Q1 2025 Howard Hughes Holdings Inc Earnings Call
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Today's program is being recorded.
Now I'd like to introduce your host for today's program, Eric Holcomb Senior Vice President of Investor Relations. Please go ahead Sir.
Speaker Change: Good morning, and welcome to Howard Hughes Holdings first quarter 2025 earnings call with me today are Bill Ackman Executive Chairman, David O'reilly, Chief Executive Officer, Jay Krause, President Cardoso layout, Chief Financial Officer, Dave stripe President of asset management and operations, Joe <unk> General Counsel and Ryan is.
Ryan: Real Chief investment Officer.
Speaker Change: Before we begin I would like to direct you to our website.
Speaker Change: Howard Hughes Dot Com, where you can download both our first 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.
Speaker Change: 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 first quarter earnings press release, and the risk factors in our SEC filings for factors that could cause material differences between forward looking statements and actual results. We are not under any duty to update forward looking statements unless required by law I will now turn the call over to our CEO David O'reilly.
David O'Reilly: Thank you Eric and good morning on our call today I'm going to begin with a recap of the first quarter and cover the segment highlights from our Master planned communities, Steve Streit will cover the operating assets J Cross will provide an update on our strategic developments carloads of layer will review our guidance our balance sheet and then finally, we're going to have Bill Ackman, Ryan Israel join us to discuss the REIT.
Speaker Change: Transactions in the future strategic direction for the company before we open up the lines for Q&A.
Speaker Change: Jumping into our results we experienced continued strong momentum across our segments in the first quarter, delivering adjusted operating cash flow of $63 million or $1.27 per diluted share and our mpc's homebuilder demand for residential land remained robust leading to sequential and year over year growth of land sales acres sold.
Speaker Change: Price per acre any beauty with.
Speaker Change: With this strong start to the year and significant land sales expected in the second and third quarters, we have strong confidence in our full year EBIT guidance of $375 million.
Speaker Change: Our operating assets delivered $72 million of NOI, representing a new quarterly record with impressive 9% year over year growth in strategic development demand for condominiums remained solid our condo pipeline now represents $2 $7 billion of future revenue that will be earned between 2020.
Speaker Change: In 2028.
Speaker Change: From a financing perspective, we closed on several important financings that increased liquidity and extended our maturities and Carlos will detail later.
Speaker Change: Looking deeper into our results of the MPC segment, we delivered solid MPC EBT of $63 million in the first quarter, representing an increase of $39 million or 161% year over year.
Speaker Change: This growth was underscored by $39 million increase in land sales, which was primarily driven by two super pad sales totaling 29 acres in summerlin for more than $1.5 million per acre.
Speaker Change: Land sales in Texas were also strong with 41 residential acres sold in British land in the woodlands woodland Hills that is up 31% year over year.
Speaker Change: Overall, we achieved an impressive average price per acre of $991000 during the first quarter, reflecting both sequential and year over year improvements.
Speaker Change: MPC EBT growth was also favorably impacted by an $11 million increase in equity earnings primarily related to improved results from our summit joint venture.
Speaker Change: Lori a joint venture in Arizona, We sold another 11 acres of residential land for $793000 an acre in the quarter.
Speaker Change: In infrastructure development and Oreo remained on track and we expect homebuilders will start construction on model homes. This summer.
Speaker Change: Turning to new home sales, we continue to see solid demand across our MPC with a total of 543 homes sold in the first quarter.
Speaker Change: Although this represented a decline compared to last year's outsized first quarter, which saw the highest quarterly results in three years after mortgage rates began to subside.
Speaker Change: It did represent a sequential improvement.
Speaker Change: In fact, new home sales outpaced both the third and fourth quarters of 2024 by 11% and 6%, respectively, providing a strong indicator of underlying demand and increased confidence in our land sale projections for the year.
Speaker Change: Sequentially. Our most notable gains were in Brooklyn at Summerlin, which is our home sales growth of 12% and 9% respectively in the first quarter.
Speaker Change: During the quarter when the national housing market showed some signs of softening or home sales are a testament to the resilience of our mpc's and the exceptional quality of life they provide their residence.
Speaker Change: Overall with solid demand for new homes in all of our communities as well as continued under supply of vacant developed lots, we expect homebuilder demand for incremental acreage will remain elevated.
Speaker Change: This will ultimately drive what we expect will be record residential land sales price per acre and MPC EBT for the full year 2025.
