Howard Hughes (NYSE:HHH) reported growth in recurring real estate income and a profitable first full quarter for its Vantage insurance business, while outlining plans to bring outside investors into its real estate assets and free up capital.
Executive Chairman Bill Ackman said the company has received offers for major assets since announcing its shift toward a more asset-light real estate model in September. He told analysts that generating roughly $2 billion in incremental proceeds by the end of 2027 was a reasonable approximation, though the amount could be higher or lower.
Howard Hughes is unlikely to complete the transition by the end of 2027, Ackman said, but expects to make significant progress. The company intends to retain control of its master-planned communities while bringing in largely passive partners, and it could sell some noncore assets outright.
Vantage Posts Underwriting Profit
Vantage reported $103 million in third-quarter pretax income on a historical accounting basis that excludes purchase accounting adjustments, more than double its year-earlier result, Vantage Executive Chair Marc Grandisson said. Net income rose 22% to approximately $80 million.
On the basis included in Howard Hughes’ consolidated results, Vantage had pretax income of approximately $77 million and a combined ratio of 101.8%. Excluding purchase accounting adjustments, its combined ratio was 94.9%, compared with 95% a year earlier.
Gross written premiums rose 4% to $386 million, while underwriting income increased 19% to $16 million. Insurance-related premiums grew 8%, led by construction, casualty and financial lines. Reinsurance-related premiums fell 9% as Vantage wrote less property and specialty business where pricing no longer met its return requirements.
Grandisson said the quarter included a large energy loss in the reinsurance specialty book, but no significant catastrophe losses. He described property insurance pricing as increasingly competitive and said Vantage was likely to remain on the sidelines in property catastrophe coverage while looking for opportunities in less catastrophe-exposed areas.
Grandisson also said organic growth and hiring were the immediate priorities, although the company was open to acquisitions that would add specialized capabilities and diversification.
Real Estate Income Rises
Real estate operating assets generated $73 million in net operating income, up 8% from a year earlier, CEO David O’Reilly said. Same-store net operating income rose 9%, helped by office leasing. Adjusted maintenance-free cash flow increased 10% over the trailing 12 months to $96.6 million.
Master-planned community earnings before taxes fell to $89.5 million from $205 million a year earlier. O’Reilly attributed the comparison in part to a more than $100 million bulk land sale in Summerlin in the prior-year quarter and a $19.4 million noncash remeasurement loss related to the consolidation of the Floreo venture in Arizona.
Excluding those two items, O’Reilly said, the segment’s earnings before taxes would have increased. Net new home sales rose 11% in Summerlin and 5% in The Woodlands Hills during the quarter. Bridgeland sales declined 9% for the quarter but were up 7% year to date.
Howard Hughes also sold two Texas municipal utility district reimbursement receivables, generating more than $177 million in net cash proceeds and a $105.4 million GAAP loss. O’Reilly said the blended discount rate was just over 6% and that the company expects to redeploy the proceeds at higher returns.
Condo Pipeline and Capital Plans
The company contracted 82 condominium units during the quarter, including 66 at Melia, a Ward Village tower in pre-development. Melia was 15% presold as of September 30, after about a month of sales.
Asked about the pace relative to earlier projects, O’Reilly said Melia was set back from the beach, unlike four prior front-row towers, and faced higher interest rates. He said the sales pace remained in line with company expectations.
Across its condominium pipeline, Howard Hughes had 1,743 units under construction or in pre-development, with 62% presold or under contract. O’Reilly said the pipeline represented more than $5 billion in expected future revenue, including approximately $3.6 billion already under contract.
Capital freed from real estate transactions could be used to redeem preferred shares, invest in Vantage or fund development, O’Reilly said. Ackman said the board would decide whether to redeem the preferred shares, which are owned by Pershing Square, and that the goal was to generate enough capital for both a redemption and additional insurance investment.
Investment Portfolio Takes Shape
Chief Investment Officer Ryan Israel said invested assets totaled approximately $3.7 billion. Vantage held $1.3 billion in common equities, $2.4 billion in cash and short-term U.S. Treasuries, and $11 million in fixed-income securities, Grandisson said.
The common equity portfolio returned 4.7% during the quarter, Israel said. He described a long-term strategy of investing in businesses Pershing Square believes can generate returns of at least 20% annually over a three- to five-year holding period. Ackman said the company does not expect material changes to the portfolio absent significant changes in valuations or its view of a business.
About Howard Hughes (NYSE:HHH)
Howard Hughes Holdings Inc (NYSE: HHH) is a real estate development and operating company focused primarily on master planned communities, residential and commercial development, and the management of related real estate assets. The company develops large-scale communities that may include housing, retail, offices, schools, parks and other amenities, while generating revenue through land sales, development activities and property operations.
The company’s master planned community portfolio has included Summerlin in the Las Vegas area; Bridgeland, The Woodlands and The Woodlands Hills in the greater Houston area; and other communities and real estate assets in selected U.S.
