Howard Hughes Holdings Inc (HHH) 2018 Q4 法說會逐字稿

Good day, and welcome to The Howard Hughes Corporation Fourth Quarter 2018 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 Fourth Quarter 2018 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 fourth 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 fourth 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 2018 earnings call.

I am pleased to report that we had an exceptional year and that our businesses have never been stronger than they were in 2018.

For example, we recorded the strongest annual land sales in the company's history, selling 456 residential acres or 30.5% more than we did in 2017.

And by the way, 2017 was an excellent year.

MPC EBT, or earnings before taxes, increased by $12.6 million or 6.6% to $203 million.

We have substantial growth in our operating assets NOI of $20.8 million or approximately 13.1% excluding the Seaport, driven by increases in retail, office and multifamily.

We continued the conversion of our commercial land into vibrant income-producing assets by starting construction on several new properties, including 110 North Wacker; the Las Vegas Ballpark; Creekside Park West; and multifamily projects at Bridgeland, The Woodlands and Columbia.

As a result of these new construction starts and our acquisition of the Lakefront North office buildings in the Woodlands, we increased our annual stabilized NOI target, not including the Seaport, by approximately 25% from $255.1 million as of December 31, 2017, to $317.8 million at December 31, 2018.

This furthers our goal of shifting our alliance on residential land sales, which can be much more volatile than operating NOI.

In our Strategic Developments segment, we contracted to sell 668 condominiums at Ward village during 2018, including 600 homes at 'A'ali'i, which began public presales in January of 2018 and broke ground in October.

Subsequent to year-end, we also launched public presales of our newest project, Ka'ula, in January, which as of February 21, 2019, had entered into hard contracts for 252 homes or 45% of the total project, an incredible pace of sales.

At the Seaport District, we opened up ESPN's new broadcast studio, 10 Corso Como, Mr. C Seaport Hotel, SJP by Sarah Jessica Parker, By Chloe, Cynthia Rowley and Roberto Cavalli.

We also signed an office lease with Nike and sold out 18 of 23 concerts in our summer concert series, along with opening R17, our rooftop restaurant, and our Winterland with New York's only rooftop ice-skating rink.

We are very proud that Pier 17 was recently named the Best New Concert Venue in North America in 2018 at the prestigious Pollstar Awards.

Lastly, we are always looking for opportunities to buy back meaningful blocks of shares at an appropriate price as a part of our capital allocation strategy.

Because our stock has traded meaningfully below our net asset value over the last year, we took advantage of the situation in January of last year to purchase approximately 476,000 shares of common stock in a private transaction with an unaffiliated entity at a purchase price of $120.33 per share for a total of approximately $57.3 million.

We celebrate all of our team members across the company for making 2018 an excellent year for HHC.

Before getting into additional details on our accomplishments throughout the year, given the reported volatility in the national housing market, I would like to start by providing a general overview of what we are seeing in our MPCs.

I will then turn the call over to Grant, who will provide a deeper review of the results in our 3 segments: Master Planned Communities, Operating Assets and Strategic Developments; and then to David O'Reilly, who will speak to our financial results.

We will conclude by opening the call for questions.

Despite all the press reports of a national slowdown in residential sales, as I said earlier, we had a record year in our MPC segment.

Total new home sales, the driver for land sales on our MPCs, were up 18% from 1,785 homes in 2017 to 2,114 homes in 2018, excluding The Woodlands sales, which just started selling homes last year.

Summerlin led the way with a 25% increase in sales, followed by Bridgeland with a 17% year-over-year increase.

The Woodlands home sales were up slightly but essentially flat.

Given our limited remaining inventory in the Woodlands, we have less than 160 residential acres remaining.

Lot sales in this community have become less meaningful to our MPC segment results, and as such, we recommend investors primarily focus on our results at Summerlin, Bridgeland and The Woodlands sales.

Our residential land sales increased in 2018, totaling $235 million compared to $189 million in 2017, an increase of 24%, and homebuilders continue to bid on our land at excellent prices.

For the quarter, residential land sales decreased from $57.4 million in Q4 2017 to $32 million in the fourth quarter of 2018.

The decrease this past quarter was largely due to the timing of land sales at Summerlin, which we had accelerated sales in the third quarter of 2018 that affected the fourth quarter results.

This is a perfect example of why we suggest that one should evaluate our MPC sales on an annual as opposed to quarterly basis.

There has been some encouraging news on a macro level recently with home mortgage rates returning to below 4.5% after peaking in November at just above 5%.

Additionally, realtors are reporting an increased number of buyers in the Summerlin market.

On a local level, our communities continued to perform well, and given their locations and growing markets with strong fundamentals and favorable tax and business environments, they have not shown signs of a slowdown.

As I mentioned last quarter, we are always planning and preparing for a change in market conditions.

Our approach has been to position the business for maximum success in favorable economic environments but also prepare for the worst.

Since the company's inception, our strategy has been to shift our reliance on residential land sales to a more balanced funding model consisting of land sales, condominium sales and growing, stable NOI from our operating assets.

Since 2010, we have grown our operating asset NOI from $49 million to our current Q4 2018 annualized NOI of $187 million with a stabilized NOI target of approximately $318 million, excluding the Seaport District, as detailed in the supplemental report.

Risk mitigation is one of our essential pillars and we remain committed to only starting new developments that we are able to fund while maintaining a conservative overall balance sheet.

If HHC were to never collect another dollar of rent or sell another condo or acre of land, not something we consider likely, we would have adequate cash balances to complete all of our developments underway.

While a slowdown in the housing market could potentially impact the pace at which we fund new developments, our growing operating asset NOI will enable us to continue transforming our pipeline of entitlements into recurring cash flow, albeit at a reduced pace if a slowdown were to occur.

This strategy allows us to both accelerate in strong economic periods and remain in excellent financial footing and outperform in a declining market.

The continued diversification of our cash flows gives us the ability to remain patient and preserve the long-term value of our land if market shift and we feel negative pressures on values.

Now I'd like to move to our major accomplishments in 2018.

Each of our 3 business segments performed extremely well last year.

In our Master Planned Community segment, we had record residential land sales, and MPC EBT increased for the fourth consecutive year.

As mentioned earlier, we sold 456 acres in 2018 compared to 350 acres in 2017.

Dollar volume for the year increased by approximately $46 million or 24% from $189 million in 2017 to $235 million in 2018.

Summerlin led this increase with a record $145 million in sales, marking its sixth year in a row with sales exceeding $100 million.

Bridgeland also had a record year with over $48 million of land sales.

MPC EBT increased from $190.4 million in 2017 to $203 million in 2018, a $12.6 million or 6.6% increase.

Moving to our Operating Asset segment.

Our NOI increased from $158.5 million in 2017 to $179.3 million in 2018, a $20.8 million or 13.1% increase, excluding the Seaport, which is nonstabilized with a number of new businesses incurring preopening expenses.

Office, hospitality, multifamily and retail properties contributed to the increase by $6.4 million, $5.5 million, $4.4 million and $2.4 million, respectively.

