Howard Hughes Holdings Inc (HHH) 2017 Q2 法說會逐字稿

Good morning, and welcome to The Howard Hughes Corporation Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to David Striph, Executive Vice President, Investor Relations.

Please go ahead.

Good morning, and welcome to The Howard Hughes Corporation's Second 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 second 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 second 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 Wienreb.

Thank you, Dave, and thank you all for joining us today.

Welcome to our second quarter 2017 earnings call.

I am pleased to report today that during the second quarter, we continued to make substantial progress throughout our portfolio in our mission to maximize shareholder value.

We have seen strong performance in condominium sales at Ward Village, robust land sales in our master-planned communities, continued improvement in our hospitality sector and leasing progress in our Strategic Development segment.

We have increased revenues in each of our business segments this quarter compared with the same period last year as we continue to make progress in unlocking value within our portfolio.

We will create some level of short-term volatility in our operating income to accomplish our goals from time to time.

This quarter was a good example of that.

While we demonstrated strong progress on a year-over-year basis, we took a small, temporary step back when viewed on a sequential quarter basis.

Our second quarter annualized operating asset NOI now stands at $160 million, a slight decrease from last quarter.

The sequential decline from Q1 to Q2 was driven by the timing of certain expenses at the Seaport District as well as our long-term, steadfast commitment to value creation at both Ward Village, where we are terminating retail leases to create a dynamic central park, and 110 North Wacker, where we are terminating our full building user to allow for the redevelopment of the property.

This is clearly in our shareholders' long-term interest to forego existing rental income and redevelop where the asset, as is, is not the highest and best use of the land.

We are confident that the income generated after redevelopment of these assets will eclipse the income we were previously generating, and that it is worth enduring a short-term decline for a long-term gain.

This is an example of our relentless focus on long-term value creation.

In our MPC segment, we increased total revenues this quarter compared to the second quarter of 2016.

The increase was driven by the continued strength of Bridgeland land sales and a modest return of land sales in the Woodlands.

We continue to be encouraged by the results in Bridgeland and believe that this community is truly beginning to come into its own.

In addition, we anticipate that Summerlin will deliver its fifth consecutive year with sales of more than $100 million.

In our strategic development segment, we have seen continued robust demand at Ward Village, where we sold 35 new homes during the quarter, bringing us to total sales of 1,175 units or 85% of the 1,381 available residences in our 4 current projects under construction.

We saw total revenues increase $23 million compared to the second quarter last year, while our condominium net income declined approximately $3 million over the same period.

This reduction in margin was driven by the mix of buildings and units where we recognized revenue in the respective periods.

In 2016, the vast majority of our revenue was recognized at Waiea, where we have achieved the highest margins to date.

This quarter, we recognized more revenue at Ae'o, Ke Kilohana and Anaha, where our margins have been at or above our projections, but at a lower level than Waiea.

With that said, we remain on pace to realize an approximately 30% margin, excluding land, across our existing 4 towers in Ward Village and our market rate condominium developments.

At Waiea, we have 165 of the 174 homes under contract, which represents 95% of the residences, and have closed on 156 of them.

The retail component is 100% leased to Nobu.

We welcomed our first residents this past November.

We expect to complete Anaha, our second building at Ward, in the fourth quarter of this year.

We had previously reported that we anticipated substantial completion of the project in the third quarter, but have adjusted this timing by 1 month to provide our owners with the ultimate closing and move-in experience.

As of June 30, we had 302 of the 317 homes under contract.

This represents 95% of the units.

Ae'o, our third building and home of the future flagship Whole Foods in the state of Hawaii, has generated very strong demand.

We sold 32 homes this quarter, bringing total sales to 321 homes, or 69% of the 466 available residences.

The building is approximately 1/3 complete, and we anticipate completion by the end of 2018.

With regard to Ke Kilohana, as we reported last quarter, the workforce housing component of the project, which accounts for 375 of the 424 residences, is 100% sold out.

We had sold 12 of the 49 market rate homes as of June 30, which is in line with our expectations on pace, given that the building will not deliver until 2019.

Ward Village is well on its way to becoming the new center of Honolulu, and we could not be more excited about the prospects for this one-of-a-kind community.

We are now at a point where we are reaching critical mass with Waiea complete, Nobu open, Anaha opening in the coming months, Whole Foods opening early next year and Consolidated Theatres completing a major renovation.

