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Text: Before we begin I would like to direct you to our website www.
To start the call I'd like to provide a brief recap of our quarterly performance and cover the highlights of both our MPC segment and the Seaport.
Our Head of Operations Dave Striph will cover the results of our operating assets segment; followed by our President Jay Cross who will provide details on our development activity and speak to the results at Ward Village.
And finally our CFO Correne Loeffler will conclude the call with a review of our financial results before we open the lines for Q&A.
Before we dive into the results of the quarter I would first like to highlight the release of Howard Hughes 2020 annual ESG report which was published just a few days ago and can be found on the Sustainability portion of our website.
This report displays the impactful ESG results we have produced so far and reflects our commitment to environmental and social best practices which are integrated throughout our communities across the country.
Now on to the highlights of the quarter.
We closed out the third quarter of 2021 with strong results across all segments as Howard Hughes continues to capitalize on the high levels of demand that exist throughout our various mixed-use communities.
To put our performance in perspective most of HHC's year-to-date results in 2021 have surpassed the year-to-date pre-COVID activity of 2019.
MPC EBT is up 29%.
Operating asset NOI is higher by 1% even with lingering impacts from the pandemic.
And Ward Village condo sales were just shy of 2019 levels despite having limited available inventory.
And this was all accomplished while reducing our G&A cost by 30%.
During the third quarter we saw healthy land sales driven by superpad sales in Summerlin.
Our operating asset NOI grew for the fourth consecutive quarter.
Condo sales in Ward Village accelerated despite a shrinking supply of available units under construction and the Seaport saw steady improvements from the return of the concert series at Pier 17 and the growing popularity of our unique restaurants.
We expect these results to grow stronger especially with the recent addition of Douglas Ranch our latest MPC spanning 37000 acres in Phoenix West Valley.
In October we announced our $600 million all-cash acquisition of this fully entitled shovel-ready MPC which further adds to our depth of opportunities.
By strategically redeploying the net proceeds from our noncore asset dispositions we now have the ability to transform this blank canvas into a leading community focused on sustainability and technology a community that is entitled for 100000 homes 300000 residents and 55 million square feet of commercial development.
Following this transaction we are still left with a healthy cash position to continue executing on our existing development pipeline to meet the growing demand within our MPCs.
While we have already had approximately two million square feet of development underway we're pleased to announce new commercial projects in the medical office and single-family for rent sectors which Jay will touch on in a moment.
But we're not stopping there.
We've long believed that Howard Hughes trades at a steep discount relative to its net asset value.
As such we are pleased to announce our recent Board-approved share buyback program amounting to $250 million.
We believe there is great value that is yet to be reflected in our stock price and view this buyback initiative as an excellent use of capital that when coupled with our development projects will help deliver meaningful value.
All of these recent announcements put a significant amount of capital to work to unlock tremendous value for our dedicated shareholders.
Now let's turn to the performance of our master planned communities.
Our MPCs had another great quarter despite encountering headwinds including supply constraints the Delta variant and weather delays particularly in Houston.
Housing supply still remains low throughout Houston and Las Vegas while demand continues to persist at elevated levels which leaves us well positioned to deliver residential land at appreciating prices.
Homebuilders are currently sitting on record low inventory and they will need to replenish their depleted landholdings in order to meet its outsized demand.
During the third quarter our MPCs recorded earnings before taxes of $54.1 million a 48% increase compared to last year largely driven by the robust superpad sales activity in Summerlin as well as the strong performance of our Summit joint venture.
In addition to these impressive results we continue to see a steady pace of new home sales.
Proving the strength of our communities remains clearly intact.
So far in 2021 there have been 2163 new homes sold in our MPCs a 6% increase over last year indicating further demand lies ahead.
Overall we're seeing a lot of positive momentum when it comes to land sales.
And looking ahead we expect our fourth quarter to be the strongest quarter yet.
As such we are raising our full year 2021 MPC EBT guidance by $60 million at the midpoint to a range of $275 million to $285 million primarily due to stronger-than-expected superpad sales in Summerlin.
This is our second time raising MPC guidance in 2021 as this segment continues to exceed our expectations.
Speaking of Summerlin this MPC drove a substantial portion of the positive results for the quarter selling 47 acres mostly made up of superpads.
This MPC generated $45.6 million in EBT a staggering 130% increase compared to the prior year period.
Additionally year-to-date new home sales have eclipsed over 1200 units and are 20% higher over the same period in 2020 which if you recall was one of the strongest years in Summerlin's history.
Another significant driver to Summerlin's results has been our joint venture at the Summit our exclusive 550-acre community in Summerlin.
The total earnings from our share of equity during the quarter totaled $8.3 million driving year-to-date earnings to $54.6 million versus only $4.4 million during the first nine months of 2020.
