HHH - NYSE

Good day, and thank you for standing by. Welcome to the Howard Hughes Holdings Inc. Fourth Quarter 2025 Earnings Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that I would now like to hand the conference over to your speaker today, John Saxon, VP, Corporate Strategy. Please go ahead. Good morning, and welcome to the Howard Hughes Holdings Inc. Fourth Quarter 2025 Earnings Call. With me today are William Albert Ackman, Executive Chairman; David R. O'Reilly, Chief Executive Officer; Ryan Michael Israel, Chief Investment Officer; and Carlos A. Olea, Chief Financial Officer. 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 that discuss the company 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 and the risk factors in our SEC filings 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 Executive Chairman, William Albert Ackman. Thank you very much, John. And let me just add one addition to the room, Jill Chapman. Jill was formerly head of IR for Hilton, and we are very pleased

to announce that we brought her on in an IR capacity at Pershing Square, and she is also going to help, of course, with our investment in Howard Hughes Holdings Inc. While we are on the topic of IR, I just thought it would be useful as this business kind of transforms from a pure play real estate and real estate development company into a diversified holding company, led by our recent announcement to acquire Vantage Holdings. A good question and some question I have received from shareholders is how should we think about this business, what are the metrics that we should follow? And I think Howard Hughes Holdings Inc. over time also suffered a bit from shareholders trying to figure out how do I think about this business. In the conventional public company there is usually a certain amount of GAAP earnings or a number or a free cash flow number, and people want a simple rubric for thinking about it. What multiple do I put on this number, how do I track this number over time? And the multiple is determined based on the persistency and the growth of those kinds of earnings over time. And when you think about the Howard Hughes Holdings Inc. business, it is very challenging in our view. And, actually, it is hard to get to a proper indication of value using a conventional approach. I think you have to think about the business according to its different components. But the easiest place to begin, of course, is with stabilized income-producing real estate assets, apartments, retail, etcetera. Obviously, these are relatively easy to manage. There are plenty of comparables you can look at, and I think the only complexity at Howard Hughes Holdings Inc. is thinking about as we lease up assets, assets that are 95% rented, fully stabilized, it is easy, but we always have some amount of development, some amount of lease-up in the portfolio. But still, that is a pretty easy place to begin. Then there is our condominium business, and we have kind of a pipeline of product under contract. You get pretty good estimates of what the margins are on those sales. As those properties get delivered, I think a DCF is a pretty straightforward way to think about what those assets are worth. And because we really do not start building until we have sold a substantial majority of the units in these projects, and we have got a very good track record delivering them on time and on budget, it is a very low-risk business. Compared to what people normally think about a condominium business where you are highly speculative, you have to build as soon as you can because you levered up to buy a piece of property. Here, of course, we own the real estate outright. We can pick our moment, and we do not start construction until we know this is going to be a successful product with a lot of demand. And, today, we have got, how many million square feet left of product without, when we start there, just Hawaii. Well, just in Hawaii alone, we unlocked another 3,000,000 to 4,000,000 of entitlements this past year. Okay. So the pipe, so the 3,000,000 to 4,000,000 plus? Plus the existing pipeline that is in the today that is largely presales as you noted, Bill. Okay. So you can think about that. It is a bit like drilling oil. There is a finite amount of it. However, we have an incredibly talented team in Hawaii. We have built a real franchise and brand in Hawaii, and if you are a major landowner in Hawaii and you want a partner to deliver, turn that land into valuable condominium product, there is no better place to turn than Howard Hughes Holdings Inc. So I expect that what is today a 3,000,000 to 4,000,000 square foot pipeline of new product is going to grow over time as we either buy other land or we joint venture other property in Hawaii because of the franchise we have built. So there is an existing pipeline you can value on a DCF basis, and there is an option on the franchise, if you will, and our ability to develop other assets. And, of course, there is the MPC business. And I think, again, people are looking to put a, how do I come up with a metric, profits from MPCs, and it has kind of grown over time. And so can I, what is the right multiple and how do I think about it? And that is where I would say I do not think a multiple is the right way to look at it. We are stewards, if you will, for 21,000 acres of potential residential land. And we set that land up to be sold by generally building out infrastructure so these lots can be sold ultimately to homebuilders who in turn will build homes and sell them to customers. But we are very judicious in the way that we bring that property to market in that we have a finite supply. We want to optimize between price and volume. We want to make sure that our homebuilders