&D campus on over 77 acres of land in Brazil and central.
This significant development is not only a catalyst for initial commercial development in Brooklyn, but also for incremental future land sales home sales and absorption within our multifamily properties.
It will also drive increased demand for retail as we kick off the development of Briggs links future 925 acre downtown.
Our strong MPC land sales were complemented by solid builder price participation revenue of $16 million as.
As well as $14 million of equity earnings primarily related to the sale of the final clubhouse condominiums in the stomach.
New home sales and our Mpc's remained exceptional during the quarter with a total of 605 homes sold.
This represented a sharp 113% year over year increase with both summerlin enbridge lend more than doubling the number of homes sold in the prior year.
In fact, new home sales in the Las Vegas Valley during the month of August with the highest since the late two thousands.
As we described in last quarter's earnings call. The surge in new home sales is largely being driven by significant lack of resale inventory.
As existing homeowners remain reluctant to sell they are below market mortgage rate.
This dynamic is sports homebuyers into the new home market, which through August accounted for nearly 30% of all homes sold in the United States more than double historical norms.
Ultimately this is contributing to a strong level of demand for homebuilders and is driving elevated interest for our land.
During the quarter, we continued to contract additional land parcels at near record prices across our Mpc's.
Many of which have not yet closed.
As a result, we expect continued strong land sales in the fourth quarter and into 2024, giving us increased confidence the significantly increased our 2023 MPC EBT guidance.
Carlos will discuss our guidance in more detail in a few moments, but for now I'd like to hand, the call over to David stripe to review the performance of our operating assets.
Thank you David and good morning.
In the third quarter operating assets continue to experience heightened demand and year over year growth across each of our three core asset types. In total we delivered an impressive $63 million net operating income, which represented a 3% improvement compared to the prior year.
Sequentially NOI declined $5 million, primarily due to onetime lease termination fees during the second quarter at $17 25 Hughes landing in the woodlands.
This vacated space is already under promising lease negotiations further exemplifying the strong office demand we are seeing today.
We also experienced a normal seasonal decline from the ballpark in Las Vegas with reduced attendance through the peak summer months.
Looking at our property types in more detail. The most significant year over year increase was seen in our multifamily portfolio, which delivered record quarterly NOI of nearly $14 million, an incredible 18% improvement.
This growth was primarily driven by a four 5% average in place rent growth along with favorable performance from Sterling equivalent in Marlow in Colombia, both of which continue to lease up an outstanding pace.
At quarter end Sterling was 93% leased and Marlo was 55% leased with both properties achieving these results in a year or less.
These improvements were partially offset by initial operating losses from tangible Echo. The latest addition to our multifamily portfolio and some of it which opened in July it was 13% leased at quarter end.
Overall, our stabilized multifamily properties finished the quarter, 96% leased with downtown Columbia at 97% Houston at 96% in Summerlin at 93%.
Our office portfolio generated third quarter, NOI of $29 million, reflecting a 3% year over year improvement.
This increase was primarily the result of strong lease up activity and rent abatement explorations in the woodlands, partially offset by some tenant turnover and older assets in downtown Columbia.
In the woodlands, $99 50 would like for US our flagship office in this market has seen tremendous financial improvement with a 31% increase in leased space during the last year.
This trophy asset closed the quarter at 91% leased with the remaining space in negotiation or under expansion options for existing tenants.
Overall with our stabilized office portfolio at 87% leased we continue to see strong demand for our highly monetized class a office assets across all markets.
In retail the third quarter, NOI was just under $13 million or 4% increase compared to the prior year.
Improvement was related to increased rental revenue in Houston, and ward village and lease percentages increased 6% and 2% year over year, respectively.
Thoughtful improvements and the tenant base in downtown Summerlin is also contributed to year over year growth as increases in retail sales and rental revenue drive the continued success of Summerland Premier shopping destination.
With that I will now turn the call over to our President Jay Cross for a review of our strategic development segment.
Thank you, Dave and good morning, everyone.
In the third quarter, we achieved several key milestones, including the substantial completion of one multifamily project and the startup construction on two new developments in our pipeline. We also continued to make good progress on all of our projects under construction.
Starting in Houston, we were making exceptional progress with the development of wingspan our single family for rent development located in Brooklyn.
