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spk00: Good day and welcome to Howard Hughes Holdings Inc third quarter 2023 earnings call. Today all participants will be in a listen only mode. Should you need assistance during today's call, please signal for 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 telephone keypad. To withdraw your question, please press star, then two. Please note that today's event is being recorded. I would now like to turn the conference over to Eric Holcomb, Senior Vice President of Investor Relations. Please go ahead, sir.
spk03: Good morning, and welcome to Howard Hughes Holdings' third 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 third quarter earnings press release and our supplemental package. The earnings release and supplemental package includes 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 meanings 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 third 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 now turn the call over to our CEO, David O'Reilly. Thank you, Eric.
spk07: Good morning, and welcome to our third quarter earnings call. I'm going to begin today with a recap of the quarter and cover the segment highlights for our master plan communities in the Seaport. Dave Stripe will cover our operating assets, followed by Jay Cross, who will update our development projects in Ward Village. And then finally, Carlos Olea will provide an update on our full-year guidance and review our balance sheet. For the third quarter, I'm pleased to report that our company continued to deliver strong financial results in our businesses with resilient underlying demand across our world-class portfolio of assets. Looking quickly around our core segments, we reported strong MPC EBT, which was highlighted by meaningful land sales at a record average price per acre. Our MPC results were complemented by a sharp increase in new homes sold, which is a leading indicator of future land sales, further providing assurance for robust land sales activity in the quarters ahead. Our operating assets continue to deliver incredible results, with year-over-year NOI growth in all three core property types, including double-digit increases in multifamily. In Ward Village, our sales team delivered another quarter of exceptional condo sales, selling out Aali'i and Ulana, and all but one unit at Kaula, which was contracted in early October. At quarter end, more than 98% of all condo units in Ward Village were sold or under contract, which is simply an amazing achievement. With these strong results and our favorable outlook for the fourth quarter, we've further increased our full-year guidance expectations for MPC EBT and operating asset NOI. We've also expanded our projected condo sales and gross margins to include the sellout of Ali'i and Kaula. At the seaport, results remain challenging, with third quarter revenues declining $3 million or 9% compared to the prior year. In total, Seaport reported a net operating loss of $9.5 million, which was essentially unchanged year over year, and included losses of $8.1 million for the tin building. Year over year performance was impacted by the closure of restaurant concepts, fewer private events, and poor weather conditions. In September alone, New York received more than 14 inches of rain, with more than 50% of peak Thursdays to Sunday periods affected, including 60% of Saturdays and 75% of Sundays. The continued challenges at the Seaport led us to conduct an impairment analysis and record a significant non-cash after-tax charge of approximately $555 million. Carlos will provide additional details in a few moments. Subsequent to the quarter end, we announced our intent to create Seaport Entertainment, a new division which is expected to comprise HHH's entertainment-related assets in New York and Las Vegas, most notably including the Seaport and the Las Vegas Aviators minor league baseball team. We intend to spin off Seaport Entertainment into its own publicly traded company in 2024. This planned separation from Howard Hughes will ultimately refine the identity of Howard Hughes, or HHH, as a pure play real estate company focused solely on the significant pipeline of growth opportunities within our portfolio of acclaimed master plan communities. Similarly, Seaport Entertainment, which will operate independently as an entertainment-focused enterprise, will have greater opportunities to unlock the inherent value within these assets and pursue growth within the entertainment industry. Turning to our MPC segment, we delivered $85 million of EBT, or a 12% year-over-year increase, primarily due to increased SuperPAD sales in Summerlin and residential lot sales in Bridgeland. In total, we sold more than 84 acres of residential land in the quarter at an average price of $913,000 per acre, representing an all-time record high for Howard Hughes. We also sold an additional 13 acres of commercial land in Bridgeland to Chevron, which in September announced plans to build an R&D campus on over 77 acres of land in Bridgeland Central. This significant development is not only a catalyst for initial commercial development in Bridgeland, but also for incremental future land sales, home sales, and absorption within our multifamily properties. It'll also drive increased demand for retail as we kick off the development of Bridgeland's future 925-acre downtown. Our strong MPC land sales were complemented by solid builder price participation revenue of $16 million, as well as $14 million of equity earnings primarily related to the sale of the final clubhouse condominiums in the summit. New home sales in our MPCs remained exceptional during the quarter, with a total of 605 homes sold. This represented a sharp 113% year-over-year increase, with both Summerlin and Bridgeland more than doubling the number of homes sold in the prior year. In fact, new home sales in the Las Vegas Valley during the month of August were the highest since the late 2000s. As we described in last quarter's earnings call, the surge in new home sales is largely being driven by significant lack of resale inventory, as existing homeowners remain reluctant to sell their below market mortgage rate. This dynamic has forced home buyers into the new home market, which through August accounted for nearly 30% of all homes sold in the United States, more than double historical norms. Ultimately, this is contributing to a strong level of demand for home builders, and is driving elevated interest for our land. During the quarter, we continue to contract additional land parcels at near record prices across our MPCs, many of which have not yet closed. As a result, we expect continued strong land sales in the fourth quarter and into 2024, giving us increased confidence to significantly increase our 2023 MPC EBT guidance. Carlos will discuss our guidance in more detail in a few moments, but for now, I'd like to hand the call over to Dave Streif to review the performance of our operating assets.
