Thank you for standing by, and welcome to Howard Hughes third quarter 2026 earnings conference call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Joe Valane, General Counsel. Please go ahead.
Good morning, and welcome to the Howard Hughes Holdings Third Quarter 2026 Earnings Call. With me today are Bill Ackman, Executive Chairman, Ryan Israel, Chief Investment Officer, David O'Reilly, Chief Executive Officer, Carlos Olea, Chief Financial Officer, and Marc Grandisson, Vantage Executive Chair and Howard Hughes Holdings Director. Before we begin, I would like to direct you to our website, www.howardhughes.com, where you can download both our third 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 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 third 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 Executive Chairman, Bill Ackman.
Thank you, Joe. Just going to highlight a few significant developments during the quarter, then turn it over to Marc. He's going to walk through the insurance portfolio. Ryan will speak to the investment assets, and David will update more detail on the real estate progress. With respect to Vantage, $76.6 million of net pre-tax profit for insurance and reinsurance, including gains from the investment portfolio. Economically, $103 million operating profit. We're adding back purchase accounting adjustments relating to the purchase of Vantage at a premium to book value. That amortization, we believe, is a non-economic expense. In terms of Vantage progress, the most significant development during the quarter was Marc taking on the executive chair role, our recruiting David Gansberg as the CEO-elect to join no later than June when his non-compete expires.
Marc continues to build out the senior leadership team, really taking advantage of his longtime relationships and network in the industry. We will update you over time as we make more progress there. Real estate operation generated strong performance. Operating assets, same-store NOI growth of 9%. That is probably an industry-wide top number. On the land sale side, also very strong numbers. We lapped a significant $100 million plus bulk lot sale, but in terms of without the bulk lot sales, year-on-year, we showed good progress. Importantly, what we focus on is really a couple of metrics. One is, what is the pace of home sales? Summerlin was up 11% year-on-year, The Woodlands Hills up 5% year-on-year, Bridgeland down 9% year-on-year, but year-to-date up 7% over last year.
Lot sales are lumpy, it depends on our sort of auction process, et cetera, but we feel very good about that sort of leading indicator, and importantly, the land sales price per acre. One of our important metrics we look at is, how much land did we sell over the last year, and what is the value of the land that we have remaining based on current prices? We sold 398 acres over the last 12 months, generating $435 million of proceeds. Meanwhile, our residual value of land based on the current market value went up from $5. 623 billion to $5. 701 billion. So in effect, we generated $435 million of proceeds plus an increase in our land values. The maintenance-free cash flow was up slightly with very significant same-store NOI growth. David will go into more detail there.
We had a modest amount of condominium sales generating $0.8 million of profit. We did two municipal utility district receivable sales. Let me explain what this is. Basically, as we build out the infrastructure for our MPCs, we recover the cost of that infrastructure in the form of what is called a municipal utility district receivable, which is paid down from tax revenues. We get that receivable, it sits on the balance sheet at its face value. It gets paid out over three, four, five, six years, depending upon the pace of development and the generation of taxable income. What we have been doing, in effect, think of that as a zero-coupon instrument, and we basically have sold that and received the present value of those receivables at about a 6% discount rate.
That causes us to generate a GAAP loss of $105 million during the quarter, but what we are really doing is taking this zero coupon, which we are not going to collect, or an instrument we are not going to collect for four or five years, as much as six years, and taking the cash today at a discount rate that we find attractive. The other significant development with respect to real estate during the quarter was our announcement in September at the annual meeting. We have a plan to go to an asset-light model. We have made good progress in terms of recruiting the advisors and actually have already begun discussions and received a number of significant offers for assets at the company.
We will report our progress over time, but we are strongly of the view that we are going to achieve our objectives in terms of generating material amounts of cash at what we believe to be very attractive valuations. A comment on the other metric to pay attention to, of course, is G&A. This is the first quarter that we are fully including the results of Vantage. Our year-on-year increase from $34 million of G&A to $51.6 million. The components there basically are $13 million of incremental interest expense and about $4 million-$5 million of G&A from Vantage that is now in our results. With that, I am going to turn it over to Marc Grandisson.
Thank you, Bill. Good morning, everyone. As Bill noted, this is our first full quarter as part of Howard Hughes, and I am pleased to report that Vantage delivered a solid quarter with earnings, underwriting income, and returns all generally moving in the right direction. A quick reminder, Bill alluded to it already with respect to presentation, Howard Hughes consolidated results include purchase accounting adjustments, largely the amortization of the VOBA. On that basis, Vantage's third quarter combined ratio was 101.8%, and the pre-tax income was $77 million. As in the second quarter, everything I discuss today and the Vantage supplemental is on a historical GAAP basis, excluding purchase accounting adjustments, which gives a clearer picture of how the business is actually performing, consistent with historical reporting.
