Howard Hughes Holdings Inc

OVERVIEW

General Overview Please refer to Item 1. Business for a general discussion of our business strategy, competitive strengths, and a general description of the assets contained in our four business segments and Item 2. Propertiesfor details regarding the asset type, size, location, and key metrics about our various properties. Changes for monetary amounts between periods presented are calculated based on the amounts in thousands of dollars stated in our consolidated financial statements and then rounded to the nearest million. Therefore, certain changes may not recalculate based on the amounts rounded to the nearest million.

We are primarily focused on creating shareholder value by increasing our per-share net asset value. Often, the nature of our business results in short-term volatility in our net income due to the timing of Master Planned Communities (MPC) land sales, recognition of condominium revenue, and operating business pre-opening expenses.

2023 Results During 2023, we maintained positive momentum and delivered solid financial results which met or exceeded our 2023 guidance expectations within each of our core businesses. This strong performance is a testament to our premier communities and best-in-class assets, further highlighting the strength of our unique business model.

In our MPCs, a year-over-year increase of 45% in new homes sales in our communities, led to heightened demand and home builder interest for new land parcels as the year progressed. MPC earnings before taxes (EBT) increased 21% year over year, driven by solid land sales and high residential prices per acre.

In Operating Assets, we delivered another full-year net operating income (NOI) record, outpacing 2022 results by 5%, excluding dispositions. This growth was led by strong leasing velocity at our newest multi-family developments, as well as increased occupancy and absorption within our office portfolio. In 2023, our leasing teams executed 581,000 square feet of new or expanded office leases, bringing our stabilized office assets to 88% leased at year-end and setting the stage for considerable NOI growth in the coming years.

Ward Village had another strong year, selling out all remaining condo inventory at ‘A‘ali‘i and Kō'ula and contracting to sell 78 units at our three condo towers in pre-sales, The Park Ward Village, Ulana Ward Village, and Kalae. Together with Victoria Place, which is fully sold out and expected to be delivered in late 2024, these projects were 96% pre-sold at year-end and represent more than $2.6 billion of future contracted revenue that will be recognized as these projects are completed.

2024 Outlook Proceeding into 2024, we maintain a positive long-term outlook for our businesses. Across our MPCs, we see incredibly strong demand for our unmatched landbank, world-class portfolio of operating assets, and premier condo developments. The anticipated spin-off of Seaport Entertainment later in 2024 will allow Howard Hughes Holdings Inc. (HHH or the Company) to better focus on long-term opportunities within our renowned portfolio of master planned communities and enable considerable growth and value creation in the years to come.

MPC EBT is projected to remain robust during 2024, aided by modest anticipated reductions in mortgage rates and tight supply of existing homes on the market. New home sales in Summerlin, Bridgeland, and The Woodlands Hills are expected to be strong, leading to continued homebuilder demand for residential land. The first land sales in Floreo, the first village in Teravalis, are also expected to contribute incremental EBT in 2024. These year-over-year gains are expected to be more than offset by reduced EBT associated with exceptional commercial land sales and builder price participation during 2023, as well as reduced inventory of custom lots available to sell at Aria Isle in The Woodlands and the Summit in Summerlin. As a result, 2024 MPC EBT is expected to modestly decline 10% to 15% year-over-year.

Operating Assets NOI is projected to benefit from increased occupancy at new multi-family developments in Downtown Columbia, Summerlin, and Bridgeland, as well as improved retail leasing and new tenants in Downtown Columbia, Ward Village, and The Woodlands. The office portfolio is expected to benefit from strong leasing momentum experienced since mid-2022, but free rent periods on many of the new leases and the impact of some tenant vacancies and new office developments expected to be completed in 2024 will likely result in office NOI being relatively flat year-over-year. Overall, 2024 Operating Assets NOI is expected to be in a range of up 1% to 4% year-over-year. This includes projected NOI from The Las Vegas Aviators and the Las Vegas Ballpark, which are expected to be included in the spin-off of Seaport Entertainment.

Condo sales revenues are projected to range between $675 million and $725 million, with gross margins between 28% to 30%. Projected condo sales revenues will be driven by the closing of units at Victoria Place, our 349-unit upscale development in Ward Village, which is 100% pre-sold and expected to be completed late in the fourth quarter of 2024. This guidance contemplates a portion of condo sales revenues for Victoria Place occurring in the first quarter of 2025 due to the timing of condo closings.

2023 Highlights

Overall

–Net income attributable to common stockholders decreased to a net loss of $551.8 million in 2023, including an after-tax impairment of $548.5 million related to the Seaport. This compares to net income of $184.5 million for the prior year. Excluding the after-tax impairment, the year-over-year reduction was primarily attributed to the timing of condo sales as the prior year included the delivery of Kō'ula in Ward Village.

