Seaport Entertainment Group Inc

Previous wording

Unless the context otherwise requires, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) to “Seaport Entertainment Group,”, “SEG”, the “Company,” “we,” “us,” or “our” shall mean the assets, liabilities, and operating activities related to the Seaport Entertainment division of Howard Hughes Holdings Inc. (“HHH”) that was transferred to Seaport Entertainment Group Inc. on July 31, 2024 in connection with SEG’s separation from HHH (the “Separation”), as well as the assets, liabilities, and operating activities of Seaport Entertainment Group Inc. The following discussion should be read as a supplement to and should be read in conjunction with our Unaudited Condensed Combined Financial Statements for the three months ended June 30, 2024, and June 30, 2023, and six months ended June 30, 2024, and June 30, 2023 (“Unaudited Condensed Combined Financial Statements”) and the related notes which are included elsewhere in this quarterly report on Form 10-Q (“Quarterly Report”). This discussion contains forward-looking statements that involve risks, uncertainties, assumptions, and other factors, including those described in the section entitled “Risk Factors” and elsewhere in this Quarterly Report. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of these factors. You are cautioned not to place undue reliance on this information which speaks only as of the date of this Quarterly Report. We are not obligated to update this information, whether as a result of new information, future events or otherwise, except as may be required by law.

Current wording

Unless the context otherwise requires, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) to “Seaport Entertainment Group,” “SEG,” the “Company,” “we,” “us,” or “our” shall mean the assets, liabilities, and operating activities related to the Seaport Entertainment division of Howard Hughes Holdings Inc. (“HHH”) that was transferred to Seaport Entertainment Group Inc. on July 31, 2024 in connection with SEG’s separation from HHH (the “Separation”), as well as the assets, liabilities, and operating activities of Seaport Entertainment Group Inc. The following discussion should be read as a supplement to and should be read in conjunction with our Unaudited Condensed Consolidated and Combined Financial Statements for the three months ended September 30, 2024, and September 30, 2023, and nine months ended September 30, 2024, and September 30, 2023 (“Unaudited Condensed Consolidated and Combined Financial Statements”) and the related notes which are included elsewhere in this quarterly report on Form 10-Q (“Quarterly Report”). This discussion contains forward-looking statements that involve risks, uncertainties, assumptions, and other factors, including those described in the section entitled “Risk Factors” and elsewhere in this Quarterly Report. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of these factors. You are cautioned not to place undue reliance on this information which speaks only as of the date of this Quarterly Report. We are not obligated to update this information, whether as a result of new information, future events or otherwise, except as may be required by law.

Previous wording

All references to numbered Notes are specific to Notes to our Unaudited Condensed Combined Financial Statements included in this Quarterly Report. Capitalized terms used, but not defined, in this MD&A have the same meanings as in such Notes.

Current wording

All references to numbered Notes are specific to Notes to our Unaudited Condensed Consolidated and Combined Financial Statements included in this Quarterly Report. Capitalized terms used, but not defined, in this MD&A have the same meanings as in such Notes.

Previous wording

Our assets included in the Landlord Operations segment primarily sit under a long-term ground lease from the City of New York with an amendment that was executed giving the Company extension options for an additional 48 years from its current expiration in 2072 until 2120. We are focused on continuing to fill vacancies in our Landlord Operations portfolio and believe this to be an opportunity to drive incremental segment growth.

Current wording

Our assets included in the Landlord Operations segment primarily sit under a long-term ground lease from the City of New York with an amendment that was executed giving the Company extension options for an additional 49 years from its current expiration in 2071 until 2120. We are focused on continuing to fill vacancies in our Landlord Operations portfolio and believe this to be an opportunity to drive incremental segment growth.

Previous wording

Hospitality. Hospitality represents our ownership interests in various food and beverage operating businesses. We own, either wholly or through partnerships with third parties, and operate, including license and management agreements, six fine dining and casual dining restaurants, cocktail bars and entertainment venues (The Fulton, Mister Dips, Carne Mare, Malibu Farm, Pearl Alley, and The Lawn Club), as well as our unconsolidated venture, the Tin Building by Jean-Georges, which offers over 20 culinary experiences, including restaurants, bars, grocery markets, retail, and private dining. These businesses are all our tenants and pay rent to our Landlord Operations. We also have a 25% interest in Jean-Georges Restaurants. Creative Culinary Management Company (“CCMC”), a wholly owned subsidiary of Jean-Georges Restaurants and a related party of the Company, provides management services for certain retail and food and beverage businesses in the Seaport. We aim to capitalize on opportunities in the food and beverage space to leverage growing consumer appetite for unique restaurant experiences as a catalyst to further expand the Company’s culinary footprint.

Current wording

Hospitality. Hospitality represents our ownership interests in various food and beverage operating businesses. We own, either wholly or through partnerships with third parties, and operate, including license and management agreements, fine dining and casual dining restaurants, cocktail bars and entertainment venues (The Fulton, Mister Dips, Carne Mare, Malibu Farm and Pearl Alley), as well as our unconsolidated ventures, the Lawn Club and the Tin Building by Jean-Georges, which offers over 15 culinary experiences, including restaurants, bars, grocery markets, retail, and private dining. These businesses are all our tenants and are part of to our Landlord Operations. We also have a 25% interest in Jean-Georges Restaurants. Creative Culinary Management Company (“CCMC”), a wholly owned subsidiary of Jean-Georges Restaurants and a related party of the Company, provides management services for certain retail and food and beverage businesses in the Seaport. We aim to capitalize on opportunities in the food and beverage space to leverage growing consumer appetite for unique restaurant experiences as a catalyst to further expand the Company’s culinary footprint.

