The Howard Hughes Corporation
Q3 2017 Earnings Call Transcript

Published: 7 Nov 2017

[Operator:]

Good morning, and welcome to The Howard Hughes Corporation Third Quarter 2017 Earnings Conference Call. All participants will be in 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 morning, and welcome to The Howard Hughes Corporation's third 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 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 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 third 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 all for joining us today. Welcome to our third quarter 2017 earnings call. I am pleased to report that we had a very productive quarter in our mission to maximize shareholder value. In particular, condo sales at Ward Village were exceptional this quarter. In addition to strong land sales in our Master Planned Communities, an excellent leasing progress in our strategic development segment. In addition, we announced three new development projects, which were the primary drivers in raising our stabilized NOI target by $16.3 million, to $261.5 million, which excludes the Seaport District and the 110 North Wacker redevelopment. In the quarter, we increased NOI in our office, retail, multi-family and hospitality segments, and increased residential land sales in our MPCs when compared to the third quarter of 2016. While demonstrated robust progress, increasing our operating asset NOI from $31.9 million in the third quarter of 2016 to $37.5 million this quarter, an increase of $5.6 million or approximately 18%, we took a small step back when compared with the second quarter of this year. As noted on our last earnings call, we will experience some level of volatility in our quarterly operating income from time to time, as we take buildings offline to prepare for redevelopment and for various other reasons, including the impact of seasonality at our hospitality assets. As mentioned, our third quarter operating NOI was down by approximately $1.5 million from $39 million in the second quarter to $37.5 million this quarter. This decline was largely driven by a reduction in NOI at our Houston hospitality assets, especially The Woodlands Resort & Conference Center. This was a function of the seasonality of that market and was something we fully anticipated. There were also lower revenues from 110 North Wacker and Ward Village as we terminated existing leases to redevelop these properties into their highest and best use. This decrease in quarterly NOI reduces the third quarter annualized NOI from a $159.5 million to $153.4 million as the effects of the seasonal decline are magnified when annualized. Driven by strong sales in both Summerlin and Bridgeland, we increased total revenue in our MPC segment this quarter compared to the third quarter of 2016. We continue to be impressed by the year over year results accomplished by our team in Bridgeland and believe it will only continue to improve as we execute on our plan and vision for the community. Summerlin will deliver its fifth consecutive year with land sales of more than $100 million, an incredible accomplishment by the team in Las Vegas that demonstrates Summerlin's dominant position in that market. In our strategic development segment, we continue to see strong demand for residences at Ward Village. During the quarter, we sold more homes than we ever have in any quarter without the launch of a new building. With both Waiea and Anaha delivered, we believe that this is a testament to the neighborhood that is coming to life, as well as the strength of the market, the critical shortage of housing on Oahu. And the talented local team we have assembled on the ground in Honolulu. The 52 new homes we contracted to sell during the quarter, brings our total sales count to 1,227 or 89% of the 1,381 available residences in our four current projects under construction. We are also very pleased to report that in October we began closing our first homes in our second residential building at Anaha, and have paid off the remaining $195 million construction debt associated with both Anaha and Waiea. Despite the fact that we sold the largest number of homes without a launch, we saw total condo revenue decrease $1.6 million. And our condo net income decrease by $4.9 million, compared to the third quarter last year. This was the result of a decline in revenues and net income from Waiea and Anaha, which had the majority of their revenues reported in prior periods. The decline in revenues was mitigated by increases in revenues at Ae`o and Ke Kilohana, our workforce housing project. Due to the product type, the expected margins on these margins are lower than what we achieved on Waiea and Anaha. It is important to note that you will see these margins vary time to time, depending upon the various attributes of the product selling during any given period, such as building location, distance from the ocean, views, amenities, finished levels, et cetera. For example, workforce housing developments such as Ke Kilohana will almost always have the lowest returns, while homes nearest the ocean with the highest-level finishes like Waiea will generally have the highest margins. At Waiea 165 of the 174 homes are either closed or under contract. This represents 95% of the residences. 