On that basis, third quarter net income was approximately $80 million, up 22% from the prior year quarter, and pre-tax income of $103 million was more than double last year. Year-to-date, net income is $166 million, up 51%. In the quarter, the combined ratio was 94.9%, in line with 95% a year ago, and 95.4% year-to-date versus 96% last year. Underwriting income grew 19% in the quarter to $16 million and 38% year-to-date to $41 million. Gross written premiums grew 4% to $386 million, and net earned premium grew 17% to $316 million. Year-to-date, gross written premium is $1.4 billion, up 11%. Insurance-related gross written premiums grew 8%, led by construction, casualty, and financial lines. Reinsurance-related gross written premiums were down 9%, as we deliberately wrote less property and specialty, where pricing no longer meets our return hurdles. That is cycle management in practice.
We grow where the margin of safety is there, and we step back where it is not. The G&A expense ratio improved to 13.9% from 15.8% a year ago, and to 14.3% from 16.9% year-to-date, as net earned premiums continue to outpace expense growth. As was mentioned at HHH's annual general meeting, we expect to invest more over the next several quarters, and we expect the G&A ratio to be a little bit more volatile. Let me spend a moment on underwriting quality. The accident year combined ratio, excluding catastrophes, was 96.2% versus 96.8% last year, and 92.5% year-to-date versus 94.8%. I do want to be transparent that the quarter is above the 91.4% we reported in the second quarter. The difference is a single large energy loss in our reinsurance specialty book. There were no significant catastrophe losses in the third quarter.
Reinsurance also absorbed about 4 points of adverse prior development, which we have addressed conservatively. Excluding those items, reinsurance remains profitable with a 92.2% accident year ratio ex-cat in the quarter and 84.4% combined ratio year-to-date. Large losses are part of a specialty underwriter, and as I said last quarter, we expect some fluctuation from quarter to quarter. Insurance made real progress. Its combined ratio improved to 96% from 102.6%, and underwriting income was $7 million versus a loss of $4 million a year ago, with favorable prior year development of 3 points. This is the trend we want to see, and we expect it to continue as the book scales. Net fee income was $13 million in the quarter, up from $9 million, and is $47 million year-to-date versus a loss last year.
This comes from our AdVantage ILS structure and reflects strong outcomes on recent property cat business we wrote for third-party partners. Turning to investments. The transition of the portfolio is now largely complete. We hold $1.3 billion of common equities, $2.4 billion of cash and short-term U.S. Treasuries, and only $11 million of fixed income securities. Net investment results were $77 million for the quarter, driven by $55 million of unrealized gain on equities, a reversal of the second quarter's mark-to-market loss. Net investment income was $23 million versus $30 million last year, reflecting the move out of fixed income. Equity markets will move in both directions, so please judge this portfolio over years, not quarters. We are investing for long-term compounding with expert management by Pershing Square. That brings me to returns and capital.
Trailing 12 months after-tax return on equity was 16% compared to 15.9% for 2025 and 9.2% for 2024. That is consistent with our goal to deploy capital at a target return on equity at or above mid-teens over the cycle. GAAP equity rose to $1.9 billion, up 44% year-over-year, including the $300 million contribution from Howard Hughes, combined with earned profits. Our capital remains strong, and AM Best continues to rate us A- with a positive outlook. On the market, our view is unchanged from last quarter. We remain primarily in Stage 3 of the cycle. Property rates, particularly in the U.S., continue to soften, and a few short tail lines are moving towards Stage 4. Casualty remains more constructive, though uncertainty around development of earlier years and loss trend require a thoughtful approach.
Broadly, competition has increased, but pockets of attractive returns remain, and a diversified platform lets us move quickly to them. Our priorities are the same: underwriting profit over volume, conservative reserving, a margin of safety in pricing, disciplined management of aggregations, conservative prudential capital management, and investment in data and talent. In closing, we are still in the very early chapters of a multi-year story. The permanent capital is in place, the portfolio transition is behind us, and the underlying trend in underwriting expenses and returns is positive. I look forward to updating you on our progress in the future. With that, I will turn the call over to Ryan.
