Q4 2024 Howard Hughes Holdings Inc Earnings Call
Speaker Change: Good day, and thank you for standing by. Welcome to Howard Hughes' fourth quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising you your hand is raised.
Speaker Change: Please note that today's conference is being recorded. I would now like to turn the conference over to Eric Holcomb, SVP of Investigations. Please go ahead.
Eric Holcomb: Good morning and welcome to Howard Hughes Holdings' fourth quarter 2024 earnings call. With me today are David O'Reilly, Chief Executive Officer, J-Cross President, Carlos Olea, Chief Financial Officer, Dave Striph, President of Asset Management and Operations, and Joe Villain, General Counsel.
Speaker Change: Before we begin, I would like to direct you to our website, howardhughes.com, where you can download both our fourth quarter earnings press release and our supplemental package.
Speaker Change: 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.
Speaker Change: Certain statements made today that are not in the present tense or that discuss the company's expectations are forward-looking statements within the meaning of the federal securities laws.
Speaker Change: 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.
Speaker Change: Please see the forward-looking statement disclaimer in our fourth quarter earnings press release and the risk factors in our SEC filings for factors that could cause material differences between forward-looking statements and actual results.
Speaker Change: We are not under any duty to update forward-looking statements unless required by law. I will now turn the call over to our CEO, David O'Reilly.
Speaker Change: Thank you, Eric. Good morning, everyone. Welcome to our fourth quarter earnings call. On our call today, I'm going to begin with a recap of our incredible year and cover the segment highlights for our master plan communities. Dave Striph will cover the performance of our operating assets, followed by remarks from Jay Cross, who will provide updates on our strategic development projects.
Speaker Change: Finally, Carlos Olea will provide a review of our 2025 guidance and the balance sheet before we open up the lines for Q&A.
Speaker Change: In the fourth quarter, we delivered strong financial performance across Howard Hughes, contributing to record full-year results in each segment, which met or exceeded our latest guidance expectations.
Speaker Change: Highlights of the year include record MPC EBT of 349 million dollars resulting from record residential land sales revenue and average price per acre.
Speaker Change: Operating assets delivered record NOI of 257 million dollars, a 6% increase year over year, with solid growth in each core asset type.
Speaker Change: In strategic development, we delivered and sold out every unit at Victoria Place and Ward Village, generating record condo revenue and gross margins.
Speaker Change: In addition, with strong pre-sales at our four towers under construction in Hawaii and Texas, we finished the year with 96% of their combined units under contract.
Thank you.
Speaker Change: Although credit markets remained tight during 2024, we executed over $860 million of financings, including more than $300 million in the fourth quarter alone.
Speaker Change: These transactions included two significant condo construction loans totaling $680 million, enabling the start of construction at Kalai and the Ritz-Carlton residence at the Woodlands.
as well as several important refinancing for loans nearing maturity.
Speaker Change: We also greatly improved our liquidity through an innovative sale of current and future mud receivables in Bridgeland, significantly accelerating their collection timeline.
Speaker Change: This transaction also enabled a pay-down of nearly $200 million of MPC debt while expanding our MPC line of credit and extending its maturity.
Speaker Change: Looking deeper into the results of our MPC segment, EBT was $57 million in the fourth quarter, driven primarily by the sale of 60 residential acres across our MPCs, at an average price of $909,000 per acre.
Thank you.
Speaker Change: This includes strong home leather demand in Texas, where we sold a total of 56 residential acres in Bridgeland and the Woodland Hills, as well as the first sales of custom lots in Ostra, our newest luxury gated community on the mountainside in Summerlin.
Speaker Change: Offering sweeping views of the Red Rocks and the Las Vegas Valley, Astro does not disappoint.
Speaker Change: In the quarter, we closed on the sale of six custom lots, or approximately four acres, at an incredible average price of $6 million per acre, clearly demonstrating Summerlin's appeal to ultra-luxury homebuyers.
Speaker Change: In Terra Vallis, we sold an additional 34 acres in Florio during the fourth quarter bringing total sales to 115 acres, or approximately 800 lots, at an impressive average price of $777,000 per acre.
Speaker Change: With seven home builders acquiring land thus far, we expect construction on model homes will begin soon, with a Florio Grand Opening later this year.
Speaker Change: The strong results of the quarter contributed to a full-year record MTC EBT of $349 million, exceeding the midpoint of our most recent guidance by $19 million, and outpacing 2023's record results by 2%.
Speaker Change: This remarkable result, which was achieved despite a difficult market backdrop and a $34 million dollar year-over-year decline in commercial land sales.
Speaker Change: was driven by strong residential landfills building 445 acres across our MPCs at a record average price of $990,000 per acre.
Speaker Change: Turning to new home sales, our MPC sold 510 residences in the fourth quarter, bringing the total for the year to 2,234 homes.
