Howard Hughes Holdings - Earnings Call - Q4 2020

Transcript

Speaker 0

Good day, and welcome to the Howard Hughes Corporation Fourth Quarter twenty twenty Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to David Streiff.

Please go ahead.

Speaker 1

Good morning, and welcome to the Howard Hughes Corporation's fourth quarter twenty twenty earnings call. With me today are David O'Reilly, Chief Executive Officer and Interim Chief Financial Officer Jay Cross, President and Peter Reilly, General Counsel. Before we begin, I would like to direct you to our website, ww.howardhughes.com, where you can download both our fourth quarter earnings press release and our supplemental package. The earnings release and supplemental package include reconciliations of non GAAP financial measures that will be discussed today in relation to their most directly comparable GAAP financial measures. Certain statements made today that are not in the present tense or that discuss the company's expectations are forward looking statements within the meaning of the federal securities laws.

Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will

Speaker 2

be achieved. Please

Speaker 1

see the forward looking statement disclaimer in our fourth quarter earnings press release and the risk factors in our SEC filings for factors that could cause material differences between forward looking statements and actual results. We are not under any duty to update forward looking statements unless required by law. I will now turn the call over to David O'Reilly.

Speaker 2

Thank you, Dave, and thank you to everyone for joining us today. Welcome to our fourth quarter twenty twenty earnings call. Before we begin, I'd like to say I'm extremely pleased to have Jay Cross join us today for his first HAC earnings call. Jay joined us in December as president of the company and among other things, will be overseeing the development activity in our communities across the country. Previously serving as president of Related Hudson Yards, Jay has a vast amount of experience executing on large scale mixed use projects that have transformed communities and generated urban development.

Jay's industry knowledge and experience are a perfect match for Howard Hughes, and we're thrilled to have him on board.

Speaker 1

I also wanna quickly touch on

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the winter storm that occurred last week in Texas. Due to the heavy amounts of snow and sustained below freezing temperatures, millions were without power, heat, and water for extended periods of time, some being impacted over several days. Our regional team was proactive in preparing for the storm nearly a week in advance, which resulted in minimal damage to our assets in the Houston region. In addition, our accounting and financial reporting teams, are Houston based, were able to file our 10 k on time and assist in the preparation for this earnings call. I am so grateful for their efforts.

To assist our employees, neighbors, and repair crews, we acted quickly to open our hotels and conference facilities to provide a warm place to stay along with hot meals. We continue to keep in close contact with our impacted employees and those in our community, and we work to assist them in the best way possible. To start the call, I wanna provide a brief recap of highlights and accomplishments achieved throughout the year, and then turn the call over to Jay to discuss our strategic development pipeline and the path forward for our community. I will then speak to our financial results and expectations for 2021 before concluding by opening up the call for q and a. I believe that 2020 was a year that showcased the strength and resiliency of Howard Hughes' assets, people, and business model.

We have irreplaceable assets in locations where people increasingly want to live, work, and shop. These communities provide safety, security, incredible urban amenities, and walkability integrated into wide open spaces, all of which today is more important than ever. We have a self funding business model, a strong balance sheet, and diversified income stream. All of these attributes come together to continue to create strong demand and the ability to accelerate growth within our master plan communities now and for generations to come. I wanna take a moment to thank the entire AJC team, which has displayed an exceptional level of commitment and dedication to the company over the past year and is the driving force behind the results that will be discussed on today's call.

I'm grateful to be surrounded by such an outstanding team and appreciate their efforts and their ability to adapt to a mostly remote working environment over the past several months. As always, the health and safety of our employees, residents, visitors, and tenants remain our top priority, and we continue to monitor the effects of COVID nineteen throughout our communities. Now onto the highlights of the year. After a lull at the start of the pandemic, we saw a surge in demand in our master plan communities following the reopening of most local economies in April and May, which resulted in strong full year MPC earnings before tax or EBT of $2.00 $9,000,000 As you may recall, we anticipated MPC EBT in a range of 180,000,000 to $200,000,000 at the 2020 prior to the pandemic. To achieve this level of earnings is remarkable considering we essentially took one quarter off of the year from land sales.

This compares with MPC EBT of $190,000,002.00 9,000,000, and $264,000,000 in 2017, '18, and '19, respectively. As you may recall, 2019 was a record year with a number of super pad sales accelerated into that year to meet homebuilder demand. New home sales, a leading indicator for future land sales, increased 10% over 2019 with a total of 2,724 new homes sold throughout all of our NPCs in 2020. These positive results were largely attributed to people seeking a flight to quality as we saw an influx of homebuyers moving out of densely populated high cost states and into our amenity rich, walkable urban communities. These results were further fueled by broader macro trends such as historically low interest rates and the growing acceptance of working from home, which increased the need for larger living space.

The performance of our operating assets was disrupted early in the year as the effects of the coronavirus negatively impacted our retail, hospitality, and ballpark assets. We experienced a precipitous fall in NOI beginning in the second quarter as most of our nonessential retail tenants and hotel assets were forced to shutter. In addition, the cancellation of the twenty twenty minor league baseball season meant that our baseball stadium in downtown Summerlin would not host any games. We took proactive actions early on by reducing operating costs where possible and negotiating rent deferrals with select retail tenants, which have had a meaningful impact on their ability to survive. As local economies began to reopen, foot traffic increased within our retail locations and our hotels reopened, albeit at much lower occupancy levels.

