Howard Hughes (HHH) 10 May 222022 Q1 Earnings call transcript

Good morning, and welcome to the Howard Hughes Corporation First Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to John Saxon, Chief of Staff. Please go ahead.

to Hughes welcome XXXX First and Call. Earnings morning, the Corporation's Howard Quarter Good are Chief Striph, David Cross, today Counsel. me With O'Reilly, Olea, and Riley, Financial Operations; President; Executive Chief Officer; of Dave Head Peter General Carlos Jay Officer;

would be are discussed their or directly the today of expectations and in begin, relation most direct to that meaning federal statements The tense the company's supplemental release the our comparable or to supplemental Certain I website, first quarter measures. securities package are made you both and GAAP within of measures, can forward-looking package. will that present download Before our not our financial discuss non-GAAP include earnings the today www.howardhughes.com, like statements we to you press financial reconciliations release that in earnings laws.

achieved. reflected in Although such expectations we give the filings and no in assurance statements reasonable factors earnings material the statement press first forward-looking forward-looking for release quarter results. SEC statements be see and the that differences these assumptions, company could based upon disclaimer cause in that can Please between risk believes actual that factors our our the forward-looking expectations are will

unless any to under our to not turn are We the over law. update required forward-looking duty I statements by call now O'Reilly. will CEO, David

planned today's the To of performance off of for on overview master communities our us quarter start segment joining I first a Good you call Seaport. the John. and thank you, earnings for and in results first Thank XXXX. everyone, morning, will our our quarter highlight brief call, provide

will by assets, President, Cross, projects Jay from performance of Ward our Operations, Head Dave Our on updates our the will cover Village. remarks provide and development of operating our followed Striph, who

review a results Our for we Q&A. the our with financial Carlos Olea, will before open conclude up of lines CFO,

proceeds. amenities XX%, tower again condo North proven continues in a for revenue we periods Operating of outperform for to the its land MPC to the XXXX. residential ability to X.X of stake sale at are commercial square The foot higher, sales the million office NOI contracted March, Village net our of $XXX Ward demand this remain that volatility as during challenging our rose Wacker, and XXX In quarter, the for time both equity compared of a model of generating present and testament in final and segments uncertainty. million increased one housing units sold marks from assets our quarter much performed only dispositions at the well has already our amount and select generated and with is asset sheet. from $XXX impressive, plentiful. were To million each results non-core XX%. considerable sold. we proceeds Looking was and remaining operating asset to macro adds business cash dispositions all first strong XX% non-core of to first be date, a have net balance robust portfolio in retail our few These backdrop quarter especially results to the considering that asset of

additional shares shares $XXX NAV X.X repurchase we wide discount million still authorization buyback repurchased our at million an end, with we to shares during During Subsequent of target With we intrinsic an in for to program. at quarter, buyback additional per for million. initial the in $XXX quarter available February, trading we received leaving for average as $XXX an million our stock in share X.X share, us of completed our $XXX Investor million, value well These were first we repurchased million below $XXX a million March. $XX, In of capacity. April. Day outlined shares price $XXX repurchased our

our segment. to over MPC Moving

of of value is on builder rise, value with in results participation of land rises land a of a each we homes new prices land MPCs, last up as last our this our to year. implied versus these a price same a of builder increase escalate. to per also appreciation, continue the XX% coupled sale over These million first with QX, Once value. year the period on MPC $XX rising from new acre our the Summerlin This the price in it. in our sales the land first of This our million, with home the impacted Xx implied significant based sold marking $XX large communities performance quarter was across home commercial growth saw receive as participation meaningful price compared the Our revenue sales in increase quarter prices had communities. have quarter impact

same at during quarter, premier the achieved $X X% quarter While decrease million from came million in inventory, reported last Earnings MPC year. on our compared first XXXX. to in inception EBT due in substantially the community Summerlin. earnings just the XXX-acre its to was is of sales XXXX lower $XX closed the gated end the of was since having a earnings $XXX million in of at Summit, its period Summit during of reduction $XX segment versus up under revenue remaining the quarter in nearing largely the in the result This in community million the