This project, which encompasses 263 homes celebrated its grand opening a couple of weeks ago and welcome. Its first residents. We anticipate wingspan will be fully completed in mid 2024.
In the woodlands, we started construction on one Riva row at 268 unit high rise multifamily development along the waterway. This much awaited a project will set a new standard for luxury and the Howard Hughes portfolio and contribute meaningful NOI nearly $10 million per year. Upon stabilization, we expect to complete this project in <unk>.
Mid to late 2025.
In Las Vegas, we completed construction and started leasing that Tianjin Echo our newest multifamily offering with 294 units in the heart of downtown Summerlin.
Right across the street from Tinder Echo, we also recently announced and started construction on a new 67000 square foot retail development, which will be anchored by a new whole foods market. This new grocery anchored center will be the first of its kind in downtown Summerlin and we expect it will be completed in the third quarter of 2024.
A few miles south we continued to make solid progress on the SaaS Summerlin office, which comprises two three storey office buildings totaling 147000 square feet.
Topped off and then closed we expect this LEED silver project will be completed during the first quarter of 2024.
Looking quickly at downtown Columbia Construction continues on our 86000 square foot Medical office building, where we recently celebrated the building's topping off milestone. This development is already 28, 8% pre leased with the remainder under LOI or in lease negotiation.
We expect to complete construction in the first half of 2024.
Overall, our current residential and commercial projects under construction represent future stabilized NOI more than $24 million for our operating asset segment.
At Ward village, we continued to see significant demand for our residential condos, we closed on the sale of 26 units and contracted to sell an additional 13 at quarter end, we had only 85 homes remaining to sell at our current projects.
And Ali E and Kahlua the price reductions we implemented earlier this year proved to be very successful, allowing us to sell the remaining 3% of the total units in these buildings for.
For the quarter, we closed on the sale of 26 units generating $26 million of revenue and completely selling that Lee at quarter end. We have had one unit remaining that cooler, which closed last week, bringing this project to 100% sold.
Overall, while our sales initiatives contribute to slightly reduced revenue and profit for the year overall gross margins achieved on the two towers were minimally impacted with both projects in the range of 25% to 30%.
And our projects under development, we are now in our final year of construction at Victoria place, which is 100% pre sold and expected to be completed in the third quarter of 2024.
Yolanda, we have contracted the remaining four units in inventory selling out this future workforce housing tower slated to be delivered in 2025.
At the Park Ward village, we contracted two units, bringing this tower under construction, 294% pre sold and finally, our coli we contracted seven units, making this tower, 85% pre sold we therefore expect to start construction on this project late this year.
Overall upon completion these poor towers will generate more than $2 $5 billion of future revenue for Howard Hughes, which will be recognized between 'twenty 'twenty, four and 2027 and with that I would like to now turn the call over to our CFO Carlos <unk>.
Thank you Jay and good morning.
So lets start by addressing the impairment charge at the seaport.
As we mentioned during this call last quarter stabilization and profitability were taking longer than expected.
Office leasing challenges the elimination of their for 'twenty, one eight tax abatement program significant weather events and lagging sales triggered a full impairment analysis during this quarter.
This cash flow headwinds when combined with lower restaurant multiples and higher cap rates resulted in an after tax impairment charge of $555 million.
While we may believe that multiples will increase in cap rates will decrease over time. This analysis must be made at a point in time using information available at that moment.
This does not diminish our view of the sea ports prospects post spin and we will remain focused and dedicated to our successful transition.
Let's move onto an update to our full year guidance.
In MPC is a strong result in the third quarter and our anticipated residential land sales in the fourth quarter are expected to drive significantly higher EBIT for the full year.
We now expect EBIT to be up 10% to 20% year on year, which would imply a record MPC EBIT of $325 million at the midpoint.
This compares favorably to our prior guidance of flat to down 10% and represents an increase at the mid point of approximately $55 million.
Compared to our initial full year guidance announced at the beginning of the year MPC EBT is expected to be higher by $125 million at the midpoint.
An operating asset are impressive NOI performance in the third quarter combined with our strong results throughout the year is expected to drive enhanced NOI.
