Good day, and thank you for standing by. Welcome to the Howard Hughes Holdings Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joe Valane, General Counsel.

General Counsel & Secretary: Good morning, and welcome to the Howard Hughes Holdings Second Quarter 2025 Earnings Call. With me today are Bill Ackman. Executive Chairman; David O'Reilly, Chief Executive Officer; and Carlos Olea, Chief Financial Officer. Before we begin, I would like to direct you to our website, www.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. I will now turn the call over to our CEO, David O'Reilly.

Thank you, Joe, and good morning. On our call today, I'm going to begin with a recap of the second quarter and cover segment highlights from the Master Planned Communities, Operating Assets and Strategic Developments. Carlos will review our updated full year guidance and balance sheet. Following our comments on the operating results for HHD, we'll hand the call over to Bill Ackman, our Executive Chairman, who will discuss HHHs' future strategic direction before we open the lines for Q&A. As we discussed on our last earnings call, the second quarter marked a significant milestone for Howard Hughes Holdings, with Pershing Square investing $900 million in exchange for 9 million shares of HHH stock. These funds will be strategically used to transform Howard Hughes from our pure-play real estate company to a premier diversified holding company. Before Bill discusses this in a few minutes, I'm going to shift to talk about the results for HHH's real estate development business, the Howard Hughes Corporation in more detail. The second quarter was another exceptional quarter for Howard Hughes as our team delivered outstanding results across our business segments, highlighting the strong demand in our portfolio of Master Planned Communities and further solidifying our strong 2025 outlook. For the second quarter, we delivered adjusted operating cash flow of $91 million or $1.64 per diluted share. Our MPCs continue to see strong homebuilder demand executing land sales at record prices per acre in both Summerlin and Bridgeland. Operating assets also set a new record quarterly NOI across office and multifamily, with solid year-over-year segment growth of 5%. In strategic developments, condo presales remained strong at The Launiu, and we launched presales at Melia and Ilima, which are undoubtedly 2 of the most anticipated luxury residential towers ever to come to market in Honolulu. With…

Thank you, David, and good morning, everyone. Today, we are increasing our adjusted operating cash flow guidance, driven by current and expected continued strength in our MPC and Operating Assets segments as well as reiterating our condo sales and G&A guidance for the year. As David mentioned earlier, this was an excellent quarter, led by the outperformance of our MPC and Operating Asset segments, and we now project our adjusted operating cash flow will range between $385 million and $435 million in 2025 with a midpoint of approximately $410 million or approximately $7.32 per share. This represents an increase of $60 million at the midpoint compared to the original guidance with a corresponding increase of $0.30 per share despite a higher share count resulting from the Pershing Square transaction. In our MPC segment, led by robust demand from homebuilders and continued low inventory of vacant developed lots, we now expect full year MPC EBT to be approximately $430 million at the midpoint reflecting an increase of $55 million compared to our prior guidance, driven by strong anticipated superpad sales in Summerlin and improved residential lot deliveries in Bridgeland in the second half of the year. In operating assets, we are increasing full year guidance from our previous $262 million midpoint to $267 million, led by the strong leasing activity of our office and multifamily portfolios. This guidance would represent a new full year record. We are reiterating both our cash G&A and condo sales guidance for the year. Cash G&A is expected to be in the range of $76 million to $86 million with a midpoint of $81 million. As always, our guidance excludes noncash stock compensation and onetime items, representing approximately $15 million and $10 million current expenses, respectively. Our guidance also excludes the Pershing Square variable advisory fee,…

Thank you, Carlos. I'm here with Ryan Israel, who is our -- as you know, our CIO. We wanted to give kind of a report on what we've been up to for the last couple of -- last few months since the transaction closed. Our principal focus has been identifying and doing due diligence on a potential insurance company acquisition. Just to give you sort of context, if you look at Berkshire Hathaway sort of, if you will, the model here, A major part of the success of Berkshire has come from the acquisition beginning in the 1960s of an insurance operation and the growth of that business over the ensuing 60 years. And what's interesting about insurance, it's a cash-generative business. Generally, you write premium you receive cash upfront that you can invest. And if you run a profitable insurance operation and you invest the capital well, you can earn very attractive returns on equity. We want Howard Hughes to grow its intrinsic value per share at a high rate over a long period of time. The beauty of a successful insurance operation is it's a business where we can grow at a very nice rate over time without having to issue or raise equity capital in order to grow our business model. So that's been a very high priority for us. If you were to examine Berkshire over the last sort of 60 years, what's interesting is Buffett took a very different approach to the way he managed his insurance operation. A typical insurance company writes about as much premium as equity capital every year and then invests the float in fixed income investments principally, but uses a fair amount of leverage to get an attractive return. So about 3x the assets relative to equity is a typical…

[Operator Instructions] Our first question comes from the line of Alexander Goldfarb from Piper Sandler.

