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 times 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 increases 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, Howard Hughes Holdings Inc. (HHH) announced the intent to form a new division, Seaport Entertainment, which includes the Company’s entertainment-related assets in New York and Las Vegas, including the Seaport in Lower Manhattan, the Las Vegas Aviators Triple-A Minor League Baseball team and the Las Vegas Ballpark, as well as the Company’s ownership stake in Jean-Georges Restaurants and other partnerships, and an interest in and to 80% of the air rights above the Fashion Show Mall in Las Vegas.

On July 18, 2024, the HHH Board of Directors authorized and declared a pro rata distribution of 100% of the outstanding shares of common stock of Seaport Entertainment Group, Inc. (SEG) to holders of record of HHH common stock as of the close of business on July 29, 2024 (Record Date). The distribution is expected to be paid after market close on July 31, 2024. As a result, holders of HHH common stock will receive one share of SEG common stock for every nine shares of HHH common stock held as of the close of business on the Record Date. SEG common stock is expected to begin trading on the NYSE American stock exchange on August 1, 2024, under the symbol “SEG”.

The pending separation of SEG from Howard Hughes will refine the identity of HHH as a pure-play real estate company focused solely on its core businesses and development of its master planned communities, and allow the new company, SEG, to operate independently as an entertainment-focused enterprise.

Second Quarter 2024 Highlights

Comparison of the three months ended June 30, 2024, to the three months ended June 30, 2023

Total Company

–Net income attributable to common stockholders increased to a net income of $21.1 million for the current quarter, compared to a net loss of $19.1 million for the prior-year period, primarily attributed to increased MPC residential land sales in the current quarter, and $16.1 million of window remediation expenditures at Waiea in Ward Village in the prior-year period, which were not incurred in the current quarter. These increases were partially offset by $7.9 million of general and administrative expenses related to the pending spinoff of Seaport Entertainment.

–We continue to maintain a strong liquidity position with $436.8 million of cash and cash equivalents, $1.2 billion of undrawn lender commitment available to be drawn for property development, and limited near-term debt maturities.

Operating Assets

–Operating Assets NOI totaled $65.5 million in the current quarter, a $0.6 million decrease compared to $66.1 million in the prior-year period.

–Other NOI decreased $3.3 million primarily due to reduced attendance and sales revenues at the Las Vegas Ballpark.

–Office NOI decreased $0.4 million primarily due to lower occupancy at 1725 Hughes Landing and office lease termination fees received in the prior-year period. These decreases were offset by strong leasing activity and abatement expirations at various properties in The Woodlands and Summerlin, most notably at 9950 Woodloch Forest and 1700 Pavilion.

–Multi-family NOI increased $1.1 million primarily due to continued lease-up at our newer properties, Marlow in Downtown Columbia, Starling at Bridgeland, and Tanager Echo in Summerlin.

MPC

–MPC Earnings Before Tax (EBT) totaled $123.2 million in the current quarter, a $68.3 million increase compared to $54.9 million in the prior-year period.

–The increase in EBT was primarily due to higher residential land sales, net of costs, at Summerlin due to an increase in superpad sales with an average price per acre of $1.5 million.

–The Company achieved a record quarterly average price per acre of $1.0 million for all residential land sold during the second quarter.

Seaport

–Seaport NOI decreased $6.9 million to a loss of $9.4 million in the current quarter, compared to a loss of $2.4 million in the prior-year period. This change was primarily due to increased overhead costs associated with the stand-up of Seaport Entertainment in anticipation of the pending spinoff, as well as reduced restaurant and concert revenue as poor weather in the current year negatively impacted foot traffic.

–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 $6.7 million in the current quarter and a loss of $9.6 million in the prior-year period. See Seaport segment discussion for additional detail.

Strategic Developments

–Strategic Developments EBT increased $12.1 million to a loss of $3.0 million in the current quarter, compared to a loss of $15.1 million in the prior-year period.

–The increase in EBT was primarily attributable to a$16.1 million decrease in remediation costs at Waiea, partially offset bya $1.7 million decrease in profits from condominium sales, with no sales closed during the current quarter, compared to closings of 11 units at ‘A‘ali‘i and 4 units at Kō'ula 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 contracted 12 units at The Park Ward Village and Kalae during the current quarter. As of June 30, 2024, The Park Ward Village was 95.8% pre-sold and Kalae was 92.1% pre-sold. Construction on Kalae began in the second quarter of 2024.

–Pre-sales for The Launiu, our eleventh condominium project at Ward Village, continued at a strong pace with 66 units contracted in the current quarter. As of June 30, 2024, we have pre-sold 248 units, representing 51.1% of available units.

–We continued pre-sales at The Ritz-Carlton Residences, The Woodlands, with 16 units contracted in the current quarter. As of June 30, 2024, we have pre-sold 72 units, representing 64.9% of available units.

–During the current quarter, we completed construction on 10285 Lakefront Medical Office in Downtown Columbia, and Meridian, an office property in Summerlin. We commenced construction on One Bridgeland Green, an office property in Bridgeland.