Thanks, Marc. I thought this quarter what we could do is talk a little bit more about the investment portfolio and Pershing Square's overall philosophy on the management of that portfolio. For those of you following along the slides, I will kind of be referencing page 23 as we go along. To start with, our total invested assets grew to about $3.7 billion this quarter. As we have talked about before, we really employ a barbell strategy. Just over 65% of those invested assets will ultimately be in cash or short-term U.S. Treasuries, where we are taking no credit risk, no duration risk. Then we will be investing the bulk of the excess beyond what we would be generating through float over time in our common equities. Today, we actually have a lot more of a cushion relative to the float that we have invested in short-term Treasuries.
Over time, we probably will have a little bit more matching between the short-term investments and our float, and therefore the percentage of our invested assets that would be in common equities would go up. The way we sort of think about that 65% of the portfolio today that is invested in short-term Treasuries, at current interest rates, that should be yielding around 4% based on the market rates for a 30-day U.S. Treasury, to the extent that interest rates stay the same. For the roughly 35% of our portfolio that is invested in stocks, what we wanted to provide today was really the investments that we make. At Pershing Square, and for those of you who follow us, we have really written about this in our latest quarterly letters, one of which at PS Inc. we released earlier this week.
We really talk about we are looking for what we call durable growth businesses, some of the world's great businesses where we believe that through the strength of the secular trends they have, their competitive moats, the great decisions management is making, and their capital allocation strategies, they can really be generating returns from these investments that would be at least 20% a year over kind of a three-to-five-year type holding period.
When we think about the way in which we are achieving or hope to achieve that 20%+ return, it is really buying businesses that can grow their earnings, I would say at sort of a high teens to roughly 20% rate collectively, and where we try to purchase these businesses at attractive multiples such that over time, our investment return will be a little bit better than the underlying earnings growth of those businesses because investors will ultimately assign a higher multiple of earnings to these companies than what we have paid for them.
When we kind of take that framework overall of what we're looking for, we see that's represented very well in the portfolio. We have 12- 15 investments in Vantage that really do represent these durable growth companies, some of the world's great businesses that are generally growing their earnings between 15% and 25% a year over time in our estimation, and where we think there's upside from the multiples. Collectively, this portfolio, roughly the way we think about it as it is today, we expect should be growing its earnings about 20% a year over the next three to five years based upon our best estimates. What that sort of means is every quarter, if the multiples stay the same that investors assign to these companies, we would generally get about 1/4 of that 20% growth, or about 5% each quarter.
You can actually see this quarter, in aggregate, that's exactly what happened. We had a 4.7% return on our common equities, just under that 5% threshold.
By the way, you may want to point to the page you're referring to.
Yeah, page 23, exactly, for those who are following along. The way we sort of think about that is that's at the portfolio in aggregate, but when you look at the specific holdings, obviously there's a lot more volatility. To point out a couple of the companies that drove our results this quarter were really our investments in Microsoft and Meta, which were our largest investments. Those collectively returned about 35%, so 38% for Microsoft, 29% for Amazon. While their earnings grow on the higher end, so of that kind of 20%-25% level, these businesses also had a lot of multiple expansion this quarter as people became more excited about their prospects.
The rest of the portfolio, I would say there was a little bit a different result where some of them had their earnings growth and their share price in line, and some of them actually, for example, a company like Brookfield or Uber, actually had a share price decline even though they had very healthy earnings growth as investors assigned a lower multiple to those businesses. Just wanted to give you a little bit of insight as to how we're thinking about the stock portfolio that we have. Going forward, our goal is to continue to provide some insights each quarter on how we think about the overall investment portfolio. With that, I will turn it over to David to talk about the real estate results.
Thank you, Ryan.
Against the backdrop of national housing facing real headwinds, higher mortgage rates, and affordability challenges, our real estate business is performing exceptionally well. Over the past 12 months, our annual residential land pricing and our commercial communities increased 18%. Operating assets NOI grew 8% this quarter, and our condominium pipeline now represents more than $5 billion in expected future revenue. Let us start with our MPCs. Land pricing, home sales, and the value of our remaining land are the indicators I focus on when evaluating the strength of this business, so let us put the reported numbers in context. We reported $89.5 million of MPC EBT during the quarter, compared to $205 million a year ago. Two items drove that comparison. First, last year's quarter included a 231-acre bulk land sale in Summerlin for more than $100 million. Those transactions are strategic, but they do not occur every quarter.
Second, we recorded a $19.4 million remeasurement loss related to the consolidation of Floreo in Arizona. This is a non-cash accounting adjustment from taking control of the venture, not a change in what we expect the project to be worth. Adjusting for the bulk sale and the non-cash loss, MPC EBT would have been higher this quarter compared to last year. Demand and pricing in our communities are stronger than they were 12 months ago, not weaker. Our average residential land price was approximately $1.3 million per acre this quarter, an 18% increase over the trailing 12 months. Bill mentioned during the quarter that net new home sales increased in Summerlin and The Woodlands Hills. Bridgeland was down in the quarter, but still up 7% for the year. What differentiates our communities is not that we own large amount of land, it is what we have built on that land over decades.