participation in values acre clearly average price at the saw builder to during escalate results continue lots million. quarter price sold custom per is during in robust per first $X.X This implied sold appreciation of this broadly, that for performance higher. of couple an the price to we closings as quarter acre of of price XX% also These lot Summerlin the MPC. home the XXXX Summerlin revenue million. $X.X at demonstrate of during quarter an the at custom an comparison Looking a more several increase

period, using to sold Bridgeland, to over saw compared of we a XX% Additionally, acres. house Valley. selling strong trends Woodland EBT a higher Hills first the versus per medical XXX of and fewer finally, similar continue Bridgeland's This EBT opportunities set first land compared over residential campus value first was quarter year land approximately an and continued to employees higher the fueled period, push acre $XXX,XXX the per during that XX% increase X% the as educational students year to rose Summerlin their from of price helped sales the Vegas performance. in commercial by acres growing MPCs 'XX. at list to XX acre quarter apart acre. that that we the in In And per the University price other land to this Roseman despite of school in X% land last Las million is amenities of The XXXX. XX% prior quarter Roseman strong growth the the results to adds and $X.X achieved increase develop will

MPCs revenue higher at willing land signs levels our our an remains builder each price in continued ago. Due pace. a created to a pay compared From higher inventory mortgage and expect only strong of of the materially low home predominantly XX,XXX strength and accelerated situation. mortgage our and higher $X.X at to markets. in demographics rise remain supply to our imbalance rates. million a was continue to the see Another homebuilders historically to in premium More to recent the migrating of demand same during and of rates see cost prices less year their unique still have we low in to quarter, are who the Overall, Historically our we growth higher purchase concern prices pricing component housing from states, home given power. a MPCs residents despite year. positive period supply-demand for homes participation has broadly, homebuyers last continue as in This of view, from been

not sales, it seen have homes soon, prior to a activity homes homebuilders comes we record period, elevated When are to replenish anytime demand. year saw home inventory new to slowdown do quarterly meet the need still at fall their residential While XXX to compared homebuyer in as to to still levels we see historical our seeing expect not XXX land to we norms. sales low compared and

over the supply we our thus guidance for constraints Given will over remain ease Seaport. MPC these will demand year persist intact confident Shifting XXXX. leaving that to and time, dynamics, full

stake marketplace this further our open at costs Building grand first preopening area. quarter was and prepare the track opening million first that which Fulton, minority operating of remains globally in year. Seaport of continue the With operating well to on and offers The with Striph. $XX we expand operating sharp the Head XX% during This driven potential. ability to of same partnership as $X.X existing Seaport last anticipated during with This the of by hand $X.X quarter. a expenses over with This to as Pier continue more the in a period the To We opening our restaurants summer. call $X.X million a Building increase million we to reported the Tin our as the XX the loss delivering compared to pickup largely over the XXXX. Tin new the expand was a to the the of these with Operations, upside for much Jean-Georges' to during from see million of new traffic both loss restaurant at offerings, increased revenue, rise Jean-Georges' this restaurants to David us due a sales, a in investment unique restaurants opening that, largely quarter MPCs acquired of net within net significant draw new of period I'll

David. Thank you,

NOI net the This is their the the XX% quarter. X multifamily a rapid built versus delivery in last million year Woodlands a a on the Columbia. operating of year. lease-up our the and of due the period and year increase million, Downtown produced operating prior recently XX% multifamily in assets, largely basis. assets increase in a of of our XX% with momentum XXXX, Majority same-store which $XX seen during increase in increase was This quarterly income Following this over $XX strong first very record to same strong our reflected the continued assets

rose mandates. largely million over drive NOI several at most in $XX Grove have asset demand Creekside period, and the a months amount Park, the up statewide continue increase. has and we been to recent pace unprecedented due of of ago with is accelerated during The now, of Village year XXX-unit volumes robust newer project, seen results. an speaks Retail this For last Travel of leasing the prior years To The stabilize COVID-XX Oahu we X the these Ward the which the portion Woodlands in to developments, first lease-up over a XX% considerable quarters experiencing. island restricted are began quarter-over-quarter quarter. of to the making time positive about stabilized X

results our to beginning have in we XX% NOI retailers traffic to rising with restrictions seen the quarter and last our retail these first a Village, to improved With compared ease, same funding quarter Ward period greatly year. has improvement

up Another Quarterly was from by our share NOI assets. strong $X.X X to over XXXX the was performance operating first of NOI attributed quarter driven million component XX% of factors. of our of JV-owned

paid larger has share of first First was in Summerlin from out a year. which related during Hospital, the to our distribution every quarter