And we are only about 1/4 of the way through our entitlements.

This neighborhood will only get stronger and stronger as more residents move in and additional retailers open.

It is getting more and more difficult for other developers and projects to compete with Ward Village, as the community is where people want to live, work and play in Honolulu.

And I believe that our continued sales progress validates our strategy.

In Summerlin, we commenced construction on 180,000 square foot build-to-suit corporate campus for Aristocrat Technologies, a worldwide leader in gaming solutions.

Total development costs are anticipated to be approximately $46.6 million, and we expect stabilized NOI of $4.1 million, generating a 9% return on cost.

The campus will include 2 90,000 square foot office buildings on 12 acres and is 100% leased to Aristocrat.

It is located approximately 4 miles from Downtown Summerlin.

We are delighted to welcome Aristocrat to our community.

We were also very happy to announce that we were able to commence construction on another new strategic development in Downtown Summerlin that will raise the bar on our stabilized NOI yet again.

The project will be a 152,000 square foot Class A office building on 4 acres.

Estimated development costs are $48.3 million, and we anticipate stabilized NOI of approximately $3.5 million for a return on cost of over 7%.

We expect to have this building complete in the third quarter of 2018, and we are currently seeking financing on this development.

This is the first office project in our remaining 200-acre master parcel in Downtown Summerlin and adjacent to the new NHL practice facility that will be open later this month.

This is another positive step forward for realization of value creation through the development of what we have master planned to be approximately 1.2 million square feet of office, 77,000 square feet of neighborhood retail and 4,000 residential units on the 200 acres that remain.

At the Seaport District, we've entered into a multiyear strategic partnership with Lincoln Motor Company.

Lincoln will become the official automotive partner of the Seaport District at Pier 17 and have year-round activations comprised of vehicle displays, curated hospitality, including unique access and experiences dedicated to Lincoln dealers and owners, on-site signage and digital extensions via social media, web and e-mail.

This is the first long-term sponsorship agreement that we have announced at the Seaport and begins to demonstrate our belief that the property will not only generate significant lease revenue from tenants, but also meaningful, supplemental revenue through sponsorship and strategic partnerships.

Turning to our balance sheet, as you may recall, last March we issued a new $800 million senior note offering, which refinanced our then existing $750 million senior notes.

In June, we opportunistically issued an additional $200 million of these bonds at a premium.

David O'Reilly will speak more about this later on the call.

With that, I will now turn the call over to Grant to discuss the details of our operational results.

Thank you, David.

I would like to start by focusing on the pertinent facts driving the recent results in our MPC, operating assets 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 $78.1 million this quarter, an increase of $6.2 million compared to the second quarter of 2016.

The increase was driven by the continued strength of Bridgeland land sales and a modest return of land sales in the Woodlands.

For the 6 months ended June 30, 2017, revenues increased $24.1 million to $146.8 million due to a 148% increase in Bridgelands' land sales and a 39% increase in land sales at the Woodlands.

In addition, we had a $6.4 million utility land easement sale in Bridgeland.

In Bridgeland, we continue to see accelerated velocity of home sales, which has translated into continued demand for our land from homebuilders.

In the second quarter, there were 106 new home sales compared to 100 in the second quarter last year, representing an increase of approximately 6%.

For the 3-month period ending June 30, Bridgeland sold 24.3 residential acres compared to 12.9 for the same time period in 2016, representing an 88% increase.

We averaged $386,000 per acre during the second quarter compared to $361,000 per acre during the second quarter of 2016, a 7% increase.

During the second quarter, the median new home price in Bridgeland increased 12% from $316,000 to $355,000.

The increase in median home price is largely due to the mix of homes that sold during the period.

Continuing in Houston, we saw a strong uptick at the Woodlands in the sale of new homes.

There were 82 new home sales during the second quarter of 2017 compared to 61 in the same period of 2016, a 34% increase.

The median new home price also increased in the Woodlands from $559,000 to $577,000 for the quarter compared to last year.

According to our in-house research, as of June 30, we estimate there were 91 spec homes available for all builders in the Woodlands, which is an approximate 3-month 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 valuation.

For the 3 months ended June 30, the Woodlands sold 24 residential acres compared to 2.3 during the same period last year.

The average price per residential acre decreased to $567,000 for the quarter compared to $603,000 in 2016.