158 had closed as of October 18. The retail component is 100% leased to Nobu. Anaha, which started welcoming residents just weeks ago, had a 144 homes closed in our first bulk closing in mid-October. And we expect another 161 to close during the fourth quarter. As I mentioned earlier, the closings of the sold homes paid off the construction loans' outstanding balance of $195 million. As of September 30, 307 of the 317 homes, had either closed or were under contract. This represents 97% of the residences. The buildings' architecture is stunning, and it is a transformational addition to both Ward Village and the city of Honolulu Skyline. Ae`o, our third building and home of the future flagship Whole Foods for the state of Hawaii was responsible for the majority of the homes sold this quarter, with 46 residences sold, bringing total sales to 367 or 79% of the 466 available residences. The project is approximately 50% complete and we anticipate delivering the building by the end of 2018. Ke Kilohana is made up of 375 workforce housing residences, which were 100% sold out, and 49 market rate homes. We have sold 13 of the 49 market rate homes as of September 30, which is in line with our expectations, given that the building will not be delivered until 2019. It is approximately 27% complete. Our next residential project A'ali'i is slated to launch sales this quarter. It will contain approximately 751 homes, and will fill a niche, where we believe strong demand exists in this market. This represents the combination of several year spend studying the most innovative residential product around the world to create a luxurious turnkey solution for our customers that does not exist in Hawai'i. The homes are designed to maximize space, efficiency and optionality with furniture, accessories and more all selected for a residence. As I sated last quarter, Ward Village is becoming the new center of Honolulu. And we could not be more pleased about the prospects for this incredible neighborhood. We are now at a point, where we've reached critical mass with both Waiea and Anaha delivered, Nobu open, Whole Foods opening early next year, and consolidated theater completing a major innovation. And we're only about one quarter of the way through our entitlements. This neighborhood will only continue to become more vibrant as more residence move in and additional stores in restaurants open. As a result, Ward Village has clearly differentiated itself, as the place where people want to live, work and play in Honolulu. And I believe that are continued sales progress is a validation of that. Moving to Summerlin, we announced last month the development of a new ballpark in Downtown Summerlin for the Las Vegas 51s professional baseball team, which we now fully owned. The Las Vegas Convention and Visitor's Authority approved the naming rights agreement, the terms of which we require the LVCVA to pay $4 million per year, for 20 years for a total of $80 million. The agreement is a tremendous step forward in getting this stadium built. The ballpark will continue Downtown Summerlin's momentum and further distinguish our community in the region. The new ballpark is truly a win-win situation. It is good for baseball, Las Vegas and for Downtown Summerlin. We believe that this new state-of-the-art ballpark will add substantial value to all of Summerlin, while bringing a great new amenity to the community. We're beginning to see the vision for the eastern part of Downtown Summerlin, become a reality. Last quarter, we opened the new state-of-the-art NHL practice facility. Today, we are able to talk about the new baseball stadium, a new 145,000 square foot office building to Summerlin as well as a new 267 unit multifamily development in Downtown Summerlin that commenced construction this quarter. At the Seaport District, we were pleased to announce that we've entered into a broadcast studio lease for 19,000 square feet at Pier 17, where ESPN will begin broadcasting multiple daily shows next spring. They will broadcast both live and reported shows along with radio, radio on TV, news and social segments. One notable benefit of the lease is that ESPN will mention once per show that they are hosting their shows at the Seaport, which gives a meaningful recognition to the brand value of the Seaport, and the vision for this tremendous iconic asset particularly as it relates to sponsorship. In addition, for all shows produce from the Seaport District, ESPN will show one scenic shot of the Seaport. The studio space will have dramatic views of the Brooklyn Bridge and East River, and be among the most dynamic studio spaces in the country. The studios give ESPN a flexible facility with indoor and outdoor broadcasting capabilities. They will bring a new dimension of entertainment to the neighborhood. And we'll further enhance the experience for visitors to the Seaport. We continue to see strong demand among companies to use the Seaport's event space, particularly among fashion brands. Last month, we welcome more than 800 people to Pier 17 for the Louis Vuitton exhibition event. This is the first event at Pier 17 since completing the building. Finally, as we obtained requisite approvals, we began demolition on the Tin Building, where Jean-Georges will create an unmatched food hall totaling more than 50,000 square feet. Worth noting, Houston was hard hit by Hurricane Harvey. Our hearts go out to the people there that suffered and continue to be impacted by the storm. We allowed hundreds of first responders, electrical line repair people and employees of our tenants, who were affected by the storm the use of our hotel rooms and apartments during the weeks following the storm. Many of our employees pitched in physically to assist the community where possible. I am extremely proud of our company's response to this natural disaster. In addition, between the company and our employees, we contributed $150,000 to the recovery efforts. Houston is resilient, and the Houston Astros World Series victory is evidence of this city's will to succeed. With that, I'll now turn the call over to Grant to discuss the details of our operational results.

