Howard Hughes Holdings Inc Aktie

Thank you for standing by, and welcome to Howard Hughes Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Joe Valane, General Counsel. Please go ahead.

Good morning, and welcome to the Howard Hughes Holdings Third Quarter 2026 Earnings Call. With me today are Bill Ackman, Executive Chairman; Ryan Israel, Chief Investment Officer; David O'Reilly, Chief Executive Officer; Carlos Olea, Chief Financial Officer; and Marc Grandisson, Vantage Executive Chair and Howard Hughes Holdings Director. Before we begin, I would like to direct you to our website, www.howardhughes.com, where you can download both our third 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 third 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, Bill Ackman.

Thank you, Joe. Just going to highlight a few significant developments during the quarter, then turn it over to Marc, who is going to walk through the insurance portfolio. Ryan will speak to the investment assets and David will update more detail on the real estate progress. With respect to Vantage, $76.6 million of net tax profit for insurance and reinsurance, including gains from the investment portfolio. Economically, $103 million operating profit, we're adding back purchase accounting adjustments relating to the purchase of Vantage at a premium to book value, that amortization, we believe is a noneconomic expense.

In terms of Vantage progress, the most significant during the quarter was Mark taking on the Executive Chair role are recruiting David Gansberg, as the CEO elect to join no later than June when his noncompete expires. And Marc continues to build out the senior leadership team, really taking advantage of his long-time relationships and network in the industry, and we'll update you over time as we make more progress there. Real estate operations generated strong performance. Operating assets, same-store NOI growth of 9%. That's probably a industry-wide to the top number.

On the land sale side, also very strong numbers. We lapped a significant $100 million plus bulk lot sale. But in terms of -- without the bulk lot sales year-on-year, we showed good progress. Importantly, what we focus on is really a couple of metrics. One is what's the pace of home sales. Someone was up 11% year-on-year. Woodland Hills up 5% year-on-year, Bridgeland down 9% year-on-year, but up 7% over last year, lot sales are lumpy, depends on our sort of auction process, et cetera, but we feel very good about that sort of leading indicator.

And importantly, the land sales price per acre. One of our important metrics when we look at is what's the value -- how much land do we sell over the last year? And what's the value of our -- the land that we have remaining based on current prices. We sold 398 acres over the last 12 months, generated $435 million of proceeds. Meanwhile, our residual value of land based on the current market value went up from $5.623 billion to $5.701 billion. So in effect, we generated $435 million of proceeds plus an increase in our land values.

The maintenance free cash flow was up slightly with very significant same NOI growth. I will go into more detail there. We had a modest amount of condominium sales generating -- or $0.8 million of -- excuse me, of profit and we did 2 municipality district receivable sales and I'm going to explain what this is. Basically, as we build out the infrastructure for our MPCs, we recover the cost of that infrastructure in the form of what's called a municipal utility district receivable, which is paid down from tax revenues.

We get that -- receivable sits on the balance sheet that's face value, it gets paid out over 3, 4, 5, 6 years, depending upon the pace of development and the generation of taxable income. What we've been doing in effect, think about as a 0 coupon instrument, and we basically have sold that and received the present value of those receivables at about 6%. Discount rate that causes us to generate a GAAP loss of $5 million during the quarter.

But what we're really doing is taking this 0 coupon, which is which we're not going to collect or an instrument we're not going to collect for 4 or 5 years, much as 6 years and taking the cash today at a discount rate that we find attractive. The other significant development with respect to real estate during the quarter was our announcement in September at the Annual Meeting have a plan to go to an asset-light model.

We've made good progress in terms of recruiting the advisers and actually have already done discussions and received a number of significant offers for assets of the company. We'll report our progress over time, but we are strongly of the view that we're going to achieve our objectives in terms of generating material amounts of cash that we believe to be very attractive valuations.

Comment on the other metric to pay attention to, of course, is G&A. This is the first quarter that we're fully including the results of Vantage our year-on-year increase from $34 million of G&A to $51.6 million. The components there basically are $13 million of incremental interest expense and about $4 million to $5 million of G&A from Vantage that is now in our results.

Okay. With that, I'm going to turn it over to Marc Grandisson.

Thank you, Bill. Good morning, everyone. As Bill noted, this is our first full quarter as part of how we use, and I'm pleased to report that Advantage delivered solid quarter with earnings, underwriting income and returns, all generally moving in the right direction. A quick reminder, Bill alluded to it already, we like to presentation. How would use consolidated results include is accounting adjustments, largely the amortization of the VOBA. On that basis, Vantage is third quarter combined ratio was 101.8% and the pretax income was $77 million. As in the second quarter, everything is today and the Vantage supplemental is on a historical GAAP basis, excluding purchase accounting adjustments, which gives a clearer picture of how the business is actually performing consistent with historical reporting.

On that basis, third quarter net income was approximately $80 million, up 22% from the prior year quarter, and pretax income of $103 million was more than double last year. Year-to-date, net income is $166 million, up 51%. In the quarter, the combined ratio was 94.9%, in line with 95% a year ago and 95.4% year-to-date versus 96% last year. Underwriting income grew 19% in the quarter to $16 million and 38% year-to-date to $41 million.

Gross written premiums grew 4% to $386 million and net earned premium grew 17% to $316 million. Year-to-date, gross written premium is $1.4 billion, up 11%. Insurance-related gross written premiums grew 8%, led by construction, casualty and financial lines. Reinsurance-related gross written premiums were down 9% as we deliberately wrote less property in specialty, where pricing no longer meets our return hurdles that is cycle management and practice. We grow where the margin of safety is there, and we step back where it is not.

The G&A expense ratio improved to 13.9% from 15.8% a year ago and to 14.3% from 16.9% year-to-date as net earned premiums continue to outpace expense growth. As was mentioned at HHS' Annual General Meeting, we expect to invest more over the next several quarters, and we expect the G&A ratio to be a little bit more volatile. Let me spend a moment on underwriting quality. The accident year combined ratio, excluding catastrophes, was 96.2% versus 96.8% last year and 92.5% year-to-date versus 94.8%.

I do want to be transparent that the quarter is above the 91.4% we reported the second quarter. The difference is a single large energy loss in our reinsurance specialty book. There were no significant catastrophe losses in the third quarter. Reinsurance also absorbed about 4 points of adverse prior development which we have addressed conservatively. Excluding those items, reinsurance remains profitable with a 92.2% accident year ratio ex cat in the quarter and 84.4% combined ratio year-to-date. Large losses are part of a specialty underwriter.

And as I said last quarter, we expect some fluctuation from quarter-to-quarter. Insurance made real progress. Its combined ratio improved to 96% from 102.6% and underwriting income was $7 million versus a loss of $4 million a year ago with favorable prior year development of 3 points. This is the trend we want to see, and we expect it to continue as the book scales. Net fee income was $13 million in the quarter, up from $9 million and is $47 million year-to-date versus a loss last year. This comes from our advantaged ALS structure and reflects strong outcomes on recent property cat business we wrote for third-party partners. Turning to investments.

The transition of the portfolio is now largely complete. We hold $1.3 billion of common equities, $2.4 billion of cash and short-term treasuries and only $11 million of fixed income securities. Net investment results were $77 million for the quarter, driven by $55 million of unrealized gain on equities, a reversal to the second quarter's mark-to-market loss. Net investment income was $23 million versus $30 million last year, reflecting the move out of fixed income.

Equity markets will move in both directions, so please judge this portfolio over years, not quarters. We are investing for long-term compounding with expert management by Pershing Square. That brings me to returns and capital. Trailing 12 months after-tax return on equity was 16% compared to 15.9% for 2025 and 9.2% for 2024.

And that is consistent with our goal to deploy capital at a target return on equity at or above mid-teens over the cycle. GAAP equity rose to $1.9 billion, up 44% year-over-year, including the $300 million contribution from how we use, combined with earned profits. Our capital remains strong and AM Best continues to rate us A- with a positive outlook.

On the market, our review is unchanged from last quarter. We remain primarily in Stage 3 of the cycle, Property rates, particularly in the United States, continue to soften and a few short tail lines are moving towards Stage 4. Casualty remains more constructive. There are uncertainty around development of earlier years and loss trend require a thoughtful approach.

Broadly, competition has increased, but pockets of attractive returns remain in a diversified platform lets us move quickly to them. Our priorities are the same, underwriting profit over volume, conservative reserving, and margin of safety and pricing, disciplined management of aggregations, conservative prudential capital management, and investment in data and talent.

In closing, we are still in the very early chapters of a multiyear story. The permanent capital is in place, the portfolio transition is behind us, and the underlying trend in underwriting expenses and returns is positive. I look forward to updating you on our progress in the future. With that, I will turn the call over to Ryan.

Thanks, Marc. I thought this quarter, what we could do is talk a little bit more about the investment portfolio and Pershing Square's overall philosophy on the management of that portfolio. And for those of you following along the slides, I'll kind of be referencing Page 23 as we go along. So to start with, our total invested assets grew to about $3.7 billion this quarter. And as we've talked about before, we really employ a barbell strategy.

So just over 65% of those invested assets will ultimately be in cash or short-term U.S. treasuries were taking no credit risk, no duration risk. And then we will be investing the bulk of the excess beyond what we would be generating through float over time in our common equities. Today, we actually have a lot more of a cushion relative to the flow that we've invested in short-term treasuries over time, we probably will have a little bit more matching between the short-term investments and our float, and therefore, the percentage of our invested assets that would be in common equities with gold.

So when we sort of think about that 65% of the portfolio today that invested in short-term treasuries at current interest rates, that should be yielding around 4% based on the market rates for a 30-day U.S. Treasury to the extent that interest rates stay the same for the roughly 35% of our portfolio that's invested in stocks, what we wanted to provide today was really the investments that we make.

And at Pershing Square and for those of you who follow us, we've and they have the competitive moats, the great decisions management is making in their capital allocation strategies, they can really be generating returns from these investments that would be at least 20% a year over kind of a 3- to 5-year type holding period. And when we think about the way in which we're achieving or hope to achieve that 20-plus percent return, it's really buying businesses that can grow their earnings. I would say it's sort of a high teens to roughly 20% rate collectively. And where we try to purchase these businesses at attractive multiples such that over time, our investment return will be a little bit better than the underlying earnings growth of those businesses because investors will ultimately assign a higher multiple of earnings to these companies than what we've paid for them.

And so when we kind of take that framework overall, what we're looking for, and we see that's represented very well in the portfolio we have to investments in Vantage that really do represent these durable growth companies, some of the world's great businesses that are generally growing their earnings between 15% and 25% a year over time in our estimation and where we think there's upside from the multiples.

Collectively, this portfolio, roughly the way we think about it as it is today, we expect it should be growing its earnings about 20% a year over the next 3 to 5 years based upon our best estimates. And what that sort of means is every quarter, if the multiples stay the same that investors assign to these companies, we would generally get about 1/4 of that 20% growth or about 5% each quarter. And you can actually see this quarter in aggregate, that's exactly what happened. We had a 4.7% return on our common equities, just under that 5% threshold...

You may want to point to the page you're referring to.

Yes, Page 23, exactly for those were falling along. And the way we sort of think about that is that's at the portfolio in aggregate. But when you look at the specific holdings, Obviously, there's a lot more volatility. So to point out a couple of the companies that drove our results this quarter were really our investments in Microsoft and Meta, which were our largest investments. And those collectively returned about 38% for Microsoft, 29% for Amazon. And while the earnings grow on year end, so of that kind of 20% to 25% level, these businesses also had a lot of multiple expansion this quarter as people became more excited about their prospects.

And the rest of the portfolio, I would say there was a little bit a different result where some of them had their earnings growth and their share price in line. And some of them actually, for example, a company like Brookfield or Uber actually had a share price declines, even though they had very healthy earnings growth as investors assigned a lower multiple to those businesses. So I just wanted to give you a little bit of insight as to how we're thinking about the stock portfolio that we have. And going forward, our goal is to continue to provide some insights each quarter on how we think about the overall investment portfolio.

With that, I'll turn it over to David to talk about the real estate results.

Thank you, Ryan. Against the backdrop of real headwinds, higher mortgage rates and affordability challenges, our real estate business is performing exceptionally well. Over the past 12 months, our annual residential land pricing in our commercial communities increased 18%. Operating assets NOI grew 8% this quarter, and our condominium pipeline now represents more than $5 billion in expected future revenue. Let's start with our MPCs. Land pricing, home sales and the value of our remaining land are the indicators I focus on when evaluating the strength of this business.

So let's put the reported numbers in context. We reported $89.5 million of MPC EBT during the quarter, compared to $205 million a year ago. Two items drove that comparison. First, last year's quarter included a 231-acre bulk land sale in Summerlin for more than $100 million. Those transactions are strategic, but they don't occur every quarter. Second, we recorded a $19.4 million remeasurement loss related to the consolidation of Floreo and Arizona. This is a noncash accounting adjustment from taking control of the venture, not a change in what we expect the project to be worth. Adjusting for the bulk sale and the noncash loss, MPC EBT would have been higher this quarter compared to last year. Demand and pricing in our communities are stronger than they were 12 months ago, not weaker.

Our average residential land price was approximately $1.3 million per acre this quarter, an 18% increase over the trailing 12 months mentioned during the quarter that net new home sales increased in Summerlin and Woodland Hills, Bridgeland was down in the quarter but still up 7% for the year. What differentiates our communities isn't that we own a large amount of land, it's what we've built on that land over decades.

We're not developing residential neighborhoods. We're creating complete communities that attract employers, businesses, retailers and residents. We've proven that strategy in the Woodlands, and we're following that same playbook in Bridgeland with projects like the Houston Texas anchored Toro District.

As these communities mature, the jobs, amenities and commercial development create additional demand for housing. That demand, combined with our finite land supply supports pricing and increases the value of our remaining land over time. which is exactly what you see in our land bank. Updated pricing assumptions added approximately $79 million of estimated value this quarter, replacing most of the value -- the 100 acres we sold. Our estimated margin adjusted residual value for wholly owned land is within 1% of where the quarter ago with fewer acres in it. That is long-term value creation that doesn't always show up in quarterly earnings.

We also completed the sale of 2 mud district reimbursements in Texas. Bill walked through the details of that. But at the end of the day, we generated more than $177 million in net cash proceeds but also generated $105.4 million GAAP loss. The implied discount rate that we sold those receivables at on a blended basis is just over 6%, accepting a discount today on cash that would otherwise have been collected for years.

We expect to redeploy those proceeds at returns well above that rate, which is exactly why we did it. Turning to the operating assets. NOI increased 8% to $73 million with same-store NOI growing at 9%. This growth is primarily resulting from the leasing efforts across our office portfolio which has increased NOI 15% compared to last year on a same-store basis.

Adjusted maintenance free cash flow increased 10% over the trailing 12 months to $96.6 million again, boosted by leasing of both the office and multifamily portfolios as we've reached stabilization across the majority of our assets. These results reflect years of investment in commercial multifamily developments throughout our communities. Those assets provide growing recurring cash flow and add value to the residential land around them.

Our condominium business is another important source of future cash flow. We contracted 82 units during the quarter, including 66 at Mahana, our newest Ward Village tower in predevelopment. As of September 30, Mahana was 15% presold after only about a month of sales. We've continued to see sales activity since quarter end despite a challenging market. Located at the base of Victoria Ward Park, Mahana offers a distinct opportunity within Ward Village, and we're encouraged by the pricing and buyer interest we've seen.

Sales remained in line with our expectations. Across the pipeline, we have 1,743 units under construction or in predevelopment with 62% pre-sold or under contract. That's more than $5 billion in expected future revenue, including approximately $3.6 billion already under contract. What makes this business especially attractive is its capital structure. Buyer deposits and nonrecourse construction financing fund the majority of those development costs, allowing us to deliver these projects with a relatively limited corporate equity, which brings me to something fundamental about Howard use.

The cash flow we generate isn't the end of our value creation. It's what funds the next generation of it. We reinvest a portion of that cash into projects like Melia and ‘Ilima in Ward Village and 1 Riva Row Row in the Woodlands and transformational developments like Toro District in Bridgeland. Those investments drive shareholder returns make our communities more attractive, increase long-term net asset value and create the next round of cash flow and the cycle repeats, which brings me to the evolving asset management strategy.

As discussed at the shareholder meeting in September, we're increasingly looking to bring third-party capital into our real estate platform through joint ventures and other structures. We don't need to own 100% of every office building, apartment community or commercial development to create value from those assets. By partnering with outside investors, we can unlock equity, grow our development and asset management fee business and keep overseeing the communities we've spent the last 16 years building.

We're in active discussions on our first joint venture and expect to make more in the coming quarters. The capital we free up gives us real flexibility. It can be used to redeem the preferred shares, invest [indiscernible] or fund our current growth opportunities in Howard Hughes communities. Our master planned communities remain the foundation of the real estate business and long-term control over their development remains central to the strategy.

So when I look at the quarter, I see a real estate business performing exceptionally well in a challenging market. We're maintaining strong land pricing, growing recurring cash flow and building a substantial pipeline of future condominium revenue. And as we evolve our capital structure, we have the opportunity to keep creating that value with significantly less capital tied up in individual assets. I am proud -- I couldn't be more proud of what our team has accomplished this quarter in a challenging environment and confident in the long-term outlook for our communities.

So with that, I'll turn it over to Bill for closing remarks.

My only remarks are that the real estate team did a great job, really great quarter.

With that, operator, let's open it for questions.

[Operator Instructions] Our first question comes from the line of Anthony Paolone of JPMorgan.

My first question relates to just the planned either joint venture or sales of some of the real estate. Can you maybe give us a sense as to any particular areas you want to sell? And maybe sizing of like how much you expect to receive in proceeds over -- I think, Bill, maybe on a prior call you mentioned being done by the end of '27.

Yes. I would say we're not going to be likely done by the end of '27. I think we're going to make very significant progress by the end of '27. The goal is to -- we think there is value -- our whole strategy about MPCs is about control. Why do we have 9% same-store NOI growth because the competitive dynamics of controlling the real estate in your communities enables you to maintain pricing and obviously, quality and this enables us to generate compound returns both in the value of commercial assets and the value of our kind of land holdings.

So we want to maintain control, so we're bringing in more passive partners that like the team with -- this is a team with incredible track record, capability, resources, financial reporting, public company, the ideal partner for pension fund family office that wants exposure to some of the best housing and real estate markets in the country.

We have -- I would say some assets that are kind of noncore that we might sell outright, but we've already been fielding offers on major assets that have come in the door since we announced this strategy, and I expect we'll have stuff to report on probably by the next time we have this call. So I can't tell you precisely the time frame. It's not -- we're not in a rush to do it, but we're going to -- we've hired advisers that are engaged, they're incentivized.

I would say real estate transactions the earliest I would expect you to hear something would be over in a 3-month time frame. But call it, 6, 9 months from now, you should start to hear significant progress. And I said by the end of next year, the goal of something in order of potentially a couple of billion of incremental proceeds would be a reasonable way to think about it. But that's an approximation. It could be more, it could be less.

Okay. And then if you think about as those proceeds come in, if we think about selling CRE, if we think about sales cap rates and so losing some percentage of those assets as income. Do you think the redeployment, should we think about that as going out at a higher return? Or how do we think about just what that trade looks like on a shorter-term basis as the money comes in and then what you do with it?

Sure. So I think real estate investors, someone is buying an asset at a 6.5% return in a 5.5% financing market and putting up 1/3 of the equity, that's not generally a high return. It's hard to generate very high return. I think people think of real estate as a, call it, I don't know, 8% to 12% return on equity kind of business, I would say, in terms of -- for stabilized assets, maybe somewhat higher for development-type assets.

We think we can generate -- Marc mentioned in excess of a 15% ROE, our ambitions are actually to generate in excess of a 20% ROE, both with a combination of strong profitability from the insurance side of the business and from strong investment results, particularly as we get the investment portfolio more invested in common equities and less on treasury.

So going from a, let's call it, a 10% ROE business to a 20% ROE business, we think inherently is a good thing. Now our real estate operation, it takes place in a corporation where we have to pay corporate tax. We have some depreciation shield, interest expense, et cetera, still pay taxes. So by bringing in -- taking out, call it, 80%, let's say, of the equity we have invested in an asset and then getting paid fees from managing the assets that are paid by third parties, promotes, et cetera, we think we can take the ROE from a real estate portfolio from the maybe lower double digits to the high teens or potentially more.

And so we think both the movement of the capital from real estate to insurance is a big step-up in terms of ROE for the overall business. But by doing so, by bringing in a partner and by becoming more of a asset manager than just a wholly owned real estate subsidiary operation, we -- that transaction is extremely accretive to the entity, both in real estate and insurance.

Our next question comes from the line of Alexander Goldfarb of Piper Sandler.

Yes. And certainly, congrats on having the first full period as a combined company. So a lot of work there. First, David, I'm going to go to Hawaii in the condos you know I like to complement you guys of how successful the presales go, but this latest project, which I think was just 15 units or 15%, it seems a little slower than historic. So just maybe a little bit more color if it's project-specific or maybe just where interest rates are, it's finally countering what normally is a really strong residential sales market out in at Ward Village.

Alex, thanks for the question. Look, I would say that over the past 5 years in Oahu and the condo market in general has been good. I wouldn't say super strong. Over the past 5 years, we built or have under construction 8 towers, the entire rest of Oahu has done 2 where 80% of the island's luxury condominium supply. And I think we've been spoiled by Bonnie Wedemeyer and her team's incredible success of delivering 60% or 70% presold in 60 days. In a more normal market environment where we are today with higher interest rates, getting 15% in 30 days is the celebration, and I tip my cap to them.