This represented a 6% decrease.

This is not unexpected and in line with our strategy of expanding the offerings of more modestly priced homes to capture a larger part of the new home market.

As of June 30, there were 310 residential lots under contract in the Woodlands, of which 111 are scheduled to close in 2017 for $17.5 million.

Turning to Summerlin, we continued to experience solid demand for residential land.

Residential land sales for the quarter totaled 51.8 acres compared to 53.7 acres for the second quarter of 2016.

For the 6 months, the year-over-year reduction in total residential acres sold in Summerlin is not representative of any slowing in the underlying demand.

In the first half of 2016, we executed a bulk land sale to a homebuilder, for which we incurred much lower development costs, which resulted in a significant increase in our residential gross margin.

In 2017, we closed on more typical-sized parcels that were sold as finished lots and had significant amounts of infrastructure already installed.

These had gross margins that were more consistent with historical levels.

As a result, the first half of 2016 does not represent typical results.

Summerlin had 244 new home sales during the quarter.

This compares with 201 during the same quarter of 2016, a 21% increase.

In addition, the median new home price increased 11% to $595,000 from $538,000.

At The Summit, our joint venture with Discovery Land in Summerlin, we have 262 units for sale, made up of 146 custom lots and 116 dwelling units.

Demand is continuing to stay strong.

For the first half of 2017, we had 9 custom home lots close for $28.5 million.

This compares with 17 lots for $48.2 million during the same period in 2016, the year we began sales.

To date, we have 69 custom lots closed for total proceeds of $213 million.

As of June 30, we have 16 units in escrow, of which 5 are custom lots, 7 are clubhouse suites and 4 are desert bungalows.

Total proceeds from these sales are approximately $55.1 million.

Looking at our Operating Asset segment, we increased our second quarter NOI from $37.3 million in 2016 to $39 million in 2017, a $1.8 million or 5% increase.

Specifically, for the second quarter, we experienced an approximately $5 million increase in NOI from our 1725 and 1735 Hughes Landing office buildings, our multifamily portfolio and our hospitality portfolio, which are all making progress towards stabilization.

These gains were largely offset by lower NOI at 110 North Wacker, Ward Village and South Street Seaport.

At 110 North Wacker, the decline was due to the triggering of our termination of GDP's lease as a full building tenant, as we plan to start our redevelopment of the project early next year.

Obviously, this termination is the first step towards long-term value creation as we intend to start demolition and construction early next year on what will be 1.35 million square foot world-class office tower anchored by Bank of America.

Ward Village's reduction in NOI is the result of a tenant bankruptcy, Sports Authority, in 2016 and an acceleration of our long-term master plan, where we are beginning work to demolish Ward Warehouse to prepare the site for further development, create a central dynamic public space and provide sightlines to the ocean from across the property.

While the demolition of these retail buildings in 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.

South Street Seaport's reduction in NOI is almost entirely timing-related.

As part of our summer marketing events program, we incurred onetime expenses associated with the installation and launch of the program.

The revenue from these efforts will be realized over the course of the summer.

And as such, we expect a large portion of the decline to reverse next quarter.

As David said, we believe these declines are temporary and a part of our redevelopment plans.

Hospitality NOI growth of $735,000 in the second quarter of 2017 compared to the second quarter of 2016 was once again driven by increased activity and stabilization of the recently completed Westin as well as continued strength at the Embassy Suites in Hughes Landing.

This was offset a bit by the slight decline in our average daily room rate at the Woodlands Resort and Conference Center.

In our retail segment, both Downtown Summerlin and The Outlet Collection at Riverwalk had strong performance compared to last year, with increases in NOI of $703,000 and $283,000, respectively.

With that, I will turn the call over to David O Reilly for our financial results and outlook.

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 minute discussing the recent activity with regard to our sponsor and management warrants.

I hope that you've been able to review our supplemental package filed yesterday, which contains details of our financial and operational results.

New for this quarter, we've added a new metric, AFFO, which adjusts core FFO for recurring tenant improvements, leasing commissions and capital expenditures to provide an additional measure of cash flow.

We completed the second quarter with GAAP earnings per diluted share of $0.07 as compared to $0.16 for the second quarter of 2016, and $0.20 for the first half of 2017 compared to $3.53 in the same period of 2016.