Office and multifamily have remained strong with collections in the high nineties percent range, while retail has seen an improvement to 73 collections versus 66% in the third quarter. In 2021, we look forward to continuous improvement in our retail and hospitality assets and are hopeful of a return up to a full minor league baseball season where our minor league team, the Las Vegas Aviators, can host games in our ballpark. At Ward Village, we made strong progress during the year with the construction of our fifth and sixth mixed use projects progressing on time and on budget. Despite travel restrictions and condo tours largely limited to virtual showings, our sales team was able to contract for the sale of 302 homes in 2020. We saw increasing demand from buyers in California and other states who see Ward Village as the ideal location for remote working.

Perhaps the most impressive accomplishment at Ward Village has been the robust sales pace at our latest building, Victoria Place, which launched presales in December 2019. Victoria Place is Ward Village's fastest selling condo project to date with 77% of the units already presold. With unobstructed ocean views on Ward Village's front row, Victoria Place is a testament to the transformation that has taken place at this vertical MPC. There really is nothing else like it in the state of Hawaii. The Seaport was presented with many challenges in 2020 as New York City was hit hard by COVID nineteen with cases surging early in the year.

During the second quarter, construction of the Tin Building was shut down and surrounding restaurants and retailers were forced to suspend operations. Through the middle of the year, construction at the Tin Building was able to resume, and select shops and restaurants were able to reopen at a limited capacity. We took note of the vital role ecommerce played during the pandemic and decided to incorporate a strong focus on food delivery and mobile ordering at the Tin Building, which should be well received by customers post COVID. At the Pier 17 rooftop, we had to quickly pivot our summer strategy as our concert series was canceled due to the coronavirus. We instead launched a new concept called the Greens where guests were able to reserve their own socially distance mini green lawn on the rooftop.

This rooftop activation was extremely popular with local New Yorkers and was very well received by our sponsorship partners. We continue delivering this first class experience through the fourth quarter by transforming these mini green lawns into winterized cabins. In the fourth quarter, we served nearly 39,000 guests and had an average daily waitlist of 4,000 people and generated over 1,600,000 in revenue. The greens clearly displays the appeal for the unique atmosphere of the Pier 17 rooftop. Our team is always searching for innovative ways to make the Seaport a one of a kind destination, and the announcement of our latest concept, the Lawn Club, is a great example of that.

Coming this fall, the Lawn Club will convert 20,000 square feet of the Fulton Market Building into an indoor outdoor experience with a unique emphasis on lawn games. Like the Greens, this concept will be a great gathering place friends and family with access to a variety of lawn games and a clubhouse bar. This is an excellent opportunity to draw additional traffic to the Seaport as consumers begin seeking immersive and shared experiences post pandemic. In addition to this announcement, we've recently entered into a management agreement with acclaimed chefs Wiley Dufresne and Josh Eaton for the former Ten Corsicomo Cafe space on the Ground Floor of the Fulton Market Building. This concept will include an expansive outdoor cafe featuring an all day menu and to go selections.

This past October, we announced our proposed plan for the one acre parking lot at 250 Water Street as we continue to revitalize the Seaport District. Jay will go into more detail on this project and provide updates in a moment. During 2020, we substantially completed executing on our transformation plan. Our decentralization efforts are finished, our corporate G and A reduction goal of 40,000,000 to $45,000,000 is by and large completed. Our fourth quarter annualized G and A, excluding onetime charges, marks a 31% reduction or a $40,000,000 savings from our full year 2019 run rate g and a of $128,000,000 This implied savings puts us in the range of our cost savings goal originally set out in our announced plan.

Our disposition of noncore assets has generated $214,000,000 in net proceeds to date, our strong liquidity position gives us the luxury of patience to ensure we achieve the maximum value for the remaining assets. Our resources are now squarely focused on accelerating development opportunities within our master plan communities. And with that, I'm gonna turn the call over to Jay Cross.

Speaker 3

Thanks, David, and good morning to everyone on the call. It's a pleasure to be with all of you. When one looks at the quality of the Howard Hughes communities across the country, it's easy to see why our MPCs are consistently ranked among the best places to live. This is further reflected in the growth of new home sales and the fast paced absorption of our newly completed commercial assets. Just this past month, the Robert Charles Ledger Company released their list of the 50 top selling master plan communities in 2020.

Semblin ranked third on the list and was top selling NPC in Nevada. Bridgeland ranked ninth in the list and was the highest ranked NPC in Texas. Additionally, during the year, niche.com recognized The Woodlands and Columbia as number two and number seven best cities in which to live in America. And finally, Summerlin was named NBC of the Year by the National Home Builders Association. This type of recognition speaks to the quality of our master plan communities and demand for the excellent homes within them.

As our communities continue to grow, additional residents drive demand for additional commercial amenities. To meet this ongoing demand, we delivered six commercial assets in 2020. In The Woodlands, we completed construction at 8770 New Trails, a 180,000 square foot build to suit office building for Alight Solutions, 2 Lakes Edge, a 386 unit apartment complex in Hughes Landing, and The Lane at Waterway, a 163 unit boutique multifamily property that held its grand opening this past December. In Downtown Columbia, we delivered our first multifamily asset in the Merriweather District with the introduction of Juniper, a 382 unit project with 57,000 square feet of ground floor retail. We also introduced an 11,000 square foot standalone building to house the regionally popular Busboys and Poets restaurant.