never end up with too much inventory. And as a result, in the way we have managed it, we have been able to, if you look at the compound annual growth rate in our residential land values on a per-acre basis in our various MPCs, it has been, I would say, quite extraordinary. And we care, obviously, about the cash we generate from any one year’s lot sales, but we care more about making sure we do this in a manner where our remaining 21,000 acres continues to increase in value over time. And we help that value grow by being a good developer, by being a good manager of these small cities or these large, very large-scale MPCs, making sure that we are delivering the right product and we are doing it in a way where the market is never saturated with excess supply. And it is a really great business, but it is not one where, sometimes you are going to be opportunistic. A buyer comes along and wants to buy a large pad in Summerlin, and we make the economic decision that this is a smart thing for us to do today. A year later, we could decide, you know what, we are not going to do any such large sales. In that kind of world, I think trying to value the MPC business on a multiple of any one year’s profit is really not the right way to think about it. So how should one think about the real estate business? And I think the way we think about it is we come up with an intrinsic NAV or other assessment of the value of the existing assets. And we look to grow that over time. Some amount of it converts into cash every year, NOI from the stabilized assets, profit from our existing MPCs. And as we sell off residential land, it is, if you will, gone forever. But one of the things that we have been able to accomplish as a company is while we have a finite supply of land, we have been able to drive price per acre on a very significant basis. Which makes that finite supply on a present value basis actually continue to grow in value. So I think the metrics you should think about when you are trying to assess the value of your real estate company is some capitalized value for our stabilized income-producing assets, maybe a present value calculation for our condominium development. And then I think a similar kind of present value metric for valuing the MPC business, bearing in mind that if we choose not to sell land today, it is going to be worth more in the future. We are just making a decision. Is it better to monetize a piece of residential land today, or are we going to do better holding it for the next year or two years and allowing it to appreciate in value. So maybe not the, again, this is not a company that is going to be a simple, you get one number every quarter and you can put a multiple on it or you can annualize and get to a value. It is a business where we are going to do our best, and we will work with Jill, we will work with the team in coming up with some kind of good KPIs you can track on a quarterly basis to see how much progress we are making. But the places where I would focus is the growth in the per-acre value of the finished lots that we deliver on each of those communities, how quickly is that growing? That gives you some sense of the value of our remaining land assets, and then the progress we are making in terms of delivering condominium and the margins that we are generating, and then our ability to continue to extend that franchise. So that is real estate. We expect to close our Vantage Holdings transaction. We remain confident we can get it done by the upcoming quarter, let us say by June. That process requires certain approvals. We have had the various meetings and some more to come in the relatively short term, but I see no reason why we will not meet our expectations. Now with the addition of a $2,100,000,000 insurance asset, again, coming up with some kind of consolidated earnings number is really not the right way to think about this business going forward. And we are going to want to point you to growth in the book value of the insurer and the returns that we are earning on that book value as key indicators of our progress in building a valuable insurance company. I would say most insurance companies today are valued based on precisely that. If they can earn high returns on capital, they are deserving of a higher multiple of book value. If they earn lower returns, they are deserving of a lower multiple. As we have kind of ramped up the investment portfolio from a pure play fixed income portfolio that is externally managed by BlackRock and Goldman Sachs to one managed by Pershing Square with greater emphasis on higher-return common stock investments, and as we grow the insurer with a focus on profitability, we expect to be able to build a very profitable high-ROE insurer over time. And we will do our best to give you metrics to track or come up with your own assessment of intrinsic value of the overall company, keeping you informed on the real estate side, keeping you obviously closely informed on the insurance side. But this is a business that you should think of based on compound annual growth in intrinsic value, as opposed to any straightforward earnings metric. I am sorry it is not as easy as a widget company where you look at how many widgets you made and what the incremental margin that you generate from each widget sale. But we do think the ultimate long-term outcome will be one that you are happy about. The last point I would make is we will spend some time on this topic at the upcoming next quarter meeting, I do not think, maybe before the closing of Vantage, but just provide enough time for us to help the market come up with some KPIs to think about big business progress. With that, I will turn it over to Ryan Michael Israel. Go ahead, Ryan. Thanks, Bill.

