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Howard Hughes Corp/The  (NYSE:HHC)
Q3 2018 Earnings Conference Call
Nov. 06, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Howard Hughes Corporation's Third Quarter 2018 Earnings Call. With me today are David Weinreb, Chief Executive Officer; Grant Herlitz, President; David O'Reilly, Chief Financial Officer; and Peter Riley, General Counsel.

Before we begin I would like to direct you to our website www.howardhughes.com where you can download both our third 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 the 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 third quarter earnings press release 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.

Please also note today's event is being recorded. I will now turn the call over to our CEO, David Weinreb. Please go ahead.

David Striph -- Executive Vice President, Investor Relations

Good morning, and welcome to the Howard Hughes Corporation's Third Quarter 2018 Earnings Call. With me today are David Weinreb, Chief Executive Officer; Grant Herlitz, President; David O'Reilly, Chief Financial Officer; and Peter Riley, General Counsel.

Before we begin I would like to direct you to our website www.howardhughes.com where you can download both our third 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 on our third quarter earnings press release 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 turn the call over to our CEO, David Weinreb.

David Weinreb -- Chief Executive Officer

Thank you, Dave, and thank you all for joining us today. Welcome to our third quarter 2018 earnings call. We had an outstanding quarter, where we continued to make good progress unlocking value throughout our portfolio and across all three of our business segments. We saw continued improvement in our master planned communities, operating assets and strategic development segments.

Before we dive into some of the details of the quarter I thought it would be helpful to address the overall real estate market, specifically the residential home sale market as it relates to our MPC segment. Further, we've received feedback from investors and analysts that our recent stock price performance has been highly correlated with the home-building sector.

I thought it would make sense to spend a few minutes highlighting why Howard Hughes has more advantageous economic characteristics than the home-building business. We are geographically diversified, but concentrated in the best supply constrained markets. And within those markets, we control the most desirable residential land and we only sell at the most attractive price. We have built a portfolio of operating assets that as of the third quarter are generating an annualized NOI of 184 million which we expect to continue to grow to over 300 million as the asset stabilize.

While we do have some exposure to home-builders in the fair of the end buyers of our residential land, we own the scares assets that they need in order to manufacture their product. We typically generate cash margins of approximately 75% to 99% when we sell our land and can afford to hold this long-term appreciating asset. We can remain patient sellers of our desirable asset and wait for the most attractive price. We do not manufacture homes to generate cash flow and as such do not have the same inventory risk in the event buyer interest wanes.

Over the long-term, land values in our supply constrained increasingly dense communities increase in value. So, there's little downside in waiting if there's a disruption in the market. A temporary disruption in the price or pace of sale of our land is not expected to have a material impact on our net asset value, if we remained disciplined in our approach. Over the long-term, property and our MPC should increase in value. Time is the friend of our business.

Turning to the residential market conditions. We have as I'm sure many of you have as well read multiple headlines about the potential slowdown in the residential home sales market. Higher interest rates coupled with increasing labor and material cost have started to impact affordability across the nation.

As our MPC segment results demonstrate as well as the underlying home sales data in our MPCs that Grant will detail later in the call. We have not seen any signs of a slowdown in our MPCs. In fact, we've seen demand for our land from home-builders remain strong throughout and subsequent to the third quarter. Our residential land sales in the third quarter were actually the highest in the company's history.

We believe this is due to a number of factors, one of them being that as lower tax markets both Las Vegas and Houston have fared better than some other cities around the country and are seeing in migration from far more expensive parts of the country. Further, we expect our MPCs to continue to prosper more than most other communities, given our deep amenity base strong schools and access to major infrastructure.

With that said we know that we are not immune to a change in market conditions. This has been a long cycle and every real estate cycle will have volatility. Our stated strategy at the company and within our MPC segment remains consistent as we are constantly planning and preparing for a change in market conditions.

Our goal since the company's inception has been to shift the company's cash flows from a dependency on land sales to a balanced funding model consisting of land sales, condominium sales and the growing reliance on stable recurring NOI from our operating assets. In the past eight years, we've grown our operating asset NOI from 49 million in 2010 to our current run rate of 184 million and an NOI target of approximately 318 million upon stabilization excluding the Seaport.

Further, we remain committed to only starting new developments within our strategic development segment that we are able to fund while maintaining a conservative overall balance sheet. While a slowdown in the residential market could reduce our land sales and free cash flow, and therefore slow the pace of new development starts.

Our diversified cash flow base from operating assets is expected to allow us to continue to execute on our business plan of converting raw commercial land into vibrant cash flow generating operating properties albeit at a moderated pace. Further, within our MPC segment, we are careful to only sell residential land to home-builders to match the pace of underlying home sales.

If we put too much inventory into the hands of builders and the market turns we risk oversupply and substantial pressure on the value of our remaining land. If we don't sell enough land during strong periods, we risk a supply constrained market that could lead to rapid home price increases and impact affordability. We understand this delicate balance.

In addition, we are not subject to supply risk from third-party landowners. Finally, home-builders in our Summerlin and Bridgeland MPCs are building almost no speculative product, building homes only to meet current home-buyer orders. By remaining disciplined throughout this cycle, we have helped to protect ourselves in the event of a downturn from a more volatile impact to the value of our land.

Again to reiterate while we are mindful of the possibility of a potential slowdown in the residential market. Our MPCs remained strong with excellent land sales and strong underlying home sales data. Further, we believe that our strategy allows us to both accelerate in good economic periods and remain an excellent financial footing in a declining residential market environment.

And the continued diversification of our cash flows gives us the ability to remain patience and preserve our long-term value, if market shift and we feel negative pressure on the value of our residential land. From a financial perspective MPC EBT increased 48.5 million from the third quarter of 2017 to 88.9 million in the current quarter, an increase of 119.7% largely due to increased super pad sales in Summerlin and increased lot sales in Bridgeland.