We're not developing residential neighborhoods. We're creating complete communities that attract employers, businesses, retailers, and residents. We've proven that strategy in The Woodlands, and we're following that same playbook in Bridgeland with projects like the Houston Texans-anchored Toro District. As these communities mature, the jobs, amenities, and commercial development create additional demand for housing. That demand, combined with our finite land supply, supports pricing and increases the value of our remaining land over time, which is exactly what you see in our land bank. Updated pricing assumptions added approximately $79 million of estimated value this quarter, replacing most of the value that the 100 acres we sold. Our estimated margin-adjusted residual value for wholly owned land is within 1% of where it stood a quarter ago, with fewer acres in it. That is long-term value creation that doesn't always show up in quarterly earnings.
We also completed the sale of two MUD district reimbursements in Texas. Bill walked through the details of that, but at the end of the day, we generated more than $177 million in net cash proceeds, but also generated a $105.4 million GAAP loss. The implied discount rate that we sold those receivables at on a blended basis is just over 6%, accepting a discount today on cash that would otherwise have been collected for years. We expect to redeploy those proceeds at returns well above that rate, which is exactly why we did it. Turning to the operating assets. NOI increased 8% to $73 million, with same-store NOI growing at 9%. This growth is primarily resulting from the leasing efforts across our office portfolio, which has increased NOI 15% compared to last year on a same-store basis.
Adjusted maintenance-free cash flow increased 10% over the trailing 12 months to $96.6 million, again boosted by leasing of both the office and multifamily portfolios as we've reached stabilization across the majority of our assets. These results reflect years of investment in commercial multifamily developments throughout our communities. Those assets provide growing, recurring cash flow and add value to the residential land around them. Our condominium business is another important source of future cash flow. We contracted 82 units during the quarter, including 66 at Melia, our newest Ward Village tower in pre-development. As of September 30th, Melia was 15% pre-sold after only about a month of sales. We've continued to see sales activity since quarter end despite a challenging market. Located at the base of Victoria Ward Park, Melia offers a distinct opportunity within Ward Village, and we're encouraged by the pricing and buyer interest we've seen.
Sales remain in line with our expectations. Across the pipeline, we have 1,743 units under construction or in pre-development, with 62% pre-sold or under contract. That's more than $5 billion in expected future revenue, including approximately $3.6 billion already under contract. What makes this business especially attractive is its capital structure. Buyer deposits and non-recourse construction financing fund the majority of those development costs, allowing us to deliver these projects with relatively limited corporate equity. Which brings me to something fundamental about Howard Hughes. The cash flow we generate isn't the end of our value creation. It's what funds the next generation of it. We reinvest a portion of that cash into projects like Melia and ‘Ilima at Ward Village, One Riva Row in The Woodlands, and transformational developments like Toro District in Bridgeland.
Those investments drive shareholder returns, make our communities more attractive, increase long-term net asset value, and create the next round of cash flow, and the cycle repeats. Which brings me to the evolving asset management strategy. As discussed at the shareholder meeting in September, we are increasingly looking to bring third-party capital into our real estate platform through joint ventures and other structures. We do not need to own 100% of every office building, apartment community, or commercial development to create value from those assets. By partnering with outside investors, we can unlock equity, grow our development and asset management fee business, and keep overseeing the communities we have spent the last 16 years building. We are in active discussions on our first joint venture and expect to make more in the coming quarters. The capital we free up gives us real flexibility.
It can be used to redeem the preferred shares, invest in Vantage, or fund our current growth opportunities in Howard Hughes communities. Our master plan communities remain the foundation of the real estate business, and long-term control over their development remains central to the strategy. When I look at the quarter, I see a real estate business performing exceptionally well in a challenging market. We are maintaining strong land pricing, growing recurring cash flow, and building a substantial pipeline of future condominium revenue. As we evolve our capital structure, we have the opportunity to keep creating that value with significantly less capital tied up in individual assets. I could not be more proud of what our team has accomplished this quarter in a challenging environment and confident in the long-term outlook for our communities. With that, I will turn it over to Bill for closing remarks.
My only remarks are that the real estate team did a great job. Really great quarter. With that, operator, let us open it for questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To remove yourself from the queue, you may press star one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Anthony Paolone of JPMorgan. Your line is open, Anthony.