spk04: Thank you, David, and good morning. In the third quarter, operating assets continued to experience heightened demand and year-over-year growth across each of our three core asset types. In total, we delivered an impressive $63 million of net operating income, which represented a 3% improvement compared to the prior year. Sequentially, NOI declined $5 million, primarily due to one-time lease termination fees during the second quarter at 1725 Hughes Landing in the Woodlands. This vacated space is already under promising lease negotiations, further exemplifying the strong office demand we are seeing today. We also experienced a normal seasonal decline from the ballpark in Las Vegas with reduced attendance through the peak summer months. Looking at our property types in more detail, the most significant year-over-year increase was seen in our multifamily portfolio, which delivered record quarterly NOI of nearly $14 million, an incredible 18% improvement. This growth was primarily driven by a 4.5% average in-place rent growth, along with favorable performance from Starling at Bridgeland and Marlowe in Columbia, both of which continue to lease up at an outstanding pace. At quarter end, Starling was 93% leased and Marlowe was 55% leased, with both properties achieving these results in a year or less. These improvements were partially offset by initial operating losses from Tanger Echo, the latest addition to our multifamily portfolio in Summerlin, which opened in July and was 13% leased at quarter end. Overall, our stabilized multifamily properties finished the quarter 96% leased, with downtown Columbia at 97%, Houston at 96%, and Summerlin at 93%. Our office portfolio generated third quarter NOI of $29 million, reflecting a 3% year-over-year improvement. This increase was primarily the result of strong lease-up activity and rent abatement expirations in the woodlands, partially offset by some tenant turnover in our older assets in downtown Columbia. In the woodlands, 9950 Woodlock Forest, our flagship office in this market, has seen tremendous financial improvement with a 31% increase in leased space during the last year. This trophy asset closed the quarter at 91% leased, with the remaining space in negotiation or under expansion options for existing tenants. Overall, with our stabilized office portfolio at 87% leased, we continue to see strong demand for our highly monetized Class A office assets across all markets. In retail, the third quarter NOI was just under $13 million, or a 4% increase compared to the prior year. The improvement was related to increased rental revenue in Houston and Ward Village, as lease percentages increased 6% and 2% year-over-year, respectively. Thoughtful improvements in the tenant base in downtown Summerlin has also contributed to year-over-year growth, as increases in retail sales and rental revenue drive the continued success of Summerlin's premier shopping destination. With that, I will now turn the call over to our president, Jay Cross, for a review of our strategic development segment.