The activity at the Summit over the last year has been tremendous and these positive results have been primarily attributed to an influx of California buyers purchasing these custom lots and built product.
Turning over to Houston.
Our Bridgeland MPC experienced a decline in land sales as supply constraints continues to have an impact.
As we highlighted last quarter a majority of the homebuilders have extended their lead times for home deliveries due to ongoing supply disruptions that have resulted in higher material costs and delayed delivery times.
We've started to see some of these bottlenecks subside and expect a more normalized environment heading into next year.
This quarter's land sales were also impacted by inclement weather as significant rainfall in the Houston area delayed horizontal development resulting in slower lot deliveries to homebuilders.
Despite these factors demand in the area remains incredibly strong.
We view the significant imbalance between undersupply and robust demand as a strong catalyst for elevated activity as we move into 2022.
Lastly in the Woodlands Hills despite lower quarterly land sales due to the similar impacts experienced in Bridgeland the residential price per acre grew 18% over the prior year period to $353000 while new home sales were up 15% which points to future growth ahead as we accelerate activity across this MPC.
Moving over to the Seaport.
We saw heightened activity throughout the quarter as events and concerts at Pier 17 helped draw in spectators.
During the quarter NOI improved 43% compared to the same period in 2020 indicating the return to normalcy is near.
In July we launched our 11-week summer concert series on the Pier 17 rooftop.
Of the 30 concerts hosted 20 were fully sold out.
The turnout for these contracts proved to be very strong with approximately 74000 guests in attendance representing 90% of our available ticket inventory.
In addition to concerts we hosted several other major events including the SPs in July and the world tour for the Fujis who debuted at Pier 17 for their first show together in 15 years.
It's these type of special events that continue to set the Seaport apart from other destinations in Manhattan.
All of these events help drive substantial traffic to our restaurants.
We saw an uptick in activity as more and more locals and tourists experience our variety of cuisines from acclaimed New York City chefs.
As a result our restaurant saw their average monthly sales increased 65% versus last quarter.
While labor constraints have marginally improved we continue to see improvements in this space quarter after quarter.
Many of our restaurants are now closely approaching their stabilization targets as higher volume has contributed meaningfully to the growth of our bottom line.
Overall we see the Seaport heading in the right direction and the upcoming completion of the Tin Building followed by its grand opening in the first half of 2022 will help bring the Seaport closer to stabilization.
With that I'm going to stop and hand the call over to Dave Striph.
Our operating assets had a standout quarter as our portfolio delivered strong sequential and year-over-year NOI growth.
For the third quarter we reported $60.6 million of NOI.
When you layer in the activity from our three hotels that were sold in September this segment generated $62.9 million.
This marks the fourth consecutive increase in quarterly NOI as our portfolio of income-producing assets continues to expand.
As the economy continues to reopen and activity within our regions improves we have seen a corresponding increase in our retail NOI.
These assets generated $16.1 million of NOI during the third quarter the highest level since the first quarter of 2019.
This is in large part due to a stronger tenant base coming out of the pandemic in addition to consistent increases in collections.
For the third quarter we collected 83% of our retail rents with Summerlin leading the charge for the highest collections in our portfolio.
As we have highlighted previously our retail at Ward Village has been materially impacted over the last several quarters due to sharp declines in tourism as a result of the pandemic.
However as travel restrictions to Oahu have been recently eased we've seen a corresponding improvement in our retail performance.
In fact Ward was the largest contributor to the sequential increase in retail NOI partly as a result of a onetime payment of deferred rent of approximately $1.4 million.
We expect our retail portfolio to continue on this path of growth as collections work back to pre-pandemic levels coupled with the continuous lease-up of our remaining space to creditworthy tenants.
At the Las Vegas Ballpark we were able to host the remainder of the aviator season at 100% capacity.
This resulted in $5.4 million of NOI a 74% increase over the last quarter where the beginning of the season was limited to 50% capacity to comply with COVID-19 protocols.
This is a stark comparison to the same period in 2020 where the ballpark lost nearly $1 million as the season was canceled entirely due to the pandemic.
Our multifamily assets produced $9.2 million of NOI during the third quarter a 24% sequential increase almost exclusively attributable to strong leasing momentum at our most recent developments.
In 2020 we completed construction on three multifamily projects between the Woodlands and Columbia.
And during the third quarter these new developments made up 2/3 of the increase in sequential NOI growth.
In addition to this robust leasing velocity we've been able to push rents higher and are currently commanding some of the highest rents compared to our surrounding metro areas.
In addition to our existing product we have three more multifamily developments underway in Downtown Columbia Bridgeland and Summerlin to meet this ongoing demand which will drive our NOI even higher.
Our office assets have experienced steady increases in NOI over the past few quarters despite a sluggish recovery in the return to office environment.
