Howard Hughes Holdings Inc

Seaport

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, 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”.

General The Seaport is part non-stabilized operating asset, part development project, and part operating business. As such, the Seaport has a greater range of possible outcomes than our other projects. The greater uncertainty is largely the result of: (i) seasonality; (ii) potential sponsorship revenue; (iii) potential event revenue; and (iv) business operating risks from various start-up businesses. We operate and own, either directly, through license agreements, or in joint ventures, many of the tenants in the Seaport. As a result, the revenues and expenses of these businesses, as well as the underlying market conditions affecting these types of businesses, will directly impact the NOI of the Seaport. This is in contrast to our other retail properties where we primarily receive lease payments and are not as directly impacted by the operating performance of the underlying businesses. This causes the financial results of the Seaport to be less predictable than our other operating real estate assets with traditional lease structures.

We primarily categorize the businesses in the Seaport segment into the following groups: Landlord Operations, Managed Businesses, the Tin Building, and Events and Sponsorships.

Landlord Operations Landlord Operations represent physical real estate in the Historic District and Pier 17 that we have developed and own, and is inclusive of our office, retail, and multi-family properties.

Managed Businesses Managed Businesses represent retail and food and beverage businesses in the Historic District and Pier 17 that the Company owns, either wholly or through partnerships with third parties, and operates, including license and management agreements. These businesses include, among others, The Fulton, Mister Dips, Carne Mare, The Lawn Club, and Malibu Farm. The Fulton and Malibu Farm are managed by Creative Culinary Management Company, LLC (CCMC), a Jean-Georges company, and Mister Dips and Carne Mare are managed by Seaport F&B LLC, an Andrew Carmellini company. These management companies are responsible for employment and supervision of all employees providing services for the food and beverage operations and restaurant as well as day-to-day operations and accounting for food and beverage operations.

The Company owns a 25% interest in Jean-Georges Restaurants, which currently operates over 40 restaurant and hospitality offerings around the world. This ownership interest is reported in accordance with the equity method.

Tin Building The Tin Building includes both landlord operations and managed business. The Company owns 100% of the Tin Building, which was completed and placed in service during the third quarter of 2022. The Company leases 100% of the rentable space to the Tin Building by Jean-Georges joint venture, a managed business in which the Company has an equity ownership interest and reports its ownership interest in accordance with the equity method. Based on capital contribution and distribution provisions for the Tin Building by Jean-Georges, the Company currently recognizes all of the economic interest in the venture. The Company recognizes lease payments from the Tin Building by Jean-Georges in Rental revenue and recognizes its share of income or losses from the joint venture in equity earnings. As the Company currently recognizes 100% of operating income or losses from the Tin Building by Jean-Georges, the Tin Building lease has no net impact to Seaport EBT. However, Seaport NOI includes only rental revenue related to the Tin Building lease payments and does not include the rent expense in equity earnings, as equity earnings are excluded from NOI by definition.

The Tin Building by Jean-Georges opened in late September 2022, with an expanded focus on experiences including in-person dining, retail shopping, and delivery, and is managed by CCMC, a Jean-Georges company.

Events and Sponsorships Our events and sponsorships businesses include our concert series, event catering, private events, and sponsorships. Food and beverage operations associated with concert concessions and catering are operated under management agreements with CCMC.

The 2024 summer concert series, which began in May 2024 and is expected to run through mid-October 2024, currently includes 59 announced show dates and has sold over 153,000 tickets to date, representing over 76% of available ticket inventory. In the second quarter, we hosted 11 concerts and welcomed approximately 32,500 guests. The 2023 summer concert series ran for the same period, and included a total of 63 shows, with 19 shows held during the second quarter of 2023.

250 Water Street In 2021, the Company received the necessary approvals for its 250 Water Street development project, which includes a mixed-use development with affordable and market-rate apartments, community-oriented spaces, and office space. In May 2021, the Company received approval from the New York City Landmarks Preservation Commission (LPC) on its proposed design for the 250 Water Street site. The Company received final approvals in December 2021 through the New York City Uniform Land Use Review Procedure known as ULURP, which allowed the necessary transfer of development rights to the parking lot site.