spk06: Thank you, Dave, and good morning, everyone. In the third quarter, we achieved several key milestones, including the substantial completion of one multifamily project and the start of construction on two new developments in our pipeline. We also continued to make good progress on all of our projects under construction. Starting in Houston, we were making exceptional progress with the development of Wingspan, our single family for rent development located in Bridgeland. This project, which encompasses 263 homes, celebrated its grand opening a couple weeks ago and welcomed its first residents. We anticipate Wingspan will be fully completed in mid-2024. In the Woodlands, we started construction on one Riva Row, a 268-unit high-rise multifamily development along the waterway. This much-awaited project will set a new standard for luxury in the Howard Hughes portfolio and contribute meaningful NOI of nearly $10 million per year upon stabilization. We expect to complete this project in mid to late 2025. In Las Vegas, we completed construction and started leasing at Tenager Echo, our newest multifamily offering, with 294 units in the heart of downtown Summerlin. Right across the street from Tenager Echo, we also recently announced and started construction on a new 67,000 square foot retail development, which will be anchored by a new Whole Foods market. This new grocery-anchored center will be the first of its kind in downtown Summerlin, and we expect it will be completed in the third quarter of 2024. A few miles south, we continue to make solid progress on the South Summerlin office, which comprises two three-story office buildings totaling 147,000 square feet. Topped off and enclosed, we expect this LEED Silver project will be completed during the first quarter of 2024. Looking quickly at downtown Columbia, construction continues on our 86,000 square foot medical office building where we recently celebrated the building's topping off milestone. This development is already 28% pre-leased with the remainder under LOI or in lease negotiation. We expect to complete construction in the first half of 2024. Overall, our current residential and commercial projects under construction represent future stabilized NOI of more than $24 million for our operating assets segment. At Ward Village, we continued to see significant demand for our residential condos. We closed on the sale of 26 units and contracted to sell an additional 13. At quarter end, we had only 85 homes remaining to sell at our current projects. At Aali'i and Kahula, the price reductions we implemented earlier this year proved to be very successful, allowing us to sell the remaining 3% of the total units in these buildings. For the quarter, we closed on the sale of 26 units, generating $26 million of revenue and completely selling out Aali'i. At quarter end, we have had one unit remaining at Kahula, which closed last week, bringing this project to 100% sold. Overall, while our sales initiatives contribute to slightly reduced revenue and profit for the year, overall gross margins achieved on the two towers were minimally impacted with both projects in the range of 25 to 30%. At our projects under development, we are now in our final year of construction at Victoria Place, which is 100% pre-sold and expected to be completed in the third quarter of 2024. At Ulano, we have contracted the remaining four units in inventory, selling out this future workforce housing tower slated to be delivered in 2025. At the Park Ward Village, we contracted two units, bringing this tower under construction to 94% pre-sold. And finally, at Kalai, we contracted seven units, making this tower 85% pre-sold. We therefore expect to start construction on this project late this year. Overall, upon completion, these four towers will generate more than $2.5 billion of future revenue for Howard Hughes, which will be recognized between 2024 and 2027. And with that, I would like to now turn the call over to our CFO, Carlos Alea.
spk08: Thank you, Jay, and good morning.
spk01: Let's start by addressing the impairment charge of the seaports. As we mentioned during this call last quarter, stabilization and profitability were taking longer than expected. Office leasing challenges, the elimination of the 421A tax abatement program, significant weather events, and lagging sales triggered a full impairment analysis during this quarter. This cash flow headwinds, when combined with lower restaurant multiples and higher cap rates, resulted in an after-tax impairment charge of $555 million. While we may believe that multiples will increase and cap rates will decrease over time, this analysis must be made at a point in time, using information available at that moment. This does not diminish our view of the CPERS prospects post-spin, and we will remain focused and dedicated to a successful transition. Let's move on to an update to our full-year guidance. In MPCs, Our strong results in the third quarter and our anticipated residential land sales in the fourth quarter are expected to drive significantly higher EBT for the full year. We now expect EBT to be up 10% to 20% year-on-year, which would imply record MPC EBT of $325 million at the midpoint. This compares favorably to our prior guidance of flat to down 10%, and represents an increase at the midpoint of approximately $55 million. Compared to our initial full-year guidance announced at the beginning of the year, MPC-EBT is expected to be higher by $125 million at the midpoint. In operating assets, our impressive NOI performance in the third quarter, combined with our strong results throughout the year, is expected to drive enhanced NOI. Excluding the contribution from divested retail assets in 2022, operating assets NOI is now expected to be in a range of up 2% to 4% year-over-year, or approximately $243 million at the midpoint, which would be a full-year record for Howard Hughes. This is an improvement from our original full-year guidance