For the quarter, we increased our operating asset NOI, excluding the Seaport, by $8.3 million or 23% to $44.5 million compared to $36.2 million in the fourth quarter of 2017.

This increase was experienced across all property types.

We had a solid year in our Strategic Development segment, commencing multiple new developments, completing several construction projects, making good progress at the Seaport and generating very strong condominium sales at Ward Village.

Because of these new construction starts and completions in our Strategic Development segment, our stabilized NOI target has grown from $255 million at the end of 2017 to $318 million as of year-end 2018.

This represents a $63 million or 25% year-over-year increase.

Note that this NOI target does not include the Seaport District.

In Honolulu, we had an especially robust year of sales at Ward Village, selling 669 homes, which brought our total closed or under contract to 1,954 or 92% of the 2,129 available-for-sale at our 5 residential projects that are either delivered or under construction.

We delivered our third building, Ae'o, and began closing homes.

In total, we've closed on 315 homes in 2018 compared to 326 during 2017.

The decrease was due to a lack of available inventory in our existing buildings.

Our first building to be delivered, Waiea, is 96% sold with only 7 residences remaining.

Our second building, Anaha, is 99% sold with only 4 homes available.

Ae'o, our third building, is 99% sold, and we closed the sale of the first 299 homes in December, all but 1 of the remaining sold homes closed in January.

Ae'o is anchored by Hawaii's flagship, Whole Foods, which opened in the second quarter of last year and has been a very popular amenity for the neighborhood.

There are only 4 homes remaining at Ae'o.

I should note that we have previously reported that Ae'o was 100% sold, but we had a few homes default at closing, which is typical and was expected.

We generally have been able to sell these homes quickly and typically for higher prices than their originally contracted prices.

Additionally, our risk is further mitigated by the nonrefundable buyer deposits that we keep.

Ke Kilohana, our fourth building, is under construction and slated to be delivered in mid-2019.

The building is 98% sold with only 10 homes remaining.

CVS/Longs Drugs will be taking 100% of the commercial space on a long-term basis and is slated to open by the end of this year.

Our fifth building, 'A'ali'i, will have 750 homes and launched public sales in January of 2018.

The building includes an innovative, turnkey living solution featuring built-in furniture and thoughtful design to maximize every inch of space.

This building's unique product is the first of its kind in Honolulu, and it has been a big success.

As of year-end, we contracted to sell 600 homes with hard deposits, representing approximately 80% of the building.

This is an incredible sale space of 50 homes per month.

We began construction in October and anticipate delivering the building in 2021.

As mentioned earlier, subsequent to the end of the quarter in January 2019, we launched public sales of our 6 condominium projects in Ward Village named Ka'ula.

Since sales begun, through February 21, we have entered into binding contracts for 252 or 45% of the 565 homes.

This Genie Gang/Yabu Pushelberg-designed building has been extremely popular with buyers early on as we built on a foundation of 'A'ali'i and are creating a truly unique product.

We anticipate beginning construction this year once we have met our minimum sales threshold and secured a GMP contract in construction financing.

Given the strong sales momentum at 'A'ali'i and Ka'ula, along with Ward Village's reputation and scale, we believe that there's an opportunity to increase the pace of development, and we are currently studying bringing 2 more buildings to market.

To put the impact of accelerating sales at Ward Village into context, assuming average revenue of $500 million to $550 million per tower and a 30% sales margin, excluding our basis in the land, each tower we presell and develop generates approximately $150 million to $165 million in profit.

If we were able to sell and develop at an increased pace, it would have a substantial impact on our ability to accelerate the creation of value at Ward Village.

In December, we opened our central gathering place, Victoria Ward Park, with a dynamic piece of art, the Light Garden, which became a top attraction for the community.

With our public spaces and the new Whole Foods joining destination restaurants such as Nobu and Merriman's, a growing public art collection as well as the #1 movie theater in the state, as well as many other great retailers and restaurants, Ward Village has clearly differentiated itself as the place where people want to live and plan Honolulu, and I believe that our continued sales progress is a validation of our vision coming to life.

Our momentum at Ward Village continues to increase.

And as more and more people call Ward Village home, we expect our retail sales to increase over time.

As we kick off the year, we thought it would be important to update you on 1 of our 5 core regions.

Moving forward, on each of our earnings call, we will choose a core region to highlight.

This call, we will be providing an update and refresher on our vision for the Seaport District.

Please refer to Page 1 of the deck if you have downloaded it.

First, a quick overview of the surrounding neighborhood.

Since 2001, Lower Manhattan has experienced a dramatic transformation.

Moving to the second slide, the third-largest business district in the country has seen a shift in its office population as Lower Manhattan has become a hub for companies in the creative, media, advertising and technology sectors.

More than 550 companies have relocated to Lower Manhattan since 2005, including Condé Nast, Time, Gucci and Spotify, to name a few.

On Slide 3, you can see that the neighborhood has become one of the fastest-growing residential areas in the city with the population south of Chambers Street growing from 15,000 in 2001 to more than 62,000 today with more than 3,500 residential units planned or under construction.

The neighborhood has a high proportion of millennials with a median age in the low 30s and an average household income exceeding $200,000.

Slide 4 shows that with the opening of 2 transit centers over the last few years, both under a 10-minute walk from the Seaport, Lower Manhattan has never been easier to access.

Combined, these 2 transit links serve more than 500,000 daily commuters, and nearly every subway line in Manhattan stops at 1 of these 2 centers.

Given that the Seaport is the first stop into Manhattan from Brooklyn, with Brooklyn's recent resurgence, Lower Manhattan has, in many ways, become the new center of New York City.

Moving to Slide 5. As the city's birthplace and original commercial hub, the Seaport has a rich history that, along with its architecture and stunning views, make it one of the most unique areas in New York City.

Additionally, spanning across several city blocks, the Seaport is one of the city's only privately-controlled districts.

We decided to build on the Seaport's distinct attributes and create a destination that would stand out and reconnect New Yorkers to its storied past.

When we inherited the Seaport in 2010, we recognized the opportunity to create an anchor for the thriving Lower Manhattan community while embracing the waterfront and historic cultural fabric of the locale.

The Seaport's distinct architecture and unmatched use of the Brooklyn Bridge, have always made it a highly visited tourist attraction, welcoming approximately 12 million tourists annually prior to the redevelopment.

However, our focus has been to create a destination that will bring New Yorkers back to the district.

Anticipating the growth of e-commerce and the challenges traditional retail would face, we knew that in order to be successful and stand the test of time, we would have to curate unique offerings across food, fashion and entertainment that do not exist anywhere else in the city, leveraging the Seaport's history and creating what we call a fort of discovery.

We applied our expertise in Master Planned Community then place making to bring similar holistic planning principles in creating a vibrant and integrated district.

This has helped us differentiate the Seaport from other new retail destinations downtown, which have been successful on their own right, but are essentially in closed malls compared to the Seaport, which is open air and an experience- and entertainment-driven destination.

As you can see on the site plan shown on Slide 6, the Seaport district spans over 450,000 square feet of offerings across Pier 17, the Tin Building and the historic district.