Excluding the contribution from divested retail assets in 2022 operating assets NOI is now expected to be in a range of up 2% to 4% year over year or approximately $243 million at the midpoint, which would be a full year record for Howard Hughes.
This is an improvement from our original full year guidance of down 2% to up 2% or an increase of approximately $7 million at the midpoint.
And ward village with the remaining condo inventory add Ali is.
<unk> is sold out in the third quarter and the final unit a cooler contracted and closed in the fourth quarter. We now expect 2023 condo sales to range between 47 million and $48 million with gross margins of 13% to 14%.
This compares favorably to our previous guidance, which anticipated condo sales between $40 million and $45 million with margins between 10% to 13%.
And finally, our cash G&A guidance remains unchanged at 80 million to $85 million.
With respect to divestitures in July we sold our two self storage facilities in the woodlands.
For a combined price of approximately $30 million. This resulted in a sizable gain on sale totaling $16 million further demonstrating the value creation proposition inherent in our development projects.
Shifting to the balance sheet, we ended the quarter with $492 million of cash with anticipated significant cash inflows from MPC landfills in the fourth quarter, we are well positioned to deploy capital into our development pipeline.
At the end of the third quarter, the remaining equity contribution needed to fund our current projects was approximately $256 million, including anticipated financing for a new grocery center anchored by whole foods in summerlin.
From a debt perspective, we had $5 $2 billion outstanding at the end of the quarter and although credit markets remain challenging we completed several important financings in recent months.
Our success has allowed us to start construction in two key development projects, including one ROA ROE in the woodlands and infrastructure projects in Ward village.
We also refinanced or extended loans on four properties, including maturing loans were 250 water Street in New York and to offer up as properties and one retail center in the woodlands.
This financing extended our weighted average debt maturity to approximately six years and resulted in approximately 86% of our debt being due in 2026 or later.
From now to 2024, our only debt maturity aside from scheduled principal payments, which totaled $17 million as.
As a construction loan for Victoria place in Hawaii.
At quarter end this loan carried a balance of $153 million, which will be repaid with the cash proceeds from condo closings expected to occur in the third quarter of next year.
And finally at the end of the quarter approximately 81% of our debt was fixed cap or swapped to a fixed rate.
This is a reduction from the prior quarter, primarily due to a maturity of $615 million interest rate swap related to launching in our operating asset segment.
We continue to evaluate our hedging strategy in the current rate environment with the goal of minimizing our interest rate risk for the right cost benefit.
With that I would like to turn the call back over to David for closing remarks.
Thank you Carlos before we open up for Q&A, just a couple of closing thoughts.
Despite high mortgage rates, the new home market remains strong and homebuilders continue to seek our land at record prices as.
As a result, we have further increased MPC EBT guidance to a range that will likely yield record full year results.
Our operating assets continue to deliver exceptional performance, which has also resulted in increased 2023, NOI guidance again to record levels for the year.
Our strong lease up particularly in office will help to drive significant NOI growth in the years to come and move this segment closer to stabilization.
And finally, the anticipated spinoff of Seaport Entertainment in 2024 is a significant milestone in the history of Howard Hughes.
We believe operating as a pure play Master plan community company will allow us to better focus our attention on our extensive pipeline and attractive growth opportunities within our MPC.
At the same time, Anton and the team at Seaport Entertainment will be better poised to unlock the value of these unique assets and seek complementary growth opportunities in the entertainment space.
Alright with that let's start the Q&A portion of the call. Operator can you. Please open the lines for our first question.
We will now begin the question and answer session.
As a reminder to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys. If you would like to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Today's first question comes from Anthony alone with J P. Morgan. Please proceed.
Yeah. Thanks, good morning.
First question relates to the spin I guess, just multi parts just one I can you tell us if there or maybe what the key gating items, we should be watching or to kind of understand timing and then also just any decisions on whether to 50 water Street goes in or that.
Aviators stadium goes in or out.
Good morning, Tony I. Appreciate the question, it's David look Theres a lot of diligence, we have left to do and there's a lot of items, we need to complete including finishing the audited financials that would go in the form 10 legal diligence associated with this the tax structuring and consents of multiple parties, including lenders at both the stadium into <unk>.
The water.