of down 2% to up 2%, or an increase of approximately $7 million at the midpoint. In Ward Village, with the remaining condo inventory at A'ali'i sold out in the third quarter and the final unit at Ko'ula contracted and closed in the fourth quarter, we now expect 2023 condo sales to range between $47 million and $48 million, with gross margins of 13% to 14%. This compares favorably to our previous guidance, which anticipated condo sales between $40 million and $45 million, with margins between 10% to 13%. And finally, our cash G&A guidance remains unchanged at $80 million to $85 million. With respect to divestitures, in July we sold our two self-storage facilities in the woodlands for a combined price of approximately $30 million. This resulted in a sizable gain on sales totaling $16 million, further demonstrating the value creation proposition inherent in our development projects. Shifting to the balance sheet, We ended the quarter with $492 million of cash. With anticipated significant cash inflows from MPC landfills in the fourth quarter, we are well positioned to deploy capital into our development pipeline. At the end of the third quarter, the remaining equity contribution needed to fund our current projects was approximately $256 million, including anticipated financing for a new grocery center anchored by Whole Foods in Summerlin. From a debt perspective, we had $5.2 billion outstanding at the end of the quarter. And although credit markets remain challenging, we completed several important financings in recent months. Our success has allowed us to start construction on two key development projects, including one river row in the woodlands and infrastructure projects in Ward Village. We also refinanced our extended loans on four properties, including maturing loans for 250 Water Street in New York and two office properties and one retail center in the woodlands. This financing extended our weighted average debt maturity to approximately six years and resulted in approximately 86% of our debt being due in 2026 or later. From now to 2024, our only debt maturity, aside from scheduled principal payments, which total 17 million, is our construction loan for Victoria Place in Hawaii. At quarter end, this loan carried a balance of $153 million which will be repaid with the cash proceeds from condo closings expected to occur in the third quarter of next year. And finally, at the end of the quarter, approximately 81% of our debt was fixed, capped, or swapped to a fixed rate. This is a reduction from the prior quarter, primarily due to a maturity of a $615 million interest rate swap related to loans in an operating asset segment. We continue to evaluate our hedging strategy in the current rate environment with a goal of minimizing our interest rate risk for the right cost benefit. With that, I would like to turn the call back over to David for closing remarks.
spk07: Thank you, Carlos. Before we open up for Q&A, just a couple of closing thoughts. First, despite high mortgage rates, the new home market remains strong, and home builders continue to seek our land at record prices. As a result, we've further increased MPC EBT guidance to a range that will likely yield record full-year results. Our operating assets continue to deliver exceptional performance, which has also resulted in increased 2023 NOI guidance, again, to record levels for the year. Our strong lease-up, particularly in office, will help to drive significant NOI growth in the years to come and move this segment closer to stabilization. And finally, the anticipated spinoff of Seaport Entertainment in 2024 is a significant milestone in the history of Howard Hughes. We believe operating as a pure play master plan community company will allow us to better focus our attention on our extensive pipeline and attractive growth opportunities within our MPCs. At the same time, Anton and the team at Seaport Entertainment will be better poised to unlock the value of these unique assets and seek complimentary growth opportunities in the entertainment space. All right, with that, let's start the Q&A portion of the call.
spk08: Operator, can you please open the lines for our first question?
spk00: We will now begin the question and answer session. As a reminder, to ask a question, you may press star, then one on your telephone keypad. If you're using your speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Anthony Pallone with JP Morgan. Please proceed.
spk10: Yeah, thanks. Good morning. First question relates to the spin, I guess, just multi-part. Just one, can you tell us if there are maybe what the key gating items we should be watching are to kind of understand timing and then also Just any decisions on whether 250 Water Street goes in or the Aviators Stadium goes in or out?
spk07: Good morning, Tony. Appreciate the question. It's David. You know, look, there's a lot of diligence we have left to do, and there's a lot of items we need to complete, including finishing the audited financials that would go in the Form 10, the legal diligence associated with this, the tax structuring and consents of multiple parties, including lenders at both the stadium and 250 Water. I think that it'd be difficult for me to pontificate at this time as to whether or not those assets are in or out until we work through the conversations and have the discussions on all the requirements we need to get the spin done. You know, as you know, it's a multiple filing process with the SEC. It takes time for them to review, provide comments, us to respond. You know, look, in a best-case scenario, this is a middle-of-next-year completion, and in all likelihood, it's more towards the back half of next year. There's a lot of diligence and a lot of work that needs to go. And we're at the very early stages right now. So until we're able to lock down, you know, that full consent list and the legal structuring, it's going to be tough for me to say exactly which assets are in or out.