Speaker Change: With that I'm going to turn the call over to Dave strive for a review of our operating assets.
Speaker Change: Thank you David.
Speaker Change: And our operating asset segment, we started the year in a position of strength delivering NOI of $72 million, including the contribution from unconsolidated ventures.
Speaker Change: This represented a new quarterly record and a 9% improvement compared to the prior year driven primarily by enhanced performance in our office and multifamily portfolios.
Speaker Change: Studying office, we reported NOI of $33 million or.
Speaker Change: Or 8% year over year increase this growth was primarily the result of improved occupancy and strong lease up activity in the woodlands in summerlin, most notably at $99 50 would like for us and $17 1 billion, which ended the quarter, 99% leased and 92% leased respectively.
Speaker Change: Our multifamily portfolio also performed well in the quarter, delivering NOI of $16 million or a 14% year over year increase primarily driven by strong lease up at our unstable sized assets and improved overall leasing at our stabilized properties, which ended the quarter, 96% leased.
Speaker Change: In our retail portfolio, NOI was $14 million, which reflected a 2% decrease compared to the prior year. This modest reduction was primarily due to some tenant reserves in ward village, partially offset by improvement at Marlow and junipers ground floor retail in downtown Columbia as well as at Hughes landing at the woodlands.
Speaker Change: In downtown Summerlin, we continued to make progress on our tenant upgrades and recently signed new leases with several future tenants, including garage.
Speaker Change: And built basics.
Speaker Change: And we had only five retail spaces available most of which are currently in negotiations representing about 17000 square feet with that I will now turn the call over to our president Jay crust for an update on our strategic developments.
Jay Crust: Thanks, Dave and good morning, everyone.
Jay Crust: In the first quarter condo pre sales were solid with 27 units contracted representing incremental future revenue of approximately $51 million.
Jay Crust: Nearly all of these pre sales were at below new our 11th condo project in Ward village, bringing these tower to 64% pre sold with such strong pre sales. We expect to start construction later this year with an anticipated delivery in 2028.
Jay Crust: At our other condo towers under construction, we are on track to deliver Ilana a workforce housing development is completely sold out in the fourth quarter of this year.
Jay Crust: The Park Ward village, which is our next market rate tower was topped off during the quarter and remains on schedule for delivery. In 2026. This tower is 97% pre sold with only 17 units remaining to contract.
Jay Crust: At <unk>, which is already impressively, 93% pre salt we've made considerable progress with construction, we continue to expect completion in 2027.
Jay Crust: And in Texas construction on the Ritz Carlton residences, the woodlands is advancing nicely with topping off anticipated later this year and completion in 2027 and.
Jay Crust: At quarter end this luxury development remained 70% pre sold we.
Jay Crust: We have continued to hold the majority of the remaining units off the market in an effort to capture incremental value closer to the project's completion.
Jay Crust: As we discussed on our last earnings call. The Governor of Hawaii approved amendments to local development rules in January which we believe will provide the potential for an additional two five to $3 5 million square feet of residential entitlements. We are currently reviewing how this will impact ward villages Master plan, but expect these entitlements will enable the construction of additional condo tower.
Jay Crust: In areas of the community that have not yet been redeveloped.
Jay Crust: We will share more about our plans as information becomes available in the coming quarters.
Jay Crust: Shifting to our commercial construction projects currently we have three projects underway in Texas, which will generate approximately $12 5 million of incremental NOI to our operating asset segment upon stabilization.
Jay Crust: These projects, which include the <unk> multifamily and <unk> mill retail redevelopment projects in the woodlands and the one bridge Lynn Green mass timber office in Brisbane are all on budget and on schedule with completion expected this year.
Jay Crust: I would now like to hand, the call over to our CFO Carlos <unk>, who will review our guidance in the balance sheet.
Carlos: Thank you Jay and good morning, everyone.
Carlos: With the strong momentum that we experienced across our segments. During the first quarter, we remain confident in our ability to deliver our 2025 guidance issued on our last earnings call.
Carlos: Looking briefly.
Carlos: Into each segment in MPT as we continued to project robust EBIT of $375 million at the midpoint led by record residential land sales can price per acre.
Carlos: This represents a 5% to 10% year over year increase compared to last year's record performance and would constitute a new all time high for us.
Carlos: And operating assets, we continue to project full year, NOI between $257 million and $267 million or a range of flat to up 4% compared to 2024.
