Good morning, and welcome to the Howard Hughes Corporation first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to John Saxon, Chief of Staff. Please go ahead.
Good morning, and welcome to the Howard Hughes Corporation's first quarter 2022 earnings call. With me today are David O'Reilly, Chief Executive Officer, Jay Cross, President, Carlos Olea, Chief Financial Officer, Dave Striph, Head of Operations, and Peter Riley, General Counsel. Before we begin, I would like to direct you to our website, www.howardhughes.com, where you can download both our first quarter earnings press release and our supplemental package. The earnings release and supplemental package include reconciliations of non-GAAP financial measures that will be discussed today in relation to their most directly comparable GAAP financial measures. Certain statements made today that are not in the present tense or that discuss the company's expectations are forward-looking statements within the meaning of the federal securities laws.
Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Please see the forward-looking statement disclaimer in our first quarter earnings press release and the risk factors in our SEC filings for factors that could cause material differences between forward-looking statements and actual results. We are not under any duty to update forward-looking statements unless required by law. I will now turn the call over to our CEO, David O'Reilly.
Thank you, John. Good morning, everyone, and thank you for joining us on our first quarter earnings call for 2022. To start off today's call, I will provide a brief overview of our first quarter segment performance and highlight the results of our master planned communities in the Seaport. Our Head of Operations, Dave Striph, will cover the performance of our operating assets, followed by remarks from our President, Jay Cross, who will provide updates on our development projects in Ward Village. Our CFO, Carlos Olea, will conclude with a review of our financial results before we open up the lines for Q&A. Looking at the results for the quarter, each of our operating segments performed well as demand for both residential housing and commercial amenities continues to remain plentiful. MPC land sales revenue rose 64%.
Operating asset NOI increased 19%, and condo units contracted at Ward Village were 33% higher, all compared to the first quarter of 2021. These strong results are impressive, especially considering the challenging macro backdrop that was present for much of the first quarter, and is a testament to our business model that has, time and again, proven its ability to outperform during periods of volatility and uncertainty. In March, we sold our equity stake in 110 North Wacker, generating $169 million in net proceeds. The sale of this 1.5 million sq ft office tower marks one of the final non-core asset dispositions from our portfolio and adds a considerable amount of cash to our already robust balance sheet.
To date, we have generated $570 million in net proceeds from non-core asset dispositions, with only a few select retail assets remaining to be sold. During the first quarter, we repurchased 1.8 million shares of stock for $171 million. These shares were repurchased at an average price of $97, well below our intrinsic value target of $170 per share, as we outlined during our Investor Day in April. In February, we completed our initial $250 million share buyback program. With our shares still trading at a wide discount to NAV, we received authorization for an additional $250 million repurchase in March.
Subsequent to quarter end, we repurchased an additional 1.1 million shares for $109 million, leaving us with $124 million in available buyback capacity. Moving over to our MPC segment, our performance this quarter saw significant price per acre growth across each of our communities. This price appreciation, coupled with a large commercial land sale in Summerlin, had a meaningful impact on our first quarter results with MPC land sales of $61 million, marking a 64% increase versus the same period last year. These rising prices have also impacted home sales in our communities. As the value of these new homes rise, the implied value of land rises with it. Once a new home is sold in our MPCs, we receive our participation from the builder based on the increase of the implied land value.
This builder price participation revenue was $14 million in Q1, up over 2x compared to the first quarter of last year as prices continue to escalate. While MPC revenue was up substantially during the quarter, segment EBT of $60 million was 6% lower compared to the first quarter of 2021 due to a decrease in earnings achieved at The Summit, our premier gated community in Summerlin. Earnings from The Summit came in at $6 million during the quarter versus $28 million reported in the same period last year.
This reduction in earnings is largely the result of the 555-acre community nearing the end of its remaining inventory, having closed on just under $900 million in sales since its inception in 2015. Looking at the performance of Summerlin more broadly, we sold a couple of custom lots during the quarter at an implied price per acre of $4.6 million. This is in comparison to several custom lot closings during the first quarter of 2021 that sold for an average price per acre of $1.7 million. These results clearly demonstrate the robust price appreciation at this MPC. Summerlin also saw an 85% increase in builder price participation revenue during the quarter as home values continue to escalate higher.