Think that it would be difficult for me to pontificate at this time as to whether or not those assets are in or out until we work through the conversations and have the discussions on all of the requirements, we need to get the spin done.
As you know, it's a multiple filing process with the SEC. It takes time for them to review and provide comments us to respond.
In a best case scenario. This is a middle of next year.
Completion and in all likelihood it's more towards the back half of next year, there's a lot of diligence and a lot of work that needs to go and we're at the very early stages right now so until we're able to walk down that full consent lift and the legal structuring is going to be tough for me to say exactly which assets are in or out.
Okay got it and then.
Second question relates to the yields on some of the incremental development and are at a higher rate environment, 4% on the whole foods deal and six on the incremental apartments start I'm just wondering like how you think about.
Where those should be when you're balancing just the return on your capital as well as just the place making goals for those is M. P. M. P sees more Broadway in it as particularly as you you mentioned kicking off.
The downtown and bridge Linde.
Sure.
Jay I'll, let you comment on the individual asset, but in general Tony as you know was master plan developer.
<unk> curator of these communities.
The value inherent to Washington of development is not just the value that's created on that exact block in that exact project.
But the value that that project has on all of the surrounding land around it.
Ballpark here in downtown Summerlin is a perfect example, where we delivered that.
A good yield not the best we've ever developed but what it did in terms of driving sales per foot at the retail center across the Street office leasing and office rents multifamily leasing multifamily rents with that as a catalyst weighed into the decision and I think that's absolutely. The same case here specifically with whole foods in downtown Summerlin, we have.
And I don't think that's any different with doing this deal here in Summerlin, clearly, we would love to see that 4% be much higher and the yields that we're getting on the inline retail adjacent to whole foods are much higher the whole foods deal itself is its.
Less desirable, but the impact that that whole foods deal has on the surrounding land here and as you know we have multiple acres that we're continuing to develop here, we think it's pretty substantial and worth leaning into there.
Jay.
Yeah, just following up with David's comments and some of them in particular, we have a pretty ambitious multifamily program in downtown Summerlin. It once tenants echoes leased up we think the presence of whole foods is going to accelerate our ability to develop the balance of downtown.
And then switching to ream of ROE in the woodlands as.
As we've noted in the office segment, there's been a flight to quality. Our most successful office building here is 90 950, and similarly, we believe that there's going to be a flight to quality in multifamily and so while we pro forma market rents based on the success of the lane and two lakes edge.
ROE is by far the best product design, yet in the woodlands, and we think theres a significant opportunity to outperform.
And then with respect to two bridge Lynn.
It's early days, yet, but the Chevron announcement, that's really encouraged us to more seriously start to master plan that urban core are starting to look at additional retail.
And potentially more office again to establish Virgin as a commercial center. In addition to a residential center.
And so there's more to come on that but we're excited about our potential top downtown bridge loan.
Okay. Thank you.
Okay.
The next question comes from Alexander Goldfarb with Piper Sandler. Please proceed.
Good morning, good morning down there.
First.
Miles talked about in the.
Seaport Entertainment news that definitely definitely welcome.
David I know.
Quarterly earnings healthy healthy conversation that you and I have always but as we look at your results. It looks like ex seaport everything else was super strong and everything was performing the way it should with guidance increases across most of the major business lines. So I just want.
To make sure that my interpretation of the quarterly earnings is correct that apart from the seaport everything else in the company is performing.
Well and continuing to exceed is that a fair representation or did I Miss.
Want to misrepresent something in the quarter.
Alex I think good morning.
That was well said, we increased our guidance and our MPC segment to a record number for the company. Despite this higher interest rate environment.
Our current run rate NOI is the highest in the history of the company and as you know over the past several years, we've sold our hotels, we sold our noncore retail we sold self storage.
Chipped away at that NOI, and despite selling assets that were non core or core office retail and multifamily have demonstrated great resilience and a more challenging market due to the desirability of our communities delivering incredible results in our operating asset portfolio and then we had a modest price reduction that we talked about last quarter in Hawaii.
And it was exactly what was needed because we sold out both cooler and I'll leave at better numbers than we had anticipated even last quarter and the momentum continues there with pre sales of coli continuing to go higher every month.
I think your comments are spot on that every.
