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Howard Hughes Corp. Credit Rating Downgraded Amid Revenue Loss, Higher Debt Levels

The Howard Hughes Corp.’s credit rating has taken a hit as analysts predict weakened earnings and higher debt levels could hinder the company’s ability to fund its development projects.

The firm’s issuer credit rating was lowered from a B+ to a B, driven in part by a 23% profit loss in its master-planned communities business in the second quarter, according to an S&P Global news release. The company’s strategic development segment is also expected to see revenue drop from $680M in 2022 to about $40M this year.

The empty lot at 250 Water St., where an appellate judge has given the developer, The Howard Hughes Corp., permission to move ahead with a 399-unit residential building.

The company reported a 50% decline in land sales revenue resulting from a softened housing market, which is expected to drag down year-end earnings before taxes by up to 10%, per the release. 

Analysts are hopeful land sales will rebound in the latter part of this year as housing supply remains tight and homebuyers adjust to higher mortgage rates. However, the firm’s credit metrics are not expected to improve in tandem, analysts said, in part due to the decreased number of condos that have come online this year.

A beleaguered project in Manhattan’s Seaport neighborhood has also impacted the company’s rating. Construction on the 25-story residential tower was given the green light by an appeals court in June after being tied up in a legal battle dating back to 2021.

Despite the downgrade, analysts said their outlook for the firm remains stable. The company reported a 5.2% increase in net operating income in the second quarter and predicted growth of between 1% and 4% by the end of this year. 

Assets that are performing well are expected to offset volatile performance in other areas, analysts said. A modest recovery is predicted for the master-planned communities segment in 2024, though the analysts said it is unlikely the company’s rating will be raised within the next 12 months.

The Woodlands-based company last month announced a new corporate structure that will separate its commercial real estate assets from its other businesses and create a holding company to become the new parent company of the publicly traded development and investment firm.