Lastly, in Chicago, we delivered a Hundred And 10 North Wacker, a 1,500,000 square foot office tower that is now 77% leased and anchored by Bank of America. The delivery of these assets are excellent additions to our operating asset portfolio, and once stabilized, will add $40,000,000 to our annualized NOI. Since bringing these assets online, we've seen an excellent pace of lease up that has led to our recent announcement of another 2,000,000 square feet of strategic development opportunities in Bridgeland, Summerlin, Downtown Columbia, and Ward Village. Starting with Bridgeland, Starling will become the first multifamily development in Bridgeland Central, a future town center that will ultimately comprise approximately 900 acres. This asset will be located on 15 acres of commercial land and adds 358 units to the community.

The addition of more units to Bridgeland builds on the strong lease up of Lakeside Row, our first multifamily asset in Bridgeland that was delivered in the 2019. As of the end of the fourth quarter, Lakeside Row was 91% leased, which gives us confidence that demand for multifamily and bridges is strong. Construction and styling commenced in the 2020, and we expect to be completed in the 2022. We're excited to start this project and look forward to building out this town center over the next several years. In summary, we recently announced plans to develop two new assets, Tangier Echo, a 295 unit multifamily property, and 1700 Pavilion, a 257,000 square foot class a office building.

The announcement of both properties comes at a time where we see strong underlying demand for both of these product types. In the 2019, we delivered 257 units at Tanager, which are now 99% leased. Similarly, our two office buildings in Downtown Summerlin, comprising 350,000 square feet, are 98% leased. Both Tanager Echo and 1700 Pavilion are expected to begin construction in the 2021. We also just announced the next phase of growth in Downtown Columbia with another multifamily project across the state from Juniper.

Marlow will feature 472 units and 32,000 square feet of retail. The announcement of this development builds on the rapid lease up at Juniper, which we delivered in the 2020 and is already 62 leased. Construction of Marlowe will begin in the 2021. Earlier in the call, David touched on the outstanding pace of condo sales at Ward Village. This robust activity has led to the announcement of the next development phase in this award winning community.

Groundbreaking at Victoria Place took place this week, and we are in active predevelopment for our next two projects. Every new project at Ward Village continues the extraordinary transformation of this destination community,

Speaker 2

which we are proud to be building. In

Speaker 3

addition to these recent development announcements, we released our proposal for the redevelopment of the surface parking lot at 250 Water Street at the Seaport last quarter. Since then, we presented our proposal to New York City's Landmarks Preservation Commission, the first major step in the governmental review process. Our development plan would transfer air rights from the historic waterfront district to the one acre site, resulting in a building that will provide significant district benefits, securing the economic future of the South Street Seaport Museum and bringing needed mixed income housing to the neighborhood. We have received Landmark Commission's initial feedback and are working with the commission to address their comments. We're confident the development of 250 Water Street will continue to bring to life a cohesive vision for the district and help propel the economic recovery of Downtown New York City.

We ended 2020 well positioned for continued growth and have a strategic development opportunity across all of our claim communities. As always, we will be disciplined and strategic, only developing new projects when underlying demand dictates. I personally am looking forward to working with Tal and the team at Howard Hughes as we continue to execute on our decades long development pipeline. And now I'll turn the call back to David O'Reilly.

Speaker 2

Thanks, Jay. I'm now gonna spend a little time going and talking about some more detailed results in each of our operating segments and then discuss our expectations for each of those operating segments for 2021. I'll then turn to our financial results and balance sheet. As I stated earlier, our MPC segment performed well during the year with strength in both underlying new home sales and land sales despite a pause in activity during the second quarter due to stay at home orders issued across the country. 253 more homes were sold in 2020 compared to 2019.

In the fourth quarter alone, there was a total of 692 new homes sold throughout our MPCs, a 15% increase compared to the 2019. Land sales were down 34% in 2020 with 377 acres sold versus 571 acres sold in 2019. Similarly, land sales were lower by 32% in the 2020 compared to the 2019. This year over year and quarter over quarter decline was largely attributed to an outsized year in 2019 as Summerlin closed on large super pass sales in the fourth quarter that were not repeated in 2020. This decrease drove 2020 MPC EBT 54,000,000 lower compared to the full year 2019.

Despite this decline, MPC EBT of $2.00 9,000,000 exceeded our pre COVID earnings target as we typically expect our MPCs to generate between 180,000,000 and $200,000,000 of EBT in a normalized year, as we highlighted on our last fourth quarter's earnings call in 2019. Surpassing this target during a worldwide pandemic truly demonstrates the quality and desirability of the communities we are creating. In Summerlin, new home sales were 8% higher in 2020 versus 2019 and were 21% higher in the 2020 when compared to the same quarter in 2019. In addition, the price per acre of Summerlin's residential land grew to $772,000 in 2020, an increase of 113,000 or 17% when compared to 2019. This activity demonstrates that while land sales were lower year over year, it was not the result of declining home buyer demand, but merely a timing difference.

We continue to see home buyers migrate from high cost states such as California, and the pace of new home sales and the steady increase in price per acre of our land indicates further momentum in 2021. Bridgeland had a monumental year and eclipsed all 2019 results in terms of new home sales, acres sold, and price per acre. New home sales in 2020 were 18% higher than 2019 with several record setting months. Bridgeland sold a 169 acres of residential land to homebuilders during the year, which represents a 13% increase over 2019. Moreover, the price per acre of Bridgeland's residential land rose from 408,000 in 2019 to 439,000 in 2020, an 8% increase.