Additionally, we sold 17 acres of commercial land to Roseman University at $1.6 million per acre. Roseman is using this land to develop a medical school campus that will house over 800 students and employees, and adds to the growing list of amenities and educational opportunities that continue to set Summerlin apart from other MPCs in the Las Vegas Valley. In Bridgeland, we saw similar trends as a residential price per acre rose to $495,000 during the period, an 8% increase compared to the first quarter of 2021. This growth in land value helped push Bridgeland's EBT 18% higher versus last year, despite selling approximately 10% fewer acres. Finally, the first quarter results in The Woodlands Hills continue their strong performance.
EBT was 9% higher compared to the prior year period, fueled by strong land sales that achieved a price per acre increase of 17% over the first quarter of 2021. Another growth component was builder price participation revenue of $1.1 million in the quarter, compared to only $78,000 during the same period last year. Overall, we continue to see positive signs of demand in our MPCs as home builders remain willing to pay a higher premium for our land, and home buyers continue to purchase homes at an accelerated pace. More broadly, supply still remains at historically low levels in each of our markets. This supply-demand imbalance has created a unique situation. From our view, we expect to see continued strength in housing despite the recent rise in mortgage rates. Historically low inventory and materially higher home prices from a year ago.
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. While we saw our quarterly new home sales fall to 604 homes compared to 929 homes in the prior year period, we are still seeing activity at elevated levels compared to historical norms. When it comes to residential land sales, we have not seen and do not expect to see a slowdown anytime soon as home builders still need to replenish their record low inventory to meet home buyer demand. Given these dynamics, we remain confident that demand will persist and supply constraints will ease over time, thus leaving our full year MPC guidance intact for 2022.
Shifting over to the Seaport, we continue to see a pickup in revenue with the first quarter delivering $10 million in sales, a 44% increase over the same period last year. This sharp rise was largely driven by the opening of new restaurants at Pier 17 that continue to draw more traffic to the area. Seaport reported a net operating loss of $8.3 million during the period, compared to a net operating loss of $4.4 million during the first quarter of 2021. This was largely due to increased operating expenses from the opening of these new restaurants, as well as $2.3 million of pre-opening costs at the Tin Building as we prepare for the grand opening of this much-anticipated marketplace, which remains on track to open this summer.
To further expand our Jean-Georges partnership at the Seaport with the Tin Building and Fulton, we acquired a minority stake in Jean-Georges's restaurant during the quarter. This investment offers us the unique ability to expand new restaurant offerings both within our existing MPCs and globally with significant upside potential. With that, I'll hand the call over to our head of operations, Dave Striph.
Thank you, David. Following a record year in 2021, our operating assets continued their strong momentum with the delivery of $57 million in net operating income during the first quarter. This reflected a 19% increase over the same period last year, and a 12% increase on a same-store basis. Majority of this increase was seen in our multifamily assets, which produced quarterly NOI of $11 million, a very strong 94% increase versus the prior year. This is largely due to the rapid lease-up of our four recently built multifamily assets in The Woodlands and downtown Columbia. Several quarters now, we have seen an accelerated pace of lease-up at these newer developments, which continue to drive positive results. Our most recent project, Creekside Park The Grove in The Woodlands, began leasing nine months ago and stabilized during the first quarter.
To stabilize a 360-unit asset in this amount of time is unprecedented and speaks volumes about the robust demand we are experiencing. Retail NOI of $13 million rose 12% over the prior year period, with Ward Village making up a considerable portion of the quarter-over-quarter increase. Travel to the island of Oahu has been largely restricted over the last two years due to statewide COVID-19 mandates. With these restrictions beginning to ease, traffic to our retailers has greatly improved, and we have seen a corresponding improvement in our results with first quarter retail NOI at Ward Village rising 53% compared to the same period last year. Another component of our strong operating performance was attributed to our share of NOI from JV owned assets.