Two questions. The first 1 is going to be on the MPC business, and then I'll get to the bigger picture. David, your land sales, the volumes have increased, that's despite what we're all reading about challenges in the single-family market. Obviously, you have the premium product that you guys sell, but there's also a wider array. So can you just give some more granularity on -- it's impressive what you guys deliver but still against the higher interest rates, housing affordability, et cetera. What -- how do we think about your properties, the price points, the diversity of buyers versus what's going on in the broader market, and your confidence that this can endure -- can continue to endure even in the face of elevated interest rates and sort of all the macro concerns?

Alex, it is a question -- it's a great question and one that we've spent a lot of time discussing. We go through an excruciating detail, our communities with the teams and track, as you know, home sales within our communities maniacally. And we see those home sales as a leading indicator for what the homebuilders will need in land purchases on a go-forward basis. To date, our home sales have been incredibly resilient. And I think that is due to the quality of assets that we have. Our MPCs have the best schools, amenity, quality of life. They're attractive for residents and homebuilders. The homebuilders are building homes and they sell at a premium relative to those areas around them. And as a result, our land remains incredibly attractive. And our communities, I've been saying for years, we're not immune, but we're insulated. And there's always a flight to quality in markets when there is perhaps a little bit of a reduction in price in homes and now it's my chance to get into Bridgeland. Now it's my chance to get into Summerlin, and we see residents continue to come in and buy homes. The home prices that we're seeing the transactions at vary across the spectrum. In Bridgeland, our homes are in the $300,000 to the $500,000. In Summerlin, they're in the $400,000 to the $10 million range. So we're seeing it with your first-time homebuyer, your move-up home buyer and your luxury buyer. It has been pretty consistent across the board. It has been even somewhat surprising to those of us in the room given the national headlines. I wake up, I read the headlines. I think, oh my God, days today, the music stops. And gosh, darn it, if the report doesn't come in on Monday morning that says we sold another 20 homes in each of our communities, which is an incredible pace. So we're thrilled with the results. We see continued strength for the balance of the year. The record price per acre, I think, speaks to the quality of our communities, the desirability of our land. And at the end of the day, that land we have is the precious raw material that the homebuilders need to keep -- to stay in business and remain profitable. And if you have the opportunity to buy land as a homebuilder in a cuspy market where you're not sure if you can generate a great margin or buy land in Summerlin that for 25 years, has demonstrated success and outperformance, I still believe that those homebuilders will buy land in our communities.

Okay. And then the second question is for Bill. Bill, when we met with you a few months ago, you spoke about the potential for creating your own insurance entity, hiring an individual and creating homegrown. It sounds like now you're thinking more on acquiring an outside entity. So one is, your thoughts on homegrown versus acquiring. And then two, as you ramp up the Howard Hughes and that investment, cash flows, it almost sounds like from the outside, like we should think about this to be 2 to 3 years before those cash flows really start to ferment. But just curious if we should be thinking longer or you think that the accretion could be sooner?

Sure. So our thinking on building versus buying is if we can find the right asset and we're, I would say, increasingly confident we can, there are a number of potential transactions of a size and a, I think, quality that would be a great start for us. And again, it's going to come down to terms and price and work, but I think we've got a number of potential things that we're looking at. So that gives us some confidence there's a deal to be done. And there's a big advantage to -- starting from truly scratch the issues in terms of licensing, building an organization, technology, it's not -- let's put it this way, it's not a running start, whereas we actually buy an existing well- run insurance operation, then you're off the ground and running sort of immediately. Our expectation, based on the things that we're looking at, is this would be a material transaction to Howard Hughes, assuming we do one of the transactions we're looking at, meaning it would very quickly represent an important part of the business and has successfully run insurance operation the way that we've identified is a business that can consistently over time, earn, I would say, returns on equity that are meaningfully higher than -- and even the best run as kind of real estate operations. So we do expect insurance in the relative intermediate term to become very material to the company to the point that people will probably stop thinking about Howard Hughes as a real estate company with a little insurance operation. I think they'll think of it in the way that we sort of our business plan as of perhaps an insurance holding company or a diversified holding company with a major insurance operation. But that's the business plan. But again, it's all subject to our ability to find the right company, the right price and that we won't know until we get a transaction done. But I would say we are cautiously optimistic that there are a number of potential candidates, and we're working hard to do a transaction.