They've done a great job. Obviously, the last 4 towers are a little bit different than this one. They were all in the front row and right on the beach. And this is at the head of the park set back a little bit. So it was our expectation coming out of the gate that this wouldn't have that type of sales velocity that those front row towers did. And there is a little bit more headwinds with higher interest rates. With all that said, while 15% may be behind those other towers, for us, it's still an exceptional result.

Okay. And then, Ryan, a question on the securities portfolio. And obviously, we left there in the supplemental. The market has been crazy. We had the midterm, had serious durations this week. As you guys think about your securities holdings and as we think about you're seeking to outperform the market, should we expect your book to change meaningfully quarter-to-quarter?

Or in general, when you guys make an investment you're making it -- you look through like the type of gyrations that we've had recently, the sort of anti-AI, anti-data center pushback? Like just trying to understand when we look at your cost versus how it's going to look over time as you guys try to outperform to drive earnings to the bottom line or is .

Yes, sure, Alex. And thanks for the question. The way that we think about it is there are really only a few hundred businesses in the world that we think are of the quality that we would want to own them for the long term. And so when we buy those businesses, we really are thinking with a multiyear sometimes multi-decade perspective on where those businesses will develop.

And so the opportunities to buy them to have these businesses that grow at such a rapid rate and then to buy them at purchase prices where we can make a return that meets our thresholds, which we talked about as being at least 20%. Those aren't things that come up every day. So my expectation would be in our historical results at Pershing Square, have suggested that we have multiyear holding periods 4-plus years kind of on average, even though some stocks we've held for decades at Pershing Square.

And I think that's likely going to continue. The one thing that's quite interesting about investments in an insurance company versus if you think about investments in your sort of typical manner outside of insurance is that the insurance business is cash generative. And if cash generative in 2 ways one, every time we have a combined ratio below 90%, we're going to have profits we have profits from the investment income we generate, whether it's off the cash portfolio or the common equities, those are all things that are going to be allocated every quarter, we have more cash coming in to be invested.

And we get to decide how much of those investments will go to equities, how much are going to go into cash. And so what's nice about market volatility, particularly inside of an insurance company like Vantage is can be leaning in and taking more advantage when we get more cash in to be buying additional securities and volatile market times. And so I think that, that is something that's going to allow us to hold our positions for a long period of time while also being able to buy at moments when there's a lot of market volatility. I don't know, Bill, if you want to add in.

Just adding to what Brian is saying, the big dynamic in markets that's sort of taken place over the last decade is increased sort of passive ownership of stock. So index funds are now an increasing percentage, maybe 25%, 30% of almost every public company. That has the effect as these are effectively permanent holders, at least for now, of Ruby flow from the market.

And then much bigger amounts of capital controlled by kind of the shorter-term quantitatively driven investment firms that use a large amount of financial leverage, 8x, 10x, 12x type leverage and the huge moves you're seeing, midterms going up, whatever, and then going big down day yesterday, today, who knows -- if you don't look in the last hour, you have no idea which direction the market is going.

We are not trying to make money by figuring out which stock is going to go up tomorrow or which stock is going to go up in the next 3 months. What we're doing is we're finding businesses that we are very happy to own for years that earn very high returns on capital. They grow their earnings and revenues at very nice rates over time and that we purchased at prices that we expect we'll generate our ambitions or 20-plus percent rates of return on that portfolio. And the portfolio that we've constructed and then Ryan walked through here is one that we think will achieve that objective and we don't expect to make material changes to it.

Absent a massive move in the stock price upward that would get to a place where we think the go-forward return is sort of less attractive plus or minus, as the businesses progress, we expect the stock to progress and absent our change in our view of the business' long-term potential, we're likely to own it. So think of it as a long-dated portfolio that public comp sounds at a 20%-plus rate and we'll only make changes if we think on an after-tax basis, it makes sense to sell, realize a gain, redeploy the capital in a new investment on an attractive basis.

Okay. And then just finally, a question for Marc. Marc, as you've gotten under the hood and looked at the business advantage. Just sort of curious what your take is so far areas that you like areas that you think could use some improvement and maybe areas that you think should be exited. Just curious what your initial impressions are and how the business may evolve, especially between the insurance and the reinsurance.

I think has I think at a high level, the company is extremely well positioned. The platform was purchased on that basis, and the thesis holds. You have to be present as has many different lines of businesses and including regions and insurance to be able to deploy your cycle management strategy through the cycle, and that's exactly what Vantage is all about. I would just only say that, that platform can actually grow and hire more people and get more products to the overall suite of what we provide to the marketplace to even be better.

What I like about what I hear from the team is that all extremely caring individuals, very, very seasoned underwriting team knows what to do, what could get anybody in trouble and really focusing on True North, which is to provide and create something very unique with excellence in underwriting a tender of everything. So I'm really, really impressed by team.

And one of the things that we've done over the last couple of months is to really transition from being the own company to know where it is now with having strong support from parent company to really build for the long-term top-notch underwriting company. And the whole team is raring to go and very happy about this. So I'm very pleased with everything I'm seeing and hearing from the team and the clients. The clients are really appreciative of what we provide to the marketplace.

Our next question comes from the line of Elyse Greenspan of Wells Fargo.

My questions are going to be directed towards Mark on the insurance side. Marc, I was just hoping going back to some of your comments, right? You were alluding to softness on the property side, right, both primary and reinsurance is really what we've heard across the board. I guess, how are you thinking about pricing trending there into '27? And do you think -- what could cause the bottoming of the property rates? Do you think it's just a matter of waiting until we see some really large cat events for the industry? Or can you envision a scenario where kind of things hit a floor absent any significant losses?

Thank you, Elyse. I think the answer starts with where will the capital want to be, right? And we also have opportunities in the marketplace that may change the whole thing. But frankly, people are sitting on good results for the last 2, 3 years. We haven't had a major cat for a while, and people are sort of getting ever more comfortable with it. So I would echo what the other chief executives have said on the call is that properties is lining up to be fairly competitive.

Where is the bottom? I don't know. That's the one thing that is always extremely difficult to pin down. And of course, as you know, if there was a major event, a major loss, it would definitely change what the market will think about. Our positioning right now is we were not, and we're still not a big property cap specifically for that. It's focusing on that line of business.

And it is not our interest or focus right now going forward because of the softening and where it is relative to where it should be, to provide decent return or acceptable returns for our shareholders. So our focus is probably more to be on the sideline right now, frankly and we don't see what happens.

On the other property, the non-cat property, I mean, you saw our announcement on the facultative side, I think there's always specialties in areas where we can play in property that are largely noncat exposed, where you can still make money. And this is where we're going to be focusing our efforts going forward, so to have less volatility. And -- but still wait we still have the knowledge and the expertise and market knowledge to engage in the market if and when that happens on the property cat. So how long is a piece of string, at least, I don't know.

And then my second question, right, you guys have talked -- have spoken right to wanting to grow Vantage. How does inorganic growth come into play supplement potentially what you guys are doing on the organic side?

I think we have a lot going on right now from an organic perspective and hiring teams and different individuals with different expertise. So this is really a primary focus as we speak. I mean, of course, if things come from the outside teams or smaller outfits or different -- maybe some companies even, we're always open for business. This is how we think about the world. But whatever comes to us will have to be have to be special, right? We'll have to bring something that's specialized that's different, distinct and also help diversify further what we have in terms of our insurance liability and insurance assets.

So I think we're always open to hear and so I'm talking to the broad world right now. If there are people that want to find a new home for -- with an economically rational executive team, we're always open for business. But first and foremost right now is focusing on what we have in maximizing and optimizing what we do with the current team that we have.

Our next question comes from the line of Eric Borden of BMO Capital Markets.

Marc, the construction business contributed to the insurance growth -- premium growth this quarter. I was just curious, so within that business, where are pricing in terms keeping pace? And then just any thoughts on writing premiums for data centers. Specifically, how do you think about that asset class just given the fluid environment there?

So our construction play is really a professional liability led, which is a little bit unusual. So we do some definite general liability attached to it. It's not a property play at all. And the pricing is great, it's fine, actually. And it's really, there's a close relationship. It's a relationship business, by and large. You really get close to the the builders and the developers and you really get to know them very intimately. So it's a little bit stickier and not as open up to the market vagaries that we see out there.

Okay. And then on the real estate side, as you look to unlock some capital there as proceeds arrive, what is the packing or the current thinking on between redeeming the preferred adding capital advantage and then funding Howard Hughes developments in the condo section?

Yes. I think the answer there is I think we're going to look at that pretty carefully each time we have capital inflows into the business. Ultimately, because Purging owns the preferred, it will be the Board's decision as to whether they want to redeem preferred or just reinvest more capital in the business. I think on the margin, I think the company would like to redeem the preferred so that it owns more of this valuable business that Marc is really building.

And we're very happy in that circumstance to have our preferred redeemed. We want the company to do whatever in the best interest of company. We own 47% of the company. So our interests are very much aligned with that outcome. But yes, I think the goal is to generate enough capital that we both redeem the preferred and have excess capital for the insurance operation.

[Operator Instructions] Our next question comes from the line of Eli as individual investor.

Good to be here. Marc, as you mentioned before, Vantage has a minus from A.M. Best with a positive outlook. And previously, S&P downgrade advantage and then withdrawal trading at the company's request. What would it take to get upgraded by A.M. Best and then re-rated by S&P? And then Bill and Ryan, given person's investment in S&P Global, do you see any potential or perceived conflict if Vantage seeks AB rating?

So I'll start with the rating agency question, and we were positive outlook, A- as you noted. There's a plan to -- for an upgrade. We're working towards that. We have every confidence that it should happen over the next several quarters. We've looked at upon favorably. This is where we have positive outlook. On the S&P, listen, it's also a very different structure that they're probably used to.

There's a lot of discussions, a lot of trying to understand how everything fits together. So we're just talking with them. I'm -- I've been there before. It takes a while to get people to understand exactly what we're trying to do and what we're trying to do here is a little bit unusual. But over time, I'm confident that we'll get to what we need to get to with the rating agencies.

I'll turn it over to Bill.

Yes. So basically, S&P downgraded Vantage because of almost a formulaic approach that they take because Howard Hughes' ratings, the S&P rating power to use at the time of the transaction was BB. And so when a BB company buys an A- company, they have a formula and on that basis, they downgraded. Now our view is that our involvement or Howard Hughes' involvement here is actually meaningfully credit positive for Vantage.

And we don't approach -- we think, substantively not formulaically here. And our job is to work with the rating agencies, so they really understand the real credit story here. I think the steps that we're taking to bring in third-party capital -- bring in third-party capital, take capital out of the Howard Hughes business deployed into the Vantage operation, then it's really going to look like a Vantage insurance company that has a real estate subsidiary as opposed to a real estate company that has a Vantage subsidiary.

I think as we get make progress toward that goal. I think that's going to be materially helpful in terms of improving both actual and perceived worthiness of this insurer, obviously putting more capital in, reducing our exposure to what is perceived to be a more volatile business in real estate, even though we think our real estate business is one of the lower volatility such businesses is going to be helpful to the business.

I don't think there's any -- the fact that we own stock in S&P Global, they're not going to give us a better rating or worse rating, I think, on the basis of that, completely separate parts of the business. And obviously, if someone could just buy stock in S&P and get a higher rating, that would actually bad for their stock investment because the company would lose credibility in the ratings business, which is it's majority of their profits. So with that, let's take the next question.

[Operator Instructions] As there appear to be no further questions in queue, I would now like to turn the call back over to Bill Ackman for closing remarks. Sir?

I just want to make one point, which I think our stock price seems to be very much driven by the term movements in rates. I just want to make a few points there. So number one, One of the first things we did when we acquired Vantage was we sold its fixed income portfolio, it was not exposed to interest rates, we own short-term treasuries. If anything, if short-term rates were to go up, actually, it would increase the profitability of our all things else staying the same, increase the profitability of our insurance company.

Howard Hughes financed itself largely with fixed rate debt, although we have some floating rate debt in the condominium construction related obligations. But even Howard Hughes -- what we've experienced is, over the long term, the pace of lot sales has been excellent, and it's driven by home sales, and we've seen pretty steady home sales. However, during periods of volatility, when rates spike up, you do see a short-term pause in home sales because people lining up to sign a contract, they're pricing a home on the basis of a monthly payment.

And if rates spike up and they can't get the mortgage they want, they'll pause until rates stabilize. And we've seen a pretty consistent -- if you look over time, we've generated continued large amounts of home sales in our properties and continued demand from the homebuilders to buy our land at increasing prices per acre, and that's been the case for more than a decade.

So I think I don't think of our business as particularly interest rate sensitive the stock. I noticed it's down something by 4.5% today on a move in rates. And I don't think our business value has really meaningfully changed. And as we have, again, less exposure to -- we have less equity invested in the real estate company, more fee income there, more in the insurance operation, I think people -- I think we still trade with the homebuilder kind of universe.

And I think one of the other benefits of this strategy is, I think the market will look at us more in terms of the value of our insurance operations and our long-term investment results. So that was my sort of last comment. Grateful for your time, and thank you, and look forward to talking after the year results reported. Thanks so much.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Okay. Welcome. So, the plan is, the, kind of, formal shareholder meeting we'll do first. We'll close the shareholder meeting once we cover the materials, and we're going to have Q&A with the team. We've got Ryan Israel, CIO of the company; Marc Grandisson, who is Executive Chair of Vantage. Yes, exactly. And David O'Reilly, CEO of Howard Hughes. And I'm Bill Ackman, Executive Chair of Howard Hughes. Okay. Good morning. Today, we're going to vote on 3 items: election of directors, an advisory vote on executive compensation. By the way, I can't see our directors. Where are our directors? They're hiding here somewhere. There we go. And ratification of KPMG as our independent auditor for 2026.

As of the record date, August 17, 2026, there were 59,719,462 shares of common stock. By the way, if we could end the house music, I think there's music. Okay. Apologies for that. We've informed that -- we've been informed that approximately 82% of those shares are represented here in person or by proxy. So, a quorum is present, and the meeting has been duly convened. If you'd like to ask a question or comment, please raise your hand and wait to be recognized. Questions will be with respect to just the annual meeting. Afterwards, we'll have open Q&A on the company or any topics that you have.

First proposal is election of directors. The Board has nominated 11 directors to serve until next year's annual meeting: myself, David Eun, Marc Grandisson, Ryan Israel, Thom Lachman. Maybe we can ask directors just -- we get house lights and then we can introduce our directors to the shareholders. So, see how we're doing here. House lights. Okay. Who's virtual, who's in person? Okay, who's here? Okay. We got -- I can barely see you. Please rise, Mary Ann Tighe -- where are the lights? We need house lights, please? House lights? -- they're coming up.

Okay. So, I see Mary Ann. I see, hand of, Mary Ann Tighe. Who else do we have? David Eun over here. Which directors are present? Just Mary Ann, Marc, David, Ryan, myself. Okay. We're going to do this again. So, David Eun, Marc Grandisson, Ryan Israel, Thom Lachman, David O'Reilly, Susan Panuccio, Scott Sellers, Mary Ann Tighe, Jean-Baptiste Wautier and Anthony Williams. Their backgrounds are included in the proxy statement. We recommend a vote in favor, even though some are here virtually.

On say-on-pay, this is our annual advisory vote. The Board has recommended the vote for. And, on KPMG, we've also recommended a vote for. Any questions on the items of the shareholder meeting? Okay. Seeing no questions, the polls are now open. If you'd like a ballot, please raise your hand. If you voted already by proxy, you won't need a ballot unless you need to change your vote.

Okay. The polls are now closed, seeing no one who needs a ballot. And, based on the preliminary results, all 11 directors have been elected with each receiving over 96% of the votes. Say-on-pay is passed with approximately 99% in favor and the ratification of KPMG passed with 99%. Final results will be filed with the SEC within 4 business days. So, that very efficient shareholder meeting, we're going to adjourn. And then we're going to go to Q&A.

With respect to Q&A, please note that today's remarks, presentation and Q&A will include forward-looking statements, including statements about our strategy, Vantage, our plans for our real estate business. These statements reflect our current expectations and are not guarantees of future performance. Actual results may differ materially due to a number of risks and uncertainties. Those risks are described in the cautionary statements shown on the screen in our annual report on Form 10-K for 2025, our quarterly report on Form 10-Q for the second quarter of 2026, which are available on our website at sec.gov. We undertake no obligation to update these statements, except as required by law. We'll also refer to certain non-GAAP financial measures. Definitions and reconciliations to the most directly comparable GAAP measures are included in the appendix to the presentation.

Okay. I don't like reading stuff. So, okay, we're going to go to a presentation. I've got, maybe, 10 minutes, give you an overview of our plans, and then we look forward to your questions. Okay. Let's begin on Vantage. I would say the most significant event since we announced a plan to transform Howard Hughes into a diversified holding company was our acquisition of Vantage. Last year at this meeting, we said, here's why we're pursuing insurance. We think it leverages Pershing Square's public markets investment expertise. It's a cash-generative business, and we think it's a business that allows for prudent but rapid growth, and it generates significant investment funds.

And we believe that our holding company structure was ideal for owning an insurance company. And the fact that we purchased only 47% gives us the ability to take a long-term view. And we set out to acquire an insurance company that met our goals. And we were fortunate in being able to identify a company that actually was a very good platform for our plans going forward, a company called Vantage. It had been launched in 2020 by 2 well-regarded private equity firms. Business was probably several years away from potential monetization. A lot of private equity firms are under a fair amount of pressure to return capital to shareholders. And we were able to pay a full and fair price and close the transaction just this June.

What was great about Vantage is its scale, the right size, a business we -- of significant scale, but not too large. We could -- it fit in the context of Howard Hughes, both a specialty insurance and reinsurance company. And in that, a business created in '19 -- sorry, in 2020, a business that did not come with significant concerning legacy reserving issues. We are fortunate in acquiring a company with a very good management team. Our approach at Pershing is always, if there's an opportunity to find the best senior team in the world, we're going to pursue it.

And we've really been fortunate. Marc is here today. He's considered by many the best insurance executive of his generation, so to speak, began his career, early part of his career, at Berkshire Hathaway under Ajit Jain, very good initial training and then over 25 years, nearly 25 years, I guess, at Arch Capital, the last 8 as CEO. And we've been cultivating Marc, if you will, seducing, cultivating for 1.5 years. And we really got lucky here in the sense that Marc's protege, David Gansberg, became available. Marc was a little reluctant to step into the CEO seat, but we inspired him to become Executive Chair of Vantage once his protege became available.

We recruited David Gansberg. David, at some point, bought some Howard Hughes shares. So, we allowed him to attend today's meeting. David, if you don't mind standing up, I know you're here somewhere, David Gansberg. There he is. So, David is CEO-in-waiting. Waiting until about June 3. He's been having a nice, relaxing time off. I hope you're not getting too out of shape during this period. You're going to be ready to go come June, but very excited to have David in place.

And Marc stepped in as Executive Chair, and he's really -- he's an icon in the industry. The phone started ringing off the hook and lots of interesting people have, kind of, put their hat in the ring, and Marc is continuing to build out the company with superb talent, and we'll have some announcements about additional talent coming to the company. One of the first things we did when we acquired Vantage was we sold their entire fixed income portfolio. They had a traditional, kind of, laddered maturity fixed income portfolio managed by, I guess, BlackRock and Goldman Sachs. We were able to sell all those investments immediately.

People think of fixed income as a low-risk strategy for insurance companies. Had we held that portfolio over the last several months, it would have lost a material amount of value in light of the obviously significant move in interest rates. What do we like about Vantage? Highly diversified business. There's been some softening in the P&C business, but it's a business that Marc will tell you has -- there are hard markets within softening markets. There are soft markets within hard markets, and you want, having a platform that's broad enables you to pursue the most profitable opportunities.

As I mentioned, we're not -- we don't have to worry about pre-2020 reserving issues. We pick up a company that has all the relevant regulatory licenses and a strong credit rating, a very good balance sheet and at a scale that's large enough to recruit an executive of David's and Marc's quality, but not too big for us not to be able to acquire it. I've already talked a bit about Marc and David. Lucy is here as well. Lucy Fato, if you can just -- where are you? She's to stand. Lucy was formerly, her insurance credentials, she was Vice Chair and General Counsel at AIG. And she was actually working, interestingly, at the former Howard Hughes Seaport spin-off business, and she became available to step in here as well.

Marc can speak a bit more about, obviously, progress here. But among his first assignments, we did a large degree of due diligence when we acquired this company, but we did this with the assistance of excellent insurance consultants. We are not domain experts in insurance reserving and underwriting. So, one of the first things Marc is doing is doing a deep dive on the existing book of business, looking for opportunities for growth, looking for pockets of opportunity that have not been pursued by the company and setting the company up to be able to pursue those opportunities going forward.

Marc will speak about how important data is and data analytics and interesting to hear some thoughts on how AI is going to help insurance companies analyze, do better at underwriting and maybe there's some risks associated with AI that are worth talking about. But I think, Marc, you've been in the chair seat for a few months now.

Since July.

Since July. So, a couple of months in. And good news is, no surprises to the negative. And, in fact, actually, one of the things Marc has mentioned, surprises to the positive in terms of the strength of the team, strength of the organization, which is obviously something we identified as part of our due diligence, but Marc's had really a real opportunity to get to know the team and speak very highly of the team.

As I mentioned, one of the first things we did is reposition the portfolio. At the time of acquisition, it was a $3.1 billion portfolio, about 16% in, kind of, cash, short-term investments, 84% fixed income. We sold the, kind of, longer-dated fixed income, invested that capital in short-term Treasuries today comprising about 62% of the portfolio. 37% of the portfolio is in common stocks, a portfolio that Pershing Square manages, kind of, this barbell approach. We take no risk on float, the insurance float plus a cushion and the balance in a common stock portfolio.

