Aug 8, 2017
Executives
David Striph - Executive Vice President, Investor Relations David Weinreb - Chief Executive Officer Grant Herlitz - President David O’Reilly - Chief Financial Officer Peter Riley - General Counsel
Analysts
Alexander Goldfarb - Sandler O’Neill Robert Majek - CJS Securities Will Randall - Citigroup Waheed Khorsand - BWS Financial Alex Barron - Housing Research Center Steve Shaw - Compass Point
Operator
Good morning. And welcome to The Howard Hughes Corporation Second Quarter 2017 Earnings Conference Call.
All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions.
[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.
David Striph
Good morning. And welcome to The Howard Hughes Corporation’s second quarter 2017 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 first 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 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 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.
David Weinreb
Thank you, Dave. And thank you all for joining us today.
Welcome to our second quarter 2017 earnings call. I am pleased to report today that during the second quarter, we continued to make substantial progress throughout our portfolio in our mission to maximize shareholder value.
We have seen strong performance and condominium sales of Ward Village, robust land sales in our Master Planned Communities continued improvement in our hospitality sector and leasing progress in our strategic development segment. We have increased revenues in each of our business segments this quarter compared with the same period last year, as we continue to make progress in unlocking value within our portfolio.
We will create some level of short-term volatility in our operating income to accomplish our goals from time-to-time. This quarter was a good example of that.
While we demonstrated strong progress on a year-over-year basis, we took a small temporary step back when viewed on a sequential quarter basis. Our second quarter annualized Operating Assets NOI now stands at $160 million, a slight decrease from last quarter.
The sequential decline from Q1 to Q2 was driven by the timing of certain expenses at the Seaport District, as well as our long-term steadfast commitment to value creation at both Ward Village where we are terminating retail leases to create a dynamic Central Park and 110 North Wacker where we are terminating our full building user to allow for the redevelopment of the property. This is clearly in our shareholders long-term interest to forgo existing rental income and redevelop with the asset as is is not the highest and best use of the land.
We are confident that the income generated after redevelopment of these assets will eclipse the income we were previously generating and that it is worth enduring a short-term decline for a long-term gain. This is an example of our relentless focus on long-term value creation.
In our MPC segment, we increased total revenues this quarter compared to the second quarter of 2016. The increase was driven by the continued strength of Bridgeland sales and a modest return of land sales in the Woodlands.
We continue to be encouraged by the results in Bridgeland and believe that this community is truly beginning to come into its own. In addition, we anticipate that Summerlin will deliver its fifth consecutive year with sales of more than $100 million.
In our Strategic Developments segment we've seen continued robust demand at Ward Village, where we sold 35 new homes during the quarter, bringing us to total sales of 1,175 units or 85% of the 1,381 available residences in our four current projects under construction. We saw total revenues increased $23 million, compared to the second quarter last year.
While our condominium net income declined approximately $3 million over the same period. This reduction in margin was driven by the mix of buildings and units where we recognized revenue in the respective periods.
In 2016, the vast majority of our revenue was recognized at Waiea, where we have achieved the highest margins to-date. This quarter we recognize more revenue at Ae`o, Ke Kilohana and Anaha, where our margins have been at or above our projections, but at a lower level than Waiea.
With that said, we remain on pace to realize an approximately 30% margin, excluding land across our existing four towers in Ward Village and our market rate condominium developments. At Waiea, we have 165 of the 174 homes under contract, which represents 95% of the residences and have closed on 156 of them.
The Retail component is 100% leased to Nobu. We welcomed our first residence this past November.
We expect to complete Anaha, our second building at Ward in the fourth quarter of this year. We have previously reported that we anticipated substantial completion of the project in the third quarter, but have adjusted this timing by one month to provide our owners with the ultimate closing and move-in experience.
As of June 30, we had 302 of the 317 homes under contract. This represents 95% of the units.
Ae`o, our third building and home of the future flagship Whole Foods in the state of Hawaii has generated very strong demand. We sold 32 homes this quarter, bringing total sales to 321 homes or 69% of the 466 available residences.