With this quarter's results, we remained confident that this will be another year with very strong performance from this segment. In our operating asset segment, total NOI increased 1.3 million or 3.6% to 38.7 million this quarter compared to 37.3 million during the same period last year.

Further, we experienced a $3.3 million loss at the Seaport this quarter as a result of pre-opening and start-up costs with opening new businesses such as our concert series summer activations and restaurants. An important to note that this loss is consistent with our expectations and included in our development budget. Excluding the Seaport our year-over-year growth in NOI would have been 4.6 million or approximately 12.4%. This is largely the result of our portfolio continuing to stabilize.

In our Strategic Development segment, we've increased our stabilized operating asset NOI target from 308.6 million at the end of the second quarter to approximately 317.6 million not including the Seaport District as of September 30. This $9 million increase is a result of our acquisition of the Lakefront North office buildings in Hughes Landing and adding two floors or approximately 58,000 rentable square feet to 110 North Wacker.

We made the decision to add two additional floors to 110 North Wacker given the strength we are seeing in this market and the demand being generated for this building in particular. We are currently 39% leased and our leasing pipeline has enough activity to fill more than twice the remaining space.

Given this level of demand and the low marginal cost to add these additional floors. This represents an excellent risk-adjusted incremental return. Additionally, we do not expect this will affect the building's completion date. Moving to Ward village in Honolulu. We contracted to sell 220 condominiums during the quarter including 216 homes in our newest building, 'A'ali'i which began public sales in January. As of September 30 'A'ali'i was 75% pre-sold and 77% as of October 31.

We could not be more pleased with the enthusiasm that our customers are showing for this new innovative product type even before construction began. We broke ground on the building in mid-October. We feel that the success and rapid absorption of this product type is evidence that people recognize our vision for Ward Village is coming together, and there is no place comparable to live in Oahu. We also believe that the rapid sales pace of this building indicates that we have the opportunity to increase the pace of development of the entire neighborhood.

As we mentioned last quarter Ae'o is 100% sold out and we expect our first closings in the fourth quarter upon delivery of the building. We are very excited for our new residents to move in and join the growing Ward Village family. As of the end of September we have sold 96% of the residences at Waiea, our first building to be delivered and 99% of the residences at Anaha our second building. Merriman's Restaurant which occupies 6,075 square feet or 38% of the retail space at Anaha opened in June.

Ke Kilohana our fourth building to break ground consists of 375 workforce housing residences and 48 market-rate homes for a total of 423 homes plus a manager's unit. The project is 93% sold as of September 30. We entered into 18 additional new contracts during October bringing the building to 98% sold. It is approximately 81% complete.

The retail is 100% leased to CVS/Long's Drug. With regard to the Seaport District, I am pleased to share that we signed a long-term lease with Nike for 23,000 square feet of creative office space on the peer. We feel that this is a synergistic use with the SPN and exactly the type of tenant that we have been looking for.

There is significant demand for the balance of the office space, and we are working to ensure that we continue to achieve the highest rents possible, while also filling the space with other synergistic tenants. 10 Corso Como opened up in September in time for New York Fashion Week.

The 29,000 square-foot store has quickly become a leading destination in the New York fashion world. Sarah Jessica Parker opened up her shoe store in September and they were lines down the street to get in. We are also pleased to report that Roberto Cavalli, Cynthia Rowley, Big Gay Ice Cream, By Chloe and Cobble & Co. have all recently opened in the district.

Construction on John George's restaurant is now substantially complete, and we expect to have a soft opening this winter with full opening in the spring of 2019. The Rooftop Restaurant or 17 is expected to be complete by the end of November and opened later this year along with the winter Rooftop experience. They will be followed by Momofuku opening in the summer of 2019 followed by Malibu Farms in the third quarter and last but not least Andrew Carmellini opening in the second half of 2019.

Finally, we had a dynamic summer at the Seaport in which we welcome more than five million visitors to spike the majority of the district being under construction. As mentioned last call, we continued to stay the course and stay true to our vision, which we are confident, best positions the Seaport District for long-term sustainable success.

With that I will now turn the call over to Grant to discuss the details of our operational results.

Grant Herlitz -- President

Thank you, David. I'd like to move onto the details driving the recent results in our MPC's operating assets and strategic development segments and then turn it over to David O'Reilly to discuss our earnings and financial activities for the quarter.

Before getting into the details of our MPC segment I'd like to discuss what we are seeing in the residential new home sales market in our MPCs as this is what drives our landfills given the recent news reports of a housing market slowdown.

As David said we have continued to see strong demand for our residential land and believe this is due to the location of our communities in Texas and Nevada, our MPC's dominance of the individual markets and the fact that we and the home-builders that buy from us can offer the right priced products for the market.

While we have seen reports of a slowdown in the growth rate of new home sales, we have not seen any evidence of it in our MPCs to-date, although we are constantly monitoring sales pace in our communities. Excluding the Woodland Hills, which had not started selling lots in the third quarter of 2017, new home sales in our MPCs during the third quarter increased 8.1% compared to the same period in 2017.

Again excluding the Woodland Hills where 22 homes were sold this quarter, 482 homes sold in the third quarter of 2018 versus 446 in the same period of 2017. Now let's talk about the details driving our MPC segment results. Total revenues increased to 143.1 million this quarter from 64.9 million an increase of 78.2 million compared to the third quarter of 2017. Two large land sales in Summerlin drove the majority of the increase.

We recorded a 123 acres or $69 million landfill that closed on July 10 and a 38-acre sell that closed on September 19 for $22.1 million. This was Summerlin's strongest quarter for land sales in its history. At Summerlin, we continued to experience great demand for residential land as evidenced by these recent sales. Residential land sales for the quarter totaled 160.8 acres compared to 57.7 acres for the third quarter of 2017, a 179% increase. The price per acre increased from $546,000 to $572,000 per acre quarter-over-quarter, a 4.8% increase.