Speaker Change: As a result, Summerlin and Brisbane were ranked as the No. 5 and No. 7 top-selling NPCs in the nation, respectively, in RCLCO's 2024 report, further exemplifying the significant appeal of Howard View's award-winning Master Plan communities and setting the stage for continued growth in 2025.
Speaker Change: From a housing market perspective, although mortgage rates have climbed back into the 7% range in recent months, we anticipate another strong year for new home construction in 2025, driven by several key factors.
Thank you.
Speaker Change: First, the resale market continues to be locked up by high interest rates, with more than 50% of existing mortgages under 4%. This is limiting inventory of existing homes and driving resale prices higher.
Speaker Change: As a result, the average new home premium, or the additional cost of a new home compared to a retail home, was at historical lows and only 4% on average in 2024.
This is making new homes very attractive in today's market.
Speaker Change: Also, with the median age of existing homes in the U.S. now over 40 years, new homes offer superior build quality, better efficiency, and modern amenities.
Speaker Change: And finally, builder incentives, including mortgage rate buy-downs, allowances, and comprehensive warranties, as well as lower insurance costs, simply make new homes more affordable.
Speaker Change: With these market dynamics, we expect to see continued strong consumer demand for new homes in 2025.
Speaker Change: When combined with a continued lack of finished inventory and an undersupply of vacant developed lots in Las Vegas and Houston, we anticipate increased homebuilder demand for new residential acreage throughout the year, particularly in Summerlin and Bridgeland.
Speaker Change: Additionally, with strong demand for custom lots in Summerlin, we also expect to see increased sales in Astra, our new 170-acre luxury dated community on the mountainside.
Speaker Change: With the first six lot sales in the fourth quarter commanding an impressive average price of $6 million per acre, we expect a strong contribution from this new community going forward.
Speaker Change: Overall, we expect another strong year in our MPC segment during 2025, which will most likely set new full-year EBT records.
Speaker Change: Carlos will provide more details on our guidance in a few moments.
Speaker Change: I'm now going to turn the call over to Dave Stripe for a review of our operating assets.
Thank you, David.
Speaker Change: In the fourth quarter, our operating assets delivered $61 million of NOI, including the contribution from unconsolidated ventures, which reflected strong growth of 9% year-over-year.
Speaker Change: For the full year, we generated a record NOI of $257 million, which was in line with the midpoint of our most recent guidance and a 6% increase relative to 2023.
Speaker Change: Starting in office, we produced fourth quarter NOI of $29 million and record full-year NOI of $125 million, both of which were up 5% year over year.
Speaker Change: The increases were primarily due to improved occupancy and abatement expirations related to our strong lease-up activity in recent periods, most notably in the Woodlands and Summerline.
Speaker Change: These gains were partially offset by some tenant vacancies at various properties in the Woodlands and downtown Columbia, as well as initial operating losses at Meridian and 10285 Lakefront, which were both completed last summer.
Speaker Change: In 2024, the company continued its impressive leasing performance, executing 473,000 square feet of new or expanded office leases, including 323,000 square feet in the Woodlands,
Speaker Change: 91,000 square feet in downtown Columbia, and 59,000 square feet in Summerlin.
Speaker Change: At the end of the year, our stabilized office portfolio was 89% leased, with the Woodlands and Summerlin at 91% and 95% leased respectively.
Speaker Change: With this solid performance, we expect incremental NOI improvement in 2026 as office build-ups are completed and free rent periods burn off.
Thank you.
Speaker Change: In our multifamily portfolio, we generated $15 million of NOI in the fourth quarter, representing a 13% improvement over the prior year and contributing to record full-year NOI of $59 million.
Speaker Change: The strong performance reflected 11% year-over-year growth, which was primarily driven by the continued successful lease-up of our unstabilized properties, as well as improved overall leasing at our stabilized properties, which ended the year at 96% lease.
Thank you.
Speaker Change: Looking closer at our unstabilized assets, including Marlowe in downtown Columbia, Kanagir Echo in Summerlin, and Wingspan in Brisbane, we finished the year with these communities 69% lease dot average. This is a considerable improvement from the prior year when these properties were 36% leased in aggregate.
Speaker Change: Overall, we continue to see solid demand for these new assets, with each property experiencing significant growth during 2024.
Speaker Change: At the end of the year, Tanager Echo was 79% leased, Marlow was 72% leased, and Winspan was 52%.
Speaker Change: With our consistent leasing performance, as well as the anticipated completion of one reaper row in the woodlands during 2025, we expect continued incremental NOI growth in the coming years.
Thank you very much. Thank you.
Speaker Change: In retail, NOI was $13 million in the fourth quarter, which reflected a 15% increase compared to the prior year.
Speaker Change: This improvement primarily related to non-recurring prior year reserves for the various tenants in Hawaii, as well as the opening of new ground floor retail at Ka'ula in Ward Village.
For more information, visit www.FEMA.gov
Speaker Change: These factors also had a significant impact to our full-year results, with retail and online improving 8% year-over-year to $54 million.
