The Howard Hughes Corporation
Q1 2017 Earnings Call Transcript

Published: 4 May 2017

[Operator:]

Good morning and welcome to The Howard Hughes Corporation First Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Striph, Executive Vice President of Investor Relations. Please go ahead.

[David Striph:]

Good evening. And welcome to The Howard Hughes Corporation’s first quarter 2017 earnings call. With me today are David Weinreb, Chief Executive Officer; Grant Herlitz, President; David O’Reilly, Chief Financial Officer; 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 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 assurances that these expectations will be achieved. Please see the forward-looking statement disclaimer in our first quarter earnings press release 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 Weinreb.

[David Weinreb:]

Thank you, Dave. And thank you for joining us today and welcome to our 2017 first quarter earnings call. Before we begin, I would like to encourage those of you who have not yet done so, to review our recently released shareholder letter, as it is a valuable read and provides detailed context on our business. On our last call in February, I highlighted a number of areas of focus for The Howard Hughes Corporation in 2017. I’m pleased to report today that we’ve made substantial progress on all those fronts. First, in our operating asset segment, we increased total net operating income from operating assets to $44.7 million for the first quarter; this represents a year-over-year increase of $13.3 million or approximately 42% and a quarter-over-quarter increase of $6.3 million or approximately 16%. Our first quarter annualized NOI now stands at a $169 million, a solid increase from last quarter and symbolic of our continued progress in growing our recurring income stream. In addition, we also continue to raise the bar on our potential stabilized NOI, excluding the Seaport by $9 million to $240.8 million. This increase was predominantly driven by our expectation for the Mr. C’s hotel at 33 Peck Slip, which we recently moved into our strategic development segment as well as the recently announced build-to-suit for Aristocrat Technologies in Summerlin. In our MPC segment, we increased total segment revenues to $68.7 million, an increase of $19 million compared to the first quarter of 2016. The increase was driven by continued strength in Summerlin and Bridgeland as well as by the sale of land for a utility right away in Bridgeland. While total segment revenues increased, we did experience a decline in residential sales year-over-year, resulting from a decline in residential sales in Summerlin. In the first quarter of 2016, we executed a large bulk sale to a homebuilder which did not make the comparison meaningful. Therefore, we’re very pleased with progress made to-date in Summerlin and do not believe that this year-over-year decrease is reflective of underlying demand, which remains strong. In our strategic development segment, we placed into service our Class A 204,000 square foot office building One Merriweather in Columbia, Maryland, which is 60% leased; it is the first Class A office building in Columbia, Maryland in over a decade. We’ve recently seen activity pickup on the remaining vacancy in One Merriweather and have prospects looking at much of the remaining vacant space. In the Woodlands, we recently delivered our first of two self-storage facilities, consisting a 654 units. Unlike retail or office development, self-storage typically has no preleasing. So, we expect the asset to stabilize within the next three years. And while very early in our process, we’re pleased with our performance to-date. We also announced a new build-to-suit lease for a corporate campus containing two buildings totaling 180,000 square feet for our Aristocrat Technologies in Summerlin. Turning to our balance sheet. We executed a new $800 million senior note offering at 5.375% with the maturity of March 2025, which we financed our existing $750 million senior notes. This reduced our coupon by 1.5%, saving our $8.5 million in annual interest expense, also extending the maturity for additional years. We often compare our non-core assets to out of the money options. Their value in today’s market could be eclipse through careful planning, entitlements or other activities that our teams are constantly pursuing, which could become incredibly valuable. This quarter, we are able to talk about few of these opportunities. First, we sold 36 acres of our 100-acre property, the Elk Grove Collection for total proceeds of $36 million. This resulted in a pre-tax book gain of $32.2 million and monetize the tax loss of $41.8 