Summerlin had 302 new home sales during the quarter. This compares with 266 during the same quarter of 2017. This equates to a 14% increase. Through the first three quarters of this year Summerlin has sold 1046 homes compared to 717 last year. This is a 46% increase and greater than the entire number sold in all of 2017, which was 1022. In addition, the median new home price increased 6% to $581,995 from $548,000. Demand is extremely strong in this land constrained market.

The new home market in Las Vegas is not a speculative market, so nearly all new homes under construction are contracted for sale. The resale market continues to be severely constrained with only a two-month supply of homes on the market far short of a balance six-month supply. Builders need lots in the supply constrained market and we have the largest most desirable land in the valley.

According to the Housing Research Center's most recent report despite the fact that it led the nation in home price increases going up 13.9% year-over-year. Las Vegas is still 19.8% below the previous peak in prices while the compass of 20-City index is 3.5% above the peak.

Also according to RBC Capital Market's October 18th report Las Vegas' affordability which is calculated by dividing payment by income is at 25.4% for the third quarter below its peak of 37.7%. The Summit our joint venture with Discovery Land in Summerlin includes 260 units made up of 146 custom lots and 114 planned dwelling units.

Since the joint venture started closing lots in the second quarter of 2016, we have closed land sales totaling $328.2 million. For the quarter, we recognized 9.5 million in equity in earnings compared to 6.5 million in the third quarter of 2017. In Bridgeland, we continued to see robust demand for new home sales, which has translated into continued demand for our land from home-builders.

In the third quarter of 2018, there were 117 new home sales compared to 92 in the third quarter last year, a 27% increase. Year-to-date there have been 379 new home sales compared to 316 in the same period of 2017, a 20% increase.

For the three month period ending September 30, 2018 Bridgeland sold 42.4 residential acres compared to 17.5 acres for the same time period in 2017 representing a 142% increase in Bridgeland's strongest quarter of land sales in its history. We averaged $378,000 per acre during the third quarter compared to $369,000 per acre during the third quarter of 2017 a 2.4% increase.

The increase was primarily due to the mix of lots sold during this period. During the third quarter, the median new home price in Bridgeland stayed essentially flat at approximately $370,000. According to our surveys there are 78 homes on the market as of September 30, 2018 which is approximately a 1.6 month supply based on current absorption rates.

Continuing in Houston the Woodland's new home sales fell from 88 in the third quarter of 2017 to 63 new homes in the current quarter. Year-to-date there were 265 sales compared to 262 sales for the same period in 2017. The median new home price decreased from $450,000 to $438,000 for the quarter compared to last year. Once again this is a result of sales mix and reflects the sale of higher priced homes during the third quarter of 2017 and more of the moderately priced homes in the same period in 2018.

According to our in-house research as of September 30, we estimate that there were 100 spec homes available from all builders in the Woodlands, which is approximately a 3.1 month supply based on current estimated 2018 absorption levels. This reflects a strong demand in the community.

For the three month period ending September 30, the Woodlands sold 13.3 residential acres compared to 11.1 during the same period last year. The average price per residential acre decreased to $542,000 for the quarter compared to $675,000 in 2017. This represented a 20% decrease. The decrease is attributable to the mix of lots sold.

Turning to our operating asset segment. NOI increased 1.5 million or 4. 1% from 36.3 million in the third quarter of 2017 to 37.8 million this quarter. This is largely the result of increases of approximately 2.5 million from office and $800,000 from multifamily as the portfolio continues to stabilize. These increases were offset by decreases in our retail portfolio of approximately $1 million. Excluding the Seaport our retail portfolio was up approximately 2.2 million led by Downtown Summerlin and Ward Village.

As David said, it is important to note that the $3.3 million loss at the Seaport this quarter is the result of start up cost of opening new businesses and it is consistent with our expectations and included in our development budget. Our office portfolio NOI increase was led by increases in Three Hughes Landing 10-70 Columbia Corporate Center and One Summerlin.

Also in our office portfolio we acquired two vacant Class A office buildings totaling 257,025 square feet immediately adjacent to our Hughes Landing development in the Woodlands along with 12.9 acres of developable land of $53 million.

This adds to our office portfolio and provides immediate leasable inventory at a low replacement costs. This purchase was available to us due to a right of first offer that we had on the land, and it's an example of HHC's control of the inventory in these markets, and our ability to make opportunistic acquisitions at highly attractive returns. We expect this acquisition to yield an 8% return on cost when stabilized.

Our hospitality portfolio NOI increased by approximately $321,000 led by improvements at the Woodlands Resort and Conference Center and the Westin. This increases were offset by Mr. C Hotels to Seaport which recently opened.

Sequentially, hospitality NOI decreased by approximately $3 million from the second quarter of 2018 to the third quarter. This was led by the Woodlands Resort and the Westin which were affected by typical seasonality. Our multifamily portfolio NOI improved by approximately $869,000 this quarter led by m.flat, TenM in Columbia and the constellation in Summerlin, which was not wholly owned by the company in 2017. We are very pleased with this progress made in our operating asset portfolio.

With that I will turn the call over to David O'Reilly for our financial results and outlook.

David O'Reilly -- Chief Financial Officer

Thank you, Grant. I'd like to start with a quick overview of our earnings, including a discussion of a change in accounting methods that had a material impact on our quarterly and year-to-date earnings.

Before summarizing our recent financing activity and then turn to our current leverage and liquidity metrics. I hope that you've been able to review our 10-Q earnings release and supplemental package filed yesterday which contains details of our financial and operational results.

I'd like to begin with a change in accounting methods. As we previously mentioned beginning in January of this year following FASB's new guidance for public companies we have changed from recognizing condominium sales revenues on a percentage of completion basis the units under contract to recognizing revenue only when a unit sale closes.