Speaker Change: Overall, at the end of 2024, our stabilized retail portfolio was 96% leased.
Speaker Change: Before I turn the call over to Jay, I would like to provide an update on our retail leasing progress in downtown Summerlin, which is celebrating its 10th anniversary in 2025.
Speaker Change: As we've discussed in the past, we elected to not renew many of these leases in an effort to upgrade the tenant mix to provide for better long-term financial performance and value enhancement.
Speaker Change: Today, our efforts have been very successful, with only 7 spaces, or approximately 15,000 square feet of space remaining to lease this year.
nearly all of which are in negotiations.
Speaker Change: More importantly, we have greatly improved downtown Summerlin's retail offering with new names including Chanel, Municipal Gym, Roche Dubois, Allo, and Pop Mart, all of which will undoubtedly have a positive impact on downtown Summerlin's appeal, vibrancy, and financial performance.
Speaker Change: With these new tenants in transition and set to open during 2025, we will see a short-term reduction in NOI this year, but we are very positive about the long-term growth opportunities for downtown Summerlin in the years ahead.
Jay Cross: With that, I will now turn the call over to Jay Cross.
Jay Cross: Thanks Dave and good morning everyone. In strategic developments we had an outstanding quarter, including the delivery of our seventh condo tower and two new retail developments, closing out another strong year of development across our community.
Thank you for joining us.
Jay Cross: Starting in Hawaii, we celebrated the completion of Victoria Place in November and closed on the sale of all 349 units before the end of the year.
Jay Cross: As a result, we recognized record condo revenue of $779 million in the quarter, which translated to $212 million of gross profit, or an impressive 27% gross margin.
Jay Cross: At our other condo projects, we had another strong quarter of pre-sales, contracting to sell 19 condos.
Jay Cross: The majority of these related to the LaNue, our 11th condo project in Ward Village, which continues to see steady demand. At quarter end, the LaNue was 58% pre-sold, with construction expected to start later in 2025.
Jay Cross: We also sold a few units at the Park Ward Village and Kalai, taking these projects to 97% and 93% pre-sold respectively.
Jay Cross: At the Elana, our workforce tower that is 100% pre-sold, construction continues to progress on schedule. We expect to deliver this project in the fourth quarter of 2025.
Jay Cross: In Texas, we started construction on the Ritz Carlton residence's The Woodlands in early October. With one unit contracted in the fourth corner, this 111-unit luxury project is now 70% pre-sold.
Jay Cross: In an effort to maximize returns, the majority of the remaining 33 units are currently not available for pre-sales. We expect to put these units on the market closer to the project's completion in 2027.
Jay Cross: Overall, at year-end, our projects under construction and in pre-sales were remarkably 87% pre-sold, and together represented more than $2.6 billion of future revenue, which will be recognized between 2025 and 2028 as each project is delivered.
Jay Cross: In our commercial portfolio, we completed two new retail projects during the fourth quarter, including the Summerlin Whole Foods Anchored Grocery Center and Village Green at Bridgeland Central, anchored by HEV.
Jay Cross: These projects, which have a combined future-stabilized NOI contribution of approximately $4 million, have seen strong demand. At quarter end, both retail centers were approximately 75% leased with all the remaining space in negotiations.
Jay Cross: And finally, we currently have three other projects underway in Texas, including the One River Row Molding Family and Grogan's Mill Retail Redevelopment Project in the Woodlands and the One Bridgeland Region Mass Timber Office in Bridgeland.
Jay Cross: These projects are expected to generate future stabilized NOI of $12.5 million and are on schedule to be completed during 2025.
Speaker Change: And with that, I would now like to hand the call over to our CFO, Carlos Olea, who will review our 2025 guidance and the balance sheet.
Thank you, Jay, and good morning, everyone.
Speaker Change: With a record-setting performance in each of our business segments during 2024 complete, we now shift our focus to delivering another outstanding year in 2025.
Speaker Change: In our MPC segment, EBT is projected to achieve new records aided by continuous tight supply of retail homes and low inventories of vacant developed lots.
Speaker Change: As a result, we anticipate solid new home sales in HMPC and continued strong homebuilder demand for residential land throughout the year.
Speaker Change: In Summerlin, we expect to see growth in residential landfills driven by superfat sales largely concentrated in the second and third quarters, as well as increased custom lot sales in Astra.
Speaker Change: In Texas, residential landfills are also expected to increase in Bridgeland.
Speaker Change: Overall, 2025 MPCVT is expected to be up 5% to 10% year-over-year, with a midpoint of approximately $375 million.
Speaker Change: In operating assets, we anticipate strong performance from our multifamily and office portfolios, with record NOI expected in both asset types.
Speaker Change: Multifamily growth will be driven primarily by improved leasing and occupancy in our unstabilized multifamily development, which were 69% leased at the end of 2024. While in office it is expected to be driven by our strong leasing momentum and expiring rent abatements across the portfolio.