Previous wording

Sponsorships, Events, and Entertainment. Sponsorships, Events, and Entertainment includes the Las Vegas Aviators Triple-A Minor League Baseball team (the “Aviators”) and the Las Vegas Ballpark, our interest in and to the Fashion Show Mall Air Rights, events at the Rooftop at Pier 17, and all of our sponsorship agreements across both the Las Vegas Ballpark and the Seaport. The Aviators are a Triple-A affiliate of the Oakland Athletics and play at the Las Vegas Ballpark, a 10,000-person capacity ballpark located in Downtown Summerlin. The Rooftop at Pier 17, as mentioned in Landlord Operations above, is a premier outdoor concert venue that hosts a popular Summer Concert Series featuring emerging and established musicians alike. We see the Rooftop at Pier 17 as an opportunity to continue to drive events and entertainment growth as the demand for live music is strong and accelerating.

Current wording

Sponsorships, Events, and Entertainment. Sponsorships, Events, and Entertainment includes the Las Vegas Aviators Triple-A Minor League Baseball team (the “Aviators”) and the Las Vegas Ballpark, our interest in and to the Fashion Show Mall Air Rights, events at the Rooftop at Pier 17, and all of our sponsorship agreements across both the Las Vegas Ballpark and the Seaport. The Aviators are a Triple-A affiliate of the Oakland Athletics and play at the Las Vegas Ballpark, a 10,000-person capacity ballpark located in Downtown Summerlin. The Rooftop at Pier 17, as mentioned in Landlord Operations above, is a premier outdoor concert venue that hosts a popular Summer Concert Series featuring emerging and established musicians alike, and we are exploring opportunities to potentially host an enclosed concert series during the winter for year-round entertainment. We see the Rooftop at Pier 17 as an opportunity to continue to drive events and entertainment growth as the demand for live music is strong and accelerating.

Previous wording

In connection with the Separation, on July 31, 2024, the Company entered into a separation and distribution agreement and various other agreements with HHH, including a transition services agreement, an employee matters agreement, a tax matters agreement, and a revolving credit agreement. Additionally, HHH contributed capital of $23.4 million to the Company prior to the Separation to support the operating, investing, and financing activities of the Company. For additional discussion of the Separation, see Note 1 – Significant Accounting Policies in the Notes to Unaudited Condensed Combined Financial Statements included in this Quarterly Report.

Current wording

In connection with the Separation, on July 31, 2024, the Company entered into a separation and distribution agreement and various other agreements with HHH, including a transition services agreement, an employee matters agreement, a tax matters agreement, and a revolving credit agreement. Additionally, HHH contributed capital of $23.4 million to the Company prior to the Separation to support the operating, investing, and financing activities of the Company. For additional discussion of the Separation, see Note 1 – Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included in this Quarterly Report.

Previous wording

We historically operated as part of HHH and not as a standalone company. The accompanying Unaudited Condensed Combined Financial Statements have been prepared on a standalone basis derived from the consolidated financial statements and accounting records of HHH. These statements reflect the combined historical results of operations, financial position, and cash flows of Seaport Entertainment Group in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These statements may not include all expenses that would have been incurred had the Company existed as a separate, stand-alone entity during the periods presented.

Current wording

Prior to the Separation, we operated as part of HHH and not as a standalone company. The accompanying Unaudited Condensed Consolidated and Combined Financial Statements as of September 30, 2024 and for the nine and three months ended September 30, 2024 have been prepared on a standalone basis derived from the consolidated financial statements and accounting records of SEG from August 1, 2024 to September 30, 2024 and from the combined financial statements and accounting records of HHH for January 1, 2024 to July 31, 2024. The accompanying Unaudited Condensed Combined Financial Statements as of December 31, 2023 and for the three and nine months ended September 30, 2023 have been prepared on a standalone basis derived from the combined financial statements and accounting records of HHH. These statements reflect the combined historical results of operations, financial position, and cash flows of Seaport Entertainment Group in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These statements may not include all expenses that would have been incurred had the Company existed as a separate, stand-alone entity during the periods presented.

Previous wording

These Unaudited Condensed Combined Financial Statements are presented as if the Company had been carved out of HHH and had been combined for all periods presented. The Unaudited Condensed Combined Financial Statements include

Current wording

These Unaudited Condensed Consolidated and Combined Financial Statements as of December 31, 2023 are presented as if the Company had been carved out of HHH and had been combined for the periods from January 1, 2024 to July 31, 2024 and from January 1, 2023 to September 30, 2023. The Unaudited Condensed Combined Financial Statements include the attribution of certain assets and liabilities that had been held at HHH but which are specifically identifiable or attributable to the business that was transferred to the Company in connection with the Separation.

Previous wording

For an additional discussion on the basis of presentation of these statements, see Note 1 – Significant Accounting Policies in the Notes to Unaudited Condensed Combined Financial Statements included in this Quarterly Report.

Current wording

For an additional discussion on the basis of presentation of these statements, see Note 1 – Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated and Combined Financial Statements included in this Quarterly Report.

Previous wording

As mentioned elsewhere in this Quarterly Report, we historically operated as part of HHH and not as a standalone company. Therefore, our historical results are reflective of the management strategies and operations of the Company based on the direction and strategies of HHH. Additionally, our historical results reflect the allocation of expenses from HHH associated with certain services, including (1) certain support functions that are provided on a centralized basis within HHH, including, but not limited to executive oversight, treasury, accounting, finance, internal audit, legal, information technology, human resources, communications, and risk management; and (2) employee benefits and compensation, including stock-based compensation. As a separate public company, our ongoing costs related to such support functions may differ from, and will potentially exceed, the amounts that have been allocated to us in these financial statements. Following the Separation, HHH will continue to provide some of these services on a transitional basis in exchange for agreed-upon fees. In addition to one-time costs to design and establish our corporate functions, we will also incur incremental costs associated with being a stand-alone public company, including additional labor costs, such as salaries, benefits, and potential bonuses and/or stock based compensation awards for staff additions to establish certain corporate functions historically supported by HHH and not covered by the transition services agreement, and corporate governance costs, including board of director compensation and expenses, audit and other professional services fees, annual report and proxy statement costs, SEC filing fees, transfer agent fees, consulting and legal fees and stock exchange listing fees. Following the Separation, our future results and cost structure may differ based on new strategies and operational changes implemented by our management team, which may include changes to our chosen organizational structure, whether functions are outsourced or performed by the Company employees, and strategic decisions made in areas such as executive leadership, corporate infrastructure, and information technology.