Quarterly NOI of $60.8 million was up 63% over the first quarter of 2021, driven by two factors. First was related to a larger distribution from our share in Summerlin Hospital, which is paid out during the first quarter of every year. Following a strong year with higher profits, we received a distribution of $4.6 million, a 24% increase over the prior year period. The second factor was the absence of net operating losses at 110 North Wacker. During the first quarter of last year, this asset lost $1.6 million versus no losses this quarter since we closed on the sale of this office tower in March. Finally, office NOI of $25 million during the quarter declined 3% from the prior year period.
This decrease was a result of recently signed lease renewals that included abatements as well as certain lease expirations in The Woodlands. It is important to note, however, that a large majority of this vacated space has since been backfilled by new tenants. Through April, we have executed 58,000 sq ft in office leases since the start of the year in The Woodlands, and another 51,000 sq ft of leases are under negotiation. The office performance in downtown Columbia fared well during the quarter, with NOI at 6100 Merriweather rising from a quarterly net operating loss of $1 million last year to positive NOI of $868,000 this quarter as free rent from our anchor tenant begins to burn off. With that, I will now turn the call over to our President, Jay Cross.
Thank you, Dave, and good morning, everyone. We continue to make great headway in our development pipeline with over 1,100 multi-family units under construction, a 267,000 sq ft office building underway, and 53,000 sq ft of medical office buildings that recently commenced construction. All of these projects remain on track for delivery according to their respective completion schedules. While we have seen incremental increases in construction costs over the last few quarters, yields are projected to remain around the 7%-8% range. As we highlighted at our recent Investor Day in April, we have several more projects in our near-term pipeline that we expect to commence construction over the next 12 months. Of these new projects, we expect to break ground in the next few months on our 86,000 sq ft medical office building in Columbia's Lakefront District.
This development is already 20% pre-leased and kickstarts our major development efforts in the Lakefront District. Over at the Seaport, our latest project, the Tin Building, is now, as Dave mentioned, in its last phase fit out as we complete the interior and remain on target for a grand opening this summer. We anticipate the Tin Building will draw a substantial crowd to the Seaport, along with our summer concert series, which will be in full swing, coupled with our diverse array of numerous restaurant and retail offerings at Pier 17 and in the Historic District. Also at the Seaport, we have begun early foundation work at 250 Water Street following our recent approval from the City of New York. We expect to ramp up vertical construction later this year and look forward to providing more details then.
Turning next to Ward Village in Hawaii, we contracted on 61 condo units during the first quarter, a 33% increase over the same period last year. We generated $20 million in condo sales revenue following the closing of 24 units at A’ali’i, which completed construction last quarter. There are now 55 units remaining to be sold at this tower, which we expect to sell throughout 2022. Also, at our two towers under construction, Kō'ula and Victoria Place, we contracted 14 units and remain on track with our projected delivery schedules. Kō'ula ended the first quarter at 92% pre-sold, and we expect to deliver this tower in the third quarter. Victoria Place ended the quarter 99.7% pre-sold with only one unit remaining. Following the end of the quarter, we contracted on this final unit, making this tower completely sold out.
The sales pace at our next tower, The Park Ward Village, remains strong, as evidenced by the 24 units contracted during the quarter. We are now 89% pre-sold, and we expect to commence construction on this project in the third quarter. Finally, in March, we began pre-sales for our ninth tower, Ulana, which is fully dedicated to workforce housing. Ulana satisfies our remaining requirements for this product type in the Ward Village master plan. Since the start of our recent lottery system in March, we have pre-sold 83% of Ulana's 696 available units. With that, I would like to now hand the call over to our CFO, Carlos Olea.
Thank you, Jay. During the first quarter, we were able to deliver strong results across all of our segments, signifying a great start to the year following a record-breaking performance in 2021. In summary, during the first quarter, our MPCs generated land sales revenue of $61 million, a 64% increase over the first quarter of 2021, and $60 million of EBT, a 6% decrease compared to the prior year period. Our operating assets delivered $57 million of NOI, a 19% increase compared to the prior year period. At Ward Village, we closed on 24 condo units at A’ali’i, resulting in $5.4 million of condo profit, a 102% increase compared to the prior year period.