Every piston in this company is firing is the best it ever has with the exception of the seaport, which is.
Some unfortunate headwinds some of which are beyond our control mother nature being the biggest culprit in the month of September.
Okay and then the next question David is until Seaport Entertainment spill.
Or.
Is there other noise that we will see in the quarterly results or is all of that sort of taken care of in this quarter.
I think if your question is asking about kind of one time items or.
Recurrence of the <unk>.
Type of announcement like we saw this quarter with the impairment I don't anticipate any I'll never say never because things change overnight and pretty dramatically in some instances, but we don't see any kind of one timers or major items out there that.
We would want to highlight our guide to today.
Okay, and then is there an update that you can provide on Nevada, I don't know if theres anything on the ballot for election today or if there's anything the legislature contemplating with regards to the studio tax credits, but maybe an update there.
Yeah, we're continuing to advance the ball down the field and the team here in Summerlin were taken our earnings call today from the thermal and office has done an incredible job partnering with the governor with the Senate will do assembly and helping to craft. The build that we think will meet the needs of all the all the folks involved including our local residents and all the residence of southern Nevada.
Who want to see a stronger more diversified economy and the influence of the diversification.
Suffocation factor with this film studio business.
We're still continuing to work closely with Sony, but we don't have a date yet for a special session on legislature, where we would try to get this bill brought.
Positive momentum, but no clear definite date on when we can get going okay.
Okay and just final question is the home sales are certainly.
Strong obviously, the land sales as well.
What youre seeing with the homebuilders and the home sales to new residents are those being achieved through homebuilder incentives that helps.
Buyers overcome the current interest rate environment or is this really not that's not true demand, but is it really just the buyers just looking through 7% plus mortgages and just biting the bullet and buying I'm trying to understand how much of the home sales are helped by builder incentives.
Versus just the natural demand is overcoming the interest rate environment.
The answer to that Alex is yes, because we're seeing all of the above.
Summerlin here, where we have mostly national homebuilders, many of which have their own mortgage companies, we've seen them lean in with short term and even long term rate buy downs typically around 100 150 basis points.
In bridge Linde, where we've had incredible home sales, we're dealing with large regional private builders most of which don't have their own mortgage company.
And have only in limited instances provided incentives with great by debt.
So I think we've seen both all buyers come to the table with different need summer short term rate buy down somewhat long term some don't want any.
And I think the homebuilders are being thoughtful and creative how they address the needs of individual buyers and driving home sales.
And the results of the public homebuilders have been nothing short of I think exceptional.
We've seen quarter after quarter and in some instances eight to 10 quarters in a row with margins over 25%.
And I think that means that there is still leverage in the hands of the homebuilder not the homebuyer because of the limited supply of resale inventory is pushing everyone in new construction.
Thank you thanks.
Thanks, Alex.
The next question is from Peter <unk> with Jefferies. Please proceed.
Yes. Thank you I'm just wondering if you could talk about the two new projects you broke ground on.
The operating asset segment this quarter, I guess, what made them, particularly attractive.
Looking at the returns relative to your cost of capital and.
I guess, how does that stack up in terms of the opportunity set that's out there today for development.
Yeah, Peter I think we don't we Jay and I, both discussed it a little bit of length of a couple of questions ago, the individual projects with whole foods in Ribeiro.
I'll try and summarize it pretty quickly so I am not redundant we've always built whole foods in our communities as we think they are catalysts to changing and transforming the landscape and as Jay mentioned, we have a large scale master plan here in downtown Summerlin with a tremendous amount of multifamily assets in our pipeline and having a whole foods and catalyze though.
With higher rents and get that development pipeline moving faster.
And then re borrow in the woodlands.
This is going to be pushing the high bar on luxury for multifamily what we've seen in the woodlands and perhaps in all of Houston, and we think that we've been very conservative in how we've underwritten that asset. We think it is also an asset thats going to impacted surrounding land and surrounding community on the waterway and will have an overall positive impact can be value creation for our company.
Over the long term.
With that said and Jay mentioned this I think last quarter in his prepared remarks. It is harder today to make yields work on new development projects and you should expect that we're going to see more of a rifle shot approach to picking those great assets to deliver outsized returns or they continue to catalyze that.