Current wording

As mentioned elsewhere in this Quarterly Report, we historically operated as part of HHH and not as a standalone company. Therefore, our historical results prior to the Separation are reflective of the management strategies and operations of the Company based on the direction and strategies of HHH. Additionally, our historical results reflect the allocation of expenses from HHH associated with certain services prior to the Separation, including (1) certain support functions that were provided on a centralized basis within HHH, including, but not limited to executive oversight, treasury, accounting, finance, internal audit, legal, information technology, human resources, communications, and risk management; and (2) employee benefits and compensation, including stock-based compensation. As a separate public company, our ongoing costs related to such support functions may differ from, and will potentially exceed, the amounts that have been allocated to us in these financial statements. Following the Separation, HHH continues to provide some of these services on a transitional basis in exchange for agreed-upon fees. In addition to one-time costs to design and establish our corporate functions, we will also incur incremental costs associated with being a stand-alone public company, including additional labor costs, such as salaries, benefits, and potential bonuses and/or stock based compensation awards for staff additions to establish certain corporate functions historically supported by HHH and not covered by the transition services agreement, and corporate governance costs, including board of director compensation and expenses, audit and other professional services fees, annual report and proxy statement costs, SEC filing fees, transfer agent fees, consulting and legal fees and stock exchange listing fees. Following the Separation, our future results and cost structure may differ based on new strategies and operational changes implemented by our management team, which may include changes to our chosen organizational structure, whether functions are outsourced or performed by the Company employees, and strategic decisions made in areas such as executive leadership, corporate infrastructure, and information technology.

Previous wording

The Tin Building by Jean-Georges is managed by CCMC, a related party that is owned by Jean-Georges Restaurants. The Tin Building by Jean-Georges had a soft opening in August 2022 and a grand opening celebration in late September 2022, with an expanded focus on experiences including in-person dining, retail shopping and delivery. Operating hours were initially constrained due to labor shortages and the venture incurred elevated operating losses during the early months of operations; however, during the fourth quarter of 2022, despite continued labor shortages, operating hours were extended to seven days a week. In 2023, the Tin Building by Jean-Georges was open seven days per week, with strong

Current wording

The Tin Building by Jean-Georges is managed by CCMC, a related party that is owned by Jean-Georges Restaurants. The Tin Building by Jean-Georges had a soft opening in August 2022 and a grand opening celebration in late September 2022, with an expanded focus on experiences including in-person dining, retail shopping and delivery. Operating hours were initially constrained due to labor shortages and the venture incurred elevated operating losses during the early months of operations; however, during the fourth quarter of 2022, despite continued labor shortages, operating hours were extended to seven days a week. In 2023, the Tin Building by Jean-Georges was open seven days per week, with strong foot traffic and sales. However, operating losses at the Tin Building by Jean-Georges joint venture remained elevated, as the venture continues to refine its operating model, and the Seaport experienced poor weather conditions throughout 2023 and into the first quarter of 2024. Performance at the Tin Building improved in the second and third quarters of 2024, primarily due to reductions in operating and labor costs. As the Company currently funds any operating shortfall and recognizes all of the economic interest in the venture, the future success of the Tin Building by Jean-George may have a significant impact on our results of operations.

Previous wording

As of June 30, 2024, and December 31, 2023, the weighted average remaining term of our retail, office, and other properties leases where we are the lessor was approximately seven years, excluding renewal options. The stability of the rental revenue generated by our properties depends principally on our tenants’ ability to pay rent and our ability to collect rents, renew expiring leases, re-lease space upon the expiration or other termination of leases, lease currently vacant properties, and maintain or increase rental rates at our leased properties. To the extent our properties become vacant, we would forego rental income while remaining responsible for the payment of property taxes and maintaining the property until it is re-leased, which could negatively impact our operating results. As of June 30, 2024, our real estate assets at the Seaport were 67% leased. This includes one lease at Pier 17 that is set to expire in December 2025 and represents 12% of our total 2023 rental revenues. We continue to monitor our lease renewals and occupancy rates.

Current wording

As of September 30, 2024, and December 31, 2023, the weighted average remaining term of our retail, office, and other properties leases where we are the lessor was approximately seven years, excluding renewal options. The stability of the rental revenue generated by our properties depends principally on our tenants’ ability to pay rent and our ability to collect rents, renew expiring leases, re-lease space upon the expiration or other termination of leases, lease currently vacant properties, and maintain or increase rental rates at our leased properties. To the extent our properties become vacant, we would forego rental income while remaining responsible for the payment of property taxes and maintaining the property until it is re-leased, which could negatively impact our operating results. As of September 30, 2024, our real estate assets at the Seaport were 68% leased. This includes one lease at Pier 17 that is set to expire in December 2025 and represents 12% of our total 2023 rental revenues. We continue to monitor our lease renewals and occupancy rates.

Previous wording

Separation Costs. The Company incurred pre-tax charges related to the planned separation from HHH, primarily related to legal and consulting costs, of $7.9 million and $17.1 million for the three months and six months ended June 30, 2024, respectively. No costs related to the planned separation were incurred or recorded in the Unaudited Condensed Combined Statement of Operations for the three months and six months ended June 30, 2023.