NAREIT-defined FFO per diluted share was $0.86 for the quarter as compared to $0.75 for the second quarter of 2016.

Importantly, both GAAP net income and FFO were impacted by the noncash changes in our warrant liability gains and losses.

Core FFO was $94.5 million, or $2.20 per diluted share, a decrease of $22 million or $0.53 per diluted share compared to the second quarter of 2016.

The year-over-year decline was driven by a number of positive nonrecurring items in 2016.

In the second quarter of 2016, our nonconsolidated joint venture, which owns the Circle T Ranch in Dallas, sold land to Charles Schwab, and recorded a gain of approximately $10.5 million.

Also in the second quarter of 2016, we realized other income of approximately $9 million, driven by insurance proceeds and the payment of an earn-out on the sale of a golf course in a prior period.

Despite the decline, I think it's important to highlight that we saw consistent results on a year-over-year basis in all 3 of our segments.

Our operating assets NOI increased by approximately $1.8 million.

Our MPC segment EBT increased approximately $5.6 million, and our condominium net income declined approximately $3.4 million.

As David mentioned, last quarter we closed on a new $800 million note issuance at 5 3/8%, which was a 150 basis point improvement to our then existing issue and also extended the maturity of our notes to 2025.

We used these proceeds to retire the existing notes and pay related costs.

As a follow-on to this issuance, on June 12, we opportunistically issued an additional $200 million of the 2025 bonds at a premium to par of 102.25%, which is just below 5% on a yield-to-worst basis.

We will use the proceeds to repay construction financing, fund ongoing development projects and corporate needs.

Also during the quarter, we modified our $94.5 million nonrecourse mortgage financing on 10-60 Columbia Corporate Center and One Mall North office buildings with a $114.5 million loan.

This amendment resulted in the addition of 70 Columbia Corporate Center as collateral for the facility and allowed us to draw $20 million to fully repay the existing note on the 70 Corporate Center property.

In April, we refinanced the Woodlands credit facility to increase the facility by $30 million for a total of $180 million.

The increased proceeds are providing us the ability to fund the development of Creekside Park apartments and fund other corporate uses.

The facility bears interest at 1 month LIBOR plus 2.75% and matures in 2020.

In May, we closed on a $51.4 million construction loan in the Woodlands for 100 Fellowship drive, which is 100% leased to a credit tenant.

The loan bears interest at 1 month LIBOR plus 1.5% and matures in 2022.

We also paid off the maturing $4.6 million mortgage loan that we had assumed as part of the acquisition of the 1701 Lake Robbins building in July of 2014.

As of the end of the first quarter, our total consolidated debt to total assets was approximately 45%, and our debt to enterprise value closed the quarter at 39%.

From a liquidity perspective, we finished the second quarter with over $660 million of cash on hand.

As of June 30, we had 16 projects in our strategic development segment, with anticipated total costs of $2.7 billion.

Of that amount, we have previously funded $1.6 billion, leaving $1.1 billion in estimated remaining costs.

We expect to meet this obligation with a combination of existing construction loans which currently have approximately $625 million of committed, but undrawn capacity, with condo buyer deposits of approximately $106 million and with new construction financing totaling approximately $68 million, for a net remaining equity requirement of $312 million.

The majority of this amount is tied to the Seaport District, for which we have not yet obtained construction financing.

We expect to fund our remaining equity commitments through a combination of new construction financing; free cash flow from our Operating Assets and MPC segments; net proceeds from noncore asset sales; and lastly, our existing cash balance.

Again, as of the end of second quarter, with over $660 million of cash on hand and net equity requirements of $312 million, we have more than enough cash and liquidity on hand to meet all of our funding commitments without any additional cash being generated from MPC land sales or operating assets.

Lastly, I'd like to discuss our sponsor and management warrants.

As of June 30, 2017, all legacy sponsor and management warrants have been exercised.

Prior to this, the fair values of these legacy warrants were subject to liability accounting treatment, which created both a balance sheet liability as well as quarterly mark-to-market earnings volatility.

As of December 31, 2016, the estimated fair value of the warrants was over $332 million.

Now that these legacy warrants have all been exercised, we will no longer have any mark-to-market volatility, and the $332 million liability associated with those warrants has been removed from our balance sheet.

On June 16, 2017, our CEO, David Weinreb, entered into a new warrant agreement to acquire 1,965,409 shares of the company for a purchase price of $50 million.

