Howard Hughes Holdings Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results are prepared under U.S. GAAP. Unless noted, financial figures below are in millions of dollars.
Business context
Howard Hughes is a real estate company with four segments: Operating Assets, Master Planned Communities (MPC), Seaport, and Strategic Developments. Its portfolio includes large-scale planned communities, income-producing properties, condominium developments, and Seaport entertainment and hospitality assets. The company intends to spin off Seaport Entertainment as a separate public company in 2024, but timing and completion are not assured.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $171.1 | $196.3 |
| Operating income (loss) | $(16.7) | $14.9 |
| Net loss attributable to common stockholders | $(52.5) | $(22.7) |
| Loss per share, basic and diluted | $(1.06) | $(0.46) |
| Cash from operating activities | $(171.2) | $(144.3) |
| Cash and cash equivalents at March 31 | $462.7 | $631.5 at December 31, 2023 |
| Restricted cash at March 31 | $429.1 | $421.5 at December 31, 2023 |
| Debt, net of financing costs | $5,391.2 | $5,302.6 at December 31, 2023 |
Revenue fell about 13% year over year. The company reported higher rental revenue, but lower MPC land sales and condominium sales more than offset that increase. Net loss widened primarily with lower MPC commercial land sales, lower equity earnings from The Summit, and higher general and administrative expense related to the planned spinoff. The filing does not provide a single consolidated margin measure; reported segment and NOI measures have specific definitions.
Operating Assets NOI, a non-GAAP measure, rose to $58.3 million from $54.3 million, supported by office leasing and multifamily lease-up. MPC segment EBT fell to $24.3 million from $62.4 million, chiefly reflecting a steep decline in The Summit’s equity earnings and lower commercial land sales. Seaport segment EBT was a loss of $28.0 million versus a loss of $27.2 million; Seaport NOI was a loss of $8.6 million versus a loss of $5.6 million. Strategic Developments EBT was a loss of $5.4 million versus a loss of $3.4 million.
Total assets were $9.64 billion and total equity was $3.01 billion at quarter-end. The company had $1.0 billion of undrawn lender commitments available for property development, subject to restrictions. Its disclosed net debt, a non-GAAP measure that incorporates certain receivables and cash, was $4.38 billion. The company’s share of unconsolidated-venture debt was $144.2 million, generally without recourse except for the Floreo collateral-maintenance obligation.
Cash flow, debt and liquidity
- Operating cash use increased to $171.2 million, principally due to higher interest payments and condominium-related cash use, partly offset by lower MPC development spending.
- Investing cash use was $73.6 million, including $60.9 million of property development and redevelopment expenditures and $18.2 million of net investments in unconsolidated ventures. Financing activities provided $83.6 million, including $89.0 million of mortgage and loan proceeds.
- Debt included $2.05 billion of senior unsecured notes and secured mortgage debt with both fixed and variable rates. Variable-rate mortgages had a weighted-average rate of 8.75% before the effect of derivatives and 8.04% including derivatives.
- Management said available cash and expected operating sources should be sufficient for obligations and ordinary-course expenses for at least the next 12 months. It also noted that future development may require additional construction, bridge, or long-term financing, joint ventures, or equity.
- Six property-level debt instruments were not in compliance with covenants at March 31. Excess cash flow after debt service at the affected properties was restricted, but management said the restriction did not materially affect overall liquidity or property operations.
Outlook, risks and unusual items
- No specific earnings or NOI guidance was provided. The company does not provide a Seaport NOI yield or stabilization-date outlook, citing seasonality, sponsorship and event revenue variability, and start-up business risks. Seaport was approximately 68% leased and may continue to incur costs above rental revenue during lease-up.
- The company expects condominium closings and MPC land sales to remain important, variable sources of cash. Victoria Place is expected to be completed in Q4 2024; construction starts and completion schedules remain subject to execution and market conditions. As of March 31, Victoria Place and Ulana Ward Village were fully presold; The Park Ward Village was 94.9% presold, Kalae 90.0%, The Launiu 37.5%, and The Ritz-Carlton Residences in The Woodlands 50.5%.
- Interest-rate exposure remains material: the company estimated annual interest costs would rise approximately $11.4 million for each 1 percentage-point increase in floating rates. Derivatives partially hedge variable-rate debt.
- After quarter-end, a jury in the Columbia dispute awarded IMH $17.0 million in April 2024. The company plans to appeal and seek a reduction in the award.
- Waiea defect remediation is estimated at $158.4 million in total, including a $3.0 million Q1 charge. The company says it will pursue recovery from the contractor and other parties but cannot assure recovery; $2.6 million remained in construction payables at quarter-end. A final release agreement with the homeowners association was executed in Q1.
- Other material uncertainties include the proposed Seaport Entertainment spinoff, financing availability and cost, development and construction risks, real estate market conditions, and legal and regulatory matters. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Progress, conditions, costs, and timing of the Seaport Entertainment spinoff, including which assets and liabilities will transfer.
- Cash generation and funding needs as MPC land sales, condominium closings, and development expenditures fluctuate.
- Debt maturities, covenant status at the six affected properties, availability of the $1.0 billion in undrawn commitments, and sensitivity to interest rates.
- Final outcome and potential financial impact of the $17.0 million Columbia jury award and the company’s appeal.
- Waiea remediation costs and the amount, timing, and collectability of any recoveries from responsible parties or insurance.
- Seaport’s lease-up and operating losses, including the performance and ongoing funding needs of the Tin Building by Jean-Georges venture.