So, the theory behind this investment approach, we took a page from Mr. Buffett and Berkshire Hathaway. The way Berkshire has been run historically, Buffett has taken 100% of their -- the float and invested in short-term Treasuries. So, when you read Berkshire has a several hundred billion dollar Treasury portfolio, that's principally the Treasury -- short-term Treasury portfolio that sits in the insurance company. And then, he's invested the surplus of the insurer in common stocks. And, that's something beginning really in the 1960s. In the early days of Berkshire, Buffett didn't know, I think, much about insurance and had years with very big losses in the insurance company, but the investment side of the portfolio really drove the value of that company over time.

When you compare the approach we're taking that Berkshire has taken over time with that of the typical P&C insurer, if you look at the page, typical insurer has a largely almost entirely fixed income portfolio, kind of, some short-term investments, a fixed income portfolio that looks a bit like Vantage, perhaps a small, modest 5% of the portfolio in common stocks, generating, kind of, a consolidated weighted average return of, let's say, 5% in today's market, take off taxes, really a 4% return on an investment portfolio. It's really the leverage of the insurer, investing a fair amount of assets relative to equity, 2.5 turns of leverage that enables a 10% investment return on the asset side of the balance sheet.

Insurer also -- really, the focus is on the underwriting part of the business. Typical insurer, let's say, a 95% combined ratio after tax, generating an incremental 4% return on equity. So, most of the return comes from the asset side of the balance sheet, leveraging a fixed income portfolio with some profits from the insurance side, getting to, kind of, a mid-teens return on capital.

Now, if you think about risk, 2.5 turns of leverage on an intermediate to longer-term fixed income portfolio -- that's worked well in a world where rates have come down really since the 1980s. We're now in a world where rates are moving up. It's a very different risk profile. I mean, I would say the risk profile is the same, but I think the risk of loss becomes much greater in a world in which rates are rising.

If you look at the approach that we're taking, we take 100% of the assets and put them in short-term Treasuries. We take no risk with respect to term structure of interest rates, take 100% of the float. And then, we invest the common -- we invest the common stock portion of the portfolio in a reasonably concentrated 14, 15 name portfolio of large-cap, what we call durable, high-quality growth companies, the kind of companies that Pershing Square has invested in historically. We manage this portfolio as part of our arrangement for Howard Hughes, we charge nothing to the insurer on this part of the business.

And, we do so with much less leverage than a typical insurer. So, instead of 2.5 turns, the asset side of the balance sheet being 2.5x the equity, we keep leverage below 2 turns, something between, let's call it, 1.6 to 1.8x. So, lower leverage, much more liquid in our view, lower risk on a combined basis, but a much higher potential returning portfolio. On the insurance side, we write less premium relative to the typical insurer. The typical insurer is writing typically 100% premium -- a ratio of 100% premium to equity. We will be somewhat less than that, generating what we expect will be a meaningfully higher return on equity.

If you look at Pershing Square over 23 years, we've had about 1/3 of the time years with returns on a gross basis in excess of 40%. We've generated a return -- a gross return on over the last 23 years in the 19% range. I think we're better today than we were in the, kind of, in the earlier years. So, there is the potential for very significant upside in a world in which we generate meaningfully above-market returns. Okay. So, we acquired Vantage.

Howard Hughes used -- we injected $900 million of capital into the company. We took $300 million on the balance sheet and the balance of the capital was provided by Pershing. So today, Howard Hughes owns slightly more than half of Vantage. And, economically, Pershing Square through this preferred instrument owns the balance. Howard Hughes has the ability to acquire that preferred instrument and purchase 100% of the business. But, what we're focused on as we sit here today is we want to get as much of our capital as possible invested in the insurance business. We now have a team in place. We've got the platform. We have the ability to grow. And, the bulk of our capital today is sitting in our real estate operation. A typical real estate investor, real estate is -- the President would talk about real estate being a no money down business. Howard Hughes has operated with a business model of 100% of our money down, where we've financed really pretty much every acquisition without the benefit of any third-party capital. And, that is a pretty significant change that we're about to make.

When you look at the stock today, the market values the company at a significant discount to the market -- the after-tax value of our real estate portfolio with Vantage valued at approximate cost. We believe that discount exists because the market assigns a very high discount rate to real estate development, land ownership and condominium development. These are businesses that people normally think of as, kind of, high risk. And, as a result, we've really traded at a significant discount over time. So, what are we doing? The business naturally generates a lot of cash, about $2.5 billion to $3 billion of cash will be generated by the sale of condominiums, the sale of lots, cash generated by our income-producing assets. That's money that comes over 5 years. And, our goal is to put that capital into the insurance company as quickly as possible.

So, how are we going to do that? We're going to do what most real estate investors do. We're going to become a much more asset capital-light real estate investor by bringing in partners. We are in the process of engaging advisers to bring in joint venture partners so we can monetize about 80% of the equity we have invested in our income-producing asset portfolio. We also have a number of assets that are sort of noncore to our MPC strategy. Those assets are in the process of being sold. We're going to form joint ventures with our master planned community business. Again, instead of funding this business, effectively 100% of the equity coming from Howard Hughes, we're going to bring in partners. And, if you think of what's been built at Howard Hughes over the last really 15 years is we've built a machine that has been able to compound -- grow the value of our land assets over a long period of time, build out these, kind of, beautiful communities that rank year after year as best places to live in America. We have a development team that knows how to build projects on time, on budget. We have landholdings with development opportunities out for decades. This is the -- if you think about other people in the alternative real estate asset management business, they've got to find deals. They generally don't have their own operating talent.

Here, we have a company that has deals as far as the eye can see in markets that we effectively are the dominant and controlling owner, and we have a long-term track record for deploying that capital. So, we're the ideal partner for a pension fund, for a family office, for investors who want exposure to very high-quality real estate, where we're going to continue to have very significant skin in the game, but we're going to go from being 100% equity owner to being 20% or so skin in the game, but getting paid for our IP. This has the benefit of taking a real estate company and making it a much higher ROE business, one that we think the market will give much more credit to. It also gives us the ability to take out large amounts of capital from the business.

And, instead of waiting 3 to 5 years -- our expectation is over -- by sometime next year, we will have made very material progress in extracting capital from our real estate business. Importantly, this is also a great opportunity for our employees. With public company capital and the high cost that comes with it, it sort of limited, to some extent, our ability to pursue certain kinds of real estate opportunities. Real estate developers like to build by bringing in third-party capital and increasing the returns in our business, it's going to create more opportunities to deploy capital, which will be great for our real estate team members. So, it's strategically great for the company. It's great for the team, and we're going to be able to give Marc a lot more capital a lot more quickly.

We believe the after-tax value of our real estate assets is something in the order of $5 billion. Expect we keep $1 billion or so of skin in the game. That creates the potential for $4 billion of capital to be extracted from our real estate assets and redeployed into our insurance operations. So today, we have -- basically own effectively all of our real estate. We fund all of our development ourselves other than, obviously, bank financing. And, our returns are limited to just the return -- after-tax returns we generate from our real estate.

Fast forward completion of this process, we remain a meaningful equity owner in each of our assets. Think of us as a plus or minus 20% owner, and we fund our growth and the balance of the capital needed in our business with third-party capital, investors that want exposure to assets in the best markets in the country, managed by a team with an excellent track record with more skin in the game than really any other real estate manager. And, we turn this into a business that really generates no third-party fee income to one that generates very significant third-party fee income.

What this does for Howard Hughes business is it takes out a lot of capital. We can redeploy elsewhere and the capital we leave in the business earns a much higher rate of return. We generate more cash, less exposure. Howard Hughes stock seems to trade sort of inversely with rates because of how much perceived exposure we have in the real estate operation to rates. We think the reality of that exposure is much more limited than the market suggests. As you've seen, even with mortgage rates, again, at 7%, we continue to see enormous demand from people who want to move into our communities.

We continue to sell land at higher and higher interest rates. And, the market, of course, will pay a much higher multiple for a real estate business that's an asset -- effectively an asset management business as opposed to an asset-heavy real estate operation in a C corporation. This was not an ingenious idea. There are good examples of other real estate companies that became asset management firms, Brookfield really being the best example. Blackstone, obviously, and these are other examples of real estate operations that operate on an asset-light basis, and the market assigns very nice multiples to their business operations.

So, pro forma for what we're accomplishing here, Vantage becomes the principal subsidiary of Howard Hughes over the next, let's say, a couple of years. And then, the Howard Hughes Communities business will grow its asset base, probably continue to grow its asset base pretty significantly, but by using third-party capital, we've got an asset management business that generates significant fee income, and then we continue to be a minority owner of the assets in our portfolio and the controlling owner, which is important of that portfolio.

Graphically, today, we're real estate asset equity heavy. Pro forma for this transaction, we become an insurance-led holding company with a high-return real estate operation. Why don't I pause there, and we'd be delighted to take your questions. So, there are 3 mics in the audience. We're also going to take questions online. Turn on the mic in the front. Go ahead.

You can enter questions online in the chat and we'll read them out. And, Bill, would you like to start with one from online?

Sure. Let's do that.

Okay. Great. Since the success of the Berkshire Hathaway model relies heavily on both risk management, especially saying no to writing some policies, and skillful investment of the float generated by the insurance business, could you give us a progress report on your efforts to "clone" Ajit Jain?

Well, I think he's even more handsome than Ajit. But -- so, Marc, why don't you speak to maybe what was Arch's approach when you were CEO in, kind of, cycle management? And, how does that carry over to Vantage?

Yes. So, you can hear me -- it's good to be here, by the way, this morning. I think the playbook has been -- this is what I'm used to. I learn about the hard and soft cycle and having the ability and the willingness to write more or write less depending on the market conditions since I was 26, 27 years old. So, I've learned from a tremendously strong and intelligent people, and Ajit certainly was one of them. I've seen this play and the beauty of Howard Hughes, this is what also attracted me, is that it's not a private company, but it's really well geared towards letting go of top-line volatility and being okay with it. Which I've said to Bill and Ryan so many times that top-line volatility leads to bottom-line stability. And, this is what it's all about. And, it's really easier in a way if you think of a broader organization like Berkshire Hathaway or, in this case, Howard Hughes. When you're a public company doing all the business and it's the sole thing you do when you don't have the ability to invest and deploy capital at higher returns when the insurance industry is not giving you the opportunity.

It just makes you do things that otherwise you may not want to do or you may not wish you could do or you know are not really good to do and you just buying 1 more quarter, buying 1 more year to see it through, to carry yourself through the soft cycle, to get to the hard cycle, and we'll deal with it when we get there, and when you see it throughout the cycle. And, that's something that we won't do here because we don't have to. And, that's a really, really wonderful luxury to have. That doesn't mean you walk out of markets. That doesn't mean you just drop your clients. It's far from it. It really means that you're a very sensible and very smart provider of capital through the cycle.

And, at Arch and certainly at Berkshire, that was the case as well. People understand that. Brokers and clients understand that stance. And, I've said one-on-ones to brokers on deals, and David will be my witness. When the deal is too good for the client, and it's a really good transaction and really good price, we would tell them, well, maybe we should go with them. And, that's the willingness to let go with not a bad transaction, but a transaction that doesn't meet your personal or your company's hurdle. And, having that luxury is what makes for a much more stable and valuable growth in book value over time. Is that sort of what you want?

Yes. Look, I think what I would add to what Marc said is this is a company that's not -- does not have to generate a return by a certain quarter or growth rate by the end of the year. We're taking a Pershing Square view, our stake in the company is effectively a permanent one. Our goal is to compound the value over a very long period of time. The bulk of the profits from a well-run insurance company in this model will come from the asset side of the balance sheet. So, there really isn't pressure on the insurance team to put capital at risk. So, Marc can really, kind of, pick and choose the risks, and that's really the key. And, versus -- now an interesting question would be, Marc, at Arch, Arch was a stand-alone insurance company. How did Arch manage to follow this philosophy without the pressures normally imposed on a stand-alone insurance business?

Well, a lot of talking to our investors, making sure they're -- they understand the playbook and what we're trying to do and convince them that over time that the book value will grow at a better clip and much more stable than the other companies. But, it's not without its challenges. I've been in conversations where people didn't really believe anymore in the story. I mean, you just come out of favor, like the same way Warren was out of favor in 1999 when the NASDAQ was going crazy.

So, you also have to be -- to have the willingness to be contrarian. So, that was really -- and the Board was strong as well and really being behind this. In the beginning, the private equity led who understood that playbook, and it carried on well because a couple of times, we were pushed and we were told to do more things, take more risk in certain areas. And, I was saying, well, I'm not going to do this because if we do this, we're going to lose, and it never fails, a year or 2 after losses happen and everybody else has a loss. And, we didn't have one or at least not as high -- not as big. So, it creates that credibility over time. That was one thing I will say.

The second thing I will tell you is, and this is going to be the same here, one of my main missions and it was the same for Dinos, was to broaden whatever we can do as a company in terms of products and geography. We, with David, we were instrumental in establishing a reinsurance company in Europe. We didn't have this before, right? We also established a facultative unit. So, you can -- along the way, you're able to find new ways and new areas to deploy capital. Mortgage insurance is also a good example. So, being on the lookout and being ready to seize the opportunity and you increase what I talk about all the time is, if you have, like, many ponds to fish from, you don't need to rely on 1 or 2 of them. If you have multiple of them, gives you that much more -- that better flexibility. I like what you just said, Bill, which is in a hard market, there are soft spots and vice versa in soft markets, there are hard parts as well. And, so, the more you have the ability to participate in the market, the breadth of it is what creates that opportunistic, I would say, ability to go through.

Actually, I want to ask you another question. So, how many ponds do we have to fish from in Vantage? And, are there new ponds that you're seeking to bring to the story? And, what's -- where is your progress in that regard?

Yes, there are more on the reinsurance. I don't want to say a whole lot because it's still in development, and we still like talking to people to see maybe joining us to do some of those things. But, if you look at the things that we've done at Arch, it's a good place to look at, really, to see what we've done because it's worked out very, very well, and I'm used to it. And, something I was also doing prior to Berkshire, like evaluating different lines of business. Geographically, we're probably underweight in Europe, in London, for instance, which will be a more natural marketplace for us because of the specialty nature of what we do.

We have to figure out how to get there and who's going to do it with us and also making sure that we have a solid plan of action. And, we'll start small and build from this. That's a good -- that's a really first shot, first good example. There are other lines of business that we could actually -- we are doing as we speak. We had a 2-day business review about a month ago and really identified lines of business where we could do a lot more. And, that's really better, right? Because it's something you know, you understand already, you have the team in place. So, it's really beefing up that team to really seize more of this opportunity. There are other lines that we're not really involved in, like we're not in workers' comp, for instance, that's a huge market. I'm not saying we're going to rush to do it, but it's an example of things we could do.

On the reinsurance side, there's a few things that I'm thinking on the side that we could do a fair amount of more of the building through. So, probably more -- a lot of it on the reinsurance side. The insurance, we're careful. We have a really good platform. We're really trying to improve and augment what we have in terms of capability within each of those lines of business with London that's going to be really expanding that much further. And, that's going to take us -- it's going to be a while for us to digest and really work through it.

And, I think on the reinsurance side, we also have a lot of other things that we can do. There were some lines of business, liability, for instance, is a good example. That was not part of their initial plan at Vantage, which I'm very familiar with it, and so is David. Obviously, this is where we started working together at Arch. So, that's certainly a line of business, for instance, that we'll do a bit more of, and that fits very nicely with the strategy that Ryan is trying to do on the float base and a lower cost of capital.

And, then what I can tell the shareholders of Hughes, as at Arch for our shareholders, is that I don't know what the company is going to look like exactly in 6 months, a year or 2 years from now. We're going to have a baseline of what we do on the insurance side and reinsurance, but we might find ourselves being overweight in certain areas compared to what we would expect a company of our size to be because of the opportunities that are there at that point in time. And, that's something that is very, very key and very important for us to share with the shareholders of the company.

One thing, if I can, I think is fascinating having worked closely with Marc now for several months, it's been just a wonderful education for all of us at Pershing Square, is the similarities of what we do on a day-to-day basis on the investment side, where we know there's a large number of opportunities. We talk a lot about how there maybe 300 to 400 different stocks that we could buy at any one time that really meet our traditional business principles. And, we're sort of waiting for the right setup, so that requires the right facts to be in place. At the same time, it requires the right price to be there, and then we can move quickly.

So, we're constantly scanning the universe. We're really understanding these businesses and then we're waiting for just the right moment. Insurance business is actually incredibly similar. What Marc is saying, we couldn't tell you at Pershing Square exactly what our portfolio is going to look like 5 years from now, although we can talk a lot about what are the high-level characteristics of the businesses that we'll seek to own, but we don't know exactly what the mix will be because we have to see what opportunities the market gives us. It's the exact same thing with the insurance business that Marc is talking about.

And, so, I think that harmony, both from a high-level business perspective of having a great insurance business where we can generate ongoing profitable float, but not having to constantly be in every market at every time based upon whether it's a hard market or a soft market and doing the same thing on the investment side. But, the underlying logic is very, very similar as well.

Marc, can you speak to -- you're recruiting a bunch of people to the company. Obviously, there's front-loading certain costs associated with that as you build the team and then grow. How should shareholders think about the development of a combined ratio at the company over time? When do we get to, kind of -- you built the team and you, kind of, grow into a start deploying capital? When does the company start to stabilize and start generating an appropriate profit?

Yesterday. It's not an or, it's an and, right? You need to develop the business so it's going to be profitable at the same time investing for the long term. And, we had a great conversation this week, this week, this week, you and I about -- I'm an economically rational guy. It's all about economics. It's all about investing not $1 now, what it's going to give us in the future. And, again, because of our structure, there's a willingness to consider those things and thinking through not having to worry about the next quarter's earnings. This is a huge freeing as management.

So, our game plan is going to be to do both. It's really to invest, hire the people. And, then I know I've done this before, we've hired teams, cost us a lot of money in the first year or 2. And, if we look at the return that's been giving us 5, 6, 10 years after we got these people on board -- I mean, it's tremendous. We would do that trade. I would do that trade any day of the week. And, that's what we're trying to do right now. That's what we're trying to do. I'm asking people for business plans, but I'm not expecting them to live up to it. I just want to make sure that they have a good sense for what they're trying to do once they come on board on our platform.

And, I think we have solid people that really focus on bottom line. And, I think we have a portfolio. So, it's not like we have to rebuild from scratch every year. We have a portfolio. We've been talking to the team, and there are ways for us to massage it or maneuver or navigate through it and realign a few things within each portfolio to improve it. But, that goes for -- this is going to be an ongoing conversation, right? It's hiring the right team. Are we doing all the lines of business that we should be doing? Should we do more or less of that one or this one? At the same time is how do we improve the underwriting, which leads to one of the things that you mentioned in presentation about the data and having conviction behind the data and really having conviction as to what you're trying to do.

So, I think what the shareholders should be expecting is a keen eye on the results always. But, if we can find some in somewhere to invest to really grow the platform over the next 5 or 10 years, we're also going to do this. We're going to do both. And, I think the best thing for us to do is to explain to our shareholders. This is what we're doing. This is what's going on. This is what's happening. This is why the numbers may be a bit perhaps higher than you would have expected in your modeling, but there's a reason for it. And, the reason is, again, backed by economic rationality, it should work out. It has worked out in the past.

One of the things I think is really important to what you just said, Marc, is in the insurance business, arguably like the investment business, talent is probably the most precious asset that you can have. In a lot of businesses around corporate America, if you think about the best person you could hire versus the second best, the gap might be maybe the best person does, I don't know, 25%, 40% better, a lot of people would say, than the second best person.

Steve Jobs, when he's at Apple used to use this analogy though, that in certain businesses, and he was talking about his product designers or his best engineers, the productivity of that gap isn't 25% or 50%, it can be 50 or 100x. And, so, there are certain businesses where hiring the best people leads you to a result that is orders of magnitude better than what you would get for the second best person. I think the investment business is like that. I think the insurance business is another one.

And, so, when we talk about hiring people, I think the business attributes are uniquely such that bringing in the best Executive Chairman, the best future CEO, and then on down the line, you can really get these amazing effects by hiring the best people. And, so, I think the investments that we make in our people are even more important in insurance than they might be for the average business in corporate America.

Great. Okay. With that, let's take some questions from the audience. This gentleman right here. If we can bring a mic to him. Where are the microphones? So, we should stage them. We should have someone in the middle here so that it's easier to pass a mic. We're still working on our meeting logistics. We'll be better next year.

Guy Baron with Springview Capital. A question for Marc, and you addressed some of this already, but when you joined and cofounded Arch, it was a very hard market post-9/11. Clearly, the environment right now is quite different. There are pockets of hardness, but really the insurance market has been softening and continues to soften. And, so, there's a certain tension there where Howard Hughes is going to give you $3 billion to $4 billion of capital on the one hand. On the other hand, if you were at Arch, you'd be potentially shrinking a lot of business. So, I guess the question is, how do you handle that tension with all that capital coming in? And, a question for Marc, Bill and Ryan, would you then look to inorganic opportunities, M&A to grow Vantage to the extent that there are insurers trading cheaply because of the market backdrop?

I'll start. It's an easy answer. We're such a small company. We don't have to do a whole lot more. There's a lot of opportunities out there given our size to grow the platform. And, you're right, it is not the hard market of 2001 and 2002. We also have higher requirements of capital. I think that even though we have an amazing amount of capital in the industry, all-time high historically, we still have markets hardening. We still have price increases in many markets. And, I would say that we've been underrepresented in some of these markets where the returns are really, really interesting.

