Howard Hughes Holdings Inc (HHH) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Howard Hughes Corporation Third 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 of Investor Relations. Please go ahead.

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.

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 of Ward Village were exceptional this quarter, in addition to strong land sales in our master plan communities and excellent leasing progress in our strategic development segment. In addition, we announced 3 new development projects, which were 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, multifamily and hospitality segments and increased residential land sales in our MPCs when compared to the third quarter of 2016. While we 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 off-line 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 and 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 $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 planned 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 demonstrate 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 had in any quarter without the launch of a new building. With both Waiea and Anaha delivered, we believe 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've 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 4 current projects under construction. We were also very pleased to report that in October, we began closing our first homes on our second residential building, 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 a 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 the 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 buildings are lower than what we achieved on Waiea and Anaha.

It is important to note that you will see these margins vary from time to time depending upon the various attributes of the product selling during any given period, such as building location, distance from the ocean, use, amenities, finish levels, et cetera. For example, workforce housing developments such ask Ke Kilohana will almost always have the lowest returns, while homes nearest the ocean with the highest level of 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 have closed as of October 18. The REITco component is 100% leased to Nobu. Anaha, which started welcoming residents just weeks ago, had 144 homes close 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 building's architecture is stunning, and it is as 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 culmination of several years spent studying the most innovative residential product around the world to create a luxurious, turnkey solution for our customers that does not exist in Hawaii. The homes are designed to maximize space, efficiency and optionality with furniture, accessories and more all selected for a residence.

As I stated 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 Theatres completing a major renovation. And we are only about 1/4 of the way through our entitlements. This neighborhood will only continue to become more vibrant as more residents move in and additional stores and 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 our 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 51's professional baseball team, which we now fully own. The Las Vegas Convention and Visitors Authorities approved the naming rights agreement. The terms of which will 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 were 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 have 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 recorded 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 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 produced from the Seaport District, ESPN will show one scenic shot of the Seaport. Their 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 will 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 welcomed 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, after we obtained requisite approvals, we began demolition on the Tin Building, where John George 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 will now turn the call over to Grant to discuss the details of our operational results.

Thank you, David. I want to echo David's sentiments about how the company and our employees responded to the storm. It was very impressive. From an operation standpoint, all of our emergency planning had 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 continued 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 increased 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 9 months of 2017, we had 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 lots closing in 2016 was due to a backlog of sales contracts 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 for just under $51 million as of September 30.

In Bridgeland, we continued to see accelerated velocity of home sales, which has translated into continued demand for our land from home builders. 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 3-month 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 averaged $369,000 per acre during the third quarter compared to $384,000 per acre during the third quarter 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's 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 3-month supply based on current absorption rates.

Continuing in Houston, we saw a 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 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 valuations.

For the 3-month period ending September 30, The Woodlands sold 11.1 residential acres compared to 19.9 during the same period last year. The average price for 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 to single family attached home 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 the fourth quarter for a total of $11.6 million.

Turning to our operating asset segment. We increased our third quarter NOI of $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 multifamily and self-storage assets, leasing 32 net apartments and 196 net self-storage units during the quarter.

More importantly, effective rents in multifamily 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 and Conference Center. We also saw approximately $1.6 million of improvement from our Hughes Landing office buildings and approximately $650,000 from our multifamily 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 asset lands. In August, we closed Ward Warehouse, a 115,000 square foot retail center. This was done in anticipation of its being demolished to create a central dynamic public space to provide site lines to the ocean from across the property and prepare the site for further developments. Although it officially shut down in August, the income from this profit 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 $349,000. I am also very happy to report that we backfilled the 2 large vacancies that we had in Downtown Summerlin due to the bankruptcies in the Golfsmith and The Sports Authority, with the PGA Superstore and Bed, Bath and Beyond. This is a testament to the location and quality of Downtown Summerlin. Also, I am 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 built to generate more than 7% yield on cost excluding land. We also will begin construction on our new office building in Downtown Columbia, Three Merriweather. The building will be a 12-story Class A office that as of the beginning of this month is 50% pre-leased to a major corporate tenant. This Development will continue the transformation of Downtown Columbia into a truly unique live, work, play neighborhood.