At the Seaport, we recorded an $8.3 million net operating loss, a $3.9 million decline compared to the prior year period. Despite this decline, quarterly revenue of $10 million was 44% over the same period last year. Given the strength of our business segments in the quarter, we reiterate our full year guidance outlook for 2022 as outlined in our first quarter earnings release.
Shifting over to our balance sheet, we ended the quarter with $688 million of cash on hand, leaving us with plenty of capital to continue executing on our development pipeline and repurchasing shares. Even with an extensive runway of projects currently underway, the remaining equity contribution needed to fund these developments is $181 million. In other words, we are still left with plenty of runway to launch additional developments throughout the year. During the quarter, we closed some $129 million in financings for five assets at favorable rates and terms. This amount, $160 million, was related to three non-recourse loans for office assets in Summerlin and downtown Columbia. The remaining $13 million was for a construction loan to fund the development of our two medical office buildings under construction in The Woodlands.
Looking at our $4.7 billion of debt balance as a whole, we have limited near-term maturities, with only $63 million maturing in 2022, and a substantial portion of the remaining balance maturing in 2026 or later. During this rising rate environment, it is important to note that 82% of our debt is either fixed or swapped to a fixed rate, which significantly mitigates our interest rate risk. With that, I would like to turn the call back over to David for closing remarks.
Thank you, Carlos. To wrap up today's call, I just want to touch on a few key points. First, the results of the quarter demonstrate that our strength from last year has carried forward its momentum into 2022, and we are confident of a similarly strong year ahead. Our full year guidance remains intact, and our segments are all operating at an optimal level despite the headwinds we're seeing today. Second, the uniqueness of our business makes HHC an attractive investment opportunity, especially during periods of market volatility, as we've recently seen. In today's inflationary environment, we are benefiting from rent growth that is outpacing inflation in our multifamily properties, and the majority of our retail and office leases allow us to pass on at least a portion of increased costs to our tenants.
When it comes to single-family housing and condos, we are positioned in markets that are undersupplied but have high demand resulting in outsized price appreciation. Couple these fundamentals with the strength of our balance sheet, and it's clear to see that we are well-positioned to outperform as we navigate through the remainder of the year. Third, we're flushed with capital and expect our operating segments to continue to generate meaningful cash flow throughout the year. We remain laser-focused on allocating this capital appropriately to achieve the highest risk-adjusted returns through new developments and share buybacks, both of which unlock considerable value for our shareholders and drive NAV higher on a per-share basis. With that, we'll now open the call up for Q&A. We'll start by answering the first few questions that have been generated by Say Technologies and will be read by John Saxon.
John, can you read the first question?
Sure, David. Our first question asks, "What kind of tenants do you foresee for the second level of the Tin Building?" Jay, would you like to take that question?
Sure. Thanks, John. All three floors of the Tin Building have been fully programmed by Jean-Georges. It's 21 different concepts throughout the building. The ground floor is a more traditional market with a raw bar, cheese shop, bakery, candy shop, cafe, et cetera, and the ability for customers to come and shop and do e-commerce and get delivery as well. As one proceeds to the second floor, it's more of a sit-down dining environment with a vegan and an Asian restaurant, cocktail bar, a craft beer bar at the head of the escalator, and a cooking studio. Finally, the third floor is 100% occupied by kitchens, storage, and staff facilities. At this point, we're burning in kitchens, finishing the final FF&E touches, and we're looking forward to a summer opening of this extremely exciting marketplace.
Thanks, Jay. Our next and last SAY question asks, "To protect the company with the extra cash, do you think you are better off doing share buybacks or paying down higher interest rate loans?" Carlos, would you like to take that one?