Great. Thanks. Good morning, everyone.
Morning.
My first question relates to just the planned either joint venture sales of some of the real estate. Can you maybe give us a sense as to any particular areas you want to sell, and maybe sizing of how much you expect to receive in proceeds over, I think, Bill, maybe on a prior call you mentioned being done by the end of 2027?
Yeah. I would say we're not going to be likely done by the end of 2027. I think we're going to make very significant progress by the end of 2027. The goal is to. We think there is value. Our whole strategy about MPCs is about control. Why do we have 9% same store NOI growth? Because the competitive dynamics of controlling the real estate in your communities enables you to maintain pricing and obviously quality, and this enables us to generate compound returns both in the value of commercial assets and the value of our kind of land holdings. So we want to maintain control, so we're bringing in more passive partners that like the team with Howard Hughes. I mean, this is a team with incredible track record, capability, resources, financial reporting, public company.
It's the ideal partner for pension fund, family office that wants exposure to some of the best housing and real estate markets in the country. We have, I would say, some assets that are kind of non-core that we might sell outright, but we've already been fielding offers on major assets that have come in the door since we announced this strategy. I expect we'll have stuff to report on probably by the next time we have this call. So I can't tell you precisely the timeframe. We're not in a rush to do it, but we've hired advisors. They're engaged. They're incentivized. I would say real estate transactions, the earliest I would expect you to hear something would be over in a three-month timeframe. But call it six, nine months from now, you should start to hear significant progress.
I said by the end of next year, the goal of something in order of potentially a couple billion of incremental proceeds would be a reasonable way to think about it. That is an approximation. It could be more, it could be less.
Okay. If we think about as those proceeds come in, if we think about selling CRE, we think about sales cap rates and so losing some percentage of those assets as income, do you think the redeployment, should we think about that as going out at a higher return, or how do we think about just what that trade looks like on a shorter-term basis as the money comes in and then what you do with it?
Sure. I think real estate investors, someone buying an asset at a 6.5% return in a 5.5% financing market and putting up 1/3 of the equity, that is not generally a high return. It is hard to generate very high return. I think people think of real estate as a, call it, I do not know, 8%-12% return on equity kind of business, I would say, in terms of for stabilized assets, maybe somewhat higher for development-type assets. We think we can generate, Marc mentioned, in excess of a 15% ROE. Our ambitions are actually to generate in excess of a 20% ROE, both with a combination of strong profitability from the insurance side of the business and from strong investment results, particularly as we get the investment portfolio more invested in common equities and less in U.S. Treasuries.
Going from a, let us call it a 10% ROE business to a 20% ROE business, we think inherently is a good thing. Our real estate operation, it takes place in a corporation where we have to pay corporate tax. We have some depreciation shields, interest expense, et cetera, still pay taxes. By bringing in, taking out, call it 80%, let us say, of the equity we have invested in an asset and then getting paid fees for managing that assets that are paid by third parties, promotes, et cetera, we think we can take the ROE from a real estate portfolio from the maybe lower double digits to the high teens or potentially more. We think both the movement of the capital from real estate to insurance is a big step up in terms of ROE for the overall business.
By doing so, by bringing in a partner, and by becoming more of an asset manager than just a wholly owned real estate subsidiary operation, that transaction is extremely accretive to the entity, both in real estate and insurance.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from the line of Alexander Goldfarb of Piper Sandler. Your question, please, Alexander.
Yes. Hey, good morning. Certainly congrats on having the first full period as a combined company, so a lot of work there. First, David, I am going to go to Hawaii and the condos. You know I like to compliment you guys on how successful the pre-sales go, but this latest project, which I think was just 15%, seems a little slower than historic. Just maybe a little bit more color if it is project specific or maybe just where interest rates are, it is finally countering what normally is a really strong residential sale market out at Ward Village.
Morning, Alex. Thanks for the question. Look, I would say that over the past five years in Oahu and the condo market in general has been good. I would not say super strong. Over the past five years, we have built or have under construction eight towers. The entire rest of Oahu has done two. We are 80% of the island's luxury condominium supply, and I think we have been spoiled by Bonnie Wedemeyer and her team's incredible success of delivering 60% or 70% pre-sold in 60 days. In a more normal market environment where we are today with higher interest rates, getting 15% in 30 days is a celebration, and I tip my cap to them. They have done a great job. Obviously, the last four towers are a little bit different than this one.