Finally, I'd like to share a few words about the Houston economy and how well the Woodland is performing in contrast with the market in general. Despite oil trading around $54 per barrel, Houston actually created 45,300 jobs between May of '16 and May of '17 according to the U.S. Bureau of Labor Statistics.

And according to Colliers International's second quarter office market snapshot, the Woodlands had been a bright spot amongst Houston's office submarkets during the past several years. While most of the other submarkets have seen rising vacancy and negative net absorption, The Woodlands has experienced quite the opposite. Colliers said that during the second quarter 2017, The Woodlands average vacancy rate decreased by 50 basis points to 11.9%, including subleased space. They further report leasing activity remained steady and net absorption positive. This third-party verification of what we see in our portfolio attests to the fact that our strategy within the MPC is working, and that while we enjoy outsized returns developing in this communities during strong markets, the control that we maintain limits our down size risks at the same time.

With that said, 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 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 $0.24 as compared to $0.19 for the third quarter 2016, and $0.45 for the 9 months ended September 30, 2017.

(technical difficulty)

Compared to $3.72 for the same period of 2016. NAREIT-defined FFO per diluted share was $1.05 for the quarter as compared to $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 increase 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%. It now has a maturity date of September 2020, with a one 1-year extension option.

Also in August, we've closed on an $11.6 million construction loan for Kewalo Harbor, which is adjacent to the Ward Village. The improvement to the harbor will benefit both our residents and the community at large. The loan bears interest at 1-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 development of 4.9 million square feet of entitlements. On October 19, we closed on a construction loan totaling $64.6 million for 2 projects in Summerlin, the Aristocrat Technologies building and the 2 Summerlin office building. The loan bears interest at The Wall Street journal prime plus 40 basis points, which today and taking into consideration the interest rate core, equates to approximately 4.65%. On October 24, we exercised our 1-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 costs. 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 to a net remaining equity requirement of $296 million. The majority of this amount is tied to the Seaport District, in which we have not yet obtained construction financing. We expect to fund the remaining equity commitments through a combination of new construction financing, our 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 the third 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 current funding commitments without any additional cash being generated from MPC land sales or our operating properties.

As you know, David Weinreb has entered 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 warrants. The strike price is $124.64 with a term of 6 years. The warrants cannot be sold or hedged for 5 years except in the case of a change of control of the company.

David did 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 5 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've disclosed on October 5, the company entered into a new employment agreement with our president, Grant Herlitz, for a term of 10 years. Grant completed the fair market value acquisition of 87,951 warrants, with a strike price of $117.01 and a term of 6 years by paying $2 million to the company. He cannot sell or hedge the warrants for 5 years except in the event of a change of control in the company. Like David, Grant's 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.

Thank you, David. As you can see, we had another quarter of excellent results. Having said that, we are never satisfied, and we'll 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 will open up the call to Q&A.

(Operator Instructions) The first question comes from Craig Bibb with CJS Securities.

So another very solid quarter for land sales even with the hurricane. It sounded like, from Grant's comments, you held inventories about 3 months at both of the Houston MPCs. Is that the tipping point where you might see an acceleration of land sale in -- or is it 2 months? Or what do you have to get before land sales pick up as builders get ready, though?

Well, thank you, Craig. I think at the end of the day, 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. However, what we're looking for in 2018 is a pickup in that market, and we expect sales to pick up as well as land sales for Bridgeland as that MPC begins to hit a stride and grow throughout the Houston markets, expand northwood -- 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'll be increased demand for new homes.

Do you think it could be run rating at over 100 acres per year at Bridgeland next year?

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 I look to see the predictions coming in the first, second and third quarter of next year.

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

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

Okay. And then just, you guys had the ESPN lease news during the quarter, nothing incremental from a lease standpoint from the Q3 report. Can you give us just a 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?

Hi, this is 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 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 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, from a return standpoint or rate standpoint. And so while we're not changing expectations, we're very, very pleased with that. And you certainly should expect some additional announcements to be coming, hopefully, before the end of the year, if not early into next year. And 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, as it relates to 110 Wacker, we expect to start demo in Q1 of '18. The building will open in Q4 of 2020, which is 2.5 years of construction, and stabilizing 3 years, thereafter. As far as the tenant prospect block 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.

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

Probably not, I would say.

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 will be ready to receive tenants.

Okay. And for last question. There's 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 the investment of that size?