Speaker Change: This improvement, however, will likely be partially offset by lower occupancy of various properties in Tampa and Columbia, Tampa and Antuna were in the woodlands, and initial operating losses from our newest office development.
Speaker Change: Retail is expected to see a modest reduction in 2025, primarily due to non-recurring collection of tenant reserves in Ward Village during 2024 and the impact of ongoing tenant upgrades which are underway in downtown Summerlin during its 10-year anniversary.
Speaker Change: Overall, we expect modest growth in 2025, with operating asset NOI expected to be in a range of flat to up 4%, with a midpoint of approximately $262 million.
Thank you.
Speaker Change: Condo sales revenues are projected to be approximately 375 million dollars in 2025, driven entirely by the closing of units at Bulana, a workforce housing development in Ward Village that is sold out and expected to be completed in the fourth quarter.
For more information, visit www.FEMA.gov
Speaker Change: Because Solana is a workforce tower and not a market rate tower, the company does not expect to recognize any gross profit from the project.
Speaker Change: The Park Ward Village, our next market-raised condo development that is expected to be completed in 2026, is already 97% pre-sold, with contracted revenues of nearly $700 million.
Thank you for watching!
Speaker Change: We expect cash GNA to range between 76 and 86 million dollars in 2025 or a midpoint of 81 million dollars excluding approximately 9 million dollars of anticipated non-cash stock compensation.
Transcript by Rev.com Page of
Speaker Change: This guidance represents an improvement relative to our 2024 cash G&A of $83 million due to cost savings implemented late in the year.
Speaker Change: As announced at our Investor Day last November, we are introducing a new guidance metric for 2025 called Adjusting Operating Cash Flows.
Speaker Change: This metric is a combined view of our operating performance, including MPC-EBT, operating asset NOI, and condo gross profit, less cash E&A, and net interest expense.
Thank you.
Speaker Change: We expect this new metric will provide a more straightforward approach to modeling our overall financial performance, while providing enhanced insight into our cost generation capabilities and drivers of future growth.
Speaker Change: Using the guidance metrics I provided, we project our adjusted operating cash flow will range between $325 and $375 million in 2025.
Speaker Change: with a midpoint of approximately $350 million or approximately $7 per share.
Speaker Change: Compared to 2024, when we generated $535 million of adjusted operating cash flows, we expect a reduction of approximately $185 million, which is driven by the reduction in condo gross profit from Victoria Place in 2024.
Speaker Change: Overall, with this guidance and a disciplined approach to capital allocation, we expect to win 2025 with approximately $600 million in cash, not including any potential benefit of additional mud sales that could be transacted later in this year.
Speaker Change: More information on Adjusted Operating Cash Flow and a reconciliation of our 2024 results are available in our earnings release and investor presentation on our Investor Relations website.
Thank you.
Speaker Change: Looking at asset disposition, we continue to streamline our operating assets portfolio during 2024 to better focus on properties that we believe add value and are core to our business model.
Speaker Change: As a result, we sold the Lakeland Village Center at Rutland for $28 million during the fourth quarter, as well as two non-core ground leases in Houston, which resulted in a combined gain of $15 million.
Speaker Change: For the full year, we recognize gains of $23 million including the sale of Creekside Medical Plaza in the Woodlands during the first quarter.
For more information, visit www.FEMA.gov
Speaker Change: According to our balance sheet, we ended the year in a position of strength with $596 million of cash and approximately $315 million of available lender commitment that can be drawn for any development project or any corporate use.
Speaker Change: Combined, we had over $900 million of available liquidity, leaving us well-positioned to allocate capital to our development pipeline.
Speaker Change: and Eric Striph, Eric Holcomb, Anthony Paolone, Carlos Olea, and Carlos Olea. We'll be back with more Panther Sports Talk in just a few minutes.
Speaker Change: At the end of the fourth quarter, the remaining equity contribution needed to fund their current projects, which will not all be spent in 2025, was $237 million.
For more information visit www.FEMA.gov
Speaker Change: From a debt perspective, we have $5.1 million outstanding at the end of the year, with $421 million of maturity in 2025.
Speaker Change: The majority of these maturities relate to construction loans or newer developments, including the 1700 Pavilion and 6100 Merriweather office, and the Marlow, Tanager Echo, and Wingspan multifamily projects.
Speaker Change: We expect all of this will be successfully refinanced during the year, with discussions for most already well underway.
Speaker Change: In the fourth quarter, we completed several important financing transactions, including a $260 million construction loan for the Ritz-Carlton residences,
Speaker Change: a $38 million refinancing on the Sterling and Griffin construction loan, and a new $13.5 million financing for Waterway Plaza 2, which we purchased for $19 million in cash during the second quarter.
Speaker Change: We also increased the capacity of the Bridgeland notes by 125 million dollars and extended its maturity by three years to 2029.