This warrant will become exercisable on June 15, 2022, at an exercise price of $124.64 per share.

The new warrants, which qualify as equity instruments, are included with the additional paid-in capital account in the consolidated balance sheet.

And unlike the previous warrants, there will be no liability nor mark-to-market impact as a result of this new warrant agreement.

David has 75 days from June 16th per the terms of the agreement to fund his purchase of the new warrants, and accordingly, an offsetting contribution receivable of $50 million has been included in stockholders' equity section of our balance sheet as of June 30, 2017.

I think it goes without saying that David's willingness to put $50 million of his personal capital into these warrants shows his tremendous commitment and belief in the long-term prospects of the company and should make our shareholders very confident in management's alignment with theirs.

With that, I'd like to turn the call back over to David for closing remarks.

Thank you all for joining us today.

As you can see, we have had another quarter of solid progress unlocking the value within our portfolio.

We continue to keep our eye on the ball to increase long-term shareholder value each and every day.

With that, I will open up the call to Q&A.

(Operator Instructions) Our first question will come from Alexander Goldfarb with Sandler O'Neill.

First, David O'Reilly, can you just go into the difference in the accounting treatment between the old warrants and why the new ones will no longer have the quarterly mark?

It's all -- the devil is in the detail from an accounting perspective and is a complicated analysis that we've worked through with our audit partner as well as internally to get that treatment.

It's not worth boring all the participants on the call with the actual details, other than to say that the structure of these will allow us not to have that quarterly mark-to-market.

We will no longer be carrying a liability on the balance sheet, and the economic terms are almost identical relative to the old warrants in terms of how they are structured and work.

Okay.

Well, that's certainly a relief from a modeling perspective.

And then can you guys give us some more color on the Lincoln, the sponsorship, the income associated and sort of the terms?

Is this -- I assume it's multiyear, but is this something that's more in the summer or we'll see it -- the income year round?

Well, it is a multiyear deal, Alex.

And it's not something that's commencing today.

It will be commensurate with the opening of the pier.

And it will be -- it won't be lumpy or seasonal, it will be consistent throughout the term of the deal.

The terms of those deal has not been disclosed, and it's not something that we're at liberty to talk about yet, other than to say it is a multiyear opportunity.

Okay.

And then just finally, on down in Houston, you mentioned sort of more value or mid-priced homes and sort of an uptick in the housing market.

Given last year was sort of record sales for housing in Houston, could you just give a little bit more color on what's going on in the housing market?

And then I think previously, you guys had spoken about the Woodlands being more high-end homes versus Bridgelands or some of the other communities being more mid-price.

So does your view of where Woodlands ultimately goes, do you think you'll see more moderately priced out of Woodlands?

Or you think there will be a resurgence of some of the higher-end homes there?

Just to answer that.

In the Woodlands, there are only about 700 lots remaining to be sold.

So -- and there's a mix of product, so it really depends in which part of the community we're developing.

At the end of the day, we're developing to meet the market, so to the extent they are -- there is demand for moderately priced homes, we're going to build those.

Additionally, I would tell you that the builders are burning off their current inventory in that market, and so we are seeing the demand/supply imbalance kind of wear off.

That's very encouraging.

And so we're cautiously optimistic about the outlook for The Woodlands.

At Bridgeland, our demand/supply, it's about a 5 months' supply of inventory for those builders, and we're seeing an uptick in home sales as a result mostly of the opening of the new Bridgeland High School, which is driving demand for homeowners.

The number one attraction for an MPC is great schools, and Bridgeland benefits from that.

The next question will be from Craig Bibb with CJS Securities.

This is actually Robert Labick this morning on for Craig.

On the Bridgeland property, has the property hit critical mass, so to speak, in terms of residents, access and amenities?

I'm sorry.

I couldn't hear that question.

Can you try to repeat it a little louder?

Just on the Bridgeland property, has the property hit a critical mass in terms of residents, access and amenities?

No, not yet.

It's still early on in its phase.

Although we're opening up a new village, and so as we get through that new village, we're starting to master plan and reimagine what the town center could look like.

And hopefully, at some point, there will be the demand that will result in us doing our first office [space] there.

And I would just add -- it's David -- that critical mass is so important in these small cities that we build.

And so the strength of sales to date without that critical mass is very impressive.