Surrounding land around it that make those communities better places to live drive home sales drive higher rents and drive a better sense of place.
Look inflation costs are difficult higher rates are difficult exit valuations are clearly unknown right now given the lack of transactions going on so I think that Youll continue to see US again take those rightful shot approaches continue to move forward in Hawaii, where we don't seem to see those same type of impact. So we can continue to deliver great.
Margins in outside risk adjusted returns.
Got it and then.
One more could you just talk about what the underwritten loan to value was particularly on those those office loan extensions you executed in October.
Hesitated, Peter because I don't know what value is right now for office assets, even well leased cash flowing office assets.
Those extensions came with modest paydowns from their old levels I think the Ltvs are very conservative where they are.
I would.
Venture 50, or sub 50, but.
It all depends on where you think the right office cap rates. What do you think office values are in this world, where there hasnt been a lot of transactional volume that would demonstrate what a well leased cash flowing office asset in the woodlands would be worth.
Got it Thats all for me. Thank you.
Thanks, Dave.
Okay.
As a reminder, if you do have a question. Please press Star then one.
The next question comes from John Kim with BMO. Please proceed.
Thank you good morning.
What do you have an ownership stake in the new entity will there be any management rights.
And also on the balance sheet. It looks like there's just the $150 million of debt and 250 water Street I was wondering how much less.
Leverage will be on each entity post spin.
Okay.
All great questions John.
So the relationship between Seaport Entertainment and Howard Hughes will be very so much of the relationship that Howard Hughes had when it's spun out from GGP and that we won't have an ongoing ownership stake in seaport entertainment the shareholders of HHH today, we'd expect to receive ownership in both Hh Agency put entertainment post spin we won't.
<unk> direct ownership I think that we will contemplate and discussed with Anton and the management team Theyre, having some transition services agreements in place as he builds his back office and support whether it's HR risk management accounting et cetera, and we're happy to provide those external services until he's able to build the team as they ended up on.
Zone again that'll be a decision for reefer, Anton and the team to make over time, but from our perspective were helpful.
Wide open to be supportive in making sure. They are successful as are spun out into their own public company.
Your second question was about leverage at each company and I'm going to go back to the comments I made earlier with Tony that we're still working through a lot of the consent process approval and structuring that.
That would determine ultimately whether 250 water is in seaport entertainment and whether the stadium the Las Vegas ballpark Stadium here in Nevada is in the spin if those are in the leverage associated with them would travel with them, assuming we are able to achieve those lender consent, but again, we don't have any details to share it.
At this time or any certainty around that once we do we will absolutely make sure all our investors know so that you can follow the leverage stats of both companies' pre and post spin.
I appreciate it.
The moving parts and I know that the goal is.
Ultimately to simplify the story for Howard Hughes, but.
Well this spin off be accretive to earnings year one.
It should be.
I've never really focused on decisions of driving next quarter's earnings we've always been focused on driving the long term value creation for our shareholders, increasing our net asset value on a per share basis over the long term.
The impetus for this decision is not because we will squeeze out a half a penny of <unk> and I honestly don't even know what our <unk> was this quarter because I don't think its relevant to value.
I think what it will do is it will focus our company and allow us to use our recurring free cash flow from these land sales right into the backyard of these communities, making them more dynamic places, making them better places to live work play learn and discover and continuing to drive value I think Anton and the team they're going to have an incredible opportunity with <unk>.
Seaborne entertainment to maximize that asset as it's really transition from a traditional real estate assets with development tenants and leases to a true operations to concert venues to restaurants to food halls to Activations and if you take that opportunity, which we think is pretty wide throughout the country in terms of.
Unlocking value and a lot of real estate assets using operational expertise in entertainment expertise I think they have a huge runway for growth.
Okay.
On the EBIT EBIT guidance, and MPC, which you you increased pretty significantly that.
That implies a very strong fourth quarter and I was wondering if you could provide any color on the breakout between Summerlin bridge land.
Any potential commercial land sales and how many sales are under LOI already.
I would say that sitting here in November we have pretty good visibility into the last seven weeks of the year in terms of what we haven't or LOI, what we have under contract that just subject to typical closing conditions I think the mix that you'll see in the fourth quarter will be.