million. Secondly, earlier this year, we announced our intention to redevelop 110 North Wacker Drive in Chicago in a trophy Class A $1.35 million leasable square-foot office building. This development will be in collaboration with Riverside Investment & Development and Goettsch Partners, the accomplished development and design team behind the recently completed 150 North Riverside Plaza office tower. With its prominent riverfront location, 110 North Wacker is perhaps the premier office development site in Chicago and with its dynamic design will become an important addition to Chicago skyline. The Tower will feature views up and down the river as well as off the Chicago skyline and Lake Michigan while providing tenants with access to abundance of first class amenities. Today, we’re happy to announce that we’ve signed our first lease with Bank of America to make 110 North Wacker, their new Chicago headquarters. The lease is for 489,000 square feet or approximately one-third of the square footage of the building for a term of 15 years. With this lease in hand, we expect to be in a position to begin demolition and contraction in early 2018. Before I turn the call over to Grant and David to discuss our operational and financial results in more detail, I want to highlight the progress we’ve made in two of our major strategic developments. First, in the Seaport district, we achieved two key milestones in the first quarter. In January, we received the permits needed to complete the west façade of Pier 17 and we immediately began construction on that part of the building. Additionally, we filed for construction permits on the Tin Building, which will be a home to a food hall operated by Jean-Georges and looks forward to commencing construction immediately. On the leasing front, we executed Dita and Big Gay Ice Cream during the first quarter. These two tenants will open in the Uplands next year and continue our vision of creating a unique destination that will encourage visitors to discover the Seaport and all the offerings we’re curating across the Seaport district. Despite being under construction, we continue to generate strong demand for events based at the Seaport, particularly among fashion brands. In February, we hosted F Is For Fendi show in the Fulton Market Building and that was one of the most important events during New York fashion week. Turning to Ward Village in Honolulu. We had another solid quarter, making substantial progress in both sales of our remaining units as well in our construction efforts. During the first quarter, we sold an additional 31 units across all four projects, which represents approximately 11% of our inventory and increased our total percent of units sold across our four buildings under construction to 82.5%. At Waiea where we welcomed our first residency November 2016, we’re just under 94% sold. And as of April 18, 2017, we have closed on a 150 of the 163 units under contract, and expect to be complete with construction in the second quarter of this year. At Anaha, our second building, we have sold 95% of the units and remain on track to complete construction in the third quarter of this year. We are early on in the development as our current master plan includes 4,000 to 5,000 homes across 19 buildings and approximately 1 million square feet of retail at full build out. I would like to spend a minute speaking to how Ward Village has established itself, as an increasingly important destination in Honolulu, and in many ways we hope will become the new center of the city. We have started to see more local, national and international retailers considering opening in Ward Village as the best, long-term location for their businesses. After 10 years in Waikiki, Nobu chose to relocate to the base of Waiea late last year and has experienced a significant increase in their business. In our third tower, Whole Foods Market chose Ward Village as the preferred location for their flagship Oahu store. In our fourth tower CVS Pharmacy will open, joining an established line up of retailers, like Consolidated Theatres who operate the number one theatre in the state in Ward Village. After nearly 15 years, Consolidated recently renewed their lease for an additional 15 years and are spending approximately $8 million on a complete renovation, demonstrating their continued belief in Ward Village. While the near-term NOI generated from Ward Village will have some volatility as we demolish certain areas to make way for our next towers, the outlook for our long-term stabilized NOI continues to improve as our vision for this community advances. With that, I will now turn the call over to Grant to discuss the details of our operational results.