The building is approximately one-third complete and we anticipate completion by the end of 2018. With regard to Ke Kilohana, as we reported last quarter, the workforce housing component of the project which accounts the 375 of the 424 residences is 100% sold out.
We have sold 12 of the 49 market rate homes as of June 30, which is in line with our expectations on pace, given that the building will not deliver until 2019. Ward Village is well on its way to becoming the new center of Honolulu and we could not be more excited about the prospects for this one-of-a-kind community.
We are now at a point where we are reaching critical mass with Waiea complete, Nobu open, Anaha opening in the coming months, Whole Foods opening early next year and consolidated theaters completing a major renovation, and we are only about one quarter of the way through our entitlements. This neighborhood will only get stronger and stronger as more residents move in and additional retailers open.
It is getting more and more difficult for other developers and projects to compete with Ward Village, as the community is where people want to live, work and play in Honolulu, and I believe that our continued sales progress validates our strategy. In Summerlin, we commenced construction on the 180,000 square foot build-to-suit corporate campus for Aristocrat Technologies, a worldwide leader in gaming solutions.
Total development costs are anticipated to be approximately $46.6 million and we expect stabilized NOI of $4.1 million, generating a 9% return on costs. The campus will include two 90,000 square foot office buildings on 12 acres and is 100% leased to Aristocrat.
It is located approximately 4 miles from Downtown Summerlin. We are delighted to welcome Aristocrat to our community.
We were also very happy to announce that we were able to commence construction on another new Strategic Development in Downtown Summerlin that will raise the bar on our stabilized NOI yet again. The project will be 152,000 square foot Class-A office building on 4 acres.
Estimated development costs are $48.3 million and we anticipate stabilized NOI of approximately $3.5 million for return on costs of over 7%. We expect to have this building complete in the third quarter of 2018 and we are currently seeking financing on this development.
This is the first office project in our remaining 200-acre master parcel in Downtown Summerlin and adjacent to the new NHL Practice Facility that will be open later this month. This is another positive step forward for realization of value creation through the development of what we've master planned to be approximately 1.2 million square feet of office, 77,000 square feet of neighborhood retail and 4,000 residential units on the 200 acres that remain.
At the Seaport District, we've entered into a multiyear strategic partnership with Lincoln Motor Company. Lincoln will become the official automotive partner of the Seaport District in Pier 17 and have year round activation comprised of vehicle displays, curated hospitality, including unique access and experiences dedicated to Lincoln dealers and owners, on-site signage and digital extensions via social media, web and email.
This is the first long-term sponsorship agreement that we've announced at the Seaport and begins to demonstrate our belief that the property will not only generate significant lease revenue from tenants, but also meaningful supplemental revenue through sponsorship and strategic partnerships. Turning to our balance sheet, as you may recall, last March we issued a new $800 million senior note offering, which refinance our then existing $750 million senior notes.
In June, we opportunistically issued an additional $200 million of this sponsored premium. David O'Reilly will speak more about this later on the call.
With that, I will now turn the call over to Grant to discuss the details of our operational results.
Grant Herlitz
Thank you, David. I would like to start by focusing on the pertinent facts driving the recent results in our MPC, Operating Assets and Strategic Development segments, and then it over to David O’Reilly to discuss our earnings and financial activities for the quarter.
First, within our MPC segment, we increased total revenues to $78.1 million this quarter, an increase of $6.2 million compared to the second quarter of 2016. The increase was driven by continued strength of Bridgeland sales and modest return of land sales in the Woodlands.
For the six months ended June 30, 2017, revenues increased $24.1 million to $146.8 million due to 148% increase in Bridgeland sales and 39% increase in land sales at the Woodlands. In addition, we had a $6.4 million utility land even sold in Bridgeland.
In Bridgeland we continue to see accelerated velocity of home sales which has translated into continued demand for our land from homebuilders. In the second quarter there were 106 new home sales compared to 100 in the second quarter last year, representing an increase of approximately 6%.