Thank you, David, and good morning, everyone. 2025 results exceeded our guidance. As we look ahead to 2026, I think it is important to provide a framework that reflects normalization and transition. As we transition into a diversified holding company, our reporting framework will evolve accordingly as you heard Bill say. However, because the Vantage acquisition has not yet closed, and because 2025 included an outsized bulk land sale in Summerlin, we believe it is appropriate to provide 2026 guidance to help normalize expectations. We expect adjusted operating cash flow in the range of $415,000,000 to $465,000,000. We believe this metric remains the most appropriate consolidated metric as it captures the performance of our operating engines and aligns with how we evaluate capital generation. For MPC, we expect EBT to be in the range of $343,000,000 to $391,000,000. Importantly, the expected year-over-year decline is almost entirely attributable to the absence of the Summerlin bulk sale. Excluding that transaction, our 2026 guidance is essentially flat relative to 2025 on a comparable basis. MPC earnings will remain inherently lumpy due to acreage timing and monetization decisions. Longer term, we view profitability as driven by pricing power and capital rather than linear acreage volume. While remaining acreage declines over time, we expect price per acre to increase as communities mature, supply tightens, and underlying land value appreciates. We believe 2026 guidance reflects a sustainable run-rate level of MPC earnings absent large one-time transactions. Our objective in the MPC business is not to maximize any single year’s MPC, but to optimize long-term per-acre value and reinvest internally generated capital at attractive risk-adjusted returns. Moving on to operating assets. NOI is expected to range between $279,000,000 and $290,000,000, including our share of NOI from our JV assets. This is an implied increase of 1% to 5% compared to our 2025 results. Longer term, we target annual NOI growth in the 3% to 5% range driven by same-store rent growth and development stabilization. While individual years may fluctuate depending on timing of lease-up and development deliveries, we believe the underlying trajectory remains durable and predictable. Moving on to condominiums. Condominiums under construction and in predevelopment, which are substantially presold, represent approximately $5,000,000,000 of remaining expected gross revenue over their life, resulting in an estimated $1,300,000,000 in profits at a 25% margin. We expect to recognize approximately 40% of these revenues between 2026 and 2027, with the remaining 60% recognized between 2028 and 2030. Our newest towers, Melia and Lima, are expected to close in 2030 and represent 41% of these future revenues with margins exceeding 25%. For 2026 specifically, we expect condominium gross revenue of approximately $720,000,000 to $750,000,000 with estimated profit of $108,000,000 to $128,000,000 at margins of 15% to 17%. This is driven primarily by closings at The Park Ward Village. These margins were impacted by infrastructure work primarily related to electrical work needed to support future development. However, this cost will benefit our future towers, and we expect to see cash margins in the mid-twenties, except, as I mentioned, for Melia and Lima, which we expect to be in the high-twenties when they close in 2030. This backlog provides meaningful visibility in near-term cash generation, which we expect to redeploy across our portfolio and increasingly across platforms. Turning to G&A. For 2026, we expect cash G&A to range between $82,000,000 and $92,000,000, with a midpoint of approximately $87,000,000. This includes assumed inflation growth compared to last year as well as a shift in the mix of compensation from non-cash to cash. Please note that this range includes the $15,000,000 in annual base fees paid to Pershing Square but excludes the variable fees, which are based on quarter-end stock prices that could be volatile and difficult to predict. Looking forward, we view approximately $87,000,000 as an appropriate operating baseline for the current scale of the organization. We would expect that baseline to grow modestly over time, generally in line with inflation and incremental scale, excluding stock-based compensation. Now let me spend a moment on refinancing and capital structure. We recently refinanced and upsized our 2028 $750,000,000 senior notes with $1,000,000,000 of new notes due in 2032 and 2034. This refinancing occurred following the announcement of the Vantage acquisition and provides an important external validation of our capital structure and strategy. Both tranches achieved the tightest credit spreads in the company’s history, 191 basis points for the 6.25-year tranche and 198 basis points for the eight-year tranche, significantly tighter than the prior best spread of 295 basis points achieved in 2017. Both tranches traded at or slightly above par following issuance and continued to trade around par with active secondary participation, reflecting balanced execution and constructive market reception. We also received a modest upgrade from S&P, reinforcing third-party recognition of our balance sheet strength even as we expand the company’s platform. With respect to the Vantage acquisition specifically, we approached the financing conservatively. We model cash flows under a range of downside scenarios to ensure that the transaction would not impair our ability to finance or the flexibility of our real estate operations. The additional Pershing preferred investment of up to $1,000,000,000 carries a 0% coupon and represents permanent capital with no fixed cash cost and provides HHH the optionality to redeem when liquidity and capital allocation priorities make it appropriate. It adds meaningful equity support to the balance sheet without increasing cash obligations. We believe this structure enhances flexibility and positions the company to grow while maintaining prudent leverage parameters. And speaking of leverage, let us spend a moment on our leverage philosophy. We do not manage the business to a fixed net debt to EBITDA target. Given the lumpiness of real estate earnings, that metric can be misleading. Instead, we finance each segment based on asset characteristics while maintaining meaningful liquidity to complete projects and withstand severe downturn scenarios. Operating assets typically carry 60% to 65% loan-to-value property-level debt, balanced with a meaningful pool of unencumbered assets. MPC land remains unencumbered except for short-term reimbursable infrastructure facilities. Condominium projects utilize approximately 60% nonrecourse loan-to-cost financing and are substantially presold, significantly reducing maturity risk. We believe that our pro forma leverage following Vantage will be supported by incremental earnings capacity, enhanced diversification, and asset backing. As operating assets grow and recurring NOI increases, leverage may rise modestly, parallel with asset value and cash flow, not through incremental development risk. Across all segments, our objective remains a conservative, flexible balance sheet supporting long-term value creation. We will now open for questions. Operator, please open the line.