Okay. And then if I could just add, when we think about the earnings potential, we should think about a significant part coming from the insurance business or that the stock portfolio is going to be more of the generation of the earnings contribution?

Sure. So again, going out to the Berkshire model, I would say the investment part of the insurance operation has been more -- materially more important to the profitability of the insurer than the insurance company itself. And I think when you run a -- if you will, a pedal to the metal, if you will, in Berkshire's insurance operation comes from the fact that he's investing in assets that can earn equity type returns and the insurance company itself is a focus on profitability. The typical insurance operation is pretty aggressive in making as much money as possible from insurance and using leverage to get an adequate return on assets. We think this approach is both lower risk and kind of higher returns. So I think the way you should look at the insurance operation over time is how are we going to -- if we had $1 billion of equity invested in insurance, let's say, and we can compound that equity at 20% or more over time, it will become very, very material to the overall intrinsic value of Howard Hughes. I think that's the way to look at it as opposed to earnings. I think we're going to want to focus you on the growth in the equity value of this insurance company over time. And Howard Hughes has tried over time to come up with sort of a per share kind of cash flow or earnings metric to try to fit in with other conventional real estate companies that have an FFO or other metric, I think that's frankly a mistake. And I don't know that the market is actually really given us credit for that. So we're going to come back. We're working with the team on giving you some kind of KPIs that you…

Our next question comes from the line of Ray Zhong from JPMorgan.

My first question is on the leverage side. Bill, as you look at the leverage as of today for Howard Hughes and the target that you're trying to go after, how should we think about a pro forma on leverage? And given that, what are the deal sizes that you think we should be expecting? Would it be 100% stake or something -- in something or a smaller stake but a larger company? How should we think about that?

Sure. So we think that Howard Hughes' real estate operation is kind of appropriately financed and we don't intend to kind of lever it up in any kind of material way. We like the business the way it's being managed today. We have today excess cash of certainly the $900 million and maybe another $100 million or a couple of hundred million dollars of excess cash in the overall company, call it $1 billion. that's sort of in the realm of the amount of capital that we would intend to use if we were to invest in insurance operation. If that business, the check size was larger, we would raise capital or partner with other Pershing Square affiliates in doing a transaction. But the goal would be for the company we acquired to be controlled by Howard Hughes, and yes, that's an important element. Ryan, want to add something, go ahead.

And to clarify just to your question, we don't need to own 100%. As Bill mentioned, we would like to own more than 50% of it for control. But when we talk about raising capital, one of the values that we believe Pershing Square is providing the Howard Hughes in our arrangement is we have the ability and have demonstrated over time at Pershing Square to be able to raise capital externally. We have a large and deep network of partners who have partnered with us very successfully in the past. And so we bring -- we have the opportunity if we were to decide to do a larger transaction beyond the cash on the balance sheet, we could partner in a way that would be very accretive to Howard Hughes' shareholders, while at the same time, still allowing us to be able to control the entity in terms of the daily operations.

Yes. Just to further -- to Ryan's point, if we were to buy a business, insurance operation for $1.5 billion, $1 billion check written by Howard Hughes and, let's say, $500 million by co-investment sort of vehicle, it's an attractive co-investment for someone where Howard Hughes is sort of the likely ultimate buyer when the company sort of gets to a scale where it can buy out sort of the minority partner. So there's a interesting potential partnership opportunity. But we're not talking about buying a $5 billion asset and owning 20% of it. We're really focused on something order of magnitude in the $1 billion, $2 billion-ish kind of -- whatever, it could be $1 billion to theoretically $3 billion, something along those lines, where Howard Hughes is sort of the control owner.