For the three-month period ending June 30th, Bridgeland sold 24.3 residential acres compared to the 12.9 residential acres for the same time period in 2016, representing an 88% increase. We average $386,000 per acre during the second quarter compared to $361,000 per acre during the second quarter of 2016, a 7% increase.
During the second quarter, the median new home price in Bridgeland increased 12% from $316,000 to $355,000. The increase in median home price is largely due to the mix of homes that sold during the period.
Continuing in Houston, we saw strong uptick at the Woodlands in the sale of new homes. They were 82 new home sales during the second quarter of 2017 compared to 61 in the same period of 2016, a 34% increase.
The median new home price also increased in the Woodlands from $559,000 to $577,000 for the quarter compared to last year. According to our in-house research, as of June 30th we estimate there were 91 spectrums available for all builders in the Woodlands, which is an approximate three-month supply based on current estimated 2017 absorption levels.
We are 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. For the three months ended June 30th, the Woodlands sold 24 residential acres compared to 2.3 during the same period last year.
The average price per residential acre decreased to $567,000 for the quarter compared to the $603,000 in 2016. This represented a 6% decrease.
This is not unexpected and in line with our strategy of expanding the offerings to more modestly priced homes to capture a larger part of the new home market. As of June 30th, there were 310 residential lots under contract in the Woodlands, of which 111 are scheduled to close in 2017 for $17.5 million.
Turning to Summerlin, we continue to experience solid demand for residential land. Residential land sales for the quarter totaled 51.8 acres compared to 53.7 for the second quarter of 2016.
For the six months, the year-over-year reduction in total residential acres sold in Summerlin is not representative of any slowing in the underlying demand. In the first half of 2016, we executed a bulk land sale to a homebuilder for which we incurred much lower development costs, which resulted in a significant increase in our residential gross margin.
In 2017, we closed on more typical sized parcel that were sold as finished lots and had significant amount of infrastructure already installed. These had gross margins that were more consistent with historical levels.
As a result, the first half of 2016 does not represent typical results. Summerlin had 244 new home sales during the quarter, this compares with 201 during the same quarter 2016, a 21% increase.
In addition, the median new home price increased 11% to $595,000 from $538,000. At The Summit, our joint venture with Discovery Land in Summerlin, we have 262 units for sale made up of 146 custom lots and 116 dwelling units.
Demand is continuing to stay strong. For the first half of 2017, we had nine custom home lots closed for $28.5 million.
This compares with 17 lots for $48.2 million during the same period in 2016, the year we began sales. To-date we have 69 custom lots closed for total proceeds of $213 million.
As of June 30th, we have 16 units in escrow, of which five are custom lots, seven our club house suites and four our dessert bungalows. Total proceeds from these sales are approximately $55.1 million.
Within our Operating Assets segment we increased our second quarter NOI from $37.3 million in 2016 to $39 million in 2017, a $1.8 million or 5% increase. Specifically, for the second quarter we experienced an approximately $5 million increase in NOI from our 1725 and 1735 Hughes Landing office building, our multifamily portfolio and our hospitality portfolio, which are all making progress towards stabilization.
These gains were largely offset by lower NOI at 110 North Wacker, Ward Village and South Street Seaport. At 110 North Wacker, the decline was due to the triggering of our termination of GDP’s lease as a full building tenant, as we plan to start our redevelopment of the project early next year.
Obviously, this termination is the first step toward long-term value creation, as we intend to start demolition and construction early next year, and what will be a 1.35 million square-foot world-class office tower anchored by Bank of America. Ward Village’s reduction in NOI is a result of a tenant bankruptcy, Sports Authority, in 2016 and an acceleration of our long-term master plan where we are beginning work to demolish Ward warehouse to prepare the site for further development, create a central dynamic public space and provide sightline to the ocean from across the property.
While the demolition of these retail buildings in Ward and the temporary loss of income at 110 North Wacker, [inaudible] (19:24) we will continue to have a negative impact on our NOI in the short-term. This decisions unequivocally a driver of long-term value creation.
South Street Seaport reduction in NOI is almost entirely timing related. As part of our summer marketing events program we incurred one-time expenses associated with the installation and launch of the program.
