Howard Hughes raises FY23 MPC EBT view to flat-10% from (25%)-(35%)

MPC EBT, which was previously projected to decline 25% -35% year-over-year due to a slower housing market, is expected to benefit from increased sales of new homes in Bridgeland, Summerlin, and The Woodlands Hills year-to-date. With reduced cancellations and declining inventories of new homes, homebuilder interest in new acreage has meaningfully improved, and the Company expects increased land sales in the coming quarters. As a result, 2023 MPC EBT is now expected to be flat to down 10% year-over-year. Operating Assets NOI, previously projected to be down 2%-up 2% year-over-year, has benefited from strong multi-family rent growth and lease-up at new developments in Bridgeland, Downtown Columbia, and Summerlin which encompass nearly 1,400 units. The office portfolio has also delivered solid financial performance year-to-date, benefiting from expiring abatements; however, strong leasing momentum in recent quarters is not expected to have a material impact on 2023 results due to free rent periods on many of the new leases. Overall, excluding the $3.4M contribution from divested retail assets in the prior year, Operating Assets NOI is now expected to be in a range of up 1%-4% year-over-year. Condo sales revenues, which were previously projected to range between $45M-$55M with gross margins between 25% to 28%, are now expected to range between $40M-$45M with gross margins between 10% to 13%. Projected condo sales revenues and gross margins are entirely driven by the closing of remaining units at ‘A’ali’i and Kundefined’ula, which were 99% and 98% sold, respectively, as of June 30. Reduced revenue and gross margins expectations are the result of recent pricing reductions to facilitate the close-out of remaining units which represent approximately 3% of all units in the two towers. Despite lower margins on the remaining units, overall gross margins at ‘A’ali’i and Kundefined’ula are still expected to be 25%-30%. The next major condo project scheduled to be completed is Victoria Place, which is expected to be delivered in 2024 and is 100% pre-sold. Reaffirms FY23 cash G&A view $80M-$85M, which excludes anticipated non-cash stock compensation of approximately $5M.