Howard Hughes' Earnings Skyrocketed in Q1 Due to Continued Strong Condo Sales in Hawaii

Howard Hughes' (HHH -0.78%) quarterly results tend to bounce around quite a bit due to the timing of real estate sales. That was the case again during the first quarter as the company closed on several condos in Hawaii, which boosted earnings during the period. While the quarter-to-quarter variability will likely continue, the real estate development company has several projects underway that should drive profit growth in the coming years.

Howard Hughes results: The raw numbers

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

What happened with Howard Hughes this quarter? 

Condo closings in Hawaii drove the quarter:

• Howard Hughes' portfolio of commercial real estate assets performed well during the first quarter. NOI from its operating assets rose more than 9% compared to last year's first quarter. The company benefited from a 20% improvement in income from its office assets as well as the continued stabilization of its other properties.
• The master planned community (MPC) division generated $37.6 million of earnings, up 2.1% year over year due to the sale of a 20-acre parcel in its Summerlin community.
• The strategic development segment recorded $60.6 million of earnings, up more than $54 million from the year-ago period. That's due to an increase in the number of condo sales closed during the quarter at its Ae'o tower in Hawaii. In addition, the company signed agreements to sell another 330 units during the quarter, including 314 at its newest building, Ko'ula, that begin selling in January.
• Howard Hughes' Seaport District business unit reported a net operating loss of $4.2 million, which was down from $0.5 million of income during the year-ago period. That's due to the continued investment in this development, including start-up costs for retail, food and beverage, and other businesses at this location.
• The company started construction of 8770 New Trails, a 100%-leased office building in The Woodlands. As a result of that addition, the company now projects that its operating assets will generate $320.9 million in NOI upon the stabilization of its portfolio. That's an increase of 11% from its forecast last year and represents more than 60% growth from its current annualized run rate of $199 million.

Image source: Getty Images.

What management had to say 

CEO David Weinreb commented on the company's quarter by stating:

We had an outstanding first quarter that illustrates HHC's strong fundamentals across our core business segments. Beginning with Ward Village in Honolulu, we sold 314 units at Ko'ula, bringing our newest building to 56% pre-sold in under three months, accompanied by 161 closings at Ae'o, which opened last quarter. We grew our recurring Operating Asset NOI by more than 9% year over year, translating to an annual run rate of $199 million, while continuing to raise our stabilized NOI target to $321 million with a new build-to-suit in The Woodlands. We also celebrated a number of key milestones, signing two major leases at 110 North Wacker to bring the building to 50% pre-leased and opening Las Vegas Ballpark in the heart of Downtown Summerlin, which has helped drive commercial demand in the community. At the Seaport District, we completed the winter season with stronger than expected traffic to the Pier Winterland and announced our dynamic lineup for the 2019 summer concert series at the Pier 17 rooftop. Additionally, we will be opening several restaurants in the Pier Village this summer including Jean-Georges' seafood restaurant, The Fulton, that is opening later this month and will be an important addition to the district along with Momofuku and Malibu Farm that will follow this summer as we continue the Seaport's transformation. Finally, we had another robust quarter of land sales in our MPCs, demonstrating the continued resiliency of our small cities and the strong underlying demand for homes in our communities that are located in markets with no state income tax and favorable affordability compared to many other parts of the country.

Howard Hughes made progress across its portfolio as it continued to sell condos in Hawaii at a brisk pace. It sold higher-valued land at its MPCs, due in part to the continued buildout of amenities surrounding these areas. These have included things like the ballpark in Las Vegas as well as office buildings in The Woodlands. The company also continued the transformation of the Seaport District in New York City, which should generate $43 million to $58 million of annual income when it's complete and fully stabilized in 2022.

Looking forward 

Howard Hughes has several projects underway that should drive continued earnings growth over the next several years. Its portfolio of operating assets is on track to generate significantly more income as it completes new office buildings and other properties in the coming years. Meanwhile, its investment to revitalize the Seaport District should eventually pay big dividends. On top of that, the company has more condos left to sell in Hawaii as well as additional land at its MPCs. These factors position it to continue creating value out of its high-quality real estate portfolio.