Howard Hughes (NYSE:HHC) is in a bit of a transitional phase right now because the company is wrapping up construction on the first phase of its condo development in Hawaii, which had driven earnings in recent quarters. Consequently, results in the third-quarter slipped against the year-ago period. However, that masked the fact that the company's other segments performed well, led by continued income growth from its operating assets, which should help reduce earnings volatility going forward.

Howard Hughes results: The raw numbers


Q3 2017

Q3 2016

Year-Over-Year Change

NOI from operating assets

$37.5 million

$31.9 million


Core FFO

$60.1 million

$62.9 million


Core FFO per share




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

Condo towers under construction in Hawaii.

Image source: Getty Images.

What happened with Howard Hughes this quarter? 

The company didn't recognize as much revenue from its Hawaiian condo developments during the quarter.

  • Revenue in its strategic development segment, which includes its condo development in Hawaii, fell versus the year-ago period. The primary driver was a decline in revenue from its Waiea tower, which closed the sale of most of its units in last year's fourth quarter, coupled with a decrease in revenue from the Anaha tower (it opens this quarter). While the company has two more towers under construction, it recognizes revenue from qualifying sales contracts under the percentage-of-completion method. With the company not expected to finish those units until late 2018 and 2019, respectively, it will recognize more revenue as those dates approach.
  • The company partially offset the reduction in earnings from its condo development by continuing to build out its portfolio of income-producing operating assets. During the quarter, income from these properties increased $5.6 million versus last year's third quarter thanks to incremental earnings from retail, office, multifamily, and hospitality properties that opened in the past year and a half.
  • Revenue from its master planned communities (MPCs) segment surged 43% to $45.5 million due to strong sales of land in its Summerlin community in Las Vegas. That enabled the company to more than offset a dip in sales at its MPC in The Woodlands, in Texas, where Hurricane Harvey negatively impacted sales.

What management had to say 

CEO David Weinreb said this about the company's progress during the third quarter:

As our third quarter results demonstrate, we continue to make substantial progress unlocking value throughout our portfolio across our three business segments. Despite the impact of Hurricane Harvey in Houston, we experienced consistent, steady demand for residential land in our MPC segment. We also continued to increase our operating asset NOI as our existing projects stabilize. We develop when demand warrants new construction, and accordingly, in the third quarter we added three new projects which helped drive an increase in our projected annual stabilized NOI by $17 million to $262 million, excluding the Seaport District and 110 N. Wacker redevelopment. In our Strategic Developments segment, we had our strongest quarter of sales at Ward Village without the launch of a new building as our vision for the community increasingly becomes a reality. We are now approximately 89% sold on our four buildings currently under construction.

One of the things Weinreb pointed out is that the company continues to develop projects that will generate consistent income, which should help it better offset the lumpier sales of land in its MPCs and condos from its strategic development segment. As he noted, Howard Hughes secured three more projects during the quarter, which should eventually push annualized NOI from these assets up to $262 million, or more than $65 million per quarter, with further upside as it continues to make progress on its redevelopment projects.

Looking forward 

The company took a notable step forward in its Seaport District redevelopment during the quarter, announcing that ESPN signed a long-term lease for space at Pier 17. The sports network plans to use it as broadcast space for several high-profile daily shows. Weinreb said the deal helps "validate the vision" the company has for this property.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends The Howard Hughes. The Motley Fool has a disclosure policy.