These results speak to the exceptional quality of this community that will only grow more and more attractive over time. The Woodland Hills experienced significant growth during the year as well as new home sales rose 80% in 2020 compared to 2019 with monthly new home sales records in July and August. During the year, The Woodland Hills sold 56 acres representing a 40% increase from 2019, and the price per acre for residential land increased 12% from 276,000 to 310,000 in 2020. We are very pleased with the performance of our MPCs in 2020 and look forward to another strong year in 2021. Moving on to our operating assets.

During the year, our operating asset NOI of $190,000,000 was 11% lower compared to 2019. This decline was due to the performance of our retail, hospitality, and ballpark assets that were negatively impacted by the coronavirus. For the 2020, our NOI of $47,000,000 was largely unchanged from the same period of 2019. This was due to increased NOI generated by our office and multifamily assets as the newly completed developments and the acquisition of the Woodland Towers were brought online during the year. This was largely offset by a decline in NOI for retail and hospitality.

Our operating asset NOI improved 25% sequentially, which was fueled by a 44% increase in retail NOI. We've continued to see notable performance improvements following the low of the second quarter and are hopeful this momentum will carry to 2021. Office NOI rose 37% during the year when compared to '19 and increased 30% during the 2020 compared to the same period in 2019. The increase in NOI was in large part due to the acquisition of the Woodlands Towers in December 2019, which generated $27,000,000 of NOI in 2020. Excluding the Woodlands Towers, our office NOI was still higher by 5% when compared to 2019.

Overall, our portfolio of office assets performed well during the year with strong rent collections of 97% in the fourth quarter as a result of the high credit quality of our tenants. The NOI from our multifamily properties in 2020 improved modestly by 4% compared to 2019 and rose 50% in the 2020 versus the 2019. The pace of lease up of our newly developed assets has remained strong and was a meaningful driver of the overall contribution of our multifamily NOI. This increase was partially offset by increased concessions at select stabilized assets a negative cash burn at 2 Lakes Edge, and the lane of Waterway, which are still in the beginning stages of lease up. Similar to office, multifamily collections during the fourth quarter remained very strong at 98%.

We introduced three new multifamily developments in 2020, and the strong lease up of those assets solidified our decision to launch three new multifamily projects in 2021. Retail NOI declined from $63,000,000 in 2019 to $40,000,000 in 2020, a 36% drop. Much of this decline was driven by COVID nineteen. While most of our NOI has steadily increased from the lows of the second quarter, our retail in Ward Village and the outlet collection at Riverwalk in New Orleans continue to experience low activity at their respective retail locations as both Hawaii and New Orleans have seen a steep decline in tourism. Excluding the Board Village and the Riverwalk, our NOI only decreased by 19% during the year.

During the second quarter, our retail collections fell to 50% as tenants struggled to pay rent at the onset of the pandemic. During that time, we worked with our tenants and particularly our small business and local tenants who needed assistance the most. Rent collections in the third quarter improved to 66% and rose further in the fourth quarter to 73%. Once tourism returns to Hawaii and New Orleans, we expect retail collections to bounce back to the mid nineties range across our portfolio. We continue to see signs of recovery within our retail portfolio, and the sequential NOI increase of 44% speaks to to the quality of open air retail settings, which has become increasingly more important to our tenants and customers.

During the year, the NOI from our three hotels in the Wilden fell by $26,000,000 or 90% compared to 2019 as occupancy rates fell drastically due to the virus. During the second quarter, our hotels were forced to suspend operations for an extended period to comply with state issued stay at home orders, resulting in a significant hit to NOI. These assets began to reopen at a limited capacity throughout the third quarter, where we began to see increased activity from weekend vacationers and business travelers. While it was a challenging year for hospitality, our assets were still able to generate a positive NOI of $2,900,000 which shows the progress made by our dedicated team over the last few quarters. Finally, in downtown Summerlin, our ballpark reported a net operating loss of $3,600,000 in 2020 versus a positive NOI of $8,100,000 in 2019.

As I mentioned earlier in my opening remarks, the ballpark was shut down during the year as minor league baseball canceled the 2020 season due to COVID nineteen. This shutdown also had a negative impact on our retailers in Downtown Summerlin as the fans who would attend these games would visit our nearby shops and restaurants on game days. If the minor league baseball returns to a full season this year, we expect the ballpark to generate north of $8,000,000 in annualized NOI as it did in 2019. Shifting to our strategic development segment, we continue to see robust demand for our homes at Ward Village with three zero two units sold or under contract in 2020. Although travel restrictions were enacted early on across the state of Hawaii, the pace of sales for available condo units remained strong.

As a result of COVID nineteen, we launched a digital sales platform for virtual condo tours, which greatly improved our sales effort during the year. We topped off Alawi'i this past July and expect to deliver this 85% presold tower at the 2021. Our other tower under construction, Kuala, is well sold at 78% and is expected to be completed in 2022. Both towers are on time and on budget with hard deposits from buyers. Subsequent to year end, we closed on two condo units at Waia and one at Anaha with net sale proceeds of approximately $35,000,000.