Additionally, we have an interest in the 66-room Mr. C's hotel; and on the 250 Water Street parking lot, which, at 48,000 square feet, is one of the largest development sites in Lower Manhattan.

Let's move to Slide 7. The Pier 17 Rooftop is 1.5 acres, including a restaurant with 2 outdoor patios, R17, along with a completely versatile venue that can hold approximately 3,400 people standing or 2,400 people seated.

The venue was home to a concert series running from May to September and is also able to accommodate a wide range of uses from community open space to private events, fashion shows, movie premieres, product launches such as car shows as well as a beach club and even a tennis match or a basketball game with over 1,000 spectators.

The rooftop is one of the only spaces in the city where you can see the Statue of Liberty, Brooklyn Bridge and the Empire State Building from the same location.

As you can see from Slide 8, we'd hosted our inaugural concert series this past summer with our exclusive booking partner, Live Nation.

We generated a higher proportion of sold-out shows than any other venue in the country, 18 of 23.

Our lineup included a wide range of diverse talent from Amy Schumer, Kings of Leon, Diana Ross, Sting, acclaimed DJ Deadmau5 and a surprise performance by Carrie Underwood on July 4.

Earlier this month, Pier 17 was named Best New Concert Venue in North America at the prestigious Pollstar Awards.

We have also posted a gamut of other activations such as cinema nights, fitness classes and more.

The Rooftop restaurant, R17, holds up to 300 people seated in the summer season with its covered patio spaces.

Additionally, the Seaport is well positioned to benefit from the growing importance of content with its one-of-a-kind setting for television broadcasts and recordings.

This past Monday, we announced our initial 2019 concert lineup, which will include performances from a wide range of artists, including Billie Eilish, Ringo Starr and the Steve Miller Band.

As you can see on Slide 9, in the winter months, the Rooftop is transformed into the Pier Winterland, an aspirational winter experience designed by David Rockwell that includes New York's only rooftop ice rink, a column-free private event space that holds well over 500 people and additional food and beverage offerings.

In the winter, R17 transforms into a cocktail den with approximately 60 seats.

We opened the Winterland in R17 in mid-December and have been pleased with the high traffic to the Rooftop, given the rest of the building is under construction.

On to Slide 10, where you can see the third and fourth floors of the Pier, which consists of approximately 147,000 square feet that will ultimately be a mix of creative office space, broadcast studio space, a catering kitchen to service the roof and other parts of the property for large-scale events and a state-of-the-art brain room that is also used as event space when we do not have a concert on the Rooftop.

ESPN opened their studios in early April, and we signed Nike to a 23,000 square-foot lease in the fall.

We will deliver Nike the space this spring and expect them to move in later this year.

In addition to the ESPN transaction being a great economic opportunity for the company, one of the other benefits of having ESPN broadcast from the Seaport is that they announced that they are live from the Seaport District before each program and feature an aerial of the property while referencing our sponsors.

We have approximately 86,000 square feet of prime office space remaining.

While it is taking us longer than we would have liked, we have had very robust demand from a number of potential users and have been in active negotiations with the same potential tenant for the majority of the remaining space for several quarters.

In addition, we are not just looking to fill the space with any tenant but rather interested in finding the right tenant that is synergistic and aligns with our vision for the Seaport.

One other highlight of Pier 17 that you can see on Slide 11 is that we wired the facade on levels 3 and 4 as well as the stage to light up in an infinite mix of colors, what we call the Pier 17 Light Band.

The Light Band is used for key seasonal and philanthropic activations as well as for marketing and branding opportunities for our sponsors.

Moving to Slide 12.

The Pier Village is an extension of the city grid system out on the water and will feature 6 2-story boxes that will house dining concepts from some of the world's leading restaurant tours, including a seafood restaurant by Jean-Georges that will open late spring; the newest Momofuku concept by David Chang; The New York location of Malibu Farm; and a pop-up waterfront lounge that will all open this summer, along with an Italian shop house by award-winning chef, Andrew Carmellini.

Carmellini's restaurant will be completed by the end of the year, and depending on what is best for the business, we will determine whether to open it before year-end or in the spring of 2020.

The Pier Village totals approximately 62,000 square feet and has approximately 32,000 square feet of remaining space, which does not include the Pier Village lobby that will become a vibrant central gathering place.

The remaining space is primarily made up of 1 box opposite Jean-Georges and the second floor of the box above Malibu Farm.

The box opposite Jean-Georges will likely be used as banquet space and an extension of the Pier Village lobby, leaving the second floor of the other box available that we have decided to hold on until we open the remaining restaurants in the Pier Village, at which point we will determine the best use for the box.

Slide 13 depicts the Tin Building.

It will encompass approximately 53,000 square feet, housing a food experience that we anticipate will rival the most extraordinary food markets in the worlds.

Operated by Chef Jean-Georges; with the core and shell designed by acclaimed architect, Gregg Pasquarelli, principal of SHoP Architects; and interiors designed by award-winning designers, Roman and Williams.

The market will pay homage to the original Fulton Fish Market that opened at the Seaport in the early 1800s.

The existing building has been carefully deconstructed, removed from its deteriorated platform and will be rebuilt 30 feet back from the FDR to restore its visibility and move it above the floodplain.

Given the historic nature of the building and its location on the water, the process has been extensive and time-consuming.

The food hall is fully leased and slated for completion late next year, assuming we receive all the necessary approvals.

Moving to Slide 14.

The historic district consists of approximately 184,000 square feet, of which approximately 139,000 square feet is leased.

It is worth noting that our lease square footage is approximately 10,000 square feet lower than previously reported despite the fact that we signed a 23,000 square-foot Nike lease because we paused on a market-ready members club concept that we have for the top floor of the Fulton Market Building due to the strong office demand that has emerged for the space.

Additionally, Abercrombie will be vacating their approximately 17,000 square-foot space in the spring.

While on the short term, this will have an impact on our income, more importantly, long term, it will provide us with an opportunity to remerchandise that corner with tenants that are more in line with our vision for the district.

Our first cornerstone tenant to open in the revitalized district was iPic Theaters, which opened in October 2016 in the Fulton Market Building.

The iPic at the Seaport is currently iPic's only Manhattan location and consistently ranked as one of the top cinemas in the city.

Despite the Seaport being under construction for most of its first 2 years of operation, the theater is the highest grossing location in iPic's portfolio, generating first screen revenue comparable with some of the most successful theaters in the country.

In September 2018, we celebrated the opening of iconic retailer 10 Corso Como's first U.S. location in the Fulton Market Building.

Founded in Milan in 1991 by style visionary and former fashion editor, Carla Sozzani, 10 Corso Como is the world's original concept store and emulates a living magazine with its experiential environment and a wide range of offerings that include a restaurant, bar, art gallery, fashion, home goods, design objects, books and more.

10 Corso Como's opening generated significant press and instantly transformed the Seaport into one of the top fashion and creative destinations in the city.

One writer referred to the Seaport District as New York's newest fashion hub.

We also welcomed Sarah Jessica Parker's only permanent store in New York, Roberto Cavalli, Cynthia Rowley, By Chloe, Big Gay Ice Cream, Scotch and Soda, Dita, Cobble & Co.

and Lobster Go Go.

