Good day, and thank you for standing by. Welcome to the Howard Hughes Holdings 4Q 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Eric Holcomb, SVP of Investor Relations. Please go ahead.

Good morning, and welcome to Howard Hughes Holdings fourth quarter 2023 earnings call. With me today are David O'Reilly, Chief Executive Officer; Jay Cross, President; Carlos Olea, Chief Financial Officer; and Dave Striph, President of Asset Management and Operations. Before we begin, I would like to direct you to our website 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, Eric, and good morning, everyone. Welcome to our fourth quarter earnings call. On our call today, I'm going to begin with a recap of an outstanding year and cover the segment highlights for our master planned communities in the Seaport. Dave Striph will cover the performance of our operating assets, followed by remarks from Jay Cross to provide updates on our strategic development projects in Ward Village. Finally, Carlos will provide a review of our 2024 guidance and the balance sheet before we open the lines for Q&A. In short, our fourth quarter results met or exceeded our enhanced guidance expectations within each of our core businesses, closing out another exceptional year for Howard Hughes. Highlights of the year included, record MPC EBT of $341 million aided by significant growth in new home sales, strong land sales and record residential price per acre. Our operating assets delivered record NOI of $244 million, a 4% increase year-over-year excluding dispositions with solid growth in multifamily and office. In Ward Village, we sold out all remaining units at A'ali'i and Ko'ula and ended the year with more than 96% of all condo units at our towers under construction or in presales under contract. Although, credit markets were incredibly tight during 2023, we continue to strengthen our balance sheet and commenced new developments by successfully executing over $659 million of financing. This included several important new financings for loans nearing maturity, as well as $498 million of construction loans for new developments. These new financings enabled the start of construction on several key projects in our pipeline including Ulana, our ninth condo project in Hawaii; 1 Riva Row, a luxury multifamily development in the Woodlands and the Whole Foods-anchored grocery center in Downtown Summerlin. Now, let's take a little deeper dive on…

Thank you, David. In the fourth quarter, our operating assets continued their solid performance, delivering $54 million of NOI including the contribution from unconsolidated ventures. For the full year, we generated a record NOI of $244 million, which represented a 2% increase relative to 2022. Excluding our divested retail self-storage and medical office assets, NOI increased 4% year-over-year. The most significant increase was seen in our multifamily portfolio, which generated a fourth quarter NOI of $13 million and full year NOI of $53 million. For the year, this represented a strong 16% increase, primarily driven by the rapid lease-up of new properties at Bridgeland and Downtown, Columbia and a very healthy 9% blended in-place rent growth across the portfolio. Our assets continue to command some of the highest rents in their markets and at year-end, our stabilized properties were 95% leased, which is a testament to the quality of our multifamily assets and our teams operating them. The strong demand in our markets, we continue to develop best-in-class assets including Starling, at Bridgeland, and Marlow in Downtown, Columbia. These assets were placed into service late in 2022 and we're already 94% and 57% leased as of year-end. Similarly, in 2023, we completed and began leasing units at Tanager Echo in Summerlin and Wingspan in Bridgeland, the first single-family build-to-rent property in our portfolio, which began welcoming residents in the fourth quarter. With our consistent leasing, strong rent growth, and development of future assets like one Riva Row in the Woodlands, we expect continued incremental NOI growth in the coming years. In office, we produced fourth quarter NOI of $27 million and full year NOI of $118 million. NOI was relatively unchanged for the quarter, but increased 6% for the year. The full year increase was due to strong lease-up activity…

Thanks Dave and good morning, everyone. In the fourth quarter, we continued to make solid progress in our commercial construction projects, which represent future stabilized NOI of more than $24 million for our operating asset segment. First, in Nevada, we are nearing completion of the South Summerlin office which was recently named Meridian. This 147,000 square foot three-story office building in Village 15 is expected to be completed later this quarter. A few miles away, construction of the Summerlin Grocery Anchored Center a 67,000 square-foot retail development, which will be anchored by a new Whole Foods market is advancing nicely. We expect this retail adjacent to our Tanager and Tanager Echo multifamily properties in the heart of Downtown Summerlin, will be completed in the third quarter. In Maryland, we are in the final stages of construction and are now water tight at our 86,000 square foot medical office building in Downtown Columbia. This new development, which has achieved it's -- well one star rating has experienced high demand and is now 34% pre-leased, with another 60% in lease negotiation. We expect to complete construction in the second quarter. In Houston, we are nearing completion of Wingspan our 263 home single-family for rent development located in Bridgeland. During the fourth quarter, we celebrated its grand opening and began transferring completed units to operating assets. At year-end, 28% of Wingspans units were completed and a total of 15% released. We anticipate Wingspan will be fully completed in the second quarter. Across town in The Woodlands, construction at 1 Riva Row our 268 unit lead silver multifamily tower is also going very well. This luxury development on the Woodlands Waterway is expected to be completed in the second half of 2025, with a strong NOI contribution of nearly $10 million upon stabilization. Looking…

