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 assets across five states. 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 seek attractive risk-adjusted returns while maintaining a sharp focus on sustainability to ensure our communities are equipped with the resources to last several decades.

On July 31, 2024, the spinoff of Seaport Entertainment Group Inc. (SEG) was completed. The spinoff included all assets previously included in the Company’s Seaport segment and the Las Vegas Aviators and the Las Vegas Ballpark, which were previously included in the Operating Assets segment. The separation of SEG from Howard Hughes refined the identity of HHH as a pure-play real estate company focused solely on our core businesses and development of our MPCs. As the spinoff of SEG represents a strategic shift in the Company’s operations, the results of SEG are included as discontinued operations for all periods presented and disclosures presented in this MD&A are presented on a continuing operations basis unless otherwise noted. Refer to Note 2 -Discontinued Operations in the Notes to Condensed Consolidated Financial Statements under Item 1 of this Form 10-Q for additional information.

We operate through three business segments: Operating Assets, MPCs, and Strategic Developments. We create a continuous value-creation cycle through operational and financial synergies associated with our three 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.

In addition to the required presentations using GAAP, we use certain non-GAAP performance measures, such as NOI and MPC Net Contribution. See the Operating Assets and MPC sections below for the reconciliations of these GAAP to non-GAAP financial measures and statements indicating why management believes these non-GAAP financial measures provide 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.

Third Quarter 2024 Highlights

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

Total Company

–Net income from continuing operations increased to $96.5 million in the current quarter, compared to $32.1 million in the prior-year period. This improvement was primarily driven by increased MPC residential land sales, improved NOI performance from Operating Assets, and settlement of the construction defect claims at Waiea in Ward Village, partially offset by a loss on sale of MUD receivables.

–We continue to maintain a strong liquidity position with $400.7 million of cash and cash equivalents, $1.5 billion of undrawn lender commitment available to be drawn for property development, and limited near-term debt maturities, all as of September 30, 2024.

Operating Assets

–Operating Assets NOI totaled $62.8 million in the current quarter, a $5.0 million increase compared to $57.8 million in the prior-year period.

–Office NOI increased $2.5 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. These increases were partially offset by lower occupancy at 1725 Hughes Landing.

–Multi-family NOI increased $2.1 million primarily due to continued lease-up at our newer properties, Tanager Echo in Summerlin, Marlow in Downtown Columbia, and Starling at Bridgeland.

MPC

–MPC EBT totaled $144.8 million in the current quarter, a $60.0 million increase compared to $84.8 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 acres sold in the current quarter.

–The average price per acre of residential land sold was approximately $1.0 million during the quarter, which was the second-highest quarterly result in HHH history.

Strategic Developments

–Strategic Developments EBT increased $77.0 million to $77.7 million in the current quarter, compared to $0.7 million in the prior-year period.

–The increase in EBT was primarily attributable to an increase in other income related to the receipt of$90.0 million of insurance proceeds in the current period following the execution of a settlement agreement related to the construction defect claims at Waiea, partially offset by a$12.1 million increase in cost of sales related to the settlement of final project costs previously incurred by the Waiea general contractor.

–Subsequent to quarter end, the Company completed construction at Victoria Place. This condominium development is 100% pre-sold and unit closings are expected to commence in November 2024.

–We contracted four units at The Park Ward Village and Kalae during the current quarter. As of September 30, 2024, The Park Ward Village was 96.3% pre-sold and Kalae was 92.4% pre-sold.

–Pre-sales for The Launiu, our eleventh condominium project at Ward Village, continued at a strong pace with 20 units contracted in the current quarter. As of September 30, 2024, we had pre-sold 268 units, representing 55.3% of available units.

–We continued pre-sales at The Ritz-Carlton Residences, The Woodlands, with five units contracted in the current quarter. As of September 30, 2024, we had pre-sold 77 units, representing 69.4% of available units. Construction began on The Ritz-Carlton Residences in October 2024.

–During the current quarter, we commenced construction in two Woodlands redevelopment projects, Grogan’s Mill Retail and Grogan’s Mill Library and Community Center.