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The Howard Hughes Corp (NYSE:HHC)
Q4 2019 Earnings Call
Feb 28, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Howard Hughes Corporation's Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to David Striph, Executive Vice President. Please go ahead, sir.

David Striph -- Executive Vice President of Investor Relations

Good morning and welcome to the Howard Hughes Corporation's fourth quarter 2019 earnings call. With me today are Paul Layne, Chief Executive Officer; 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 fourth quarter earnings press release and our supplemental package. The earnings release and supplemental package include reconciliations of non-GAAP financial measures that will be discussed today in relation to their most directly comparable GAAP financial measures. Certain statements made today that are not in the present tense or that discuss the Company's expectations are forward-looking statements within the meaning of the federal securities laws.

Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Please see the forward-looking statement disclaimer in our fourth quarter earnings press release and the risk factors in our SEC filings for factors that could cause material differences between forward-looking statements and actual results. We are not under any duty to update forward-looking statements unless required by law.

I will now turn the call over to our CEO, Paul Layne.

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you, Dave, and thank you all for joining us today. Welcome to our fourth quarter 2019 earnings call.

I'm pleased to report that we had an exceptional year and that our core businesses have never been stronger than they were in 2019. The solid results we've achieved further cement our conviction that the transformation plan announced last October represents a successful strategy for increasing shareholder value by lowering overhead, selling non-core assets and focusing the Company's resources on our core assets.

I'd like to divide my prepared remarks by highlighting the results of the year, followed by the progress made on our transformation plan and then discuss the strategic benefits of the recent acquisition of the Occidental Towers in The Woodlands. David will then discuss the results of our MPC, Operating Assets, Seaport and Strategic Developments segments along with our financial results. I'll then finish by discussing our outlook for 2020 before opening up for questions.

Before we begin, I'd like to mention our February 19 press release announcing that we have partnered with Say, the fintech start-up reimagining shareholder communications for this call. Ideally, this tool will enhance Investor Relations by allowing you, our investors, to ask questions in advance of our earnings calls and have visibility into other investors questions. At the end of this call, we will answer the top questions from the past week. We are always looking for ways to elevate our capabilities, respond to shareholder questions and make our earnings calls more transparent and engaging. I hope that you will find this new technology helpful in that regard.

Okay, on to the highlights of the year. We recorded the strongest annual land sales in the Company's history, selling 571 residential acres or 25% more than we did in 2018. And if you remember, 2018 was an excellent year. Our MPC EBT, or earnings before taxes, increased by $54.6 million or 27% to $257.6 million, up from $203 million. We had substantial growth in our Operating Assets NOI, including our share of NOI from non-consolidated assets of $36.4 million, or approximately 20%, driven by increases in our office, hospitality and multi-family portfolios, along with our other category, which was driven by placing the Las Vegas Ballpark in service in 2019.

We continued the conversion of commercial land into vibrant income producing assets by starting construction on several new properties, including 8770 New Trails, Creekside Apartments Phase II, Phase III in Millennium multi-family, Ko'ula retail and a stand-alone restaurant at the Merriweather District in Columbia. These new assets will contribute approximately $14.3 million of NOI when stabilized on costs of approximately $154.1 million and an unlevered return on cost of 9.3%. This combined with our acquisition of the Occidental portfolio, which I will talk about in a minute, accounts for increase in our annual stabilized NOI target, not including the Seaport, of $51.4 million to $367.31 million or approximately 16.3%.

At Ward Village and Honolulu, we completed and delivered Ke Kilohana, our workforce housing project, and also began construction on our six tower Ko'ula. In January of this year, we launched public pre-sales of our seventh condo project, Victoria Place. We have entered into hard contracts with 20% deposits on 185 homes or 53% of the total project as of February 21, an incredible pace. We really could not be more pleased with the reception of this project in this incredible community.

In the Seaport District, we increased revenues by $23 million to $55.6 million in 2019 compared to the previous year due to increases at our existing businesses, as well as the openings of new businesses such as Jean-Georges' critically acclaimed The Fulton and Malibu Farm. Given the inherent volatility of opening new businesses, we will be best served by waiting until we have gotten through a few more quarters to further evaluate our estimated, stabilized NOI guidance.

Now, turning to the transformation plan we announced in October. As you hopefully recall, the transformation plan had three key pillars. First, HHC will become lean by reducing our overhead expenses by $45 million to $50 million. Second, we will become focused by selling approximately $2 billion of non-core assets, generating over $600 million of net proceeds to predominantly redeploy into share repurchases and development opportunities in our core MPCs. Finally, we will employ a decentralized operating model that will allow us to accelerate growth in our core MPC business, driving value creation in our decades-long development pipeline.