Please turn to Slide 15.

Because of its unique appeal to consumers, sponsorship will be an integral part of the Seaport, and our strategic partnership group has been active in completing long-term sponsorship deals with many national brands.

We've completed deals with Lincoln, Heineken, Chase, Pepsi and Ticketmaster, totaling approximately $6 million annually.

This still leaves the largest partnership opportunities available such as the Rooftop naming rights.

We are currently in discussions with the potential naming rights partner and expect our sponsorship revenue to continue to be a meaningful and growing income stream for the property.

Additionally, over the years, we've experienced robust demand for event space, particularly among fashion brands with brands like Louis Vuitton, Fendi, Facebook and goop, hosting major events at the Seaport.

These are a few examples of tenants that have paid us hundreds of thousands of dollars to use our event spaces for short periods of time.

Given the unique nature of the Seaport District, it needs to be seen and experienced in order to understand its ultimate potential, and I encourage each of our shareholders to continue to visit during its ongoing transformation.

We continue to expect to deliver a stabilized yield of 6% to 8% on a total cost of the development or approximately $731 million net of insurance proceeds.

The range of our stabilized yields at the Seaport is wider than our other developments because its cash flows are more volatile than those for our other projects, and the ultimate results may in fact fall outside of the expected range.

The increased volatility is largely the result of increased business operating risks, given that many of the tenants in the district will be owned either entirely or in a joint venture and operated by us along with seasonality factors, potential sponsorship revenue and event revenues.

As a result, the revenues and expenses of these businesses will directly impact the net operating income of the Seaport.

This is in contrast to our other retail properties, where we primarily receive a lease payment and are not directly impacted by the operating performance of the underlying businesses.

Additionally, in the near term, we are opening and stabilizing a range of new businesses, and due to this fact as well as the factors previously mentioned, the quarterly results of the Seaport will be less predictable than our other operating real estate assets with traditional lease structures.

Until our full vision has been realized and a critical mass of the key offerings are open, it will be difficult to generate the traffic and sales we need to achieve our stabilized projections.

We have moved out the stabilization date to the end of 2022, largely as a result of the timing of the construction, interior finish work and the time needed to stabilize the Jean-Georges Food Hall and the Tin Building.

We have also moved the stabilization date for Mr. C's hotel to 2021 to reflect a more realistic time frame for full stabilization.

It is worth noting that we do not have operating control of the hotel.

The Seaport will incur losses over the next 2 years until the district is fully opened.

Due to the recent openings of various businesses, we incurred a net operating loss of approximately $6 million at the project in 2018.

A loss was expected and was included in our original development budget.

But because generally accepted accounting principles do not allow for capitalization of these opening costs, we have to expense them as incurred.

Financially, we expect similar results in 2019 as we anticipate that the preopening costs of new businesses opening in the Pier Village will more than offset the increased revenue from rental income of our lease space.

Having said all of that, we are steadfast in our vision and that we are best positioning the Seaport District for long-term financial success.

We are confident we will have ultimately created a much more profitable development with our approach than leasing the space to traditional retailers.

The Seaport is an iconic and irreplaceable part of Manhattan that cannot be recreated.

As such, as I've said before, we believe that if we ever did decide to sell, the property would realize an historically low cap rate with a significant spread relative to our return-on-cost yields.

Similar to other scarce assets with limited competition, we believe the Seaport has the opportunity for outsized appreciation over time compared to other assets given its unique and iconic qualities.

To sum things up, 2018 was an outstanding year for the company, and we are optimistic about 2019, but as always, approach the new year closely monitoring our markets and prepared to react quickly if we do start to see changes in our communities.

Most importantly, we remain relentlessly focused on continuing to unlock long-term shareholder value across the company.

With that, I would like to turn the call over to Grant.

As David said, we made excellent progress in 2018, and I would like to talk about the details driving the results in our MPC, Operating Assets and Strategic Development segment and then turn it over to David O'Reilly to discuss our earnings and financial activities for the quarter.

First, within our MPC segment.

Residential land sales closed in the fourth quarter has decreased to $32 million from $57 million in the fourth quarter of 2017, a decrease of $25 million.

This decrease was due to the timing of land sales at Summerlin, which had an incredible fourth quarter in 2017 and an exceptional third quarter in 2018 that may have affected the past quarter.

As David mentioned, for the year, residential land sales closed were $235 million, an increase of almost $46 million, a 24% improvement from 2017's $189 million of sales.

While our overall average price per residential acre was down slightly from 541,000 to 515,000, this is largely because of the increase in lots sold in the Woodland Hills, which we had the lower price point in our other communities and only began selling land in the fourth quarter of 2017, making the periods not comparable.

Both Bridgeland and Summerlin had increases, while the Woodlands was down slightly but essentially flat.

At Summerlin, we continued to experience robust demand for residential land.

The economy is in great shape, and the improvements and amenities that we have brought and will continue to bring to downtown Summerlin are truly adding value to our land and further distinguishing the community.

Summerlin is now more than ever the premier place to live, work and play in the Las Vegas Valley.

The community had 1,276 new home sales during the year, an increase of approximately 25% of the 2017's 1,022 homes, which is indicative of Summerlin's dominance and appeal.

The median home price was $575,090 versus $563,748 in 2017.

Total residential land sales revenue increased from $120.7 million in 2017 to $144.7 million in 2018.

The price per acre, excluding customer home lots that sell for over $2 million per acre, was up $547,000 in 2017 to $566,000 in 2018.

For the fourth quarter, new home sales declined approximately 25% from 305 in 2017 to 230 in 2018.

Even if we were to annualize this number, it is still 920 homes per year, a very healthy new home market and very close to the numbers sold in all of 2017.

Subsequent to year-end, there have been 105 net new home sales through February 3, 2019.

This is quite strong for a traditionally slow time of the year and is consistent with 2017.

In addition, we had traffic of over 4,750 visitors to our builders' model homes.

According to Credit Suisse's U.S. homebuilding report from February 22, 2019, Las Vegas has seen improving traffic and sales over the last 6 weeks, with early February off to a good start in inventories alone.

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, 109 lots have closed for a total of $345 million through year-end 2018.

For 2018, we had 32 lot closings for $104.8 million in proceeds.

This compares with 17 lots closed for $55.9 million in 2017.

We recorded equity and earnings from this joint venture of $36.3 million in 2018 as compared to $23.2 million in 2017.

At year-end, there were another 18 lots or dwelling units under contract, representing approximately $72.3 million of revenue.

We are very pleased with this venture.

Moving on to Texas.

In general, Houston continues to experience population and job growth, which has resulted in increased demand in our Master Planned Communities.

Job growth increased by 3.7% over the year according to a recent data released by the U.S. Bureau of Labor Statistics.

The Houston MSA created 114,400 jobs between November 2017 and November 2018, growing faster than the U.S. overall.

Unemployment is now more in line with the national rate of 3.5%, dropping from 4.4% to 3.8% during the past 12 months.

Employment sectors with the most growth were mining-related, construction and durable goods manufacturing.

Improvements in the manufacturing and construction sectors drive home sales.