So, when we started Arch, there was nothing. We had to build the whole thing in all lines of business, insurance and reinsurance. You probably need a harder market to do that, right, to get the ground running and doing all that stuff. Now, we have a solid book of business already, and we sort of incrementally, we're going to be able to augment and incrementally improve it. And, there are lines of business that are not as hardening and softening as you might think. There's a lot more stability to them. When we talk about hard and soft and going in out of the market, like I said before, you don't go out altogether.

Like when the market is soft, not every single insurance policy loses money, right? There's always a segmentation that can occur within a certain line of business or area. And, that's certainly something that we'll be spending a lot of our efforts on. It's already being done, but we're going to do a lot more of that advantage. It's easier, right? It's a smaller footprint. So, I'm not concerned about this. If you told me wherever we are right now to go to 10x this, I think it's a very, very different thing altogether. I think once you're bigger, I think you have to start shaving a few things because you have such a big presence in the marketplace, but we don't. And, we have -- we're underrepresented. So, we have a lot of room to grow.

And, one analogy I would make to the investment management business. The way we think about Marc and team is recruiting a team that's used to managing $50 billion to a fund that's managing $1.5 billion. So, as Buffett would say, Berkshire, the scale creates challenges that if you were managing a lot more money, you would be able to be a lot more nimble. We can be incredibly nimble as a small company, but we have a team with the capability of managing a lot more assets. And, I think that's a very good combination. And, with respect to acquisitions, maybe you can make a comment on...

I can -- yes, briefly, I think it's -- nothing should be off the table about everything. I think if you look at the history of what my experience is, it depends. It all depends on the economics. We understand the risk. Is the balance sheet making sense? It may be an asset purchase. I think in terms of priority, if you look at some of Dinos's calls and my calls historically, we prefer to hire talent first and then teams second and then -- because it's better because you integrate them into your culture and the way you look at the business. Having said this, we've made some acquisitions. David and I worked on one big acquisition we did at Arch, and that worked out pretty well. So, I think it depends, I guess, as I would say. But, I think we are open to grow the platform when and if it makes sense.

And, the last thing I would add to that is when we put capital into Vantage, we also have, as Marc talked about, organic opportunities, inorganic M&A opportunities. The third opportunity, though, is we, Pershing Square, can help manage the additional capital in terms of investing in stocks. And, so, I think what's really nice about that, I think it's one of the reasons Berkshire has been so successful, is the more arrows that you have in your quiver, the better you can calibrate looking at the environment, not just what can we do in terms of expanding the portfolio organically by bringing new people in or writing new business, you could also say, is the market giving us an opportunity to acquire an entirely new platform. But, lastly, we can do something that very few insurers historically have the ability to do, which is we can also look and see should we increase the allocation to equities with that additional capital. And, so, I think the blend of all 3, because it's not an either/or necessarily, gives us a much wider remit to be able to figure out how we can look at what is the highest return at any given moment in the cycle.

Question...

I'm David Samra from Artisan Partners. Bill, as you try to reduce the capital intensity of the real estate portfolio, is there an order of priority in terms of the use of that capital between buying in the ownership of Vantage and putting capital -- incremental capital into Vantage itself? If you could help us understand that a little bit. In addition to that, in one of your pro forma slides, you showed capital to premiums of less than 100%. And, I'm just curious of the buildup of that number, where it comes from? Does it have to do with the way that you're using a lot of the shareholders' equity to invest in the stock market? Or is that a reflection of the type of premiums that will be written inside of Vantage?

Sure. So, the company has the option to use the capital either -- the preferred has a 7-year term and it effectively represents the economics of owning, Pershing Square owning stock in Vantage with the company having the option to redeem the preferred at 1.5x book value. So, what -- this is one instance where the decision on the use of the capital to redeem the preferred versus reinvest in the business, ultimately, at the end of the day, while we'll have some points of view on it, it's going to be one that the Board and Marc will decide because of a potential conflict. Obviously, we're -- as a preferred shareholder.

Now, we don't view it as a conflict because we want the company to invest the capital in the manner in which increases the value of Howard Hughes over time. So, think of the world in which some incredible opportunity appeared to, let's say, an acquisition that would advance Vantage in a pretty dramatic way, but it's only available at this moment, we have a finite amount of capital. That could be an example of let's take $500 million and do that acquisition as opposed to redeem. The option to redeem the preferred will persist for 7 years. So, the company can make the decision over time, is there a better use of this capital.

Now, the good news about buying back the preferred is we're buying something we already know, a business we have perfect information about. And, the price -- we designed the preferred and ultimately in negotiation with the company in a manner that would be very favorable to the company. We believe over time, a well-run insurer that earns approaching a 20% or greater than 20% ROE is a business that's worth a lot more than 1.5x book value. And, the redemption price of the preferred is is fixed at 1.5x. But, that will be a decision that we'll make based on the relative opportunity set.

You might envision in a world where, let's say, the market is weaker, perhaps we're just going to spend our capital buying more of Vantage as opposed to deploying more capital in the insurance business. So, the pace of capital that we generate, so we think the most straightforward thing for the real estate operation, the real estate company to do is selling a -- bringing in a partner, a joint venture partner, capital partner into an income-producing real estate portfolio is a very straightforward transaction that happens effectively every day in real estate markets. We're hiring advisers. What's the status of that?

They will be out in the market by the end of the year with the information for potential third parties to evaluate becoming our partners.

So, we'll begin a process with materials, we'll go out to a marketplace. I would -- and we have at least a couple of billion of equity in our income-producing assets. At least, at least. What's a better number?

Well, I think in your presentation, you showed a number of total equity of around $5 billion.

Just income.

Income-producing is about $2 billion.

Yes. So...

$2.2 billion.

I would say the first $1.6 billion that we can create from a partner, that could be a pretty straightforward transaction that could happen in the first half of next year. The more open question is the MPC business.

The residential land component, which represents another over $3 billion depending on how much of Teravalis you include in that. It's a more difficult transaction to bring an institutional partner into land. I think our long-term track record of generating hundreds of millions of dollars of free cash flow, selling dirt at a 65% margin gives us an opportunity to do things that others have not in the past.

So, what I would say there is it's less certain on the timing. But, I would guess I would be surprised if we haven't generated $2-plus billion of capital by sometime comfortably into next year. I would say maybe $3 billion to $4 billion by the end of the year is a reasonable goal for that business. Remind me your second question.

Premium to equity.

Do you want to address that?

Yes. So, the way we sort of thought about that slide at a very high level is really using Berkshire's inspiration relative to the traditional insurer. And, so, whereas the traditional insurer tends to write premiums that are roughly equal to its capital, which is effectively as much as it can relative to the capital based upon the regulatory requirements, Berkshire has really gone at about 30% recently relative to capital. So, it's been writing very little premium relative to the amount of capital it has and uses that excess capital ultimately to invest primarily in common stocks.

We're actually today primarily U.S. Treasuries. Berkshire suffers from scale both on the investment side and on the premium writing side, which is why they are at the lowest leverage insurer in the world.

Yes. And, they still have a pretty big equity book relative to Treasuries, but they have shifted that a little bit more towards Treasuries over the last several years. What I would say at a very high level is that when we acquired Vantage with the team that we had in place, we thought that they were a relatively strong team, but there was probably a little bit of an underlying bias as we started working with them to maybe think about having a little bit of extra capital relative to premiums because we know how to do the investing, and we felt very confident in our ability to generate strong returns. And, therefore, maybe having smaller premiums relative to equity was more attractive.

I think while we're still ultimately figuring that out with Marc, and it will be a decision collectively so that page isn't a commitment to exactly where we'll be, you may have noticed if you compare that to what we had said a year ago, actually are slightly -- we're increasing the amount of premiums that we're writing relative to equity. I think that just really reflects the superstar team that we've attracted and the people that Marc is already attracting below him.

So, I think the better the team is, the more opportunities there will likely be, I would expect, over time, you'd actually see that number to be continuing to increase. It's not a commitment. It was really just more of a conceptual understanding. So, said differently, the numbers on the page would be even higher in terms of the returns if we actually decided to calibrate the premiums higher relative to the capital in the business.

Next question. There's one up there. You could pass the mic...

Meyer Shields, KBW. Two questions for you. One, leading off that, would you have any interest in buying standard commercial operations that would allow for a higher premium to surplus or premium to equity ratio? And second, I was hoping you could talk about how your experience in reinsurance would allow you to evaluate MGAs as that business model proliferates.

Okay. So, reinsurance is -- you're right, Meyer, it's a really nice place to know to be able to evaluate MGAs and MGUs, yes. There's also a cycle, as you know, in the MGA. And, we are partnering with a few of them, many of them, right, Nicolas. We partner with the ones that we like, the people that do things that we want them to do and are responsive in working with us. It's been working out well. So, there's more partnering at this point in time. We also have the same analysis on the underwriting structure, the cash and everything and the underwriting guidelines to make sure that they're okay.

So, I think it's interesting because Nicole is doing it for us at Vantage. And, it really feels like a reinsurance portfolio, very much so. And, it's really a nice, I would say, renting capital, of sorts. That's certainly something that's been central that's actually also helped from the leverage perspective -- operating leverage perspective. And, so far, I would underwrite that reinsurance alongside with Nicole so far. So, it's been pretty good. What was the first question again, Meyer? Just remind me what the first one is.

Whether you'd be interested in standard commercial lines with a high leverage.

So, that one is always a possibility, right, for everything. I mean, it's a large marketplace, but it's a different game, right? It's an agency. It's a lot of connective tissues within all the distribution network that's kind of hard to dislodge. I think that our focus for now -- I mean, yes, if it comes to us, a good price, a good structure, we like what they do. They have a nice book of what they do, and we can find a way to house it within Vantage, of course, we would look at it. But, right now, our priority is really focusing on developing and growing. As I mentioned, we're a bit underweight the specialty lines of business, the E&S and whatnot.

We have some admitted capability. We'll do some of that. But, right now, most of our focus is to push forward a little bit on the specialty side, which is, as Ryan mentioned, a bit more talent intensive and probably -- you can probably do a bit more with it than you would otherwise in the standard commercial marketplace. So, it's not a no. It's just it would probably have a little bit higher hurdle at this point in our history. In 15 years, 20 years, who knows?

Maybe take an online question.

Sure. The Vantage acquisition demonstrated Howard Hughes' intention to build a diversified Berkshire-style portfolio of durable cash flowing businesses. Can you share whether Howard Hughes has identified additional non-real estate opportunities and whether the future expansion is more likely to come through minority equity stakes or full acquisitions?

So, our focus for the foreseeable future is building the capital of the insurance company, redeeming the preferred. If we can generate $3 billion of capital from the real estate assets over the course of the next year, figure $1 billion or so will go to redeem the preferred and the balance will be invested in the insurance company. And, the insurance company itself, the assets will be minority stakes in public companies, common stock portfolio. There will come a day, I expect, where the insurance company is, kind of, very well capitalized, and we have excess capital that we can think about deploying in whole company acquisitions. But, that day is, I would say, not for the certainly near term to intermediate term. Maybe upfront here.

Thanks. [ Yu Xu, Bessemer ]. On a related note to David's question over there, can the insurance platform manage third-party capital? If so, is there a pace for that as well? And, what safeguards would be necessary so that fee generation doesn't take excessive priority over, say, policyholder alignment?

Marc...

Yes. So, the platform, again, we haven't filled our boots with everything we would want. So, for us to get third party, it's interesting in and of itself to get the returns. But, I'm also a very -- I also like to underwrite and I also like to do the underwriting results and really having -- sticking to our balance sheet. Also, I'm always cognizant. Over time, I think we'll develop it as the platform grows. And, if we have more than we probably want to in certain areas, we could buy reinsurance, which is sort of third-party capital, right? You get reimbursed some kind of commission. So, it's already existing as it is for a more broader third-party capital.

We have one already at Vantage. We are managing a fair amount of that. And, we're evaluating what we're going to do and what's going to happen with that over time. I think our first order will be more developing underwriting income to our balance sheet, optimizing the reinsurance purchase perhaps as well to make it as optimal as possible. And I think, when we get to be much broader, which I've seen that experience through Arch when you start at the beginning and you move over time, then you come to a point where your size and the market presence is such that you're able to have those kinds of discussion.

So, I would say probably a bit longer term, certainly something we would evaluate. And also, we have to demonstrate consistency of returns, right? We need to be able to demonstrate that we're really, really good steward of third-party capital as well. So, that's something that we'll demonstrate to the market. Once we've demonstrated, I think we'll be able to have good partnerships developing.

In the middle here.

So, Jim Cohen, 10 years from now, how do you expect the market caps to compare between Howard Hughes, Pershing Square USA, and Pershing Square Asset Management? And, do you and Ryan agree on that? And, how do you compare the risk profiles? And, Ryan, you should have mentioned before about people that Howard Hughes going after the best Chief Investment Officer, too.

Well, I hope they didn't overpay.

Go ahead, Ryan. Why don't you take that one?

So, I think what's interesting about all of them, maybe you hinted this a little bit in your question, is if you sort of start at the top, Pershing Square, the management company Bill and I work for, that effectively is getting fees, which are directly related to the growth of each of the various entities that we manage, of which Howard Hughes and Pershing Square USA are 2 important parts of that.

And so, ultimately, the returns on those assets are going to very directly relate to the returns that the management company gets. And so, what I like about our strategy at a very high level is while there could be some differences based upon the starting valuations of those businesses, when you think over a very long period of time, ultimately, the better that Howard Hughes does, the better that Pershing Square USA does, the better the manager is going to do, and there's going to be a very direct mathematical relationship between the growth and the value of those businesses.

So, I would say that over time, they should generally be relatively similar. Now, what I think you need to look at is you need to look at the starting valuations of all of them. One of the interesting things about Howard Hughes that we talked about here is that we believe the starting base of assets today is significantly undervalued, right? We talked a little bit about the market price, let's say, kind of mid-70s as of yesterday relative to something the base value of the business, we believe, is at least $100. I would argue that, that is, in my view, a relatively conservative valuation because that really assumes that the price that we paid for Vantage is close to what the value is.

And, I think, hopefully, you've seen already with the team that we've hired, the plans that we have in the future and just the enormous opportunity we have to create a lot of value, which is why we're really wanting to put as much capital as we get our hands on into Vantage. I would argue that business is worth a lot more today than what we paid for it. And therefore, you could argue that just the existing value today is significantly in excess of the share price. Well, obviously, we believe the same is true for the other assets that we manage if we do a really good job. I think here, there may be even more of a disparity where we kind of talked about the share price being significantly above.

And, that's before you think about all the changes that we're going to make where we're going to take -- it's a great real estate platform today, but one that's very capital intensive and it's actually, I would argue, hampered our growth to something that's very asset-light with a great team that we can use to really now go to capital sources that are multiples the size of what we have internally, that transform into an asset-light business should mean that, that business is a lot more valuable than I think people believe it is today. And then, we get to put that capital into Vantage in rough order of magnitude, every dollar that we take out of Howard Hughes should be worth at least $2 of value because the returns that we can get on that capital in the insurance business are so great that the market should be willing to sign more than book, book and half, or something like two.

I think the value creation story there is going to be really, really great. So, I think Howard Hughes, our expectation and our hope if we do a good job is that, that should accrete at an incredibly rapid rate because of the high rate of return that ultimately Vantage and then the asset-light real estate portfolio will deliver over time. And, the starting valuation is incredibly low. That said, our expectations are also incredibly high between the other 2 vehicles. And so, I think all 3 of them will do really well.

Just to add to what Ryan is saying, one way to think about Howard Hughes today, if you pay $75 a share, you're basically buying -- think of it as buying a future insurance-dominated holding company at about a 25% discount to book value that has the potential to trade at 2 turns or greater multiple of book value. So, if we're successful in deploying capital from real estate into insurance and Marc is successful at doing what he does best, if we do a good job on the asset side of the balance sheet, we've taken a company trading at a discount to effectively book value or in this case, the market value of the after-tax market value of a real estate portfolio plus the, kind of, our cost basis advantage and turning it to an operating insurance company that deserves a 2 turn multiple.

And then, on the Howard Hughes side, real estate asset management companies trade at multiples of book value, right, because these are very high return on capital businesses. So, the market has, kind of, dinged the company because our ability to generate returns on capital in an equity-heavy real estate operation in a C corporation is limited and the discount rate the market assigns to that business is high.

We're moving into businesses where the discount rate is going to come down meaningfully and the returns we can earn on these -- both the insurance and a real estate asset management business are much higher, and that should lead to a re-rating of the company from a discount to book value to -- we expect over time, a meaningful premium. And, a good example of how asset managers can trade at a premium to book value is you just look at Pershing Square Inc. It trades at, -- I don't even know what book value is, but it's probably a couple of dollars a share and the stock trades in the 50s. It's probably 25x book value.

So, asset management businesses can trade at very high values. I'll give one little plug for Pershing Square USA. It's trading today at a 24% discount to its net asset value. Net asset value is comprised of the most liquid marketable securities in the world. And, in each of those cases, those companies we think are trading very deep discounts to what they're worth, you get, kind of, a double discount. So, we like Pershing Square USA as well. Maybe another question online.

Sure. There are a few to this effect. Based on your belief that Howard Hughes stock is significantly undervalued, doesn't it make sense to use some excess capital to repurchase shares along with growing the insurance business?

Actually, in this case, I don't think so. I think the highest return we can generate today is take every marginal dollar of capital and put it into the insurance company. The most effective use of a buyback here would be to buy back the portion of Vantage that's held by Pershing Square as opposed to buying in our outstanding shares at this stage. There may come a day someday where we have so much excess capital that that's a better use of the money. Another -- yes, right here in the middle.

Edmundo Yepez from Armada Capital. We're based in Mexico. I have a question regarding the real estate subsidiaries or the new asset-light model where you keep 20% of whatever you guys are developing. And then, the remaining 80%, shall we think it as 100% being that equity? Or can we -- can it have like a portion of debt or et cetera? Just because I want to assess if we have to continuously think of you owning only 20%? Or has it the possibility to go for your ownership to go upwards?

And then, just this ability of making the model more asset-light, does it accelerate the development that you guys have? So, the current pipeline, if you had like -- if you fund it with 100% equity, it's going to be on a slower pace. Does it accelerate? Because as of my understanding, your thesis is to develop at a very moderate pace, so the lot value is maximized. So...

David, do you want to cover that?

Absolutely. So, to answer your first question, when we think about selling 80%, it's 80% of the equity in the buildings, most of the operating assets have property level debt on them already. When we talk about selling 80% of the residential land, that is an unlevered asset today. And, it's an asset that really shouldn't have a lot of leverage on it anyway because it's land that doesn't generate recurring income.

To get to your second question, our development pipeline has always been sized to meet demand. We sell just enough residential lots to keep up with underlying home sales. So, I don't know that, that business goes faster because third-party capital comes in. On the vertical development side, we're building to meet demand. And, today, we have opportunities to build on the vertical side, retail centers in Summerlin, more condominiums that we're not executing on because the risk-adjusted returns of those assets are not as high as redeploying that capital into insurance.

I think that, if we're able to execute on this asset-light strategy, we'll have plenty of capital, plenty. There's always need more. Enough capital to redeem the preferred, invest in insurance and potentially on one of the slides that Bill went through, eventually raise third-party funds that can do that real estate development pipeline at great risk-adjusted returns for real estate investors, but maybe not for a diversified holding company when our capital allocation decisions are between insurance and real estate development. So, I think this strategy has both the opportunity to increase the capital to insurance as well as increase the vertical development pipeline across the communities business.

Another way to think about what David is saying, when you bring a partner into a real estate -- when you have real estate in a corporation that has to pay corporate taxes and is in a public context and has to operate with public company leverage, and there's also overhead expenses associated with it, it's hard to get to a return on equity that's substantially above what the market has historically assigned to this business.

When you have a stand-alone asset where you bring in a partner into that asset and you finance that asset in the context of a private transaction, you can achieve much higher -- the pretax returns are what are relevant to the third-party investor. It's not embedded in a C corporation. And, we have at Howard Hughes, all the ingredients that a real estate investor looks for. What does a pension fund who wants to allocate capital to real estate look for? One, they want to have a very talented operator. Two, they want someone with very good development capability. Three, they want someone that has institutional credibility and accountability and reporting.

And then, ideally, they'd like a deal pipeline for years of ability to put capital to work. It's very hard to find that in the asset management business. You can find some very capable people who are good at deploying capital, but the vast majority of firms, even the Blackstones of the world rely on third-party developers, third-party managers. And, we have the -- all of those capabilities in-house that we've used now for 15 years to build and manage a portfolio, which we have an incredible real estate development track record. And, we've got a land bank that is basically tees up a series of transactions. We don't need to compete with all the other real estate asset managers when an acquisition opportunity appears, and we have to bid for an asset.

We've got to buy a piece of land. Here, we have a land bank, which is just a series of future transactions. So, it's a very compelling story to a third-party real estate investor. And, as a result, we expect we should be able to bring in very good partners and very good terms. Okay. Another -- let's go up top there. We're sort of in the middle. And then, we'll take this lady here in the third row next. So, maybe we get the mic to the next person so that we can avoid a pause. See we're learning. Okay. Go ahead.

Daniel [indiscernible] from [ RIT Capital. ] While this all sounds great and dandy. This is a far cry from about 9 years ago at some conference. Where you presented this tremendous opportunity at the time, sold a lot of people on the grand scheme of real estate and master planned community operation in South Street Seaport real estate. What would say there is a little bit of disappointment, opportunity to cause loss, time value loss, that's immeasurable, especially with what's happened in the past 9 years. What can you speak to the investors about renewing that confidence in this new opportunity, new direction, this huge pivot to regain their confidence?

