Howard Hughes Holdings Inc. Q2 FY2023 Earnings Call

Good day, and welcome to The Howard Hughes Corporation Second Quarter 2023 Earnings Call. This event is being recorded. Now I'd like to turn the call over to Mr. Eric Holcomb, Head of Investor Relations. Please go ahead.

Good morning, and welcome to The Howard Hughes Corporation's Second Quarter 2023 Earnings Call. With me today are David O'Reilly, Chief Executive Officer; Jay Cross, President; Carlos Olea, Chief Financial Officer; and Dave Striph, Head of Operations. Before we begin, I would like to direct you to our website, howardhughes.com where you can download both our second 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 second 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. With that, I will turn the call over to our CEO, David O'Reilly.

Thank you, Eric. Good morning, everyone, and welcome to our second quarter earnings call. On our call today, I'll begin with a recap of the quarter and cover the segment highlights for our master planned communities and for the Seaport. Dave Striph will cover our operating assets, followed by Jay Cross who will update our development projects in Ward Village. Finally, Carlos Olea will review our financial results and provide an update on our full year guidance. For the second quarter, I am pleased to report that our company performed incredibly well and experienced improved underlying demand across our world-class portfolio of assets. Looking quickly around the segments, we delivered solid MPC EBT, which was highlighted by continued strong land sales at attractive prices in our Houston MPCs. We also saw a sharp increase in new homes sold, a leading indicator of future land sales, providing increased confidence for robust land sales activity in the coming quarters. Our operating assets delivered exceptional financial results with continued outperformance in office leasing and record quarterly results in multifamily. At Ward Village, buyer interest for our premier condos remains strong. In the quarter, we contracted to sell 43 units, representing 27% of all available inventory, which now stands at only 116 units. Finally, at the Seaport, the start of our summer concert series on the rooftop, which has been a tremendous success thus far in the year, yielded significant sequential increases in foot traffic across the district and improved financial results. Overall, these favorable dynamics in each of our segments have provided a solid footing at the halfway point of the year, paving the way for a robust second half outlook and increased full year guidance expectations for our MPCs and operating assets. In our MPC segment, we experienced a 23% year-over-year decline in EBT, primarily due to the timing of super pad land sales in Summerlin. Despite this reduction, we saw a significant increase in new homes sold in each of our MPCs, strong builder price participation and continued strength in price per acre. We also continued to experience strong homebuilder demand for new residential land, contracting on parcels at near record prices across our MPCs, much of which has not yet closed. All of this leads us to believe that the second half of 2023 will deliver excellent land sales. Big picture, the resurgence in new home sales that began in the first quarter continued with a total of 605 homes sold in our MPCs. This represented a 39% increase compared to the prior year and was primarily related to Bridgeland, which nearly doubled its new home sales and is currently on pace to sell a record number of homes in 2023. In our other MPCs, our new home sales in Woodland Hills increased by more than 50%. And Summerlin increased nearly 20% year-over-year. With these strong sales results, Summerlin and Bridgeland both moved up in the midyear RCLCO top-selling MPC rankings, capturing the #5 and #6 spots respectively. Ultimately, this significant growth in new home sales, combined with strong underlying fundamentals, points to a strong second half of 2023. While increased mortgage rates have negatively impacted demand nationally, our MPCs have remained resilient, as evidenced by the strong uptick in our underlying home sales this year. While overall home affordability has undoubtedly been impacted by higher rates, what we've seen in our communities is that many homebuyers looking to purchase a home have simply adjusted the size of their purchase. With that, the average size of the homes sold has declined, but the price per square foot has actually increased modestly, helping to keep the value of our land intact. Just as importantly, the increased rate environment has meaningfully reduced resale inventory, as homeowners with below-market mortgage rates are reluctant to sell their homes. This has forced homebuyers to gravitate to the new home market, which now represents approximately 35% of all homes sold or a significant increase from the historical norms of 10% to 15%. Ultimately, this has translated into a significant boost for homebuilders and is driving demand for our land. Put more simply, the increase in interest rates has impacted both demand and supply, deepening equilibrium and land pricing and driving favorable demand for new land. As a result, we expect a material increase in land sales during the second half of the year. This will drive 2023 MPC EBT higher and gives us confidence to meaningfully increase our full year guidance expectations. Carlos will provide some more detail on those new expectations in a few minutes. Quickly shifting over to the Seaport. Revenues declined 19% year-over-year, primarily due to nonrecurring COVID recoveries and special events in 2022. This contributed to a $2 million reduction in NOI before equity investments. Compared to the first quarter, our results improved materially as we experienced a significant 89% increase in foot traffic. This growth was led in part by our Summerlin concert series on the rooftop, which is off to its best start to date. We've sold over 170,000 tickets, representing over 85% of available ticket inventory. Overall, revenue increased 92% compared to the first quarter, which contributed to a $3 million sequential improvement in total Seaport NOI. At the Tin Building, customer demand and foot traffic increased. We continue to implement operational improvements as we refine the marketplace's overall operating model, which resulted in elevated operating costs during the quarter. The full-service signing has performed strongly, but the retail fast casual dining and e-commerce have lagged expectations. We remain intently focused on driving this one-of-a-kind venue towards stabilization, and we are confident that we are on the right path to deliver meaningful financial improvements in the coming quarters. However, it now appears unlikely that we will be able to stabilize the Tin Building in 2023 and do not expect it to be profitable this calendar year. I'd now like to hand the call over to Dave Striph to review the performance of our operating assets.