Accordingly, we are required to recognize revenue in cost of sales for condominiums only after the sales to the buyers have closed. This change relates solely to the timing of recognizing revenue on these sales. It means that revenue will generally be recognized later than it previously had been and that the revenue is expected to be more volatile as is only recognized as unit sales close which tend to be in large numbers just after building is delivered to the buyers.

This change in accounting methods has a negative impact on earnings in our strategic development segment despite extremely strong condominium sales this year. Under the new revenue recognition accounting rules, we recognized $8 million of revenue in the third quarter. Under the former accounting rules, we would have recognized an additional $43.8 million of revenue in our strategic development segment for this period.

As you can see as a result of the change in accounting rules the results are not comparable to last year. We completed the third quarter with GAAP income of $23.4 million or $0.54 per diluted share. This compares to 10.5 million GAAP income or $0.24 per diluted share for the third quarter of 2017, a $12.9 million increase.

The increases were primarily driven by higher land sales in our MPC segment partially offset by the change in condominium revenue recognition rules. NAREIT-defined FFO was $53.9 million or $1.24 per diluted share for the quarter as compared to $45.3 million or $1.05 for the third quarter of 2017.

Core FFO was $72.5 million or $1.67 per diluted share, an increase of $12.4 million compared to $60.1 million or $1.39 per diluted share in the third quarter 2017. The increase in FFO and core FFO were largely due to increased land sales in our MPC segment partially offset by the change in accounting rules.

Turning to our financings. On July 20th, we closed on a $51.2 million construction note for the Las Vegas ballpark. The loan bears interest at 4.92% and matures on December 15 of 2039.

The note is secured by the ballpark by the proceeds of the naming rights and marketing agreement with the Las Vegas Convention and Visitor's Authority. This provides for $4 million in annual payments to the company in each of the next 20 years. On July 27, we closed on a $34.2 million construction loan on Bridgeland apartments. The interest-only loan bears interest at LIBOR plus 2.25% and has an initial maturity date of July 27, 2022 and one-year extension option.

The loan has a 25% repayment guarantee that burns off after the property is achieved to 1.25 times debt coverage ratio. On September 11, we closed on an $89.8 million construction loan for 6,100 Merriweather formerly known as Three Merriweather and an $85.7 million construction loan for the Columbia multifamily project.

The loan bears interest at one-month LIBOR plus 2.75% with an initial maturity date of September 11, 2022 and two one-year extension options. The loans are cross collateralized. On September 18th, 2018 we closed on a secured non-recourse corporate credit facility with loan proceeds of up to $700 million comprised of a $615 million term-loan and an $85 million revolver. In addition, we have the ability to increase the revolver by $50 million through the facility's accordion feature.

The five-year financing carries an interest rate of LIBOR plus 1.65% and refinances approximately 609 million of existing debt that carries a weighted average interest rate of LIBOR plus 2.2% and a weighted average remaining term of 1.7 years.

The initial collateral for this loan will include portions of Ward Village 10 through 70 Corporate Center, One Mall North, One Merriweather, 1725 and 35 Hughes landing, the Westin, Embassy Suites, Creekside Village, Lakeland Village Center and 1701 Lake Roberts. This new financing lowers our cost of capital while extending term, enhancing liquidity and improving operational and financial flexibility. The initial amount drawn on the loan was 615 million the revolver remains undrawn.

We hedged our interest rate risk on the full 615 million term loan with a swap resulting in an effective rate of 4.61% for the five-year term. Lastly, on September 25, we closed on an amendment to the construction loan for 110 North Wacker that increased the loan from 494.5 million to 512.6 million and increased our guarantee to 92.3 million.

This was done in conjunction with our increase in the building size by two floors that's previously noted. As of the end of the third quarter, our total consolidated debt to total assets was approximately 45.2% and our net debt to enterprise value closed the quarter at 31.2%. From a liquidity perspective we finished the third quarter with approximately $454 million of cash on hand.

As of September 30, we had 25 projects in our strategic development segment with anticipated total cost of $4.2 billion. Of that amount, we have previously funded 2.5 billion with 1.7 billion in estimated remaining cost. We expect to meet this obligation with a combination of existing construction loans which at quarter-end had approximately $1.1 billion of committed, but undrawn capacity and with anticipated loan of $74 million for 2x edge.

This leaves a net remaining equity requirement of $512 million, which we expect to fund through a combination of our free cash flow from our operating assets and MPC segments net proceeds from condominium sales and non-core asset sales and lastly our existing cash balance.

Again as of the end of the third quarter with net equity requirements of $512 million significant free cash flow and cash of $454 million, we have full confidence in our ability to meet all of our current funding commitments given the strength of our contractual operating cash flow and our visibility into the land sales for the remainder of the year along with the expected closings of the 100% sold Ae'o condominium building.

With that I'd like to turn the call back over to David for closing remarks.

David Weinreb -- Chief Executive Officer

Thank you, David, and thank you to everyone for joining the call. We are very appreciative of you our investors for your support and for choosing to invest your capital alongside ours in this special company.

I want you to know that even though our focus is on growing the long-term intrinsic value of our business the recent decline of our share price is not lost on this management team. David Grant and I have collectively invested a significant amount of our personal capital in HHC.

The three of us collectively own approximately 1.5 million shares and approximately 2.1 million warrants in the company representing a meaningful portion of our net worth and aligning us with our shareholders. When the company shares traded like they have been over the past quarter we share your pain.

I want you to know that when I see the short-term fluctuations in our share price, I am disappointed but I'm not losing sleep over them. Of course our current share price bothers me, but I say this because I know the strength of the business , the team and the platform we have built at HHC.

In summary, I believe that our share price is not reflective of the underlying value of our business, and I'm confident that over the long-term our true value will become apparent to the market. And despite the short-term pressures we face as a results of the decline in share price, we remained steadfast in our business plan. We are driven by increasing our net asset value on a per share basis. That will continue to be the ultimate driver of our decisions. Again, thank you, all for joining today.

I would now like to open the call up to questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Today's first question comes from Daniel Santos of Sandler O'Neill. Please go ahead.