spk10: Okay, got it. And then second question relates to the yields on some of the incremental development in a higher rate environment, you know, 4% on the Whole Foods deal and 6% on the incremental development. apartment start. Just wondering, like, how you think about where those should be when you're balancing just the return on your capital as well as just the placemaking goals for those MPCs more broadly. And particularly, as you mentioned, kicking off sort of the downtown of Bridgeland.
spk08: Sure.
spk07: Jay, I'll let you comment on the individual assets. But in general, Tony, as you know, as master plan developer and as curator of these communities, the value inherent to us in a development is not just the value that's created on that exact block and that exact project, but the value that that project has on all the surrounding land around it. The ballpark here in downtown Summerlin is a perfect example where we delivered that at a good yield, not the best we've ever developed. But what it did in terms of driving sales per foot at the retail center across the street, office leasing and office rents, multifamily leasing, multifamily rents, with that as a catalyst, weighed into the decision. And I think that's absolutely the same case here, specifically with Whole Foods in downtown Summerlin. We have a Whole Foods in the woodlands. in Ward Village and in Columbia in the Old Grouse Headquarters building, and we've seen in all three of those instances how much that operation, that tenant, can catalyze an entire urban core. And I don't think that's any different with doing this deal here in Summerlin. Clearly, we would love to see that 4% be much higher. And the yields that we're getting on the inline retail adjacent to Whole Foods are much higher. The Whole Foods deal itself is... is less desirable, but the impact that that Whole Foods deal has on the surrounding land here, and as you know, we have multiple acres that we're continuing to develop here, we think is pretty substantial and worth leaning into there. Jay?
spk06: Yeah, just following up with David's comments, in Summerlin in particular, we have a pretty ambitious multifamily program in downtown Summerlin. It once Tenager Echo is leased up, we think the presence of Whole Foods is going to accelerate our ability to develop the balance of downtown. And then switching to Riva Rowe and the Woodlands, as we've noted in the office segment, there's been a flight to quality. Our most successful office building here is 9950. And similarly, we believe that there's going to be a flight to quality multifamily. And so while we perform a market rent based on the success of the lane and Two Lakes Edge, RevaRow is by far the best product we've designed yet in the woodlands, and we think there's a significant opportunity to outperform. And then with respect to Bridgeland, it's early days yet, but the Chevron announcement has really encouraged us to more seriously start to master plan that urban core. We're starting to look at additional retail and potentially more office, again, to establish Bridgeland as a commercial center and introduce them to a residential center. And so there's more to come on that, but we're excited about the potential of downtown Bridgeland.
spk08: Okay, thank you.
spk00: The next question comes from Alexander Goldfarb with Piper Sandler. Please proceed.
spk09: Good morning. Morning down there. First, congrats, Mazikov, on the Seaport Entertainment news. That's definitely, definitely welcome. Uh, David, I know, uh, you know, quarterly earnings, you know, healthy, healthy conversation that you and I have always, but as we look at your results, it looks like X seaport, everything else was super strong and you know, everything was performing the way it should with guidance increases across most of the major business lines. So I just want to make sure that my interpretation of the quarterly earnings is correct. That apart from the seaport, everything else in the company,
spk07: is performing you know well and continuing to exceed is that a fair representation or did i miss you know i don't want to misrepresent something in the quarter alex i think good morning i think that was well said we are increased our guidance in our npc segment to a record number for the company despite this higher interest rate environment our current run rate noi is the highest in the history of the company and as you know over the past several years We've sold our hotels, we've sold our non-core retail, we've sold self-storage. We've chipped away at that NOI, and despite selling assets that were non-core, our core office, retail, and multifamily have demonstrated great resilience in a more challenging market due to the desirability of our communities, delivering incredible results in our operating asset portfolio. And then, you know, we had a modest price reduction that we talked about last quarter in Hawaii. and it was exactly what was needed because we sold out both Kula and Ali at better numbers than we had anticipated even last quarter. And the momentum continues there with pre-sales at Kalai continuing to go higher every month. So I think your comments are spot on, that every piston in this company is firing as the best it ever has, with the exception of the seaport, which is faced some unfortunate headwinds, some of which beyond our control, Mother Nature being the biggest culprit in the month of September.
spk09: Okay, and then the next question, David, is until Seaport Entertainment spills us sins off, is there other noise that we will see in the quarterly results, or is all of that sort of taken care of in this quarter?