[Grant Herlitz:]

Thanks, David. I would like to begin by taking a deeper dive on some of the underlying themes driving our recent results in our operational assets, MPC and strategic development segments and then turn it over to David O’Reilly to discuss our earnings and financial activities for the quarter. First, within our MPC segment. In Bridgeland we continued to see increasing velocity of home sales, which has translated into continued demand for our land from homebuilders. In the first quarter, there were 118 new homes sales compared to 71 in the first quarter last year, representing an increase of over 66%. Bridgeland sold 18.6 residential acres at an average price per acre of $390,000. This compares favorably to land sales in the first quarter of last year of 11.1 acres at an average price per acre of $380,000. Also in Bridgeland, our total profit was driven higher by the sale of non-residential land for utility right away generating incremental revenue of approximately $6.4 million. Then in Houston at the Woodlands, we saw a strong uptick in the sale of new homes built with 92 sales compared to 56 in the same period in 2016. This 64% increase in sales was executed in average price per house of $608,000, an increase from 545,000 in the previous year. While this increase is encouraging, it has not yet translated into demand for our residential land as homebuilders in Woodlands still have a fair amount of inventory to work with. As we previously stated, given our limited supply of residential lots in the Woodlands, we will hold up on any meaningful land sale until pricing returns to levels we believe are commensurate with long-term balance. Turning to Summerlin. We continued to experience solid demand for residential land. While our residential land sales decreased from last year, this is not representative of any slowing in the underlying demand. In 2016, as David mentioned, we executed both land sales through home builder which helped drive gross revenues higher, albeit at a price per acre. As a result, the first quarter of 2016 did not represent typical results. In the third quarter of this year, we saw 207 home sales in Summerlin, a year-over-year increase of 39%. We executed on the sale of 37.7 acres for total revenue of $26.3 million. At The Summit, our joint venture with Discovery Land Company in Summerlin, we had another solid quarter with three custom residential lots closed for $10.6 million and we placed an additional 14 lots under contract for $51.9 million. As it relates to Summerlin, I would like to highlight our recent purchase of our partner’s 50% interest in the Las Vegas 51s, the New York Mets AAA affiliate. Now that we on 100% of the team, we’ve taken a solid steps in the right direction towards realizing our goal of reallocating the team into a new stadium in downtown Summerlin. While we still have a number of hurdles to overcome to achieve this goal, we believe that bringing the stadium to downtown Summerlin will have a significantly positive impact on both our existing residential and retail assets as well as on prospects for new commercial development. As David mentioned earlier, within our operating assets segment, we drove our quarterly total NOI from operating assets to $44.7 million in the first quarter, a year-over-year increase of $13.3 million or over 42% and a quarter-over-quarter increase of $6.3 million or approximately 16%. Specifically approximately $5.1 MILLION of a $13.3 million year-over-year increase was driven by stronger performance in our office property driven by the continue stabilization of Two Hughes Landing and 1735 Hughes Landing as well as contractual rent increases across our Woodlands office portfolio It is worth noting that Three Hughes Landing is now approximately 30% leased. Hospitality NOI growth of $3.4 million in the first quarter 2017 compared to the 2016 was driven by increased activity and the continued stabilization of the recently completed Westin, which accounted for $2.3 million of the increase as well as continued strength at the Embassy Suites in Hughes Landing. Resale also provided strong performance compared to last year, driving $3.3 million of the increase with particularly strong performance at Ward Village and the Outlet Collection at Riverwalk. As David mentioned earlier on the call, we’ve executed a build-to-suit lease for a corporate campus containing two building totaling 180,000 square feet with Aristocrat Technologies in Summerlin, Las Vegas. The project which is outside of downtown Summerlin will have a total construction cost excluding our land base at $45 million and is expected to generate approximately $4.1 million of cash NOI at stabilization for 9% yield on our cost. This is another great example of the team constantly finding opportunities to create value in our commercial acreage. In January, we executed on the acquisition of the 11.4 acre Macy’s store and parking lot for $22.2 million at Landmark Mall in Alexandria, Virginia. We plan to transform the mall and Macy’s parcel into an open air mixed used destination with retail, residential and entertainment components. This acquisition helps pave the way for the future redevelopment. With that I will turn the call over to David O’Reilly for our financial results and outlook.

[David O’Reilly:]