Thank you, David, and good morning. In the second quarter, the strong momentum that has been building in our operating asset segment continued with the delivery of $68 million in net operating income, a 3% increase from the same quarter last year. On a same-store basis, NOI increased 4% year-over-year with meaningful growth in our office and multifamily portfolios. We also experienced strong leasing activity across the stabilized portfolio with year-over-year and sequential improvement in lease percentages in each of our three core property types. The most significant improvement was seen in our office portfolio, which generated second quarter NOI of $34 million. This reflected a $4 million or 13% year-over-year improvement and was primarily the result of a one-time lease termination fee, strong lease-up activity and rent abatement expirations in The Woodlands. These increases were partially offset by some lease expirations at some of our older assets in Downtown Columbia. Similar to recent quarters, our premier Class A office assets continued to outperform the market as companies continue to prioritize highly amenitized workspaces in desirable locations. In the quarter, we executed new or expanded office leases totaling nearly 200,000 square feet, including 167,000 square feet just in The Woodlands. We also renewed over 180,000 square feet of office space during the quarter. This strong leasing performance brought our stabilized office portfolio to 89% leased at quarter end, substantially higher than market when compared to the surrounding metro regions of Houston, Las Vegas and Baltimore and Washington. The multifamily portfolio delivered record quarterly NOI of $13 million, representing a 10% year-over-year improvement. This growth was primarily driven by 6% average in-place rent growth and favorable contributions from Starling at Bridgeland and Marlow, our newest multifamily developments. Both of these properties, which were fully completed less than one quarter ago, are exceeding expectations with Starling already 80% leased and Marlow 47% leased. Overall, our stabilized multifamily properties finished the quarter at 98% leased with Downtown Columbia at 99%, Houston at 97% and Summerlin at 96%. In retail, second quarter NOI was just under $13 million, reflecting an 11% reduction compared to the prior year. This decline was primarily related to one-time COVID-related recoveries at Ward Village in the prior year as well as the closure of two Ward Village retail centers to make way for the Park and Ulana condominium projects. Despite this reduction, our retail portfolio performed well and was 96% leased at quarter end, representing a 3% year-over-year improvement. With that, I will now turn the call over to our President, Jay Cross.

