Howard Hughes Holdings Inc

OVERVIEW

Description of Business

Our award-winning assets include one of the nation's largest portfolios of MPCs spanning approximately 101,000 gross acres, as well as operating properties, strategic developments, and other unique assets across six states from New York to Hawai‘i. We create some of the most sought-after communities in the country by curating an environment tailored to meet the needs of our residents and tenants. Our unique business model allows us to drive outsized risk-adjusted returns while maintaining a sharp focus on sustainability to ensure our communities are equipped with the resources to last several decades.

We operate through four business segments: Operating Assets, MPCs, Strategic Developments, and Seaport. We create a unique and continuous value-creation cycle through operational and financial synergies associated with our three primary business segments of Operating Assets, MPCs, and Strategic Developments. In our MPC segment, we plan, develop, and manage small cities and large-scale, mixed-use communities, in markets with strong long-term growth fundamentals. This business focuses on the horizontal development of residential land. The improved acreage is then sold to homebuilders who build and sell homes to new residents. New homeowners create demand for commercial developments, such as retail, office, and hospitality offerings. We build these commercial properties through Strategic Developments at the appropriate time using the cash flow harvested from the sale of land to homebuilders, which helps mitigate development risk. Once the commercial developments are completed, the assets transition to Operating Assets, which increase recurring Net Operating Income (NOI), further funding our Strategic Developments. New office, retail, and other commercial amenities make our MPC residential land more appealing to buyers and increase the velocity of land sales at premiums that typically exceed the broader market. This increased demand for residential land generates more cash flow from MPCs, thus continuing the value-creation cycle. Our fourth business segment, the Seaport, is one of the few multi-block districts largely under private management by a single owner in New York City. This historic waterfront area is being revitalized and enhanced into a mixed-use neighborhood featuring unique culinary and entertainment offerings.

In addition to the required presentations using accounting principles generally accepted in the United States (GAAP), we use certain non-GAAP performance measures, such as NOI. See the Operating Assets and Seaport sections below for the reconciliation of this GAAP to non-GAAP financial measure and a statement indicating why management believes the non-GAAP financial measure provides useful information for investors. 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.

Seaport Entertainment On October 5, 2023, HHH announced the intent to form a new division, Seaport Entertainment, that is expected to include the Company’s entertainment-related assets in New York and Las Vegas, including the Seaport in Lower Manhattan and the Las Vegas Aviators Triple-A Minor League Baseball team, as well as the Company’s ownership stake in Jean-Georges Restaurants and an interest in and to 80% of the air rights above the Fashion Show Mall in Las Vegas.

HHH is establishing Seaport Entertainment with the intention of completing its spinoff as an independent, publicly traded company in 2024, but there can be no assurance regarding the ultimate timing of the spinoff or that the spinoff will ultimately occur. The planned separation of Seaport Entertainment from Howard Hughes will refine the identity of HHH as a pure-play real estate company focused solely on its portfolio of acclaimed master planned communities and allow the new company, Seaport Entertainment, to operate independently as an entertainment-focused enterprise.

First Quarter 2024 Highlights

Comparison of the three months ended March 31, 2024, to the three months ended March 31, 2023

Total Company

–Net income attributable to common stockholders decreased to a net loss of $52.5 million for the current quarter, compared to a net loss of $22.7 million for the prior-year period, primarily attributed to reduced MPC commercial land sales, lower equity earnings from The Summit, and increased G&A expenses associated with the anticipated spinoff of Seaport Entertainment.

–We continue to maintain a strong liquidity position with $462.7 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.

Operating Assets

–Operating Assets NOI totaled $58.3 million in the current quarter, a $4.0 million increase compared to $54.3 million in the prior-year period.

–Office NOI increased $2.8 million, primarily due to strong leasing activity and abatement expirations at various properties in The Woodlands and Summerlin, most notably at 9950 Woodloch Forest and 1700 Pavilion, partially offset by decreases related to lower occupancy and a tenant bankruptcy at 1725 Hughes Landing.

–Multi-family NOI increased $1.1 million, primarily due to continued lease-up at our newer properties, Marlow in Downtown Columbia and Starling at Bridgeland, partially offset by winter-weather-related insurance recoveries in 2023.

MPC

–MPC Earnings Before Tax (EBT) totaled $24.3 million in the current quarter, a $38.1 million decrease compared to $62.4 million in the prior-year period.

–The decrease in EBT was primarily due to lower equity earnings at The Summit and lower commercial MPC sales, net of MPC costs at Bridgeland.

Seaport

–Seaport NOI totaled a loss of $8.6 million in the current quarter, a $3.0 million decrease compared to a loss of $5.6 million in the prior-year period. This change was primarily due to reduced restaurant revenue at Pier 17 and lower sponsorship revenue, partially offset by improved rental revenue from the Fulton Market Building, which is now 100% occupied.

–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 $8.7 million in the current quarter and a loss of $9.2 million in the prior-year period. See Seaport segment discussion for additional detail.

Strategic Developments

–Strategic Developments EBT totaled a loss of $5.4 million in the current quarter, a $2.0 million decrease compared to a loss of $3.4 million in the prior-year period.

–The decrease in EBT was primarily attributable to a $2.4 million decrease in profits from condominium sales, with no sales closed during the current quarter, compared to closings of one unit at Kō'ula and four units at ‘A‘ali‘i during the prior-year period. The lower volume of condominium closings is expected as our completed towers are 100.0% sold and the next tower, Victoria Place, is not scheduled for completion until late 2024.

–We launched public pre-sales for The Launiu, our eleventh condominium project at Ward Village, in February 2024. As of March 31, 2024, we have pre-sold 182 units, representing 37.5% of available units.

–We contracted 14 units at The Park Ward Village and Kalae during the current quarter. As of March 31, 2024, The Park Ward Village was 94.9% pre-sold and Kalae was 90.0% pre-sold. Construction on Kalae is expected to begin in the second quarter of 2024.

–We launched public pre-sales at The Ritz Carlton Residences in The Woodlands in late March 2024. As of March 31, 2024, we have pre-sold 56 units, representing 50.5% of available units.

–During the current quarter, we commenced construction on Village Green at Bridgeland Central, a retail property in Bridgeland.

–We incurred a $3.0 million charge during the current quarter to fund the final remediation expenditures related to window construction defects at Waiea in Ward Village. The Company continues to vigorously pursue recovery of all Waiea remediation costs from the general contractor and other responsible parties.