Thank you, Grant. I’d like to start with a quick overview of our earnings before summarizing our recent financing activity and then finally turning to our current leverage and liquidity metrics. I hope by now that you’ve had a chance to download or print our first supplemental package. We hope that you find this package helpful as you evaluate our quarterly results but more importantly underwrite the net asset value of our Company. Also included in the supplemental is a summary and reconciliation of net income to FFO and core FFO. While our reported FFO will be entirely consistent with NAREIT defined FFO, we’re also going to be publishing core FFO as an additional metric to help you better understand the Company’s quarterly cash flow. The details of the adjustments from FFO to core FFO are found on page eight of the supplemental package. As this is our first supplemental, we have tried to provide the information that we feel is most important to investors. It is our expectation that we will continue to expand our disclosure over the next several quarters. We completed the first quarter with GAAP earnings per diluted share of $0.13 as compared to $2.69 for the first quarter 2016. NAREIT defined FFO per diluted share was $0.23 as compared to a $1.86 for the first quarter of 2016. Importantly, both GAAP net income and FFO are impacted by the non-cash changes in our warrant liability gains and losses. Core FFO, which eliminates non-cash and one-time items as detailed in our supplemental, was a $1.66 for the first quarter compared to a $1.64 for the first quarter last year. This increase was primarily driven by a significant improvement in our operating assets segment. In early March, we executed on opportunistic refinancing of our $750 million senior notes. The 2021 notes carried a coupon of 6.875% and became open to call on October 2016. Our goal was to execute a transaction that would refinance our debt obligation on a positive net present value basis, add meaningful duration to our maturity schedule and maintain or improve our current liquidity profile. When we closed on our new $800 million note issuance, the 5.735%, which was a 150 basis-point improvement to our existing senior notes and extended the maturity of our notes to 2025, we accomplished all of those goals. We also received an upgrade on the ratings of our new senior notes from S&P to B plus. Also during the quarter, we refinanced a $23 million construction loan on the Columbia Regional Building with a new $25 million non-recourse mortgage financing with a 4.48% interest rate and a February 2037 maturity. As you may recall from our last earnings call, in December of last year, we acquired the One Mall North office building in Columbia, Maryland. After we closed on the acquisition, we amended and restated our existing 10-60 Columbia Corporate Center financing to include One Mall North as collateral, increasing our loan proceeds by $14.5 million. The loan bears interest at LIBOR 1.75% and has an initial maturity in May of 2020, with two one-year extension options. Subsequent to the quarter-end we upsized the Woodlands Master Credit Facility to increase the revolver by $30 million for total facility size of $180 million. The increased capacity will be used to fund the construction of Creekside Park Apartment in the Woodlands. The facility bears interest at LIBOR plus 2.75% and has an initial maturity in April 2020 with the one-year extension option. As of the end of the first quarter, our total consolidated debt to total asset was approximately 43%. And our debt to enterprise value closed the quarter at 38%. From a liquidity perspective, we finished the first quarter with over $541 million of cash on hand. As of the end of the quarter, we have 14 projects in our strategic development segment with anticipated total cost of $2.66 billion. Of that amount, we have previously funded $1.46 billion, leaving $1.2 billion in estimated remaining costs. We expect to meet this obligation with a combination of existing construction loans which have approximately $650 million of committed but undrawn capacity, buyer deposits of approximately $112 million and new construction financing totaling $82 million of which $30 million is closed since the end of the quarter. This leaves a net remaining equity requirement of $353 million. The majority of this amount is tied to the Seaport district for which we’ve not yet obtained construction financing. We expect to fund our remaining equity commitments through a combination of new construction financing, our free cash flow from our operating assets in MPC segment, net proceeds from non-core asset sales and lastly, our existing cash balance. Again, as of the end of the quarter with over $542 million of cash on hand and a net equity requirement of $353 million, we have more than enough cash and liquidity on hand to meet all of our funding commitments without any additional capacity being generated from MPC land sales or our operating properties. Now for closing remarks, I would like to turn the call back over to David.

[David Weinreb:]

Thank you all for joining us today. I would also like to remind everyone that we’re planning our Investor Day on May 17th at the Seaport district in New York City. If you’ve not already done so, please RSVP to reserve your spot. And with that, I will open up the call to Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Craig Bibb with CJS Securities. Please go ahead.

[Larry Solow:]

Hi. Good morning. This is actually Larry Solow calling in for Craig. Just couple of quickies. I know you gave some good detail on Summerlin, just high end sales that remain outstanding there but the superpad sales have sort of flattened out. Can you give us a little color on that? And is your residential strategy at Summerlin continuing to evolve.

[Grant Herlitz:]

This is Grant speaking, Larry. So, I don’t think sells have flattened out at all. But if you look at our results, 2016’s first quarter included a sale to a homebuilder at a much lower price because the infrastructure was taken on -- the responsibility for the infrastructure was taken on by that homebuilder. So, when you’re looking at Q1 2017, we think pricing is very stable and increasing.

[Larry Solow:]

Okay. Can you give us just little more details on the lease up in Downtown Summerlin?

[Grant Herlitz:]

Sure. So, we’ve seen a little fallout from a couple of tenants through bankruptcy; we have several LOIs we’re working as backup to those. We hopefully expect to announce replacement tenants over the course of the year. We’ve seen our sales actually stable at over 550 a foot, which we’re quite happy with. But the way we look at Downtown Summerlin is that it has an amenity to the rest of the master plan and as we’ve said before, we’ve seen residential sales pick up as a result of a core of the downtown being opened. Furthermore, at the office building, we’re around 77% leased today and we have leased that we’re currently in negotiation with that will stabilize the building at over 90%.