Thanks, Dave, and good morning, everyone. I'll start this morning with an update on Ward Village in Hawaii, where we continue to see strong demand for our premium condos during the quarter. In the quarter, we contracted to sell 43 condos, leaving us with only 116 units remaining to sell at our current projects. First, looking at 'A'ali'i and Ko'ula, recent price reductions implemented to close our remaining inventory, which represent approximately 3% of the total units in these buildings have been very successful. While our sales initiatives have resulted in slightly reduced revenue and gross margins on units sold, overall gross margins achieved on the two projects have been minimally impacted. For the quarter, we contracted 22 units and sold 15 units and as of June 30, 'A'ali'i was 99% sold and Ko'ula was 98% sold. At our towers in development, construction of Victoria Place continues to progress nicely. This tower, which is already 100% presold, is expected to be completed next year. At the Park Ward Village and Ulana, which are underway and expected to be completed in 2025, we contracted a total of 10 units, bringing these towers to 93% and 99% presold, respectively. And finally, at Hawaii, we contracted 11 condos, making this tower 83% presold. We expect to commence construction on this project later in the year. Incredibly, these four towers combined were 92% presold before construction had even begun. This is a strong testament to the strength of our ward sales and marketing team. Upon completion, these towers will represent more than $2.5 billion in future revenue, which will be recognized between 2024 and 2026. On the mainland in Nevada, we completed the finishing touches at Tanager Echo, our new 294-unit luxury multifamily development in Downtown Summerlin. This project was substantially completed in early July, and we recently welcomed our first residents. We also continued construction efforts at the Summerlin South office, a 147,000 square foot, three-story office complex. Pre-leasing efforts recently began, and we expect to complete the building early next year. In Bridgeland, we are making exceptional progress with the development of Wingspan, our single-family for rent development. This project is slated to welcome its first residents later this year. And finally, in Downtown Columbia, construction of South Lake Medical is moving along nicely. This 86,000 square foot medical office building has seen strong demand and is currently 21% leased with the balance of the building either in letters of intent or after negotiation. We expect to complete the project in early 2024. Overall, these four strategic development projects are expected to generate stabilized NOI of more than $18 million for our operating assets with a combined yield on cost of approximately 7%. While these new developments will be meaningful contributors to our recurring NOI and value creation for our shareholders, the market has shifted meaningfully over the past few quarters. Increased construction costs and operating expenses have outpaced growth in rental rates have significantly impacted anticipated returns on new developments. Combined with higher interest rates and a more challenging lending environment, it's possible that announcements of new developments could slow down in the near term. That is not to say we are pencils down. In fact, we are the exact opposite. Our development teams in each region are actively engaged in predevelopment so that once the market returns to a more normalized environment, we'll be ready to go. And with that, I would like to now turn the call over to our CFO, Carlos Olea.