Got you. Understood. And the second question is on, as Bill and your team has gotten into day-to-day in the organization, what are the things that you guys have changed so far? Obviously, on the G&A side, we see that. Maybe just give us some thoughts on things that you have changed? And what else are you looking at to change at this point? Should we expect this is more like -- more or less the stable status? And also you mentioned the mix of it moving forward strategically. You want a bigger part of the business mix to be towards insurance. So does that change the remainder real estate portfolio? Do you look for changing the mix between Operating Assets, MPC and condo. Like how should we think about those as well looking out?

Sure. So I would say we've changed nothing with respect to Howard Hughes' real estate operation. I do think it would be helpful. The G&A initiative was something that David had sort of underway in planning prior to our transaction. And there is a very thoughtful, I would say, strategic logic for the changes that were made organizationally. I think it would be useful for, David, maybe you to described where those G&A savings came from, why we made those changes. We don't -- and then we don't have any plans to change the way Howard Hughes, we really like -- obviously, we've been involved with this business for 14 years. We've had a Board presence. I was Chair for, whatever, 13 or those years. So we're very happy with where the real estate business is and the way it's currently being managed. I think the only difference today versus before would be maybe if some of the world's greatest MPC assets showed up across the street -- I mean, across the street, like, I don't know, some other market, like another Phoenix type transaction were to show up, I would say we're less likely to do that today. We feel like we have enough exposure to sort of the MPC business, but there's a ton of work to do in the existing assets. And the idea is just to continue to develop the Howard Hughes communities in sort of small cities and make them the most desirable places to live in America. And I think they're -- the fact that the home sales performance, lot sales performance kind of speaks in a more -- as maybe increasingly challenged residential market kind of speaks to the power of those communities. But no real change to that business and the team is doing a great job of running it. But David, maybe you should comment on some of the changes you've made organizationally, and why -- how they generated G&A benefits.

Absolutely, Bill. It's a good question, Ray. I appreciate it. What we really did is we took a step back long before the Pershing Square announcement was made in terms of how we operate this business. And given the changing market environment where development returns are tighter, costs are up, rents have not kept up with it, we thought about rationalization of the overall organization and a focus of that development platform into more rifle shot opportunities where we can generate the highest and best risk-adjusted returns rather than taking a more scatter plot approach. As a result, we centralized a lot of our development expertise here in the corporate office, taking a lot of the developers out of the regions knowing that there would be fewer projects to do on a go-forward basis. And at the end of the day, when you think about it this way, there was a point in time where we had multifamily developers, office developers, retail developers in multiple regions. And it became largely redundant because the velocity of development, as you noted in our results, has slowed. So we've been able to centralize and bring that talent into one place where we can use that talent across regions, partner with our regional presidents to execute, and I think operate in a much more efficient way, delivering greater free cash flow to the bottom line. I don't want it to be lost on our investors and our analysts that in Carlos' prepared remarks, we left our G&A guidance unchanged despite the transaction with Pershing and the inclusion of their fixed fee in that G&A guidance. I think our ability to do that and maintain G&A neutrality and get the ability to leverage the incredible amount of expertise that's at Pershing Square, it shouldn't be lost on our investors. I think it's an incredible benefit.

Yes. The other thing I would say, investing real estate development and running a profitable insurance company have sort of the same thing in common. You want to do business when the returns are attractive, and you want to step away when they're not. And the problem of having kind of soup-to-nut development teams at each of these various locations is if you're a developer, you just want to do stuff. And that's when people get into trouble and kind of real estate development. And it's also not great to have headquarters always turning down transactions you propose because they don't offer attractive enough returns. And so you can actually have an absolutely best-in-class team. You can take the best and brightest of all the various regions and centralize them in one location. You can take the skills like we have an incredible team, marketing team that has run the condo program, for example, in Hawaii, led by Bonnie. And when Howard Hughes decided to build a condo in the Woodlands, we had all of that expertise and development expertise that we could apply to what is going to be an enormously successful -- what is already enormously successful development in the Woodlands. So there's G&A savings, and it actually -- it makes it -- it's a much more attractive place to work in the sense that in our various developments, there's probably always going to be something interesting to do in a certain property type. So we got a G&A savings. We've got a best-in-class team. We leverage all the learnings from the various communities and there's less pressure to do business. Ryan, do you want to add something?