[David Weinreb:]

I might add one other thing that would be helpful and that is with the addition of the hockey practice facility and our hope to ultimately move the ball team to Downtown Summerlin, those are all things that are going to further activate the downtown and we expect will be vibrant additions.

[Larry Solow:]

Absolutely. Just switching gears real quick to Hawaii, any color on how the condo sales have been and perhaps a quick update on the presales if the tower is not yet under construction?

[Grant Herlitz:]

So, the only tower that really has presales remaining are Anaha, which has about 13 sales left and Ae’o which is the Whole Foods Tower. That tower’s around 60% sold just over there. We think the sales have been actually quite brisk in that regard; we have seen a little slowdown in sales over the $2 million, $2.5 million number. We delivered Waiea at the end of last year as well as seen closing a lot of the units in the first quarter. We expect to be close with the balance of the units that are under contract by the end of the second quarter or early third quarter.

[David Weinreb:]

It’s worth noting though that Honolulu’s housing market is at a 10-year low with only a three months supply.

[Operator:]

Our next question will come from Steve Shaw with Compass Point. Please go ahead.

[Steve Shaw:]

Hi, guys. What needs to happen to reach the high end of that South Street Seaport NOI range? Is that all negotiated revenue percentages?

[David Weinreb:]

Hey, Steve; it’s David. Look, the South Street Seaport, as we talk through our strategy, we’re very focused on curating the right tenants, not the first tenants and that strategy takes time. We are actively working with multiple prospects for both the Uplands and the Pier, not close enough that we’re comfortable talking about today but we do remain comfortable with our existing guidance. And because of the way we’re structuring deals with upside in many of the businesses, we feel good about the opportunity to hit the higher range, providing sales are strong.

[Grant Herlitz:]

And they’re directly tied to sales per square foot. So, to the extent tenants are performing at higher levels, we’re going to directly benefit from that. So, if you’re looking for an understanding and clarity between the 68% yield on cost that we guided you to, that’s directly correlated to sales per square quarter.

[Steve Shaw:]

Okay. And then, sticking on the timing at the Seaport, subs total project stabilization of 1Q 2021, what’s the driver behind that; is that more of the Uplands or more of the Tin Building.

[David Weinreb:]

Certainly it’s focused on Tin, which probably won’t open till the end of 2019 at this point. We have to take the building down, we have to take the Pier down, we have to reconstruct the Pier et cetera. But we’re expecting the Uplands delivery in 2018 and the curation of tenants to be ongoing. We expect the Tin Building, as I said, mostly likely late 2019. And the Pier building, we’re expecting to see open in the summer of next year.

[Grant Herlitz:]

And other income streams that will take time to stabilize will include sponsorship income as well as event-driven income for the Pier and for the Historic district.

[Steve Shaw:]

Are you guys any closer on the roof sponsorship?

[Grant Herlitz:]

We have a number of people we’re talking to prospects and as soon as we have one signed up, we will announce it.

[Steve Shaw:]

And what is [indiscernible] on that North Wacker lease?

[Grant Herlitz:]

So that we haven’t disclosed the terms of the lease today. We’re really excited about this building and it’s 1.35 million feet in the heart of Chicago; it’s arguably the best development site in Chicago. [Indiscernible] is excited relocate their offices, they are taking a third of the building and the renderings are after in the news. So, we haven’t disclosed either their income or total costs yet. We expect to do that later on during the year as we finalize everything and we put together the final capital structure.

[Steve Shaw:]

Okay. And then, lastly, you guy are reporting some REIT metrics now. I have to ask, what kind of impact does potential tax reform have on your decision to possibly convert to a REIT at some point down the line?