[Grant Herlitz:]

Thank you, David. I want to echo David's sentiment about how the company and our employees responded to the storm, it was very impressive. From an operating standpoint, all of our emergency planning has prepared us and the response was extremely well-organized. We were fortunate that none of our operating assets were materially affected by the flooding. Like David, I'm very proud of our people. Now, I'd like to move on to the details driving the recent results in our operating 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, we increased total revenues to $64.9 million this quarter, an increase of $12.2 million compared to the third quarter of 2016. The increase was driven largely by Summerlin residential land sales along with the continued strength of sales in Bridgeland. At Summerlin, we continue to experience solid demand for residential land. Residential land sales for the quarter totaled 57.7 acres compared to 31.7 acres for the third quarter of 2016, an 82% increase. The price per acre increase from $521,000 to $546,000 quarter-over-quarter. Summerlin had 266 new home sales during the quarter. This compares with 195 during the same quarter of 2016, a 36.4% increase. In addition, the median new home price increased 5.2% to $548,000 from $521,000. The Summit, our joint venture with Discovery Land Company in Summerlin includes 260 units made up of 146 custom lots and 114 planned dwelling units. Since the joint venture started closing lots in the second quarter of 2016, 71 lots have closed for a total of $220 million. For the first nine months of 2017, we had a 11 custom home lots closed for $34.9 million, this compares with 38 lots for $119.8 million during the same period in 2016. The significant number of lot closings in 2016 was due to a backlog of sales contract executed between the second quarter of 2015, and the second quarter of 2016 when land development activities were complete on the first phase of the project. We're pleased with the fact that we have closed in excess of one custom lot per month so far this year, and have 14 lots under contract were just under $51 million as of September 30. In Bridgeland, we continue to see accelerated velocity of home sales, which has translated into continued demand for our land from homebuilders. In the third quarter, there were 92 new home sales compared to 74 in the third quarter last year, representing an increase of approximately 24%. For the three months period ending September 30, Bridgeland sold 17.5 residential acres compared to 12.2 for the same time period in 2016, representing a 43% increase. We average $369,000 per acre during the third quarter compared to $384,000 per acre during the third quarter of 2016, a 3.9% decrease. This decrease was primarily due to the mix of lots sold during these periods. During the third quarter, the median new home price in Bridgeland increased 20% from $308,000 to $370,000. The increase in median home price is also largely due to the mix of homes that sold during the period. According to our surveys, there are 81 spec homes on the market as of October 18, 2017, which is approximately a three-month supply based on current absorption rates. Continuing in Houston, we saw strong uptick at The Woodlands in the sale of new homes. There were 88 new home sales during the third quarter of 2017, compared to 62 in the same period of 2016, a 42% increase. The median new home price decreased from $578,000 to $450,000 for the quarter compared to last year. Once again, this is a sales mix issue and reflects the high absorption of mid-priced homes in 2017. According to our in-house research, as of October 18, 2017, we estimate that there were 72 spec homes available for all builders in The Woodlands, which is approximately a three months' supply based on current estimated 2017 absorption levels. We are cautiously optimistic that the return to more normalized supply levels could be an early indication of a potential return in demand for our residential land in The Woodlands at acceptable valuations. For the three months period ending September 30, The Woodlands sold 11.1 residential acres, compared to 19.9 during the same period last year. The average price per residential acre increased to $675,000 for the quarter, compared to $532,000 in 2016. This represented a 27% increase. The increase is attributable to the mix of lots sold. In this case, we sold more lots of single-family attached homes in the upscale East Shore neighborhood. As of September 30, there were 307 residential lots under contract in The Woodlands, of which 73 are scheduled to close in fourth quarter for a total of $11.6 million. Turning to our operating asset segment, we increased our third quarter NOI $5.6 million from $31.9 million in 2016 to $37.5 million in 2017. This was a 17.6% increase. In just our unstabilized operating assets, we signed approximately 66,000 square feet of office and 76,000 square feet of retail leases during the quarter, bringing the percent leased from 59% to 65%, and 85% to 93% respectively as of September 30. We also