Yes. And I'll just add, I think one of the most important things that we're focused on now and where you will ultimately see over time, the value creation from the addition the Pershing Square team to Howard Hughes is in capital allocation broadly. And as both David mentioned in his comments on real estate and taking a rifle approach to get to the highest return projects, and as Bill mentioned, we are opening the aperture in the ways in which we can deploy capital. So we've put a lot of capital on the balance sheet 3 months ago that can be deployed. And if you think about it now, going forward, we have an opportunity to take the highest return real estate projects and be able to focus on those, take the excess cash that may have otherwise been deployed towards somewhat attractive, but still lower returning real estate projects and put those towards other things. Every time you write an insurance policy, that is a capital allocation decision. The way you invest the cash from the float, that's a capital allocation decision. We have historically had, in our Pershing Square investment strategy, arguably among the highest returns that you could find amongst most capital allocation strategies and insurance gives us a pathway to continue that. In addition, though, we have the ability to ultimately over time, look to acquire other businesses, which will both provide a diversification of the cash flows beyond insurance and real estate, but at the same time, give us another arrow in our quiver to be able to take advantage of high-return opportunities. And if you look at, as Bill had mentioned, Berkshire as an example, we think one of the reasons why Berkshire has been so attractive is that there were a number of ways in which they can deploy a lot of capital into the highest return opportunity at that moment. And that's really the value that we're trying to add to Howard Hughes as we transition it to a diversified holding company.

Yes. One more sort of -- the other benefit we have is we own 47% of the company. We are under no pressure to deliver an outcome next quarter this year. And we can, as a result, be super thoughtful about how we think about deploying capital, and that carries over to the entire Howard Hughes sort of organization. If you -- as a pure-play real estate community developer, all the cash that we generated over time, we really had no place to put it other than in our various communities or in buying a new sort of MPC. Now we have the whole world, if you will, is our oyster. The reason why we're focusing on insurance first is a well-run insurance operation is a great platform for a successful investment strategy. And our favorite version of Howard Hughes is we build this very, very valuable company and the shares outstanding don't change or if anything, they shrink over time. And the ability to do that is much greater in insurance than if we were running around doing acquisitions one deal at a time. But over time, the goal is as the real estate operation generates more and more cash, we'll have more cash for investment. The holding company, the insurance operation itself, we expect to generate a lot of cash that will be reinvested in equities at least beyond the piece that we need to put aside for the insurance business, the claims -- potential claims in the future. And that's how we built a company that's very valuable on a per share basis.

Our next question comes from the line of John Kim from BMO Capital Markets.

Bill, in your commentary earlier, I think you mentioned that you were looking at a number of potential transactions. And I just wanted to clarify that ultimately, you'll just be acquiring one insurance company and not a series of acquisitions. And then secondly, for the companies that you're considering to acquire, do they already operate the way that you prefer in terms of being conservative and they're levered? Or do you anticipate changing how they run? And if that's the case, how difficult is that to implement?

Sure. So what we're focused on now is buying 1 business run by an excellent management team that's done a very good job in the writing business over time. All of the companies we're looking at are operated as conventional insurance companies, I would say, in terms of the amount of premium they write relative to capital and the way they invest their assets. Our plan would be to change that over time. But the Berkshire is pretty much -- it's almost unique. There are a couple of other examples of insurers that have taken kind of a somewhat similar approach. I think it's the exemplar sort of example, but the -- it helps enormously. There are very few insurance companies that are part of diversified holding companies basically. And so that's why the targets we're looking at are operated conventionally, I would say.

Maybe turning to David. You talked about the record price per acre that you achieved this quarter. In Page 23 of your supplement, you have an estimated price per acre, and that didn't change sequentially for Summerlin or Bridgeland. Is that policy not to change that figure since it is an estimate? Or do you anticipate that number going up?

John, I think conservatism is always the best policy. And as incredible as our results have been this quarter and the past several quarters, for me to try to extrapolate that to the moon over the next 30 years, I think, would be a little bit cavalier. So we take a conservative approach. We don't use one quarter's results to impact the future per sale acres on a daily basis. We look on a trailing 12, trailing 24 months. And if we feel that it's appropriate to apply that price per acre across the remaining, we will.