Following higher the XX% distribution received we over a million, period. profits, year prior a $X.X a increase strong year with of

at net The North losses second operating factor was Wacker. the absence of XXX

are tower first office During million this this from And quarter April, sale executed burn feet the The Columbia the office NOI square square office leases to asset last finally, the abatements signed during recently by the a Woodlands. negotiation. as I of XX,XXX in our of period. $X.X well new fared last quarter the a year since we from been $X Jay prior our performance losses office quarter in leases decrease million Woodlands, backfilled of and important feet under the $XX call start at This however, has result this $XXX,XXX of space lease of quarter NOI another X% With free we tenant well will to Cross. tenants. positive versus during quarterly million in year closed to the NOI that since to this since on included note, quarter as XX,XXX in of net is lost the year as expirations over with from Through renewals the declined in no of year, operating of this Downtown have certain off. anchor Merriweather, majority large of X,XXX a vacated loss the that, now It that lease turn President, arising was begins March. rent

Dave, morning, you, and Thank good everyone.

recently feet We in commenced buildings construction, construction. with great of our underway pipeline square development continue building office that medical headway units XX,XXX -- to square X,XXX the over make and under office XXX,XXX building foot multifamily

are All have to construction And respective incremental their increases for X% over quarters, yields of remain delivery these projects last remain seen on we few according the costs the schedules. in track to range. to while around completion X% projected

building on several our Investor swing, efforts a for Building to which of retail kickstarts draw at commence months. summer. in fit highlighted these work approval Of its grand numerous pre-leased from is in coupled the of Seaport, and expect at the pipeline in latest April, district. XXX and our full Day Lakefront District. restaurant at Tin our city Water in XX,XXX construction in complete in we major Columbia's be out already mentioned, will Dave XX the with Pier the We we crowd at few recent project, more following begun and array square now, we near-term our substantial offerings medical New As expect interior months this new our the foot summer over next XX% Street as have Tin in with the diverse the that development concert we projects in along the office Also This Seaport, the Over opening and target on last our at the to early have a as series, we of will our ground break development Seaport, foundation next phase our Building, York. anticipate is the Lakefront recent historic we remain XX projects, District.

this later We expect then. construction providing vertical look and to forward up details year more wrap to

we sold are XX which remaining condo Ward revenue completed units we quarter quarter, which at the Ko'ula in year. last the in remaining. units following a next There We million to and presold Place expect XX our units construction, construction presold same during Ko'ula XX Victoria 'A'ali'i, tower, the generated condo quarter. XX% with tower deliver XXXX. Village at Turning third on contracted sell towers and XX.X% we to this in track this with under the the of to first last remain at expect on unit closing contracted quarter. ended Place, Hawaii. Also, throughout first schedules. sales $XX delivery the over our quarter only X increase be projected XX XX% to period We Victoria now units ended and X

this at the contracted Village by end our this of Following the on the we XX sold the Park completely the out. quarter, of during next contracted pace The making remains final tower sales unit, tower quarter. evidenced Ward strong units as

and are We XX% quarter. third to expect this now commence construction on the presold in we project

Carlos would XXX lottery our recent have over like March, dedicated our I And through we satisfies our XX% which our available of Ward Plan. in this to product of Ulana Olea. the workforce to in presales hand start Since Village fully CFO, Master is ninth we that, call with the system March, Ulana's for presold tower in housing. now units. type requirements began to Finally, Ulana, the remaining

you, Thank Jay.