spk07: I think if your question is asking about kind of the one-time items or a recurrence of the type of announcement like we saw this quarter with the impairment, I don't anticipate any. I'll never say never because things change overnight and pretty dramatically in some instances. But we don't see any kind of one-timers or major items out there that we would want to highlight or guide to today.
spk09: Okay. And then is there an update that you can provide on Nevada? I don't know if there's anything on the ballot for election today or if there's anything the legislature is contemplating with regards to the studio tax credits, but maybe an update there.
spk07: Yeah, we're continuing to advance the ball down the field. And the team here in Summerlin, we're taking our earnings call today from the Summerlin office, has done an incredible job partnering with the governor, with the Senate, with the Assembly, and helping to craft the bill that we think will meet the needs of all the folks involved, including our local residents and all the residents of Southern Nevada who want to see a stronger, more diversified economy and the influence of a diversification factor with this film studio business. You know, we're still continuing to work closely with Sony, but we don't have a date yet for a special session on legislature where we would try to get this bill brought. Positive momentum, but no clear definite date on when we can get going.
spk09: Okay, and just final question is, The home sales are certainly strong, obviously the land sales as well. What you're seeing with the home builders and the home sales to new residents, are those being achieved through home builder incentives that help buyers overcome the current interest rate environment, or is this really true – that's not true demand – but is it really just the buyers just looking through 7% plus mortgages and just biting the bullet and buying? I'm trying to understand how much of the home sales are helped by builder incentives versus just the natural demand is overcoming the interest rate environment.
spk07: The answer to that, Alex, is yes, because we're seeing all of the above. In Summerlin here, where we have mostly national home builders, many of which have their own mortgage companies, We've seen them lean in with short-term and even long-term rate buy-downs, typically around 100, 150 basis points. In Bridgeland, where we've had incredible home sales, we're dealing with large regional private builders, most of which don't have their own mortgage company and have only in limited instances provided incentives with rate buy-downs. So I think we've seen both. All buyers come to the table with different needs. Some are short-term rates that buy down, some want long-term, some don't want any. And I think the home builders are being thoughtful and creative how they address the needs of individual buyers and driving home sales. And the results of the public home builders have been nothing short of, I think, exceptional. You know, we've seen quarter after quarter, and in some instances, eight to ten quarters in a row with margins over 25%. And I think that means that there's still leverage in the hands of the home builder, not the home buyer, because the limited supply of resale inventory is pushing everyone into construction.
spk08: Thank you. Thanks, Alex.
spk00: The next question is from Peter Abramovitz with Jefferies. Please proceed.
spk05: Yes, thank you. Just wondering if you could talk about the two new projects you broke ground on in the operating assets segment this quarter. I guess what made them particularly attractive, looking at the returns relative to your cost of capital, and I guess how does that stack up in terms of the opportunity set that's out there today for development?
spk07: Yeah, Peter, I think, you know, Jay and I kind of both discussed it a little bit of length a couple of questions ago, the individual projects with Whole Foods and River Row. You know, I'll try and summarize it pretty quickly so I'm not redundant. You know, we've always built Whole Foods in our communities as we think they're catalysts to changing and transforming the landscape. And as Jay mentioned, we have a large-scale master plan here in downtown Summerlin with a tremendous amount of multifamily assets in our pipeline and having a Whole Foods community can catalyze those with higher rents and get that development pipeline moving faster. And then in Riva Row in the Woodlands, this is going to be pushing the high bar on luxury for multifamily, what we've seen in the Woodlands and perhaps in all of Houston. And we think that we've been very conservative in how we've underwritten that asset. We think it's also an asset that's going to impact its surrounding land and surrounding community on the waterway. And we'll have an overall positive impact and devalue creation for our company over the long term. With that said, and Jay mentioned this I think last quarter in his prepared remarks, it is harder today to make yields work on new development projects. And you should expect that we're going to see more of a rifle shot approach to picking those great assets that deliver outsized returns or that continue to catalyze the surrounding land around it that make those communities better places to live, drive home sales, drive higher rents, drive a better sense of place. You know, look, inflation costs are difficult. Higher rates are difficult. Exit valuations are clearly unknown right now given the lack of transactions going on. So I think that you'll continue to see us, again, take those rifle shot approaches, continue to move forward in Hawaii where we don't seem to see those same type of impacts and continue to deliver great margins and outsized risk-adjusted returns.