Great question. So, I didn't realize it was 9 years ago, but it's amazing how time passes. I think we executed on everything we said we would do 9 years ago, which is we were going to refine the portfolio. We were going to focus on building out this -- what we think of is a great business. What we were unable to achieve is to garner a low enough cost of capital so that we can earn a return in excess of our cost of capital. And so, while we made, I would say, meaningful progress, if you look at 9 years ago, what our land values were 9 years ago and what they've become over time, 9 years ago, we were selling acres in Summerlin for what?

$450,000.

And, our most recent prices.

We've had $1.8 million over the past 2 quarters.

Nine years ago, we didn't have much in the way of a development business in Hawaii and today.

We've had over $10 billion of closed or contracted condominium sales at Ward Village.

Right. Our net operating income was, what, a decade ago?

A decade ago, we were sub-$100 million. And today, our guidance is in the high 200s, $270 million.

Right. So, on every measure that you would measure a typical real estate company, the business has made meaningful progress. And, actually, before the issuance of shares to us in connection with this transaction, the share count has basically been relatively stable over that period. But, when you have a cost of capital as high as this business, you can work as hard as you want, you're not going to make much share price progress. So, the pivot, as we describe it, addresses the problems that have caused the underperformance of the stock price, which is we go from a much lower return business to a much higher return business.

We turn the real estate operation into a much more capital-light, higher return business, and we expect to see the benefits of that. And, I think you'll be able to judge our progress. If you -- in May of last year, we did the initial transaction. We announced the transformation. We set a goal at the September meeting, we said, look, we're going to buy an insurer. And, we feel very good about the asset we've acquired, the team that came with that asset. We've enhanced the team with Marc and now with David, with Lucy, with other members. We immediately sold the assets of the fixed income assets to the insurer, and we deployed the capital at, we think, very attractive prices and a very high-quality collection of assets -- of common stocks.

And, we're beginning the process of converting the real estate operation from capital heavy to capital light. Now, should we have done this sooner? Sure. I would say that could be a reasonable criticism. But, I think we thought of Howard Hughes and the Board, I think, collectively thought of the company as a pure-play real estate development company. And, our thesis always was as we simplified the business, we focused the business. We did a better job telling our story. We did a good job recruiting David to become CEO. As we executed, we expected over time, we'd garner a value that made sense, and we were ultimately unsuccessful, which is why we're changing the plan. There was a question in the front.

My name is Li Jing, and I'm coming from LongRiver. We're very long-term investors. I have 2 questions. The first one is on the insurance side. So, insurance is a business where when you do the business, you don't know the cost of goods sold. What if there is a catastrophic event, it looks like you're still settling the ground, hiring a good team right now. What if there's a catastrophic event happening in the next couple of years, how does that capital movement among your different businesses, real estate insurance? Do you see more capital injection into your insurance business in that scenario? That will be the first question. The second question is on the real estate.

Let's just take one at a time. So, on the first question, a good question for Marc. How much exposure does Vantage have to sort of catastrophic risk?

It's a very small exposure, probably underweight versus most other companies I would expect. It's also the way they calculate it is somewhat conservative. So, I would even say that we could probably put a bit more capital to work if we -- if the returns are there. The other thing that we had a similar conversation last week, it's about earnings event versus capital events, right? In the insurance world, one of our mission at the insurance group is to make sure that we don't have a capital event, a significant decrease of capital because of exposure. So, you're trying to rightsize your exposure within a reasonable 1 year, maybe 2 quarters, maybe 6 quarters earnings so that you can replenish the capital to trade through because when those kinds of events happen, you're able to really seize the opportunity. And, your ticket to the dance is the amount of capital you have, and that's because it's related to the rating agencies, winning -- giving you the opportunity to participate.

So, it's -- we put a lot of risk on balance sheet where you do an insurance carrier, right, across all lines of business. We measure 25, 30 different exposure that we could have. We can think of -- we spend our nights thinking about the worst-case scenarios about everything. We don't want to share here, but what if this happen, what if that happen and then we go and report on a quarterly basis to make sure that we're within guidelines, and we're not overexposing the capital. That's really what I was taking about...

Marc, with a couple of dozen lines of insurance, how much correlation do you believe there is among the different lines? Is there a way to think about the exposures? We're not a super cat company, so, for example, how would you...

Correlation is interesting because it's hard to describe. I know it sounds crazy for most of you here, but what I prefer in terms of PMLing, is a term we use in insurance, probable maximum loss, is you don't try to do mathematically, you actually go a bit more simple, and that's probably a bit more conservative. You say, hey, if I'm going to be exposed to a titanic kind of event, let's say, right, you don't sugar coat, you don't like granularly go through everything to find out the fine-tune and everything. You just assume that limit is exposed. And, you just sum across all that exposure across your portfolio. So, you tend to be a bit more on a conservative side to make sure you're not missing out on what the exposure could be. That's sort of the idea behind risk management.

I think the short answer at the current state of Vantage, this is not an insurance company to worry about massive catastrophic risk, and Marc is going to do a very careful job to make sure that doesn't work.

Yes. They only have -- so, I think at a very high level, when you think about catastrophic risk, there's sort of kind of 2 broad level risks I think insurers take. One is any individual event, if it were to happen, people always think about this as a natural event disaster, earthquake, flood, powerful storm, you are generally writing in certain lines of business, for example, property, where you know that you have a property that might be exposed, you could have a house that gets wiped out or something like that or massive business insurance interruption risk.

And, that would generally be for an event that could happen, that's probably the precise event somebody is trying to protect against. There's a lot of history going back over several hundred years where you could sort of think about how much exposure would you have the policies are there. And so, that's kind of one is just in any individual event. That's oftentimes what people talk about when they think about capital events or catastrophic loss. That is something that when we did the diligence was really around just under 1% of the business what Vantage is writing. It doesn't mean that it can't be more of capital, but we felt like that was a very small risk. That's something we spent a lot of time diligencing on.

Second risk is really where no individual event that has happened before, and you get a lot of history on this as well, should be causing a huge loss in any other book of business. Now, you can get the pricing wrong on the business or there could be things, for example, tort law or court kind of judgments that ultimately cause those things to be worse. But, the nice part about those is that doesn't happen from one individual event. It happens a series of events over time. Mr. Buffett called that social inflation. But, that's not actually something that would be causing any particular catastrophic risk at once.

It's a decision that you would have as you build a book of business over many, many years that you can kind of see developing and you could decide to try to price that or not. But, I think for what you're asking, that is a very small portion of the portfolio. And, I think now with Marc and the team that we're hiring, we have an even better insight as to how to really make sure that we're not accidentally taking risks that we don't think we're getting paid for.

Just a quick second question. On the real estate side, I was wondering how much more you're planning to do on the land bank side? Are you in any plan to acquire that very long-term big parcels of land for future development?

I would say very unlikely. Go ahead in the middle here. I'll take the top middle and then the bottom middle.

John Helmers, Long Focus Capital. We're -- first of all, super impressive or impressed with the team you put together in the business plan, and we're investors. We have close to 1.5%. I have 2 questions. One is Bill and Ryan and Bill, in particular, with your longitudinal view of the world, how do you, on a scale 1 to 10 view today in terms of allocating capital?

So, it's a highly uncertain world. I would say the single biggest risk to an investor today is the risk of disruption to the business. It's always a risk we've thought about, I would say, beginning 4 years ago, the first question we ask is how will AI impact this business? Will it be a positive by improving productivity, your ability to assess risk, let's say, in insurance? Or will it cause the business to disappear over some period of time? I think that risk has only escalated in a very meaningful way.

So, I think that -- I give a much more specific answer to your question. I think it's harder to think about overall markets if I had to pick a moment in history. But, I think this is a very good time where you can differentiate between different kinds of businesses, ones that you think have a high probability of being a beneficiary of AI and ones that I think are at much sort of greater risk. I do think AI will be a positive for humanity and for businesses and profitability, but it will lead to a lot of disruption. And so, it's a moment to be a very careful stock picker, I would say.

That makes sense. And then, my other question is specific to the -- obviously, if you generate even the low end of your expected return on the investment side of 15%, it's a compelling investment from here, right? The question would be, just given the lumpy nature of -- as I think about both sides of the book and given the evolution of market structure, if something wild happened on the asset side, how would -- how are you protecting yourself? I said down 40% that occurs because of crazy market structure.

Well, we intend to run Vantage in a low leverage fashion, both on the asset side of the balance sheet and the way we write insurance business. And, on the investment side, with -- today, we've got, call it, 65% of our capital invested in short-term Treasuries. We're always going to have a very strong risk-free base of assets to cover our future liabilities. And then, on the common stock side, we invest in what we believe to be the most dominant durable growth companies in the world. Generally, the average credit rating of our actually common stock portfolio is in the A+ range.

These are generally very low leverage, very high return on capital, very dominant companies with many years of secular growth. Stocks can trade at any price in the very short term, but we're never going to be in a position where we're a forced seller. And so, we can ride out sort of market volatility. One of the other things that we've done historically at Pershing Square is in addition to spending time, obviously developing a portfolio and monitoring and helping assist companies we invest in, we've spent time thinking about what are the black swan risks in the world.

And, there have been -- it seems like about every 7 or so years, we have a pretty interesting event. Over the last 23 years of the history of Pershing Square, we've had 3. One, of course, was the financial crisis. And, we started to see the seeds of what would become the financial crisis because we're obviously very active market participants. And, as we got more and more concerned about what was going on in sort of the credit markets, we developed a hedging strategy, and we bought credit default swaps on AAA-rated companies because we viewed it as the most asymmetric way to hedge against the risk of a failure.

And, we were betting against companies that had AAA ratings but had business models and exposures that we thought would increase their likelihood of insolvency. When that paid off, we had capital to invest in equity markets. Beginning in February 2020, we started thinking about what would be the economic effects of a pandemic, and we hedged that with investment-grade CDS. And then, it wasn't many months later until December 2020, we said, look, we're going to have massive inflation.

We have the largest fiscal investment in history. We have 0% Fed policy with a world reopening with a vaccine. This is going to create a demand shock. And that's going to -- we're going to have a massive spike in inflation. The Fed is going to have to raise rates. Rates are at 0. The 2-year Treasury is at 12 basis points. The market is not expecting this, and we hedge that by buying interest rate swaptions. That same collection of that hedging strategy is one we intend to apply to Howard Hughes and ultimately, in part to Vantage.

We can't promise we're going to identify every next risk that's going to cause the market to decline 30%. But, it is part of our -- something we do spend time on every day, something we think about. But, the beauty of a barbell approach to the way we're managing Vantage's assets, it's a very comforting thing having today, 60-odd percent of our assets sitting in short-term Treasuries earning actually quite a good yield and the balance in the most liquid equities in the world, large-cap mega-cap businesses that today are trading at some of the lowest valuations in their history.

So, it's a very comforting sleep at night approach to investing. I would feel very differently if I had a 2.5, 3x levered insurance company invested in longer-dated fixed income, which is really what the vast majority of insurance companies have today. And then, the question here upfront. If you raise your hand. Here you go.

Kavish Singhal from New Jersey. So, my question is related to the markets in general. So, the S&P is up about 13% this year, but the equal weighted index is up about 8%. So, it's been an interesting market because you see a lot of divergence. It's only a few industries and sectors that have been contributing to the gain most of the year, the semis and the chip companies. And, even from the MAX 7, it's been just Apple and NVIDIA that are actually beating the S&P by a good margin.

So, there's been an interesting divergence where some of the best companies in the world are trading at an extremely attractive price. And, the business has been doing well, but it's just been a market rerating. So, how is Pershing Square looking at that market landscape where some of the best companies in the world are trading at extremely attractive price because of this interesting concentration of semis and memory companies?

Do you want to take that?

Sure. I mean, I think that's what you described is exactly what we agree with, and that's really created the opportunity for us this year. What's been very nice is that market backdrop has really developed, I would say, starting in the earlier part of this year and then sort of maybe continuing sort of the March, April, May time frame. We were able, for example, starting with Vantage, in particular, we were able to start putting the capital to work right after we closed the acquisition in late June.

So, we had the benefit of being able to buy a lot of the securities that you're talking about, what we would classify the great businesses of the world at some very advantageous prices in our view. So, we've been able to fully take advantage of that for Vantage because we got a little lucky with the timing of when we had a bunch of capital to be able to put to work. As Bill mentioned, it was also further helped by the fact that we were able to take what was a fixed income portfolio that had maybe around a 4-year duration on average, and we were able to sell almost all of that right before interest rates went up, maybe 75 or 80 basis points, which saved us a lot of money there.

So, that swap had kind of advantages on both ends. And now, we've taken some of the capital that was in fixed income, put some of it in stocks and also in short-term Treasuries really much higher. So, I would say Vantage has actually had the full benefit of the dynamics you described as we've actually seen since the period of kind of late June, early July, a nice recovery in a lot of the stocks that you mentioned that we decided to purchase kind of in that 15-ish stock portfolio for Vantage.

More broadly, what we have been doing at Pershing Square across our various funds is we have been buying more of the stocks. We actually were -- earlier in the year, some of those stocks actually were trading at very good prices. So, we were able to actually sell some of them and buy some things that traded off very cheaply. We had a very large investment in Microsoft actually kind of around the February lows of the SaaS Pocalypse, which has actually done quite well this year.

So, about 25% depending upon kind of the fund in which we bought it. So, we had an opportunity to take advantage of market volatility. We've also, even in the other funds, though, have really rotated out some of the investments that had done well that we felt like had not been hurt for some of this trade-off. And, we've used that to be able to buy a lot of the high-quality businesses that Bill mentioned, we think are trading at some of the lowest valuations despite having, I would argue, the same level of certainty that they have in the past when they trade at higher valuations and having, I think, new growth opportunities that may make their future earnings growth even higher levels than what they've historically been.

So, I think what's interesting about the market is at a high level, people are focusing on the chip companies because it is very clear in the short term that the earnings of these growth -- of these companies is going to grow at a very rapid rate, and there's very little uncertainty about that. There is uncertainty for a lot of the other markets where AI at a high level could be somewhat disruptive. I think the job is kind of an individual stock picker like ourselves, the long-term investor is to go through a case-by-case basis and say, where does the market have it wrong? Where do we think the businesses still have a great opportunity for growth. And, some of these businesses, particularly some of the Mag Seven, I would argue, actually have way more growth now than we thought they might over the last couple of years, yet they're even cheaper when judged relative to the multiple of earnings are trading at. So, we think it's a very advantageous benefit for a long-term, more concentrated investor who focuses on the world's best businesses.

Elliot Dashef from Brooklyn. Good to be here. Marc, do you have an example of either at Arch or now Vantage of a business that wasn't right and you walked away from?

Yes, there was a line of business on the insurance side at Arch that I feel bad because we should have gotten it out of it earlier, but it was a bit difficult to get there. So, there was a line of business that we did that was at all the moral issues going that the insureds were, I don't want to say fraudulent, but not necessarily clean as clean as we would want them to be, and we kept on increasing prices, changing the forms and conditions, but it was doomed to fail. And, it took us a while. I mean, somebody talked about cost of goods sold not being parent for a little while. That was also one of the situation.

We had engaged in that line of business, stayed there for 5 or 6 years. And, with my colleague at the time when he took over the -- that was on the insurance side, we just sat down and just decided at some point we need to get out. We just need to get out because we were opening the lights for that business. We were negative 50, one to one, when we just opened, turned on the lights, and that's just -- there's just no way to live. So, it took us a while to get there, but we did it, and we just moved on and then walked away from it. That's just what you do.

This is a bit more complicated because you have a relationship with the brokers and you have to do it in a nice way in a good way. But, it turns out that, that business was also desirable for other markets around us. So, it was absorbed by the broader market and with no problem. It was also not a significant part of what we did on the premium side, but it was a significant loss driver, if you will. So, yes, that's one I can think right off the top of my head.

And, Bill I turn 30 in October. I was wondering if you have any advice to give your 30-year-old sub.

Yes. So, the advice I would give is no sugar, no alcohol, and go to the gym because you get sort of this one body thing and then I'm twice your age basically. And, there's a big disparity when you get to 60 about your ability to move around and do things and going to a college reunion is sort of an interesting thing for the people who show. There's a wide disparity in how people look at 60.

And, I would say if you want to be there and look good, now is the time to start taking those steps. So, no more sugar or alcohol for you. Actually, I had a question for Marc that inspired by your question, which is how do you balance, particularly Vantage is -- we are leveraging one of the benefits of recruiting Marc and David is we're leveraging their reputations over a couple of decades in the insurance industry. But, Vantage is sort of a new company. We've got to kind of build our own reputation. And, how do we think about our ability to be nimble in terms of stepping in when the pricing is good and stepping away when the price is not so good, but also managing relationships with brokers and so on. How do you think -- how do you do that?

Well, first, we have a really solid team that's been there and done that. Most of our leaders or business units are 20, 25 years of experience. I mean, they've known the market plays very, very well. And, it's really about connectivity with the brokers and relationship with the brokers, right? As long as you're able to explain, they may not agree or like whatever you say at every single time you talk to them or say no to a transaction. But if they -- people value as humans, we value consistency.

We value being true to what you say being credible. And, I think that's the team Vantage has definitely created this already, having -- coming from much bigger organization and having managed much, much broader portfolios. You can see it. You hear it in their comments. I mean, they have specific relationships and very good relationships with key brokers and key clients. And, that's how you do it. If you're truthful, honest and they know what you're looking for and you explain it to them why, people on the other side understand that, too. They know the drill.

And, like I said before, when you end up in a position where the business is not really giving you the returns you would expect or it's not really conducive to make good returns. When you decide to make -- to take a step back from it, typically, it's because the reason you're not able to make as much returns because there's too much capacity. There's too much interest in that line of business. So, what you find out is you're able to gracefully not exit, but definitely deemphasize the line of business and it gets filled in other areas in the marketplace. And, funny enough, when there's nobody else to go to, this is when our underwriters really go in and craft the terms and conditions are able to create something that's valuable for the client. And, this is where we shine a lot. We're able to do this because the people know our people know the terms and conditions. So, being true to yourself, be consistent and be honest and be transparent and tell them exactly what's going on. And, that's worked. It's always worked.

Makes sense. Okay. Right here. Upfront, fourth row. And then, why don't we take this guy next? So, we'll give a microphone right there. So, we have someone giving this guy, Mike and that guy, Mike.

Do you want to do an online question?

And, we'll do an online question while we're waiting...

Okay. Great. With the fast pace of changes related to AI, has Vantage leadership considered engaging a firm like Palantir or someone else to take advantage of these opportunities or to protect against disruption? How do you think about that?

So, we already have a lot of -- I've been out for 1.5 years of the business, and it feels like it's decades on the AI front. Our team is spending a lot of time and using a lot of the AI tools. Our Chief Technology is also on top of it. He was at major firms, understands what's at stake and what's going on. And, we're investing proportionate to who we are as a company, right? I think it's not necessarily our #1 point of investment because I think like Ryan said, I think talent and expanding our footprint is what we're pushing for, but our team is using it every day.

And, most of what we're using it for right now is to help -- I said that on the call last time, it's about process improvements and making it easier to do our day-to-day life. But, there's definitely pressure -- one of the projects going on to really harness more of the data and information through various different sources to really capture it and making hopefully better decisions on the underwriting side. That's going to come. I mean that's not -- and what I'd like to say is on the Palantir and all the investments, I'm not saying that we wouldn't do this. But, we -- I'm cognizant of the image of if you're the first ones in the Wild West, you have arrows on your back. So, you probably want to be careful and be overinvesting and overcommitting to things that are not 100% developed. So, I think we're just a great follower of what's happening and evaluating what's going to happen and utilizing whatever is out there to help our decision-making.

Good. Okay. Next from the audience, whoever has the mic.

Suleman Soorani from Tricap Investments in Dubai. I've got 3 questions. I'll be quick. First one is regarding your investment process. While you're establishing your investment thesis and valuation and even post investment, how actively do you seek views which are contrary or opposing to the view that you are taking? Specifically, I'm referring to your investments in hyperscalers, where there is a very convincing view of the market that the amount of CapEx that we are doing, both on and off balance sheet and all the SPV stuff and everything that's going on is somewhat close to what was happening at the time of financial crisis, right?

Where companies were going out and opting for very innovative financing structures, debt structures. Meta, for example, has SPVs where they are trying to not show debt on their books, right? So the question is, in a general way, how actively do you seek out deals which are different than what you are taking? And more specifically about the hyperscalers, have you reviewed the research that has been put out by Michael Burry on these companies, which -- where he has very, very elaborative way highlighted all the debt and everything that's going on with these 3 companies.

Yes, sure. So I think one of the great things about the speed at which information is flowing in the capital markets, aside from, I think, creating a lot of opportunities for investment because there's just so much information that you have a lot of people increasingly using quantitative methods in order to trade off of these headlines, you get bombarded with information every day. So I would say we are constantly updating our views.

Almost every single day I'm reading a report, whether it's a research report that comes out or it's a headline or even if it's kind of in social media, Twitter, the like, where somebody is disagreeing effectively with something that we have done. And I would say, clearly, the more that you believe there's a market perception out there, whether it's something that you've invested in or something that you're looking to invest in, you really want to understand what is, if you will, the bear case on the stock when you're looking to buy it.

So yes, we have reviewed everything that has come out there on sort of every investment that we own, the hyperscalers in particular. I mean, very quickly, what I would say on the hyperscalers is directly related to your question about specific research that's come out. I think one of the things that's important to understand is why are companies like Meta, which have a cash -- net cash position and don't actually need to be engaging in issuing a lot of debt, why are they doing structures like this that are off balance sheet?