I'm pleased to report that, even though it's only been just barely over four months since I became CEO and we announced that plan, we have made substantial progress toward achieving the goals we set out on that call. To that end, we've made meaningful progress toward our G&A reduction goals in a very short timeframe and still remain committed to achieving the expected savings of $45 million to $50 million. Obviously, we incurred a meaningful one-time charge of $34.3 million associated with this restructuring. And our corporate move to The Woodlands will not occur until August of this year. As a result, our overhead in the fourth quarter does not reflect the true run rate amount of our current G&A. But as I said, we are confident that we will achieve our G&A goals and expect that the vast majority of these savings will be reflected in our results at an increasing amount throughout 2020.

We have closed three non-core asset sales, Cottonwood Mall, West Windsor and Bridges at Mint Hill, for a total of $95.5 million and recorded a net gain associated with these sales of $27.1 million. We remain confident that we will be able to achieve our target of $600 million in net proceeds from non-core asset sales. The goals of our plan also included reinvesting the proceeds of our non-core sales into both share buybacks and into our core MPCs by leveraging our decentralized business model to effectuate faster decision-making.

As we previously announced, the Board authorized a $100 million share buyback program on October 31 of last year. In early November, we began aggressively repurchasing shares and were able to purchase approximately $54 million before it became apparent that we were a finalist for the very large acquisition that I'll highlight now.

We completed the largest acquisition in the Company's history with our purchase from Occidental Petroleum in The Woodlands. This acquisition is emblematic of both our recommitment to invest in our core MPCs as well as our ability to leverage our decentralized model to move with great speed when opportunities arise. The acquisition included two Class AAA office towers totaling 1.4 million square feet and a 126,000 square foot warehouse in The Woodlands from Occidental and closed at the end of December. It also included 9.3 acres of prime developable land in The Woodlands Town Center and a 63 acre office campus in West Houston's Energy Corridor that we have already listed for sale.

A few benefits of this transaction. This acquisition increases our office portfolio in The Woodlands by approximately 50% and solidifies our dominance of the Class A space in this dynamic market. It protects against competitors entering the market and provides us with much needed inventory without construction risk and a new investment-grade tenant in Occidental Petroleum who is leasing approximately 808,000 square feet, which is the entirety of the larger of the two towers and the 126,000 square foot warehouse for 13 years.

Additionally, this purchase mitigates a good portion of the reduction in NOI that we expect to see from non-core asset sales and replaces the more volatile, shorter-term income from our hospitality and non-core retail assets with extremely predictable long-term investment-grade income, which clearly increases the value of our portfolio. This is an excellent example of our new strategy and action. Proceeds from the sales of non-core assets such as Cottonwood Mall, West Windsor and Bridges at Mint Hill helped us accelerate this investment in one of our core MPC assets, where we have significant competitive advantages and where we can achieve the highest risk-adjusted returns.

We have extensive and long-standing relationships in these core markets that give us a competitive advantage when strategic assets that we don't own become available, such as in this case. These relationships, as well as our intimate market knowledge allow us to gauge tenant demand in a manner that no other owner can, which is extremely valuable in underwriting these transactions. While we have only owned the assets a short time, we are seeing very strong activity in the market and are engaged with several prospects and look forward to updating you over the next several quarters. Needless to say, it was both an incredibly busy and very rewarding fourth quarter at Howard Hughes Corporation.

Now, I'd like to turn it over to David O'Reilly.

David R. O'Reilly -- Chief Financial Officer

Thank you, Paul.

I'm going to start with a quick review of our MPC, Operating Assets, Strategic Developments and Seaport segment, and then turn to our financial results. As Paul mentioned earlier, MPC EBT increased substantially year-over-year due to both the higher price per acre being achieved and an increase in number of acres sold across the portfolio. EBT increased $54.6 million to $257.6 million. These figures truly hammer home the fact that the more we amenitize our communities, the more people are drawn to them and the more valuable the remaining land becomes. A great example of this is Summerlin. We opened the Ballpark last year and the price per acre increased $82,000, from $566,000 to $648,000. If you extrapolate that increase across the remaining 2,991 residential acres that we own, the uninflated undiscounted value has increased by almost $250 million.

Bridgeland had a more modest increase in price per acre, moving from $385,000 to $408,000. But for us, Bridgeland is more about velocity and reaching critical mass than maximizing price per acre. We sold 773 lots in 2019, up from 620 in 2018, on our way to what we believe is a critical run rate of 1,000 lots per year. This is what we are continuously doing in our MPCs, adding value and keeping the virtuous cycle moving forward. As we have mentioned previously, new home sales in our communities are an excellent indicator of demand for future land sales.

Across the portfolio, new home sales were up 15% for the 12 months ending December 31, 2019, compared to the same period in 2018. The increase was led by The Woodland Hills and Bridgeland. In the fourth quarter, new home sales were up 41.3% overall compared to the fourth quarter of 2018 due to increases at The Woodland Hills, Bridgeland and Summerlin. This level of home sales gives us a great deal of confidence in our projected land sales for 2020.