saw improvement in leasing in both our multi-family and self-storage assets, leasing 32 net apartments and 196 net self-storage units during the quarter. More importantly, effective rents in multi-family have begun to increase and we are hopeful that these assets are on their way to stabilizing at their pro-forma income levels in the near future. For the third quarter, we experienced an approximately $2.8 million increase in NOI, compared to the third quarter of last year from our hospitality portfolio. This was due to the ongoing stabilization of the Westin, the reaching of stabilization at the Embassy Suites, and better performance at The Woodlands Resort & Conference Center. We also saw approximately $1.6 million of improvement from our Hughes Landing office buildings and approximately $650,000 from our multi-family portfolio, as they progress towards stabilization. These gains were partially offset by lower NOI at 110 North Wacker and Ward Village. As we reported last quarter, 110 North Wacker's decline was due to our triggering of the termination of GGP's lease as a full-building tenant. This termination is the first step toward long-term value creation as we intend to start demolition and construction early next year on what will be a 1.35 million square foot trophy Class A office tower anchored by Bank of America. At Ward Village, the $303,000 reduction in NOI was largely the result of the acceleration of our long-term master plan. In August, we closed Ward Warehouse, 115,000 square foot retail center. This was done in anticipation of it being demolished to create a central dynamic public space, provide sightlines to the ocean from across the property and prepare the site for further development. Although, it's officially shut down in August, the income from this property has been tapering off over the last several months as tenants have moved out. Fortunately, we have been able to relocate many of these tenants that were displaced by the closing of Ward Warehouse within the balance of Ward Village. While the demolition of these retail buildings at Ward and the temporary loss of income at 110 North Wacker have and will continue to have a negative impact on our NOI in the short-term, these decisions are unequivocally a driver of long-term value creation for our shareholders. In our Retail segment, Downtown Summerlin had strong performance during the quarter compared to the same period last year, with an increase of NOI of $329,000. I'm also very happy to report that we back filled the two large vacancies that we had in Downtown Summerlin due the bankruptcies with Golfsmith and The Sports Authority with the PGA Superstore in Bed, Bath and beyond. This is a testament to the location and quality of Downtown Summerlin. Also, I'm delighted to tell you that Crate & Barrel will open a new store prior to the holiday season this fourth quarter. As David mentioned, we have commenced construction on a 267 unit multifamily project in Downtown Summerlin. The project is estimated to cost approximately $59.3 million and is being close to generating another 7% yield on cost excluding land. We also will begin construction on a new office building in Downtown Columbia in Three Merriweather, the building will be a 12-story Class A office that as of the beginning of this month, which is 50% pre-leased to a major corporate tenant. This development will continue to transformation of Downtown Columbia into a truly unique live, work, play neighborhood. Finally, I'd like to share few words about the Houston economy, and how well The Woodlands is performing in contrast to the market in general. Despite oil trading around $54 per barrel, Houston actually created 45,300 jobs between May of 2016 and May of 2017, according to the [U.S. Bureau of Real Estate Statistics] [ph]. And according to Colliers International second quarter office market snapshot, The Woodlands had been a bright spot among Houston officer submarkets during the past several years. While most of the other submarkets have seen rising bankruptcy at negative net absorption, The Woodlands had experienced quite the opposite. Colliers said that during the second quarter of 2017 The Woodlands average vacancy rate decreased by 50 basis points to 11.9%, including subleased space. They further reported leasing activity remain steady and net absorption positive. This third-party verification of what we see in our portfolio attests to the fact that our strategy with MPC is working. And that while we enjoy outsized returns developing in this community during strong market, the control that we maintained limits our downside risk at the same time. With that said, I'll 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 turn to our current leverage and liquidity metrics. Finally, I'd like to spend a few minutes discussing the recent activity with regard to our management warrants. I hope you have been able to review our supplemental package filed yesterday, which contains details of our financial and operational results. We completed the third quarter with GAAP earnings per diluted