With two towers under construction, another in presales, and two additional towers in predevelopment, our view for the future for Ward Village remains very positive. Please note that year over year condominium revenues are not comparable as to as 2019 revenues included condo tower deliveries from Ke Kilohana and Ai'o, while we do not have any tower deliveries in 2020. The Seaport reported a net operating loss of $17,000,000 in 2020, a decline of 11% compared to 2019. The further decline in NOI was largely attributed to the impact of COVID nineteen as businesses were shut down and events were either canceled or postponed throughout New York City. As restrictions eased later in the year and we were able to reopen most of our restaurants at a limited capacity, which included the Fulton Malibu Farm in Cobble And Co.

We took proactive action during the year to adapt to our new environment and launched the Greens, announced two new concepts at the Fulton Market Building and altered space at the Tin Building to incorporate mobile ordering and delivery. I do wanna note the cost to complete the TIN Building increased by approximately $20,000,000 during the quarter, primarily related to additional build out costs that we believe will drive higher returns and increase foot traffic. The increase in cost is primarily attributed to the development of our ecommerce platform to drive takeout and delivery demand, programming of the South Plaza to incorporate a twelve month outdoor venue, enhanced security and COVID related construction delays. While these updates have resulted in higher costs, the increase in offerings and scope will drive significant opportunities to maximize revenue with both customers and sponsors at the TIM Building. As Jay mentioned, we are making progress on our proposal for 250 Water Street and look forward to bringing economic development to the area.

We continue to keep everyone updated as these plans become a reality. This past year presented many obstacles for the seaport, but we were able to thoughtfully pivot and continue to build upon our vision of revitalizing this district. We believe the positive results displayed in the 2020 is a great proxy of what we expect to occur in 2021. Our master plan community should have another great year in 2021 as the growth in new home sales materializes into land sales over the coming quarters. We expect this activity to result in MPC EBT of 180,000,000 to $200,000,000 which is consistent with our guidance from last year.

We expect our operating assets to recoup most of the NOI loss this past year due to the pandemic and project $195,000,000 to $2.00 $5,000,000 of NOI in 2021. The lease up of our newly developed and acquired assets will drive NOI higher along with the continuous improvements within our retail and hospitality assets as we anticipate higher rent collections and increased occupancy. Note that our operating asset NOI projections assume the Las Vegas Ballpark will breakeven as we anticipate a minor league baseball season in 2021, but are not clear as to the number of games or whether there will be stadium capacity restrictions in place. With the completion of A'ali'i expected in 2021, we anticipate $100,000,000 to $125,000,000 in net profit at Ward Village. This tower is already 85% presold, and we are confident we will sell the majority of the remaining units by year end.

This projection also includes contribution from the sale of select remaining units at Waiaa and Anaha. The cost cutting initiatives actioned over the last several quarters meaningfully reduced our overhead and have helped streamline our business. We've essentially completed the G and A reduction goal of our transformation plan and expect our G and A cost in 2021 to range between 80,000,000 and $85,000,000 The combination of exceptional business performance and cost savings in 2021 will have a meaningful impact on our bottom line and will increase the free cash flow available for accelerating further strategic development opportunities within our core MPCs. Taking a look at GAAP earnings for the twelve months ended 12/31/2020, we reported a net loss of $26,200,000 or $0.50 per diluted share compared to net income of $74,000,000 or $1.71 per diluted share in 2019. We completed the fourth quarter with a net loss of $6,600,000 or $0.12 per diluted share compared to a net loss of $1,100,000

Speaker 4

or

Speaker 2

$03 per diluted share for the same period of 2019. The year over year and quarter over quarter declines were largely due to the impact the coronavirus had on our various business segments, including in our MPCs, operating assets and the Seaport. In addition to significantly lower condo sales revenue recognized, as 2019 revenues included the closing of IONK and Kilohana, when we did not close on any condo towers in 2020. This decrease in year over year earnings was partially offset by the onetime noncash gain of $267,500,000 related to the deconsolidation of 110 North Wacker in the third quarter of twenty twenty.

Speaker 3

Subsequent to the quarter end

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on 02/02/2021, we closed on a two tranche bond offering, issuing $650,000,000 of senior notes due in 2029 at a rate of four and an eight, and six hundred and fifty million of senior notes due 2031 at

Speaker 4

a rate

Speaker 2

of four and three eight. The net proceeds of the offering, combined with a portion of cash on hand, will be used to redeem our existing $1,000,000,000 of senior notes that were due 2025 at a rate of five and three eighths as well as to repay the $280,000,000 bridge loan for the Wooden Towers. This bond offering increased our unencumbered book value of assets, further reduced our cost of debt, and extended our maturity profile. Our nearest debt maturity is not until October '21, which is for only $29,000,000 on a loan at the outlet collection at Riverwalk. The asset is currently 87% leased and is one of the few remaining noncore assets left to sell.

Our liquidity position is incredibly strong as we closed out the year with a billion dollars of cash on hand, 185,000,000 in availability in our lines of credit, and only 371,000,000 of net equity requirements for our projects currently under construction. The proactive actions taken over the last year to strengthen our balance sheet leaves us with more than enough liquidity to meet all of our current funding requirements. The results from the quarter and the full year are a reflection of how our irreplaceable assets and unmatched communities can perform both during good and bad economic cycles. Our company's diversified stream of income, strong balance sheet, and self funding business model helped us navigate through an unprecedented year. We ended 2020 well positioned for accelerated growth as the increase in new home sales, strong absorption of our newly developed assets, and robust condo sales velocity solidified our decision to launch 2,000,000 square feet of new developments in 2021.