Speaker Change: Overall, at the end of the year, our weighted average debt maturity was five years with 82% of our debt maturing in 2027 or later. Additionally, 94% of our debt was fixed, capped, or swapped to a fixed rate.
David O'Reilly: With that, I would like to hand the call back over to David for closing remarks.
David O'Reilly: Thank you, Carlos. Before we open up the lines for Q&A, I want to touch on two items. First, earlier this year, the Governor of Hawaii approved amendments to local development rules which we believe favorably impact our residential entitlements in Ward Village.
David O'Reilly: With this change, we estimate the potential for an additional two-and-a-half to three-and-a-half million square feet of entitlements, which could be used to construct additional condo towers in the areas of Ward Village that have not yet been redeveloped.
David O'Reilly: This is a significant development for Howard Hughes, which we expect will positively impact our NAV for future condominium projects and enable the continued transformation of Ward Village well beyond 2030.
Thank you.
David O'Reilly: I also want to take a moment to reflect on our adjusted operating cash flow metric and how we reinvested the $535 million generated since 2024.
David O'Reilly: We invested approximately $170 million into condominium developments and infrastructure, primarily for our future projects in Hawaii and current projects in the wilderness.
David O'Reilly: While these developments required considerable upfront capital in 2024, our strong track record of delivering sold-out condo towers with 25-30% gross margins fully supports our investment.
David O'Reilly: With eight more towers underway or in advanced development, and now the potential for additional entitlements in Hawaii, we are poised to deliver significant condo profitability and cash generation for many years to come.
David O'Reilly: From a commercial perspective, we invested approximately $160 million in our operating asset portfolio.
David O'Reilly: The most significant contributions were to fund the equity requirements for our current projects, with the latest being the One River Rail Multifamily Project in the Woodlands and the Whole Foods Anchor Grocery Center in Sunland.
David O'Reilly: We also funded some of the remaining development costs on various projects across the portfolio, as well as pre-development for projects in our pipeline.
David O'Reilly: All of these projects are expected to generate solid, stabilized returns and immediately grow a recurring stream of net operating income in the years ahead.
We'll try again.
David O'Reilly: In addition, we spent approximately $170 million to fund the successful spinoff of Seaport Entertainment and seven months of its operating losses.
David O'Reilly: While significant in 2024, this represents meaningful future cash flow savings that we can allocate to higher return opportunities.
Thank you very much.
David O'Reilly: Finally, in MPCs, the remainder of that free cash flow was invested net of mud receivable sale into horizontal development.
David O'Reilly: This not only supported our record land sales in EBT in 2024, but also future land sales which we expect will reach new all-time highs in 2025, with cash gross margins of approximately 80% or more.
David O'Reilly: Overall, our new metric highlights the key drivers of our self-funding business model and the opportunities we have to grow NAV by investing in developments that generate exceptional returns greater than our cost of capital.
David O'Reilly: As we look into 2025 with our strong foundation of liquidity and anticipated adjusted operating cash flow of approximately $350 million, we are well positioned for the future.
David O'Reilly: Although we are not currently planning many new projects in today's rate environment, we remain committed to a disciplined approach to capital allocation, with our development spend aligned with the free cash flow we expect to generate.
David O'Reilly: This will ensure we have ample liquidity available to fund new investment opportunities that will meaningfully grow adjusted operating cash flow in the coming years and achieve the highest returns possible for our shareholders.
Speaker Change: Before we begin Q&A I want to remind everyone that the special committee of our Board of Directors is responsible for evaluating Pershing Square's most recent Schedule 13-D filing and the associated proposed transactions.
David O'Reilly: The board and the special committee are committed to acting in the best interest of the company and its stockholders.
David O'Reilly: The Special Committee will provide an update to our stockholders as and when appropriate, and as such we will not be taking any questions today relating to such matters.
Speaker Change: With that, let's start the Q&A portion of the call. Operator, can you please open the line for the first question?
Speaker Change: Certainly, ladies and gentlemen, as a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please stand by while we compile the Q&A roster.
Operator: Now, first question coming from the line of Alexander Goldfarb with Piper Sandler. You're on the phone.
Alexander Goldfarb: Morning. Morning. Morning down there. Hey, just a few questions and first, congrats on the expanded entitlements in Hawaii. That's something that you guys have been talking about for some time and certainly we've been advocating just given your success out there.
Alexander Goldfarb: So, nice job there. So, a few questions, David. First, no problem. First, on cash flow, and certainly appreciate the increased color. Maybe I'll just start with CPORT.
Speaker Change: Can you just give an update, because Seaport has cost you guys a tremendous amount of money.
Speaker Change: It's also been a cash drain and 2025 will be the first year that you are not impacted by any of that. So, could you just provide some aggregate perspective on how much that project cost?