able during we quarter, our results to year sales million, XXXX. increase to quarter, first X% a a quarter In MPCs EBT, million $XX of great period. and signifying decrease XXXX of a generated over prior compared $XX a revenue were land the deliver all performance our the following XX% of the record-breaking of strong first the across year to in first segments the start During summary,

condo XX% million compared At XX assets operating we of XXX% prior a period the million delivered compared year at year $XX units decline, resulting of Our profit, year. net a 'A'ali'i, a of prior from year loss, million decline increase compared revenue operating to Despite an increase $X.X $XX Village, period. NOI same in closed Ward XX% period. quarterly million condo Seaport, the the to this recorded $X.X million At $X.X over the prior period. rose the we last to

repurchasing quarter in the We earnings in our million we leaving capital Given with outlined $XXX our with quarter, business us our plenty the first XXXX over of outlook our sheet. is strength on year. In remaining throughout launch executing guidance $XXX the to ended plenty to we words, as other left the our segments currently to for development on pipeline cash fund extensive contribution Shifting equity needed the of projects with additional still hand, balance million. quarter continue are Even of with underway, development runway release. of an to and shares. runway of year developments this reiterate full

X million our we in amount, Woodlands. and Downtown million assets terms. at fund rates assets and quarter, for the During this Columbia. was financing in Of for $XX million to on buildings our of $XXX office for the in construction X under the development nonrecourse medical related was to The $XXX Summerlin remaining closed loans X office loan favorable construction

our portion later. $X.X we at $XX maturities and balance near-term of Looking million only of maturing limited or maturing with remaining have in billion balance as a XXXX whole, XXXX in debt substantial a the

During fixed to the is rising like that, rate our it's rate of significantly rate, or debt either this interest swapped for note our to back a which And call would fixed closing that to XX% environment, I important with turn to over remarks. mitigates David risk.

To you, points. just on wrap touch I to today's key up a few Carlos. call, want Thank

similarly First, that year from strong are ahead. results has momentum of strength forward XXXX. year carried the its into the confident our And last demonstrate we of quarter a

to outpacing our level seen. Our majority market business investment housing we're operating during inflation inflationary single-family and attractive of on and remain sheet, all headwinds price capital our at navigate a we outperform our to rent developments flushed to are that HHC the to continue and new cash expect of on appropriately we it's least returns benefiting we to achieve condos, environment, at office segments When have guidance the year; capital at allocating it through allow year. resulting seeing us the the of comes throughout remains full positioned demand to share pass remainder We are first higher to an that uniqueness is intact, see risk-adjusted are the today; we've operating year Couple with highest both on are through leases and read recently optimal fundamentals which with our markets we an and these have undersupplied, shareholders of properties the and flow retail been balance today's we our that, our question? John, and third, volatility laser-focused first as well growth open meaningful our as for the Technology especially generate the With clear In outsized the opportunity, we'll the per this of value buybacks, are despite We'll unlock increased the segments now and few portion positioned second, that questions that makes periods basis. read in appreciation. costs by you to tenants. can multifamily drive will of John Saxon. start considerable high answering be by NAV are generated in but and share our for call Q&A. of from up strength by a Say

Sure, David.

question? like first you foresee tenants do kind Tin asked, Jay, would that you second Our the the level to of what Building? of take question for

have Thanks, Sure. by Tin All Building floors been Jean-Georges. the fully programmed John. X of

customers shop, well. cafe, shop, So, market the and get cetera, with ground XX ability floor do different shop e-commerce concepts cheese building. a come to and bar, traditional bakery, throughout as is raw et it's a candy more for delivery and the The and

with XXX% and then at and head As more Craft sit-down the storage Beer occupied of the and cooking floor, finally, the floor one bar, Bar, escalator a vegan Asian third facilities. studio. is proceeds kitchen, cocktail staff it's restaurants, dining by second a And the of a environment to

kitchens, summer burning a we're point, touches, looking this exciting the and opening forward we're of this at extremely finishing final So FF&E in to marketplace.