Current wording

Separation Costs. The Company incurred pre-tax charges related to the planned separation from HHH, primarily related to legal and consulting costs, of $6.7 million and $23.8 million for the three months and nine months ended September 30, 2024, respectively. No costs related to the planned separation were incurred or recorded in the Unaudited Condensed Combined Statement of Operations for the three months and nine months ended September 30, 2023.

Previous wording

Shared Service Costs. HHH provided the Company certain services, including (1) certain support functions that are provided on a centralized basis within HHH, including, but not limited to executive oversight, treasury, accounting, finance, internal audit, legal, information technology, human resources, communications, and risk management; and (2) employee benefits and compensation, including stock-based compensation. The Company’s Unaudited Condensed Combined Financial Statements reflect an allocation of these costs. When specific identification or a direct attribution of costs based on time incurred for the Company’s benefit is not practicable, a proportional cost method is used, primarily based on revenue, headcount, payroll costs or other applicable measures. The Company recorded expenses associated with shared services that are not directly attributable to the Company of $3.9 million and $3.8 million for the three months ended June 30, 2024, and 2023, respectively, $7.5 million and $6.7 million for the six months ended June 30, 2024, and 2023, respectively.

Current wording

Shared Service Costs. Prior to the Separation, HHH provided the Company certain services, including (1) certain support functions that were provided on a centralized basis within HHH, including, but not limited to executive oversight, treasury, accounting, finance, internal audit, legal, information technology, human resources, communications, and risk management; and (2) employee benefits and compensation, including stock-based compensation. The Company’s Unaudited Consolidated and Condensed Combined Financial Statements reflect an allocation of these costs. When specific identification or a direct attribution of costs based on time incurred for the Company’s benefit is not practicable, a proportional cost method is used, primarily based on revenue, headcount, payroll costs or other applicable measures. The Company recorded expenses associated with shared services that are not directly attributable to the Company of $5.3 million and $4.5 million for the three months ended September 30, 2024, and 2023, respectively, $12.8 million and $11.3 million for the nine months ended September 30, 2024, and 2023, respectively.

Previous wording

General and Administrative. General and administrative costs increased $22.7 million, or 181%, to $35.2 million for the six months ended June 30, 2024, compared to $12.5 million in the prior-year period. This change was primarily due to a $17.1 million increase in separation costs, a $6.6 million increase in personnel and overhead expenses, a $0.5 million increase in shared service costs allocated from HHH based on various allocation methodologies, and a $0.1 million increase in rent expense related to the corporate office. These increases were partially offset by a $1.6 million decrease in expenses related to the development of the Company’s e-commerce platform in the prior-year period that did not occur in the current period.

Current wording

General and Administrative. General and administrative costs increased $11.1 million, or 154%, to $18.3 million for the three months ended September 30, 2024, compared to $7.2 million in the prior-year period. This change was primarily due to a $6.7 million increase in separation costs, a $3.6 million increase in personnel and overhead expenses, and a $0.8 million increase in shared service costs allocated from HHH based on various allocation methodologies.

Previous wording

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $7.8 million, or 60%, to $5.3 million for the three months ended June 30, 2024, compared to $13.2 million in the prior-year period. This change was primarily due to a decrease in depreciation expense following the impairment recognized on the Company’s buildings and equipment in the third quarter of 2023.

Current wording

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $5.9 million, or 44%, to $7.7 million for the three months ended September 30, 2024, compared to $13.6 million in the prior-year period. This change was primarily due to a decrease in depreciation expense following the impairment recognized on the Company’s buildings and equipment in the third quarter of 2023.

Previous wording

Interest Expense, Net. Interest expense, net increased $2.6 million, or 412%, to $3.2 million for the three months ended June 30, 2024, compared to $0.6 million in the prior-year period. This change is primarily due to a $2.2 million decrease in amounts capitalized to development assets and a $0.5 million increase in interest expense on secured mortgages payable, partially offset by a $0.2 million increase in interest income.

Current wording

Interest Expense, Net. Interest expense, net increased $2.5 million, or 429%, to $3.1 million for the three months ended September 30, 2024, compared to $0.6 million in the prior-year period. This change is primarily due to a $2.4 million decrease in amounts capitalized to development assets and a $0.3 million increase in interest expense on secured mortgages payable, partially offset by a $0.2 million increase in interest income.

Previous wording

Equity in Losses from Unconsolidated Ventures. Equity losses from unconsolidated ventures decreased $4.3 million, or 40%, to $6.6 million for the three months ended June 30, 2024, compared to $10.9 million in the prior-year period. This change was primarily due to a $3.6 million decrease in losses for the Tin Building by Jean Georges, and a $0.5 million increase in earnings related to the Lawn Club, which opened in the fourth quarter of 2023.

Current wording

Equity in Losses from Unconsolidated Ventures. Equity in losses from unconsolidated ventures decreased $39.0 million, or 84%, to $7.6 million for the three months ended September 30, 2024, compared to $46.6 million in the prior-year period. This change was primarily due to a $37.0 million impairment recognized in the three months ended September 30, 2023 against the carrying value of the Company’s investments in unconsolidated ventures, which included $30.8 million related to Jean-Georges Restaurants, $5.0 million related to Ssäm Bar, and $1.2 million related to the Tin Building by Jean-Georges. Excluding the impact of the impairment, equity losses decreased $2.0 million, primarily related to a $0.9 million decrease in losses for the Tin Building by Jean-Georges, a $0.7 million decrease in losses for Ssäm Bar, and a $0.4 million increase in earnings for the Lawn Club, which opened in the fourth quarter of 2023.

Previous wording

General and Administrative. General and administrative costs increased $11.6 million, or 165%, to $18.6 million for the three months ended June 30, 2024, compared to $7.0 million in the prior-year period. This change was primarily due to a $7.9 million increase in separation costs and a $5.4 million increase in personnel and overhead expenses, partially offset by a $1.6 million decrease in expenses related to the development of the Company’s e-commerce platform in the prior-year period that did not occur in the current period and a $0.1 million decrease in shared service costs allocated from HHH based on various allocation methodologies.