Thank you, Jay and good morning everyone. With the record-setting 2023 in the history books, we now turn our attention to 2024 and what we expect to be another strong year for Howard Hughes. In our MPC segment, EBT is projected to remain robust during 2024, aided by modest anticipated reductions in mortgage rates and continued tight supply of existing homes on the market. We expect this will drive strong landfills in Bridgeland and The woodland Hills throughout the year. In Summerlin we anticipate increased super pad sales which are expected to primarily occur in the second and third quarters. We also expect to see increased equity earnings from the first lot sales in our Florida joint venture in Teravalis during the first half of the year. These year-over-year gains are expected to be more than offset by reduced EBITDA associated with heightened performance in 2023, which included significant commercial landfills and builder price participation, as well as the near sellout of custom lots at Aria Isle in The Woodlands and clubhouse condominiums at the Summit in Summerlin. As a result, we expect MPC EBT will modestly decline 10% to 15% year-over-year, but remain at exceptional levels with a midpoint of approximately $300 million. In operating assets, we anticipate increased occupancy in our new multifamily developments and improve retail leasing to drive NOI growth going forward. The office portfolio is also expected to benefit from strong leasing momentum experience since mid-2022, but free rent periods on many of the new leases, the impact of some tenant vacancies and new office developments expected to be completed in 2024 will likely result in office NOI being relatively flat year-over-year. Overall, 2024 operating asset NOI is expected to be in a range of up 1% to 4% with a midpoint of approximately $250…

Thank you, Carlos. Before we open up the lines for Q&A, I just want to reiterate the exceptional performance of our company in 2023 and commend our employees for their incredible efforts throughout the year. Looking into 2024, we expect another strong year across our core segments with robust MPC EBT continued growth in operating asset NOI and the delivery of Victoria Place condo project in Hawaii. During the year, we will be intently focused on successful anticipated spin-off of Seaport Entertainment, which we believe will provide HHH more flexibility to advance our extensive pipeline of development projects and seek new attractive growth opportunities within our core portfolio of master planned communities. At the same time, Anton and the team at Seaport Entertainment will be better positioned to focus on improving the performance of these unique assets while seeking complementary expansion opportunities in the entertainment and hospitality industries. Overall, we're excited about the future of Howard Hughes. Demand for our award-winning MPCs and world-class portfolio of assets is high. And we are undoubtedly well positioned to grow our net asset value in the years ahead. With that, let's start with the Q&A portion of the call. Operator, can you please open the line for the first question?

Certainly. [Operator Instructions]. And our first question will be coming from Alexander Goldfarb of Piper Sandler. Your line is open.

Hey, good morning down there. So, just a few questions. First off, David on the construction lending front, can you just give us an update on how banks are looking at construction across the different projects that you have outlined? And how your experience has been given -- relative to a lot of the stories that we read about the challenges in the development market? Just as we think about this year you guys are busy a lot underway. I'm just trying to understand to what degree the construction lending market is limiting your ability to put projects into the ground?

Great question Alex. Excuse me, and it's something that we're dealing with real time all the time. Having been in the lending market for a long, long time, I would say that I've never seen a construction loan market like this in my experience. It's almost flipped on its head. Right now the easiest construction loans we can get, Alex, are on the condos in Hawaii. And condo construction loans used to be the hardest ones to get. But the construction lenders and I've spoken to a number of them over the past several quarters are saying, if I make a construction loan on a multifamily asset or an XYZ asset, I don't know what the value of that asset is at completion, and I don't know what my take out is. But with a pre-sold condo tower in Hawaii, I know exactly how I'm going to get repaid. So we've still seen a very constructive market as it relates to financing our condo towers in Hawaii. Flipping the kind of script there is even on a run-of-the-mill multifamily asset like one Riva Row on the waterway in The Woodlands, which is a tremendous project in a market where we have a dominant market share that was one of the hardest construction loans I've seen us try to get in my time at Howard Hughes. It's been a shortage of lenders that have decided that in a challenging market environment like we're in we're not going to lend on certain product types. We're not lending on office. We're not lending on construction. We're not lending on filling the blank so the bids that we used to get -- we'd have over 20 we were down to two or three on that project. We still think we got a great execution and we're still able to secure loans on our projects given the incredible dynamics and returns that we're seeing on them, but it's definitely much harder today than it has been in almost any other time in my career.