Thank you.

And to be clear, we will take questions both from analysts and from individual investors. So it is an open Q&A.

Our first question comes from John P. Kim with BMO Capital. Your line is open.

Okay. And my second question, maybe for Bill, is you talked about how to value Howard Hughes Holdings Inc. going forward. It sounds like from your commentary, you plan to maintain ownership of the commercial real estate portfolio. But given this is a high-margin but probably a lower return on invested capital business, would you consider changing your strategy and monetizing the commercial portfolio, maybe if you can comment on the 30 acres sold on your commercial portfolio on commercial land in The Woodlands?

Great. Thank you.

One moment for our next question. Next question comes from Alexander David Goldfarb with Piper Sandler. Your line is open.

Bill, just following up on Vantage. You know, had a chance to touch base with our insurance analyst and just going over the combined ratio as, you know, a real estate guy learns about property and casualty. And the combined ratio at Vantage seems a bit higher than where the peer average would be. And I believe last time on the call, you spoke about the profitability improvement. So as we look to that platform and Vantage’s overall profitability, what is the sort of timeline that you would think we would see that? Is that a year? Is that five years? Is that two years? How should we think about profitability improvement at Vantage once you guys consummate the deal?

Sure. So I would start with saying that Vantage is a brand-new insurer, and they are really in the process of getting to scale. They built the infrastructure for a much larger company. And as they grow their insurance business, they can amortize those costs over a bigger base of revenues. 2026 is really the first starting-to-be more meaningfully profitable year for the company. And I think you should continue to see the benefits of the scale economies, if you will, or the operating leverage inherent to growth. I think on top of that, beginning later this year, we are going to be making changes to the way the portfolio is being managed and, if we do a good job as I expect we will, I expect we will be able to earn higher returns on assets, which will lead to an overall more profitable insurer. But Vantage is going according to their original business plan, I would say, and the plan, the owners took a long-term view. They made the necessary investments, infrastructure, people, and otherwise, for this to be a very successful multiline specialty insurer. And as they get to scale, they will naturally become more profitable.