Okay. If I could just squeeze one more in on Ritz-Carlton. The condo sales have sort of stalled over the last couple of quarters?

Intentionally.

Actually, let me jump in there. So it's largely because of me. And the team sold out the first half of the project despite raising prices on a weekly basis because of demand. And I said, look, we're -- this is a unique, incredible asset. It's like a really an amazing -- I would say it's a -- it's the highest end equivalent of the best of New York City type projects, and I see us selling at prices that seem to me, really, really cheap. And I said, look, let's just sell half and let's deliver the product, and then we'll get the price that we deserved. And then I made the mistake of stepping off the board and not being Chairman anymore, and David snuck out another like 20% of the project because that's his instinct. But the bottom line is, we can sell the entire project out if we wanted to. But our goal is to maximize the profitability for the project. So I guess the current approach is, if someone desperately wants to buy something, maybe we find a way to make a deal with them. But we think that -- since again, it's a first of its kind in the Woodlands and really truly breaking new ground here, we're definitely leaving a lot of money on the table in the initial units that we've sold. It's still prudent to do so. So I'm obviously supportive of everything that management has done so far, but it behooves us to leave a nice piece of the project as it gets -- as people can actually see the finished product.

And are the remaining units higher floor or hinder price points generally?

I'd say the remaining units represent a good sample set of the overall units of the building. It's not as if the small units are left or the penthouses are left. I think we've sold a great range of units from the smaller all the way up to some of the penthouses. And what remains is a representative sample set of the overall building.

I mean basically, every time David sells a unit, I tell him he sold it a too cheaper price. And every time he hasn't sold a unit, I've told him, he's not selling quickly enough. So that's the nature of our relationship.

Great color.

It's like in trading, when you tell the trader, we should have bought it. I would have bought it here and I would have sold it here. That's -- it's a good way to keep management their feet up by the fire, so to speak.

Our next question comes from the line of Peter Abramowitz from Jefferies.

Maybe just kind of a philosophical question, if I could, for Bill. I guess, what would you say to kind of some of the common pushback from the market and from investors on sort of the complexity of the Howard Hughes story, it's maybe been a concern over time and been a challenge that some of the feedback from the investment community is that it can be hard to underwrite or people struggle with some of the parts stories and kind of the long duration of capital required for unlocking value, the lack of comps. And certainly, Berkshire is a good model to follow, but is a bit of a unicorn success story in the public market. So I guess, keep kind of philosophically, how do you get the market comfortable with some of those challenges that still exist in the stock? And kind of what would you say to some of that pushback?

Sure. So look, I completely understand it, and it's something we struggled with as an independent public company focused on this business. And ultimately, I think we collectively and certainly at Pershing Square came to the conclusion that we're never going to be able to get the kind of respect we deserve, if you will, for management's accomplishments and the quality of our assets as a pure-play real estate company. And I think that's driven as much by complexity as actually the market assigning a very high cost of capital to a business that's in real estate development, land sales, condominium development and multi-geography and it's unique and doesn't pay a dividend, et cetera. So we sort of said, you know what, we're never going to overcome this. So now what we should do instead is embrace the complexity, so to speak. And what I mean by that is Howard Hughes, the core real estate business is a phenomenal business, and you'll understand that business over the next -- you all understand it even more over the next 3, 4, 5 years as it starts generating a ton of cash. And then even more so over kind of a longer period of time. But we don't want to double down in that business and just keep redeploying capital and buying more MPCs because it's a story that we'll never properly be told. What we want to do instead while you're right, there are -- the examples of successful diversified holding companies are limited. We do believe that we have the kind of necessary collection of skills, assets and kind of a starting base to do so. If you look at Berkshire's success, a big part of it came from the fact that Buffett himself owned half the shares outstanding. So…

Appreciate that. And certainly, you can post a 20-plus percent ROE on an annual basis. I think that's awful lot of problems. So -- and then maybe a micro question -- and thank you for the color there, just more kind of a micro question on the real estate side. David, could you just talk about just kind of leasing demand for the office asset you just acquired in the Woodlands, and how that's sort of shaping up?