So do you find -- David, are you -- do you find that you're -- there are more projects that you'd like to do if you could get the lending or you feel that the lending and your -- the projects that pencil are sort of an equilibrium?

We're still getting all the projects done that we want to. It's just taking a little bit longer and it's a lot harder to find that construction financing.

Okay. Second question is -- and forgive me a minute botch the name. I'll say, Phoenix because Teravalis, I think is how you say it. You announced that you're going to do a bunch of initial lot sales this year first half. Previously you had hoped for last year we all understand it's tough endeavor. I guess, how confident are you on the initial sales? Are they all spoken for? And the builders that have spoken for them have an ability to perform or is this a project that we should still think of as a moving target just because of the challenges associated with launching a new MPC.

Look I think that -- as we discussed in the prepared remarks Alex we still remain incredibly excited about Teravalis. During the fourth quarter, we contracted over 500 lots and in January an additional 300. We got to close those contracts and there's always risk associated with that, especially, in a new development like Teravalis. But we think we have great momentum and we're moving forward on that horizontal development preparing those lots and look forward to hopefully getting those contracts closed and getting those homebuilders in there building model homes.

Okay. And then just finally Seaport Entertainment update. Is it still on track for later this fall? Where do we stand in the filings that you guys have to do? Just want to get an update on how that is progressing. And then also David -- and also is 250 Water going to be part of that? Or is that still TBD?

So I'll answer your second question first. 250 Water our expectation is that that would be included as part of Seaport Entertainment in the spin. As far as timing goes look I am optimistic that we can complete the spin in the third quarter of this year. But that optimism is dependent on a number of third parties that are way out of my control. We have a lot of work to do with the SEC. We have a number of consents to get on different loans and different assets to be part of the spin. We have to set up a board. We have to fill out the entire management team for Anton. There's an incredible amount of work that needs to get done to get into the spin. Of the things that I can control I feel very good about them. And I feel like we've made an incredible amount of progress in a short period of time. And it's really just those areas that are out of our control that gives me a hesitancy to promise anything sooner than third quarter of this year.

Thank you.

And one moment for our next question. Our next question will be coming from Anthony Paolone of JPMorgan. Your line is open.

Great. Thank you. First question is on the couple of projects that you outlined to start this year. I think the Bridgeland and Woodlands and even the Ritz-Carlton condos can you talk about expected yields or returns on those?

I'd say it's a little bit premature Tony. We tend to make sure that we have that GMP contract in place get some pre-leasing done especially on some of those retail projects in Bridgeland so that we have a good expectation. When we put shovel in dirt we communicate to the world in terms of what those returns are. Today, we feel like those are still going to drive great risk-adjusted returns and meaningful value creation for our shareholders. But until we're ready to put the shovel in the dirt I don't want to get too far over my skis and promise something that I don't know that I can deliver on it until we finalize the planning finalize the GMP and get some leasing done.

Okay. And I mean I guess just following up on Alex's questions around construction financing and the discussion there. Like do you think these returns will clear sort of construction loan cost these days like something in the 8, 9-plus percent range? Or will you look at them a bit differently?

Well, look, each project is going to be -- have its own return dynamics. For Ritz-Carlton condominium project that's going to deliver an exceptional margin perhaps not as strong as Ward, but close. Regardless of the cost of the construction debt, it's positive leverage, right? We're going to do really well there. There are some other projects where you're building multifamily. It is still a meaningful premium to underlying cap rates but that could be at a lower yield than the cost of financing. And back to where I was when I started my career, which is in the world of negative leverage, but that still doesn't mean there's not value creation for our shareholders. It's just incrementally reduced by the cost of that financing. But the construction financing as an overall part of your P&L are an overall part of your budget for building the project is relatively small given that your equity goes in first and then you draw down that construction financing over the following 18 to 24 months. So if it's a couple of points higher than what I would have liked a couple of years ago, it's still going to generate a lot of value creation for our shareholders.

Okay. Thanks. And then just on the super pads, can you maybe walk through a little bit how those work? How much visibility you have into those deals happening? It sounds like you've got some more teed up for this year. And is this -- and when those happen, is it just you're doing your normal lot development and builder comes along in terms of just take a lot of it and it becomes a super pad or do you have to actually plan for it? Just maybe walk us through a little bit more how that works.