Yeah. And I would just add two quick things to that. First of all, we put out some materials on this over the fall and winter last year, but I would say well-run insurance companies that have beaten some of the lines Vantage participates in often have combined ratios that are in the low nineties. And the way we like to look at it is you can disaggregate the combined ratio into two key components. One would be your loss ratio, which is just literally what is the profitability or the losses that you have on the insurance itself, and then one is your SG&A ratio. And typically, an insurer that would be operating at this lower nineties combined ratio would have a loss ratio on the insurance of something in the low sixties. And then they would typically have an SG&A ratio around 30%, maybe plus or minus a few points. And the way we think about it is Vantage is very well on the path historically already to having a loss ratio that is consistent with what you would want to see for a well-run insurer. It is really that the SG&A has been high because they had made a lot of investments to get the platform up to scale before the business actually achieved the scale. So they were building ahead for the future. They have really grown the business now to a level at which we believe that they are going to be benefiting from all of the investments that they have made previously, and therefore, going forward, we think they are really going to be able to get that SG&A ratio down to something that we think would be more fitting for a company of its size and scale going forward. And that is one of the things we are excited by. So we like the fact that they have a good history of having what we think is a very strong loss ratio given their lines of business, and that we think the SG&A ratio will have some embedded operating leverage, if you will, because they have really built this business going forward. So I would say we feel very good about the path from here to getting Vantage in line with where we think a lot of well-run insurers will be, just naturally based upon the business plan that the company has implemented and already achieved. Second thing I would point out though is Vantage actually is currently profitable both in terms of the combined ratio that they are achieving today and what we think they will achieve going forward. And then as Bill mentioned, we think we will further benefit the growth in net income or book value based upon shifting the portfolio to what we think will be a higher-return strategy going forward as well.

One moment for our next question. Our next question comes from Eli Desha, who is an individual investor. Your line is open.

Thanks for taking my question. As the company moves towards a diversified holding company model, how are you thinking about priorities for extra cash, acquisitions, paying down debt, or buying back shares. Thank you.

Sure. So we think our first priority for excess cash that is generated, I define excess cash as cash not needed to be reinvested in our communities at Howard Hughes Holdings Inc. We expect, over the next several years, to generate a fair amount of excess cash and that number to grow materially over time. But the first priority is, you know, when we close the Vantage transaction, Howard Hughes Holdings Inc. will own a majority economically of the company; we will own 100% of it legally. But as Pershing Square is providing a substantial portion of basically bridge equity to enable the transaction, I think the first priority should be for Howard Hughes Holdings Inc. to own 100% of the insurer. So depending upon how much of the preferred is outstanding, as much as a billion dollars, that will be the first use of excess cash. Once the insurer is 100% owned by Howard Hughes Holdings Inc., then incremental excess cash would be used principally to make other operating investments, investments in other operating companies. Potentially, we could put more capital into the insurer, but we could also invest in other businesses.

And I am not showing any further questions at this time. I would like to turn the call back over to William Albert Ackman for any further remarks.

Sure. So, look, our original thesis on helping transform Howard Hughes Holdings Inc. into a diversified holding company was based on the fact that while management has done an excellent job with the company, we really built a focused, very successful MPC condominium business in the company. It has not gotten the recognition we argue it deserves as a public company. And a big part of that, in our view, was that the market assigns too high a cost of capital to the core real estate development and land ownership business. So I am pleased, in some sense, that in a relatively short period of time, about seven or eight months, I think there is pretty good evidence that our cost of capital is coming down. A 120 basis point tighter execution on a bond issue is a very good, that is a massive, it is about a 40% reduction in our cost of debt capital on a spread basis. Our stock price is up about 20% or so from the time that the transaction was announced. I still think the stock is super cheap. We have got more progress to make. I think we need to do a better job helping investors understand the business. I think there continues to be some turnover in the shareholder base from, I would say, more traditional pure play real estate investors to investors that are open to investing in a diversified holding company. And, yes, while we have entered into a transaction to acquire Vantage, we have not closed; that is upcoming. But I am very pleased with the progress we have made over the past seven, eight months. And the company itself, the real estate operation, is really running on all cylinders. And we are in a world where, I would say, unfortunately, some of the more blue states, particularly one that the city I am living in today, is operating in a way to actually encourage people to move to places like Texas and Arizona and Las Vegas and Hawaii, and I guess I am hedged because I live in New York, but we benefit as people leave the city and move to communities like the ones that are managed by Howard Hughes Holdings Inc. But appreciate your participation on the call. Look forward to being back to you in a few months. Thanks so much.