And then just on the South Street Seaport, how close are we to hearing about new lease announcements?

I'm sorry, can you ask that question again?

On the South Street Seaport, how close are we to hearing about new lease announcements?

We expect that during the next quarter, there'll be some meaningful announcements to make.

The next question will be from Will Randow with Citigroup.

I guess my first question is regarding the Woodlands, really two-part.

One on the residential piece, I understand your acreage prices are going down.

Is that because it's in less -- I don't know the best way to say it -- affluent locations?

And then secondly, how is the commercial market looking?

Specifically, is there room for an additional, call it Four Hughes Landing?

If you could kind of hit those 2 parts, that would be great.

Yes.

So the acre price is going down because of the mix of lots, not because of the -- and it's about the price of the home.

So clearly, we're selling a more moderately priced home, which would account for a lower price per acre.

And that's within the general business plan of The Woodlands, so it's still meaningfully higher than where it was in '13 and '14.

So I think that we're pleased with where The Woodlands is, given the general economy.

As it relates to the commercial development, we're in the midst of designing both Four Hughes Landing and a new building in the Downtown, which we call 10 Waterway.

Those 2 buildings will, obviously, only get kicked off when demand is there.

And from our perspective, we're seeing movement in the market, albeit at a slower pace.

You can see the movement in Three Hughes Landing getting up to -- close to 40% and in 1725 and 1735 Hughes Landing.

Another important point to note is with Exxon's acquisition of, I think it was XTO, they're moving people into their campus as well as into The Woodlands, the 2 office buildings that they occupy.

So that will open up some demand for them too.

So we are optimistic that the market is starting to recover.

Pricing has to keep up with that as well.

And when it -- when we hit a certain preleasing level at Three Hughes Landing, we'll probably kick off Four.

And I might have missed it, but in regards to office, has One Summerlin completely filled up at this point?

And in terms of shifting around tenants in some of the commercial retail space, has that been completed at this point?

Yes, so as of our disclosure, it's around 81%.

But as of today, it's 91%.

So since we released -- since our disclosure, we are another 10% of leasing.

Obviously, it's the end of the quarter, there's another 10% leasing.

So we are very pleased with that.

In addition, the launch of the new office building is a catalyst for the rest of the 200 acres, and we're excited about that.

We have a tenant that we're working for a floor of that space, hopefully that lease will get signed.

And then with that lease comes demand for additional multifamily, as we've seen with the Constellation.

We saw rapid lease up of that property and accelerated pricings.

So where we perform at a price of about $1.40, we're achieving $1.80 -- $1.89 in rent, so we are very pleased.

And I think at the end of the day, this new office building will prove out that the Downtown Summerlin market is a viable commercial market for Las Vegas.

And lastly, if I can squeeze one last one in.

In regards to -- for lack of a better term, sports teams coming to Downtown Summerlin as well as the residential, I believe attached housing.

Can you update us on any progress there?

We're -- and you're talking about -- well, the NHL practice facility opens next month, I think it is.

So we're encouraged to see that occur, and obviously those 2 skating rinks will draw youth community sports to Downtown Summerlin.

As it relates to other sports teams, we don't have much comment on that yet.

And then the residential land surrounding, for example, William Lyon bought up some parcels, so any update in development on there?

Yes, William -- actually, William Lyon's development on the 215 is really interesting because they've started -- I think they're about to start selling it.

It's a much higher-density product, and it's priced to reflect that.

So these -- hopefully, the success of that will spurn -- spawn further progress in our higher-density products that we are trying to sell on the West side.

The next question will come from Vahid Khorsand with BWS Financial.

If I could just catch on to -- or latch on to that last part on the sports commentary in Las Vegas.

I know Las Vegas has set aside some money for the Raiders to build a practice facility.

Is that something you intend to bid on?

We are always looking at different alternative uses for our land.

And like I said before, we just aren't prepared to comment on that right now.

Okay.

And then on your AAA team, has there been any movement on bringing them to Downtown Summerlin?

We're continuing to work that.

We're pricing out what a stadium would look like and working with the different municipalities to form an agreement, but we don't have anything definitive just yet.

Okay.

And then going to 110 North Wacker.

I may have missed this, but is there a cost and time line on -- that you can disclose on the redevelopment?

Yes.

So our estimated demolition date for the building is probably around January or February of next year.

We're still working through our drawings and understanding what our total cost is.