In Bridgeland, residential land sales closed totaled $48.2 million for the year, which is approximately at $17.8 million higher than the $30.4 million achieved in 2017.

This represents a 58% increase.

The increase was due to our development of additional lot sizes to meet homebuilder demand and the opening of Park Village, our newest space.

Year-over-year, the price per acre increased from $377,000 to $385,000, an increase of a little more than 2%.

For the quarter, Bridgeland sold $17.7 million of residential land versus $7.3 million in the same quarter of 2017.

We believe that Bridgeland has clearly hit its stride and will continue to become a more significant cash flow generator each year.

The trend is very promising, with residential land sales of approximately $20 million in 2016 growing to $30 million in 2017, and then $48 million in 2018.

The median home price increased to $383,000 for the year compared to $346,700 in 2017.

Continuing Houston.

Sales of new homes in the Woodlands were essentially flat, with 343 homes sold in 2018 versus 340 in 2017.

The median new home price decreased from $533,000 in 2017 to $464,760 in 2018.

This is a result of our sales mix and reflects the higher absorption of mid-priced homes in 2018.

The price per acre year-over-year decreased from $628,000 to $618,000 or approximately 1.6%.

The decrease is attributable to the mix of lots sold.

For the year, The Woodlands residential land sales closed totaled $33.2 million versus $36.6 million in 2017, a slight decrease.

According to our in-house research, as of January 28, 2019, we estimate that there were 84 spec homes available for all builders in the Woodlands, which is approximately a 2.7-month supply based on current estimated 2018 absorption levels.

We continue to be 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.

I'm pleased to report that land sales totaled $9 million at the Woodland Hills, our first full year of sales, 35 new homes sold during the year.

The median home price is $350,725, which will be very competitive in the market.

We are very pleased to be progressing with this new neighborhood.

Turning to our Strategic Development segment.

You will notice that the segment EBT decreased substantially in 2018 compared to 2017 despite a robust year of condominium sales at Ward Village.

EBT was down about $94.7 million from $186.5 million, to $91.8 million.

This is the result of a change in accounting methods regarding revenue recognitions for condominium sales that began on January 1, 2018.

This change has made a comparison between the 2 years not meaningful.

David O'Reilly will talk more about this in a few minutes.

Despite the accounting change, we could not be more pleased with the progress we are making in Honolulu.

Across the company, in 2018, we commenced construction on 9 new developments, which in aggregate, when stabilized, will add an additional $67 million to our NOI.

Total cost for these developments, including just our share of cash equity required for our partnership in 110 North Wacker, is approximately $670 million.

As we work to unlock the tremendous value within our MPC and start construction on new projects, we are able to increase our targeted stabilized NOI on a continuous basis.

With 50 million square feet of entitlements remaining, we have an enormous opportunity to grow from within.

In 2018, these new developments will spread across our entire portfolio from 110 North Wacker in Chicago, to retail in Houston, a new ballpark in Summerlin, and multifamily projects in Columbia, Summerlin, and Houston.

Speaking of 110 North Wacker, we are very pleased with our leasing progress on the building.

As of this week, we are 45% leased, having signed 86,614 square feet of leases in the last 3 months.

The construction has progressed our first typical floor, which in the world of high-rise construction, is a key milestone, a sign that a significant portion of the construction risk is behind us.

As David said, our operating asset segment NOI increased to $173 million as compared to $157 million in 2017, an increase of $16.3 million or 10.4%.

The increase would have been $20.8 million or 13.1% if we exclude the loss at the Seaport District.

The assets that we have developed over the last few years are all increasing in occupancy and moving towards stabilization.

We saw improvements in our retail office, hospitality, and multifamily businesses.

In retail, we saw great improvement, especially given the overall retail environment.

In Downtown Summerlin, traffic was up 8.5% over 2017, and NOI increased by $2.9 million from $18 million in 2017 to approximately $20.8 million in 2018.

Ward Village also saw $1.3 million increase in NOI on higher occupancy.

We believe that Downtown Summerlin will continue to improve after the ballpark opens and Ward's retail will continue its upward trajectory as more residents move into the neighborhood.

This is a testimony to the controls and lack of competition that we have in our communities, and how the virtuous cycle of our development continues to add value.

In office, we had increased occupancy at Three Hughes Landing, 1725 Hughes Landing, One Merriweather, 30 Columbia Corporate Center, and One Summerlin.

We also placed Two Merriweather in-service.

In Texas, according to Colliers' Fourth Quarter 2018 Houston Office Market Report, vacancy fell slightly to 20% and absorption turned positive.

The office market posted 1.9 million square feet of positive net absorption in the fourth quarter compared to a negative 400,000 square feet during the same period in 2017.

While the office market still struggles with vacancy, this is a positive note, and we are hopeful that it will continue improving throughout 2019.

By contrast, The Woodlands submarket has a Class A direct vacancy rate of approximately 10.4%.

Because we are partially insulated from market downturns in our MPCs as a result of the controls we maintain and the high quality of our small cities, The Woodlands office market has held up much better than the general Houston market during the oil downturn.

Large tenants of that leasing space, and there's no better example than our Lakefront North building.

Since purchasing the 2 buildings in September of last year, we have signed leases for approximately 167,103 square feet, including 87,000 square-feet with Arena Energy; 54,000 square feet with Entergy; and 26,103 square feet with ExxonMobil, bringing the campus of Lakefront North to 91% leased in under 6 months, far exceeding our lease-up projections.

As of February 11, 2019, our office Woodlands portfolio was 93% leased, and our largest available contiguous space was only 13,250 square feet.

Our hospitality NOI increased by $5.5 million from $19.7 million in 2017 to $25.3 million in 2018, a 28% increase.

We saw improvements in NOI at all 3 of our properties, led by The Woodlands Resort and Conference Center with a $3.6 million increase in NOI for the year compared to 2017.

The Houston Business Journal recently ranked all 3 of our hospitality properties in the top 7 in the Houston area for revenue per available room.

We are very proud of our hospitality's teamwork in Houston.

In multifamily where we consolidated Constellation apartments and increased occupancy in One Lakes Edge, which increased our NOI.

In summary, we are very pleased with the performance of all our segments.

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.

I hope that you've been able to review our 10-K earnings release and supplemental filed yesterday, which contain details of our financials and operational results.

I'd like to begin with the change in accounting methods.

As we have previously mentioned, beginning in January of 2018, following the Financial Accounting Standard Board's new guidance for public companies, we have changed from recognizing condominium sales revenue on a percentage of completion basis per units under contract to recognizing revenue only when a unit sale closes.

Accordingly, we are required to recognize revenue and cost of sales for condominiums only after the sales to the buyers have closed.

This change relates solely to the timing of recognizing revenue on these sales.

It means that revenue will be generally recognized later than it previously had been and that the revenue is expected to be more volatile as it only is recognized as unit sales close, which tend to be in large numbers just after a building is delivered to the buyers.

This change in accounting method had a negative effect on earnings in our Strategic Development segment despite extremely strong condominium sales this year.

Under the new revenue recognition accounting rules, we recognized $376 million of revenue in 2018.