Available spec homes are down in Bridgeland and The Woodlands to 93 and 47 units, respectively, representing a 1.1 months and 1.8 months of supply available. And The Woodland Hills spec homes increased slightly from 32 to 34, and represents only a 2.3 months' supply. Summerlin is not a spec home market.

Speaking on Summerlin, to date, we have closed on approximately $422 million of sales at The Summit, including 28 million of custom lots and 52 million of homes this quarter compared to 16.8 million and 40.3 million in the fourth quarter of 2018, respectively. We have won contracts in escrow at the end of the fourth quarter worth approximately $82.7 million. As was mentioned last quarter, The Summit is an ultra-high end community and sales will always be lumpy from one quarter to the next. With all of that said, the project has exceeded our expectations for sales since inception. And we expect the overall gross margin generated by the project to remain unchanged from our original expectations.

Moving to our Operating Assets segment, where we had both a great quarter and a great year. For the fourth quarter of 2019, our NOI increased $3.3 million or 7% compared to the fourth quarter of 2018. This was largely due to increases in the office portfolio with Lakefront North, 100 Fellowship Drive, Aristocrat and two Summerlin coming online, along with a lease-up at Three Hughes Landing. We also saw improvement in our multi-family and hospitality assets. All of this was partially offset by the seasonality of baseball at the Las Vegas Ballpark.

For the full year 2019, we increase our NOI by 20%, increasing from approximately $180 million in 2018 to almost $217 million in 2019. This was a result of a large improvement in our office portfolio, the opening of the baseball stadium last March, and improvements in our hospitality and multi-family assets. The office and multi-family portfolio NOI increased as a result of new assets coming online late in 2018 and throughout 2019, as well as improved occupancy in existing buildings. Hospitality increases were driven by greater occupancy levels. These increases were partially offset by a reduction in our retail portfolio of approximately $1.3 million due to one-time positive adjustments at Ward Village in 2018 that did not recur in 2019.

On a sequential basis, we saw Operating Assets NOI dropped by approximately $8 million. This was largely due to the end of baseball season at the Las Vegas Ballpark, and the typically slower hospitality business in November and December. In addition, there were some termination fees and a few other small one-time benefits in the third quarter that did not recur in the fourth quarter. At the same time, our stabilized NOI target increased from $323.1 million last quarter to $367.3 million, a $44.2 million increase. This increase is largely attributable to the Occidental acquisition. Note that this stabilized NOI target is before the sale of our remaining non-core assets, which we we'll expect to reduce debt target by approximately $66.1 million to $301.2 million.

Turning to our Strategic Developments segment. We had another excellent quarter, led by continued strong sales of condominiums at Ward Village and Honolulu. A'ali'i, which began construction in the fourth quarter of 2018 and is expected to be completed in 2021, was 83.5% pre-sold as of December 31. Ko'ula, which broke ground in the third quarter of 2019 was 74.3% pre-sold as of the end of the year. That project completes in 2022.

As Paul mentioned, in January of this year, we began public pre-sales on our seventh condominium project at Ward Village, Victoria Place, which is already pre-sold 53% of the units with hard deposits as of February 21. This is a continued testament to the vibrant master planned community that we have created, a product that we have designed, a vibrant international market and our team on the ground in Honolulu.

Moving on to the Seaport. For the quarter ended December 31, 2019, we had a net operating loss at the Seaport District of $5.6 million compared to a net operating loss of $3.6 million in the same quarter of 2018. The loss was primarily due to funding start-up costs with the retail, food, beverage and other operating joint venture businesses. This loss was partially offset by $1.7 million improvement in our managed businesses. For the year, Seaport NOI loss, including our share of NOI from equity investments, increased by $9.5 million to a net loss of $15.7 million. The increased loss was due to decreases of $6.1 million, $2.2 million and $1 million in our landlord operations, managed businesses, and events and sponsorships, respectively.

Landlord operations reduction in NOI was primarily due to Abercrombie & Fitch baking in during the second quarter of 2019. Managed businesses' increased loss was principally due to the increased losses at 10 Corso Como as the store was opened for a full year in 2019 as compared to less than three months in 2018. In addition, start-up costs and initial losses at The Fulton and Malibu Farm and Bar Wayo contributed to the increased loss.

The events and sponsorship change was due to increased costs for Winterland, which was only opened for one month in 2018. As we have said, we expect these losses to continue until the Seaport reaches its critical massive offerings, which will be primarily driven by the timing of the completion and stabilization of the Jean-George marketplace located in the Tin Building. Assuming that we receive timely approvals, we expect the Tin Building to be opened in the summer of 2021. Stabilization should occur within 12 to 18 months of opening.

Now a quick overview of our earnings before summarizing some recent financing activity and our current leverage and liquidity. I hope that you've been able to review our 10-K, earnings release and supplemental package filed yesterday, which contains details of our financial and operational results. We completed the fourth quarter with a GAAP loss of $1.1 million or $0.03 per diluted share as compared to $37.3 million or $0.86 per diluted share for the same period last year. The decrease was driven by lower condo sales due to timing of closings and higher G&A expenses related to the restructuring and consulting fees for technology and data integration projects.