We're looking forward to the year ahead as we continue to successfully grow our communities and unlock value for our shareholders. So we're now gonna turn the call over to the q and a section. I will answer the first few questions that have been generated by SAIT Technology and will be read by Dave Strife. Dave, can you read the first question?

Speaker 1

Yes. First question is from supplemental disclosures, it looks like Brisbane added 722 saleable residential acres in 04/2020 versus 03/2020 for a 35% increase. What drove this? Was it organic? And can the same inventory additions be replicated in other MPCs over time?

Speaker 2

It's a great question, and I'm I'm glad you asked it because it is important to note. It is exactly right that the net saleable residential acres did grow this past quarter and over 2020 as we continue to refine our master plan at Bridgeland. And when we have a master plan like Bridgeland at close to 11,000 acres, the initial master plan you have as you think about a thirty year sellout often changes, morphs, and, you know, gets more refined and detailed over time. And that's exactly what happened as we put a very fine pencil and pen to some of the new neighborhoods we expect to open in 2021 and 2022. And as a result, we were able to increase the net saleable acres.

This is not uncommon. This happens every couple of years within our master plans. I wouldn't expect, this to happen in The Woodlands because we're down to very few acres left. But in Summerlin, especially as we get into the details of Summerlin West and as we continue to move forward in Bridgeland, we have the opportunity to increase the saleable acres. I think 07/2022 is a meaningful adjustment.

I wouldn't expect that to be replicated, but we are always trying to push to make sure that we're maximizing the value of all of our NPCs. K.

Speaker 1

The next question, can you elaborate on what drove the 25% decline in other operating rent collections in q four versus q three, even as retail collections improved? Was this mainly attributable to the Aviators, hospitality, or other? And do you expect normalization in q one twenty twenty one going forward? Another good question, and

Speaker 2

I'll hit the end of that first, which is I absolutely expect to get back to normalization because we already have. And it was really a timing difference related to the warehouse The Woodlands warehouse where we had not collected it as of December 31, but have collected it subsequent to the end of the year. So that collection percentage is already back up to where it was in previous quarters, and we expect to maintain that or improve that throughout 2021.

Speaker 1

Next question is, will you be able to recognize gains from any condo towers in Hawaii this year?

Speaker 2

You know, as I mentioned in our prepared remarks, we're expecting between a hundred and a hundred and twenty five million dollars of, net profitability as we close A'alihi at the end of the year. And we're also, had closed a handful of units at Waiea and Anaha, which will be thrown flowing through the p and l in one q.

Speaker 1

Thanks, David. Next question. Shares were diluted last year to show up the balance sheet as a result of COVID. Do you have any plans on buying those shares back and continuing the original path for reducing share count to further create shareholder value? You know, again, it's another great question and one that

Speaker 2

we focus on a lot, and it really comes down to a capital allocation decision. And this past quarter, about a month ago, you saw our announcement to launch 2,000,000 square feet of new development because we thought that that was going to deliver the highest risk adjusted returns for our shareholders. We have the benefit now of having tremendous liquidity and the optionality of thinking about new developments or thinking about potential share repurchases, which we're always evaluating and and we'll take advantage of if we continue to see dislocation in our share price.

Speaker 1

Thank you. Alright. Next question. The development potential in Downtown Columbia, Merriweather, seems very exciting, but perhaps the least talked about by management. Is it because of the size, the enormous scale of the other projects, or just too early in the process of the Columbia development to really divulge?

Speaker 2

Well, I I'm almost a little offended because I think I go out of my way in most of our investor meetings to highlight Columbia when it's often overlooked. But it is a great question, and we're really excited about the progress in Downtown Columbia. It has been one of the best performers throughout our portfolio during the pandemic, largely driven by an incredible tenant base concentrated in education, health care, and cybersecurity. And I I noted in an interview earlier this month that in the time it took us to, consolidate ownership and reach a tentative agreement on the redevelopment of Landmark Mall, we executed on over a billion dollars of transformation in Downtown Columbia, and we're really excited about the momentum we have there. As Jay mentioned, we just launched another multifamily project, and we're continuing to see great results in Columbia.

Speaker 1

Thanks, David. Next question is, as new Internet technologies like SpaceX Starlink enable high paying jobs to literally relocate to their most remote locations, how will urban areas where HHC focuses be able to thrive as more and more high paying jobs exit cities? Well, I

Speaker 2

would say that that we have been a great beneficiary of this trend. And as more and more folks are able to work remotely and as they're able to make decisions on where they live that allows them to move to great master planned communities like The Woodlands, like Bridgeland, like Summerlin, where they have an amenity rich environment but also access to wide open green spaces, that has really played in our favor. And we saw that with the increase in home sales throughout our MPCs in 2020 compared to 2019 as well as the rapid lease up of our multifamily assets throughout the year. So I think that we have been at the center of the bull's eye of this trend, and we're hopeful that that will continue throughout 2021. Similar question.

Speaker 1

How is Howard Hughes capitalizing on the surge in demand for real estate, specifically in states like Texas and Florida right now? Well, it comes down to the core

Speaker 2

of our business plan that as we sell more homes, we sell more land to homebuilders. Those homes get built, residents move in, they need more commercial amenities, and we build those at outsized risk adjusted returns as we did with the 2,000,000 square feet of new properties that we'll be building this year.