Current wording

General and Administrative. General and administrative costs increased $33.8 million, or 171%, to $53.5 million for the nine months ended September 30, 2024, compared to $19.7 million in the prior-year period. This change was primarily due to a $23.8 million increase in separation costs, a $10.1 million increase in personnel and overhead expenses, and a $1.5 million increase in shared service costs allocated from HHH based on various allocation methodologies. These increases were partially offset by a $1.6 million decrease in expenses related to the development of the Company’s e-commerce platform in the prior-year period that did not occur in the current period.

Previous wording

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $13.0 million, or 49%, to $13.4 million for the six months ended June 30, 2024, compared to $26.4 million in the prior-year period. This change was primarily due to a decrease in depreciation expense following the impairment recognized on the Company’s buildings and equipment in the third quarter of 2023.

Current wording

Depreciation and Amortization Expense. Depreciation and amortization expense decreased $18.9 million, or 47%, to $21.1 million for the nine months ended September 30, 2024, compared to $40.0 million in the prior-year period. This change was primarily due to a decrease in depreciation expense following the impairment recognized on the Company’s buildings and equipment in the third quarter of 2023.

Previous wording

Interest Expense, Net. Interest expense, net increased $4.5 million, or 358%, to $5.8 million for the six months ended June 30, 2024, compared to $1.3 million in the prior-year period. This change is primarily due to a $3.5 million decrease in amounts capitalized to development assets and a $1.1 million increase in interest expense on secured mortgages payable, partially offset by a $0.4 million increase in interest income.

Current wording

Interest Expense, Net. Interest expense, net increased $7.1 million, or 381%, to $8.9 million for the nine months ended September 30, 2024, compared to $1.8 million in the prior-year period. This change is primarily due to a $5.9 million decrease in amounts capitalized to development assets and a $1.7 million increase in interest expense on secured mortgages payable, partially offset by a $0.5 million increase in interest income.

Previous wording

Equity in Losses from Unconsolidated Ventures. Equity losses from unconsolidated ventures decreased $4.9 million, or 22%, to $16.8 million for the six months ended June 30, 2024, compared to $21.7 million in the prior-year period. This change was primarily due to a $4.1 million decrease in losses for the Tin Building by Jean Georges, and a $0.5 million decrease in losses for Ssäm Bar, which closed in the third quarter of 2023.

Current wording

Equity in Losses from Unconsolidated Ventures. Equity in losses from unconsolidated ventures decreased $43.9 million, or 64%, to $24.4 million for the nine months ended September 30, 2024, compared to $68.3 million in the prior-year period. This change was primarily due to a $37.0 million impairment recognized in the nine months ended September 30, 2023 against the carrying value of the Company’s investments in unconsolidated ventures, which included $30.8 million related to Jean-Georges Restaurants, $5.0 million related to Ssäm Bar, and $1.2 million related to the Tin Building by Jean-Georges. Excluding the impact of the impairment, equity losses decreased $7.0 million, primarily related to a $5.0 million decrease for the Tin Building by Jean-Georges, a $1.2 million decrease in losses for Ssäm Bar, which closed in the third quarter of 2023, and a $0.5 million decrease in losses for Jean Georges.

Previous wording

Rental Revenue. Rental revenue increased $0.6 million, or 10%, to $6.3 million for the three months ended June 30, 2024, compared to $5.7 million in the prior-year period. This change was primarily driven by a $1.3 million increase in rental revenue at the Fulton Market Building due to the commencement of the Alexander Wang lease at the end of 2023. This increase was partially offset by a $0.3 million decrease at Schermerhorn Row, a $0.3 million decrease at the Tin Building, and a $0.1 million decrease at Pier 17.

Current wording

Rental revenue increased $0.9 million, or 16%, to $6.2 million for the three months ended September 30, 2024, compared to $5.3 million in the prior-year period. This change was primarily driven by a $2.0 million increase in rental revenue at the Fulton Market Building due to the commencement of the Alexander Wang lease at the end of 2023. This increase was partially offset by a $1.2 million decrease at Schermerhorn Row.

Previous wording

Operating Costs. Operating costs increased $1.7 million, or 21%, to $9.8 million for the three months ended June 30, 2024, compared to $8.2 million in the prior year period. This change was primarily due to a $1.2 million increase in labor costs, a $0.9 million increase in professional services fees, and $0.4 million increase in marketing and advertising expenses, partially offset by a $0.3 million decrease in state business tax and a $0.2 million decrease in insurance expense.

Current wording

Operating costs increased $0.5 million, or 6%, to $9.1 million for the three months ended September 30, 2024, compared to $8.6 million in the prior year period. This change was primarily due to a $0.4 million increase in state business tax, a $0.3 million increase in professional services fees, and a $0.1 million increase in insurance expenses, partially offset by a $0.3 million decrease in marketing and advertising expenses.

Previous wording

Rental Revenue. Rental revenue increased $1.6 million, or 14%, to $12.8 million for the six months ended June 30, 2024, compared to $11.2 million in the prior-year period. This change was primarily driven by a $2.5 million increase in rental revenue at the Fulton Market Building due to the commencement of the Alexander Wang lease at the end of 2023. This increase was partially offset by a $0.3 million decrease at Schermerhorn Row, a $0.3 million decrease at Pier 17, and a $0.2 million decrease at the Tin Building.

Current wording

Rental revenue increased $2.4 million, or 15%, to $18.9 million for the nine months ended September 30, 2024, compared to $16.5 million in the prior-year period. This change was primarily driven by a $4.5 million increase in rental revenue at the Fulton Market Building due to the commencement of the Alexander Wang lease at the end of 2023. This increase was partially offset by a $1.6 million decrease at Schermerhorn Row, a $0.5 million decrease at Pier 17, and a $0.2 million decrease at the Tin Building.