Yes, so let me answer that, Craig. There is no cost of $150 million, that's speculation. We're still working through our preliminary design drawings and working on the estimate of cost. And as soon as we've finalized our cost, we'll let you know what those are. But we will pay for the stadium. We think the deal with the LVCVA would be obviously an excellent deal, is 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 it. When we open the ballpark, the same will be truth for the community. I mean, at the end of the day, this is 22,500 acres, and a stadium is a small part of that.

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

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 home sales? Do you think most would fall within that $0.5 million mortgage deduction? Or do you think that there's a sizable amount that would exceed that and, therefore, there could be a potential for any impact to housing, whether Hawaii or down in Summerlin or Texas? And we'll leave the premium lots in Summerlin out of the equation. Clearly, they're in a different league.

Yes, I would say, the majority of our lots are going to trade under that in terms of home sales. If you expect you're mortgaging 80% of the home and your lot sale 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 it will have an effect on our lots.

Okay. Okay. And then as far as Houston goes with the communities back -- with Bridgelands 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, will 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 has performed versus any sort of lingering impact.

I think from an operating asset standpoint, the only asset that really had any damage at all was Lakeland Village and Bridgeland, and that was very minor. So there's a little bit of business interruption insurance as a result of that. All tenants are back up and operating. We don't expect to see any termination or 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. There's tremendous -- there's a lot of work still to do until the community is back together. Our assets were really unaffected by it, and we expect home sales to, as I said earlier, to march along. There's significant anecdotal evidence that sales are -- customers are planning to buy a new home when the insurance or FEMA proceeds come through. And MIAS Research recently looked at flood data from 1992 to 2016, and determined that shortly following those events in Houston, there had been increased sales and pricing, except when there's been an overlay of something major, such as the national recession or major oil price decline.

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

Look, it certainly has a very positive reaction from everyone we've been talking to. But the real thing that is paving the way is the completion of the building. The Pier building is one of those buildings that just needed to be completed, and there isn't one tour that we complete that I know of, 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 water, and that has outsurprised their expectations. So as I said, we feel very good about the direction that we're heading, 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.

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

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

The next question comes from Vahid Khorsand with BWS Financial.

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? Does that even fall in the first quarter?

Well, in Houston, there's very little lease expirations. And I think this is -- we're looking at the page, but there's not much -- there's no real significant tenant expirations that come due in the first quarter or throughout '17 at all -- or throughout '18, I apologize.

Okay. And then going back to your land sales. You were mentioning that the spec homes, the 3-month supply is fairly good supply. Is that, in turn, going to produce some type of increase in profit margin on future sales?

Well, we try to move our pricing along at a fair level with our builders. Now if you look back over a number of years, we started an option 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 that 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 same almost linear trajectory.

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 maybe getting their practice facility?

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's certainly nothing to report. And I think that's all on the matter. Although they are moving dirt on the stadium, and we do expect that a number of the players will be living in Summerlin. That I can tell you with certainty, particularly at The Summit.

(Operator Instructions) The next question comes from Alex Barrón with Housing Research Center.

I was just hoping you can help me with some expected timings of when some of these projects are going to start closing or producing some revenues. So can you give us an updated timing on South Street, Seaport, when the next tower in Hawaii is going to close, on Columbia, how -- when your 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.

We'll just start west, to east; Make life easy. But the first -- we closed Anaha units in the third -- in the fourth quarter, beginning of the fourth quarter, so we expect to close the balance of those units by the end of the year. In -- we're launching presales of our newest tower, 'A'ali'i, in the next couple of weeks, which we expect will be a huge success at 751 units of residential sitting right next to the Ae`o, which is under construction and we expect to deliver in the first quarter of 2019. In Summerlin, we have the Aristocrat Technology's building, which should be done in the next 12 months. There's Two Summerlin which should be done in -- which 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 presold apartments that are under construction, as well as in Bridgeland, we will begin multifamily construction probably in the first quarter of next year. 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 for the project and, 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. We also have a 267-unit -- 300 -- plus, I'm sorry, multifamily project that will start in the first quarter of next year. And then, lastly, David, to the Seaport, if you want to answer that.

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.

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

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. We look forward to speaking to each of you again, if not sooner, on our next quarterly call. Bye for now.

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