Under the former accounting rules, we would've recognized an additional $130.4 million of revenue in our Strategic Development segment for the year.

Due to the change in accounting rules, the results are not comparable to 2017, where we reported sales of $464.3 million.

We completed the year with GAAP earnings of $57 million or $1.32 per diluted share as compared to $168.4 million or $3.91 per diluted share for 2017.

The $111.4 million decrease was primarily due to decreased earnings in our Strategic Development segment, which was due to the change in revenue recognition methods that I just mentioned.

The reduction in revenue due to the accounting change was partially offset by higher MPC land sales and increases in minimum rents and other revenues as a result of increased occupancy in our operating assets.

In addition, we recognized gains on sales of properties totaling $51 million and a gain on the acquisition of our joint venture partner's interest of $23 million in 2017.

We did not have the same gains in 2018.

Offsetting these gains with a lack of losses from the redemption of senior notes and warrant liability losses of $46.4 million and $43.4 million that we had in 2017, but not in 2018.

Turning to FFO, core FFO and AFFO for the year ended December 31, 2018.

All 3 were impacted by a decrease in condominium rights and unit sales as a result of the accounting change I just discussed, making the comparisons between years less meaningful.

FFO decreased to $180.5 million for the year ended 12/31/18, compared to $260.3 million for the year ended 12/31/17.

This decrease, again, largely attributable to the decrease in condominium rights and unit sales and an increase in demolition and development-related marketing costs, primarily related to 110 North Wacker and the Seaport District.

FFO decreased to $74.8 million for the 3 months ended 12/31/18 compared to $168 million for the 3 months ended 12/31/2017.

While the fourth quarter included an increase in condominium rights and unit sales as we close the units in our IO Tower in the fourth quarter of 2018, the overall decrease in FFO was largely driven by several onetime items in 2017 that did not recur in 2018, including a decrease in benefit for income taxes and a decrease in gain on acquisition of joint venture partner's interest.

Core FFO decreased to $251.6 million for the year compared to $298 million for the year ended 2017.

This decrease was also largely attributable to the decrease in condominium rights and unit sales.

As a result of closing IO units in the fourth quarter, core FFO increased to $100.5 million for the 3 months ended 12/31/2018.

AFFO decreased to $233.7 million for the year compared to $279.2 million for the year ended 12/31/17.

Again, this decrease was largely attributable to the decrease in condominium rights and unit sales.

AFFO increased to $95 million for the 3 month ended 12/31/18, again from the closings of IO.

As I just noted, our quarter-over-quarter comparison of FFO was negatively impacted by the onetime benefit we incurred in the fourth quarter of 2017 that did not recur in 2018 as a result of the Tax Act.

While the new Tax Act might have caused an unfortunate comparison from an earnings perspective, it has and will continue to provide meaningful benefits to Howard Hughes on a go-forward basis.

Specifically, the new Tax Act, with its reduction in corporate tax rate, is beneficial to us, especially in our residential land sales and condominium sales business, where we generate the bulk of our taxable income.

We now do not expect to pay any meaningful federal tax in 2019 due to the following: first, our carryover NOLs and other tax assets have not been fully utilized due to both tax planning and lower taxable income in prior years compared to book income; second, as we place large assets in-service, such as Pier 17, we take advantage of extremely favorable bonus depreciation loss.

From a tax perspective, one can think of our business as 2 distinct categories, our nonrecurring revenue, such as residential land sales in our MPCs and condominium sales at Ward Village, and our recurring operating asset NOI.

The Tax Act passed in late 2017 that lowered the corporate tax rate will benefit the first category of income as it generates the bulk of our taxable income.

As it relates to the second category of income, because we generally plan to hold our operating assets forever, due to the high level of control we have in our core regions, we do not think that investors should assume a tax on the value created in a theoretical liquidation of our Operating Asset segment when valuing us on a net asset value basis.

Moving on to our capital markets activity.

We had a very active year, closing on just over $1.9 billion of financing transactions, including $1.1 billion of construction and acquisition facilities that support our new development.

Our new construction financings were highlighted by $688 million in total financing for 110 North Wacker, our 1.5 million square-foot high-rise office tower in downtown Chicago anchored by Bank of America.

The total financing is comprised of a $513 million construction loan and $176 million of preferred equity.

Additionally, we closed a senior secured, nonrecourse credit facility with loan proceeds of up to $700 million, comprised of a $615 million term loan and an $85 million revolver.

In addition, we have the right to increase our revolver by $50 million, due to the facilities accordion feature.

The 5-year financing carries an interest rate of LIBOR plus 1.65% and refinance approximately $609 million of existing debt that carried a weighted average interest rate of LIBOR plus 2.2% and a weighted average remaining term of only 1.7 years.

We also modified and extended approximately $123 million of existing loans.

Our 2018 transactions further our goal of efficiently managing the company's balance sheet and capital structure to enhance financial flexibility while mitigating rising interest rates.

During the fourth quarter, we've closed a $74 million construction loan for the development of Two Lakes Edge, a 386-unit, multifamily development with ground floor retail in the Woodlands.

Wells Fargo is providing the financing at an interest rate of LIBOR plus 2.15%.

The loan matures in October 2022.

In December, we closed on a $51.8 million, 5-year term loan at LIBOR plus 2%, secured by our recent acquisition of the Lakefront North buildings in the Woodlands.

The loan finances the 2 office buildings, which totaled 263,000 square feet, and provides funding for future leasing capital.

Additionally, we extended the financing secured by the outlet collection at Riverwalk by 1 year and reduced the interest rate by 25 basis points to LIBOR plus 2.5%.

The $47.9 million facility was scheduled to mature in October 2018.

Also, during the fourth quarter, the construction financing secured by Three Hughes Landing in the Woodlands was modified and extended for an additional year.

The $62 million facility was set to mature in December 2018.

The extension provides the bridge necessary to substantially lease the remaining space in the building.

The loan bears an interest of LIBOR plus 2.6%.

In addition to these originations and modifications, we repaid $174 million outstanding balance on the construction loan for IO at Ward Village, with sales proceeds from unit closings in December.

As of the end of the fourth quarter, our total consolidated debt to total assets was approximately 43.2%, and our net debt-to-enterprise value closed the quarter at 35.4%.

The net debt-to-enterprise value has risen this quarter due to the decrease in our stock price, so we do not believe that there's been any change to the intrinsic value of our company.

As a result of being proactive and extending out maturity dates on our debt, as of today, based on extended maturity dates, we have no maturities in 2019.

From a liquidity perspective, we finished the quarter with approximately $500 million of cash on hand.

As of the end of the year, we had 27 projects in our Strategic Development segment, with total cost of approximately $4.7 billion.

Of that amount, we've previously funded $2.7 billion, leaving $1.9 billion in remaining costs.

We expect to meet this obligation with a combination of existing construction loans, which at quarter-end, had approximately $1.05 billion of committed but undrawn capacity; with $74 million of condominium buyer deposits; and anticipated loans of $294 million for 'A'ali'i and $17 million for Creekside West retail.

This leaves a net remaining equity requirement of $483 million.