Daniel Santos -- Sandler O'Neill. -- Analyst

Hey, good morning. Thanks for taking my questions. So, my first one is on the 10b5 program. The stock's down about 10% since it was announced. What are your thoughts on maybe doing an overnight deal once the program expires? And do you anticipate any board changes once the shares are sold?

David Weinreb -- Chief Executive Officer

Dan with regard to Pershing Square's decision to sell shares, I really, we're not in a position to talk about that. And whether they're likely to continue to sell through a 10b5 overnight or otherwise is completely up to them. What I can tell you is what Bill and the team at Pershing have told us is that they remained very committed to the HHC business. The rationale for selling they've talked about as it relates to some concentration issues. And in terms of changes to the board that's a question for our governance and nominating committee of the board and not something that this management team is going to answer.

Daniel Santos -- Sandler O'Neill. -- Analyst

Got it. Okay, and then just two quick ones from me. So, could you walk us through the timing of the restaurant openings at the Seaport? And it seemed to be taking a little bit longer than expected?

David O'Reilly -- Chief Financial Officer

I can we reiterate what David said earlier on the call and that's we'll have a soft opening this winter for John George with the full opening in the spring. Momofuku will open immediately thereafter. R17 which is the rooftop restaurant is opening this winter. Later in the second quarter in 2019 will be Malibu Farm's and Andrew Carmellini will be in the second half of 2019. I think that, yes, we would've liked to have seen them open sooner but I think strategically opening these in the spring and in the summer as we start next summer's concert series will benefit everybody.

And like we've always said and like David said at the end of the call we're driven by driving long-term shareholder value and we're going to make the best long-term decisions for this business that are going to increase value for all of our shareholders and not feel the pressure to make short-term decisions that could negatively impact us in the long-term. And I think that's the mindset that we're taking as we pursue these openings and get things done and ready to go.

Daniel Santos -- Sandler O'Neill. -- Analyst

Okay, that's helpful. And then just lastly could you give us a little bit more color on the two buildings you bought down in Texas? And whether or not we should expect to see more acquisitions like that?

David Weinreb -- Chief Executive Officer

Dan. Hi, it's David Weinreb. Good morning and thank you for your questions. And your question actually is quite timely. Lakefront North our recent September 5th acquisition of 257,000 square feet which you may recall where two vacant buildings largely vacant and some excess land. This morning we actually signed an 870,00 square foot lease above our pro forma, which brings those buildings to approximately 60% leased.

David O'Reilly -- Chief Financial Officer

And I think strategically Dan just what appeared at the end of that. If we can increase our market share and dominant ownership of assets within our master planned communities we're going to continue to look to do that. As we said in the press release when this was announced we're at a point where we're seeing office leasing momentum come back and that's obvious with the lease we signed this morning.

And when faced with the decision of whether or not we should build four use landing over 325 a foot or acquire these two buildings at 200 a foot and you get the land for free or grab some value to the land and we pay less than per foot and be able to hit the similar rents and lease it immediately and not wait for the construction to finish, it absolutely made sense for us economically and from a risk-adjusted return perspective and we candidly think it was a great capital allocation decision.

Daniel Santos -- Sandler O'Neill. -- Analyst

Got it. That's helpful. That's all from me. Thanks.

Operator

And our next question today comes from Craig Bibb with CJS Securities.

Craig Bibb -- CJS Securities. -- Analyst

Hi, guys. So good news, bad news in Ward Village this current pace of sale you guys will be out of inventory entirely by late January. What's the game plan to create more inventory faster?

Grant Herlitz -- President

Craig it's Grant. The good news is that we have plenty inventory to put on the market. We're in designs on a number of towers. We've got approval on Ko'ula earlier in the year which is the next tower. And we hope to launch sales either at the end of the year or January. So, we'll have plenty of inventory to put back to the market. We're excited about the next tower which will be adjacent to 'A'aIi'i and beyond the Central Park which is the gateway to or the center of the project and opens onto the ocean. So, I'll look out for designs on that building with great architects and interiors for people to buy both locals and the Japanese market.

Craig Bibb -- CJS Securities. -- Analyst

What's the expected finish date for that building?

Grant Herlitz -- President

The finish date will depend on obviously pre-sales as you know we like to get to 50% pre-sell before we begin construction. As soon as we get there we'll give you a finish date on the building.

Craig Bibb -- CJS Securities. -- Analyst

Okay. And David maybe with the change in accounting for condo sales what do you expect to book in Q1 on the opening of Ae'o?

David O'Reilly -- Chief Financial Officer

Well right now we're expecting to close some of the units at Ae'o in December and some in January. So, between that's kind of 60 to 90 day window of December, January, February. We should expect to book all of the revenue and expense of that tower for 100% sold out tower. Right now, I can't give you much guidance beyond in terms of what percentage is going to fall in the 4Q and 1Q. I would expect about a third to 40% in December and the remainder in the beginning of the year. But that is subject to our third-party buyers coming through with their closing statements funding -- mortgage all those good things are outside of our --

Craig Bibb -- CJS Securities. -- Analyst

Hope that's not me.

David O'Reilly -- Chief Financial Officer

No.

Operator

Pardon me, everyone. We will be right back with you. Please hold the line. Thank you. Thank you, everyone we have rejoined the speaker location. Please proceed.

Craig Bibb -- CJS Securities. -- Analyst

Okay. Am I still on?

Operator

Yes, sir. You're still live.

David O'Reilly -- Chief Financial Officer

Sorry about that.

Craig Bibb -- CJS Securities. -- Analyst

That's OK. That was interesting. All right, then just sticking with, well, switching sticking with strategic developments. So, 110 North Wacker you added two floors obviously the demand is good. Are you guys likely to make announcements before the end of the year?