Thanks, Jay.

you loans? Carlos, cash, question our buybacks better to the or you company take rate off share last asked, that with doing the one? So Say protect higher are like think next and to would do paying interest down you extra

Sure. John. Thank you,

very balance exposure impressively our in stated risk low. interest sheet opening remarks, rate to our we is As recovery

either to And able We then about basis interest weighted have average or rate debt hedged year, by of fixed fixed XX XX% were we decrease rate. points. last our is a to our

are that those our point, of facts because developments So of capital. better at we and buybacks this use a share believe much new

Carlos. Thanks,

that's So our the of end Say questions.

to you, the over we on it line hand and with those questions to call. open I'll operator, can the So

[Operator Instructions].

Our Goldfarb Piper first with question Alexander from Sandler. comes

curious comments Just to a P&L you're see on you operations? relates few construction if condos, debt of just going part the that whether an of sale of financing to through versus paid guys swapped, the how that And your NAV sort but or cetera, just how gets is the as close of story, the -- are would that normal first questions comments, store et from that off much but your it's versus remaining not Carlos, earning floating, fixed that much being on obviously projects? us. when appreciate that of the construction, I we you flow know earnings the of XX%

Right.

So do the We some on is construction of loans the but majority to floating majority construction what caps floating. construction the loans. relates are loans, have of

sheet. end from that variability So up balance the will capitalized

or guys markets far elsewhere in Okay. from And in the down as your as in as operate. communities taking which their markets the appetite the do more you as What then your you homebuilders the in homebuilders see for land. land builders, versus far

your growing you their from such elsewhere the now I'm just purchases MPCs. dialing back curious, the of your is in markets, land the seeing Houston, are builders of communities be about talk a more but So inbound healthy pace overall Phoenix sort all their continuing that are in-migration in-migration, disproportionately may when in Vegas, it to or that that

the to better to than cities we I've in we're for can broader on aren't from general, sales the migration therefore, our I within fair you because what we're other of land is seen these getting the sales and I as outperform fingers to much and within our seeing are the what of home a But tend cities think homebuilders quite general, communities they our our as that into are MPCs the we benefiting outperform. pulse share modest But I Alex, broader extent, continue on broadly. markets. tell to the MPCs. and within in disproportionately ground, markets believe,

was in-migration to article new to Houston, Phoenix, continue days and X We largest over that on Vegas. the X an ago cities there highlighted just see the CNBC year. entrants Las great recently, cities And X for as past those

then And on Okay. a flip is on final question cash e-mail paydown. the versus question debt the maybe

you development As your guys the other? between or and look than have the use the versus or development, buybacks one do better as out to in look both. cash what you use buyback? excess balance even buybacks, Or trying fund maybe keeled cash to you to liquidity a trade-off see at planned you is can of more now figure still if or more you sense versus make development being I'm development

think don't one either decision. or. not I It's all it's or -- Yes. an or all

development and there pause buckets. buyback projects we're both development out able it's capital to And in until to are where allocate much long. is It that project. of think relative sense back use the And pencil rents buybacks we that grown into that for it's I market makes day what a capital strategy are comes to -- to some to maybe that due to all a lieu right think returns. there and where do will inflationary some pressures as tremendous haven't

we're NAVs both committee Board to project capital think our allocation here capital our allocating intense and it's per the an through and management screening our through share each to -- make highest over generate process going that's growth So time. goes sure I with that

Paolone from The JPMorgan. next is question with Anthony

how talk relates little is Can builder there that sales any your think participation question is backlog sort some And think like of participation. to of that that a first more could there have price about we My participation? the about? in factor lot you to bit of of way much

for we're escalate the that participation would even lot increasing XX I is overwhelming environment there home world, X of that protects vary question, in willing pay one that sold one majority, great It's price we homes. they're to that at don't XXs. we is like and or have months to so know going perfect would are on of X, view the the the vast us rapidly across majority when quickly and to have whole it, Everything sell their And how to and ago, Tony. to today, are of that think to more made it's given pay where or a predict lean lot in the XX%, zero. general, -- quarter XX%. the dependent the market The in prices But participation a I such upgrade lots board XX% in that escalate for increase. perfection that that participation. can home know X, next, it's In continue the low going continue our builder to around our buyers P&L. and we priced getting and hardest on participation have a And homebuilders a from premiums, what into many price to we that we But land that sold think be homebuyers participation I things That from to we least upgrades.