The revenue from these assets will be realized over the course of the summer and as such we expect the large portion of the decline to reverse next quarter. As David said, we believe these declines are temporary and a part of our redevelopment plans.
Hospitality, NOI growth of $735,000 in the second quarter of 2017, compared to the second quarter 2016, was once again driven by increased activity and stabilization of the recently completed Westin, as well as continued strength at the Embassy Suites in Hughes Landing. This was offset a bit by the slight decline in our average daily room rate at the Woodlands Resort & Conference Center.
In our Retail segment both Downtown Summerlin and Outlet Collection at Riverwalk had strong performance compared to last year, with increases in NOI of $703,000 and $283,000, respectively. With that, I will turn the call over to David O’Reilly for our financial results and outlook.
David O’Reilly
Thank you, Grant. I would 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.
Finally, I would like to spend a minute discussing the recent activity with regard to our Sponsor and Management Warrants. I’d hope that you’ve been able to review our supplemental package filed yesterday, which contains details of our financial and operational results.
New for this quarter we’ve added a new metric AFFO, which adjust core FFO for recurring tenant improvements, leasing commissions and capital expenditures to provide an additional measure of cash flow. We completed the second quarter with GAAP earnings per diluted share of $0.07 as compared to $0.16 for the second quarter 2016 and $0.20 for the first half of 2017, compared to $3.53 in the same period of 2016.
NAREIT defined FFO per diluted share was $0.86 for the quarter as compared to $0.75 for the second quarter of 2016. Importantly, both GAAP net income and FFO are impacted by the non-cash changes in our warrant liability gains and losses.
Core FFO was $94.5 million or $2.20 per diluted share, a decrease of $22 million or $0.53 per diluted share compared to the second quarter of 2016. The year-over-year decline was driven by a number of positive non-recurring items in 2016.
In the second quarter of 2016 our non-consolidated joint venture, which owns the Circle T Ranch in Dallas, some land to Charles Schwab and recorded a gain of approximately $10.5 million. Also in the second quarter of 2016, we realized other income of approximately $9 million, driven by insurance proceeds and the payment of an earn-out on the sale of the golf course in the prior period.
Despite the decline, I think, it's important to highlight that we saw consistent results on a year-over-year basis in all three of our segments. Our Operating Assets NOI increased by approximately $1.8 million, our MPC segment EBT increased approximately $5.6 million and our condominium net income declined approximately $3.4 million.
As David mentioned, last quarter we closed on a new $800 million note issuance at 5.375%, which was 150-basis point improvement to our advantage existing issue and also extending the maturity of our notes to 2025. We use these proceeds to retire the existing notes and pay related costs.
As a follow on to this issuance, on June 12th we opportunistically issued an additional $200 million of the 2025 bonds at a premium to par of 102.25%, which is just below 5% on the yield to worst basis. We will use the proceeds to repay construction financing, fund ongoing development projects and corporate needs.
Also during the quarter, we modified our $94.5 million non-recourse mortgage financing on 10-60 Columbia Corporate Center and One Mall North office buildings with a $114.5 million loan. This amendment resulted in the addition of 70 Columbia Corporate Center as collateral for the facility and allowed us to draw $20 million to fully repay the existing note on the 70 Corporate Center property.
In April, we refinanced the Woodlands credit facility to increase the facility by $30 million for a total of $180 million. The increase proceeds are providing us the ability to fund the development of Creekside Park Apartments and fund other corporate uses.
The facility bears interest at one-month LIBOR plus 2.75% and maturities in 2020. In May, we closed on the $51.4 million construction loan in the Woodlands, the 100 Fellowship Drive, which is 100% leased to a credit tenant.
The loan bears interest at one-month LIBOR plus 1.5% and matures in 2022. We also paid off the maturing $4.6 million mortgage loan that we assumed as part of the acquisition of 1701 Lake Robbins building in July of 2014.
As of the end of the first quarter, our total consolidated debt to total assets was approximately 45% and our debt to enterprise value closed the quarter at 39%. From a liquidity perspective, we finished the second quarter with over $660 million of cash on hand.