Thank you, Jay, and good morning. I'd like to start off today with a written announcement regarding our holding company reorganization. This new structure is expected to promote the growth of our business, provide the company with additional financial flexibility to fund future opportunities and segregate our real estate and non-real estate assets and related liabilities in separate subsidiaries. Effective this Friday, August 11, Howard Hills Holdings, Incorporated will become the new parent company and our stock will trade under the ticker symbol HHH on the New York Stock Exchange beginning next Monday, August 14. Each outstanding share of HEC common stock will automatically convert into one share of HHH common stock. However, our strategic plans, our Board and management team and our focus on long-term value creation remain the same. Turning to our full year guidance. Because of our robust year-to-date results as well as our favorable outlook for the second half of the year, we have increased our expectations for MPC EBT and operating assets in OI. In MPCs, anticipated increases in residential land sales, particularly in the fourth quarter, are expected to drive significant improvement in EBT for the full year. As a result, we now expect EBT to be flat to down 10% year-on-year. This compares favorably to our prior guidance of down 25% to 35% and represents an increase at the midpoint of approximately $70 million. In operating assets, exceptional financial and leasing performance across our entire portfolio has resulted in increased NOI expectations for 2023. Excluding the prior year contribution from divested retail assets, operating assets NOI is now expected to be in a range of up 1% to 4% year-over-year. This is an improvement from our prior guidance of down 2% to up 2%. In Ward Village, as Jay mentioned, sales initiatives to close out the remaining condo inventory at 'A'ali'i and Ko'ula have been very successful. As a result of the reduced pricing, we now expect 2023 comp to sales to range between $40 million and $45 million, with gross margins of 10% to 13%. These reduced margins have only impacted 3% of all units in these towers and overall margins for these two projects remain aligned with our historical 25% to 30%. And finally, our cash G&A guidance remains unchanged at $80 million to $85 million. With respect to divestitures, subsequent to quarter end, we sold our two self-storage facilities in The Woodlands, for a combined price of approximately $30 million. This resulted in a sizable gain on sale totaling $16 million, which will be included in our third quarter results. Shifting to the balance sheet. We ended the quarter with $389 million of cash. Together with anticipated cash inflows for MPC landfills in the second half of the year, as well as the proceeds from the sale of our two self-storage facilities in the third quarter, we are well positioned to put capital into our development pipeline. At the end of the second quarter, the remaining equity contribution needed to fund our current projects was $223 million. From a debt perspective, we have $4.9 billion outstanding at the end of the quarter with only $273 million of maturities through 2024 and approximately 86% due in 2026 or later. Additionally, 98% of our debt remains fixed, capped or swapped to a fixed rate. As Dave mentioned, those markets for new developments are challenging. In some cases, they are delaying the start of certain development projects as we wait for loans to close before breaking ground. Despite these issues, we are having success closing new loans, including a $28 million construction loan for the development of the South Summerlin office. This loan bears interest at SOFR plus 2.35% and has an initial 4-year maturity. Additionally, we are currently documenting a new multifamily construction loan for a project in our pipeline as well as some refinancing on existing properties that we expect will close later this year. With that, I would like to turn the call back over to David for closing remarks.

Thank you, Carlos. Before we open up the call for Q&A, just a couple of closing thoughts. First, the new home market is back, and we significantly increased our full year MPC EBT guidance to a level that is closely aligned with 2022's near-record results. The exceptional financial results and leasing performance of our operating assets are a testament to the quality of our world-class portfolio of mixed-use assets, which continued to outperform in their markets. This has resulted in increased 2023 NOI guidance and our strong lease-up, particularly in office, will help to drive this segment closer to stabilization in the years ahead. And finally, we have several construction projects nearing completion as well as a robust development pipeline that will inevitably grow our stream of cash flow in the years ahead continuing the perpetual cycle of value creation that differentiates Howard Hughes. Overall, we see a very positive future, and we are excited for the growth and value creation opportunities that lie ahead. With that, let's start the Q&A portion of the call. Operator, can you please open the line for our first question?

First question will be from Alexander Goldfarb, Piper Sandler.

Just a few questions, David. The first is out in Hawaii, you guys discounted a few condo units, I think, sort of to clean up the remaining inventory. If you could just provide a bit more color on that. Usually, those condos sell like hot cakes. And I think except for the original Waiea, some of those uber priced units that sort of languished. I think all your other product out there has sold fairly quickly. So maybe if you could give just a bit more insight into the rationale to discount and then the impact to economics.

Yes. No problem, Alex. It's a great question. And your memory serves you very well in that for the overwhelming majority of the towers we've delivered, we've delivered them almost entirely sold out when we've closed and completed construction. For 'A'ali'i and Ko'ula, which were incredibly successful for us, we had some standing inventory at the beginning of this year, and we really wanted to move it by the end of the year as we're getting to launch our next tower. The inventory that we had represented less than 3% of the units in those entire buildings. And once they're completed and up there and kind of standing inventory, we have continuing expenses in terms of HOA and real estate taxes, so from an NPV perspective and from a competition perspective when we launch a new tower, we thought it would be best to sell that standing inventory quickly. To do so, we put together a modest pricing discount relative to where they were previously. And those previous pricing, as you noted, had been increased multiple times along the way. And we thought it was prudent to move them and get it done. From an overall economic standpoint, it really doesn't move the needle. When you sell 97% of your units to 25% to 30% margins and the last 3% at half of that, you're still generating 25% to 30% margins for the entire building, and you're not sitting on any standing inventory. So for us, we thought it was a prudent decision and one that we moved on quickly, so that we could get those buildings completely closed out and turned over to unit owners and residents that are continuing to dine, shop and experience all the benefits that Ward Village has to offer.