Speaker 1

Operator, we can open up to q and a now.

Speaker 0

Thank you. Our first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Speaker 5

Hey, good morning. Good morning, David and Jay. Certainly a strong land sales quarter, and maybe we'll start there. David, you always mentioned that land sales are lumpy, and there's always timing of when the homebuilders take down the land, when they process it and then when they come back to the well to buy more. You did mention the 180,000,000 to $200,000,000 but just given what seems to be incredible pace that's not letting up of homebuilder activity, how should we think about 2021, so that we don't get detached from what you guys have?

Should we just continue to assume the same 180, 200 ratably through the year? Or are there some super pad sales that you're seeing? Or what's a better way that we can sort of be more in sync, which really means to say, you had a great quarter in the fourth quarter. Does that mean 1Q is going to be light, but then expect 2Q to be big? Just sort of looking for color.

Speaker 2

It's a good question, Alex, and and it's a really difficult one to answer because, it requires a lot more clarity in my crystal ball than I have. I'll tell you that that we feel good that over the course the year, we'll be able to achieve that a 180 to $200,000,000 number, which is a tremendous number for our news. The timing of that is going to be lumpy. And as you know, we're driven by maximizing value and not driven by quarterly results. So if it comes time to close and, you know, we're gonna get an incremental benefit of a couple of dollars by waiting till the end of the quarter or by getting it done early in the quarter, we're gonna do that to maximize value, not to meet quarterly expectations or results.

So that's really difficult for me to tell you that that one q will be big or smaller. Two q will be big or small. I think in totality, on a trailing twelve month basis, I think we'll look back a year from now and be in that one eighty to 200 range, hopefully towards the higher end. But the color quarter to quarter is just too hard to predict.

Speaker 5

Okay. The second question is Hawaii, the the, you know, Ward Village just remains a blowout success for you guys. But just speaking, you know, to some of the well, you know, you know, reefs on the island, it seems that, you know, the housing boom has also arrived in Hawaii, so a lot of locals are buying homes. How has this changed? I mean, basically, it doesn't seem like this shift of the locals to go buy homes instead of condos has really impacted you guys.

Is that a fair assessment, or are there some things to think about or added dynamics that are that are, you know, more than offsetting, any decline in local activity?

Speaker 3

Well, Alex, think that we have seen a shift over the course of

Speaker 2

the year in terms of the makeup of our buyers. And if anything, we've seen a modest decrease in the local buyers buying condos at Ward Village. Now that's been more than offset with increased demand from the Mainland, primarily the West Coast up and down from the Southern California area to the Pacific Northwest. But it's been small ships, and it hasn't been meaningful changes. I I wouldn't say that we've seen an acceleration of local buyers.

I think the local economy in Hawaii, which has obviously been incredibly challenged given its reliance on travel and tourism, provided a little bit of headwinds. And I think that's why some of those local buyers were a little bit slower in 2020 than in previous years.

Speaker 5

Okay. So you expect the local buyers to come back, or you expect just continued more demand from the West Coast?

Speaker 2

I expect both. I'm I'm optimistic for both, Alex. And I'm optimistic for both, not just in Ward Village, but across our master plans. And we had incredible home sales in The Woodlands and in Summerlin and in Bridgeland, with

Speaker 3

some headwinds in

Speaker 2

the local economy as Vegas, you know, was challenged as The Strip had much less travel and tourism. And Houston, is typically correlated with energy, had its share of headwinds. And we've more than offset that with out of state migration patterns coming into these master plans. And if we're able to continue to see those trends as well as the recovery of those local economies, both both here in in The Mainland as well as in Ward, we could be positioned for an incredible year.

Speaker 5

Okay. And then just finally, to Texas, and I think this may have sort of been following up one of the electronically submitted questions. Yeah. You guys have two rather large parcels of land, you know, Circle T and and Monarch City. And I know, David, that you're always you know, you don't wanna overpromise.

You wanna underpromise and overdeliver. But are you, in general, seeing more and more RFPs for corporate lease relocations that means that some of these land parcels could come to fruition in the next 12, you know, call it twelve to twenty four months? Or is the mantra still, you know, don't even think about these land and about anything happening on these parcels for a long time? Just trying to gauge just given with all the corporate relocations, it would seem that those two parcels are increasingly likely to see something, something bite.

Speaker 2

You know, look. It's always a possibility, Alex. I wouldn't say that that I would look at it as something that that we're expecting in the next several quarters. Both of those assets that you mentioned are on the noncore asset list, And, you know, they're always assets that we're evaluating the sale of, and, you know, one of those Circle T, we did close on the sale of recently. So the remaining Dallas area land that we own is Monarch City.

I think it's in the path of growth. I just don't know if that path is near term enough that I would expect anything in 2021.

Speaker 5

Okay. Thank you. Thank you, David.

Speaker 2

Thanks, Alex. Appreciate it.

Speaker 0

Our next question comes from Hamed Gorson with BWS.

Speaker 4

This is Fahed, actually. I know you had announced you're ramping up developments just recently, but I was wondering in the past, like you had purchased the two Oxy towers. What are your plans and why wouldn't it be your plans to purchase more assets within the MPC regions to increase control over, pricing?

Speaker 2

Well, I think that we're always evaluating those opportunities when they come up. And as as you know, we do own a meaningful component of assets within our master plan community. And so, therefore, those opportunities are are limited by definition. But when they do arrive, we take a very close look at them often given some of our rights, whether they're rights of first offer, refusal, deed restrictions, or otherwise, it can translate into some sense of competitive advantage. And when we do have that, we look to take advantage of it.