Previous wording

Provision for Doubtful Accounts. Provision for doubtful accounts increased to $0.3 million for the three months ended June 30, 2024, compared to an immaterial amount in the prior-year period, primarily due to a tenant reserve established during the three months ended June 30, 2024.

Current wording

Provision for doubtful accounts increased to $0.4 million for the nine months ended September 30, 2024, compared to an immaterial amount in the prior-year period, primarily due to a tenant reserve established during the nine months ended September 30, 2024.

Previous wording

Landlord Operations NOI losses increased $1.5 million compared to the prior-year period, primarily due to increased operating costs and provision for doubtful accounts, partially offset by the increase in rental revenue as mentioned above.

Current wording

Landlord Operations NOI losses decreased $0.9 million compared to the prior-year period, primarily due to increased revenue, partially offset by increased operating costs as mentioned above.

Previous wording

Landlord Operations NOI losses increased $1.2 million compared to the prior-year period, primarily due to increased operating costs and provision for doubtful accounts, partially offset by the increase in rental revenue as mentioned above.

Current wording

Landlord Operations NOI losses increased $0.6 million compared to the prior-year period, primarily due to increased operating costs and provision for doubtful accounts, partially offset by the increase in rental revenue as mentioned above.

Previous wording

Hospitality Revenue. Hospitality revenue decreased $2.0 million, or 14%, to $12.9 million for the six months ended June 30, 2024, compared to $15.0 million in the prior-year period. This change was primarily due to a $1.3 million decrease related to reduced restaurant performance, primarily at The Fulton, Carne Mare, and Malibu Farms, and a $0.7 million decrease related to small popups and short-term activations in the Cobble & Co and Garden Bar spaces in the first half of 2023, with no similar activity in the first half of 2024. The reduced restaurant performance was primarily related to poor weather conditions in the first quarter of 2024.

Current wording

Hospitality revenue decreased $3.9 million, or 15%, to $21.7 million for the nine months ended September 30, 2024, compared to $25.6 million in the prior-year period. This change was primarily due to a $2.1 million decrease related to reduced restaurant performance, primarily at The Fulton, Carne Mare, and Malibu Farms, and a $1.6 million decrease related to small popups and short-term activations in the Cobble & Co and Garden Bar spaces in the nine months ended September 30, 2023, with no similar activity in 2024. The reduced restaurant performance was primarily related to poor weather conditions in the first quarter of 2024.

Previous wording

Hospitality Costs. Hospitality costs decreased $0.2 million, or 3%, to $8.4 million for the three months ended June 30, 2024, compared to $8.6 million in the prior-year period, primarily due to decreases in variable costs such as food and beverage costs and labor costs, which are generally in line with the decrease in Hospitality revenue.

Current wording

Hospitality costs decreased $1.7 million, or 7%, to $22.3 million for the nine months ended September 30, 2024, compared to $24.0 million in the prior-year period, primarily due to decreases in variable costs such as food and beverage costs and labor costs, which are generally in line with the decrease in Hospitality revenue.

Previous wording

period. This change was primarily due to a $2.7 million decrease in concert series revenue at the Seaport, primarily related to the timing of concerts with 11 shows held during the second quarter of 2024, compared to 19 shows held during the second quarter of 2023. Additionally, there was a $1.2 million decrease in concession sales at the Las Vegas Ballpark and a $0.4 million decrease in Aviators ticket revenue, primarily related to lower attendance in the current quarter. These decreases were partially offset by a $0.6 million increase in sponsorship revenue at the Seaport due to the execution of four new sponsorship agreements in the current quarter and a $0.4 million increase in special event revenue at the Las Vegas Ballpark, primarily due to additional events held in the current quarter.

Current wording

Sponsorships, events, and entertainment revenue increased $0.2 million, or 1%, to $24.7 million for the three months ended September 30, 2024, compared to $24.5 million in the prior-year period. This change was primarily due to a $0.9 million increase in Aviators ticket revenue, primarily related to higher attendance in the current quarter, and a $0.5 million increase in concert series revenue at the Seaport, primarily related to the timing of concerts with 42 shows held during the third quarter of 2024, compared to 41 shows held during the third quarter of 2023. These increases were partially offset by a $1.0 million decrease in special event revenue at the Las Vegas Ballpark, primarily due to fewer events held in the current quarter.

Previous wording

Sponsorships, Events, and Entertainment Costs. Sponsorships, events, and entertainment costs decreased $2.3 million, or 15%, to $12.5 million for the three months ended June 30, 2024, compared to $14.8 million in the prior-year period. This change was primarily due to a $1.4 million decrease in costs associated with the concert series at the Seaport, primarily due to the timing of concerts with fewer concerts held during the current period, and a $0.8 million decrease in costs at the Las Vegas Ballpark, primarily due to lower cost of sales and labor costs as expected with lower attendance and lower concessions revenue.

Current wording

Sponsorships, events, and entertainment costs increased $2.0 million, or 13%, to $18.2 million for the three months ended September 30, 2024, compared to $16.2 million in the prior-year period. This change was primarily due to a $1.0 million increase in costs associated with the concert series at the Seaport, primarily due to the timing of concerts with additional concerts held during the current period, and a $1.3 million increase in costs at the Las Vegas Ballpark, primarily due to higher cost of sales and labor costs as expected with higher attendance. These increases were partially offset by a $0.4 million decrease in costs associated with special events at the Las Vegas Ballpark, primarily due to decreased variable costs associated with lower special event revenue in the current quarter.