Next question is from Seaport. I appreciate your comments that it's taking a little longer. That doesn't really surprise me. My question is more about ESPN. You have a big studio there, and ESPN has been in the news for downsizing. I believe their lease is coming up soon. I might be mistaken, but could you provide some comments around that? Additionally, if you needed to replace them, where do you think rents would be now compared to what you're receiving from them?

So the lease with ESPN goes through December of 2025. We have been in ongoing discussions with them on potential extension, shorter term in nature as they figure out their long-term plans, which I don't think they have a full grasp on sitting here today. With that said, we think studio space and completely built-out studio space is highly valuable. And we don't worry about backfilling that space given the incredible views its location and the energy and dynamic environment that we're seeing every day down Pier 17. From a mark-to-market rent perspective, it's kind of early for me to opine on that, considering we wouldn't be thinking about it until the earliest of December 2025. But given that it's fully built-out studio space in its location, we're not open to taking a discount.

Okay. And then just finally, on the reorg, sorry to see the HHC ticker go away, we got used to it. But can you just give a bit more color? I mean, you guys have been public for well over a decade. Just sort of curious what drove this. And certainly, David, you've done a lot to simplify the company from what it was. So was this rating agencies? Was this the debt markets? What sort of drove this? Because usually, debt documents are pretty specific on the cash flows that are tied to it or if it's a corporate entity, it's from the whole. So just a bit more color. And then is there any additional cost to G&A that we should be modeling as a result of this reorg?

I'll take that in reverse order because it's much easier. There are no incremental G&A. Everything that you know about Howard Hughes yesterday will be the same as with Howard Hughes tomorrow, next week and next month. The Board management strategy, nothing is changing. This is really just a structural change in the company that allows us to segregate real estate assets from non-real estate assets and keep the results of non-real estate assets away from the covenants of our debt. It's something that I've been thinking about personally since about 18 months ago when we made the investment in John George and the 25% passive investment in his restaurant business, and the results of that are impacting our bond covenants and some of our debt covenants. It's just cleaner if we could figure out a way to put it separate and aside, and this structure allows us to do that and potentially think about other non-real estate assets like the baseball team and considering whether or not that would fit in HHH away from the traditional real estate assets of HHC. So it's really formal for substance. I wouldn't read into this. Please don't take the comments of us thinking about major acquisitions or things away from what we traditionally do. We have simplified the company. We take great pride in the simplification that we have done and the focus that we have, and that is not changing one bit.

Our next question will be from Anthony Paolone from JPMorgan.

I guess follow-up on Alex's last question there on the Howard co structure. Is there anything imminent that prompted the decision to do this now? I know you guys have been in the press a bit with regards to potential studios in the Las Vegas market. I just didn't know if it's tied to that at all.

No. No, I think the press that's been out there and the work that we've done on trying to create studios in the Las Vegas market is very consistent with what we do. It's built real estate to meet the demand, increase the population in jobs within our community, and we think film production is an incredible way to do that in Summerlin. Our role in that would be owner of the real estate, landlord. We are not getting into the production business. So this really had nothing to do with that, Anthony. This is just kind of as I answered it with Alex. It's just a structuring nuance where we can keep non-real estate assets away from real estate assets. I don't anticipate us bringing in any more non-real estate assets in the production business.

Okay. Got it. And then second question, with regards to the builder price participation, is that coming from the super pad site largely that was done a little while ago in Summerlin or is it from other areas? And is just is there like sort of a backlog of builder price participation income that you're seeing that's helping drive the guidance here?