But those opportunities, historically speaking, have been fewer and and far between because we do already have a meaningful ownership percentage in the in of the assets within our master plans.

Speaker 4

Thank you for that. And then my my last question, back to the ballpark. We we left out last year. I I I don't remember a clarification on whether you were able to collect the entire naming rights fee and if those negotiations have progressed on this year on whether if there is minor league baseball season or if it's a limited number of games or fan attendance, if you would still receive a 100% of, the the sponsorship fee?

Speaker 2

With the naming rights agreement, we very much we did collect our sponsorship payment with specifically to that agreement this past year, we do expect that we will receive it in the future, assuming that there is a season, fans or no fans.

Speaker 4

Now that's not the same

Speaker 2

sponsorship agreements. You know, obviously, there are some that that we don't that aren't we are not afforded the luxury of collecting whether or we have a season or not. And in those situations, we've worked collaboratively as we have with our, like, our local retail tenants to make sure that we're coming up with a solution that works for both parties.

Speaker 4

Okay. Thank you very much.

Speaker 2

Thank you.

Speaker 0

Our next question comes from Marlene Perrero with Bank of America. Please go ahead. Two just very quick high level questions. One, any impact on the business from what's going on in Texas right now? And two, obviously, rates are a bit topical in the market this week.

Any thoughts on that in terms of impacts on home or land sales?

Speaker 2

Absolutely, Marni. Great questions. And I'd say that the team did an incredible job getting prepared for the winter storms as as we did see it coming and minimize the the amount of damage and impact that we saw to our assets to a handful of of burst pipes, which have all been remediated and and we're handling with it with our insurance company already. So I would say no material impact. Obviously, there was a there was a material impact for all of our employees that lost their power and water, and we did everything we could to help them through that time, opening up our hotels, providing meals, showers, anything we could to help.

In terms of interest rates, absolutely, it's something that we keep a very close eye on. And in the 2019, we also saw a a quick, meaningful increase in rates, and that had a very temporary short term impact on home sales. Now our strategy has always been to only sell land to home builders to keep up with underlying home sales so that we keep up with an equilibrium of supply and demand in the market. If this change in rates impacts home sales, we're gonna react quickly, and it'll impact our land sales. Obviously, it's very much real time.

It's, you know, less than twenty four hours old, so we haven't seen any impact yet. But it's something that we're gonna continue to monitor to make sure that we are able to react very quickly so that we don't fall out of balance between, land that the homebuilders own and the home sales that are supporting those that land.

Speaker 0

Great. Thank you.

Speaker 2

Thank you, Marlon.

Speaker 0

Our next question comes from Jon Petersen with Jefferies. Please go ahead.

Speaker 6

Oh, great. Thanks. I'm curious if you can just you know, we're two months into the new year, if you can give us, you know, any indications of how hotel revenue and NOI is trending, and kinda what your expectations are for the next few quarters. And I guess kinda following up on, the recent cold in Texas, is that, I guess, created any, incremental hotel demand that might be meaningful to next quarter's earnings?

Speaker 2

The answer is, in big picture, away from the storm, I would expect the next several quarters for our hospitality assets to look like the past couple of quarters. You know, we're still seeing modestly growing leisure travel and modestly growing business travel. You know, some of the the benefits we saw in 2Q and 3Q with some staycationers and the Major League Baseball bubble, you know, obviously, we're not gonna replicate that in the winter months here. But we did see a pickup over the past week as our hotels were completely sold out during the winter storms. And I think that will have a very modest impact because that is a two to three day phenomenon over a ninety day quarter.

Speaker 6

Got it. And then, you know, on pages thirteen and fourteen, you have kind of your stabilized properties and your current cash NOI and what the stabilized NOI is. I just wonder if maybe you can give us a kind of a sense of, you know, when we go from that. You know, we're a 192,000,000 annualized in the fourth quarter. You guys have stabilized, pegged it about 285,000,000.

You know, I know you guys aren't really giving guidance, but, you know, is is you know, if we're looking a year from now at 04/2021, do you anticipate we'll be a lot closer to that stabilized number?

Speaker 2

I I absolutely do. I think that we work every day to try to close that gap specifically within our stabilized properties on those pages that you mentioned, John. And rather than try to give you an indication of where I expect us to be a year from now, I may say if you went back to, you know, 4Q last year or 1Q this year pre pandemic, I think you'd see that that gap candidly, almost didn't exist in hospitality, multifamily, and office, and we had a very small gap within retail. So we've shown that we're able to get to that stabilized number, and, you know, I think as we hopefully recover coming out of the pandemic, that gap will continue to close back to where it was previously.

Speaker 6

Okay. Alright. That's great. Thank you. Appreciate the color.

Speaker 2

You too. Appreciate it.

Speaker 0

This concludes our question and answer session. I would like to turn the conference back over to David O'Reilly for any closing remarks.

Speaker 2

Appreciate everyone joining us today, and I want to thank everyone again for participating in the call. We'll be sure to keep you posted on the progress on our recently announced development plans as well as we announce details of an upcoming Investor Day event in the next couple of months. So until then, stay safe and well. Look forward to speaking with you all soon.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation.

Speaker 4

You

Speaker 0

may now disconnect.