David O'Reilly -- Chief Financial Officer

We're in the process of lease negotiations with a number of tenants. And as we said we have demand for two times the tower. Clearly, as those leases get signed we'll let you know. So, it's a process, it's a long process of lease negotiations. Hopefully, we can make a couple of announcements by the end of the year, but I wouldn't focus on that too much. We want to deliver the building by 2020. And by then we hope to be substantially listed.

Craig Bibb -- CJS Securities. -- Analyst

Okay . And then just kind of same question with 44 on Pier 17?

Grant Herlitz -- President

I think the same thing. We're not going to report on leases until the ink is signed, but we've got a lot of strong activity with synergistic users. And we're very pleased with where we are and expect in the coming quarters to the announcing very positive news.

Craig Bibb -- CJS Securities. -- Analyst

Okay. But, David, the Seaport preview you kind of suggested maybe before year-end you guys have ramped up on the Pier? So, has that changed or?

David Weinreb -- Chief Executive Officer

Well, let me try and answer that, Craig. If we can announce the leases tomorrow we'll do it. We're working as hard as we can to get them done. And if we tell you we'll have them leased in a week, if we lease them in two weeks you're going to wonder why we didn't have them leased in a week. So, what we can tell you is that we're working closely with tenants. And as soon as they are signed we will let you know.

David O'Reilly -- Chief Financial Officer

Yeah, again we won't sacrifice the long-term economics to make sure we get them done inside a week, inside a month, inside a quarter. We're going to make sure we get the best deal possible for our shareholders.

Craig Bibb -- CJS Securities. -- Analyst

Okay. Last one if I'm allowed. The Bridgeland really seems to be just gaining some momentum. I think it's a straight line their acreage sold to get to your expected sell update it's like 150 acres would be their straight line. When do you guys think you could hit that -- like 99 acres trailing now?

Grant Herlitz -- President

It's such a lumpy business. As you know we're very pleased with the progress at Bridgeland. Our goal is to get to 1000 lots sold as soon as possible on average per year. That's really a function of the market, but we are pleased with the progress we've made especially in 2018 and hope to continue that in 2019. We're seeing extraordinary demand in Bridgeland even though the housing news piece otherwise. We got record sales almost every month this year in Bridgeland relative to its past history. And obviously the fact the quality, to the extent, markets are assessed, but we see Bridgeland there with future MPC of Northwest.

Craig Bibb -- CJS Securities. -- Analyst

Okay. All right. Thanks a lot guys.

Operator

And our next question comes from Scott Schrier of Citi. Please go ahead.

Ken Ling -- Citi. -- Analyst

Hi, this is Ken on for Scott. Good morning, and thank you for your comments and slowdown in housing due to affordability. Can you share a little bit more about maybe sales space for the MPCs maybe by quarter start maybe by month for this quarter?

Grant Herlitz -- President

Well I don't think it's really a relevant question because the builders generally especially in Houston will want to close at the end of each quarter. They don't really take down line -- on a straight-line basis over the quarter most of them like to close pre at the end of the quarter. So, we're not looking at based on a monthly basis rather is actually on an annual basis and on a multi-annual basis.

David O'Reilly -- Chief Financial Officer

Look, in terms of home sales, I mean, Ken as we talked about last quarter Bridgeland and Summerlin were up 40% year-over-year Q2. Q3 as Grant said in his remarks Bridgeland was up 27%, Summerlin was up 14%. It's still very strong. I wouldn't read too much into that data other than to say we're very pleased with the underlying home sale data. Home-builders continued to look for more land for us. We're preparing it and getting ready to sell that to meet underlying home sales, so that we keep that balanced approach of making sure we have the right amount of inventory in our home-building partner's hands.

Grant Herlitz -- President

And right at the end of the day look through the supply of resale homes and new homes in the market and at a balanced market six months and we're way under that. So, we think there's plenty of room to grow.

Ken Ling -- Citi. -- Analyst

Great. Thank you for that. And in terms of start-up cost and for Seaport can you quantify or help us frame out expected cost for the coming quarters? And maybe share if that's more to wards events and activations or maybe more toward restaurants retail or office space?

David O'Reilly -- Chief Financial Officer

It's really toward a balance of the operating businesses the restaurants the activations the concerts and events. We saw some of it this summer as we opened a number of folks like 10 Corso Como, Cobble & Co. the Garden Bar , the Heineken Riverdeck et cetera.

I think we'll continue to see some of those and we budgeted to continue to see some of those. As we open up the incremental restaurants and the rooftop restaurant John George, David Chang et cetera. Again those are all start-up costs associated with opening operating businesses that are in our development pro forma. They're part of the overall total cost. So, I don't want to count them twice.

They will continue to hit our NOI, but that will also start to be offset by the positive NOI of those businesses operating and generating free cash flow when they move from start-up toward stabilization. And we start to see new grade tenants like Nike come in and pay great rents. So we'll continue to see that and we'll highlighted each quarter largely dependent on the timing as each opening occurs.

And again we'll highlighted each quarter as it comes, but I can't really tell you what amount will be in each quarter for the next several quarters a) we don't provide guidance and b) the timing as you know can shift around a week or two here and there and I can move it from one quarter to the next.

Ken Ling -- Citi. -- Analyst

Got it. Thank you. And last question from me. Regarding 250 Water Street in terms of the planning and expectations for the usage there, is that dependent on retail and office space demand or something else?

Grant Herlitz -- President

So, our goal obviously, one of the goals for the acquisition of 250 Water was to combine that with our air rights at Seaport District and we've got the air rights of 250, we're working closely with the city to do that. And while we don't have anything to announce today that's our goal.

Ken Ling -- Citi. -- Analyst

Thank you.

Operator

And our next question today comes from Tayo Okusanya of Jefferies. Please go ahead.

Tayo Okusanya -- Jefferies. -- Analyst

Yes, good mornings. Congrats on a stellar quarter. My first question is the super pad sales that were announced this quarter could you just give us a little bit more detail behind those sales? Was any part of it like sales to hospitals or things of that nature? I'm just trying to understand whether that was really more residential home stuff that was pushing third quarter or whether it was just again other type of land sales?