For the 12 months ended 2019, we had GAAP earnings of $74 million or $1.71 per diluted share as compared to $57 million or $1.32 per diluted share in 2018. The increase was due to higher MPC sales and increase in gain on sale from the disposal of our non-core assets, higher minimum rental and selling profit from sales type lease revenue, and higher other rental and property revenue in the Operating segment and Seaport segments. These were partially offset by higher operating expenses in all four segments, higher interest expense at the Seaport in 250 Water Street, and higher depreciation and amortization expense for the new assets we placed into service.

NAREIT defined FFO was $0.91 per diluted share for the quarter as compared to $1.72 for the fourth quarter of 2018. The decrease was primarily due to lower condo sales at Ward Village due to the timing of closings. We had approximately $309 million of closings in Ae'o in the fourth quarter of 2018 and that obviously did not recur in 2019. For the year ended 2019, FFO was $4.58 per diluted share compared to $4.16 for 2018. The increase was primarily due to higher MPC land sales.

Turning to our financings. Subsequent to the quarter end, on January 7, 2020, we closed on a $43.4 million construction loan for the Creekside Park Apartments Phase II. In December, we closed on a $343.8 million bridge loan for the acquisition of the Occidental Towers, which we rebranded The Woodland Towers at the Waterway and also The Woodlands Warehouse. We also modified and extended the $61 million loan for Three Hughes Landing. In November, we closed on a $100 million note payable for 250 Water Street and repaid the original seller financing at a $4.9 million discount.

In October, we closed on a $250 million credit facility secured by a land and certain other collateral in The Woodlands and Bridgeland MPCs. This loan refinance The Woodlands Master Credit Facility and Bridgeland Credit Facility with a combined principal balance of $215 million. We've reduced the interest rate from LIBOR plus 2.87% to LIBOR plus 2.5%. As I mentioned before, this facility is used to fund infrastructure costs at our MPCs that are largely reimbursed through the issuance of MUDs, or municipal utility district bonds. We currently have just over $280 million in MUD receivables.

Also, in October we modified and extended $47.9 million loan for the Outlet Collection at Riverwalk. The total commitment was reduced to $30.9 million after a $15 million pay down. As of the end of the fourth quarter, our total consolidated debt to total assets was approximately 49% and our net debt to enterprise value closed the quarter at 37%. From a liquidity perspective, we finished the fourth quarter with approximately $423 million of cash on hand.

And as you can see from the projects under construction in the table on Page 65 of the 10-K, we have net equity requirements of $281 million. We expect to fund these commitments through a combination of our free cash flow from our Operating Assets and MPC segments, net proceeds from non-core asset sales, and lastly, our existing cash balance. To be clear, we have enough cash and liquidity on hand to meet all of our current funding commitments without any additional cash being generated from MPC land sales or our operating properties.

With that, I'm going turn the call back over to Paul for a few thoughts on our expectations for 2020 broken down by segments.

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thanks, David.

In our MPC segment, as previously mentioned, we had a record year with MPC EBT of $258 million. Based on both the momentum from 2019, as well as the limited current year-to-date results, we remain optimistic that 2020 will be an excellent year. With that said, we do not expect to repeat the record results of our 2019 MPC EBT in 2020. A number of superpad sales in Summerlin were accelerated into 2019 to meet our homebuilders and homebuyers demand. And given the magnitude of work it takes to prepare a superpad, we do not believe that these same types of results will be repeated in 2020. We expect that we will have an excellent but normalized year for land sales and the resulting MPC EBT will revert to more normal historical levels of between $180 million and $200 million for 2020.

In our Operating Assets segment, we see continued stabilization of recently developed or acquired assets, strong same-store performance and the addition of Occidental Towers, all contributing to meaningful growth in our portfolio NOI. But as we've mentioned, we are actively engaged in non-core asset sales. And as we execute those sales, our NOI will decrease. As such, it is our expectation that our first quarter NOI will be strong as we will have contributions from both the non-core assets before they are sold and the benefit of the occupied Occidental buildings. We then expect the NOI will modestly decline throughout the year as the headwinds of the non-core sales will not be entirely offset by the growth of our stabilization of our recently completed or acquired assets.

Within our Strategic Developments segment, we have made meaningful progress in the identification and planning of the next several projects across the portfolio. We have a number of projects ready to go in Summerlin, Colombia, The Woodlands and Ward Village, and remain committed to delivering on the promises of our transformation plan, which stated our desire to accelerate growth in our core in MPCs. But we are also steadfast in our commitment to the same disciplined approach to new development that we've always had at HHC.

We will only start a project when we have both the capital to complete the project and we see ample market demand to fill that development at outsized risk-adjusted returns. Obviously, the Occidental acquisition impacted our capital availability to start multiple new projects early in 2020, and we'll need to weigh on our future free cash flow and the proceeds of our non-core asset sales to provide the fuel to fund new development projects. We are optimistic that we will be able to talk about a number of new projects this year, and we'll provide more detail on these projects as the timing of closing of our non-core asset sales become more clear.