share of $0.24 as compared to $0.19 for the third quarter 2016, and $0.45 for the nine months ended September 30, 2017 compared to $3.72 for the same period of 2016. NAREIT defined FFO per diluted share was a $1.05 for the quarter as compared to a $1.54 for the third quarter 2016. Core FFO was $60.1 million or $1.39 per diluted share, a decrease of $2.8 million or $0.08 per diluted share compared to the third quarter of 2016. This decrease was primarily driven by a decline in condominium rights and unit sales of approximately $4.9 million, which was partially offset by an operating asset NOI increased of approximately $5.6 million, and an MPC segment earnings increase of approximately $928,000. During the quarter, we modified and extended our $311.8 million Downtown Summerlin facility simultaneous with a $30 million principal payment on the loan. The current amount outstanding has been reduced to $275.9 million, and the interest rate was reduced from LIBOR plus 2.25% to LIBOR plus 2.15% and now has a maturity date of September 2020 with one, one-year extension option. Also in August, we closed on $11.6 million construction loan for Kewalo Harbor, which is adjacent to Ward Village. The improvements to the harbor will benefit both our residence and the community at large. The loan bears interest at one-month LIBOR plus 2.75% with a maturity of September 2027. In Columbia, the first tranche of $48 million of the $90 million Howard County tax increment financing or TIF closed on October 16. The TIF will provide for a variety of infrastructure improvements to the Merriweather District in Downtown Columbia paving the way for the development of 4.9 million square feet of entitlements. On October 19, we closed on a construction loan totaling $64.6 million for two projects in Summerlin, the Aristocrat Technology's building and the two Summerlin office building. The loan bears interest at Wall Street Journal Prime plus 40 basis points, which today and taking into a consideration the interest rate forward equates to approximately 4.65%. On October 24, we exercise our one-year extension option on our $54.3 million outlet collection at Riverwalk facility, which extended the maturity to October 2018. As of the end of the first quarter, our total consolidated debt to total assets was approximately 44%. And our net debt to enterprise value closed the quarter at 29%. From a liquidity perspective, we finished the quarter with over $601 million of cash on hand, as of September 30, we had 15 projects on our Strategic Development segment with anticipated total cost of $2.74 billion. Of that amount, we have previously funded $1.78 billion leaving $962 million in estimated remaining cost. We expect to meet this obligation with a combination of existing construction loans, which at quarter-end had approximately $556 million of committed, but undrawn capacity, with condo buyer deposits of approximately $46 million and with the construction financing for the Summerlin office buildings that closed subsequent to quarter end totaling $64.6 million. That leads a net remaining equity requirement of $296 million. The majority of this amount is tied to the Seaport District, which we have 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 and MPC segments, net proceeds from non-core asset sales and lastly our existing cash balance. Again, as of the end of the second quarter, with over $601 million of cash on hand and net equity requirements of $296 million, we have enough cash and liquidity on hand to meet all of our funding commitments without any additional cash being generated from MPC land sales or our operating properties. As you know, David Weinreb represented into a new employment agreement with the company for another 10 years as our CEO. In addition, he made a payment of $50 million to the company to complete his market value acquisition of almost 2 million warrant. The strike price is $124.64 with a term of six years. The warrants cannot be sold or hedge for five years except in the case of a change of control in the company. David do not sell any of his own shares to fund this purchase and agreed to hold a minimum of over 400,000 shares in addition to the warrants for at least five years. This is an incredible show of his faith and confidence in HHC, and further aligns his interest with those of our shareholders. Also, as we disclosed on October 5, the company entered into a new employment agreement with our President, Grant Herlitz for Chairman of 10 years. Grant completed the fair market value acquisition of 87,951 warrants with a strike price of $117.01 in a tem of six years by paying $2 million to the company. He cannot sell or hedge the warrants for five years, except an event of a change of control in the company. Like David, Grant interests are completely aligned with our shareholders. David's $50 million payment is reflected in the additional paid in capital account as of September 30, and Grant's $2 million payment will be reflected in the fourth quarter. With that, I'll now turn the call back over to David for closing remarks.