We -- obviously, we're very close to being able to disclose that with our leasing of a third of the building to BofA, we're absolutely optimistic about the building itself.

It's a dynamic-looking building, I'm sure you have seen the renderings of it.

And we're encouraged with the market leasing that we're seeing.

So we expect to hopefully be in a position to announce leases over the course of the next year.

The other thing I would note is that the building has a 2020 opening.

So it's a long time away and it's a big project to undertake.

And my last question, on these redevelopments, is there much in your portfolio that you see being a target for redevelopment?

Or is it a small percentage?

Well, obviously, the core value to be unlocked in our portfolio obviously lies in the 6 core assets of the Seaport, Columbia, Maryland, 2 Houston MPCs and Summerlin and Hawaii.

There's redevelopment within all of those assets, extensive redevelopment within all of those assets -- development and redevelopment.

In addition, assets like 110 North Wacker exist within our portfolio on a limited basis, but they're not enough to move the needle on our market valuation.

We are focused on them.

One of those assets would be Landmark Mall in Alexandria, Virginia, which -- where we acquired the Macy's box in the first quarter of this year, and we're evaluating plans to redevelop that site.

The next question will be from Alex Barron of Housing Research Center.

I wanted to ask you about the depreciation line which was a bit higher than the last few quarters.

Was there something that was onetime in nature or is that more of an ongoing rate?

There was nothing onetime in nature.

This is David O'Reilly.

It is really just driven by the amount of assets that continue to get added to the operating asset pool that creates a higher base for greater depreciation.

I would imagine that over time, as we deliver more and more operating assets, you will see that line item perhaps creep up a little bit more, but there is no onetime item that's really driving that this quarter.

Got it.

And If you guys can comment on the Hawaii condos.

Obviously, there's fewer units remaining.

What's the nature of those units?

Are they more like more expensive stuff like penthouses or are they units that are facing the mountains instead of the ocean?

Or what's the nature of some of those units that are remaining?

So obviously -- Waiea, they're obviously the higher-priced units, the penthouses and the Grand Penthouse.

There are 7 -- I think 7 units remaining there, 7 or 9, can't remember.

In Anaha, they're also starting to be the more expensive units.

But we expect as that building opens, there will be an increase in the sales related to that building, given the drive-up appeal and the quality of the construction, really excited about delivering that tower to the community this year.

And then in Ae'o, we have seen an amazing demand for the lower-priced products of, call it, $1 million and under, selling over 35 units, I think it was this quarter.

So we are very pleased with that.

Lastly, we're going to bring to the market a new tower, 'A'ali'i, in -- at the end of the third or the beginning of the fourth quarter.

And that will be 750 units of lower-priced products.

What's the price point average on the -- in that last tower, Grant?

We haven't finalized our pricing yet, Alex.

So as soon as we do, we will disclose that.

(Operator Instructions) The next question will come from Steve Shaw of Compass Point.

It looked like the time line for Seaport completion, at least Pier 17 and the Uplands, has firmed up a little bit for third quarter 2018.

Could that be conservative and we'd possibly see a delivery a few months earlier than that?

I think what you'll see is a rolling opening.

We are expecting the rooftop to open potentially as early as the end of May, certainly by the 4th of July, and other important components coming online thereafter.

So we haven't put out anything more formal, but we're certainly pleased with the progress and also the activity that we have from interest.

Okay.

And then, David, you mentioned the possibility of some lease announcements coming out next quarter.

Did you mean with the third quarter results or in the fourth quarter?

I would just say in -- certainly in the next 90, 120 days.

We have a number of things that we're working on finalizing that will continue to be catalytic and confirm our vision that we've talked about with each of you along the way.

The next question will be a follow-up from Alex Barron with Housing Research Center.

Can you comment on the expected timing of when you'll start selling land in the new -- I think it's called Woodland Hills, the one up in Conroe?

Yes, we expect to be selling in the fourth quarter of this year.

So we're excited about that -- the opening of that new community.

Any type of guidance on how many lots per year you think you'll start off at?

We don't have that yet.

(Operator Instructions) Ladies and gentlemen, this concludes our question-and-answer session.

I would like to turn the conference back over to David Weinreb for any closing remarks.

Thanks again for joining us.

As always, the 3 of us are always available by phone, if we can be helpful.

And we look forward to talking to each of you soon.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.