Carlos: At the midpoint of approximately $262 million.
Carlos: And this would also represent a new full year record.
Carlos: <unk> revenues are projected to be approximately $375 million in 2025, and driven entirely by the closing of units at Atlanta, which is sold out and expected to be completed in the fourth quarter.
Carlos: Because the line is the workforce housing power, we do not expect to earn any condo gross profit from this project. The park Ward village. Our next market rate condo development that will deliver in 2026 is nearly sold out with contracted revenues just under $700 million.
Carlos: And finally, we continue to expect cash G&A to range between 76, and $86 million or a midpoint of $81 million, excluding approximately $9 million for anticipated noncash stock compensation.
Carlos: Overall, we project our adjusted operating cash flow will range between 325 and $375 million in 2025, with a midpoint of approximately $350 million or approximately $7 per share.
Carlos: At the end of the first quarter, we had $494 million of cash and $317 million of available lender commitments that can be drawn on for any development project or any corporate use.
Carlos: Combined we had over $800 million of available liquidity, leaving us well positioned to allocate capital to our current projects and weather today's economic environment.
Carlos: At the end of March the remaining equity contribution needed to fund our current projects, which will not all be spent in 2025 was approximately $251 million.
Carlos: From a debt perspective, we closed on a $200 million Upsized and two year extension to the non consolidated credit facility for <unk> and <unk> wireless.
Carlos: We also executed a $20 million construction loan for a new built to suit medical office building in Brooklyn, which we expect will commence construction in the second quarter of this year.
Carlos: Overall, we have $5 2 billion of debt outstanding at the end of the quarter with $425 million of maturities in 2025.
Carlos: Subsequent to quarter end, we made meaningful progress with debt maturities extending the loan in our Marlow multifamily project that 2027.
Carlos: And with this extension completed our remaining maturities for this year are now $350 million and primarily consists of 6100 Merriweather 1700 pavilion vantage reco in wingspan.
Carlos: We expect all of this will be successfully refinanced during this year with advanced discussions already underway.
Carlos: And finally, just this week, we closed on a second sale of receivables enrichment generating cash proceeds of approximately $180 million we.
Carlos: We expect to use these proceeds to pay down the bridge notes, providing significant additional liquidity and optionality for the company going forward.
Carlos: With that I would now like to turn the call over to our chairman Bill Ackman, because it's got the recent transaction with <unk> square and for closing remarks.
Speaker Change: Thank you Carlos I thought would actually would be useful just to rewind the tape a bit and just talk about how we arrived at the current transaction.
Speaker Change: So we've been obviously shareholders for Howard Hughes for 14 years, we've watched tremendous progress in the business and really.
Speaker Change: As evidenced by the most recent quarter the focus <unk>.
Speaker Change: The company has delivered really outstanding results.
Speaker Change: But we haven't achieved as a company is creating a lot of shareholder value and this has been a challenge for us that we tried to address over the last sort of many years.
Speaker Change: After spinning off the seaport and really getting not much of a reaction from the market to the pure play company.
Speaker Change: Our original thinking was perhaps we have to just take the business private and we started down a path to that end beginning in September looking to raise capital to take the business.
Speaker Change: Right.
Speaker Change: We met with many I would say every potential investor that would be interested in a transaction of this scale.
Speaker Change: And reaction, we got was everyone thought that business was a great business, but we could not find investors who are prepared to sign up for a very long duration investment of the company every investor we spoke to wanted to ultimately to receive liquidity within five years seven years or 10 years and that was not something we could create in the context of Howard Hughes.
Speaker Change: Which is why we.
Speaker Change: Kind of considered other alternatives.
Speaker Change: <unk>.
Speaker Change: Finally arrived at a transaction in which we convert Howard Hughes from a pure play real estate development company into a diversified holding company and our thinking in that on the decision to go in this direction was driven by the fact that ultimately what we've concluded is that in the public markets a pure play non investment grade real estate developer of Master plan communities.
Speaker Change: As a business that the market assigns a very high cost of capital to market perceives this business on a long term basis.
Speaker Change: As.
Speaker Change: Subject to exposure to economic conditions.
Speaker Change: Leverage non investment grade and ultimately shareholders want to receive sign of return on excuse.
Speaker Change: Excuse me a cost of capital that's really.
Speaker Change: What the business can achieve on a regular basis going forward and business needs to earn a return on its capital.