Yes. No, it's a great question. We're -- couldn't be more excited because this is an asset that I'm looking out the window, and I can see here right on the heart of the waterway. It's the first office building you come to as you exit 45 and it's a pristine Class A building that is entirely empty. It is the only vacancy in the waterway submarket of the Woodlands as we've leased up all of the other assets that we've had almost entirely full. And it's a market where we're able to achieve on a building like that high 20 net rents with a basis today of around $80 a foot. And after we put in TIs, we'll still be sub-$200. And we think it's an outstanding opportunity to generate risk-adjusted returns and allow us to meet the existing demand that we see in this submarket that we just currently can't accommodate because our assets in the submarket are full. So we're meeting the demand to offer tenants that want to be in the submarket. We're doing it in an outstanding basis, and I think that we have a really good opportunity here to lease this thing up quickly, similar to how we did this building here, 9950 that we acquired, if you recall, right before the pandemic.

Our next question comes from the line of [ Josh Caffin ].

I just had a question about the macro hedging. Regarding hedging strategies, how will the positions be constructed, for example, in the scenario of the CDS trades that Pershing held? If HHH was to be in a situation now, would the trade be executed through both of them? Or how would the sizing of those positions be constructed? And for future acquisitions, would similar approaches being used?

Sure. I think that's a very good question. So one of the things that Pershing Square has done over time with respect to our investment portfolio is the bulk of our assets have been invested in common stocks of high-quality, durable growth companies, periodically, I would say, episodically, we've identified what I would describe as black swan type risk in the market or cases where we've got a very, I would say, variant view on interest rates or commodity prices or currencies and the market offers us the opportunity in the form of an option like instrument to make a large profit relative to our investment if the expected or the potential risks were to occur. And we've used that to kind of hedge risk and, in some cases, a little more opportunistically just to make money. The -- if we were to identify such a risk, and we thought it appropriate for Howard Hughes to hedge that risk, we would size a similar- sized hedge in Howard Hughes by buying either an interest rate option or a credit default swap at Howard Hughes like we do in the Pershing Square portfolio. And we'd size it relative to what we think is appropriate in light of how much equity or how much exposure we have to that particular kind of risk. And that would also be a strategy within the insurance company investment portfolio that we would operate similarly.

Yes. And I think the key to think about that, as Bill mentioned, is when we buy these typically options or option like instruments, if the risk that we're worried about doesn't come to fruition and the option doesn't pay off, we size into an amount where we like to think about it is effectively, you don't notice it in the aggregate result because the amount of money you can lose will be small enough. At the same time, if the risk that we're worried about actually comes to fruition, the payoff from a relatively small investment will be large enough where it will have a very material impact. And those are really the only types of investments we make where they're very asymmetric so that when we're hedging something if it doesn't work out, it will not be a material negative impact to the Howard Hughes' business, but it would be a very material positive if that risk were to come to fruition. That would be the key in how we size, what we call asymmetric hedges, which is the way that we have historically done inside of Pershing Square.

And just to give a very real life sort of example of this. At the February 2020 Board meeting for Howard Hughes, I told the Board -- one, I didn't actually travel to Dallas because I was concerned about the COVID pandemic becoming much more serious over the next several weeks. And I said it's time to hunker down because things are going to get complicated. What we were doing at Pershing Square at the time is we were buying sort of hand-over-fist credit default swaps or investment grade CDS as a very low-risk way to hedge a potential deterioration in the credit markets and/or deterioration in the equity markets. Howard Hughes was not in a position to do so, didn't have the expertise wasn't set up in order to be able to write that insurance, didn't have arrangements in place with various financial institutions. Howard Hughes didn't participate. We made a very large amount of money on a very small amount of premium investment, invested $27 million premium, we made $2.6 billion ultimately in profit from that trade. If we could have done $10 million for Howard Hughes, or if we had done $5 million for Howard Hughes at the same time, Howard Hughes would not have had to do a $600 million equity offering a month later. It's maybe a very real life example of what we hope to achieve in the future.

At this time, I would like to turn the conference back over to David O'Reilly for closing remarks.

Once again, thank you all for joining us. If there are additional questions or thoughts, we are always available to answer those, and I'll close by reiterating what Bill mentioned earlier, that we'd like to invite everyone to join us on September 30 in New York City for the Annual Shareholder Meeting. It will be on 42nd Street in Manhattan. Information, details and your ability to register will be available as soon as our proxy is filed beginning on August 18 on the Investor Relations page of our website, howardhughes.com. Thank you again.

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