Grant Herlitz -- President

Yes. Thanks, Tayo. That's a really good question. That super pad was comprised of really two pads. And the reason for it being sold at one time was that the home-builder who bought it wanted to make sure they controlled the balance of the village. And we went to them at the end of last year and said to them if they wanted to control the entire village they needed to take down both parcels of land. And your question is whether it's commercial or not? It's entirely residential sold to a national home-builder. And remember, as David told, we like to sell commercial land unless it's for a non-competitive use for our existing portfolio. So, unless it's through, as you said, hospital or another state used similar to that it's likely we will not be selling commercial land.

Tayo Okusanya -- Jefferies. -- Analyst

Okay, that's helpful. And then on the other hand, I appreciate a lot of the comments you made earlier on about the volatility in the stock price the management's stake in the company. I'm just curious where you have instances like this does it ever make you consider put in a stock repurchase type plan, just to show increased confidence in the company, at certain point, at certain valuation is probably the best use of your capital to buy back shares?

David O'Reilly -- Chief Financial Officer

Yeah, absolutely. And Tayo you've hit the nail on the head and that is at the end of the day capital allocation decision. And there are times where we could be allocating capital to buying back shares, but that generates the best risk adjusted return.

We did that earlier this year at a price that is candidly higher than where we are today. This most recent drop in share price happened subsequent to the end of the quarter when we were in black out and we weren't able to buy back shares, but that's something that the board I'm sure will address and continues to think about every meeting that we have. And when that happens we'll -- if we do put in a buyback plan we'll announce it.

I mean historically we've been focused on buying back meaningful amount of shares and blocks at non-natural holders of our securities and we can achieve a nice discount on that acquisition, as it's really a meaningful capital allocation decision. And unfortunately with the buyback you are limited by only doing a certain percentage of average daily volume.

You don't want to be too many days in the market in a row and it's difficult to get a meaningful amount of your capital allocated. But as we've turned it down to this level that's something that has returned to front of mind and something that they will continue to evaluate.

Tayo Okusanya -- Jefferies. -- Analyst

Okay. Sounds good to me. Again, congrats on the great quarter.

David Weinreb -- Chief Executive Officer

Thank you again, Tayo.

David O'Reilly -- Chief Financial Officer

Thank you.

Operator

And our next question today comes from Vahid Korsand of BWS Financial. Please go ahead.

Vahid Korsand -- BWS Financial -- Analyst

Hi, good morning. First question, when I'm looking at the MPCs, The Woodlands is now down to 184 residential acres. I wonder if you could help us out in figuring out what we should expect in terms of pace of sales? And if you would hold onto any of those acres for multifamily developments that you're going to do yourself?

David O'Reilly -- Chief Financial Officer

Well, I'll answer the second part of the question, first. It's David O'Reilly. The multifamily product that we're developing in the Woodlands and continuing to developing in the Woodlands is on our commercial acreage there. So, we have a plenty of supply of commercial acreage, plenty of entitlements to do and with Gardens, our latest at Hughes Landing the second phase in multifamily there, we're really excited about the returns that we're able to generate. Our plans for selling those remaining acres in the Woodlands are no different than selling the acres in any of our other Master Planned Communities. We're going to wait until we get the price that we like that's appropriate for that land. And if we do and we're keeping up with underlying home sales and matching the supply demand dynamics of land in the market we'll sell that land.

David Weinreb -- Chief Executive Officer

And just to add to that, that land fuels our development business and, to the extent, we require capital to continue development that's really the only time that land, that commercial land needs to be or residential land needs to be sold. It's an appreciating asset over the long-term and therefore selling it at a discount makes no sense to generate cash, if that cash doesn't have an intended purpose. So, to your third point, we have plenty development on our books right now, we have couple of million dollars. And we are no short supply of opportunities to continue development and allocate our capital and it's obviously a great thing for us.

Vahid Korsand -- BWS Financial -- Analyst

Okay. And then my follow-up to that is I know on a per acre basis it comes onto the mix of what you sell it for or who you sell it for in the development rights add to it. So with the 184 acres left and keeping in mind those strategic development. Is this something you hold on for more denser development?

Grant Herlitz -- President

It depends on where it's at. Of course as you know last year we increased the density of some of our super pads in Summerlin in order to make houses more affordable and that strategy actually worked for us and we sold a number of those parcels in order to do that. But the essence to the master planned community is not only to get the highest priced homes that is to get a balanced mix of homes, so that you create a virtuous cycle of an economy that allows everybody to participate in that economy and meet the needs of that economy whether it's a first-time homeowner or a multi-million dollar home-buyer. So at the end of the day we want to create a broad mix of home-buyers in the market which allows for demand for those commercial amenities within from buyer which is where we generate our stabilized NOI which ultimately creates the most value for us as a company.

Vahid Korsand -- BWS Financial -- Analyst

Okay and then skipping over to Seaport. On the Nike lease when are they expected to move in? And when are you already collecting any payments from them?

Grant Herlitz -- President

So, we're not collecting payments from them until they are obviously move in. But I don't know the exact dates and we can get back to you on that, but it obviously build out their space and then commenced their leases, but in pretty short order.

Vahid Korsand -- BWS Financial -- Analyst

Okay. And then David on the property level debt, that looks like everything is pretty much secured until around 2021 mostly. At what point do you go back with your refinances? Is that something you're still looking to do? Or is that something you're waiting here to figure out?

David O'Reilly -- Chief Financial Officer

We never stopped evaluating opportunities to refinance our debt to lower our cost of capital, extend our maturity, increase our financial flexibility. I think that the prohibitive prepayment cost of our existing bonds makes it difficult right now, but every other piece of debt is on the table, and we're always looking at it. And that's something you saw us do this quarter with this new term loan and line of credit. We reduced our cost of capital we took 1.7 years of weighted average maturity of supply and increased our financial flexibility as a result with an incremental $85 million revolver.