[David Weinreb:]

This is David, Steve. It’s a question that we talk a lot about. Given the built-up NOLs that we have today as well as the embedded cash losses in the some of the non-core assets, we don’t see a near-term impetus that would have us look at a reconversion in the next 24 months. I think as those start to dwindle and we get towards the goal line on getting to the points where we might have to start to pay taxes, I think the current tax environment at that point in time will have a significant impact. In a 40% corporate tax rate environment, our desire to become a REIT would obviously be greater than if there is meaningful tax reform and that rated significantly lower as low as 20% or 15%. And if there is the proposed tax reform of shifting from deducting interest to now deducting capital expenditures, I think that would further disincentivize us from a REIT conversion. We do believe that one of the greatest benefits of having our combined three businesses together is that we’re able to self fund our business plan. We’re not distributing 90% or 95% of our taxable net income, we are able to keep that capital, retain it and put it into great risk-adjusted return opportunities in our development pipeline. And if a REIT would potentially hinder our ability to do that that’s a significant impact, a significant negative that we have the weigh against the benefit of not paying taxes. So it’s something that we evaluate as a management team at the Board constantly, and we’re going to continue to look at as we get more clarity, hopefully in the next couple of quarters on tax reform.

[Operator:]

And the next question will come from Alex Goldfarb of Sandler O’Neill. Please go ahead.

[Alex Goldfarb:]

Hey, good morning. Just first, David, good to see the FFO rolling out, obviously [technical difficulty]. Just a few questions here. You mentioned the closings at Woodland Downtown -- sorry Downtown Summerlin [technical difficulty] Downtown Summerlin with the retail tenant. Can you just give a sense of the overall retail environment and how you’re tackling bankruptcies, is there out of norm, what you guys would normally experience? And if this has caused you to change any of your retail rollout plans as far as the developments go?

[Grant Herlitz:]

Obviously the disruption in the retail business, Alex, is something that we’re watching constantly. I think that one of our strength is underwriting tenant credit. And you can look to the performance of the Woodlands office buildings during the downturn -- see that we had no defaults in any of our office tenant leasing as a result of oil prices dropping significantly and now that they’ve recovered, obviously those tenants are much stronger. On the retail front, our portfolio is really, I don’t want to say insulated because obviously we’re susceptible to tenant bankruptcy but unlike the more REITs or other retailers, the vast majority of our retail portfolio outside of Downtown Summerlin and the Riverwalk is neighborhood retail, which is not being typically affected by the same disruption that’s occurring in the retail markets. On the other hand, as it relates to Alexandria, Virginia, we’ve been able to take advantage of that disruption by acquiring the Macy’s parcel from them which we think will be a huge uptick once we develop final plan for that. So, the Company’s business strategy as David mentioned on the last question of being in both all three segments makes it very strong and able to withstand those types of disruptions.

[Alex Goldfarb:]

And so, when you are down at the seaport, the whole softness in street retail rent, that hasn’t impacted your ability to achieve the rents of your underwriting?

[Grant Herlitz:]

The way to answer that’s a little different. The national retailers have suffered significantly. Our strategy has never been to attract those. From our perspective, attracting F&B, entertainment, sponsorship and event-driven income is the way to drive this asset and make it very valuable asset. People are looking for experienced retail and experienced economy. And I think the South Street Seaport is exactly what we’re going to deliver for them.

[Alex Goldfarb:]

Okay. And then, you mentioned in your MD&A the Summerlin land, I think you said it was a little bit softer, or you’re holding off further land sales. Just a little more color especially because oil got hit probably three plus years ago, so still very curious what’s changed now or maybe I just misunderstood your land comments there?

[Grant Herlitz:]

In regards to Summerlin, the average home sales we’re looking for at a normalized market is around 15,000 units per year for the entire Las Vegas market. Today, we’re at about 7,000. So to the extent, there’s excess land in the hands of builders, we could see a slowdown in sales. That has not occurred today and we see an uptick in home sales, which will translate to land sales, but we just wanted to make sure that the disclosure was out there.

[Alex Goldfarb:]

I thought you were talking about Woodland land or did I confuse that with Summerlin land?

[Grant Herlitz:]

In Summerlin and you mentioned oil, so I wasn’t sure which you were referring.

[Alex Goldfarb:]

Sorry. We had a crazy night of earnings, so I apologize. I meant the Woodlands, I thought you said, you guys were holding off a little bit.