Speaker Change: how much that was a drain on cash flow over the past few years and how much of a benefit not having that in the in the company as people think about your new operating cash flow metric you know how the impact of that because I would have to think it's substantial.
Speaker Change: Yeah, Alex, it's an interesting question and I you know, I don't want to spend a ton of time on assets that we've spun off successfully and have set on its path to maximizing value for the shareholders Seaport Entertainment
Speaker Change: Look, based on the spin filings, it's pretty clear you can go back and see what our book value was at time of spin. It was a little bit over a billion dollars.
Speaker Change: before the impairment charge that was taken last year. I think more importantly, as we talked about where last year's adjusted free cash flow went in the prepared remarks just before Q&A, we talked that last year in the seven months or eight months that we owned that asset with the...
Speaker Change: Losses in the first half of the year and the debt paydowns and transaction costs. It used up about a hundred and seventy million dollars of that adjusted operating cash flow
Speaker Change: and not having to use that in 2025 frees us to make better capital allocation decisions that drive a higher risk adjusted returns for our shareholders. We're excited about that opportunity to do that in this coming year and think that we'll find opportunities as the year progresses.
Speaker Change: So is that really just a reflection of not having the seaport drain or are there other things that you guys have adjusted in your cash flow retention that have improved the efficiency despite not having a different mix on condo deliveries this year?
Thank you.
Speaker Change: Hi Alex, this is Carlos. So, the change in cash flows is, as we say, driven by the fact that we don't have market rate condo closing units, but it does remain, as you said, relatively stable because, as we've said before, during this
Speaker Change: times and the economic conditions that we're in, we're being very deliberate on where we deploy capital for new projects.
Speaker Change: And so, as you know, and everybody that's in public knows,
where our development pipeline has been more...
Speaker Change: specific focus on certain projects that make sense in the time and that allows us to retain a very healthy cash position even in a year when we don't have a market rate condo closing.
Okay, and just maybe a final one for Summerlin.
Speaker Change: The increased gross asset value slide update was very helpful, pretty impressive how much it's changed from November.
Speaker Change: But Summerlin stands out in just a dramatic acceleration in price per acre.
Speaker Change: And I'm just curious, how much of this is driven by, let's say, discovery?
Speaker Change: versus the normal sort of that $600,000, $700,000 type home that you guys have there. I'm just trying to understand what the real driver is on a mixed basis, because it definitely stands out for how much that community has increased on a price per acre.
Yeah, it's a great question, Alex, and
Speaker Change: There certainly has been price appreciation across the board in Summerlin, in custom lots, not just within the Summit, our partnership with Discovery, but as we reported this quarter in our new custom lot community that we're doing on our own, Astra, it has averaged $6 million per acre.
Speaker Change: But the vast majority of the valuation change, just given the number of acres, because this is a weighted average calculation, is coming from the sale of SuperPETS.
Speaker Change: and when we're selling super pads at over a million dollars.
relative to, you know, 600,000, six, seven years ago.
Speaker Change: That's a meaningful change. In this current quarter, we're reporting SuperPAD sales at $1.3 million, $1.4 million an acre. That increase is for home builders buying those SuperPADs, building production homes. That's the majority of the land that we sell in any given quarter, in any given year in Summerlin, and that's driving growth.
Speaker Change: the majority of the price increase that we're benefiting of with the Summerlin land sales.
Thank you, David.
Thank you, Alex.
Thank you very much.
Speaker Change: Thank you. Our next question coming from the line of Anthony Paolone with JPMorgan. Your line is now open.
Thank you. Good morning.
Anthony Paolone: I guess just going back to the cash flow discussion, if we look at the $350 million at the midpoint of your guidance and think of that as a source of cash, can you maybe...
Anthony Paolone: Zoom out for a minute and just give us the bigger picture on sources and uses, both the source from the operations as well as maybe any financing and then just planned uses.
Anthony Paolone: Yeah, sure. I think that the components of guidance that Carlos walked through really show the sources of cash flow pretty well, you know, midpoint of $375 million of MPC EBT, $262 million of operating asset NOI. That's offset by GNA, which is down modestly. We expect next year relative to this year an interest expense.
Anthony Paolone: Those are the sources that add up and deliver the $350 million at the midpoint of our guidance.
Anthony Paolone: In terms of uses for next year, we have unfunded commitments that are detailed in this supplemental for new construction projects or existing projects under construction.
Anthony Paolone: that some of that capital will go to. Some of it will go to support condo development as well.
Anthony Paolone: Whether it's the Ritz-Carlton in the Woodlands or other projects, our equity components will come from that. And some of it will go into recurring CapEx within our operating asset portfolio.
Anthony Paolone: right now we haven't announced any new development projects that would use that capital so you know is why we're able to talk about a cash balance it's very similar if not slightly higher and incremental liquidity at the end of next year
Anthony Paolone: Okay, maybe if I ask it a bit differently like if we think about you have West Phoenix And you still have a lot to do with with your other NPCs You're putting aside the condos in Hawaii because those you know tend to get funded almost themselves it seems
Anthony Paolone: What should we think of as just a recurring, out-of-pocket, horizontal development spend over the next several years?