For the Seaport District, our goals for 2020 remain unchanged. We are steadfast in our belief that there is a clear near-term roadmap to unlocking value and intend to continue to execute on the strategy over 2020 and 2021, including opening and stabilizing our restaurant offerings on Pier 17 which has progressed nicely with the continued stabilization of the Fulton, Malibu farms and the early opening of Bar Wayo.

Finally, the restaurant offerings by Andrew Carmellini remain on track with Mister Dips scheduled to open in May and his Italian chop house to open in July. Completing construction, opening and stabilizing the Tin Building, Jean-George food hall, which we believe will only further increase traffic and solidify the Seaport as a world-class destination, which remains on track for summer 2021 opening.

Leasing the balance of the office space on Pier 17 and the third floor the Fulton Market Building, we are working with a number of prospects for these spaces and hope that we can share a more detailed update on its progress in the coming quarters. And finally, working with the community and elected officials to finalize our plans for 250 Water Street and the remaining air rights.

Finally, our disciplined capital allocation approach will not change in 2020. We will continue to allocate the capital generated from operations and non-core asset sales between new developments and share buybacks to where we see the greatest risk adjusted returns and opportunities to drive the greatest increases to shareholder value.

As you can see from our results, since the day we announced the transformation plan, the team has been working at a breakneck pace to deliver on results and close the largest transaction in our Company's history. As this has been my first full quarter as CEO, I am incredibly proud of the work that the team has done and the improvements that we've already made to the organization both operationally and culturally. These improvements have only started to materialize in our results.

Again, thank you, all, for joining us today, and look forward to talking with you as we get out on the road throughout the year.

We will now turn to Q&A. Before we open up the lines to those who have called in, the first few questions have been generated by our investors over the past week through our newly implemented Say technology application and will be read by Dave Striph. Dave, can you please read the first question?

Questions and Answers:

David Striph -- Executive Vice President of Investor Relations

Yes, Paul. At what point would you expect the Seaport to be cash flow neutral?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you, Dave. We are steadfast on our plan at the Seaport. We are leasing space. We are aggressively going to get our office space leased and get our restaurants opened. And we're very excited about the Jean-George food hall, which will open in approximately 18 months, which will be a driver of not only foot traffic but also just the excitement at the Seaport District. We're at a point where maybe 12 to 18 months after the food hall stabilizes in 2021, we can look at this. But at this point we're just excited about the opportunities of getting space leased and creating more sustainable NOI.

David Striph -- Executive Vice President of Investor Relations

Does the projected stabilized NOI of $367 million include the Chicago office tower?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

As shown on page 16 of our supplemental, we are showing $14.4 million in our stabilized NOI for 110 Wacker.

David Striph -- Executive Vice President of Investor Relations

Did the Company receive any bids for assets during its period of IB retention? And if so, why were they rejected?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

We received a tremendous amount of interest in individual assets, and these were the first people we went back to when we decided to sell non-core assets. This is why we've gotten off to such a strong start of our sales. $95.5 million with a $22.4 million gain with the sale as mentioned previously of Cottonwood, West Windsor and Bridges at Mint Hill.

David Striph -- Executive Vice President of Investor Relations

Can you quantify the strategy around asset sales versus buybacks? Are there price levels that are especially attractive and what valuation would that be based on? Any other strategies to close the NAV gap?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Dave, why don't you take that?

David R. O'Reilly -- Chief Financial Officer

Sure. And I'll reiterate some of what Paul mentioned in his prepared remarks. Our disciplined capital allocation approach is not going to change in 2020. We're going to use the free cash flow that we generate from our recurring NOI, our land sales and our MPCs and profits from condominiums and we're going to allocate that capital where we're going to drive the highest risk adjusted returns, be that through share buybacks or new development opportunities, always making sure that we have ample and appropriate liquidity to finish all of our projects and maintain a well staggered pushed-out maturity schedule of our maturing debt.

David Striph -- Executive Vice President of Investor Relations

Do you anticipate any weakening demand in Hawaii condos due to the coronavirus?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you, Dave. It's really too early to know. I think the whole world is looking at the coronavirus and trying to understand how it will impact commercial real estate. We have diversified supply chain for construction in Hawaii following the Trump tariffs. Travel and tourism in Hawaii and Vegas certainly may be affected. We are working from a -- our Company has focused on how we can actually work from home effectively like probably most companies around the world.

We have had phenomenal sales at Victoria Place with 20% hard deposits. We are unbelievably excited about that, and we'll be talking more about that in the next several quarters. Sales pace could certainly slow, but we generally see after -- it's been record setting.