They were all in the front row and right on the beach, and this is at the head of the park, set back a little bit. So it was our expectation coming out of the gate that this would not have that type of sales velocity that those front row towers did, and there is a little bit more headwinds with higher interest rates. With all that said, while 15% may be behind those other towers, for us, it is still an exceptional result.
Okay. Ryan, a question on the securities portfolio, and obviously we love the disclosure there in the supplemental. The markets have been crazy. We had the midterms, we have had some serious gyrations this week. As you guys think about your securities holdings and as we think about your seeking to outperform the market, should we expect your book to change meaningfully quarter to quarter? Or in general, when you guys make an investment, you look through the type of gyrations that we have had recently, this sort of anti-AI, anti-data center pushback. Just trying to understand when we look at your book versus how it is going to look over time as you guys try to outperform to drive earnings to the bottom line at Howard Hughes.
Yeah, sure, Alex, and thanks for the question. The way that we think about it is, there are really only a few hundred businesses in the world that we think are of the quality that we would want to own them for the long term. When we buy those businesses, we really are thinking with a multi-year, sometimes multi-decade perspective on where those businesses will develop. The opportunities to buy them, to have these businesses that grow at such a rapid rate, and then to buy them at purchase prices where we can make a return that meets our thresholds, which we talked about as being at least 20%, those aren't things that come up every day.
My expectation would be, and our historical results at Pershing Square have suggested that we have multi-year holding periods, four-plus years kind of on average, even though some stocks we've held for decades at Pershing Square, and I think that's likely going to continue. The one thing that's quite interesting about investments in an insurance company versus if you think about investments in your sort of typical manner outside of insurance is that the insurance business is cash generative, and it's cash generative in two ways. One, every time we have a combined ratio below 90, we're going to have profits. We have profits from the investment income we generate, whether it's off the cash portfolio or the common equities. Those are all things that are going to be allocated every quarter.
We have more cash coming in to be invested, and we get to decide how much of those investments will go to equities, how much are going to go into cash. What's nice about market volatility, particularly inside of an insurance company like Vantage, is we can be leaning in and taking more advantage when we get more cash in to be buying additional securities in volatile market times. I think that that is something that's going to allow us to hold our positions for a long period of time while also being able to buy at moments when there's a lot of market volatility. Bill, if you want to add anything.
Yeah, just adding to what Ryan's saying. The big dynamic in markets that's sort of taken place over the last decade is increased sort of passive ownership of stocks. Index funds are now an increasing percentage, maybe 25%, 30% of almost every public company. That has the effect, as these are effectively permanent holders of, at least for now, of taking the float from the market, and then much bigger amounts of capital controlled by kind of the shorter term quantitatively driven investment firms that use a large amount of financial leverage, 8x, 10x, 12x type leverage. The huge moves you're seeing, midterms going up, whatever, and then going big down day yesterday, today, who knows? If you don't look in the last hour, you have no idea which direction the market's going.
We are not trying to make money by figuring out which stock is going to go up tomorrow or which stock is going to go up in the next three months. What we are doing is we are finding businesses that we are very happy to own for years, that earn very high returns on capital, that grow their earnings and revenues at very nice rates over time, and that we have purchased at prices that we expect will generate. Our ambitions are 20%+ rates of return on that portfolio. The portfolio that we have constructed and that Ryan has walked through here is one that we think will achieve that objective. We do not expect to make material changes to it.
Absent a massive move in a stock price upward that would get to a place where we think the go-forward return is sort of less attractive, plus or minus, as the businesses progress, we expect the stocks to progress. Absent a change in our view of the business's long-term potential, we are likely to own it. Think of it as a long-dated portfolio that public compounds at a 20%+ rate, and we will only make changes if we think on an after-tax basis it makes sense to sell, realize a gain, redeploy the capital in a new investment on an attractive basis.
Okay. Then just finally, a question for Marc. Marc, as you have gotten under the hood and looked at the business Vantage, just sort of curious what your take is so far. Areas that you like, areas that you think could use some improvement, and maybe areas that you think should be exited. Just curious what your initial impressions are and how the business may evolve, especially between the insurance and the reinsurance bucket.
Yeah, thanks for that. I think at a high level, the company is extremely well-positioned. The platform was purchased on that basis, and the thesis holds. You have to be present as many different lines of businesses, and including reinsurance and insurance, to be able to deploy your cycle management strategy through the cycle, and that is exactly what Vantage is all about. I would just only say that that platform can actually grow and hire more people and get more products to the overall suite of what we provide to the marketplace to even be better.