Anthony Paolone: So that's an interesting question, Anthony, because it gets to the difference between EBT and the profitability of the underlying land that we sell, and MPC net contribution, which is the cash flow, because the dollars that we're investing today will be for lots that we're selling tomorrow.
Anthony Paolone: in general and, you know, to take it kind of community by community.
Anthony Paolone: West Phoenix and Terra Vallis is going to cash flow neutral. We expect that to entirely self fund itself for the next several years Based on the land sales that we've talked about today and expected future land sales as we get into future phases
Anthony Paolone: The remainder of the assets, there are a couple of major infrastructure projects that will create interim uses of capital, but they're not material.
Thank you. Thank you.
Anthony Paolone: Seaport and then the remainder which is kind of just the what was left over you know after the mud receivable sale was pretty nominal relative to the spend in those other categories.
Speaker Change: Okay, thanks for that. And then just my follow-up here, can you give us some update on the expected legislation in Nevada for studios and just kind of what's happening there? I think the anticipation was maybe we'd see some things start to move here early in the year.
Speaker Change: Yeah, we're really optimistic and the timing of that question is great, Tony. I'm actually in a hotel room in Carson City because I'm heading up to legislature to speak with the Assembly later today to testify in favor of Assembly Bill 238, which would provide the tax credits that Sony and
Speaker Change: our new partner, Warner Brothers. We've all joined forces, the three of us, to advance this film tax credit bill through legislature. There's 90 days remaining in the legislative session here in Carson City. And, you know, so we have.
Speaker Change: 90 days left to get this over the goal line. As soon as we have any updates or we have any material changes we'll be sure to update our investors.
Okay, great. Well, good luck. Thank you. Thank you, Tony.
Thank you.
Thank you.
Speaker Change: And again, to ask a question, please press star 1-1 on your touch-tone phone and wait for your name to be announced. Our next question, coming from the line of John Kim with BMO Capital Markets. Your line is now open.
John Kim: Thank you and good morning. I appreciate the sensitivity around the Pershing Square proposal, but I was wondering if you could provide any sense at all as far as timing of when there will be an update. And I just wanted to confirm the transaction needs board approval and that shareholder approval to move forward.
Speaker Change: Yeah, the Pershing Square 13-D filing is between the Special Committee and Pershing Square, and I'm going to leave any comments on timing or otherwise for them to opine on.
Can you name who's on that special committee?
Speaker Change: You know there's been a number of press releases that the special committees put out and I would refer you to those to get at the information you need in terms of you know how they're processing this proposal and their advisors.
Speaker Change: Okay. Can you comment on, going to operations, the Columbia move-outs? Any commentary on the kind of turnover and what you expect in 2025? And how many of the move-outs, whether it's an office or multifamily, is potentially related to DOJ?
Thank you.
Speaker Change: This is Dave Striph. I'll comment on the Columbia move out. Yeah, we've had some turnover there, but we're actively...
Speaker Change: marketing the space. We're actually looking at one of the buildings in Merriweather Rove to actually empty it out and explore strategic alternatives with regard to it. But we've actually got quite a bit of leasing in place right now.
Speaker Change: Quite a few tenants are in discussions and we feel pretty good about it. So we'll have further updates
as things unfold.
Speaker Change: Yeah, John, I would add that I don't think that we've seen any fallout to date from what's gone on in Washington, D.C. A multifamily remains strong. We continue to see positive absorption in our assets and the office move-ins, move-outs, contractions have been pretty consistent. If not, honestly, it's been modestly improving over the past several months and quarters.
Speaker Change: And we haven't seen any negative fallout or positive impact of, you know, government workers back to the office five days or efficiency moves made by, you know, DOJ.
Speaker Change: And then on your guidance for this year, what's currently assumed as far as SuperPAD sales?
Speaker Change: and any commentary that you can provide on acreage sold and price breaker that you expect.
Speaker Change: We are cautiously optimistic that we'll continue to see really strong SuperPAD sales, and in Carlos' prepared remarks, we're expecting those to be heavily concentrated in the second and third quarter, just based on the timing of when we're going to be able to deliver those SuperPADs to builders.
Speaker Change: modestly in 25 compared to 24 which has led us to our new record MPC EBT guidance for 25.
Okay, great. Thank you. Thanks, John.
Thank you.
Thank you.
Speaker Change: I see we have a follow-up question from Alexander Goldfarb with Viper Satellite. Your line is now open.
Speaker Change: Hey, thank you. And David, congrats on the Warner Brothers announcement. Good luck today in the legislature. Question on the home builders and the outlook for even
Bigger or more land sales on a dollar value
this year versus last.
Speaker Change: Can you just comment on what's going on with the homebuilders as far as...
