Howard Hughes Corporation (The)

Good morning and welcome to the Howard Hughes Corporation's second quarter 2023 earnings call.

With me today are David O'Reilly, Chief Executive Officer, Jay Cross, President, Carlos Alea, Chief Financial Officer, and Dave Strife, Head of Operations. Before we begin, I would like to direct you to our website, howardhughes.com, where you can download both our second 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 second 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. With that, I will turn the call over to our CEO, David O'Reilly.

Thank you, Eric. Good morning, everyone, and welcome to our second quarter earnings call. On our call today, I'll begin with a recap of the quarter and cover the segment highlights for our master plan communities and for the seaports. Dave Stripe will cover our operating assets, followed by Jay Cross, who will update our development projects in Ward Village. Finally, Carlos Olea will review our financial results and provide an update on our full-year guidance. For the second quarter, I am pleased to report that our company performed incredibly well and experienced improved underlying demand across our world-class portfolio of assets. Looking quickly around the segments, we delivered solid MPC EBT, which was highlighted in by continued strong land sales at attractive prices in our Houston MPCs. We also saw a sharp increase in new homes sold, a leading indicator of future land sales, providing increased confidence for robust land sales activity in the coming quarters. Our operating assets delivered exceptional financial results when continued outperformance in office leasing and record quarterly results in multifamily. At Ward Village, buyer interest for our premier condos remains strong. In the quarter, we contracted to sell 43 units, representing 27% of all available inventory, which now stands at only 116 units. Finally, at the seaport, the start of our summer concert series on the rooftop, which has been a tremendous success thus far in the year, yielded significant sequential increases in foot traffic across the district and improved financial results. Overall, these favorable dynamics in each of our segments have provided a solid footing at the halfway point of the year, paving the way for a robust second half outlook and increased full-year guidance expectation for our MPCs and operating assets. In our MPC segment, we experienced a 23% year-over-year decline in EBT, primarily due to the timing of SuperPAD land sales in Summerlin. Despite this reduction, we saw a significant increase in new homes sold in each of our MPCs, strong builder price participation, and continued strength in price per acre. We also continue to experience strong home builder demand for new residential land, contracting on parcels at near record prices across our MPCs, much of which has not yet closed. All of this leads us to believe that the second half of 2023 will deliver excellent land sales. Big picture, The resurgence in new home sales that began in the first quarter continued, with a total of 605 homes sold in our MPCs. This represented a 39% increase compared to the prior year and was primarily related to Bridgeland, which nearly doubled its new home sales and is currently on pace to sell a record number of homes in 2023. In our other MPCs, our new home sales in the Woodland Hills increased by more than 50%. and Summerlin increased nearly 20% year-over-year. With these strong sales results, Summerlin and Bridgeland both moved up in the mid-year RCL Co. top-selling MPC rankings, capturing the number five and number six spots, respectively. Ultimately, this significant growth in new home sales, combined with strong underlying fundamentals, points to a strong second half of 2023. While increased mortgage rates have negatively impacted demand nationally, our NPCs have remained resilient, as evidenced by the strong uptick in our underlying home sales this year. While overall home affordability has undoubtedly been impacted by higher rates, what we've seen in our communities is that many homebuyers looking to purchase a home have simply adjusted the size of their purchase. With that, the average size of the home sold has declined, but the price per square foot has actually increased, modestly, helping to keep the value of our lands intact. Just as importantly, the increased rate environment has meaningfully reduced resale inventory, as homeowners with below-market mortgage rates are reluctant to sell their homes. This has forced homebuyers to gravitate to the new home market, which now represents approximately 35% of all homes sold. or a significant increase from the historical norms of 10% to 15%. Ultimately, this has translated into a significant boost for home builders and is driving demand for our land. Put more simply, the increase in interest rates has impacted both demand and supply, keeping an equilibrium in land pricing and driving favorable demand for new land. As a result, we expect a material increase in land sales during the second half of the year. This will drive 2023 MPC EBT higher and gives us confidence to meaningfully increase our full year guidance expectations. Carlos will provide some more detail on those new expectations in a few minutes. Quickly shifting over to the seaport, revenues declined 19% year over year, primarily due to non-recurring COVID recoveries and special events in 2022. This contributed to a $2 million reduction in NOI before equity investments. Compared to the first quarter, our results improved materially as we experienced a significant 89% increase in foot traffic. This growth was led in part by our summer concert series on the rooftop, which is off to its best start to date. We've sold over 170,000 tickets. representing over 85% of available ticket inventory. Overall revenue increased 92% compared to the first quarter, which contributed to a $3 million sequential improvement in total seaport NOI. At the TIN building, customer demand and foot traffic increased. We continued to implement operational improvements as we refined the marketplace's overall operating model, which resulted in elevated operating costs during the quarter. The full-service dining has performed strong, but the retail, fast casual dining, and e-commerce have lagged expectations. We remain intently focused on driving this one-of-a-kind venue towards stabilization, and we are confident that we are on the right path to deliver meaningful financial improvements in the coming quarters. However, it now appears unlikely that we will be able to stabilize the TIN building in 2023 and do not expect it to be profitable this calendar year. I'll now like to hand the call over to Dave Streif to review the performance of our operating assets.