What I like about what I hear from the team is that all extremely caring individual, very, very seasoned underwriting team knows what to do, what can get anybody in trouble, and really focusing on true north, which is to provide and create something very unique with excellence in underwriting at the center of everything. I am really, really impressed by the whole team. One of the things that we have done over the last couple of months is to really transition from being a PE-owned company to now where it is now with having strong support from parent company to really build for the long term top-notch underwriting company. The whole team is raring to go and very happy about this. I am very pleased with everything I am seeing and hearing from the team. The clients are really appreciative of what we provide to the marketplace.
Okay. Thank you. Thank you.
Sure.
Thank you. Our next question comes from the line of Elyse Greenspan of Wells Fargo.
Wells Fargo.
Line is open, Elyse.
Hi, thanks. Good morning. My questions are going to be directed towards Marc on the insurance side. Marc, I was just hoping, going back to some of your comments, right, you were alluding to softness on the property side, right, both primary and reinsurance, this is really what we've heard across the board. I guess, how are you thinking about pricing trending there into 2027, and do you think, what could cause a bottoming of the property rates? Do you think it's just a matter of waiting until we see some really large cat events for the industry, or can you envision a scenario where kind of things hit a floor, absent any significant losses?
Thank you, Elyse. I think that the answer starts with where will the capital want to be, right? We also have opportunities in the marketplace that may change the whole thing. But frankly, people are sitting on good results for the last two, three years. We haven't had major cat for a while, and people are sort of getting ever more comfortable with it. So, I would echo what the other chief executives have said on the call, is that property is lining up to be fairly competitive. Where's the bottom? I don't know. That's the one thing that is always extremely difficult to pin down. Of course, Elyse, as you know, if there was a major event, a major loss, it would definitely change what the market will think about.
Our positioning right now is we were not, and we're still not a big property cat, specifically for that, focusing on that line of business. It is not our interest or focus right now going forward because of the softening and where it is relative to where it should be to provide decent return or acceptable returns for our shareholders. So, our focus is probably more to be on the sideline right now, frankly, and wait and see what happens. On the other property, the non-cat property, I mean, you saw our announcement on the facultative side. I think there's always specialties and areas where we can play in property that are largely non-cat exposed, where we can still make money. This is where we're going to be focusing our efforts going forward, so to have less volatility, but still wait.
We still have the knowledge and the expertise and the market knowledge to engage in the market if and when it happens on the property cat. How long is a piece of string, Elyse? I don't know.
Thanks. My second question, you guys have spoken to wanting to grow Vantage. How does inorganic growth come into play to supplement potentially what you guys are doing on the organic side?
I think we have a lot going on right now from an organic perspective, and hiring teams and different individuals with different expertise. This is really primarily our focus as we speak. Of course, if things come from the outside, teams or smaller outfits or different, maybe some companies even, we're always open for business. This is how we think about the world at least. Whatever comes to us will have to be special. We'll have to bring something that's specialized, that's different, distinct, and also help diversify further what we have in terms of our insurance, liability, and insurance assets. I think we're always open to hear, and so I'm talking to the broad world right now. If there are people that want to find a new home with an economically rational executive team, we're always open for business.
First and foremost right now is focusing on what we have and maximizing and optimizing what we do with the current team that we have.
Thank you.
Thank you. Our next question comes from the line of Eric Borden of BMO Capital Markets. Your question please, Eric.
Great, thanks. Good morning, everyone. Marc, the construction business contributed to the insurance growth, premium growth this quarter. I am just curious, within that business, where are pricing in terms of keeping pace? Then just any thoughts on writing premiums for data centers specifically? How do you think about that asset class, just given the fluid environment there?
Our construction play is really a professional liability lead, which is a little bit unusual. We do some definitely general liability attached to it. It is not a property play at all. The pricing is great. It is fine, actually. It is really, there is a close relationship. It is a relationship business, by and large. You really get close to the builders and the developers, and you really get to know them very intimately. It is a little bit stickier and not as open up to the market vagaries that we see out there.
Okay, thank you. On the real estate side, as you look to unlock some capital there as proceeds arrive, what is the pecking order or the current thinking between redeeming the preferred, adding capital to Vantage, and then funding Howard Hughes developments in the condo section? Thank you.
Yeah, I think the answer there is, I think we're going to look at that pretty carefully each time we have capital inflows into the business. Ultimately, because Pershing owns the preferred, it will be the board's decision as to whether they want to redeem preferred or just reinvest more capital in the business. I think on the margin, I think the company would like to redeem the preferred so that it owns more of this valuable business that Marc is really building. We're very happy in that circumstance to have our preferred redeemed. We want the company to do whatever is in the best interest of the company. We own 47% of the company, so our interests are very much aligned with that outcome.