–We continue to maintain a strong liquidity position with $631.5 million of cash and cash equivalents, $1.0 billion of undrawn lender commitment available to be drawn for property development, and limited near-term debt maturities.

–During 2023, we completed the sale of two land parcels in Honolulu, Hawai‘i, including an 11,929-square-foot building at the Ward Village Retail property, two self-storage facilities in The Woodlands, and Memorial Hermann Medical Office in The Woodlands for total net proceeds after debt repayment of $43.3 million.

Operating Assets

–Operating Assets NOI totaled $233.6 million in 2023, a $7.9 million increase compared to $225.8 million in the prior year. Excluding the impact of dispositions in 2022 and 2023, Operating Assets NOI increased $11.5 million compared to the prior-year period.

–Multi-family NOI increased $7.3 million primarily due to continued lease-up at our newer properties, Marlow in Downtown Columbia and Starling at Bridgeland, and rent growth across our portfolio.

–Office NOI increased $6.6 million, primarily due to continued lease-up activity and abatement expirations at various properties in The Woodlands, most notably at 9950 Woodloch Forest and Lakefront North, and one-time lease termination fees at 1725 Hughes Landing. These increases are partially offset by decreases related to lower occupancy at One Hughes Landing, 1725 Hughes Landing, and various properties in Downtown Columbia, rent abatements at 3 Waterway Square, and initial operating losses from 1700 Pavilion in Summerlin.

–Retail NOI remained relatively flat in 2023 compared to the prior year.

MPC

–MPC EBT totaled $341.4 million in 2023, a $58.4 million increase compared to $283.0 million in the prior year.

–The increase in EBT was primarily due to increased residential land sales in Summerlin, a higher overall residential price per acre in our MPCs, and higher equity earnings at The Summit primarily related to Phase II land inventory.

Seaport

–During 2023, the Company recorded an impairment charge related to the Seaport segment. For additional information, refer to Note 4 -Impairmentin the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.

–Seaport NOI totaled a loss of $15.5 million in 2023, a $5.7 million decrease compared to the prior year. This change was primarily due to reduced restaurant performance as a result of poor weather conditions and elevated labor and overhead costs, and fewer private events in the current year, as well as COVID-related recoveries at the Fulton Market Building in the prior year. These decreases were partially offset by an increase in rental revenue driven by the opening of the Tin Building in 2022.

–Seaport NOI excludes the impact of the Company’s equity ownership interest in the Tin Building by Jean-Georges managed business. Tin Building by Jean-Georges NOI was a loss of $38.8 million in 2023, compared to a loss of $36.2 million in the prior year.

Strategic Developments

–Strategic Developments EBT totaled a loss of $17.3 million in 2023, a $207.5 million decrease compared to income of $190.2 million in the prior year.

–The decrease in EBT was primarily due to a $187.4 million decrease in profits from condominium sales. We closed on 31 units at ‘A‘ali‘i and 16 units at Kō'ula during 2023, compared to 549 units at Kō'ula, 56 units at ‘A‘ali‘i, and 2 units at Waiea during the prior year. The lower volume of condominium closings in 2023 was expected as our completed towers are now 100.0% sold and the next tower, Victoria Place, is not scheduled for completion until late 2024.

–During 2023, the final units at ‘A‘ali‘i and Kō'ula were sold, resulting in our six completed towers being 100.0% sold.

–As of December 31, 2023, 97.9% of the units at our three towers under construction, Victoria Place, The Park Ward Village, and Ulana Ward Village, are under contract, with Victoria Place and Ulana Ward Village being 100% sold. Kalae, which is still in presales, was 87.2% presold as of December 31, 2023.

–In 2023, we placed Tanager Echo, a multi-family property in Summerlin, and the first phase of Wingspan, a single family build to rent property in Bridgeland, in service, representing a total of 368 multi-family units. The second phase of Wingspan, representing an additional 92 units, was placed in service in January 2024. The final phase of Wingspan, representing an additional 97 units, is expected to be placed in service in the second quarter of 2024.

–In 2023, we began construction on Ulana Ward Village, our ninth condominium project in Ward Village, 1 Riva Row, a multi-family property in The Woodlands, and a retail center in Downtown Summerlin, which will be anchored by a new Whole Foods Market. These assets under construction represent 268 multi-family units, 696 condominium units, and 99,100 square feet of retail space.

Corporate

–Net expenses related to Corporate income, expenses, and other items decreased $217.3 million compared to the prior-year period primarily due to a decrease in income tax expense.

Capital and Financing Activities

–In 2023, our financing activity included draws on existing mortgages of $384.4 million, an additional draw of $200.0 million on the Secured Bridgeland Notes, refinancings of $161.0 million, and repayments of $48.4 million. For additional information, refer to Note 7 -Mortgages, Notes, and Loans Payable, Net in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.