And I think if you actually -- what's nice when you go through the filings and even when you talk about some of the people who engage on the other side of that transaction, you can very easily go get all the information, the primary research, look at the documents yourself. You can talk to Meta about why they've done it. You can talk to the counterparty who provided that financing and you can really form a view.

And what I would just say at a very high level is I think that, that particular financing that you're talking about was incredibly beneficial and favorable for Meta. They basically had, in our view, a right to walk away whenever they wanted, while somebody else was effectively putting down 80% of the money and the implied financing cost for them was very little, and they got exactly what they wanted and able to build out a facility that's going to be really beneficial for their business.

I think that is way better than going out and using your own cash flow or going out to the investment-grade market and issuing a bond at a higher cost, you have a fixed liability to pay that back maybe in 10 or 30 years. So I actually think in this particular example, it was very, very advantageous for the company in order to do that. I don't necessarily think so much that Meta was trying to keep off its balance sheet as maybe perhaps as much as the other party who is providing the financing was trying to prove a point to their capital partners about what they could do.

So I think it was very attractive. And I don't think the hyperscalers are actually doing anything untoward or that's not necessary to be able to grow their businesses. They can really finance all these investments with their own cash flow and a very, very modest amount of leverage that they choose to do over time.

Yes. I would say it's very different than what was going on during the financial crisis, where -- but here we have the underlying construct, is there's a massive, massive amount of demand for compute. And then there are a whole bunch of entrepreneurs that when they see that demand, they're trying to create business models where they can create value for themselves. The -- kind of the data center developers are not dissimilar to real estate developers. They take a piece of land, they build a building and they fill it with a bunch of GPUs.

And they're willing to take certain risks in their business in order to build a business model. And what Meta is doing, as Ryan spoke about, it's a bit like what we're in the process of doing at Howard Hughes. Meta historically has effectively equity financed everything they've done historically. Now there's a market where third parties are willing to put up capital on pretty attractive returns that are more interesting to Meta than using its own capital. That's something they should take advantage of.

Why don't we take the next question? We're going to give everyone a chance to ask a question. We'll come back to you. Okay, next.

[indiscernible] University. Usually, in the investment space, when there's a strategy that produces outsized returns, that invites a lot of competition, managers starting their own fund following that strategy. This playbook, the Berkshire Hathaway playbook of buying an insurer using the flow to either do other acquisitions or to invest in it has been in the spotlight for a couple of decades now. Why haven't there been other successful managers that have done this at least at a certain scale?

It's a great question, and I think there's a number of good reasons for it. So one, you need a certain construct. What Buffett had is he had -- he was a major owner, majority owner effectively control of a company. He had very good investment management skills. And also, he knew enough about insurance "to be dangerous" and he had a very -- he was very patient. He gave up a hedge fund business, which he got a 25% share of the profits. He was managing $100 million in 1969, and he gave that up to take a job managing a public company.

And the question is why did he do that? I think the principal reason is he realized that as the investment operation scaled, the fact that the capital base was impermanent really put at risk what he really wanted to achieve over time. And so we took -- he got control of Berkshire and basically used the insurance company as a way to continue his investment strategy in the context of a public company and he's had an incredible track record over 60 years.

Today, if you're a really talented investor, you go to work for a hedge fund or an asset management firm, you generally -- you don't go to work for an insurance company. And the ability of insurance companies to attract, I would say, best-in-class equity managers has been very limited. And so the way insurance companies historically have been run to the present day is they run as pretty much pure-play insurance operations where the asset management side of the -- asset side of the balance sheet is more of an afterthought.

In Vantage's case, they outsourced the entire portfolio for whatever, 10 basis points to a third party. And I think because of a bit of the history of Howard Hughes, the fact that we, as part of a transaction, we're able to become a major owner of the company and therefore, take a very long-term view because we're, I guess, patient. We're not trying to make a fortune next quarter, but build something that can compound over a long period of time.

And I think because we have -- the skills we've built over time and relationship -- what is Pershing Square? I think we're good at investing. But I would say, importantly, we're also good at recruiting talented people and working with really talented people, letting them do what they do best and be able to getting that done in the context of a public company, it's hard to get those sort of facts lined up.

And generally, the incentive for -- people are in a much more get-rich quickly mode today, I would say. And one of the things Buffett clearly had was the vision to see. He understood the power of compounding before you could do it, build it on a spreadsheet. And he said, "Okay, well, if I just do what I've been doing and I live a long time." I didn't agree with his live-a-long-time strategy.

I had dinner with Buffett about 20 years ago. And we, of course, ordered Cherry Coke for him on Amazon because we couldn't get it in the supermarket. And of course, he asked for Cherry Coke. And then I asked him whether he wanted sparkling or still water. And he said he wanted neither. And I said -- I said, "Don't you drink water?" He said, "Bill, I haven't had water in 48 years."

So I think he brushes his teeth with Cherry Coke. I mean, I don't want to -- you shouldn't even talk about the guy who lives for another couple of decades, but they got to do an autopsy and figure out on something like how he survived on that kind of diet. But maybe I'm wrong. I gave advice not to have sugar -- that's bad advice. Okay. How about in the top there?

Prashik from 8th Wonder Fund. We are long-term investors. Going back to the math of ROE when you said combined ratios to be in 90% to 94% range. If we fundamentally think from first principles about combined ratios and break it into loss ratios and expense ratio. So loss ratio is something depends on how reserves develop over a period of time. But expense ratio is something that is controllable.

And Buffett had said many times that the true advantage in insurance business is being a low-cost operator. So my question is what combined ratio looks like today -- sorry, expense ratio, how you guys are thinking about it? And going forward, 5 to 10 years down the line, what could be the numbers that you guys have in mind and how you're making sure that you have the best talent, pay well, but also manage expenses and that expense ratio part really well?

Great. Obviously, great question for Marc.

Yes. So high level, incentives drive behavior, as we all know, right? So that's going to be already what's in place is to focus on targeting the combined ratio. I'm not sure if it's public yet, but we know -- I know what it is, but it's really geared towards a really, really healthy return. So that's something that you reward your underwriting team on -- that's the basis. That's number one. It may change over time from a return perspective, bringing some of the stuff that we've done historically, but everything is going to be geared towards rewarding underwriting team for getting -- providing good returns.

I do not agree with your assessment that expenses are -- that Buffett says that the way to live and survive in the insurance business is to have -- to be the lowest cost provider. That's true in the GEICO world. That's true in personal lines. In the commercial lines and specialty lines that we're in, it's not exactly true. It's a lot more -- it's not a standardized product at all. It's very, very disparate in terms of market conditions and what you can encounter. So you need a lot of input from the people.

The premium is $100, 30% to 35% is the expense, 60% to 70% is losses. So where you make your hay is on the 70%, taking it down to 65%, taking it down to 58%. This is where -- especially in the specialty line, this is where you focus most of your time. You can see GEICO's loss ratios. They're higher in their 80s because they have a 15 or 16 or maybe it's 78. We can live with 78% because of that purpose.

So our focus on expense cutting, the way we look at it is going to be on the loss ratio side of things. And that's what you should expect us to invest. So we're going to be investing. Of course, we can be -- if the average marketplace at 35% expense, let's say, we can be at 40% or 45%. But to the extent we can pick a few points here and there on the expense, we will do so. But more of our effort is going to be on shaving and working on the loss ratio piece of the equation. I'm not sure it's exactly the question...

All right. Yes, in the blue shirt.

Girish Bhakoo from TenCore. Both Marc and Bill have been active in mortgage insurance historically.

I was short, he was long.

Yes, they both [indiscernible] interesting ways.

We were short and then when things blew up, that's when Marc entered the business. Timing matters in mortgage insurance.

Very much so.

Yes. I'm just curious about what your discussions are like with each other about that business and other businesses like it?

So we've actually had some discussions about mortgage insurance. And I strongly believe -- I think I -- it's a business that occasionally is a great business and other times, it's not such a great business. And this doesn't strike me as the best time in history to enter the mortgage insurance business, right?

What made it particularly compelling at the time that Arch entered the business is the housing market blew up. Housing values came way down, underwriting standards improved. A lot of the nonsense that entered the business and the weakened underwriting standards basically went away for regulatory and capital market reasons. And so you could enter the business with much better pricing, much more disciplined underwriting and much less competition. I don't think those same facts are present now, but you'll see the debate between us.

Yes. I think to me, timing is the key. Like what Bill just said is exactly right. I think right now in our existence, there are different focus, different areas to play. I mean we're going to -- we're doing already as it is some reinsurance on the mortgage space. We understand that space very well. It's a nice little add-on. It diversifies the portfolio further. So we are participating in it.

But whereas we want to go into and buy and invest billions of dollars into an MI business, I agree with Bill. I mean, we have other things that we need to take care of. Over time, if there is another crisis and other issues, I think we'll be -- I would like to agree and expect to think, and I think David will agree with me, he ran global mortgage for years that we'll have a front row seat in terms of being able to take advantage of that.

I think we will have the talent when and the time is right to pursue that opportunity. In the back there.

Marc, it's Harry Fong from ROTH Capital.

I know who you are.

AM Best earlier this week issued a report that the specialty E&S market continues to grow and may have grown about 12% in '25, much faster than the admitted market. A very different outlook in terms of the current P&C cycle. Number one, how do you see this cycle playing out given that the specialty players now command a much bigger part of the industry business? And separately, for the specialty business to continue to grow faster than the admitted market, their pricing at the margin has to be equal to or below the admitted market pricing levels. I'd love to hear your thoughts on that as well.

Yes. A lot of the specialty business and the E&S business growth is also geared towards a lot of the MGUs that proliferated over the last 2, 3 years, right? People have seen this holy grail let's grow as good as go. But so far, it's looking okay. We have yet to see how these losses or these results will develop. I think we have to be careful. I bet, we do a fair amount of it. We like what we see. We like to grow in that space. Again, we're smaller.

We may, at some point, Harry, get to a point where maybe it's too much of a good thing is not a good thing. That may happen that people circle back. I think there's also a -- what's been interesting is that the traditional marketplace has lost some money. There were some issues from '16 to '19 where the soft market was. So there seems to be a lack of confidence in the existing underwriting team. And so you'd rather go to a new person to do the business that probably you should be doing otherwise on your book of business.

And I think it also serves to have -- I think the E&S, the brokers, the wholesale brokers are really, really good at promoting that book of business. So we've had a resurgence of those brokers of late. That's also helped maintain the size of that marketplace. But I think we're going to get to a place where we're going to need some more admitted market. I think -- the last numbers I saw in '26, I thought they were going down or stabilizing and going down on the E&S.

So Harry, you may have better numbers than I remember. So I think we're probably going to see a decrease. This is -- this will be my expectation. If the results don't come through on -- a lot of the MGAs and MGUs, we may see a little bit more people pulling back. So we may have a -- maybe pulls back a little bit and it goes back in at some point, but we'll see how that goes. It's in flux right now, to be honest. I'll be digging more into this, Harry.

Yes. I actually want to take from online and then this gentleman over here is next.

Sure. We've covered most of them already in the room, but perhaps one last one from online. As the vision is to build a holding company, would Pershing Square acquire the remaining stake of Howard Hughes to create one single enterprise?

It's not something on our list of things to do. Okay, and the question here.

[indiscernible] from Toronto, private client. My question is in regards to future growth on the M&A side. It's clear that right now, you guys are reinvesting into Vantage. But on the M&A side, when you start looking at buying future insurance companies, will the strategy be to centralize operations under Vantage or to keep those entities decentralized?

I mean I think in terms of the spectrum of acquisitions, once Vantage is sort of at appropriate level of capital, Marc feels very good about where the business is, it is certainly possible that an insurance acquisition could come along. But as we've mentioned, the long-term plan is a diversified holding company.

We think Vantage becomes stronger. We have other aspects of the holding company unrelated to insurance or we have other high-quality businesses. So that's a world in which we're going to be weighing the decision to perhaps make an opportunistic investment in insurance or perhaps make an opportunistic investment in a very high-quality durable growth company. That's how we'll look at it.

And one thing I would just add is I think when you look at the talent we have between Marc and then when David starts, it would be very difficult, I think, to buy a business and have it be completely decentralized because then you wouldn't be leveraging the skill set that we really brought into Vantage, which has historically shown to be an incredibly positive thing for the businesses. So I would say, to the extent we look at things, I think leveraging the skill set of our team is something that would be really valuable to getting the most out of any platform we might seek to do in the future.

And maybe, Marc, you could speak to this. I mean insurance is talent, it's capital, it's relationships or it's certainly in the specialty business that we're focused on. What does buying the marginal insurance company do for us? What would motivate you to want to acquire a company where we'll know less about the team, we'll know less about the portfolio, the exposures. How do you think about that decision and...

Well, they just have to -- well, first, you could -- the company might do something you want to do more of. And for you to buy yourself to a marketplace might be too costly. You may have to cut the pricing. So you may want to maintain this in the integrity of the pricing, you can accumulate it. In terms of the integration of insurance companies, you have to be careful because they don't typically work, let's be honest. Most of people here that have done and followed the insurance world for a while know that.

But they are also strong relationship -- you can still have -- the way I look at it, we have multiple companies as it is within Vantage. We have an SGL book. We have a property book of business. So they operate themselves very sufficiently by themselves, self-sufficiently. We don't really have to do a lot of crossover. There's a lot of stuff we could do together. There's leveraging you could impact. So at a high level, I would say it depends. It really, really depends.

For instance, a company could go back to the question that Meyer asked earlier about a commercial writer. If the commercial writer has a really good mousetrap, we would -- I talked to Alex about this, we acquire that company, and we probably wouldn't want to disrupt what they do very, very well. So we may want to leave it as is.

What we might do is maybe go behind it and provide some of our products and then try to use that distribution perhaps to do more of our products through that distribution line. But by and large, if you acquire something, you will do it because it increases, it improves -- it increases what you would want to do more of rather than just buying your way into the market that will be good.

And we're able to buy it at a price where we think we can earn an adequate and attractive return. I don't think material acquisitions of insurance assets are likely in our options.

Yes, not near term.

Okay. Any other questions? Well, okay. Okay. We'll take one here and then one there. Go ahead.

Thanks, Bill. [indiscernible]. Pershing's followed the specialty space for years, addition of Marc's case in point. The likes of Kinsale, Markel never really made it into the Pershing PSH portfolio. They've been cheap before, arguably cheap now. What's kept you away from these businesses? What's kept these businesses from clearing your investment bar? How does Howard Hughes exceed them in underwriting, valuation and quality?

So one of the constraints on Pershing Square is we describe us as a very high certainty investor. We want to invest in a business that we can predict with a very high degree of confidence over a long period of time. And we also are pretty concentrated investor. We typically -- in the history of Pershing Square, a typical investment for us could be 10% or 15% of capital.

When you're an outsider to a financial business, an insurance company, it's much harder to get to a degree of confidence about the quality of the book and to some degree, the quality of the team. What's nice about the perspective we have in the Vantage acquisition is we were able to do kind of the due diligence you do when you're buying a private asset. And then we're able to pick the right team, and that gives us, obviously, a lot of confidence in the asset and then the way the asset is being managed. And that's why we've really avoided banks, insurance companies for the most part historically in the Pershing Square portfolio.

Yes that said, Kinsale is an amazing business that we found and would love to own. And arguably, if we got in earlier, it could be -- it would have been a great return. When we have looked at it, what has held us back is clearly, it's...

Valuation.

The valuation is the highest among any insurer for good reason, but that does make it a little bit harder to sort of get the economic return that we're looking for from an investment perspective with -- to Bill's point, that high degree of certainty. But I think the mousetrap they have is just enviable in the industry and the management team there is super high quality. So I'd say that's one we have enormous admiration for.

But by the time the world understood the management team and the strategy, the stock price got to a price that made it challenging for us to earn the kind of returns we want to...

Just a follow-on on one the question that was asked earlier that in case of a major draw down in market, right, and you had mentioned that your risk management is very strong. So on the asset allocation in such a scenario where the market is down so much, is there a possibility that your asset allocation in terms of your cash and treasuries and equity might change and you may want to use some of your float to move into equity to take advantage of that of that extreme situation or the allocation that you described today is like hardcore, maybe legal, maybe regulatory and that can never change?

I would say the first priority for any insurance company is making sure that we are in reality and by perception, have incredible financial strength. So we're always going to live by that. Obviously, a world in which stocks are really, really cheap, is a world in which we want to be deploying more capital in stocks. So it depends on the book of business at the time.

Are we able to inject more capital to the insurance company from, again, the benefit of a diversified holding company? Is there -- in that kind of moment, there can be another source of capital outside of the insurer, which allows us to deploy capital in the insurance company and use that capital at a moment like you described.

One of the nice things, and Mr. Buffett talked a lot about this is if our insurance business does not have a correlation to the things that are causing the drawdown in the markets, which most market drawdowns have not been associated with things that would have impacted the underlying earnings of the operations or underwriting of the insurance business, that in and of itself is generating capital. The net income, if you will, of the insurer is generating capital and is a source of funding for deployment in stocks.

And so one of the things that's nice about the strategy versus if you think about it just for a typical sort of asset management strategy is this is not a fixed pool of capital day 1, and we have to decide how does our $100 get allocated to bonds and stocks. And then the only way that we can increase the allocation to stocks is by decreasing the allocation to bonds, which Bill mentioned in the business has negative implications that we would like to avoid. But the positive is it's not just that. We start out with $100. And then as we profitably grow through our underwriting, that's an additional source of funds.

And I think it's one of the reasons why when Mr. Buffett talks about over time, he wants businesses to trade at cheap valuations, he wouldn't say that if he bought them day 1, he could never buy any more of them because he doesn't have a source of funds coming in to constantly feed that investment growth. And that's really just because the business underwrites profitably. Our hope and our expectation is that's going to be the same thing at Vantage. So we're going to constantly be having this stream of cash every year coming in that we'll be able to use to deploy into additional equities, which would really help out in the scenario that you described.

Great. Other questions? Yes.

Just on a trendy topic over this week. What's your view on the long interest rate for the United States, I think like 2 years ago, I can remember, you spent a fair amount of time making the case that there's a 3% long-term inflation rate going forward and then you make the case for a premium for -- like I don't know the size of the premium. And the question goes, do you think the 10-year goes to 5? Or what's the fair level given the current geopolitical environment and economic environment...

So I think it's a structurally more expensive world than it was. You think about cost of defense, every country needs to be spending more on defense. Maybe health care generally has been a burden. So there are sort of inflationary factors that are structural that are higher than they have been -- I think are in reality higher than -- I think it's a different world today. So I think getting back to a 2% inflation rate, I think, is a challenge. So that's certainly a personal view. We could discuss whether it's a house view or not.

But maybe, Ryan, why don't you jump in on what's your view on the 30-year -- actually, I want to add one more thing. I think a lot of what's going on right now is you have a supply problem, right? You have every -- this massive AI build and huge bond issuance of corporates combined with sovereign issuance. And I think it's as much of a supply-demand problem.

You have the carry trade kind of unwinding as people financing themselves with low-cost -- financing themselves in Japan and buying U.S. treasuries, that's sort of unwinding. So there are some combination of technical supply and demand factors. But also, I think inflation relative to the Fed's 2% goal is going to be a very difficult goal to get to.

Yes. And I would just add to that. I mean, the 10-year really, I think it was earlier this week hit the highest levels it's been at since 2007. So we're comfortably above 5% on that level and the 30-year is a little bit of a premium to that. I think to Bill's point, you have to ask the question at a high level, can you get back to 2% if you haven't been at 2% since basically 2020. Now I think that there have been a rolling series of shocks and the latest one is the massive increase in the price of oil.

And while some people say, "Well, oil is up, but we strip that out and we measure inflation." That's actually not really how it works. They do have this core measure, which is supposed to exclude it. But for example, the price of diesel, which is up even more than the price of oil actually feeds into a huge number of items that are in what's supposed to be the core inflation that excludes the impacts of oil. So the derivative products that you have that are based on oil ultimately make it in very strongly.

So I would say I think the single most important thing that is driving yields today, even versus just a few months ago, that's not new, is the price of oil just dramatically being higher and then all the derivatives off of that. I do think that it is very likely that if oil comes back down, which is an open question because it's really a geopolitical question, I think you could see a certain resetting of the treasury rate.

Now to Bill's point, that in and of itself over the longer term does not necessarily get us back to a 2% inflationary world. And I think there are other factors that are structural, which is you do have, at least for -- it seems like the next several years, a very large increase in a goods build-out that is going to fund what could be a revolutionary technology. Ultimately...

Which in turn could have a deflationary effect.

Exactly right. It's a timing issue, to Bill's point, which is if you build this now, the reason for building it and getting great economic returns is it's going to accelerate GDP growth, and it's going to ultimately do that by increasing productivity, which is historically viewed as disinflationary.

So I think we may be in a moment where, to Bill's point, I'm not -- I think it will be difficult to get back to 2% quickly without having a real economic problem, which it doesn't seem like we're close to that yet. But it may be a little bit of a time sequence where you have higher inflation now that if we get all the benefits from AI will result in lower inflation later. And then I think there is this lurking variable. It's not -- no surprise, rates aren't just high in the U.S. This is every major country around the world.

So I don't necessarily think as much as people talk about there being a problem for U.S. fiscal spending, which there is. I'm not sure that is uniquely driving this because it's happening in every nation that matters around the world. I do think oil is something that's impacting every country around the world. And I think the AI build-out broadly is also. And so I'd say those are probably the 2, in our view, factors that are influencing it. One of those could actually resolve itself sooner, which would help out a lot with where rates are.