Sure. Thank you, John. As we stated in our opening remarks, our balance sheet exposure to interest rate risk is it's already relatively low. We have 82% of our debt is either fixed or hedged to a fixed rate. Last year, we were able to decrease our weighted average interest rate by about 40 basis points. Because of those facts at this point, we believe that, share buybacks and new developments are a much better use of our capital.
Thanks, Carlos. That's the end of our SAY questions. Operator, I'll hand it over to you, and we can open the line to those with questions on the call.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Good morning. Good morning down there.
Alex.
Hey, just, you know, a few questions from us. Carlos, just first going to your comments, appreciate that your comments on 82% of the debt being fixed or swapped. Of the remaining that is floating, how much of that relates to construction financing versus normal operations? You know, I know that earnings. You know, you guys are not an earnings story, you're an NAV story. Just sort of curious how much of that we would see flow through the P&L versus as part of construction, whether it's the condos, et cetera, that, you know, obviously gets paid off when you close on the sale of the projects.
Right. The majority of what is floating relates to construction loans. We do have some caps on construction loans, but the majority of the construction loans are floating, so that variability will end up capitalized on the balance sheet.
Okay. As far as the builders, the homebuilders taking down more land, what do you guys see in your markets or from the homebuilders as far as their appetite for land in your communities versus elsewhere in the markets in which you operate? I'm sort of curious, when you talk about the in-migration, is it that Houston, Vegas, you know, now Phoenix are all just growing overall from the in-migration? Or are your communities disproportionately seeing more of that inbound such that the builders may be dialing back their land purchases elsewhere in their markets, but continuing to a healthy pace in your MPCs?
You know what, Alex, our fingers aren't quite on the pulse of the other communities within the cities as much as they are within our MPCs. In general, what I can tell you is that we're seeing in-migration into these cities broadly. I believe, and from what I've seen on the ground, I think we are disproportionately benefiting to a modest extent, and we're getting better than our fair share of home sales, and therefore sales to homebuilders for land within our MPCs because we tend to outperform the broader markets. In general, the broader markets continue to outperform. We continue to see great in-migration to Houston, Phoenix, and Las Vegas. You know, recently there was an article on CNBC just two days ago that highlighted those three cities as the three largest cities for new entrants over the past year.
Okay. The final question is, maybe a flip on the email question on debt versus cash paydown. As you guys look to use excess cash to fund development or buybacks, do you see a trade-off between one or the other? Or as you look at your liquidity and what you have planned in the development, you can balance both. I'm trying to figure out if buybacks make more sense now than development versus being more even keeled or maybe development is still the better use of cash versus buyback.
Yeah, I don't think it's an all-or-one decision. It's not either/or. I think it's a strategy where we're able to allocate capital into both buckets. You know, there are some development projects that pencil out to tremendous returns that make sense to do relative to a buyback all day long. There are some, due to inflationary pressures and maybe where rents haven't grown as much, that we'll pause until the market comes back to what we think is right and use that capital for buybacks in lieu of that development project. I think each project goes through an intense screening process here with both management and our capital allocation committee and through our board to make sure that we're allocating our capital that's gonna generate the highest NAV per share growth over time.
Okay. Thank you, David.
No problem, Alex.
The next question is from Anthony Paolone with J.P. Morgan. Please go ahead.
Okay. Thank you. Good morning. My first question relates to the builder price participation. Can you talk a little bit more about how much of your lot sales have that sort of participation? And is there any way to think of like, you know, is there some backlog of participation that's out there that we can think about?
It's a great question, Tony, and it's one of the things that I think is the hardest to predict in our P&L. The vast majority, the overwhelming majority of the lots that we sell have builder price participation. That participation can vary from, you know, 16, 17% into the low 20s, but in general, they're around 20%. It's so dependent on what home buyers are willing to pay for view premiums, upgrades, everything across the board that I don't know from one quarter to the next how many home buyers are gonna lean in and pay more for that lot or upgrade their home such that our participation is gonna continue to increase. You know, in a perfect world, we would have priced a lot to perfection when we sold it, and that participation would be zero.