But yeah, I think the goal is to generate enough capital that we both redeem the preferred and have excess capital for the insurance operation.
All right. Thank you very much. I'll leave it there.
Thank you. Once again, to ask a question, please press star one one on your telephone. That's star one one on your telephone to ask a question. Our next question comes from the line of Eli Dashef, an individual investor. Your line is open, Eli.
Hi. Good to be here. Marc, as you mentioned before, Vantage has an A- from AM Best with a positive outlook, and previously, S&P downgraded Vantage and then withdrew its ratings at the company's request. What would it take to get upgraded by AM Best and then re-rated by S&P? Bill and Ryan, given Pershing's investment in S&P Global, do you see any potential or perceived conflict if Vantage seeks a B rating? Thanks.
I'll start with the rating agency question, and we were positive outlook, A-, as you noted. There's a plan for an upgrade. We're working towards that. We have every confidence that it should happen over the next several quarters. We're looked upon favorably. This is where we have a positive outlook. On the S&P, listen, it's also a very different structure that they're probably used to. There's a lot of discussions, a lot of trying to understand how everything fits together. We're just talking with them. I've been there before. Takes a while to get people to understand exactly what we're trying to do, and what we're trying to do here is a little bit unusual. But over time, I'm confident that we'll get to what we need to get to with the rating agencies. I'll turn it over to Bill.
Yeah. Basically, S&P downgraded Vantage because of almost a formulaic approach that they take, because Howard Hughes's rating, the S&P rating of Howard Hughes at the time of the transaction was-
BB.
BB. When a B B company buys an A- company, they have a formula, and on that basis, they downgrade it. Our view is that our involvement, or Howard Hughes's involvement here, is actually meaningfully credit positive for Vantage. We think substantively, not formulaically here, and our job is to work with the rating agencies so they really understand the real credit story here. I think the steps that we're taking to bring in third-party capital, take capital out of the Howard Hughes business, deploy it into the Vantage operation, then it's really going to look like a Vantage insurance company that has a real estate subsidiary as opposed to a real estate company that has a Vantage subsidiary.
As we make progress toward that goal, I think that's going to be materially helpful in terms of improving both the actual and perceived creditworthiness of this insurer. Obviously, putting more capital in and reducing our exposure to what is perceived to be a more volatile business in real estate, even though we think our real estate business is one of the lower volatility such businesses, is going to be helpful to the business. I don't think the fact that we own stock in S&P Global, they're not going to give us a better rating or a worse rating, I think, on the basis of that. Completely separate parts of the business.
Obviously, if someone could just buy stock in S&P and get a higher rating, that would actually be bad for their stock investment because the company would lose credibility in the ratings business, which is the majority of their profits. With that, let's take the next question.
Once again, to ask a question, please press star one one on your touchtone telephone. As there appear to be no further questions in queue, I would now like to turn the call back over to Bill Ackman for closing remarks. Sir?
I just want to make one point, which I think our stock price seems to be very much driven by in the short-term movements and rates. Just want to make a few points there. Number one of the first things we did when we acquired Vantage was we sold its fixed income portfolio that was not exposed to interest rates. We own short-term U.S. Treasuries. If anything, if short-term rates were to go up, actually it would increase the profitability of our, all things else staying the same, increase the profitability of our insurance company. Howard Hughes financed itself largely with fixed rate debt, although we have some floating rate debt in the condominium construction-related obligations.
Even Howard Hughes, what we've experienced is over the long term, the pace of lot sales has been excellent, and it's driven by home sales, and we've seen pretty steady home sales. However, during periods of volatility, when rates spike up, you do see a short-term pause in home sales because people lining up to sign a contract, they're pricing a home on the basis of a monthly payment, and if rates spike up and they can't get the mortgage they want, they'll pause until rates stabilize. We've seen a pretty consistent If you look over time, we've generated continued large amounts of home sales in our properties and continued demand from the home builders to buy our land at increasing prices per acre, and that's been the case for well more than a decade. I don't think of our business as particularly interest rate sensitive.
The stock, I noticed, is down something like 4.5% today on a move in rates, and I don't think our business value has really meaningfully changed. As we have, again, less exposure to We have less equity invested in the real estate company, more fee income there, more in the insurance operation. I think we still trade with the home builder kind of universe, and I think one of the other benefits of this strategy is that I think the market will look at us more in terms of the value of our insurance operations and our long-term investment results. That was my sort of last comment. Grateful for your time, and thank you and look forward to talking after the year results report. Thanks so much.
This concludes today's conference call. Thank you for participating. You may now disconnect.