Yeah absolutely. So, super pads are something that is unique to Summerlin. And I think we've been able to pursue a super pad sales strategy in Summerlin, given our kind of dominant land position there. In Houston, where there's a bit more competition, we're selling finished lots, and we're selling those lots to builders. So that methodology won't change. But in Summerlin, all of the land, all of the residential land that we sell to homebuilders for the past six years has been sold in Super Pads. Sometimes those Super Pads are a little bit smaller. Sometimes they're $100 million super pads. It depends on the size of the pad, the surrounding infrastructure and the type of community that's going to get built by the homebuilder there. What we're able to do is we bring in all the utilities and finishes right up to the entry monuments of those super pads, sell that land to the homebuilders, and they're responsible for the improvements inside of the super pad. So while we're generating a lower price per acre and selling super pads, we're selling at a much higher net profitability per acre because of the reduced infrastructure cost that becomes the burden of the homebuilder.

Okay. Got it. And then my last item is looking at the operating properties NOI into 2024 and maybe even a little bit beyond. Can you talk about any other like incremental known move-outs perhaps in the office portfolio that risk being a drag in the next year or 2 that you could talk to? And then along the same lines on the other side, I'm trying to just understand what the offsets might be because if I look at your multifamily development NOI, it was maybe $1 million, I think, in the quarter and the stabilized is 20. And so it just seems like that will just lease up and be a pretty strong contributor. So I'm just trying to understand what the offsets are.

Yes. No, it's a great question, Tony. I do think we'll see meaningful growth as Carlos talked about in his prepared remarks in the multifamily portfolio, and that can be partially offset by a couple of different things. A little bit of our hesitancy to continue to project meaningful percentage rents from our retailers. We've had the benefit of great sales per foot across our retail portfolio for the past couple of years and while I'd like to think that, that goes on into perpetuity. I don't think it's a great guidance tool to just make that assumption. So, there are perhaps a little bit of headwind in the retail portfolio. And we do have both the number of leases signed across the office portfolio that will add incremental NOI and a number of tenants that moved out this year for base bankruptcy this year that will have a negative impact next year. So, the positive momentum will be offiscated by those move-outs, one of which was WeWork's bankruptcy, which -- one of which we think will remain in place and continue to pay rent as they've had to-date, and one of which they've left and we backfilled it with an alternate user. But that kind of switchover is going to create some near-term headwinds this year.

Okay. Thank you.

And one moment for our next question. And our next question will be coming from John Kim of BMO Capital Markets. John, your line is open.

Hey. Good morning. It's Eric on for John. Maybe just starting with the Spinco. I was just curious if there is any other anticipated real estate assets that you plan to transition to the new Seaport entertainment outside of the ballpark and the announced 250 Water Street?

No, I think all of the assets have been kind of discussed in the past, which would be all the assets in New York including 250 Water Street. The ballpark, the baseball team and our minority interest in Jean-Georges Restaurants.

Okay. That's helpful. And then, on the development front, as it relates to the condos, outside of the Ritz-Carlton Residences and the condos in Ward Village. Is there opportunity for additional condos in other MPCs that you're thinking about?

Absolutely. We think that there could be the opportunity for incremental condominiums, not just within Ward Village, which we're very much focused on. But beyond the Ritz and The Woodlands, there may be another site or two that could work and we're working hard. And I think Jay mentioned this at our most recent Investor Day, at a site or two in Summerlin. It's still premature to talk about details in exact locations and economics. But we think we have an incredible machine that our team in Ward Village led by Doug Johnstone and Bonnie Wedemeyer, have put together. And there's no reason why we can't use that machine and expand its presence to our other MPCs to create value for our shareholders.

Okay. That's helpful. And then the last one for me is just on the office tenant demand and different tenant types. And what are your leasing expectations at One Hughes Landing or 1725 Hughes Boulevard?

Yes. We have a number of tenants that we're talking to real time a good pipeline. Now, that 9950, which is our headquarter building in the Woodlands is full. We're seeing the demand that did fill that building at least that building entirely full almost 600,000 square feet. Given that, that building is now full that tenant demand has been shifted to used landing. One Hughes1725, 1735 are all seeing incremental velocity towards an interest and we feel like we have some great momentum in getting that leased right now.

All right. Thank you very much.

[Operator Instructions] I would now like to turn the call back to David O'Reilly for closing remarks.

I just want to thank everyone again for participating today on our call. Look forward to seeing you at our upcoming investor events non-deal roadshows. And as always, if there's any follow-up or need for information or additional questions, we're always available. Thank you again.

And this concludes today's conference call. Thank you for participating. You may now disconnect.