spk05: Got it. And then... Could you just talk about what the underwritten loan-to-value was, particularly on those office loan extensions you executed in October?
spk07: I'm hesitating, Peter, because I don't know what value is right now for office assets, even well-leased cash-flowing office assets. You know, those extensions came with modest paydowns from their old levels. I think the LTVs are very conservative where they are. You know, I would venture 50 or sub-50, but it all depends on where you think the right office cap rate is, what you think office values are in this world where there hasn't been a lot of transactional volume that would demonstrate what a well-leased cash-flowing office asset in the woodlands would be worth.
spk05: Got it. That's all for me. Thank you.
spk08: Thanks, Peter.
spk00: As a reminder, if you do have a question, please press star, then 1. The next question comes from John Kim with BMO. Please proceed.
spk02: Thank you. Good morning. A couple questions on the spinoff. Just bigger picture, what is the relationship going to be post-spin between Howard Hughes and Seapoint Entertainment? Will you have an ownership stake in the new entity? Will there be any management rights? And also on the balance sheet, it looks like there's just $150 million of debt at 250 Water Street. I was wondering how much leverage will be on each entity post-spin.
spk07: All great questions, John. So the relationship between Seaport Entertainment and Howard Hughes will be very similar to the relationship that Howard Hughes had when it spun out from GGP. And that we won't have an ongoing ownership stake in Seaport Entertainment. The shareholders of HHH today would expect to receive ownership in both HHH and Seaport Entertainment post-spin. We won't have direct ownership. I think that we will contemplate and discuss with Anton and the management team there having some transition services agreements in place. as he builds his back office and support, whether it's IT, HR, risk management, accounting, et cetera. And we're happy to provide those external services until he's able to build the team and stand it up on its own. Again, that'll be a decision for Anton and the team to make over time. But from our perspective, we're helpful. We're wide open to being supportive and making sure they're successful as they're spun out into their own public company. Your second question was about leverage at each company. And I'm gonna go back to the comments I made earlier with Tony that we're still working through a lot of the consent process, approval and structuring that would determine ultimately whether 250 Water is in Seaport Entertainment and whether the stadium, the Las Vegas Ballpark Stadium here in Nevada is in the SPIN. If those are in, the leverage associated with them would travel with them, assuming we're able to achieve those lender consents, but again, We don't have any details to share at this time or any certainty around that. Once we do, we will absolutely make sure all our investors know so that you can follow the leverage stats of both companies pre- and post-spin.
spk02: I appreciate the moving parts, and I know that the goal is ultimately to simplify the story for Howard Hughes, but will this spinoff be accreted to earnings year one?
spk07: It should be, you know, look, I've never really focused on decisions of driving next quarter's earnings. We've always been focused on driving the long-term value creation for our shareholders, increasing our net asset value on a per share basis over the long term. You know, the impetus for this decision is not because we'll squeeze out a half a penny of FFO, and I honestly don't even know what our FFO was this quarter because I don't think it's relevant to value. And I think what it will do is it will focus our company. It will allow us to use our recurring free cash flow from these land sales right into the backyard of these communities, making them more dynamic places, making them better places to live, work, play, learn, discover, and continuing to drive value. I think Anton and the team there are going to have an incredible opportunity with Seaport Entertainment to maximize that asset as it's really transitioned from a traditional real estate asset with development, tenants, and leases to a true operations, to concert venues, to restaurants, to food halls, to activations. And, you know, if you take that opportunity, which we think is pretty wide throughout the country in terms of unlocking value at a lot of real estate assets using operational expertise and entertainment expertise, I think they have a huge runway in front of them.
spk02: Okay. Okay. On the EPT guidance and MPC, which you increased pretty significantly, that implies a very strong fourth quarter. And I was wondering if you could provide any color on the breakout between Summerlin, Bridgeland, any potential commercial land sales, and how many sales are under LOI already?
spk07: I would say that, you know, sitting here in November, we have pretty good visibility into the last seven weeks of the year in terms of what we have under LOI, what we have under contract that's just subject to typical closing conditions. I think the mix that you'll see in the fourth quarter will be largely in line with the third quarter in terms of Summerlin, Bridgeland, et cetera. And, look, some of the unknowns out there are, you know, what's the builder price participation, right? And we had another incredible quarter this year of builder price participation that in an 8% mortgage rate environment, you don't expect. folks to be paying premiums on homes above where we had sold the land. Uh, but it continues to happen. It continues to materialize. So those, you know, happy surprises, if you will, are tough to model and tough to know because you never know what those exact home sales will be until they close. Um, we don't expect any material commercial sales in the fourth quarter.