[David Weinreb:]

Thank you, David. As you can see we had another quarter of excellent results. Having said that, we are never satisfied and will continue our quest to unlock value across our portfolio and create long-term value for our shareholders. Thank you again for joining us today. With that, I'll open up the call to Q&A.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Craig Bibb with CJS Securities. Please go ahead.

[Craig Bibb:]

Hi, guys, so another very solid quarter for land sales even with the hurricane. It sounded like from Grant's comments that if you're at - new home inventory is about three months at both of the Houston MPCs. Is that the tipping point where you might see an acceleration of land sales in - or is it two months or what do we have to get before land sales pick up as builders get ready to add…

[David Weinreb:]

I think at - well, thank you, Craig. I think at the end of the day The Woodlands and Bridgeland are marching along at a pace that we're comfortable with, given where the economy is and where the Houston market is in general. And, what we're looking for in 2018 is a pick-up in that market and we expect sales to pick up as well as land sales for Bridgeland as that MPC begins to hit its stride and growth throughout the Houston market expands northwest. So, I think you'll look to see a better year in 2018 as the housing market recovers, as Houston recovers and as home sales increase. As a result, we think from Hurricane Harvey there will be increased demand for new homes.

[Craig Bibb:]

You think you could be run-rating at over 100 acres per year at Bridgeland next year?

[David Weinreb:]

That really depends on the mix of lots. We think - it's hard to predict in terms of number of acres. What we're seeing is a consistent increase in number of lot sales as builders take them down. So, look to see the predictions coming in the first, second and third quarter of next year.

[Craig Bibb:]

Okay. And then you're getting ready to kick off sales in Woodland Hills. What kind of feedback are you getting from builders as that gets ready to launch.

[David Weinreb:]

Actually, very good and thanks for asking that. We have a groundbreaking there next week and we expect to have some lot takedowns before the end of the quarter.

[Craig Bibb:]

Okay. And then, just you guys had the ESPN lease news during the quarter, nothing incremental from a lease standpoint on the Q3 report. Can you give us just forward look for leasing activity in Q4 at the Seaport and maybe 110 North Wacker and what might get done before the end of the year?

[David O'Reilly:]

Hi, it's David. Thanks for your questions. And as it relates to the Seaport, ESPN was the combination of several quarters' worth of efforts. As a matter of fact, we had been hoping originally to announce it at our Investor Day, so that gives you the concept of how long it takes to get some of these complex deals done? We specifically wanted to get ESPN done prior to moving ahead with other things that are working because of its importance in our minds to our long-term vision. On a standalone basis, that deal is at the highest end of our expectations form a return standpoint, rate standpoint. And so, while we're not changing expectations, we're very, very pleased with that. And certainly, should expect some additional announcements to be coming hopefully before the end of the year, and if not, early into next year. But we're very pleased with where we are with the short and intermediate and certainly long-term vision and have great confidence that the Seaport will meet, hopefully far exceed our expectations.

[Craig Bibb:]

Okay, and well - go ahead.

[David Weinreb:]

Yeah, Craig, as it relates to 110 Wacker, we expect to start demo in Q1 of 2018. The building will open in Q4 of 2020, which is 2.5 years of construction and stabilizing three years thereafter. As far as the tenant prospect log goes, it's very healthy, a lot of nationally recognized tenants very active in that market. We have a good representation there with CBRE as our broker in the market and so we expect to announce deals in at least in the coming year.

[Craig Bibb:]

At least in the coming year, but not before year-end and not necessarily before you go vertical?

[David Weinreb:]

Probably not I would say.

[David O'Reilly:]

And I would just say that in this case patience is a virtue. We're building the best building to ever be built in that market. We're talking to the most important tenants in the market that are circling the few buildings that are being built. And again, we have strong confidence in the product that we're building and the fact that we have a long, long runway until that building is going to be finished and we'll be ready to receive tenants.

[Craig Bibb:]

Okay. And the last question. There is a $150 million estimate for the ballpark at Downtown Summerlin, does that include land, and at what value per acre? And maybe, just if you could explain to us how you look at ROIC with an investment of that size?