Speaker Change: In excess of its cost of capital in order to create shareholder value and we've not been able to achieve that as a standalone.
Speaker Change: Your play company.
Speaker Change: So what we did.
Speaker Change: Sided to do.
Speaker Change: The negotiations with the special committee was to invest $900 million of fresh capital into the company by acquiring 9 million shares at $100 a share.
Speaker Change: And transforming <unk> into a diversified holding company.
Speaker Change: The.
Speaker Change: We are adding to the company I'm returning as the executive chair, we're adding a new position.
Speaker Change: Brian Israel CIO Pershing is joining the company.
Speaker Change: And the <unk> team remains the same and will work with us on this objective the board.
Speaker Change: We have.
Speaker Change: Brian and I kind of returning our off myself returning Ryan a new addition to the board New independent director John.
Speaker Change: Batiste.
Speaker Change: J P. As he is called spent.
Speaker Change: 25, 30 year career in private equity.
Speaker Change: Most recently at BC partners, where he was the CFO for more than a decade.
Speaker Change: The business plan is to acquire we call durable growth companies that meet our standards for business quality.
Speaker Change: And defensibility and these are businesses that earn high returns on capital that we want to prepare to own for decades and businesses that will diversify Howard Hughes as exposure to real estate.
Speaker Change: <unk> burn.
Speaker Change: Turns on capital higher than can be earned and a pure play real estate company and offer greater long term.
Speaker Change: Growth.
Speaker Change: The kind of long term plan is for Howard Hughes to become a investment grade company.
Speaker Change: US to build a valuable business over a long period of time, so I'd be delighted to answer any and all of your questions obviously questions about <unk>.
Speaker Change: <unk> management about a.
Speaker Change: The quarter.
Speaker Change: Also be happy to address questions about our business plan going forward.
Thank you operator, let's open up for questions certainly and our first question comes from the line of Anthony Pallone from Jpmorgan. Your question. Please.
Anthony Pallone: Alright, thanks, and good morning.
Speaker Change: Maybe for bill to start here.
Speaker Change: You've been in this process for a little while now and you've talked pretty clearly clearly about what you want to deal with it. So I'm just wondering what you think the timeline is to see the first <unk>.
Speaker Change: Transactions completed and is this something thats that you've got a pipeline teed up and ready to go or do you just now start to go into the market and find deals.
Speaker Change: Sure. So first of all I think it might be useful to talk about what we believe are competitive advantages are and acquiring companies.
Speaker Change: The competition today for private businesses is principally private equity.
Speaker Change: And private equity investors have a lot of capital.
Speaker Change: But there are certain things that can offer to a seller.
Speaker Change: So I had an interesting meeting with the governor.
Speaker Change: Virginia, former co CEO of Carlisle and he was saying kind of if you will admiring what we're trying to accomplish with Howard Hughes. They said look we're not as a private equity investor I have to tell every company ever engage with that by ultimately selling to us they were kind of joining the Merry go round, meaning in five or seven years, we have to sell the business to someone else.
Speaker Change: And there are many owners of businesses that over a lifetime, let's say you've got a seven year.
Speaker Change: Seven year old owner of a business built the company over a lifetime not excited about the idea of selling the business to a private equity firm that's going to put a lot of leverage on the business.
Speaker Change: And they don't know who's going to own it.
Speaker Change: Five years 10 years 15 years from now and these are founders that have built the business.
Speaker Change: Built relationships with employees over decades built.
Speaker Change: <unk> built the company in a community and really want to make sure their business, which is their legacy is in kind of strong hands and Warren Buffett has done a great job of acquiring sort of family owned family controlled businesses that sort of meet those criteria.
Speaker Change: And.
Speaker Change: But the issue for Berkshire today is it is a trillion dollar enterprise acquiring.
Speaker Change: Anything other than a $20 billion company is not really going to move the needle for the business. So we think.
Speaker Change: Hughes becomes uniquely positioned to acquire founder controlled high quality, great businesses, starting at relatively small scale.
Speaker Change: We have the ability once we are.
Speaker Change: Our stock trades.
Speaker Change: Closer to intrinsic value to offer a tax free execution to someone who wants to become part of a diversified enterprise and we think that creates interesting sort of competitive advantages for us obviously.
Speaker Change: Since we did not.
Speaker Change: Complete the transaction on Monday, we've not really had substantive discussions with any counterparty.
