Howard Hughes' (NYSE:HHC) financial results ebb and flow with the timing of the sale of real estate. In the recently completed third quarter, those sales roared higher due to strong demand for land within its master planned communities (MPCs). On top of that, the real estate development company also reported solid results from the commercial properties it operates as well as from its strategic developments, driving strong earnings and cash flow growth.

Howard Hughes results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Change

NOI from operating assets

$38.7 million

$37.4 million

3.6%

Adjusted FFO

$70.8 million

$55.9 million

26.7%

Adjusted FFO per share

$1.63

$1.29

26.4%

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

What happened with Howard Hughes this quarter? 

Strong MPC land sales drove the quarter:

  • Howard Hughes' MPC business segment generated $88.9 million in earnings before tax during the third quarter, which was 119.7% above the year-ago period. Driving that surge was the timing of land sales in its Sumerlin and Bridgeland MPCs. The company sold more land in those communities at higher values than in last year's third quarter. Meanwhile, the company completed a $1.4 million commercial land sale in The Woodlands during the quarter, as well as sold 29 single-family lots in The Woodland Hills, after not having recorded similar transactions in the year-ago period.
  • In the company's operating assets segment, NOI increased $1.3 million, or 3.6% compared with the year-ago period. Driving that increase was higher earnings at its office and multifamily properties, which offset a decrease in NOI at its retail properties due to an operating loss at the Seaport District. That's because of the costs incurred from opening new businesses at that location as part of its development of that project. Without that impact, NOI at the company's operating assets would have increased 12.4% year over year.
  • Earnings before taxes at the company's strategic development segment decreased $34.4 million compared with last year's third quarter due to a change in how it recognizes revenue on condominium sales in this unit. Otherwise, the segment delivered a strong quarter, driven by the sale of another 220 condos at its Ward Village development in Hawaii.
  • The company acquired Lakefront North, which includes two vacant office buildings adjacent to its Hughes Landing development in The Woodlands. Meanwhile, Howard Hughes broke ground on Two Lakes Edge, which is an eight-story multifamily property that will have retail and restaurants on the ground floor. It's the company's second multifamily development in Hughes Landing.
Two people in suits shaking hands in front of a building.

Image source: Getty Images.

What management had to say 

CEO David Weinreb commented on the company's results and strategic initiatives, stating:

Our third quarter results illustrate the strong fundamentals of our business across our core markets and three key segments. Highlighted by the sale of two superpads in our Summerlin MPC with combined revenue of $91.1 million, our MPC results were particularly noteworthy for the quarter. The strong land sales were accompanied by continued NOI growth in our office and multi-family properties as more of our operating assets continue to stabilize. In Honolulu, the extraordinary pace of sales in Ward Village continued in the third quarter, where we pre-sold an additional 220 homes that bring 'A'ali'i, on which we recently began construction, to 75.1% pre-sold as of September 30, 2018.

Howard Hughes made across-the-board progress during the third quarter. While the MPC sales were the highlight, the company also continues to deliver strong underlying growth from its operating assets, which generate steady cash flow to help offset the lumpiness of land sales in its MPCs and condos in its strategic developments segment.

Looking forward 

Howard Hughes has worked hard in recent years to boost the NOI it earns from assets it operates, which will provide the company with a growing supply of steady income. Thanks to the recent acquisition of Lakefront North and strong leasing of its 110 North Wacker development, the company now believes that its portfolio of operating assets will generate $317.6 million of NOI when stabilized in the future, an increase of $9 million from its previous estimate. 

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.