We expect to fund this through a combination of our free cash flow from our operating assets and MPC sales, net proceeds from condominium sales, and non-core asset sales.

Finally, we would use our existing cash balance.

Again, as of the end of the fourth quarter, with net equity requirements of $483 million, significant free cash flow and cash balance of approximately $500 million, we have full confidence in our ability to meet all of our current funding requirements given the strength of our contractual operating asset cash flow and the first quarter's closed IO homes.

Starting a little over 2 years ago, when we started quarterly conference calls and publishing a supplemental information package, we've been very focused on engaging with our investors in creating as much transparency as possible.

Given the complexity of our business plan, we believe then, as we do now, that increased visibility for HHC is a must.

Consistent with that thinking, starting in the first quarter, we're going to increase the transparency on the results of the Seaport District.

The Seaport District is part non-stabilized operating asset, part development project, and part operating business.

As such, we believe that the progress and results of the Seaport should be viewed independently.

So with our first quarter results, we're going to move the Seaport District out of our Operating Asset segment and into its own standalone segment for disclosure purposes.

We believe that by providing this additional detail, our investors and analysts will be able to better track our progress towards stabilization.

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

Thank you, David.

As you can see, we had another quarter and full year of outstanding results across the portfolio.

Additionally, we had a great year of qualitative accomplishments at the Seaport, which was not reflected in our financial results at the asset due to its preopening cost associated with bringing new businesses online.

When looking at the company, it is critical to not lose sight of the forests.

In our case, our platform of small cities and vibrant destinations in which we enjoy dominant positions that enable us to generate superior returns.

Our results should be assessed by looking at how we performed across our 3 complementary business segments in the aggregate, which together, are the ingredients that make us unique.

As I said at the beginning of my comments, the company has never been stronger, and we are making progress in every facet of the business.

As always, we will continue our quest to unlock and create long-term value for you, our shareholders.

Thank you, again, for joining us today.

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

(Operator Instructions) Our first question today will come from Craig Bibb of CJS Securities.

I'm glad there's time left for questions.

Before I ask a Seaport question, you guys are crushing it in Ward Village, and I assume the decision is already made to pull forward to opening 2 towers per year or...

Well, we didn't say we were going to do 2 towers a year.

We said we're studying the impact of acceleration, and we will always do everything we can to move as quickly as possible, but we will do it in a very measured way as we have in the past.

Okay.

So with 110 North Wacker, you guys did a great job of mitigating risk and preserving your upside.

But with the Seaport, you seem to be going in -- at the other direction.

You've 100% equity.

You have no partner.

You're actually operating many of the businesses.

You've added the land at 250 Water Street.

Why are you doing it this way?

And do you plan to offload risk down the road?

I think as it relates to Chicago, we've consistently said we're -- obviously, we're building what we believe to be the best, tallest office building to be built in the last 3 decades.

Our rents are as high as we know the market's receiving.

But that's not a market that we see ourselves owning a single asset in for a lifetime.

Yes.

And Craig, just to kind of answer that question.

So Chicago isn't pretty easy, right?

It's an office building, 1.5 million square feet, vision is clear, 1/3 leased to Bank of America, GMP in place, time line established, and clear vision, and clear road to execution.

The Seaport is vastly different than that.

The vision took time to develop.

It's now crystal clear.

The buildings took time to build.

The pier head will be reconstructed.

The Tin Building was then redeveloped.

Agreements had to be established with the city.

Ground lease has changed.

It's a very complex, complicated development, and so bringing in capital at any time during those phases would have been destructive to value.

I think the idea of potentially bringing in capital, once vision is clear, is always being evaluated by management and by the board, and we'll execute that at the appropriate time.

Okay.

And that you're pushing back the Tin Building by a year?

Or just pushing back the expected stabilization?

Well, the idea was that it was always supposed to be completed by Q4 2020.

We've moved that to 2021 in terms of an opening date.

As far as stabilization, that's a ramp up on sales.

What happened?

It's our best guess at a ramp-up on revenue.

But the answer, the direct answer, is that there hasn't been any particular change in when we expect that particular part of the Seaport to open at this point, based on the approvals that we have in place today.

Okay.

And maybe -- are you guys -- I know you're expecting to have more of the office space and the pier leased by the time we get to year end, if things get delayed.

Is there like a core sticking point that's slowed things down there?

It's just decision-making on the part of big companies.

But what we can reiterate is that we have tremendous interest from several big companies that are household names, and we're excited to make an announcement and we'll do so as soon as we're in a position to do that.

Our next question comes from Scott Schrier of Citi.

I wanted to ask, a little more broadly speaking, across your portfolio, thinking about the cash rent that's expiring.

And I know that you spoke about Abercrombie not renewing their lease.

But just in general, the leases that are up in '19, can you talk about negotiations or trends you're seeing in renewing these leases in terms of no problems renewing them, the ability to raise rents or any types of pressures you might be seeing?

Great question, Scott.

So obviously, because we have a very geographically-diverse portfolio, you can imagine that the markets react very differently based on different trends.

So to kind of go left to right, in Hawaii, we're consistently increasing rents across the platform for the shorter-term leases that are necessary while they're redeveloping the property.

And obviously, as the new buildings come online, we're getting market-leading rents and feel very encouraged by the rents that we're receiving.

Summerlin rents are moving fast.

Market is moving fast, and we have no problems leasing up office space, or multifamily, or the resell.

In fact, Two Summerlin leased in half the time that One Summerlin is leased.

And the Summerlin market, as you might imagine, or the Vegas market, is not a spec office market and Two Summerlin leased before the building was actually completed.

So we're very encouraged by that.

That's not an accident.

We've done everything we can to ensure that the amenities that are put in place in that community drive land prices, primarily, because that's where the largest cash flow is generated, and then, obviously, because land prices are moving fast and commercial prices start to move that are rent stabilized and drive value to recurring NOI, which is our virtuous cycle and we've proven over ages, it's a recipe for success.

Chicago, an incredible demand on 110 North Wacker, and we're executing leases there.

Slower to execute leases because there are big leases, but we do have a number of things working at our expected ramps.

Chicago, therefore, as David said, is one of the best buildings in the market, was the best development in the market and there's no real competition to it.

It has the best site in the city and it will be delivered in the nearest term.

In Houston, our Lakefront North is the clear example of why we dominate.

It's an exceptional success story.

We knew it when we went in to buy that building.

We bought it at a discount to replacement hubs.

We leased it in 60 days.

Our leasing projection was 2 to 3 years.

We leased it at record rents, and we're 94% leased.

We have 13,000 feet of contiguous space across the market, across that portfolio.

And our biggest obstacle is we don't have another building to deliver just yet, although we're working on it.

So that's a huge success.

Multifamily, our monthly rent is increasing.

And retail, we don't have a lot of vacancies, so we are encouraged by that.

In Columbia, it's a new market.

We're creating brand awareness in that market.

Downtown Columbia is, although it's 40 years old, it's being rebranded, revitalized.

And our 6100 Merriweather building, which comes online at the end of this year, will be a Class A+ building for the market.

So that's kind of where we are.