David Striph -- Executive Vice President of Investor Relations

Which pillar of the transformation plan do you think HHC will make the most significant progress on over the next quarter?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you. I think that's a great question. In our transformation plan, we've talked a lot about it in the last four months, since it was enacted. I think the ability to invest in our master planned communities will be the major pillar. The perfect example is our investment in the Occidental towers, which we now are calling the Woodlands Waterway towers, and the return of a 13-year investment grade lease for 935,000 feet between the office building and the warehouse. I think that's a perfect example.

David Striph -- Executive Vice President of Investor Relations

What does the timeline look like for Ko'ula?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Dave, you want to take that?

David R. O'Reilly -- Chief Financial Officer

Sure. As shown on page 23 of our supplemental, we remain on time to deliver that project in 2022, and we commenced construction, as you probably remember, in the third quarter of 2019. Again, as Paul mentioned, with the pace of sales at Victoria Place, we're really excited that Ko'ula, for a tower that's not delivering until 2022, is already over 70% sold.

David Striph -- Executive Vice President of Investor Relations

Will you please give us an update as to the process of monetizing your non-core assets, including ballpark timelines where possible?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Sure. We are on track and we completely believe that the $2 billion of asset sales, netting $600 million is in the next 12 to 18 months exactly as we have projected this from the last four months that we've been discussing it.

David Striph -- Executive Vice President of Investor Relations

As regards the South Street Seaport, what changes, if any, do you anticipate implementing to the existing strategy and how long will it take to determine if the strategy is working?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you for the question, Dave. The South Street Seaport with Seaport District, we are actively working literally every week on improving the plan. As I mentioned before, we're excited about the food hall that is under construction, and if you are going to be in New York, we want you to come to one of our concerts, one of the 41 concerts that we have planned this spring and summer. But the strategy has not shifted since our November plan that's been in place.

David Striph -- Executive Vice President of Investor Relations

What were the factors in your decision to change leadership in Hawaii?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

The Hawaii leadership really was tied to Simon Treacy deciding that it was his time that he wanted to retire. And he spent two years mentoring the staff as a very strong leader, and it worked out extremely well. Simon is a good brand and he did a lot of great things for our Company. It was time for him to go back to retirement, which he had already retired once. And Doug Johnstone is more than ready to run the region. He has a great history in Hawaii and he has a fantastic team behind him, and we couldn't be more excited about the future of our region in Hawaii.

David Striph -- Executive Vice President of Investor Relations

Thanks, Paul. That ends the Say technology questions. So I'm going to turn it over to the operator to open it up for Q&A. Thank you.

Operator

[Operator Instructions] This first question comes from Alexander Goldfarb of Piper Sandler. Please go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good morning down there. And first, David and Paul, really appreciate the improved transparency certainly in the press release and then in your commentary. So definitely helpful. So a few questions from us. First, on the land sales. Obviously, really, really strong year in '19. Generally you guys tell us to say, don't model quarterly, just focus on annual. But given the outsized pace of 2019, should we be thinking more about a 2018 level? Or how should we be thinking about 2020 land sales -- and let's hope that the corona thing settles down, so we'll put that aside.

David R. O'Reilly -- Chief Financial Officer

Yeah. It's a great question, Alex, and I'm happy to talk through it. And hopefully after the call, you have a chance to go back and take a look at the transcript as well. Paul gave a little bit of guidance at the end of his prepared remarks regarding the performance for each of the segments, and in there we talked a little bit about how the '19 results of MPC EBT hitting the kind of record of $258 million. It's something that we think we're going to have a hard time recreating. There were a couple of superpads in Summerlin that we were able to accelerate to meet the homebuyer and homebuilder demand. It's going to be very difficult to do that again. So, to see on an annual run rate basis to return to a more normalized but still very healthy and successful results of between $180 million and $200 million per year of MPC EBT is a level that we think very comfortable, we should be able to achieve.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. Thank you, David. And then the second question is on Hawaii. Obviously, the pre-sales are just phenomenal. Just curious on the pricing. You guys started out originally with some really high end units and then you quickly switched to more quote unquote workforce, affordable units that flew off the shelves. Victoria Place is more going back toward a higher price point. So how is the market broadening, meaning that there is more appetite for a wider range of price points? Or is it this particular asset where it's situated in the property that makes it applicable for a higher price point whereas a lot of the other projects that you are planning in the future will be more at the -- more sort of affordable workforce type price point?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Very good question. I think the answer is, where the property is, first grow, second row, third row, and then whether its workforce housing, which is a requirement that we of course will meet. But the pricing on a per square foot basis -- and we'd be happy offline to talk to you about that specifically -- but the first row Victoria Place, we right-size the units and it's been extremely popular almost $2,000 a foot. But they have sold at record pace. So, it's really more of where each particular property is located and the pricing related to that.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. And then just finally, going back to the Seaport. Appreciate the investor's question you were asked about the cash flow neutrality. And you guys obviously said, look, it's going to take a while. But as we think about sort of the drag on earnings and the operating cost of opening restaurants, etc., David, do you think that this year is sort of the biggest year as far as the sort of costs that you have to put upfront because you're opening restaurants? Or, should we think about the next few years are going to have similar outsized costs like this year does because maybe you're opening Jean-George or opening other different projects where you guys bear the operating impact of that?

