Howard Hughes Corporation (The)

Welcome to the Howard Hughes Corporation fourth quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. If you would like to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to David Streif. Please go ahead.

Good morning, and welcome to the Howard Hughes Corporation's fourth quarter 2020 earnings call. With me today are David O'Reilly, Chief Executive Officer and Interim Chief Financial Officer, Jay Cross, President, and Peter O'Reilly, General Counsel. Before we begin, I would like to direct you to our website, www.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 be achieved. Please 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.

Thank you, Dave, and thank you to everyone for joining us today. Welcome to our fourth quarter 2020 earnings call. Before we begin, I'd like to say I'm extremely pleased to have Jay Cross join us today for his first HHC 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. I also want to quickly touch on 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 this 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, which are Houston-based, were able to file our 10K 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 want to 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&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 a diversified income stream. All of these attributes come together to continue to create strong demand and the ability to accelerate growth with our master planning communities now and for generations to come. I want to 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-19 throughout our communities. Now, on to 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 209 million. As you may recall, we anticipated MPC EBT in a range of 180 to 200 million at the beginning of 2020 prior to the pandemic. To have achieved 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 million, $209 million, and $264 million 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 home builder 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 MPCs 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 non-essential retail tenants and hotel assets were forced to shutter. In addition, the cancellation of the 2020 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 90% 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 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 pre-sales in December of 2019. Victoria Place is Ward Village's fastest-selling condo project to date, with 77% of the units already pre-sold. 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-19, with cases surging early in the year. During the second quarter, construction at the Tin Building was shut down, and surrounding restaurants and retailers were forced to suspend operations. Over 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 e-commerce 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 distanced 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 continued 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 wait list of 4,000 people and generated over $1.6 million 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 for 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 10 Corsacomo 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 and our corporate G&A reduction goal of 40 to 45 million is by and large completed. Our fourth quarter annualized G&A Excluding one-time charges marks a 31% reduction or a $40 million savings from our full year 2019 run rate GNA of 128 million. This implied savings puts us in the range of our cost savings goal originally set out in our announced plan. Our disposition of non-core assets has generated $214 million in net proceeds to date and 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 going to turn the call over to Jay Cross. Thanks, David.