[David Weinreb:]

Yeah, so let me answer that, Craig. There is no cost of $150 million, that speculation, we're still working through our preliminary design drawings and working on the estimate of costs and as soon as we finalized our costs. We'll let you know what those are. But we will pay for the stadium. We think the deal with the LVCVA is an excellent deal and a unique deal, and really paves the way for the stadium to get built. It's an amenity to the community and that's the most important part of this deal. Just like when we opened Downtown Summerlin, our land values increased substantially as a result of that. When we open the ballpark the same will be true for that community. I mean, at the end of the day this is 22,500 acres. And a stadium is a small part of that.

[Craig Bibb:]

Okay. All right, thanks a lot guys.

[David Weinreb:]

You're most welcome.

[David O'Reilly:]

Yeah.

[Operator:]

The next question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead.

[Alexander Goldfarb:]

Hey, good morning. Good morning, down there.

[David Weinreb:]

Good morning.

[Alexander Goldfarb:]

Good morning, just a few questions here. First, just looking holistically at your - at the land business, the housing business, let's say the tax policy is passed and it's just the $0.5 million mortgage deduction. How would you characterize the bulk of your homes sales? Do you think most would fall within that $0.5 million mortgage deduction or do you think that there is a sizeable amount that would exceed that, and therefore, there could be a potential for any impact to housing whether Hawai'i or down in the Summerlin or Texas. And we'll leave the premium lots in Summerlin out of the equation. Clearly, they're in a different league?

[Grant Herlitz:]

Yeah, I would say the majority are going to trade under that in terms of home sales. If you expect, you're mortgaging 80% of the home in your lot sell price is obviously less than that. So, we expect to be out of that range, but we're not predicting tax policy or tax reform at all. So, I think at the end of the day, we don't believe, we'll have an effect on our lots.

[Alexander Goldfarb:]

Okay. Okay. And then as far as Houston goes with the communities back with Bridgeland and Woodlands. Is everything sort of back to normal and that when you guys report fourth quarter, we should see a normalization of land sales and operating NOI or is there still some whether it's business interruption, insurance or some depressed land sales or anything like that, while, we still see some carryover? Just trying to get a sense for how quickly everything is back to normal or maybe even an uptick just because of how the community is performed versus any sort of lingering impact?

[Grant Herlitz:]

Yeah, I think, from an operating asset standpoint, the only asset that really had any damage at all is Woodland Village, and Bridgeland, and there was very minor. So, there's a little bit of business interruption insurance as a result of that all tenants are back out to an operating, we don't expect to see any termination of decrease in operating asset NOI throughout the properties. At the end of the day, I think, Houston is an amazing city that's made a tremendous recovery from Hurricane Harvey, that's tremendous - there is a lot of work still to do for the community repeat back together. Our assets were really unaffected by it and we expect home sales to as I said earlier to March long. This is a significant anecdotal evidence that sales officers have customers are planning to buy new home, when the insurance of proceeds come through. And my as research recently looked at flood data from 1990 to 2016, in the term that shortly following those events, in Houston there has been increased sales and pricing except where there has been overlay of something major set to the national recession or major oil price decline.

[Alexander Goldfarb:]

Okay, okay. And then just David going back to the ESPN lease, you guys obviously put a lot of effort into that given - you would hope to do that back in May. Has that the reaction is you speak to other tenants whether it's for the remaining restaurants or the office has that leased changed the reception or the interest level from prospects or the prospects that you're speaking to now or pretty much to what you expected earlier in the year, when you're negotiating the finalize ESPN for the remaining office and restaurants?

[David Weinreb:]

Look, it certainly have very positive reaction from everyone we've been talking to, but the real estate that is paving away is the completions of the building. The Pier building is one of those buildings that just needed to be completed and there isn't one tool that complete that I know, at least, in the last several months. Where people don't leave feeling that they didn't completely understand the magnitude of what we were undertaking on the warrant. And that is out surprised their expectation. So, as I said, we feel very good about the direction that we're having, and we feel ultimately that the announcements that will follow over the coming quarters, you and other people that are following us and investing with us will be very pleased with it.

[Alexander Goldfarb:]

Okay. And then just final question maybe for David O'Reilly, the $4 million a year for 20 years on the Las Vegas 51s, was that a payment that you guys were receiving or that was you guys making a payment to someone else?

[David O'Reilly:]

No. That's a payment that we're going to be receiving annually and sponsorship income associated with the naming rights of the stadium.