[Grant Herlitz:]

As it relates to Woodlands, we saw an uptick in home sales this quarter. This business is a long-term business; it’s not a quarterly business, you guys know that. And although we did see an uptick in land sales, that hasn’t translated yet into land sales, we expect it will over time as the economy recovers. We do not believe that we should be selling our land at a discount to what we believe it’s worth. So, until such time, as the market recovers to a value in which we believe we should be selling at, we’ll hold that land. There is only X number of lots remaining, a very small amount, it’s very valuable to assets to us and it destroys value by selling.

[Alex Goldfarb:]

Okay. And just a final question, I appreciate your time. The baseball stadium, the AAA team in Summerlin, what is your long-term plans for that team? Is it once you relocate it then sell the team or is there a strategic reason why you would want to maintain, control the team after you’ve been able to relocate it Summerlin?

[Grant Herlitz:]

We own the team today, we’re excited about it potentially moving to downtown Summerlin. I don’t think we have a view on long-term hold. I think that Howard Hughes as one of the -- as the largest private land owner in Las Vegas, it would be an advantage for us to own the team as a giveback to the community. Baseball is a very important part of Las Vegas. And if Howard Hughes can contribute to the community in that way, I think it would be well worth doing. It’s not an integral part of our business, i.e. it doesn’t move the needle that much. And if it doesn’t take that much to operate it and we can deliver back to the community, I think we should be doing that.

[Operator:]

[Operator Instructions] The next question will come from Alex Barron with Housing Research Center. Please go ahead. Please go ahead. Alex, perhaps your line is muted. Your mike is live.

[Alex Barron:]

I was hoping you could discuss a bit on the Hawaii condos, which towers are recognizing revenues at this point? And then, can you give us an update on the Gateway Towers?

[David O’Reilly:]

From a revenue recognition perspective, it’s Waiea, Anaha. Right now, we expect that we’ll start cropping that threshold on the next couple of towers during the remainder of this year. But as of now from a GAAP revenue recognition perspective, it’s just Waiea and Anaha.

[Alex Barron:]

And as it relates to the -- I’m sorry what’s the threshold to start...

[Grant Herlitz:]

It’s a whole complicated structure regarding qualified mortgages, whether that first time or second time home buyers; it’s extent of the criteria. We’re happy to take it on it the side call, if you like and go through with you.

[Alex Barron:]

Okay. And then, on Gateway?

[David Weinreb:]

As to Gateway, and as I’ve reported in past, correspondence, I believe the shareholder letter a couple of years ago, we always expected when we announced that building that the absorption would be slow. As with every residential development, we won’t start until we have enough risk taken off the table. But as noted earlier, it’s worth mentioning again that there is a housing shortage on a Oahu, the population is growing fast. We have the most dominant position in the market and we have great insight into market demand. We have other product that we’re bringing to market later in the year, which we do think is going to speak directly to current market demand, but we still believe in the Gateway project. And we’re taking the buildings down that sit on the land where that will be built in the beginning of the third quarter I think of this year. And we’re going to stay the course and look forward to delivering that building.

[Alex Barron:]

Okay. With Columbia, you guys have a big apartment building going up right now, when would that be expected to deliver?

[Grant Herlitz:]

That’s a joint venture with Kettler; it’s our second building. And we expect to start leasing that actually toward the end of the second quarter of this year.

[Alex Barron:]

Okay. And then, lastly on your -- in Bridgeland, what type of lots are builders buying at this stage, is it mostly low price, entry level type lots or is it across the board?

[Grant Herlitz:]

Well, it’s more moderately priced lots than before, though we did see an uptick in price per lot over the quarter. Bridgeland, now that the 99 has opened the Grand Parkway and we’re putting in the major monument signage, Bridgeland’s turn is now. And we’re in the direct path of growth. We’re really excited about the prospects for that asset over the next number of years. But, it does meet a different segment of the market, and we’re currently meeting that market. As I said, it was more moderately priced. I wouldn’t say -- there are some entry level homes but there’re also step up as well.

[Operator:]

[Operator Instructions] The conference is now concluded. I would like to turn the conference back over to David Weinreb for any closing remarks.

[David Weinreb:]

I just wanted to say thank you again for joining us today. We hope the call was helpful. We also encourage everyone to RSVP for our Investor Day on May 17th. I look forward to seeing you down at the South Street Seaport. And as always, feel free to call myself, Grant or David O’Reilly if you have any questions and want further insight on any of our businesses.

[Operator:]

And thank you, sir. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Take care.