And just to add to what Grant said, the great thing about this company we've said from day 1, is our geographic diversity, and specifically, that we're in markets that are so strong.

So on the horizon, we feel very good about where we are and how we position each of our major assets.

Great.

For my next question, I wanted to ask a little bit about Bridgeland.

Obviously, you've made tremendous progress there over the past couple of years, and I understand you're opening up another village there.

It seems to be an asset that's geared -- I don't want to -- a little more affordable price points potentially than the Woodlands.

I think now you're up there, you said around the [380s] for the ASP for the homes being built there.

So how do you think about the asset positioning there, whether from its land being used for certain ASPs, the pace of land sales versus the price points?

Just the best way to optimize that asset if you could talk a little bit about that.

So Bridgeland, that's in the path of growth.

Northwest Houston on the 99, the Grand Parkway, is -- the Master Planned Communities that surround it or any other land, and it's a natural progression towards increased pace of land sale.

If you look at our 3-year track record, we've had increasing land sales substantially each year, year-over-year.

That's not by mistake.

We've designed it that way.

We're hoping to get to a velocity of close to 1,000 lots in the next several years.

That's subject to market demand, obviously, but we feel encouraged by that.

Our goal is to consistently increase price per acre on the residential.

The biggest obstacle, obviously, in the increasing price per acre is affordability, but when you look at where Houston sits in the affordability index for home sales, we still have room to grow.

So we're encouraged by that.

February was a great month in terms of home sales.

And January was good.

Obviously, 2018 was a great year for us, and so we feel very good about it.

On the commercial side, it'll take time to develop the real critical mass that's necessary for that to bring to bear, but you can expect Bridgeland to be very much like The Woodlands a decade from now.

Our next question comes from Vahid Khorsand of BWS Financial.

First question, on your development cost and your marketing and development cost, is that a line?

It looks higher than it was last year.

Is that a standard level we should expect going forward?

No.

This is David O'Reilly.

I'll address that.

That was elevated this year.

Those are costs that, under a typical development, you would expect to be capitalized, but we are expensing them in accordance with GAAP.

This year, we had outsized expenses there, specifically as it relates to 110 North Wacker, which was a critical project for us, as well as the Seaport, as we're opening new businesses there.

So that's a line item that, I think, is a little bit elevated this year, and should return in '19 to a more normalized level.

Okay.

And then, going to your condo sales in Ward Village, you have Ke Kilohana coming on line middle this year.

So I know you had said for Ae'o, you were expecting about 1/3, 1/3, 1/3.

How do you expect to recognize the contracted sales of the new one?

So we had -- as you noted, we had 3 bulk closings for Ae'o, 2 of which occurred in December, and one in January.

With Ke Kilohana, we expect the majority of our closings will be in 2Q, but there's a chance that some of them will slip into 3Q.

It's just a matter of how quickly we can knock out the punch list, get the buyers to walk to their units and see how quickly we can get to the closing table.

With that many units, it's not something that you can do on one particular day.

It's something you have to space out over multiple weeks or a month.

And as we get closer to that date, we'll be able to provide some additional color on the time.

Great.

And then, my final question, on the MPC segments, specific to The Woodlands, I know you told us not to think of the acreage in The Woodlands as a material number, but is that something you're looking to hold on to and use it to self develop, either a multifamily, or retail, or office projects?

I would say that the split between residential and commercial acreage is widest in the Woodlands and when I say that, I mean, we have the least amount of residential relative to commercial development.

We have over 700 acres of commercial development -- of commercial land to develop in the future, and that's where I would expect to see the office, multifamily, retail, hospitality, et cetera.

The 176 residential acres, I still expect to be sold as residential.

And we have plenty of the developments to do on the commercial acres.

So there's no need to shift that over.

Our next question will come from Daniel Santos of Sandler O'Neill.

My first question is sort of a two-parter on the Seaport.

The first part is have you seen any change in the approval or planning process in light of the Amazon HQ2 experience?

And then, I know you talked about the JV of a -- the potential of a JV partner.

Have you had any initial discussions with anyone?

And what are you really looking for in a partner if that's the route you choose to go?

I think to finance this, and obviously that we're keeping a lot of that close to our vest, but we're -- continue to make progress with the municipalities relative to our entitlements at the Seaport.

And Q2, Amazon Q2 is, obviously, it's had a lot of press related to it.

We're trying to stay above the fray and away from that, and just make progress on our own development.

As it relates to a JV partner, we haven't made plans to...

For the financing or anything, we haven't discussed anything along those lines publicly, nor would I expect to until we have anything to announce, and I would say that we're not actively looking either.

As David said, we're creating value there all the time.

And to monetize the piece of an asset before its maximized its value would cost our shareholders in terms of value creation.

So while we're always open to the opportunity of a structure like a 110 North Wacker and other of our assets, it would have to be when the cost of that capital is appropriate and we'll have the best cost of that capital when we've taken risk out of the project and we have a couple of milestones that are very near term, within reach of the Seaport, in terms of opening restaurants this summer, in terms of, hopefully, working with the local folks to move some (inaudible) that will really create some value, derisk the project, and I think, potentially, if we do look to raise capital, reduce that cost.

Okay.

That's helpful.

And just, David, on -- with Abercrombie moving out and the higher expenses you said offsetting some of the lease up NOI, could you just give a little bit more color on what the net impact to Howard Hughes will be in 2019, both on a partial year and an annualized basis?

I think it's around $1 million of NOI to -- on the Abercrombie lease.

Okay.

And then, just one last quick one.

Obviously, the demand for affordable and workforce condos in Ward Villages is pretty healthy.

Are you seeing an increase in demand or in competition, just across the island?

Or are you guys still the only one sort of developing that?

I think the demand is consistent, but I think what we've done is we've figured out that sweet spot of the market where we're creating product that is helping accelerate people acting and executing on buying new homes.

So we're very pleased with that.

Okay.

And are you seeing more competition from other developers?

Or...

There are a number of planned developments in the area, but the barrier to entry is clear.

Entitlement, number 1; ownership of the land, number 2; and presales and predevelopment costs, number 3. All of which we have in our pocket.

At the end of the day, we have the best location in the market, 60 acres on-the-water overlooking Koula, with Diamond Head views.

None of the other sites are anywhere close to that.

Clearly, any additional condo towers or competition, any units of competition, but at the end of the day, competition breeds success, and our buyers are going to be attracted to us relative to the others.

And I think, really, the best example when we talk about critical mass, Ward Village exemplifies that because you can now see the village coming to life with the buildings that have opened and it makes a huge difference.

And we're hopeful that you will continue to see -- we will continue to see acceleration in our business plan there.

This concludes our question-and-answer session.

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

I appreciate you all being with us today.

I know our call ran a little bit longer than normal.

Hopefully, you found that the additional details on the Seaport will be helpful, and we will be discussing with investors, the format, to see if it's a good one to use on a move-forward basis.

But as always, I'm available, Grant, David, Peter.

We're only a phone call away, if we can help.

We appreciate you believing in us, and we're going to continue to work real hard to create lots of value for our shareholders.

Thanks, and look forward to talking with you soon.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.