For the third quarter we generated $27.8 million in NOI a 6% increase sequentially and a 17% increase compared to the same period last year.
The bulk of this increase was driven by the roll-off of free rent at select assets including 6100 Merriweather our latest office building in Downtown Columbia.
Overall we are seeing a noticeable increase in leasing activity and expect our pipeline of opportunities to accelerate into 2022 as tenants look for additional space and folks continue to return to an office setting.
To build on the momentum we are seeing within our operating asset portfolio we are pleased to announce some new product types in addition to our traditional mix.
Recently we have expanded into the medical office space to continue to provide residents with the highest quality convenient medical care.
We have noticed a growing need for this type of asset as the volume of residents in our communities continues to grow.
With that we are pleased to announce the launch of two medical facilities spanning 106000 square feet throughout Downtown Columbia and the Woodlands.
In Downtown Columbia we will launch our first medical office building on the shoreline of Lake Kittamaqundi.
This new development will sit adjacent to our successful Whole Foods in the former Rouse headquarters building helping to establish Downtown Columbia as a prominent health and wellness destination.
Encompassing approximately 86000 square feet we have already secured an anchor tenant for roughly 20% of the entire space.
We expect to break ground on this project during the first half of 2022 and this will kick start our major development pipeline in the Lakefront District.
In The Woodlands we will launch development on a 20000 square foot build-to-suit medical office building for Memorial Hermann.
This project will serve as a primary local facility to cater to the medical needs of nearby residents and is expected to break ground by the end of this year.
Lastly in Bridgeland we will be constructing our first single-family for rent community which will commence in the first half of 2022.
These 263 homes will span a combined 328000 square feet and offer a unique hybrid between single-family homes for sale and multifamily for rent adding yet another new product to our operating asset portfolio.
Given this is an extension of multifamily we plan to leverage the expertise of the property managers who oversee our existing portfolio in Houston to assist in managing this build-to-rent community.
In total these three projects represent over 430000 square feet and $114 million of development as we continue to put our capital to work and enhance our stream of recurring income.
We have already had a number of developments under construction in Summerlin Columbia and Bridgeland so the announcement of these additional developments demonstrates the immense demand we are seeing throughout all our regions.
Moving to the Seaport.
Construction of the Tin Building is now in the final stages and will be substantially complete by the end of the year.
The launch of the Tin Building has been highly anticipated and our team has been working in close partnership with the Jean Georges team to prepare for the grand opening of this 53000 square foot food hall in the first half of 2022.
Lastly we continue to make great strides through New York City's ULURP process to obtain the necessary approvals for the development of a 26-story mixed-use building at 250 Water Street.
In October the City Planning Commission granted us approval for this project another hurdle passed through this rigorous land use process.
We are nearing the end of our review which we expect to conclude before the end of the year at the New York City Council.
The prospective development would replace the one acre parking lot with market rate and affordable residences commercial and community space further enhancing the character and vibrancy of this neighborhood.
We look forward to updating you on our continued progress as we continue to close in on the final stages of this process.
At Ward Village the pace of condo sales continues to exceed all expectations.
Despite having less inventory under construction the number of condos contracted during the quarter has only grown.
Across our three recent towers 'A'ali'i Koula and Victoria Place we were 90% presold as of the end of the quarter with Koula and Victoria Place still under construction.
This robust velocity has led to the presales launch of our eighth tower The Park.
Presales activity at The Park began in July.
And as of the end of October we have already contracted 64% of the total units.
The sales activity across these four towers just in the third quarter translates to 316 contracted units secured by hard deposits during a period of time when travel to the island of Oahu was discouraged surrounding Delta variant concerns.
The pace of these sales is truly remarkable.
We've been able to establish a mark on this community where residents want to live and our historical sales pace has reflected increasingly faster sellouts with the launch of each new tower.
Subsequent to the end of the quarter we completed construction on 'A'ali'i and began welcoming residents to their new homes in October.
As of November two we closed on 495 units totaling $332 million in net revenue revenue that will be recognized on our fourth quarter income statement and will contribute meaningly to our bottom line.
With that I'd like to now hand the call over to our CFO Correne Loeffler who will review our third quarter financial performance.
The results of the third quarter clearly demonstrates the strength of our business as we continue to benefit from the strong demand throughout our communities across the country.
In summary our MPCs produced $54.1 million of earnings before tax or EBT during the third quarter a 22% decrease compared to the last quarter and a 48% increase compared to the prior year period.
It's important to note that while EBT decreased from the last quarter it was largely attributed to nonrecurring costs such as the early extinguishment of debt upon the retirement of our Woodlands and Bridgeland credit facility.
In addition the top line only declined slightly due to the lack of commercial land sales in Summerlin compared to the last quarter.
Our operating assets recorded a $62.9 million of NOI when including the contribution from the three Woodlands-based hotels which represented a 9% increase compared to the last quarter and a 65% increase compared to the prior year period.