Speaker Change: their incentives to residents, you know, newspapers or, you know, the Internet filled with stories about, you know, still challenged, you know, home price market affordability and all this stuff. And yet you guys seem to defy that. So just curious if the buy downs or free upgrades that the homebuilders are doing, if that's changed at all, or if there are other things that are going on. And then also, if you've noticed any change in sort of the resident profile.
Speaker Change: that's allowing you guys to sell or guide towards even stronger land sales this year to the builders versus last year.
Speaker Change: Yeah, look, I think taking a step back and thinking about that question, Alex, it really comes down to the attractiveness.
Speaker Change: and the quality of the communities in which we're selling land.
Summerlin, Bridgeland, Woodland Hills, and soon-to-be Terra Vallis.
Speaker Change: I believe meaningfully stand out in the relative market. The home prices within Cermelon relative to Las Vegas Valley, the home prices in Bridgeland relative to the Houston market are meaningfully higher. The quality of life that residents can experience here is better. The quality of education, the connectivity to nature and the amenities that we've built into these communities, I believe are far superior.
Speaker Change: and they're showing an appetite to continue to buy land because we're continuing to sell homes.
Speaker Change: Now their margins are under pressure. We are seeing, you know, continued inflation. We're seeing continued high mortgage rates.
Speaker Change: and homebuilders are being forced to offer some incentives, mortgage rate buy-downs. I would say those are very consistent over the past several quarters. We haven't seen a ton of shift in what's going on in any of our markets that's notable.
Speaker Change: So I really think, taking a step back, our confidence is just based on the success that we've had and the current discussions that we're having.
Thank you.
Thanks, Alex.
Thank you.
Speaker Change: And again, as a reminder, to ask a question, please press star 1-1. Our next question, coming from the line of Craig Pitt with Jasper Funds, your line is now open.
Hi guys, congratulations on another outstanding quarter and year.
Speaker Change: I promise this is a capital allocation question. So, for closing funds, land trusts, real estate companies, the tried-and-true method for reducing a discounted NAB is to buy back stock.
Speaker Change: Has the Section 203 waiver given to Pershing prevented the Board from buying back a material number of shares given that they're already bumping up on the 40% cap?
Speaker Change: Greg, it is great to hear from you. It's been a while, sir. Thank you for the question. Look, we're always looking at ways to allocate our capital to drive our intrinsic value and net asset value higher, and there are times where that capital allocation decision is a pretty easy one, where we can put it into condos at 30% margins.
Speaker Change: And there are times where our share price is meaningfully disconnected from our underlying value and share buybacks are an opportunity to allocate capital in that regard.
Speaker Change: Today, you know, we're looking at all those opportunities. We have a little bit left on our existing buyback program
and the board does not provide authorization for more.
Speaker Change: It's something that we debate every quarter in our boardroom and I'm sure will be subject of conversation in our next one.
Speaker Change: And as it is required to be updated, if we are able to announce another buyback, we'll be sure to do that promptly after any decisions have been made.
Speaker Change: What would happen if you pushed, if your buyback, if a buyback pushed Pershing over 40%?
Speaker Change: You know, look, I don't know that our authorization today puts us in a position to make that calculation and you know That's I think a question more for the security of lawyers than it is for me as I'm focused on the things that I can really control and the things that I can control or
Speaker Change: where we rent our space, where we sell our land, and the profitability of our condos. So those things are really important to me and where I focus my time and effort.
Speaker Change: Okay, and when you're doing your cost of capital calculation, how do you adjust for the 40% equity discount to NAV?
Speaker Change: Right, we're not using any equity, we're not selling our shares to raise the capital to allocate. So our, you know, back in the day when, you know, I was a REIT executive and we were worried about issuing equity to make every acquisition, it became a more material impact to our calculation.
Speaker Change: When I think about our cost of equity, I think about what our shareholders want to earn by investing in Howard Hughes.
Speaker Change: and it's clearly in the double digits, if not meaningfully higher. So when we think about the equity returns into any new development project, any capital allocation decision, we wanna make sure we're exceeding those targets that our investors expect to make as investors in Howard Jews.
Speaker Change: And you're comparing those expected returns to the return of the shareholders from buying back stock at a discount to NAV?
Speaker Change: Absolutely. Those are all part of the calculation. We look at all the different capital allocation opportunities in front of us when we make those decisions, correct?
Okay, great. Good luck today.
Thank you so much, Craig. Nice to hear from you.
Thank you.
Speaker Change: Thank you and again if you have a question please press star 1 1. We'll give it a moment.
Speaker Change: I will now turn the call back over to Mr. David O'Reilly for any final remarks.
Speaker Change: Once again, we appreciate everyone for joining us on today's earnings conference call. We look forward to seeing you all soon at the next investor conference, our next earnings call when we speak again. If there are any questions, concerns, or things that weren't asked today that you want to follow up on, we are always available. Thank you again.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.