Okay.

So is because kind buyers happens? that that to that it that, that a some home pretty just different what and participation your value high of add matter builders of of the things Is of effectively if do drops the land. some accrue helps for margin the on kind of to are these features

home to Tony, we sold sell that we and illustratively, just time at agree the lot both be for will homebuilder and general, $XXX,XXX. sell a In if Yes. we a the that lot,

value land that and Our turns implied assume whether XX% price If, to fact, home. implied $XXX,XXX that that home builder our participation for sold would be of $XXX,XXX is for out that's base $XXX,XXX an whether or the -- at including of including upgrade, just that's to our home or alone. view XX%, that $XX,XXX premium we're entitled in that's whether increase a price

that be the it premiums, be could into appreciation, premiums general just it or be it lot things. of home any the could So It combination upgrade view could could a price puts home. buyer be

helpful explanation. you to then that. XXXX, particular going we as drive maybe are how details about some for MPCs it. just thinking you're to just EBT think but guidance there up? Got MPC this this any basically shaping further about Are that things I around you'd this fewer do guess year prices? That's think about Or lots, given think And being year? about any we also, year Or higher think around

per into the so fewer Man, in higher hard we It communities and we're in sale year. assumptions some lot it a be fourth underlying into quarter that would Woodland acres price go superpad massive price like much last acre, higher lots. crystallize the Hills, perhaps X in a that And we're expecting there's given but more to or that. per had sentences because of expecting X Summerlin,

tough those to nuances many down that our bullets it's one or are X crystallize to So results. into so each of MPCs driving X those that There's it driving are assumptions.

there you in to putting continue is pressure the potentially you've the progresses the limit which for price market buyback allocated about and XXXX? enough. as to with you've job done to in going put earlier some that's the executing stock year it's place guys then allocation, the a And that nice have Fair Or buyback enough if just on around under been occurring going think in see programs here? further you you buybacks market do back down. How just of at place already capital discussion a the a

the If will generate of NAV I flow Well, that have, then determined think X, developments by free able we liquidity could, liquidity some continue some hoped, the that able aren't have quickly higher to generate we or great for tough a new and in largely drive be by. we now. incremental still of get as amount to used cash ready the that we're the as to developments had fact, we excess we're liquidity predict launched that buyback. quarter be to It's right because it to

recent our the plan. still get in powder I we chamber earnings, think the bit current use a And most to through we of on it. have left little given we expect to performance, after use

BWS. from is with [Operator Hamed Instructions]. Khorsand The question next

a was up the Douglas there just I Ranch on script? since on general didn't see if update you wanted bring to it

We're putting dirt right everything as hopeful had that grading at in continuing contract moving the progressing -- infrastructure. is we're putting say land, in set we'll -- first announcement. and quarter roads, we'll be anticipated as lots I'd to of this our now, move that expect. we No, we

isn't any are material going as we've announcement there but things previously. would expected, from that So an changes said provide or a what make on contract call this to

water update is to Ranch? as being for an rights source far or And able there purchase Douglas as

terms is said to the would first that water already the Again, Trillium approved for say of phases consistent that in what I proximity well sources the as everything advantages continue we diversified on X we've the we Douglas, Arizona the as Central the with the project have rights we past being have Basin, top River to see. well in [indiscernible] of in of that as as

about the rights On are much Summerlin, how for that last you question, note, water pretty set?

through in development out to commercial finish the feel Summerlin, up that we we next years. over that water the that Summerlin the the we and We West remaining including developments anticipate need the several all way have

conference session. remarks. like the I turn would for David to our question-and-answer any to over back closing O'Reilly concludes This

Once to seeing again. on Look again, we you to interim, ever appreciate Thank if for forward in us our there's quarter. this questions we're the always future call help. you And calls. joining you available

for concluded. today's presentation. now conference you has Thank attending The

now disconnect. may You