Good. Other questions? Okay. Why don't we take how many more questions do we have? We've got one here. We've got one there. We've got one there. Okay. And we've got one there. Let's call those the last 4. And we'll start here, we'll go across the room. Let's go right there.

Bill, it's Brad Thomas. I want to ask you about the -- well, first of all, somebody mentioned Seaport. I want to give a shout out to Matt. He's doing a great job there. What is your thought process about monetizing the real estate portfolio? And why wouldn't you sell it all now as a bulk sale versus the 5-year period?

Sure. So first of all, we don't think of the Howard Hughes Real Estate portfolio as just a pile of assets. It's not like a real estate investor just has this diversified portfolio. It's actually an operating business and it's an operating business that we like. The only thing we don't like about the business is that the way we've financed it historically, particularly the way we've equity financed the business, it's hard to earn a return on capital that's high enough to be interesting to a public market investor. So that's the problem we want to solve.

And we solve that problem by bringing in third-party capital to kind of lower cost equity capital that can help us get to an appropriate fees for the opportunity we're affording those investors. And that gets us to -- it solves a number of problems. One, it meaningfully increases our returns, take out 80% of the equity, get fees on the capital, management fees, performance fees, incentive fees, et cetera, that's actually a very good business.

Blackstone built a franchise at the beginning in that business without the operating talent that we -- or the long-term investment sort of option. So we think the best approach is to sort of -- if we can do an 80% monetization of that business with 80% third-party capital, we create a very high-return real estate company, and we free up a lot of capital for other uses. And the first use, of course, will be insurance. And then, the next question was in this neighborhood. Okay. Go ahead.

My name is Eric Pan from Toronto Canada. My view is that investing is ultimately investing in the people and what they do. My question is, how do you retain lessons learnt from major failures?

So the way to learn from failure is to study it, okay? One of the things we do is -- I think you can learn a lot from success, but in many cases, you can learn more from failure. So we -- I like to say, we treasure our failures and we talk about them openly and the press also helps us talk about them openly. And everything we do is sort of big, relatively speaking. So it's sort of news when we do something that -- where we go wrong.

And that actually is helpful. It's helpful because what we're more focused on -- obviously, we don't want to make mistakes, but we definitively don't want to make mistakes twice. One of the ways to avoid making a mistake twice is to understand what went wrong and to make sure that the circumstances that created that problem don't recur. And then another thing that's helpful is actually having a pretty stable team. And Pershing Square is unusual in the hedge fund world for a very stable team.

The investment team's average tenure in the team is something like 14, 15 years. Ryan and I have worked together for 17 years. Ben, who's in the room or other members of the team, we've worked together for a decade or more. So that continuity is helpful. And then the way that you design incentives, many investment organizations are designed where the individuals have their own sort of individual P&Ls and they get allocated capital by a portfolio manager, but their incentive is to get an idea in the portfolio. If it works, they get a share of the profits. If it really doesn't work and it doesn't work consistently, they go get another job.

And that's not the ideal incentive structure if you're trying to build value for long periods of time. And everyone at Pershing Square is compensated based on how the overall portfolio does, and that's just a much better approach and everyone Pershing Square today owns a meaningful equity stake in a business that's only valuable if we're successful collectively for our investors. We're also big believers in skin in the game, and we're major investors in Howard Hughes.

We like management teams to have meaningful investments to Marc's credit when he signed up for the job, he bought -- what you might call, he bought a call option struck at book value for an insurance company who was -- maybe he thought he was going to run. And that's an asset that can grow meaningfully in value. So it's alignment, incentives and then treasuring mistakes.

Daniel [indiscernible]. First question is for Marc. Before the merger with Howard Hughes, I'm curious to know what was your end game for Vantage? Was it to stay private, grow the business? Or was it to possibly go public one day?

So let me help you with that one. So the -- Marc wasn't with Vantage. So Vantage was a -- Vantage is a company that was launched by Hellman & Friedman and Carlyle, where from a standing start, their goal was to build actually kind of an Arch 2.0 with Dinos, who was a kind of iconic figure part of the founding of the company. And the business was built with having nothing and whatsoever really to do with Marc. We acquired it and then we recruited Marc to serve as Executive Chair and David Gansberg. So that's really the background. I think there was one more question. Yes, go ahead.

My name is Ken Green, Jericho Capital and really just very excited about what you're doing here and...

I can't see you. Where are you hiding?

Just very excited about what you guys are doing here, and it's phenomenal to get the opportunity to be part of it and looking back to like Berkshire Hathaway, I guess it was like 1995 when I first started following Buffett and read everything about him. I actually got shaken out of it when he bought like General Re and it didn't perform for years, but I'm not going to let it happen here.

As I really try to analyze the company, last year's annual meeting, there was a good portion devoted to like the real estate. And there wasn't much talk of real estate until the other gentleman there started talking about it. And I did have one question that Teravalis and Arizona and water rights and potential data centers is that in the equation? I know there was some talk of that.

Sure. There's a lot embedded in your question. Teravalis, as you probably know, is about 37,000 acres west of the White Tank Mountains. We're in the process of launching that community. About a year ago, we have over 100 homes sold residents in there, and there's a massive area of land at Teravalis for commercial development.

We have water for the first 5,000 acres known as Floreo, with our 100-year certificates of supply, and that could absolutely incorporate data centers within that commercial area. I've spent a lot of time and continue to spend a lot of time traveling the country and even the globe, meeting with companies that are considering relocating. And I think that Teravalis and our commercial district there would be a fantastic place for those companies to go, and we're going to continue those dialogues.

Yes. Land has become an increasingly valuable as commercial land and a place where you -- in a community that's pro development and pro business...

Low tax, incredible, well-educated, low-cost workforce right adjacent to a major freeway about a stone's throw from the TSMC campus. We think it's ideally located for the next large-scale corporate relocation in Phoenix.

So thank you for joining us. Appreciate it.

Good day, and thank you for standing by. Welcome to the Howard Hughes Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Joe Valane, General Counsel and Secretary. Please go ahead.

Thank you. Good morning, and welcome to the Howard Hughes Holdings Second Quarter 2026 Earnings Call. With me today are Bill Ackman, Executive Chairman; Ryan Israel, Chief Investment Officer; David O'Reilly, Chief Executive Officer; Carlos Olea, Chief Financial Officer; and Marc Grandisson, Vantage Executive Chair and Howard Hughes Holdings Director.

Before we begin, I would like to direct you to our website, www.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.

I will now turn the call over to our Executive Chairman, Bill Ackman.

Thank you, Joe. Before we talk about the quarter, I thought in light of the significance of events over the last few months for the company, I just want to give a little background on how we got here. In May of last year, Pershing Square acquired $900 million of stock at Howard Hughes at $100 a share, increasing our ownership to 47% of the company. I became Executive Chair. Ryan became Chief Investment Officer of the company.

And we said, look, our goal is to turn Howard Hughes, a kind of pure-play real estate company into a diversified holding company. And our business plan was to acquire an insurance operation to find a platform that we believed that we could build into a highly profitable and very successful company and one where Pershing Square's investment capability could add material value.

Within about 6 months or so, we identified and most recently closed the transaction to acquire Vantage Holdings. We purchased the company at a fair price. It was not a bargain purchase. It was a platform that had been built over the previous 5 years, led by 2 very successful private equity firms. We had an opportunity to acquire it, and it fits very well with our kind of long-term ambitions. Our initial thoughts on going into the insurance business were really driven by what Warren Buffett and what Berkshire Hathaway has achieved over a very long period of time.

And as part of that thinking, we reached out to a guy named Marc Grandisson, who we've met maybe 2.5 or almost 3 years ago and someone we had greatly admired in the insurance business. And we thought when we were trying to make a decision whether to acquire a company or to build one from scratch, we look to Marc for advice. Marc was sort of on the beach. He wasn't sure what he was prepared to go back into the business. He gave us excellent advice, but we went up sort of our own way in acquiring Vantage. Since the acquisition, Marc was firmly in his retirement, and we got him to join the Board of Howard Hughes.

And it was very clear from the first day he joined the Board meeting, his passion for the industry. So it's been a cultivation is how I would -- or a seduction, a better word, to try to get Marc a little bit more involved. And then we had a stroke of luck, which is that David Gansberg, who was kind of co-President of Arch, someone who was in line with the potential CEO role of the company was actually let go by Arch.

He did not win the battle for CEO, but he was a favored choice of Marc, and that created really an opportunity for us where Marc was not prepared to come in and be CEO of an insurance company with effectively his right-hand guy stepping in as CEO, he was prepared to take a more significant role in the company. And with that, we announced Marc became Executive Chair of the company. David has a noncompete until June or I guess, early June of about 10 months from today.

And we now had really our dream team in the insurance industry. And that's not to diminish in any way Greg Hendrick or anyone in the Vantage operation. But if you look at the 25-year history of Arch, where from 2001, Marc, an important younger member of the team and to all the value and learnings over that period of time to his becoming CEO and building one of the best records in the insurance industry, this was -- if you look at Pershing Square over time, our most successful investments have been finding a great business and then finding the best person in the world to run that company.

And when we've combined those two things, whether it was at Chipotle or at Canadian Pacific or other businesses, that's really when the magic happens. And we couldn't resist the opportunity to recruit David and to get Marc in place at the company. So it's a very, very material announcement. The other thing that I have experienced over time, when you get someone who's run a large enterprise or, for example, someone who's managed a large investment portfolio and then you give them a much smaller operation, the magic they can achieve from that kind of base level is really remarkable. And I think the same thing really applies here.

We have a team -- a senior leadership team with enormous horsepower stepping into a very small, very young operation, and we're very, very excited about what can be achieved. So the market does not yet understand the significance of this announcement. Now the other important fact is now that we have, if you will, the dream team in place, we need to do everything we can to raise -- to inject more and more capital into Vantage so we can exploit the opportunity created by the team that we've built. And Vantage benefits by beginning with a highly diversified kind of portfolio of lines of business. And you'll see that expand.

Marc will find other areas of opportunity expansion for the company that will allow us to deploy capital in a market which is patchy in terms of opportunity, but that's really Marc's expertise. So I have to say that we're incredibly excited about Marc and David. We're excited about the synergies created in combining with the Vantage team and what's been built over the last 5 years, but still at a very early stage. And that's what kind of gives me an opportunity to segue to real estate as kind of proven by this quarter.

This is a time where rates have risen very significantly. You read all kinds of stuff about the housing market here and there. And quarter after quarter, there continues to be enormous demand for real estate in our communities. And the reason for this is in part political. I'm unfortunately living in a city where the city is not run in a particularly pro-business fashion.

It's very -- taxes are high and going higher, whereas in Texas, in Las Vegas, kind of our core MPC markets, these are state, cities and communities where safe, people like to live and very conducive to business and kind of quality of life. And I think that is a great competitive advantage for us. And so we believe that our real estate assets are phenomenal assets.

Now in light of the fact we're no longer a pure-play real estate company, we can take a much harder look at the portfolio and say, which are assets that are kind of strategic and critical for the long term, think landholdings kind of sort of core MPC assets and which are assets where there's a better owner who can pay -- prepared to buy the asset at a very full price.

And the team has begun to prune the portfolio and generate cash, freeing up liquidity that can be reinvested in real estate. Now the nature of our real estate business is that it's effectively in large part, self-liquidating. You've seen significant condominium closings during the quarter, significant lot sales. Over time, we will sell all of our residential lots. We will sell all of our condominium assets. W

e will sell all of our noncore real estate assets. And then beyond that, we're going to look at -- historically, we sort of owned and financed 100% of everything ourselves. We're going to look at joint venture structures. We're going to look at ways to bring in capital. The Howard Hughes platform, number one, we have a phenomenal team, an incredible job building out these communities, a lot of skills honed over time in real estate development.

And we have -- unlike a typical developer who's got to find a piece of land, we have decades of value. That being said, we have very high-cost capital, certainly, as the market assigns it to us. We're not a REIT. We're kind of an unusual company. So bringing in third-party capital where we're a really attractive platform and much lower cost capital will enable us to earn much higher returns on real estate assets and also free up additional significant capital.

So what you should expect to see over the next several years is the inherent self-liquidating nature of condos and lot sales, but also an acceleration in the monetization of what you think of as more stabilized type assets and maybe more partnership type opportunities for the company and maybe even we'll raise a pool of capital that management can deploy in these assets on behalf of pension funds or other investors who would love to own the kind of assets that Howard Hughes owns.

So let's call that the backdrop of what we're trying to achieve. And the result of that will be as the insurance operation compounds its capital at ideally a high rate over time as we invest more capital in that business as the real estate business in effect, self-liquidates and/or we bring in third-party capital to reduce our capital commitment to that business, we're going to become disproportionately an insurance holding company as opposed to a real estate company with an insurance operation. And that's what you're going to see, and we're going to work to achieve that as rapidly as possible.

With that, I'm going to introduce Marc Grandisson. Marc, why don't you take it away? And I think it would be very interesting to the people on the call, give us some of your first impressions arriving at Vantage, meeting the team and then maybe give us a little color on the quarter, et cetera.

Thank you, Bill. It's great to be here today. In my role as Executive Chairman of Vantage Risk, while it's still early days since the deal closed, I spent a fair amount of time, Bill with the Vantage Risk team, and I want to thank them all for helping me get up to speed on the business. I'm very confident that Vantage has a solid foundation to build and build out the vision that we've highlighted already. I especially want to thank Greg Hendrick, who continues to lead the team.

I want to remind that, and through this transition period until David Gansberg, our CEO designate, joins the company. As you may know, Vantage was founded in late 2020 with about $1 billion of capital. Over the next 5 years, the team has built a diversified specialty platform and a culture that is conducive for profitable growth and expansion. This acquisition that we just made, the incremental $300 million capital contribution and the fee-free investment management by Pershing Square open the next chapter for Vantage.

Permanent capital allows us to underwrite for multiyear risk-adjusted returns that should generate top-tier growth and book value. Given our current size, we have ample room to grow selectively. The Howard Hughes consolidated financial results for the second quarter include only the stub period from June 4, the date of the closing of the acquisition, through June 30. However, everything I discussed today and the Vantage supplemental information that has been disclosed covers full second quarter and first half of the year results for Vantage on a historical GAAP basis, excluding acquisition accounting, which provides a clearer picture of the business.

Turning to our second quarter results. The group's combined ratio was 101.6% versus 94% a year ago. Gross and net written premium in the second quarter each rose 29% to $473 million and $325 million, respectively. Net earned premium of $295 million was up 22% year-over-year -- and we had $18 million of cat losses tied to the conflict in Iran and $19 million of adverse prior development largely in the discontinued transaction liabilities line, totaling a 10.2% impact on the combined ratio.

The combined ratio for the first half of the year was 96.1% and on a trailing 12-month basis, the combined ratio was 94.7%, both considerable improvements from the previous periods. Year-to-date, net income increased to $86 million, up 94%. Year-to-date underwriting income grew to $23 million, roughly double from the prior year. In the second quarter, significant levels of fee income added to these improvements and in total, more than offset the short-term volatility in the new equity portfolio.

The first half and trailing 12-month results showed the trend toward the longer-term result that was laid out in the Howard Hughes valuation supplement that was discussed on last quarter's earnings call. While we expect reduced volatility in results over the long term as we build scale, quarter-on-quarter movements will always have some degree of variability commensurate with our book of business.

Importantly, the best metric to assess the underlying health of our underwriting is the current accident year combined ratio, excluding catastrophes, which improved to 91.4% in the second quarter from 96.2% in the second quarter of last year. On a year-to-date basis, the same ratio improved to 90.9% from 94.6%, again, showing a positive trend.

Let me now highlight some of what shareholders should expect from Vantage as we look ahead. Vantage's core operating principles are right out of best-in-class performers in the property casualty insurance space. One, we're going to prioritize underwriting profit over volume with proper alignment of incentives between shareholders and management. Two, we maintain a conservative reserving approach. Three, we take a long-term data-driven perspective on loss expectancy and profit margin; and four, we are disciplined in our decision-making.

Strategically, we will execute our vision by retaining and attracting top talent, expanding and diversifying our platform so that our ability to capture hardening pockets is nimble and fast. We'll be investing in data to improve the quality of our decisions and better serve our customers. We'll be seeking a margin of safety in pricing. We'll be managing aggregation risk conservatively, and we will be leveraging our underwriting expertise whenever possible. We know that excellent execution of this strategy by the best people will generate return on equity at or above mid-teens over the cycle.

Turning to current P&C market conditions. In the past, I have described the insurance cycle as having broadly 4 stages. As a reminder, Stage 1 is where the hard market starts, rates rise sharply, capacity withdrawals. Stage 2 is a restoration phase where further rate increases and reserve are replenished. Then Stage 3 where rates moderate or decline, while hard market profits continue to flow, allowing disciplined underwriters to still grow profitably. And finally, Stage 4, the industry abandons discipline and chases volume as rates fall further. T

Today, we are primarily in Stage 3 with casualty seemingly stalled in Stage 2 and a few property and short-tail lines already entering Stage 4. Broadly, rates are down from peak and competition has increased, but pockets of attractive returns remain as many lines still show rate level adequacy during -- despite the initial market softening. Our capital position is strong and remains well in excess of rating and regulatory requirements. As an example of the relative strength of our capital, book value ended the second quarter at $1.8 billion versus roughly $1.2 billion of trailing 12-month net written premium, a conservative low premium to surplus ratio of 0.7.

Accordingly, AM Best affirmed our A- rating with an upgrade to positive outlook. On the other hand, S&P's rating action reflected its group methodology, which included Howard Hughes as opposed to the stand-alone quality of Vantage for which the anchor rating remained A-. We plan to work with S&P and other rating agencies as we progress with our strategy and its benefits as they can see -- can be seen more clearly as they develop.

In summary, over the next 12 months, we will deepen our underwriting expertise and data focus, expand the diversification of our product offerings and establish Vantage as a preferred home for best-in-class underwriting talent. We are in the early innings of a multiyear story. The permanent capital structure is in place. Underwriting discipline is at the center of everything we do, and the platform is being built out to solidify our principles. We're focused on taking the company to the next level. I look forward to updating you on the progress in the future.

With that, I will turn it over to Ryan.

Thanks, Marc. As Bill talked about earlier in the call and really the thesis we've laid out since we announced our transaction with Howard Hughes a little over a year ago is that we think the insurance business is a very great and unique business that can offer the opportunity to generate incredibly high and sustained returns on equity over the long term if you do 2 things.

First, you optimize the liability side of your balance sheet by bringing in world-class talent to have profitable underwriting growth, which with the addition of Marc and then the incoming CEO in the future, David, we think we've accomplished.

The second is by optimizing the asset side of the balance sheet by bringing in a much higher rate of return strategy than what would typically be a fixed income-only portfolio at relatively low rates of return that's subject to a lot of interest rate risk. And that's really what we've been seeking to do on the Pershing Square side in managing this investment portfolio for Vantage.

If you look at what's happened since we closed Vantage in early June, we have about a $3.4 billion portfolio that was entirely allocated to fixed income securities at a relatively low rate with a duration profile of 3 to 4 years, which meant there was a fair amount of longer-term interest rate risk there. We moved very quickly to rebalance that portfolio to a barbell approach where we have as of the end of the quarter, which was really just a few weeks after we closed, more than 60% of the overall portfolio allocated to short-term U.S. treasuries, where we take no duration risk, no credit risk.

And the goal of that portfolio is really to balance all of the reserves that we have, so there is no risk in funding those reserves into the future. And then we also had about a $1.1 billion equity portfolio that we established, which is about 1/3 of the overall portfolio in just a few weeks. We think moving quickly to establish that was a very good strategy because interest rates -- longer-term interest rates had risen very rapidly over the ensuing months since we closed Vantage, and we've avoided what could have otherwise been some losses on that portfolio.

Subsequent to the quarter, though, we've continued over the last month to increase the allocation of equities. And it's now about 40% of the overall investment portfolio. And over time, we'll continue to increase that percentage as we think we have the opportunity to invest in some of the world's best businesses led by great management teams that productively use their free cash flow to create shareholder value. And that barbell approach of taking no risk on the insurance liabilities, having a short-term treasury portfolio combined with buying businesses where we can achieve high rates of return can allow for a very attractive and low-risk result.

Now to give you a little bit of a flavor, I'll describe sort of the businesses that we buy, which are effectively we like to say, royalty-like businesses with strong secular growth opportunities. So they're what we call simple, predictable free cash flow generative businesses run by great management teams, minimal financial leverage, no capital markets dependency. It's been the approach that we've taken at Pershing Square for over 2 decades and has led to really good results, and we believe it will also lead to similarly positive results with Vantage in the future by continuing to do that approach.

We're going to have our Pershing Square, our publicly traded asset manager earnings call next Thursday, which we'd encourage you to listen to. And at that point, we will be describing some of the new investments that we've made, which are applicable to the Vantage portfolio as well as providing an update on the existing investments that we've had in the portfolio. But at a high level, the way to think about it before we get into those details next week is we will have a dozen to 15 different investments that we believe are ones that we could hold for long rates, long periods of time that will generate high rates of return based on their structural competitive positions, management teams and strong levels of earnings growth.

Before I close on the portfolio, I just acknowledge one thing, which is as we were establishing the portfolio through June to the end of the quarter, that's over a period of time due to some broader market weakness, the portfolio on the stocks is down about 3%. It's already in the last month, recovered and is up between 4% and 5%. And while we're not focused on the short-term results of the equity portfolio, I do think it's just interesting to point out that the amount that we've made in the equity portfolio in just a couple of months has already exceeded what we would have expected a fixed income-only portfolio to burn for the entire year. So I think we're off to a very good start, and we'll continue reshaping that portfolio over time.