To answer your first question, the builder price participation primarily comes from Summerlin. There is some participation from The Woodlands, Bridgeland, and Woodland Hills, but the majority is from Summerlin. As you mentioned, this participation is related to super pads sold 12 to 18 months ago. Our increased guidance isn't necessarily due to expectations of future builder price participation since we don't typically project ongoing increases in home prices in today’s rate environment. The increase in guidance mainly stems from additional land sales at higher prices per acre than we anticipated a quarter ago, driven by the remarkable velocity of home sales we've seen in the first half of this year, which has genuinely exceeded our expectations. This highlights the outstanding environment we've created within these master-planned communities, as we're continuing to experience high levels of new home sales even in a more challenging market for buyers.

Okay. And just I can sneak one last one in. Just in office, you mentioned the termination fee there. Just can you tell us what the dollars were in square footage? And just trying to understand how much that helped on the guide.

Yes, the termination fee was less than $3 million. It wasn't a large amount. It was for a tenant that signed a 10-year lease but never occupied the space. The property is about 27,000 square feet, situated in Hughes Landing, and we are already in discussions for a new lease to fill that space.

Next question from John Kim, BMO Capital Markets.

I'm a big fan of the HHH ticker. I had a question about the condo sales, specifically regarding the remediation costs you experienced during the quarter. I understand you're looking to recover some of these costs, but is this an isolated expense for this quarter, or could it become a recurring issue?

No, this is it. We had significant expenses about two years ago when we first started these repairs, which were funded by the homeowners of Waiea. We are working together to recover those funds. The recent expenses were due to overages from more than a year of remediation and repairs, compounded by the inflationary environment that increased costs beyond our initial expectations. Those repairs have been completed, and I'm hopeful we won't encounter any more issues—certainly not from Waiea and ideally not from other towers, as we haven't seen any recurrence of these types of problems.

Okay. At Seaport, what surprised you at Tin Building this year? I know up to this point, it's been mostly on the expense side, but I was wondering on the revenue side, that's disappointing as well.

On the revenue side, we've had notable success in our sit-down and full-service restaurants like Rosary and House of the Red Pearl, which have surpassed our expectations. However, we haven't fully met our expectations in the quick service sector, retail, and e-commerce, which have been slow to gain traction. We're actively collaborating with our partners, including John, George, and their teams, to implement changes to align those segments with our expectations. This process takes time and can incur short-term costs, which have impacted our financials. Once these changes are fully implemented, we anticipate a reduction in operating expenses and hope to achieve the desired revenue. Despite these challenges, foot traffic at the Pier is at an all-time high, and the number of visitors at the Tin Building has been impressive, generating significant excitement. Considering the success of the concert series and the daily influx of people at the Seaport, we see a promising outcome ahead. Our focus now is on refining and enhancing our product offerings to drive revenue and achieve profitability.

On the remediation care, I know it's not a huge dollar amount, but last year, second and third quarter, it was profitable on an NOI basis, this quarter was slightly negative. Do you expect that to turn around in the third quarter this year?

Yes. Last year, in the second quarter, we had a four-day buyout by the Board Club that was highly profitable for us. This did not occur again this year, possibly due to the slowdown in the NFT market, though I cannot say for certain. We have had many other events and buyouts, but we haven't been able to replicate the revenue from those four days. I anticipate that in the third quarter, we will see results similar to this quarter, and perhaps slightly higher, as we expect an increase in the number of events in the third quarter compared to the second.

Okay. And just one final question on Teravalis. Just wanted to get an update on whether or not you expect any settlements this year.

Yes, we do. We do think that we'll see probably 500-ish lots by the end of this year. It's slightly down from our initial projections, but that's really the delay of a quarter or two, which has really been driven by supply chain delays and delivering the infrastructure. The buyer appetite is strong. We have a lot of the same builders that we've talked to in Summerlin every day that want to buy lots from us in Teravalis, and those negotiations are ongoing. As soon as we can get the infrastructure in place to deliver those lots, we expect to announce those contracts.

Next question will be from Peter Abramowitz of Jefferies.

Could you elaborate on the differentiation between your expectations for pricing and volume related to the guidance increase in MPCs? It appears that pricing has been robust, so how would you estimate the increase in volume you anticipate for the second half?