Previous wording

Provision for Doubtful Accounts. Provision for doubtful accounts increased to $1.6 million for the six months ended June 30, 2024, compared to immaterial amounts in the prior-year period, primarily due to a $1.0 million reserve associated with the Winterland Skating concept at the Seaport and a $0.5 million reserve associated with events at the Las Vegas Ballpark, both established during the six months ended June 30, 2024.

Current wording

Provision for doubtful accounts increased to $0.2 million for the three months ended September 30, 2024, compared to $0.1 million in the prior-year period, primarily due to a $0.3 million reserve associated with events at the Las Vegas Ballpark established during the three months ended September 30, 2024.

Previous wording

Sponsorships, Events, and Entertainment Revenue. Sponsorships, events, and entertainment revenue decreased $3.3 million, or 13%, to $22.8 million for the six months ended June 30, 2024, compared to $26.2 million in the prior-year period. This change was primarily due to a $2.7 million decrease in concert series revenue at the Seaport, primarily related to the timing of concerts with 11 shows held during the first half of 2024, compared to 19 shows held during the first half of 2023. Additionally, there was a $1.3 million decrease in concession sales at the Las Vegas Ballpark and a $0.4 million decrease in Aviators ticket revenue, primarily related to lower attendance in the current period. These decreases were partially offset by a $0.7 million increase in special event revenue at the Las Vegas Ballpark, a $0.4 million increase in sponsorship revenue at the Seaport due to the execution of four new sponsorship agreements in the first half of 2024, and a $0.4 million increase in private event revenue at the Seaport.

Current wording

Sponsorships, events, and entertainment revenue decreased $3.1 million, or 6%, to $47.5 million for the nine months ended September 30, 2024, compared to $50.6 million in the prior-year period. This change was primarily due to a $2.2 million decrease in concert series revenue at the Seaport, primarily related to the timing of concerts with 53 shows held during the first three quarters of 2024, compared to 60 shows held during the first three quarters of 2023. Additionally, there was a $2.2 million decrease in concession sales at the Las Vegas Ballpark, primarily related to reduced attendance. These decreases were partially offset by a $0.4 million increase in special event revenue at the Las Vegas Ballpark, a $0.3 million increase in sponsorship revenue at the Seaport due to the execution of four new sponsorship agreements in the first half of 2024, and a $0.5 million increase in private event revenue at the Seaport.

Previous wording

Sponsorships, Events, and Entertainment Costs. Sponsorships, events, and entertainment costs decreased $3.4 million, or 16%, to $17.4 million for the six months ended June 30, 2024, compared to $20.8 million in the prior-year period. This change was primarily due to a $1.7 million decrease in costs associated with the Las Vegas Ballpark, primarily due to lower cost of sales and labor costs as expected with lower attendance and lower concessions revenue, a $1.4 million decrease in costs associated with the concert series at the Seaport, primarily due to the timing of concerts with fewer concerts held during the current period, and a $0.3 million decrease in breakdown and removal costs associated with the seasonal Winterland Skating concept at the Seaport.

Current wording

Sponsorships, events, and entertainment costs decreased $1.4 million, or 4%, to $35.6 million for the nine months ended September 30, 2024, compared to $37.0 million in the prior-year period. This change was primarily due to a $1.4 million decrease in costs associated with the Las Vegas Ballpark, primarily due to lower cost of sales and labor costs as expected with lower attendance and lower concessions revenue, a $0.3 million decrease in costs associated with the concert series at the Seaport, primarily due to the timing of concerts with fewer concerts held during the current period, and a $0.3 million decrease in breakdown and removal costs associated with the seasonal Winterland Skating concept at the Seaport. These decreases were partially offset by a $0.6 million increase in costs associated with special events at the Las Vegas Ballpark primarily due to increased variable costs associated with higher special event revenue in the current period.

Previous wording

Provision for Doubtful Accounts. Provision for doubtful accounts increased to $1.0 million for the three months ended June 30, 2024, compared to no activity in the prior-year period, primarily due to a $0.5 million reserve associated with the Winterland Skating concept at the Seaport and a $0.4 million reserve associated with events at the Las Vegas Ballpark, both established during the three months ended June 30, 2024.

Current wording

Provision for doubtful accounts increased to $2.0 million for the nine months ended September 30, 2024, compared to an immaterial amount in the prior-year period, primarily due to a $1.0 million reserve associated with the Winterland Skating concept at the Seaport, a $0.5 million reserve associated with special events at the Las Vegas Ballpark, and a $0.4 million reserve associated with events at the Las Vegas Ballpark, which were established during the nine months ended September 30, 2024.

Previous wording

cash and cash equivalents were $3.3 million and $1.8 million, respectively. As of June 30, 2024, and December 31, 2023, our restricted cash was $42.2 million and $42.0 million, respectively. Restricted cash is segregated in escrow accounts related to development activity at 250 Water Street and other amounts related to payment of principal and interest on the Company’s outstanding mortgages payable. In August 2024, following the final resolution of the 250 Water Street litigation, the escrow amount of $40 million related to 250 Water Street was released to the City of New York. See Note 7 –Commitments and Contingenciesin the Notes to Unaudited Condensed Combined Financial Statements, included in this Quarterly Report for additional information on the 250 Water Street litigation.

Current wording

Prior to the Separation, we operated as a division within HHH’s consolidated structure, which uses a centralized approach to cash management and financing of our operations. This arrangement is not reflective of the manner in which we would have financed our operations had we been an independent, publicly traded company during the periods presented. The cash and cash equivalents held by HHH at the corporate level are not specifically identifiable to us and, therefore, have not been reflected in our Unaudited Condensed Consolidated and Combined Financial Statements. As of September 30, 2024, and December 31, 2023, our cash and cash equivalents were $23.7 million and $1.8 million, respectively. As of September 30, 2024, and December 31, 2023, our restricted cash was $4.0 million and $42.0 million, respectively. Restricted cash is segregated in escrow accounts related to payment of principal and interest on the Company’s outstanding mortgages payable. In August 2024, following the final resolution of the 250 Water Street litigation, the escrow amount of $40 million related to 250 Water Street was released to the City of New York. See Note 7 –Commitments and Contingenciesin the Notes to Unaudited Condensed Consolidated and Combined Financial Statements, included in this Quarterly Report for additional information on the 250 Water Street litigation.