As of June 30th, we have 16 projects in our Strategic Development segment with anticipated total cost of $2.7 billion. Of that amount we have previously funded $1.6 billion, leaving $1.1 billion in estimated remaining costs.
We expect to meet this obligation with a combination of existing construction loan, which currently have approximately $625 million of committed but undrawn capacity, with condo buyer deposits of approximately $106 million and with new construction financing totaling approximately $68 million for a net remaining equity requirement of $312 million. The majority of this amount is tied to the Seaport District for which we have not yet obtained construction financing.
We expect to fund our remaining equity commitments through a combination of new construction financing, free cash flow from our Operating Assets and MPC segments, net proceeds from non-core asset sales and lastly our existing cash balance. Again, as of the end of the second quarter, with over $660 million of cash on hand and net equity requirements of $312 million, we have more than enough cash and liquidity on hand to meet all of our funding commitments without any additional cash being generated from MPC land sales or Operating Assets.
Lastly, I'd like to discuss our Sponsor and Management Warrants. As of June 30, 2017, all legacy Sponsor and Management Warrants have been exercised.
Prior to this, the fair values of these legacy warrants were subject to liability accounting treatment, which created both a balance sheet liability, as well as quarterly mark-to-market earnings volatility. As of December 31, 2016, the estimated fair value of the warrants was over $332 million.
Now that these legacy warrants have all been exercised, we will no longer have any mark-to-market volatility and the $332 million liability associated with those warrants has been removed from our balance sheet. On June 16, 2017, our CEO, David Weinreb entered into a new warrant agreement to acquire 1,965,409 shares of the company, for purchase price of $50 million.
This warrant will become exercisable on June 15, 2022, and an exercise price of $124.64 per share. The new warrants, which qualifies equity instruments are included with the additional paid-in capital account in the consolidated balance and unlike the previous warrants there will be no liability nor mark-to-market impact as a result of this new warrant agreement.
David has 75 days from June 16th per the terms of the agreement to fund this purchase of the new warrants and accordingly an offsetting contribution receivable of $50 million has been included in stockholders equity section of our balance sheet as of June 30, 2017. I think it goes without saying that David's willingness to put $50 million of his personal capital into these warrants shows his tremendous commitment and belief in the long-term prospects of the company and should make our shareholders very confident in management’s alignment with this.
With that, I’d like to turn the call back over to David for closing remarks.
David Weinreb
Thank you all for joining us today. As you can see, we've had another quarter of solid progress unlocking the value within our portfolio.
We continue to keep our eye on the ball to increase long-term shareholder value each and every day. With that, I will open up the call to Q&A.
Operator
[Operator Instructions] Our first question will come from Alexander Goldfarb with Sandler O’Neill. Please go ahead.
Alexander Goldfarb
Hi. Good morning.
First, David O’Reilly can you just go into the difference in the accounting treatment between the old warrants and why the new ones will no longer have the quarterly mark?
David O’Reilly
Yeah. It’s all the doubles in the detail from accounting perspective and it’s a complicated analysis that we work through with our audit partners, as well as internally to get that treatment.
It’s not worth boring all the participants on the call with the actual details other than to say that the structure of this will allow us not to have that quarterly mark-to-market, we will no longer be carrying a liability on the balance sheet and the economic terms are almost identical relative to the old warrants in terms of how they are structured and work.
Alexander Goldfarb
Okay. Okay.
Well, that’s certainly relief from a modeling perspective. And then can you guys give us some more color on the Lincoln, the sponsorship, the income associated and sort of the terms, is this, I assume it’s multiyear, but is this something that’s more in the summer or we’ll see it the income year round?
David Weinreb
So it is a multiyear deal, Alex, and it’s not something that commencing today it will be commensurate with the opening of the Pier and it will be -- it won’t be the lumpy or seasonal, it will be consistent throughout the time of the deal. The terms of those deal has not been disclosed and it’s not something that we are ready to talk about yet, other than to say, there is a multiyear opportunity.
Alexander Goldfarb
Okay. Okay.
