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Howard Hughes Reports Strong Q1 On Back Of Strong Residential, Sale Of Chicago Office Tower

Houston-based The Howard Hughes Corp. reported a profitable first-quarter 2022, citing strong residential sales from newcomers to cities like Houston and Las Vegas, as well as the sale of a Chicago office tower that racked up a $1.6M loss for the company last year.

110 North Wacker Drive in Chicago

All in all, Howard Hughes ended Q1 with a net income of $2.1M, compared to a loss for the same quarter in 2021, according to a Q1 earnings call. It's now reporting a net income of 4 cents a share, with $210.2M in Q1 revenue.  

Howard Hughes attributed a generous share of its 63.1% growth in net operating income to the sale of 110 North Wacker Drive, a 1.5M SF Chicago office tower it sold to Callahan Capital Partners and Oak Hill Advisors in March. Howard Hughes offloaded its entire equity interest for $210M, which gave the tower an implied value of $1B, making it one of the highest valued Chicago office towers, Howard Hughes stated at the time 

"[The property is] one of the last non-core assets in HHC's portfolio remaining to be sold. We have now substantially completed the disposition of our non-core assets with the sale of this 1.5 million-square-foot tower," Howard Hughes CEO David O'Reilly said in a release, adding proceeds from the sale came to $169M on an investment of just $13M on 110 North Wacker.

"This sale brings HHC's total net proceeds from non-core asset sales to $570 million with only a few select non-core retail assets remaining to be sold," O'Reilly added. 

In the company's Q1 earnings call Tuesday, O'Reilly stated the company has raked in $570M in net proceeds from shedding its noncore assets. Additionally, Howard Hughes says that it received a larger distribution from its stake in Summerlin Hospital Medical Center in Las Vegas.  

Howard Hughes, which notably owns massive neighborhoods in suburban Houston, is throwing itself further into master-planned community development. It earned $59.7M off its master-planned communities in the past quarter, stating it is selling houses at a higher price per acre on the back of migration to Sun Belt cities like Houston, Las Vegas and the Phoenix area. Houston and Las Vegas were the top destinations for new residents in 2021, according to Penske data reported by CNBC and cited by Howard Hughes. 

Amid higher home prices, Howard Hughes says it saw more revenue from builder price participation, with homebuilders opening their wallets for Howard Hughes-owned land. Amid low home supply, O'Reilly says the company is in a unique situation, where it has low inventory and high home prices.  

"Due to the strong demographics of residents who are migrating to our MPCs and predominantly from higher-cost states, mortgage rates and higher home prices have been less of a concern given their pricing power," O'Reilly said during the call. 

Most of Howard Hughes' income increase comes from its multifamily properties, which saw $11M income over the last quarter, up 94% year-over-year. Howard Hughes Head of Operations David Striph cited quick lease-ups at four properties around Houston and Columbia, Maryland.  

"For several quarters now, we have seen an accelerated pace of lease-up at these newer developments, which continue to drive positive results," Striph said on the call. "The most recent project, Creekside Park, The Grove in the Woodlands began leasing nine months ago and stabilized during the first quarter," he said.

"To stabilize a 360-unit asset in this amount of time is unprecedented and speaks volumes about the robust demand we are experiencing." 

Additionally, 2021 losses at The Seaport in New York City continued into 2022, with Howard Hughes reporting an $8.3M loss in net operating income for the district, where it opened new restaurants at Pier 17 and is expected to open another one, Tin Building by Jean-Georges. That's nearly double the loss it saw in 2021.