Previous wording

HHH’s third-party long-term debt and the related interest expense have not been allocated to us for any of the periods presented as we are not the legal obligor nor are we a guarantor of such debt. As of June 30, 2024, and December 31, 2023, we have third-party mortgages payable of $155.1 million and $155.6 million, respectively, related to our 250 Water Street development and the Las Vegas Ballpark. As of June 30, 2024, and December 31, 2023, the Company’s secured mortgage loans did not have any undrawn lender commitment available to be drawn for property development. In connection with the separation, on July 31, 2024, the variable rate mortgage related to 250 Water Street was refinanced, with HHH paying down $53.7 million of the outstanding principal balance and SEG refinancing the remaining $61.3 million at an interest rate of SOFR plus a margin of 4.5% and scheduled maturity date of July 1, 2029.

Current wording

HHH’s third-party long-term debt and the related interest expense have not been allocated to us for any of the periods presented as we were not the legal obligor nor were we a guarantor of such debt. As of September 30, 2024, and December 31, 2023, we have third-party mortgages payable of $102.5 million and $155.6 million, respectively, related to our 250 Water Street development and the Las Vegas Ballpark. As of September 30, 2024, and December 31, 2023, the Company’s secured mortgage loans did not have any undrawn lender commitment available to be drawn for property development. In connection with the Separation, on July 31, 2024, the variable rate mortgage related to 250 Water Street was refinanced, with HHH paying down $53.7 million of the outstanding principal balance and SEG refinancing the remaining $61.3 million at an interest rate of SOFR plus a margin of 4.5% and scheduled maturity date of July 1, 2029.

Previous wording

Following the Separation, our capital structure and sources of liquidity have changed from our historical capital structure because HHH is no longer financing our operations, investments in joint ventures, and development and redevelopment projects. Our development and redevelopment opportunities are capital intensive and will require significant additional funding, if and when pursued. Our ability to fund our operating needs and development and redevelopment projects will depend on our future ability to continue to manage cash flow from operating activities, and on our ability to obtain debt or equity financing on acceptable terms. In addition, we typically must provide completion guarantees to lenders in connection with their financing for our development and redevelopment projects. Additionally, on July 31, 2024, a subsidiary of HHH that became our subsidiary in connection with the separation, issued 10,000 shares of 14.000% Series A preferred stock, par value $0.01 per share, with an aggregate liquidation preference of $10.0 million. Management believes that our existing cash balances, restricted cash balances, funds provided by HHH prior to the Separation, along with expected borrowing capacity and access to capital markets, and the proceeds of our rights offering and the related backstop commitment as described under “—Expected Financings” below, taken as a whole, provide (i) adequate liquidity to meet all of our current and long-term obligations when due, including our third-party mortgages payable, and (ii) adequate liquidity to fund capital expenditures and development and redevelopment projects. However, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including (1) our credit ratings, including the lowering of any of our credit ratings, or absence of a credit rating, (2) the liquidity of the overall capital markets, and (3) the current state of the economy and, accordingly, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms in the future, or at all, which could have a negative impact on our liquidity and capital resources. The cash flows presented in our Unaudited Condensed Combined Statement of Cash Flows may not be indicative of the cash flows we would have recognized had we operated as a standalone publicly traded company for the periods presented.

Current wording

Following the Separation, our capital structure and sources of liquidity have changed from our historical capital structure because HHH is no longer financing our operations, investments in joint ventures, and development and redevelopment projects. Our development and redevelopment opportunities are capital intensive and will require significant additional funding, if and when pursued. Our ability to fund our operating needs and development and redevelopment projects will depend on our future ability to continue to manage cash flow from operating activities, and on our ability to obtain debt or equity financing on acceptable terms. In addition, we typically must provide completion guarantees to lenders in connection with their financing for our development and redevelopment projects. Additionally, on July 31, 2024, a subsidiary of HHH that became our subsidiary in connection with the Separation, issued 10,000 shares of 14.000% Series A preferred stock, par value $0.01 per share, with an aggregate liquidation preference of $10.0 million. Management believes that our existing cash balances, including the proceeds of our Rights Offering described under “Subsequent Financing” below, restricted cash balances, and funds provided by HHH prior to the Separation, along with expected borrowing capacity and access to capital markets Rights Offering, taken as a whole, provide (i) adequate liquidity to meet all of our current and long-term obligations when due, including our third-party mortgages payable, and (ii) adequate liquidity to fund capital expenditures and development and redevelopment projects. However, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including (1) our credit ratings, including the lowering of any of our credit ratings, or absence of a credit rating, (2) the liquidity of the overall capital markets, and (3) the current state of the economy and, accordingly, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms in the future, or at all, which could have a negative impact on our liquidity and capital resources. The cash flows presented in our Unaudited Condensed Combined Statement of Cash Flows may not be indicative of the cash flows we would have recognized had we operated as a standalone publicly traded company for the periods presented.

Previous wording

Prior to the distribution, HHH contributed additional cash to the Company in order to fund its operations until a permanent capital structure is finalized. However, we do not expect HHH to have an ongoing long-term relationship with the Company and HHH will not have any ongoing financial commitments to the Company.

Current wording

Prior to the Separation, HHH contributed additional cash to the Company in order to fund its operations until a permanent capital structure is finalized. However, we do not expect HHH to have an ongoing long-term relationship with the Company and HHH will not have any ongoing financial commitments to the Company.