And then just, finally, on Downtown and Houston, you mentioned sort of more value or mid-priced homes and sort of an uptick in the housing market. Given last year were sort of record sales for housing in Houston, could you just give a little bit more color on what's going on the housing market?
And then, I think, previously you guys had spoken about the Woodlands being more high-end homes versus Bridgeland or some of the other communities being more mid-priced. So does your view of where Woodlands ultimately go?
Do you think you'll see more moderately priced out of Woodlands or you think there will be a resurgence of some of the higher end homes there?
Grant Herlitz
Just to answer that. In the Woodlands there only about 700 lots remaining to be sold.
So and there is a mix of product. It really depends in which part of the community we’re developing.
At the end of the day we are developing to meet the markets to the extent they are. There is demand for moderately priced homes we are going to build those.
Additionally, I would tell you that, the builders are planning of their current inventory in that market and so we are seeing the demand/supply imbalance in terms of whereof, that’s very encouraging. And so we are closely optimistic about the outlook for Woodlands.
At Bridgeland our demand/supply, we have got a five months supply of inventory for those builders and we are seeing an uptick in home sales as a result mostly of the opening of the new Bridgeland high school which is driving demand for home owners. The number one attraction for an MPC is great schools and Bridgeland is going to fix from there.
Alexander Goldfarb
Okay. Thank you, Grant.
Grant Herlitz
Yes.
Operator
The next question will be from Craig Bibb with CJS Securities. Please go ahead.
Robert Majek
Good morning. This is actually Robert Majek this morning on for Craig.
On the Bridgeland property, has the property had critical mass so to speak in terms of residence access and amenities?
Grant Herlitz
I am sorry. I couldn’t hear that question, can you try to repeat little loud.
Robert Majek
On the Bridgeland property, has the property had a critical mass in terms of residence access and amenities?
Grant Herlitz
No. not yet.
It’s still early on in its phase. Although, we are opening up new village and so as we get through that new village we’re starting to map the plan and re-imagine what the town center could look like and hopefully at some point there will be the demand that will resulting us doing our first offering [Technical Difficulty] (34:27).
Robert Majek
Yeah.
David Weinreb
And I would just add, it’s David, critical mass is so important in the small cities that we build and so the strength of sales to-date without that critical mass is very impressive.
Robert Majek
Thank you. And then just on the South Street Seaport, how close are we to hearing about new lease announcements?
David Weinreb
I'm sorry, can you ask that question again.
Robert Majek
On the South Street Seaport how close are we to hearing about new lease announcements?
David Weinreb
We expect that during the next quarter there will be some meaningful announcements to make.
Robert Majek
Thank you.
Operator
The next question will be from Will Randall with Citigroup. Please go ahead.
Will Randall
Hey. Good morning, guys, and congrats on the progress in regards to your NOI target.
David Weinreb
Thank you.
Grant Herlitz
Thanks, Will.
Will Randall
Yeah. I guess my first question is regarding the Woodlands, really two-part, one on the residential piece, I understand your acreage pricing are going down, is that because it's in less, I don’t know the best way to say the full locations?
And then, secondly, how is the commercial market looking, specifically the room for an additional color for Hughes Landing, if you can help those two parts, that will be great?
David Weinreb
Yeah. So the initial price is going down because of the mix of lots, not because of the, it’s about the price of our home.
So, clearly, we are selling a more moderately flats which would account for lower price per acre and that’s within the general business plan of the Woodlands. So it’s still meaningfully higher than where it was in ’13 and ’14, so I think that we are pleased with where the Woodlands is given the general economy.
As it relates to the commercial development, we are in the midst of designing both four Hughes Landing and a new building in the Downtown, which we call 10 Waterway. Those two buildings are ours.
They only get kicked off when demand is there. And from our perspective, we’re seeing movement in the market albeit at a slower pace, you can see the movement in three Hughes Landing getting up to our close to 40% and in 1725 and 1735 Hughes Landing.
