The persistent weakness in the oil price is starting to impact more than just the oil sector. This past quarter Howard Hughes (NYSE:HHC) was oil's latest victim as the slowdown in the industry is now starting to impact housing sales in Houston. That impact aside, the company had another noteworthy item in the quarter that resulted in rather lumpy results. But that's par for the course for the real estate development company as its results are still much more driven by one-time events than by income generated by its real estate portfolio, which it is continuing to grow in an effort to mitigate some of the lumpiness.

A look at the numbers
This lumpiness was on full display in Howard Hughes' second-quarter adjusted net income, which fell by $42 million, or 56% year over year. This decline is partially the result of one-time commercial land sales that the company made in its master planned community division last year. The company typically doesn't sell commercial land in its master planned communities unless the sale makes strategic sense, but last year it sold a large parcel of land to a local hospital in Houston resulting in a large gain. That land sale aside, overall master planned community land sales fell 41.9%. This was mainly due to the aforementioned slowdown in single-family lot sales in Houston as the weak oil price is having a negative impact on the local economy.

Because land sales in general can be very lumpy, Howard Hughes continues to pursue the development of income-producing operating assets. During the second-quarter net operating income from these assets rose by 56.4% year over year to $28.5 million. Driving this increase was the opening of several new properties over the past year including Downtown Summerlin last October, The Outlet Collection at Riverwalk last May, and the acquisition of the 10-60 Columbia Corporate Center office properties in December. Further, the company also placed its One Lake's Edge multifamily project into service during the quarter. At the end of the quarter the project was just 39% leased, but the company expects it to generate $7.6 million of stable net operating income per year by the second quarter of 2017.

A look at the outlook
Howard Hughes expects the weakness in its Houston area master planned communities to continue for the foreseeable future. Currently, homebuilders are taking a very conservative approach as home sales slow, which will likely negatively impact future land sales by Howard Hughes in the region. But on a more positive note, land sales out of the company's Las Vegas community, Summerlin, is seeing higher demand due to a stronger local economy as well as the scarcity of available land suitable for building.

The company is also making solid progress on strategic developments around the country to boost its portfolio of income-producing properties. During the quarter the company commences construction of two self-storage facilities in a neighborhood at The Woodlands in Texas, both of which are expected to be complete by the second quarter of next year. Meanwhile, its South Street Seaport is still closed as it redevelops Pier 17 and and renovates the historic area.

In addition to that, the company continues to make strong progress on its condominium developments in Hawaii. It has now leased more than 80% of two units currently under construction and should be complete by 2017. It has also started presales for two more condominium towers that will be built within the same development.

Investor takeaway
Howard Hughes' results continue to be really lumpy, which was certainly the case during the second quarter. Not only were results affected by the absence of one-time commercial sales, but its residential lot sales suffered as the economy in Houston slowed. That said, the company is starting to offset some of this lumpiness by increasing its portfolio of income-generating properties. It's making solid progress in that regard as it has a solid pipeline of projects that it will be developing over the next several years.