David R. O'Reilly -- Chief Financial Officer

It's a great question, Alex, and it's one that is obviously challenging to answer and give a lot of certainty around. But what I can tell you is, I do think that 2020 will have meaningful headwinds as those pre-opening expenses that flow through the P&L and are not capitalized like the traditional real estate development, will continue to materialize in our financial statements throughout the year. And specifically over the next -- the first and second quarter will be opening the second floor of David Chang's restaurant. Just after that, as Paul mentioned, Mister Dips in May. And then, Andrew Carmellini's Italian chop house will be coming on in July.

Obviously, those openings will go through the P&L, and I think will obfuscate some of the positive results that we'll see from those restaurants that have been open and stabilized like the Fulton and Malibu Farm. I do think, as Paul mentioned, one of the keys to getting to cash flow neutrality and one of the really important things that we are focused on all the time is leasing the balance of the office space on the fourth floor of the Pier and the third floor of the Fulton Market Building. We are casting a very wide net, and I would tell you, perhaps previously we were very focused on more synergistic tenants, and they've been great like Nike and ESPN, but now we are really focused on increasing net cash flow, generating positive NOI and getting tenants in there as soon as we possibly can that can pay the rent and have the credit to support our growth.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you.

Operator

Our next question today comes from Alex Barron of Housing Research Center. Please go ahead.

Alex Barron -- Housing Research Center -- Analyst

Yeah. Thanks. Hey, guys, good job in the quarter.

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you.

David R. O'Reilly -- Chief Financial Officer

Thank you.

Alex Barron -- Housing Research Center -- Analyst

I wanted to ask about your master plan and the land sales. Right now, it seems like the housing market is pretty strong, and obviously your pricing reflects that. But at the same time, it feels like a lot of the strength is coming from builders kind of making a shift toward more affordable housing. So, are you guys shifting the size of your lots or how are you shifting your strategy to kind of meet that demand for more affordable housing, just generally, in Bridgeland and in Summerlin and so forth?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Yeah. Thank you, Alex. And I always love getting your emails and your reports. We are closely monitoring the demand cycles that we see, especially in Bridgeland, and in some cases we have, as you probably know, minimized our lots' size slightly. But there is certainly a trend, kind of a barbell, if you will, to shrink the lots somewhat and bring home prices down, which increases our volume of lot sales. But also, we're also seeing a nice push on the upper end, with some of the more custom homes, both in Summerlin and in Bridgeland.

Alex Barron -- Housing Research Center -- Analyst

Okay. Interesting. And in Summerlin, obviously you guys had a pretty huge sale this quarter. About how many lots that that represent and what should we expect for 2020? Is it going to be pretty lumpy like toward the end of the year or what?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Well, as I mentioned in my prepared remarks, Summerlin had just a remarkable year last year, and we couldn't be prouder of Kevin Orrock and his team and how they performed. In my prepared remarks, I did mention that let's don't count on the same accelerated incredible sales pace. But we're optimistic that it's going to be another great year. Dave, if you have any comments.

David R. O'Reilly -- Chief Financial Officer

Alex, you know the difference obviously between Bridgeland and Summerlin where we're selling individual lots in Bridgeland. It tends to be a little bit more even quarter-to-quarter in terms of results, whereas in Summerlin when you're selling superpads, it can and often has, as it was in this year, be a little bit more lumpy. I would expect that that kind of a bit of quarterly volatility will continue to persist throughout 2020, although, as we always say, given that volatility, you really need to look at our results on an annual basis to best judge how we're performing in that segment of our business.

Alex Barron -- Housing Research Center -- Analyst

I understand that it'll be lumpy. But I'm saying, would you expect the overall year to be similar in dollar values? Or you don't know at this point in time?

David R. O'Reilly -- Chief Financial Officer

Well, as we've said earlier, we think the $262 million of revenue and the $257 million of EBT will be tough to replicate this year. We are expecting something more in the $180 million to $200 million range, more consistent with the previous excellent years that we experienced in '17 and '18, which -- '18 was a fantastic year, if you remember that.

Alex Barron -- Housing Research Center -- Analyst

Right. Okay. Well, best of luck for this year. Thank you.

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you, Alex. And our next question today comes from Vahid Khorsand of BWS Financial. Please go ahead.

Vahid Khorsand -- BWS Financial -- Analyst

Good morning. Thanks for taking my question. First question in terms of the non-core sales. You were mentioning that NOI was going to go down after the first quarter. Does that mean you have negotiations under way for non-core assets and you expect those to happen in the second quarter or third quarter?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Yes. I mean, we are actively involved, as I mentioned before, in our non-core asset sales. Although we have given our guidance of 12 to 18 months that it would take, starting four months ago, but we are very positive about the actions that we are taking to get these things closed. We don't ever want to announce things until they actually close. But I think in the next quarter and two quarters, you'll be hearing a lot of positive news.