Another important point to know is, with excellent the acquisition of, I think, it was XTO, they are moving people into their campus, as well as into the Woodlands the two office buildings that they occupy, so that will give us some demand for them too. So we are optimistic that the market is starting to recover, pricing have to keep upward there as well and when it’s -- when we hit sort of preleasing level of three Hughes Landing we will probably take all four.
Will Randall
And I might have missed it, but in regards to office, has one Summerlin completely filled up at this point and in terms of shifting around tenants, some of the commercial retail space, has that been completed at this point?
David Weinreb
Yes. As of our disclosure, it’s around 81% that’s -- as of today it’s 91%.
So, since we release -- since our disclosure we have another 10% of leasing and since the end of the quarter is another 10% leasing, so we are very pleased of that. In addition, the launch of the new office building is a catalyst for the rest of the 200 acres that we recited about that we have a tenant that we are working for Florida space, hopefully that lease will get fine.
And then, with that lease comes demand for additional multifamily. As we have seen with the Constellation, so rapid lease up of that property and accelerated velocity -- accelerated pricing, so where we perform at a part of about a $1.40 we are achieving a $1.80, the $1.89 in rent, so we are pleased.
And I think at the end of the day this new office building will prove out that the Downtown Summerlin market is a viable commercial market for Las Vegas.
Will Randall
And lastly, if I could squeeze one, last one, and in regards to for lack of better transports teams coming to Downtown Summerlin, as well as the residential. I believe attached housing.
Can you update us on any progress there?
Grant Herlitz
We are -- in -- you are talking about, well, the NHL Practice Facility opens next month, I think it is. So we are encourage to see that occur and obviously, there are those two skating rinks will draw used community sports to Downtown Summerlin as it relates to other sport teams, we don’t have much comment on that yet.
Will Randall
Okay. And then the residential land surrounding, for example, William Lyon bought up some parcels, any update on development there?
Grant Herlitz
Yeah. So William actually will -- William Lyon development on the 215 is really interesting because they have started -- I think they are about to start showing it.
So much higher density product and is priced to reflect that. So this -- hopefully the success of that will us bring further progress in our higher density products that we are trying to sell on the west side.
Will Randall
Perfect. Thanks again guys and congrats again.
David Weinreb
Thanks, Will.
Grant Herlitz
Thank you.
Operator
The next question comes will come from Waheed Khorsand with BWS Financial. Please go ahead.
Waheed Khorsand
If I could just catch on to or latch on to that last part on the sports commentary in Las Vegas. I know Las Vegas is set aside some money for the builders to build a practice facility.
Is that something you intend to bid on?
David Weinreb
We are always looking at different alternative uses for our land and like I said before we just aren’t prepared to comment on that right now.
Waheed Khorsand
Okay. And then on your AAA team, has there been any movement on bringing them to Downtown Summerlin?
David Weinreb
We are continuing to work that. We are pricing out what the stadium would look like and working with the different municipality to form an agreement.
But we don’t have anything different just yet.
Waheed Khorsand
Okay. And then going to 110 North Wacker, I may have miss this, but is there a cost and timeline on that you can dispose on the redevelopment?
David Weinreb
Yeah. So our estimated demolition date for the building is probably around January or February of next year.
We are still working through our drawings and understanding what our total cost is, we -- obviously we are very close to being able to disclose that with our leasing, as I said, the building to be available, we are absolutely optimistic about the building itself. It’s a dynamic lucky building.
I am sure you have seen the renderings of it and we are encouraged with the market leasing that we are seeing, so we expect to hopefully be in a position to announce lease over the course of the next year. The other thing I would note is that the building has a 2020 opening, it’s a long time away and it’s big project to undertake.
Waheed Khorsand
And my last question on these redevelopments, is there much in your portfolio that you see and being a target for redevelopment or is it small percentage?
David Weinreb
Well, the core value to be unlocked in our portfolio obviously lies in the fixed core assets of the Seaport, Columbia, Maryland, two Houston MPCs and Summerlin and Hawaii. There is redevelopment within all of those assets, extensive redevelopment within all of those assets, development and redevelopment.
In addition, assets like 110 North Wacker just within our portfolio on a limited basis, but there are not enough to move needle on our market valuation. We are focus on them.