I would say that our expectations in terms of pricing per acre would be largely consistent with what we've experienced in the first half of the year. The delta and the increase in the midpoint of guidance of about $70 million is going to be driven by increased number of acres at a similar price to what we've experienced.

Got it. That's helpful. Could you explain the reduction in sponsorship revenues at the ballpark in Vegas and what caused that?

Yes. I think that when we first opened the ballpark in about 2019, we were the only professional sports team in Las Vegas. And now we have the Golden Knights, the Aces, the Raiders and soon to be the Oakland A's. I think that increased competition has created some temporary headwinds. I do see that business coming back strong, and we've seen some increased activity there over the past 60 days. So I think we can close that gap pretty quickly. We are still leading Minor League Baseball in attendance and ticket pricing and we couldn't be more happy with the performance of the Aviators and what they've done, not just within the stadium, but what they've done to the overall community, what they do to the Downtown Summerlin shopping, dining and experience for the 70-plus nights that they're there. So we think they're performing very well. They continue to drive great outcomes across the entire community of Summerlin. And as a result, I think that we'll be able to pick up that gap and hopefully see that revenue come back on the sponsorship side.

Got it. And then one last one. Any large expirations coming up in either office or retail? And could you give an update on where do you stand with those and expected move-outs? Or where do you stand in the renewal process?

Well, I think the expiration chart that we have in the supplemental shows pretty modest expirations across both office and retail. I would say the one area of focus for us, and it's honestly an area of opportunity more than anything else, is Downtown Summerlin. In Downtown Summerlin, which as you know, is about 1 million square feet of retail, we're coming up on our 10-year anniversary of developing that asset. As a result, in 2024, but more so in 2025, we're seeing some meaningful expirations there, and it's allowed us to think very strategically about which tenants we want to renew and which tenants we're going to pursue better performing retailers. With every time we've had a vacancy in that property, and I think we're still 98% or 99% leased right now, we've been able to backfill it with better credit, better quality, higher traffic, higher sales per foot, and we don't think the expirations in '24 and '25 will be any different than what we've done over the past two years.

Next, we have a follow-up question from Alexander Goldfarb of Piper Sandler.

There are many people on the call with questions, so I want to follow up on Tony Paolone's inquiry about the studio in Vegas. Could you provide a big picture overview? It seems you and Mark Wahlberg are involved, so are you just handling the land while his entity manages the studio operations? Or is there a joint investment in the land? I'm trying to clarify how the finances work, specifically if your team is responsible for funding the construction and real estate, while Mark's entity funds the operations. Additionally, regarding the Seaport, it's great that you have a partnership with Hudson Pacific for the Pier with Vornado. If ESPN departs and there's still vacant office space, could that lead to the possibility of creating a mini studio in Seaport? This is related to Tony's question and has two parts.

We haven't finalized any agreements because we aren't at the point to do so regarding the studios in Las Vegas and Summerlin. We are collaborating with the elected officials in the Senate, the assembly, and the governor to identify a tax bill that supports the development of studios. We are working closely with Mark and his team, who have been excellent unofficial advocates for Summerlin and promoting the transition from coastal cities to better quality of life communities. We are also partnering with Sony and Sony Pictures to help advance the necessary bill and are collaborating with them on designing a studio layout on our land. My expectation is that we will be the real estate developer and owner of the studios, acting as the landlord while Sony and Mark, along with their production companies, would be the tenants, paying us rent. We still have a long way to go, and this remains highly speculative. Therefore, we should not model anything just yet. We will share all relevant details when the time comes and we can discuss it more fully. Regarding the Seaport, it is challenging to predict the potential for studios there beyond ESPN. We are actively seeking tenants for the remaining vacancies at the Seaport, and as soon as we have announcements to make, we will do so quickly and not delay.

This concludes our question-and-answer session. Now I'd like to turn the conference back over to Mr. David O'Reilly for closing remarks.

Thanks, everyone. Appreciate you joining our call today. Look forward to seeing you at our upcoming investor events, including our Investor Day at the Seaport in September in our next earnings call. Thank you again.

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