Also in December 2021, an amendment to the Seaport ground lease was executed giving the Company extension options, at the discretion of the Company, for an additional 48 years from its current expiration in 2072 until 2120. We received a building foundation permit from the New York City Department of Buildings and began initial foundation work and remediation in the second quarter of 2022. Remediation of the site as a volunteer of the New York State Brownfield Cleanup program was completed in December 2023. The Company has prevailed in various lawsuits challenging the governmental approval of our development project. For additional information regarding these lawsuits, see Note 9 -Commitments and Contingenciesin the Notes to Condensed Consolidated Financial Statements under Item 1 of this Form 10-Q.

Segment EBTSegment EBT for Seaport is presented below:

(a) Lease payments for the Tin Building included in Rental revenue and offset in Equity losses were $2.9 million for the three months ended June 30, 2024, $5.7 million for the six months ended June 30, 2024, $2.8 million for the three months ended June 30, 2023, and $5.7 million for the six months ended June 30, 2024. Refer to the Tin Building discussion above for additional detail.

Seaport segment EBT increased $0.4 million compared to the prior-year period primarily due to the following:

–Depreciation and amortization decreased $6.5 million primarily as a result of the impairment of our Seaport assets in the third quarter of 2023.

–Equity losses decreased $4.3 million primarily due to reduced operating and labor costs at the Tin Building.

These increases to EBT were partially offset by the following:

–Total revenues, net of Operating costs decreased $7.2 million primarily due to increased overhead costs associated with the stand-up of Seaport Entertainment in anticipation of the pending spinoff, and reduced restaurant and concert series revenue at Pier 17, partially offset by improved rental revenue from the Fulton Market Building, which is now 100% occupied.

–Interest expense increased $4.0 million due to lower capitalized interest related to a pause in development activity at 250 Water Street.

Seaport segment EBT decreased $0.5 million compared to the prior-year period primarily due to the following:

–Total revenues, net of Operating costs decreased $9.3 million primarily due to increased overhead costs associated with the stand-up of Seaport Entertainment in anticipation of the pending spinoff, and reduced restaurant and concert series revenue at Pier 17, partially offset by improved rental revenue from the Fulton Market Building, which is now 100% occupied.

–Interest expense increased $7.2 million due to lower capitalized interest related to a pause in development activity at 250 Water Street.

–Depreciation and amortization decreased $11.3 million primarily as a result of the impairment of our Seaport assets in the third quarter of 2023.

–Equity losses decreased $4.9 million primarily due to reduced operating and labor costs at the Tin Building.

Net Operating Income A reconciliation of Seaport segment EBT to Seaport NOI is presented below:

The Seaport, including Managed Businesses, Events and Sponsorships, and the Tin Building, is approximately 67% leased. We may continue to incur operating expenses in excess of rental revenues while the remaining available space is in lease-up, as the Seaport continues to move toward its critical mass of offerings.

The table below presents Seaport NOI by category:

Seaport NOI decreased $6.9 million for the three months ended June 30, 2024, and $9.9 million for the six months ended June 30, 2024, primarily due to increased overhead costs of $5.5 million for three months ended June 30, 2024, and $7.0 million for the six months ended June 30, 2024, associated with the stand-up of Seaport Entertainment in anticipation of the pending spinoff. Additionally, Events and Sponsorships NOI was negatively impacted by lower concert series revenue, and Managed Businesses NOI was negatively impacted by lower revenues across our restaurant portfolio.

Tin Building in the table above represents NOI from our landlord business and, as defined, excludes the impact of the Company’s equity ownership interest in the Tin Building by Jean-Georges managed business which opened in the third quarter of 2022. The table below presents the above NOI related to the Tin Building, which primarily represents lease payments from the Tin Building by Jean-Georges, as well as the Company’s share of NOI related to its investment in the Tin Building by Jean-Georges, which primarily represents the operations of the Tin Building marketplace and includes rent expense paid to the Company.