I think that participation at least protects us in a market like we have today, where prices continue to escalate and escalate quickly, and we know that we're getting made whole on that land that we sold the homebuilders three, six, nine or even 12 months ago, given the rapidly increasing price environment of homes.
Is it a matter of if home buyers, you know, add on some of the features and do some of these different things that are pretty high margin for the builders that just helps accrue to your participation because, you know, that value kind of drops effectively to the land? Is that kind of what happens?
Yeah. In general, and just illustratively, Tony, if we sell a lot to a home builder and at the time we sell that lot, we both agree that the home will be sold for $500,000. Our implied builder price participation of 20% would assume that our implied land value is $100,000 for that home. If in fact that home turns out to be sold for $600,000, and whether that's just the base home or whether that's including a view premium or whether that's including an upgrade, we're entitled to, you know, if at our 20%, $20,000 of that $100,000 price increase to the home. It could be a combination of things.
It could be just general price appreciation, it could be view premiums, lot premiums, or it could be, you know, any upgrade that the home buyer puts into the home.
Got it. That's helpful explanation. Then I guess just as we think about MPC EBT for 2022, you'd basically given some guidance around how to think about that. Are there any particular MPCs that you think are gonna drive things this year, you know? Or also, you know, do we think about this year being, you know, maybe fewer lots but higher prices? Or just any further details around how you're thinking about this year shaping up.
There's so much underlying the assumptions that go into that. It would be hard to crystallize it into one or two sentences, you know, because in some communities, like The Woodlands Hills, we're expecting a higher price per lot and more lots. In Summerlin, we're expecting a higher price per acre, but perhaps fewer acres, given that massive super pad sale we had in the fourth quarter of last year. It's tough to crystallize it down into one or two bullets that are driving those assumptions. There's so many nuances to each one of our MPCs that are driving those results.
Okay, fair enough. Just going back to some of the earlier discussion around capital allocation. You guys have done a nice job executing on the buyback programs that you've put in place, and it's occurring in a market that's been going down. You know, how do you think about you know, potentially putting in place further buybacks as the year progresses if you continue to see the stock price under pressure with the market here, or is there just a you know, a limit at which you know, look, you've already allocated enough to the buyback for 2022?
Well, I think it'll be largely determined by the liquidity that we have, the free cash flow that we generate, and the amount of new developments that we're able to still continue to drive NAV higher by. If you know, we're able to generate some incremental liquidity because we have a great quarter or two, some of the developments aren't ready to get launched as quickly as we had hoped, then that excess liquidity could in fact be used for a buyback. It's tough to predict right now. I think we still have a little bit of powder left in the chamber to use on our current plan. After we get through earnings, you know, given the most recent performance, we expect to use it.
Okay, great. Thank you.
Again, if you have a question, please press star then one. The next question is from Hamed Khorsand with BWS. Please go ahead.
Hey, good morning. I just wanted to see if there was a general update on Douglas Ranch since you didn't bring it up on the script.
No, I'd say that everything is progressing as we expect. We're hopeful that this quarter will contract our first set of lots as we had anticipated at the announcement. We'll be continuing to move dirt. We're moving dirt right now, grading land, putting in roads, putting in infrastructure. Things are going as expected, but there isn't a contract or an announcement to make on this call that would provide any material changes from what we've said previously.
Is there an update as far as being able to, you know, source or purchase the water rights for Douglas Ranch?
Again, I would say that everything is consistent with what we've said in the past in terms of the water rights that we already have approved for Trillium in the first four phases of Douglas, as well as the advantages that we have being on top of the Hassayampa River Basin, proximity to the Central Arizona Project, as well as the diversified sources we continue to seek.
On that note, and the last question is, how about water rights for Summerlin? Are you pretty much set?
We feel that we have the water that we need to finish out the remaining development at Summerlin, all the way up through Summerlin West, and including the commercial developments that we anticipate over the next several years.
Okay, great. Thank you.
Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to David O'Reilly for any closing remarks.
Once again, we appreciate you joining us for our call this quarter. Look forward to seeing you on future calls, and if there's ever questions in the interim, we're always available to help. Thank you again.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.