Vahid Korsand -- BWS Financial -- Analyst

Okay, thank you.

Operator

And our next question today comes from Mike Mitchell of Locust Wood. Please go ahead.

Stephen Errico -- Locust Wood -- Analyst

Hi, it's actually Steve Errico for Mike. How you guys going?

David Weinreb -- Chief Executive Officer

Very good, Steve.

David O'Reilly -- Chief Financial Officer

Thanks, Steve.

Stephen Errico -- Locust Wood -- Analyst

Congratulations on that Nike lease side. I get what you're doing with the synergy with ESPN. I was just curious now that has occurred, David do you think that that's an accelerant to the remaining leases like have you kind of built a core and you can find to fill in around that?

David O'Reilly -- Chief Financial Officer

I think as we mentioned earlier we have very, very strong activities with several users that we've been in discussions with for several months. And we're hopeful that the leases that we're working toward will execute in the coming weeks perhaps it will be a month or two they're complex, but they're very dynamic and we're excited about them.

Grant Herlitz -- President

And, Steve, just to add to that, the key reason to sign synergistic tenants is that they further attract other tenants. So, clearly our goal is that both Nike stand will continue to create demand for further office tenants so we want to join them.

Stephen Errico -- Locust Wood -- Analyst

It's a nice core you built on there. So I was just thinking it should accelerate. So congratulations on Nike, it's a great tenant.

Grant Herlitz -- President

Thank you for that.

Operator

And our next question comes from Alex Barron of Housing Research Center. Please go ahead.

Alex Barron -- Housing Research Center. -- Analyst

Thanks. My first question and I apologize if somebody else already asked it, maybe I missed it, but the other operating, other property operating costs of 42.9 million this quarter, it seems like a pretty big jump compared to any previous quarter. Was there any one-time item in there?

David O'Reilly -- Chief Financial Officer

So, the other property operating cost include a lot of those start-up cost as we talked about earlier with the Seaport and the retail segment. And again those, if the operating statement, but there are also part of our development budget. And it's all things that we are budgeted and known ahead of time. And look if you exclude those numbers and you go back to the core operating performance of our operating asset portfolio, and you just look at the year-over-year results, our office portfolio is up 18% our multi-family is up over 20%, hospitality is up 8%, and if you exclude the Seaport to the remainder of our retail portfolio it's up 17%. So, it's a great year-over-year growth across the portfolio highlighting how great our operating teams have done on running these assets and leasing them up toward stabilization.

Alex Barron -- Housing Research Center. -- Analyst

Yes I guess I was just trying to figure out as I model going forward what was kind of the underlying run rate?

David O'Reilly -- Chief Financial Officer

Again those are more one-time operational start-up cost and I wouldn't model those on a go-forward basis continuing on quarter-over-quarter. It will be a little bit more lumpy. And as they occur we'll be highlighting them for all of our investors.

Alex Barron -- Housing Research Center. -- Analyst

Got it. And then as it pertains to residential land, I was curious whether the builders are coming to you and asking for some higher density smaller loss or something that makes home more affordable? Or they just kind of still taking the same type of land as they've been in the last year or two?

Grant Herlitz -- President

Yeah, Alex, as you know, I've spoken about this, but last year really on the call I mentioned, but last year we decided to create a high density product in Summerlin that would allow for homes to be more affordable. And if you look at the affordability statistic that you publish, you'll know that you can see obviously that Houston

and Las Vegas or Summerlin are below their peak. And so at this time builders are pretty satisfied with the type and mix of life that are on the ground and they're selling them in Summerlin and Houston at a pace. So, we haven't seen any change or request in that, but I wouldn't be surprised to see as that kind of affordability index increases or gets toward the peak where that does occur and will be targeting that to make sure we create a much high density product to protect our five acre and hopefully we'll be able to talk about that.

Alex Barron -- Housing Research Center. -- Analyst

Got it, Grant. And do you guys ever option land to these guys on a rolling take-down basis or do you just kind of sell them 50 lots or 100 lots at a time?

Grant Herlitz -- President

So, in Houston they're all on a rolling take-down basis but they take down three to five lots at a time and sell those, so we do have forward contracts, if you will.

Alex Barron -- Housing Research Center. -- Analyst

Got it. And one last one on Hawaii. Have you guys already made plans or announced plans on when the next tower is going to launch?

Grant Herlitz -- President

So, Ko'ula which is our next tower was approved by the HCDA earlier this year. And we'll launch sale either in December or January for that tower which is again on the park. And we're really excited about that both the interior and exterior of the building are beautiful and hopefully we'll see similar success as we have seen in 'A'ali'i.

Alex Barron -- Housing Research Center. -- Analyst

Great. Congrats on everything. Thanks.

Grant Herlitz -- President

Thank you, Alex.

David O'Reilly -- Chief Financial Officer

Thank you.

Operator

And, ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to the management team for any final remarks.

David Weinreb -- Chief Executive Officer

It's David Weinreb, I appreciate everyone joining us today and the questions. And as always we are available to answer any additional questions on our office number or mobiles which many of you have. Thank you and look forward to speaking with you next quarter.

Operator

Thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Duration: 67 minutes

Call participants:

David Striph -- Executive Vice President, Investor Relations

David Weinreb -- Chief Executive Officer

Grant Herlitz -- President

David O'Reilly -- Chief Financial Officer

Daniel Santos -- Sandler O'Neill. -- Analyst

Craig Bibb -- CJS Securities. -- Analyst

Ken Ling -- Citi. -- Analyst

Tayo Okusanya -- Jefferies. -- Analyst

Vahid Korsand -- BWS Financial -- Analyst

Stephen Errico -- Locust Wood -- Analyst

Alex Barron -- Housing Research Center. -- Analyst

More HHC analysis

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