Speaker Change: We sort of tested the concept on one kind of a potential counterparty was quite intrigued.
Speaker Change: That will be one of our initial discussions something else that we intend to do we've admired the value that's been created.
Speaker Change: Berkshire Hathaway.
Speaker Change: Are we building buying and building.
Speaker Change: The most dominant insurance company in the World that's provided profits from the insurance business, but also very low cost float.
Speaker Change: That has been able to be invested in much higher returning assets than a typical insurance company is able to invest in because as the Berkshire insurance operation as part of a diversified holding company the regulators give them much more flexibility in investing that portfolio one of the things that Pershing square brings to the table here.
Speaker Change: Long term track record investing in marketable securities as part of our arrangement with the company.
Speaker Change: If we were to build an insurance company inside of the Howard Hughes Corporation, we would invest the equity portfolio of that insurance company for free which would of course give that insurance business. Our competitive advantage in terms of the kind of returns you can earn on its assets the insurance.
Speaker Change: Idea operation is a high priority for US we have identified a.
Speaker Change: Superb potential leader of that business I would say, we're very early days in terms of discussions.
Speaker Change: No certainty that.
Speaker Change: Anything will come up with those initial discussions, but now that we've announced the transaction that is a very high priority for us So I would say.
Speaker Change: Either.
Speaker Change: That is a realistic outcome would be.
Speaker Change: Sometimes by the fall, we have an announcement of a potential transaction.
Speaker Change: Okay, that's really helpful.
Speaker Change: And if I could just ask a follow up to all of this.
Speaker Change: The $900 million, it's substantial but I think it sounds like Youre plans are also quite substantial so how does.
Speaker Change: Capital allocation work going forward related to what goes into new businesses versus the traditional real estate Howard Hughes.
Speaker Change: Have probably over $1 billion worth of apartment assets Youre getting this density in Hawaii that increases the value there I guess like do you envision changing or moving capital.
Speaker Change: Out of the legacy real estate into other areas or does that all just be left alone.
Speaker Change: Sure.
Speaker Change: Obviously enamored with the MPC business and we understand the long term economics of that business and it's critically important that we build out mpc's to fulfill.
Speaker Change: The demands and needs of the community to community is to make these sort of highly desirable places to live kind of long term.
Speaker Change: So really no change to kind of the business plans, if you will for any of our communities.
Speaker Change: But the good news I would say is with the passage of time beginning over the next several years, we expect the MPC business to start generating cash in excess of what is which should be recycled if you will and to equity investments and new apartments, and condominiums and kind of other assets and then with the longer term passenger.
Speaker Change: Time, we expect the MPC business to be generating a large amount of cash that can be repatriated to the holding company to invest in other assets, but we would not ever if you will star.
Speaker Change: And MPC to free up capital to do something else and we're contemplating a reason why we are one buying primary shares from the company.
Speaker Change: As opposed to secondary shares.
Speaker Change: Is because we.
Speaker Change: What give the business a head start in terms of injecting capital and to the enterprise, but we're going to manage the MPC business and our communities.
Speaker Change: The way, we have historically and we're going to invest in projects that makes sense and we're going to continue to make these the most desirable award winning places to live.
Speaker Change: Okay great.
Carlos: Great just to be clear David now Carlos.
Speaker Change: Ryan and I will be.
Speaker Change: Part of that process, everyone is economically incentivized to maximize long term value of Howard Hughes.
Speaker Change: And when I first.
Speaker Change: Yes.
Speaker Change: When we first spun off Howard Hughes, and the MPC business to shareholders.
Speaker Change: When it was owned by general growth what they did was basically start the mpc's they would extract to build an asset and then they would sell it they take the profit and they would use it in the mall business.
Speaker Change: One of the first things. We did is we stopped that behavior. We basically have retained every asset we built other than hotel assets, where we've made is kind of a strategic decision that we did not believe they were necessary for us to own them.
Speaker Change: On a long term basis, but we've taken a very long term view and.
Speaker Change: Overseeing and managing these communities ever since I joined the board of the company and that will continue going forward.
Speaker Change: Okay I appreciate all the context.
Speaker Change: Of course.
Speaker Change: Thank you and our next question comes from the line of Conor Mitchell from Piper Sandler Your question. Please.
Conor Mitchell: Hey, good morning, Thanks for taking my question.
Speaker Change: I guess just thinking about.