One of those assets would be Landmark Mall in Alexandria, Virginia, which -- where we acquired the Macy’s park in the first quarter of this year and we are evaluating plans to redevelop that site.
Waheed Khorsand
Okay. Thank you.
Operator
The next question will be from Alex Barron of Housing Research Center. Please go ahead.
Please go ahead, Alex. The floor is open, perhaps your line is muted.
Alex Barron
Yes. Thank you.
Congrats on the progress. I wanted to ask you about the depreciation line which was a bit higher than the last few quarters.
Was there something that was one-time in nature or is that more of an ongoing rate?
David O’Reilly
There was nothing one-time in nature. This is David O’Reilly.
It is really just driven by the amount of assets to continue to get added to the Operating Assets pool. They creates higher base for greater depreciation.
I would imagine that over time as we deliver more and more Operating Assets, you'll see that line item perhaps creep up a little bit more, but there's no one-time item that’s really driving that this quarter.
Alex Barron
Got it. And if you guys can comment on the Hawaii condos, obviously, there is fewer units remaining, what’s the nature of those units, are they more like -- more expensive stuff like penthouses or the human sort of facing the mountains or the ocean or what’s the nature of some of those units that are remaining?
Grant Herlitz
So, obviously, Hawaii, there are obviously the higher price units, the penthouse was in the grand penthouse. There were seven -- I think seven units remaining there, seven or nice, I don’t remember.
In Anaha, they are also starting to be the more expensive units, but we expect as that building earthen there will be a -- an increase in the sales related to that building given the drive-up appeal and the quality of the construction really excited about delivering that tower to the community this year. And then in Ae`o we have seen amazing demand for the lower price products of call it $1 million and under, selling over 35 units starting of this quarter, so we are very pleased with that.
Lastly, we are going to bring to the market our new tower our 'A'ali'i in -- at the end of the third quarter or the beginning of the fourth quarter and that will be 750 units of lower price product.
Alex Barron
What’s the price point the average on those -- on that last tower, Grant?
Grant Herlitz
We haven’t finalized the pricing it, Alex, so as soon as we do we will disclose that.
Alex Barron
Okay. Well, best of luck.
Thanks.
Grant Herlitz
Thank you.
Operator
[Operator Instructions] The next question will come from Steve Shaw of Compass Point. Please go ahead.
Steve Shaw
Hey, guys. It looks like the timeline for Seaport completion at least Pier 17 and the Uplands has firmed a little bit for third quarter 2018.
Could that be conservative and we possibly see delivery a few months earlier than that.
David Weinreb
I think, what you will see is the rolling opening. We're expecting the rooftop to open potentially as early as the end of May, certainly by the 4th of July and other important components coming online thereafter.
So we haven't put out anything more formal. But we are certainly pleased with the progress and also the activity that we have from interest.
Steve Shaw
Okay. And then, David, you mentioned, the possibility of some lease announcements coming out next quarter.
Did you mean with the third quarter results or in the fourth quarter?
David Weinreb
I will just say in -- certainly in the next 90 days, 120 days, we have a number of things that we are working on finalizing, that will continue to be catalytic and confirm our vision that we’ve talked about with each of you along the way.
Steve Shaw
Thank you.
Operator
The next question will be a follow up from Alex Barron with Housing Research Center. Please go ahead.
Alex Barron
Thank you. Can you comment on the expected timing of when you’ll start selling land in the new, I think, it's Woodland Hills, the one up in Conroe?
Grant Herlitz
Yeah. We expect to be selling in the fourth quarter of this year.
So we are excited about that the opening of that new community.
Alex Barron
And any type of guidance on how many lots per year you think you'll start off that?
Grant Herlitz
We don’t have that yet.
Alex Barron
Okay. Great.
Thanks.
Operator
[Operator Instructions] Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to David Weinreb for any closing remarks.
David Weinreb
Thanks again for joining us. As always, the three of us are always available by phone, if we can be helpful and we look forward to talking to each of you soon.
Operator
The conference is now concluded. Thank you for attending today's presentation.
You may now disconnect.