Vahid Khorsand -- BWS Financial -- Analyst

And then when you had mentioned stabilized NOI, it was about 60-something million dollars without the non-core assets. Are you projecting all of them to be disposed of this year?

David R. O'Reilly -- Chief Financial Officer

No, Vahid. We're still sticking to that 12 to 18 month time frame in terms of when we're going to be able to execute on the sales. Just from a full stabilized NOI perspective, obviously there's going to be the headwinds of those sales that will bring it down to a run rate level just over $300 million, as Paul mentioned in his remarks earlier.

Vahid Khorsand -- BWS Financial -- Analyst

Okay. And then my last question is on Ward Village. I know we -- before you had mentioned how you can't record the sale until you deliver it. You're not anticipating moving up development from 2021 to 2020 completion and so booking those sales?

David R. O'Reilly -- Chief Financial Officer

I would love to think that we could accelerate and shave a year off of our construction time frame. We just haven't figured how to do it just yet. Look, we are going to try and deliver these towers on time and on budget and meet the expectations of not just our investors but those buyers of the units as well in Ward Village. And I think the timing that we've laid out in the supplemental that speaks to it on page 23 is one that we feel very good about being able to deliver on.

Vahid Khorsand -- BWS Financial -- Analyst

So comparatively speaking, 2020 condo sales are going to be noticeably lower than 2019?

David R. O'Reilly -- Chief Financial Officer

Correct. We don't have a tower closing this year. So from an earnings perspective, we wouldn't see anything in the 12 months now. We'll see A'ali'i close in 2021, Ko'ula in 2022. And if things continue to progress, as they have with Victoria Place, we're hopeful they will be adding that onto a project under construction during 2020, that would be a '23 delivery.

Vahid Khorsand -- BWS Financial -- Analyst

Perfect. Thank you very much.

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you.

David R. O'Reilly -- Chief Financial Officer

Thank you.

Operator

And our next question comes from Peter Abramowitz of Jefferies. Please go ahead.

Peter Abramowitz -- Jefferies -- Analyst

Hi guys. I just had a quick question. Wanted to dig into that office space of the Seaport a little bit more. So obviously, you guys kind of have -- it's a very premium office space, it's highly amenitized. But as far as New York City goes, not quite as close to public transportation kind of over there on the east side. It's a little more central and west side in Lower Manhattan. So just curious, have you seen that effect, how kind of some of the tenants or potential tenants you're speaking to, does that affect how they kind of evaluate that space relative to other options they might have in lower Manhattan?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

It's very good question. This is very special office space. We have 88,000 feet, and in the Pier building -- Pier 17, that has the most dramatic views, we certainly believe, in all of Lower Manhattan. We have strong interest from a number of tenants. And as David mentioned earlier, we have opened our ideas of who we would accept as a tenant and looking more directly oriented to NOI achievement in a rapid fashion. David?

David R. O'Reilly -- Chief Financial Officer

See, Peter, I don't think the distance to Fulton Street, which is just a few blocks away west has had an impact. And I would say our proximity to the incredible ferry system that has become a mainstay of public transportation in Manhattan has actually been a pretty big benefit and a great tool that we've used to attract incremental office users to the space.

So as Paul said, we think we have great amenities. We don't view the distance and public transportation is a hindrance at all. And we've gotten a number of folks, as we've talked about in the past, very close and within the couple of yards of the goal line and just haven't been able to get them to sign that lease. So, we're working with a number of tenants, as Paul said, and we're hopeful that we'll be able to talk about that in the coming quarters with some positive progress.

Peter Abramowitz -- Jefferies -- Analyst

Got it. Thank you. And then just as a reminder, I think the majority of the space you're still trying to lease there is at Pier 17. How much is that space and then how much, from a square footage perspective, do you have of office that you're still trying to lease elsewhere at the Seaport?

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

So, at Pier 17, we have, on the main floor, 88,000 feet and then there is approximately 46,000 in the Fulton building on the Uplands which we are actively working on as well. And then there is some partial floor spaces on the pier as well, which is a smaller amount of square footage.

Peter Abramowitz -- Jefferies -- Analyst

Okay. So overall, you're looking at like a 135,000. Okay. That's it for me. Thanks.

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Great.

Operator

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Paul Layne for any closing remarks.

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

Thank you very much for joining us today. We look forward to speaking with all of you in the future. And that concludes our remarks for today. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

David Striph -- Executive Vice President of Investor Relations

Paul H. Layne -- Chief Executive Officer and Member of the Board of Directors

David R. O'Reilly -- Chief Financial Officer

Alexander Goldfarb -- Piper Sandler -- Analyst

Alex Barron -- Housing Research Center -- Analyst

Vahid Khorsand -- BWS Financial -- Analyst

Peter Abramowitz -- Jefferies -- Analyst

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