Speaker Change: David being the CEO of.
Speaker Change: The holding company now and then longer down the line when there is a few more companies or portfolio companies holding.
Speaker Change: It's the plan forward for you guys to appoint somebody to oversee the MPC business or what David kind of be still a charge of the CEO of the company overall as well as the MPC business any.
Speaker Change: Maybe just put it in department heads Eric.
Speaker Change: The company.
Speaker Change: <unk> for the different acquired businesses.
Speaker Change: Sure So David.
Speaker Change: Will remain CEO of the overall company I think youll be spending certainly the substantial majority of his time on the kind of Howard Hughes real estate part of the operation.
Speaker Change: And we will kind of we were allocating resources, Brian and I will be focused on acquire.
Speaker Change: Acquiring kind of new businesses.
Speaker Change: Those businesses to be run into pretty autonomous fashion with us overseeing kind of overall I would say.
Speaker Change: Capital allocation and that will be a shared responsibility of the senior leadership team of the company and ultimately the board of directors.
Speaker Change: Okay I appreciate that and then.
Speaker Change: You mentioned that maybe you want to bring that.
Speaker Change: The debt up to investment grade can you just walk us through some of the steps that might be needed.
Speaker Change: Changed or improved the balance sheet in a way to reach the investment grade.
Speaker Change: That you are aspiring to.
Speaker Change: Sure so just to be.
Speaker Change: Number one putting a $900 million of cash is a helpful thing to the overall <unk>.
Speaker Change: Quality of the enterprise.
Speaker Change: The goal is to have the holding company ultimately be investment grade.
Speaker Change: Whether we can get the real estate subsidiary to investment grade, but one of the things that will help the overall creditworthiness of the sub is to have a very strong parent that owns it one of the things that rating agencies consider in the way they are right.
Speaker Change: Subsidiary is the creditworthiness of the of the parent and here.
Speaker Change: We started out with a debt free parent thats going to deploy capital in high quality durable growth companies.
Speaker Change: And we think that just that infusion of capital and.
Speaker Change: If you think about how it's used today as a pure play real estate company.
Speaker Change: And suffers from if you will to some degree.
Speaker Change: The economic volatility certainly over shorter term periods of time.
Speaker Change: The owner of that business is not simply a kind of corporate shell, but a very well capitalized corporate parent that owns businesses that generate recurring cash flow, we expect that to drop.
Speaker Change: Really be a credit positive event for the principal real estate subsidiary of the company.
Speaker Change: Okay, and then just to follow up quickly is the $900 million cash infusion is any of that kind of plan to pay off any of the debt for the Howard Hughes at the moment or is that really just being held to.
Speaker Change: Acquired businesses to develop the insurance business.
Speaker Change: More and more along the lines of the parent company.
Speaker Change: <unk>.
Speaker Change: The good news is that the.
Speaker Change: First of all our view is that the rating agencies under rate if you will.
Speaker Change: Subsidiary.
Speaker Change: And we're going to work to <unk>.
Speaker Change: Improve their understanding of the business. So we can help make some progress there.
Speaker Change: But we.
Speaker Change: The business historically has consumed.
Speaker Change: 100% of the cash is generated in terms of for the most part.
Speaker Change: Desired need to continue to reinvest in the subsidiary with the passage of time, if we don't acquire another.
Speaker Change: MPC type asset, which is not serving the business plan just the maturation of our various communities will turn Howard Hughes from AR.
Speaker Change: A business that is reinvested the substantial majority of its cash and.
Speaker Change: Building out new assets to a place where even meeting the demands of the communities going forward there is still excess cash leftover.
Speaker Change: Thereafter, so we don't envision needing to put holding company cash into the subsidiary, we do envision kind of over the intermediate to long term the subsidiary being.
Speaker Change: Cash rich and in a position to return capital to the holding company.
Speaker Change: Okay I appreciate all the color. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone. Our next question comes from the line of John Kim from BMO capital markets. Your question. Please.
Speaker Change: Thank you.
Speaker Change: Similar line of questioning if you look at the cash flow statement, if Howard Hughes.
Speaker Change: Cash flow from operations than positive to last three years. It turned negative this quarter, partially offset by cash flow from investments I think a lot of that is property development, but the point is it's very lumpy investments, especially condo and commercial developments.
Speaker Change: So my question is is Howard Hughes as the cash flow generation accelerates over the next few years and be self funding.