[Alexander Goldfarb:]

Got it. Got it. Okay, okay. Thank you.

[Operator:]

The next question comes from Waheed Khorsand with BWS Financial. Please go ahead.

[Waheed Khorsand:]

Hi, first question looking at your supplemental on lease expirations. Can you provide a little bit more detail on the 2017 and then on the 2018, if you have any sense of where that is, has any of that fallen in the first quarter?

[David Weinreb:]

Well, in Houston there is very little lease exploration. And I think this is - and we're looking at the phase, but there is not much - there is no real significant tenant exploration that come due in the first quarter or throughout 2018 at all.

[Waheed Khorsand:]

Okay. And then, going back to your land sales, you were mentioning that the spec homes, the three-month supply is fairly good supply. Is that in turn going to produce some type of increase in profit margin on future sales?

[David Weinreb:]

Well, we try to move our pricing along at a fair level with our builders. If you look back over a number of years, we started an auction bid process where we doubled lot prices in Houston between 2013 and 2015. And since then those prices have come down a little as a result of the recession in Houston. But following that trough, prices have started moving back upward. So, we see this as more of a normalized market. Houston is a normalized market. In Summerlin, the same is true where we started, where pricing started moving upward beginning in 2011 and has continued at the same, almost linear trajectory.

[Waheed Khorsand:]

Fair enough. And then, maybe for some, a little bit of speculation here. Do you see yourself getting into the mix with the Raiders coming into Las Vegas and getting their practice facility?

[David O'Reilly:]

Well, it's an interesting question. The Raiders are busy, continuing to scout the market to look for the best place for their new home. But there is certainly, nothing to report and I think that's all on the matter, although they are moving dirt on their stadium and we do expect that a number of their players will be living Summerlin, that I can tell you with certainty, particular at the summer.

[Waheed Khorsand:]

Okay, thank you.

[Operator:]

[Operator Instructions] The next question comes from Alex Barron with Housing Research Center. Please go ahead.

[Alex Barron:]

Hey, guys, congrats on all the progress.

[David Weinreb:]

Thank you.

[Alex Barron:]

I was just hoping you can help me with some expected timings on when some of these projects are going to start closing or producing some revenue. So, can you give us an updated timing South Street Seaport, when the next tower in Hawaii is going to close, on Columbia, how - when your first office and apartment building or - I guess, the next apartment building is going to be done and then in Bridgeland, I know you guys started like a small retail shopping center? Sorry it's a long list, but just kind of curious on where you are.

[David Weinreb:]

So, we'll just go west to east and make life easy. But the first, we closed Anaha units in the fourth quarter, beginning of the fourth quarter. We expect to close the balance of those units by the end of the year. We are launching pre-sales of our newest tower A'ali'i in the next couple of weeks, which we expect will be huge success at 751 units of residential sitting right next to Ae`o, which is under construction and we expect to deliver in the first quarter of 2019. In Summerlin, we have the Aristocrat Technologies, which should be done in the next 12 months, Two Summerlin which should be done in - should be completed construction in probably 15 months and stabilized by 2020. If you look to Page 16 of our supplemental you can see the construction start date, as well as stabilized dates of each of the buildings. In Houston, we have freestyle apartments that are under construction as well as in Bridgeland we will begin multi-family construction probably in the first quarter of next quarter. Moving to Columbia, Three Merriweather has begun is about to start construction. we leased 50% of the building to a tenant, which we're very excited about. The material tenant for their project, and will, hopefully add value to or attract other tenants to the project as a result of the industry that they're in that we're targeting. And we also have a 267 unit - I'm sorry, multi-family project that will start in the first quarter of next year, and then lastly, David, to you the Seaport if you want to answer that.

[David O'Reilly:]

We expect stabilization on the Seaport to be in 2021 and essentially between the summer of next year and that period, we'll be opening various things until that stabilization of that.

[Alex Barron:]

Got it. Thanks so much.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over David Weinreb for any closing remarks.

[David Weinreb:]

Thank you for that. And thank you again for joining us. We hope that the call has been informative. And as always, we are available by phone to be helpful and to answer any questions you have at any time. Look forward to speaking to each of you again, if not sooner, on our next quarterly call. Bye for now.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.