spk02: Okay. Final one for me on the Chevron sale, um, at Bridgeland, great company to get, um, to help spur development. They did seem like they got attractive pricing on their commercial land acquisition. Was that discounted pricing given they are essentially the anchor of the commercial, or is that reflective of land prices today?
spk07: Look, I would tell you that the first purchase that they made, the initial 77 acres, I think was a very full value, a very fair value. And honestly, I think that we charge more for the land than any other site that they were looking at. in Houston. The second sale that occurred this quarter of the 13 acres, that is land that they wanted to control for privacy reasons. It's land that's deed restricted to green space.
spk08: So in light of that, I think it's a fair price. Okay, so that's not going to be used for R&D?
spk07: No, that's adjacent land to the initial campus that they bought that they wanted to use to make sure they maintain their privacy.
spk02: Got it. Okay. Thank you so much.
spk07: No problem.
spk00: The next question is a follow-up from Anthony Pallone with J.P. Morgan.
spk10: Yeah, thanks. I just had one, just if you could remind me. On the Woodlands Towers and then in Ward Village Retail, for those two, both have pretty high leased. rates, but there's still this big gap between sort of the in-place and the expected stabilized NOI. Can you remind me, like, for those two, what needs to happen to kind of get there?
spk07: Yeah, absolutely. Great question, Tony. The Woodlands Towers are pretty simple. We just have to burn off free rent, build out tenant space, and get cash coming in the door. So I think we have a pretty short runway on time before we close the gap between the in-place NOI and stabilized NOI. It's really just the burn-off of abatements and timing of recently signed leases. Ward Village is a longer story, because as you know, with each tower that we develop, we're knocking down older retail, taking away NOI, spending two and a half years to build a tower that has new retail on the ground floor, and then leasing that square footage up at a much higher rate, driving NOI higher. So it's one step back, two steps forward. To get to that stabilized NOI is going to take, again, the next four to five years as we build out the remainder of Ward Village, knocking down one block and building a block in its place at a much higher NOI yield.
spk10: Okay, got it. Thank you.
spk07: Thanks, Tony.
spk00: The next question is a follow-up from Alexander Goldfarb with Piper Sandler.
spk08: You may proceed, sir. Alexander, you are live. Yes, sorry about that.
spk09: I had a mute button on. David, given the success of Ward Village, at what point do you start the discussions with the local municipalities about further development phases beyond what you currently have entitled?
spk07: You know, that's a great question, Alex, and I'd love to answer it thoughtfully, honestly, and accurately without giving away too much on this call. Look, we have five years, six years of runway ahead of us with the entitlements that we have. We think we have the opportunity to unlock some value and land west of Ward that we won't have touched when we've used our entitlement, and some other blocks in between buildings where there's opportunities, such as Ward Entertainment Center, It's too early to comment on that. We have a long road ahead of us in terms of being able to unlock value there. And I don't want to distract too much from, you know, the clear value creation we have in front of us in the next short term with focus on, you know, what could be in years six through 12.
spk09: Okay, cool. I just know everything out there takes a while, but sounds like you have plenty of runway.
spk08: Yeah, look, it would be...
spk07: You know, it would be a bad move on our part if we didn't start thinking about that a long time ago and working on it very much real time, right? I mean, with the machine that's there under Doug's leadership and Bonnie's leadership in sales and the entire design, development, and construction team that has grown into its maturity with Ward Village, our goal there is to make sure that we keep that team busy forever. And we're going to be looking under every stone over there to make sure that we can continue to unlock value using the expertise and skill with that team.
spk08: Thank you.
spk00: This concludes our question and answer session. At this time, I would like to turn the conference back over to David O'Reilly for any closing remarks.
spk07: Just want to thank everyone again for joining us. It was, in our view, nothing short of a spectacular quarter across our core business segments. We look forward to speaking with you at the upcoming conferences, our next earnings call. And if there's any questions in between, by all means, please feel free to reach out.
spk08: Thank you again.
spk00: The conference is now concluded. Thank you for attending today's presentation. And you may now disconnect.
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