Speaker Change: Or will it really be after the current.
Speaker Change: Kind of developments planned.
Speaker Change: Kind of deflation.
Carlos: Carlos would you like to yes, John Thanks for the question.
Carlos: Look as you know we size our developments in our new investments in our communities based on the existing free cash flow of the business.
Carlos: Just a self funding vehicle, where we're only investing in new developments to the extent that we put the cash on the balance sheet to fund at 100% of that project.
Bill Ackman: Going forward as we see the continued maturation as bill discussed and the infrastructure needs.
Bill Ackman: The horizontal cost diminish over time, the free cash flow generation of each of these mpc's increases combine that with the stabilization of the recurring NOI from our operating assets in the next 357 years, the excess free cash flow of the real estate subsidiary should grow meaningfully.
Bill Ackman: And any particular quarter looking at our cash flow statement, there are ups and downs in lumps based on.
Bill Ackman: The required horizontal infrastructure that goes into any MPC, but if you look at it over a trailing 12 month period, I think youll see that all the new investments have been sized appropriately relative to the free cash flow we generate.
Bill Ackman: Okay, and David you talked about during the quarter home sales up sequentially.
Bill Ackman: Year over year on a strong quarter last year, but how is activity and.
Bill Ackman: Home sales market been since Liberation day.
Bill Ackman: It still remains strong within our Mpc's, we're very cognizant of the national headlines and what's going on across the country. We havent seen those headlines in our communities and I think that speaks to the quality of what we have but also the <unk>.
Bill Ackman: Appeal of Masterplan communities relative to buying a home that's not within a community that delivers a higher quality of life and are in our view.
Bill Ackman: To date, we've seen great activity, we've seen great traction I know you noted in your report that our ability to price participation was down compared to last year, but.
Bill Ackman: To me that's not.
Bill Ackman: A canary in the coal mine, if you will build their price participation is when home prices appreciate meaningfully between the time, we sell land and the whole missile.
Bill Ackman: And over the past two years, we've seen rapid appreciation in the homes in our communities that's materializing, great builder price participation.
Bill Ackman: Over the past quarter that home price appreciation has slowed meaning that we're going to receive less build their price participation, but that's not an indication of the slowing housing market are fewer home sales. Our sales were strong this quarter subsequent to the end of the quarter, they've continued and it gives us great confidence in reaffirming reaffirming our guidance.
Bill Ackman: Okay and my final question is for Bill the $900 million cash injection into the company how much of that will be earmarked for the insurance investment.
Bill Ackman: Versus other investments that Youre looking at and what are your return on investment return on invested capital.
Bill Ackman: Hurdle rates on your end.
Bill Ackman: Investments.
Bill Ackman: So I would say TBD on how much we invest in the insurance subsidiary it sort of depends on whether we're hiring a team of whether we're buying an existing.
Bill Ackman: Asset.
Bill Ackman: And putting capital into it.
Bill Ackman: In terms of return on capital I would say I would just sort of point you to Pershing square over the last 21 years, we view what we do is a very high return strategy.
Bill Ackman: The historic business of Pershing square is to buy minority Stakes in really high quality businesses generally at a time when the market is sort of under appreciating them are there.
Bill Ackman: You had some management or governance or other challenges and help make those businesses more successful.
Bill Ackman: We have not been an investor in private businesses that being said over the years. We have received many I would say a huge amount of deal flow in the private space that we really haven't had a platform that we could use to to execute on that part of the theory here is to take advantage of that deal flow in the context of Av.
Bill Ackman: Howard Hughes, but are I would say our return objectives are high.
Bill Ackman: Yes.
Bill Ackman: What high as I guess is.
Speaker Change: May I have a holder, but we're looking to generate high returns on capital.
Bill Ackman: I appreciate it thank you.
Speaker Change: Thank you as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone.
And this does conclude the question and answer session of today's program I'd like to hand, the program back to David O'reilly for any further remarks.
Speaker Change: I want to thank everyone for joining us today as always if there are additional questions. We're always available finally, we're hosting an X basis session to discuss our transformation into a diversified holding company and take additional questions. The event starts at five past 11, Eastern and you can access that session by going to <unk> Dot Com Backslash, Bill Ackman or if you are logged in.
Speaker Change: Already there is a link to the event under build account, which is at Bill Ackman look forward to speaking with you there. Our next earnings call. Thank you again for joining.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].