As Dave touched on earlier the strong performance was due to a continued improvement across our retail portfolio a strong Minor League season at our ballpark robust lease-up activity at our multifamily assets and the roll-off of free rent at select office assets.
At Ward Village we contracted 316 condo units which were made up of 61 units from our three towers under construction and 255 units at the park which launched presales during the quarter.
Combined sales at 'A'ali'i Koula and Victoria Place were up 36% compared to the prior quarter and increased 154% compared to the prior year period.
Finally at the Seaport we recorded a $3.6 million loss in NOI resulting in a 19% improvement over the last quarter and a 43% improvement compared to the prior year period.
Taking a look at GAAP earnings for the third quarter.
We reported net income of $4.1 million or $0.07 per diluted share compared to net income of $139.7 million or $2.51 per diluted share in the prior year period.
The decrease in net income from the prior year was attributed to a onetime noncash gain of $267.5 million for the third quarter of 2020 which was related to the deconsolidation of our 110 North Wacker office tower in Chicago.
If we remove this onetime gain our quarterly earnings were substantially higher than our prior year period due to strong activity to play throughout the entire business.
With only one quarter remaining to finish out the full year we remain on track to meet or exceed all previously disclosed guidance targets for 2021.
As David mentioned earlier our MPC segment has done particularly well which has led us to raise our EBT target for the second time this year.
Our previous guidance range for 2021 was $210 million to $230 million.
We are now raising our guidance by $60 million at the midpoint thus revising our range to $275 million to $285 million as we are expecting a strong end to the year.
Given the recovery we are experiencing in our operating assets we are raising our full year NOI guidance by $5 million to a range of $200 million to $210 million.
We are raising this segment's guidance despite the fact that we will not receive any hospitality-related NOI during the fourth quarter as we just sold our Woodlands hotels in September for $252 million.
The sale of these assets generated $120 million of net proceeds and brings our total net proceeds from noncore asset sales to $376 million since the announcement of our strategic transformation plan in late 2019.
We are also revising our full year condo profit guidance at Ward Village by $7.5 million at the midpoint.
Our previous guidance range for 2021 was $100 million to $125 million.
With elevated condo sales following the completion of 'A'ali'i in October we are expecting condo profits to range between $115 million to $125 million.
Please note that this target excludes the $20 million repair cost incurred at Waiea during the first quarter which we fully expect to be reimbursed for.
Lastly we remain on track to meet our previously disclosed G&A guidance of $80 million to $85 million for 2021.
Now let's take a look at our balance sheet for the quarter.
We ended the third quarter with $1 billion of cash on hand leaving us plenty of runway to execute on the recent capital initiatives we discussed earlier.
Additionally we closed on several financings at attractive rates while at the same time extending our maturity profile.
A couple of our recent financings include two construction loans for our latest project in Downtown Summerlin a $75 million loan for our 1700 Pavilion office development and a $59.5 million loan for our Tanager Echo multifamily development.
In addition we refinanced The Woodlands and Bridgeland credit facility into a new $275 million loan secured by Bridgeland notes receivables and land to support future horizontal development.
Lastly subsequent to quarter end we closed on a $250 million loan for 1201 Lake Robbins resulting in net proceeds of $248 million which helps elevate our overall cash position.
Additional activity following the close of the quarter include the repayment of 'A'ali'i construction loan upon the completion of the project.
We continue to push out our near-term maturities and remain focused on executing new financings to support our latest development projects as well as securing long-term funding for our stabilized assets.
We're going to open up the lines for Q&A.
But before we do I just want to hit on a few key points.
First we remain committed to driving our net asset value higher on a per share basis and are laser-focused on closing the gap between our stock price and the true inherent value of Howard Hughes.
And the actions taken over the last quarter to deploy capital into projects that we believe will achieve outsized risk-adjusted returns reflects that strategy.
We acquired a new fully entitled shovel-ready MPC.
We announced the launch of three new development projects and we announced the $250 million share buyback.
All of these initiatives will unlock tremendous value for our shareholders in the near medium and long term.
Second our balance sheet remains strong even after allocating capital to the various projects I just mentioned.
Our disciplined capital allocation approach has allowed us to conserve capital and leaves us with sufficient excess liquidity to evaluate additional opportunities to further expedite growth.
In addition the cash flow generated by future land sales condo sales and recurring NOI combined with the proceeds from our remaining noncore asset sales will only drive our cash position higher.
Third our financial results through 2021 represents the strength of our business as we are now exceeding pre-COVID levels and the guidance targets we have established for the full year points to an even stronger fourth quarter ahead.
With that we'd now like to begin the Q&A section of the call.
We will answer the first few questions that have been generated by Say Technology and will be read by John Saxon.
John can you please read the first question?

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