Howard Hughes (NYSE:HHC) has spent the past few years developing real estate assets that it intends to operate. That strategic shift will allow the company to generate a stable source of income to offset the lumpiness of master planned community land sales and other development projects. It's a shift that paid off during the first quarter by helping the company overcome declining property sales to post slightly higher earnings.

Howard Hughes results: The raw numbers


Q1 2017

Q1 2016

Year-Over-Year Change

NOI from operating assets

$44.7 million

$31.4 million


Core FFO

$71.0 million

$69.3 million


Core FFO per share




Data source: Howard Hughes Corp. NOI: net operating income. FFO: Funds from operations. 

Modern real estate buildings.

Image source: Getty Images.

What happened with Howard Hughes this quarter? 

The stabilization continues:

  • Net operating income from Howard Hughes' operating assets continues to improve due to the stabilization of its portfolio. Furthermore, the company placed a 56% leased office building in Columbia, Maryland, and a 654-unit self-storage facility in The Woodlands, Texas, into service during the quarter. 
  • Land sales closed in the master planned community segment dropped 26.5% to $35.9 million caused by lower land sales in its Summerlin community. Meanwhile, The Summit joint venture in Summerlin is developing on schedule, enabling the company to recognize $5.3 million of earnings during the quarter.
  • The strategic developments segment is progressing. One of the largest projects is Ward Village in Hawaii, where the company has four condominium towers under construction. Units have been selling at a brisk pace, with 34 more sold during the quarter. As of mid-April, 82.8% of the units under construction were either closed or under contract.
  • Howard Hughes completed a $800 million bond issuance during the quarter and used the proceeds to redeem $750 million of higher-interest debt.

What management had to say 

CEO David Weinreb described the company's progress during the quarter:

Our first quarter results were driven by further improvement in our operating assets segment as our portfolio matures and stabilizes. We also continued to make progress in our strategic developments segment where we completed and delivered both One Merriweather and our first self-storage product in The Woodlands. Delivering these assets marks the ongoing transformation of our strategic developments into a predominantly revenue generating portfolio as we set out to create long-term shareholder value.

The focus of Howard Hughes over the past few years has been to slowly transition from a real estate development-focused company to an operating company. That transformation will enable it to generate a more predictable revenue stream, so its quarterly results aren't so reliant on property sales. That transition clearly paid off during the first quarter as rising net operating income from these assets more than offset a decline in land sales within its master planned communities as well as a drop in condo unit sales in Hawaii. Meanwhile, that income should continue to rise thanks to the addition of two more assets to the operating portfolio during the quarter.

Looking forward 

Howard Hughes' future will remain focused on three things: managing its growing portfolio of operating assets, extracting value from its master planned communities, and driving significant growth from its strategic developments. Shortly after the quarter ended, the company added two new projects to its development pipeline by securing a build-to-suit lease for a two-building campus in Summerlin and an anchor tenant for a planned downtown office building in Chicago. The company expects to complete those projects in 2018 and 2020, respectively.

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