Largely in line with the third quarter in terms of Summerlin Ridgeland et cetera.
And look some of the unknowns out there or whats the build of price participation alright, and we had another incredible quarter of this year.
<unk> build a price participation that and an 8% mortgage rate environment you don't expect.
Folks to be paying premiums on homes above where we had sold the land, but it continues to happen and continues to materialize. So those.
Happy surprises if you will are tough to model and tough to know because you never know what those exact home sales will be until they close.
We don't expect any material commercial sales in the fourth quarter.
Okay and final one for me on the sovereign sale at bridge Lynne Great company to get.
To help spur.
Square development.
They did get seem like they've got attractive pricing on there.
I'll end acquisition.
Was that just kind of pricing given they are essentially the anchor of the of the commercial or is that reflective of land prices today.
Look I would tell you that the first purchase that they made the initial 77 acres I think it was a very full value a very fair value.
And honestly I think that we charge more for the land and any other site that they were looking at and in Houston.
The second sale that occurred this quarter of the 13 acres.
That is land that they wanted to control for privacy reasons, it's land that.
Deed restricted to green space.
So in light of that I think it was a fair price.
Okay. So that's not going to be used for R&D.
No thats adjacent land to the initial campus that they bought that they wanted to use to make sure they maintain their privacy.
Got it okay. Thank you so much.
No problem.
The next question is a follow up from Anthony <unk> with J P. Morgan.
Yes. Thanks, I just had one just if you could remind me on the woodlands towers and then in ward village retail for those two both have pretty high leased rates, but there's still this big gap between sort of that the in place and the expected stabilized NOI can you remind me like for those two and what needs to happen to kind of.
Get there yes.
Yes, absolutely great question, Tony the Woodlands towers are pretty simple, we just have to burn off free rent buildout tenant space and get cash coming in the door. So I think we have a pretty short runway on time before we close the gap between the in place NOI and stabilized NOI. It's really just the burn off of abatements and timing of recently signed leases.
At Ward village has a longer story, because as you know with each tower that we developed we're knocking down older retail taking away NOI spending $2 five years to build a tower that has new retail on the ground floor, and then leasing that square footage up at a much higher rate driving NOI higher so its one step back two steps forward.
To get to that stabilized NOI is going to take again. The next four to five years as we build out the remainder of ward village knocking down.
One block in building block in place at a much higher NOI yield.
Okay got it thank you.
Thanks, Tony.
The next question is a follow up from Alexander Goldfarb with Piper Sandler.
You May proceed sir.
Alexander you are live.
Yes, sorry about that.
I had mute button on.
But given the success of our ward village at what point do you start the discussions with the local municipalities.
Municipalities about further development phases beyond what you currently have.
Entitled.
That's a great question, Alex and.
Love to answer it thoughtfully honestly and accurately without giving away too much on this call.
Look we have five years six years of runway ahead of us with the entitlements that we have we think we have the opportunity to unlock some value in land West Award that we won't have touched when we've used our entitlement and some other blocks in between buildings.
Where theres opportunities such as work word Entertainment Center.
Too early to comment on that we have a long road ahead of us in terms of being able to unlock value there and I don't want to distract too much from.
The clear value creation, we have in front of us in the next short term.
With focus on what could be in years six through 12.
Okay Cool I, just throw everything out there it takes a while but it sounds like you have plenty of runway.
Yes.
It would be.
It would be it would be add move on our part if we didn't start thinking about that a long time ago.
And working on it very much real time, right I mean with the machine that's there under Doug's leadership and Bonnie's leadership in sales and the entire design development and construction team that has grown into its maturity with ward village. Our goal there is to make sure that we keep that team busy forever.
And we're going to be looking under every stone over there to make sure that we can continue to unlock value in using the expertise and scale with that team.
Thank you.
Yeah.
This concludes our question and answer session. At this time I would like to turn the conference back over to David O'reilly for any closing remarks.
Just want to thank everyone again for joining us.
Our view nothing short of a spectacular quarter across our core business segments. We look forward to speaking with you at the upcoming conferences. Our next earnings call. If there's any questions in between by all means please feel free to reach out. Thank you again.
Okay.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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