And with that, I'll turn it over to David to talk about the real estate business.

Thank you so much, Ryan. After listening to Bill and Marc and Ryan, I think it's clear one of the reasons Vantage is such a great fit for Howard Hughes is that both businesses reward patience, discipline and thoughtful capital allocation, completely different industries, but we share many of the same economic characteristics. And that mindset has guided our real estate business for over a decade and continues to be reflected in the results we delivered this quarter.

As I walk through the results this morning, now that the supplemental has been out for over a quarter, I'm going to spend less time going through the numbers of the supplemental and more time discussing what they tell us about the business and why they matter to shareholders. The headline from the quarter is simple. Our real estate platform is doing exactly what we designed it to do. Our master planned communities continue to monetize scarce land at attractive values.

Our operating assets continue to grow recurring cash flow. Our condominium platform converted years of development work into substantial cash proceeds. And together, those businesses generated the capital and financial flexibility that helped fund the most important strategic transaction in our company's history. Those aren't isolated accomplishments are all connected parts of the capital allocation system. Starting with our masterplanned communities.

MPC earnings before taxes increased 32% year-over-year to $134.7 million, driven primarily by strong residential and commercial land sales. More importantly, demand remained healthy across the portfolio. New home sales increased 12%, including 34% at the Woodlands Hills, 17% at Bridgeland and continued growth in Summerlin. The number I think investors should focus on isn't simply quarterly earnings. It's a combination of pricing power and demand. We continue to convert entitled developer-ready land into cash at increasingly attractive values while maintaining strong demand from homebuilders.

We've often said that we're not selling land, we are harvesting scarcity, and this quarter is another example of that principle. Every acre we develop leaves fewer remaining. Every new neighborhood enhances the value of the next one. Over time, price becomes a much more important driver of value than volume. That's why we encourage investors not to judge this business by any single quarter. Land sales are going to be lumpy. Instead, look at the long-term trajectory of pricing, demand and earnings. Those indicators continue to move in the right direction.

Our remaining wholly owned land bank represents approximately $5.6 billion of projected margin effective residual value, excluding the substantial future opportunity embedded in Teravalis and Floreo. That land represents decades of future capital generation. Turning to operating assets. NOI continued to grow during the quarter as leasing momentum remained healthy across the portfolio.

While adjusted maintenance free cash flow declined modestly during the quarter because we invested in leasing activity and incurred higher interest expense, I actually view those investments as encouraging. We're deploying capital today to increase occupancy and strengthen future recurring cash flow. I think the more important point is what this business has become inside of Howard Hughes.

Operating assets are no longer simply stabilized real estate. They're generating recurring cash flow while creating additional opportunities to unlock and redeploy capital. They provide predictable cash generation, gives us flexibility during market cycles, supports new investment opportunities and reduces our dependence on capital markets. We also demonstrated our commitment to disciplined capital recycling. We sold Creekside Park and Creekside Park The Grove, generating approximately $30 million of net proceeds after debt repayment, while achieving approximately a 30% project level IRR over the life of those investments.

Those transactions also illustrate how we think about our real estate portfolio going forward. And as Bill mentioned, while we maintain and want to remain committed to the long-term oversight of our master planned communities, we've significantly expanded our toolkit for creating shareholder value. As assets mature, we'll continually evaluate whether our shareholders are best served by continuing to own them outright or pursuing alternative structures, including selective asset sales, joint ventures, recapitalizations or other strategic transactions, all of which that could unlock embedded value while preserving the long-term advantages of our platform.

The objective isn't monetization for its own sake, it's disciplined capital allocation. If we can realize the value we've created in a low-return asset and redeploy that capital into opportunities with higher expected returns, whether that's expanding Vantage or advancing transformational developments like the Toro District, we believe that's a better outcome for our shareholders. Our holding company structure gives us greater flexibility to make those decisions than ever before while remaining committed to the principles that have made Howard Hughes successful for decades.

When we believe capital can earn a higher return elsewhere, we'll recycle it. And that discipline is just as important as developing great assets. Turning to condos. They delivered exactly what we expected. The completion of the Park Ward Village generated meaningful cash flow of about $227 million of net proceeds after repayment of the construction loan. Those proceeds are the result of work that began years ago because our projects are substantially presold before construction is complete, the accounting appears lumpy while the economics are remarkably predictable.

I often describe our condominium platform as self-financing. We contribute irreplaceable land. Buyer deposits and nonrecourse construction financing fund the majority of the development. We largely lock in our margins years before delivery. And today, we have more than $4 billion of future expected condominium revenue with roughly 78% already under contract. That pipeline provides excellent visibility into future cash generation while maintaining a conservative risk profile.

Finally, on our balance sheet, following the close of the Vantage acquisition, we continue to maintain significant liquidity, modest corporate leverage and substantial capacity to fund future growth. That financial flexibility matters because it allows us to continue investing through market cycles while maintaining discipline around capital allocation.

Look, taking a step back to wrap it up, I think the broader takeaways from the quarter are these. The communities are demonstrating pricing power. The operating assets are growing recurring cash flow. Our condominium platform continues to recycle capital. And together, those businesses generated the strength that enabled Howard Hughes to successfully begin its next chapter as a diversified holding company. Our real estate platform continues to create intrinsic value, generate capital and provide the foundation for which we're going to build Howard Hughes for decades to come.

With that, I'll turn it back over to Bill for any remarks before Q&A.

I think we should just go to Q&A. So operator, why don't you go ahead and give us some questions?

[Operator Instructions] And our first question will come from the line of Anthony Paolone of JPMorgan.

It's [indiscernible] on Anthony Palone's line here. Maybe for Bill, Pershing Square stepped up with $1 billion of preferred equity on Vantage. So how should we think about the financial capacity of Howard Hughes right now beyond what the balance sheet allows? And is there more support from Pershing Square that can be garnered to make other acquisitions?

Yes. Well, Pershing Square is obviously very much committed to Howard Hughes. We think the $1 billion of incremental capital is, I would say, what is needed for the company to execute on its plan. We think within the existing kind of resources, asset base of the real estate operation, as I mentioned in my commentary, and as David alluded to as well, we have a lot of -- one of the great things about real estate is they're all different kinds of investors with different risk and return kind of thresholds.

Howard Hughes is a very experienced team and an incredible platform, and we've not historically looked to monetize joint venture, partner, raise funds, things like this. I expect any incremental capital that comes to Howard Hughes will come from just the existing assets, but most likely in bringing in outside partners, raising third-party capital, that kind of thing.

And I would just add, that is on top of the $2.5 billion to $3 billion that we've talked about that the company should naturally be generating is excess free cash flow over the next 5 years. So to Bill's point, we have, over time, more than sufficient capital to be able to meet all of our objectives, both for the real estate business and for a very quickly growing Vantage portfolio. But we also have opportunities in the shorter term to be able to supplement that in a very quick way based upon opportunistically monetizing real estate as well.

Yes. Don't be misled by our $4 billion market cap and thinking about the actual underlying resources of the company. The market cap only reflects an underappreciation of the intrinsic value of the company. It doesn't reflect the capital resources of the business.

That's helpful. And then I have my second question. I know it's a smaller piece, but it looked like Park Ward Village outperformed the original guidance you guys gave back in 4Q. What drove that? It was pretty much presold. And is there anything we should be expecting from the condo business in the second half?

Happy to take that question. This is David. I think it performed exactly as we expected. I think with the amount of presales that we had, the amount of net proceeds that came was very consistent with our expectations. There's typically a handful of things that come in at closing that could round the number up a little bit like the sale of storage or upgrade to units, but those are typically minor. I would tell you that this is pretty consistent with our expectations. And if anything, we're thrilled to see it all closed within one quarter in one fell swoop.

Our next question will be coming from Alexander Goldfarb of Piper Sandler.

Congrats to everyone on getting the Vantage and everything closed. A few questions here. First, I'm going to go to David. The beauty of Howard Hughes, and I know we've had this discussion before, but the beauty of Howard Hughes versus when it was owned by prior companies is the holistic approach, the value that's created by not allowing competitors to come on to your MPCs and be bidding against you, whether it's on a shopping center, office, et cetera. So as you guys refine the monetization approach, are you thinking about having competitors come on? Or how do you figure out -- I know you sold some peripheral apartments, but how do you figure out which parts of Howard Hughes now you want to monetize versus previous?

It's a great question, Alex. I appreciate you asking. Look, I don't think the strategy has changed. And for the assets that we believe we have a competitive advantage by having a disproportionate amount of ownership or market share within our communities, we're going to continue to own those. And when I say own, I don't necessarily mean we have to own 100%.

I think there are ways, as Bill talked about and I talked about through joint ventures and different monetization strategies where we can still own, manage and control the destiny that creates that competitive advantage without having 100% ownership of every asset. And then there are those assets that are on the periphery, on the edge that are assets that don't give us a competitive advantage. And for those, we're always looking to monetize at the right time when prices are appropriate.

Okay. And then, Ryan, I appreciate the update on the book, and congrats to you guys for moving quickly before rates move too much. But can you just recap -- you mentioned a lot of moving pieces. It sounds now like the investment portfolio is 40% treasuries. It sounded like 60% equities, but then you also mentioned businesses, which I didn't know if that meant stock positions that are royalty companies or if you're investing privately in royalty companies.

Sure. Yes. And let me clarify. It's a good question. So what I was saying is at the end of the quarter, we had about 1/3 of the overall portfolio in marketable securities or common stocks. We have increased that subsequently over effectively the last 5 weeks to about 40% -- we are not investing and have not invested in private companies. This is just common stock.

What I was trying to describe were some of the characteristics of the businesses that we're looking for, which are some of the world's best businesses where they have great management teams, royalty like in their nature, strong secular growth opportunities. Effectively, businesses where we believe over the coming many years or decades can compound their earnings at very high rates of return.

And over time, by doing so, we believe the investment returns will be very similar to these high-growth earnings per share businesses that we own. Best part about it is we don't need to negotiate private transactions because the public markets, particularly at this moment, it's our view, are giving us an opportunity to buy some wonderful businesses at discounted prices.

And Ryan, why don't you just speak to at "almost like stabilization", what should the portfolio look like in terms of percentage? By the way, we have no plans to invest in private assets in Vantage. So again -- and these are the most liquid large cap companies in the world. And again, next week, we'll go into some detail.

You can look at the existing Pershing Square portfolio, the names that have, I would say, most of the names that you've read about publicly, we own the portfolio. We've got an additional group of names that we'll talk about next week. What should be the ultimate plus or minus mix treasuries versus.

Yes. And so the way to think about it at a very high level is we want to make sure that our float, or sort of the insurance reserves, the net insurance reserves are backed by short-dated U.S. treasuries. So there's no duration, no credit risk on that, plus a cushion. The balance of that is going to be common stocks over time. Our view is that we can ultimately get to somewhere north of 50%. We're still evaluating 90% of the overall investment -- invested portfolio in common stocks.

And it could be a little bit higher than that based exactly on what how much float is generated. So the way to think about it is it looks like we're already getting pretty close to those targets after having moved relatively quickly, but we'll continue to evaluate to see what the right amount is over time. But the way to think about it is at least 50% of the overall invested assets should be going to common stocks over time, and it could be a little bit higher than that based upon the particulars of how much float is being generated.

And so to be clear, I think, Bill, you said previously like Vantage was like thousands of positions. So you've effectively gone through the entire Vantage portfolio and converted all those thousands of CUSIPs to treasuries.

Sure. It was externally managed portfolio by, I think, BlackRock and Goldman Sachs. We liquidated the portfolio very quickly. I think there was a small residual maybe 7% of the assets that we had not sold by the end of the quarter with an expectation, you should expect that those will likely be gone over time. So it's effective -- it's a very, very simple portfolio, 100% treasuries, short-term treasuries for the float plus a cushion and the balance in large cap, very high-quality common stocks.

Okay. And then I appreciate -- just one final question. Ryan, I think one of the things and obviously coming from a real estate guy talking about insurance, a little dangerous. But I think what you've said -- what you guys have said before is, in general, insurance companies do not need to liquidate their investment books to pay out on claims. But the point is that you guys want to maintain sort of that 50% treasury cushion to allow for any excessive claims. Is that correct? Or do you envision that you would actually have to dip into...

Think of the treasury portfolio as cash that we have available to pay claims as they come due. We do expect claims, okay? The treasury book is effectively -- is cash available to pay claims as they come due. What many insurance companies do is they kind of ladder out their fixed income maturities to kind of duration match with how they expect claims to come in.

And that's -- so they go -- they take more risk, if you will, on the fixed income term structure to get more yield, and they're able to do that because of the nature of insurance company flow business. We're really not taking advantage of duration of float at all. We're taking the most conservative approach, which is to put aside a 100% U.S. Treasury portfolio to meet any claims as they come in, plus a cushion. And then on top of that, we own large cap common stocks. We would not expect to be forced to liquidate a common stock portfolio to meet a claim because we have a margin of safety in the U.S. Treasury portfolio we hold.

And our next question will come from the line of Meyer Shields of Keefe, Bruyette, & Woods.

I guess a couple of questions for Marc, if I can. First, very basically, are the -- is the expected return from the equity component of the investment portfolio, does that factor into the underwriting margin targets in your long-term ROE goal?

No, it doesn't.

Okay. Second, I guess on the cycle, you talked about how we're in Phase II. I completely get that. But it does seem like it's much more abrupt than it has been in the past, maybe because of MGAs or access to third-party capital or whatever. Does that impact near-term planning?

Near term, what, Meyer? Please repeat. Near-term, what?

Near-term planning in terms of just building the business.

I mean not really. I think the -- I go back to what I said in my remarks, I think that we're undersized for what we can in terms of capability. So we can definitely pick our spots a bit better than otherwise. And not overly concerned by that. There's always competition, Meyer, as you know, you've heard me talk about this in the past. But I think we're a bit more nimble and a bit more on the edges and find our way around that.

So no concern at this point in time. If we were multiple the size, we would have probably different conversations, although there are ways to address that, as you know. But right now, where we are, I feel very, very good about our opportunities despite some of the lines of business transitioning into Stage 3 and eventually Stage 4, which is only a few of them. And then the quickness by which things move, you're quite right, is a lot of it is short tail in nature, right? Certainly, property is one prime example. But we're not a huge property cat writer as you'll discover over the next several years. So that's not as much of an impact for us.

Okay. And then one final question. I don't know if it's numeric or otherwise, but how are you thinking about scale specifically on reinsurance at this point?

Right now, there's a couple of lines of business that I won't disclose here, but there are more lines of business that we could be doing and growing the portfolio. And since we're also building -- we're still in the next chapter, which is also including building the portfolio, I would expect -- I would not be surprised that reinsurance will go a bit quicker because we're going to be adding new products, new lines of business.

So we may have a little bit more reinsurance for the short term to take advantage of some of the opportunities that are there as well on the insurance. But as you know, it takes a bit longer to seize on these opportunities on the insurance side. So I'll be front running, if you will, some of the market opportunities on the reinsurance side. But over time, it will be really be reflective of the opportunities, Meyer.

So this is the same as before the opportunities if the capital is there on the reinsurance, and we'll be providing more reinsurance capacity in the market and vice versa with the insurance changes. And I think the reinsurance is probably a slow build, more slowly steady as it goes as we've seen in the past. But I'll let the market dictate, if you will, the relative contribution of reinsurance versus insurance.

Our next question will come from the line of [indiscernible], an individual investor.

You described Howard Hughes as built on disciplined capital allocation. Now that Vantage has closed and you have more competing uses for capital than ever, what does that discipline look like in practice? And when opportunities compete for the same dollar, what does an opportunity have to clear to win that capital?

So we believe that we've built -- we've acquired a great insurance platform. We've recruited a very talented, very experienced senior leadership team to kind of oversee that platform. And we believe that capital in the insurance business can be put to work intelligently and earn high rates of return, both in terms of -- from an underwriting perspective and also from an investment perspective. So the priority for every incremental dollar of free cash flow is to put it into Vantage, and that's how we're thinking about it.

And then within the asset side of Vantage, as Ryan spoke about, once we've covered kind of our insurance liabilities, the balance, we think it's a very opportune time to invest in the public markets. Volatility has increased enormously, as I'm sure you have noticed. And also, the market's attention is drawn to, I would say, a smaller and smaller subset of -- there's a lot of FOMO going on where people pile into the same sort of sectors. And that's caused a meaningful number of businesses that we have followed for years become available occasionally at very, very attractive prices.

You wake up one day and stocks are down 25%. And based on a short-term factor that once -- assuming we've done our due diligence correctly, we believe it does not have a long-term impact on the business. It's allowed us to construct a very attractive portfolio. So I encourage you to join the Pershing Square call next week. It's 13th, I guess, a week from today, and we're going to go through that portfolio in detail, maybe be able to be more granular in your question.

Okay. And Bill, as a quick follow-up, you're a devoted disciple of Berkshire and Warren Buffett. As Howard Hughes grows into a larger holding company, what lessons from Berkshire's experience matter most here? And where, if anywhere, should Howard Hughes do it differently?

Look, I think business quality is -- we've learned over time is the most important metric in our view in selecting securities for investment. Look at Berkshire over time. Warren Buffett one of the greatest investors ever. But if you go back and read the Berkshire letters to shareholders, Buffett talked about how great a business the world book in Cyclopedia was or the newspaper business, a whole host of various businesses that were disrupted by technology.

And I think the world has gotten even, I would say, more disruptive. AI is an incredibly disruptive and powerful force. So I think the biggest takeaway from following 60 years of Berkshire on the allocation side is to err toward business durability and quality. I think there are a lot of lessons that we're just following very closely. If you look at how Buffett operated -- first of all, the vast majority of value of Berkshire has been built in the insurance operations.

The combination of selective underwriting and intelligent investment of the capital, the assets of the insurer has driven the bulk of the value of that company over time. That's why we acquired Vantage. That's why we recruited Marc and David, and that's why that's really going to be a big focus of the business going forward. I think the other thing that Berkshire did very well over time is all that value was created on largely a fixed share count. And so we could issue a ton of equity and raise capital.

We don't think that's an intelligent approach, certainly at anything close to current share prices. And we think there's plenty of capital within this operation. It just needs to be redirected from kind of lower returning assets into what we believe will be a high-returning asset over time. And I think if we follow those principles, we're going to build a very valuable company over time.

Our next question will come from the line of Josh [indiscernible].

I know Ryan and Bill said that next week, you guys will be touching more on the investment strategy, but I was wondering since the goal of Vantage is to kind of mirror Pershing's holdings, would it make sense to buy PSUS or one of those other Pershing holdings in order to take advantage of the discount to net asset value right now?

Yes. It's not the Pershing Square USA call, but Pershing Square USA is trading at about a 23% discount to its -- the market value of its underlying holdings, and I view that as a very favorable. We like the holdings at net asset value to be able to buy them at a 23% discount, we think, is extremely attractive. But let's save that for next week's call.

And if I could, I would say, I think, just real quickly, Josh, to your question, the Howard Hughes stock and the Pershing Square U.S. stock, they also reflect different things. So for example, PSUS is a pure play on publicly traded securities. What Howard Hughes offers is effectively 2 businesses right now, an increasingly and rapidly growing insurance business run by what we think is really the best insurance management team in the planet.

It will also have access to what we believe will be very attractive long-term returns from Pershing Square helping optimize the asset side of the insurance balance sheet, which would be very powerful. And we have a very good real estate business led by a great team where we will have the opportunity to grow that business, but also increasingly redirect some of the excess cash flows and potential asset monetizations to help grow Vantage more quickly.

So I also look at them as two businesses, much like you can observe the discount to PSUS, you can calculate according to the supplement that we put out last quarter, what we think the net asset value is of the business and how that will grow over time, which we highlighted, and you can compare that to the share price.

And clearly, Howard Hughes is also trading at a very significant discount to what we conservatively calculate its net asset or its intrinsic value at. So I would really view it as both are things that clearly we like. We are owners, both individually and through our firm. But we also think they reflect different investment considerations based on the type of ultimate investment exposure that you're seeking.

Yes. Just to add to what Ryan is saying, we paid $100 a share to buy a 15% stake in Howard Hughes 15 months ago. We've made a huge amount of progress since that time, and the stock price is about the same as it was then, which was in the middle 60s, I haven't checked real time.

This is a business that has, we think, not only increased intrinsic value over the last 15 months by generating cash and growing. But more significantly, we've acquired -- we're clearly on our way to building an interesting company with a great platform, the addition of Marc and David to that platform, the redeployment of the capital of that business into higher returning assets. So we're excited about where we are.

And our next question will be coming from the line of Tucker Andersen of Above All Advisors.

I want to thank Marc as a long-term holder of Arch Capital. And my question to Marc is, there's been a lot of discussion about how AI is going to affect the insurance business, particularly the PC business and the underwriting side. And I'm wondering how you view AI might change how you want to operate Vantage in the future and what you're doing to take advantage of it.

Great question. I think First things first is AI is being used across Vantage and testing it out and working with it, helping with the coding. It's already helping us being a bit more efficient in many areas, but it's still early stages, right? The way we look at AI right now is going to be a great tool for us to be better execution on decision-making and gathering data and getting access to data. So that's currently underway.

That's really going to be so first and foremost, the companies really utilizing to leverage it for themselves to improve the flow and the processes and the decision-making, which we're already doing it. Over time, it's very difficult to see, right? I think that there will be more and more automation across the supply chain, how we go from the insurer to the broker, to the insurance company, to the reinsurance company.

There's going to be a lot more work over time, I could perceive possibly integration across the whole value proposition, we'll be positioned to take advantage of it. And it's going to be an industry-wide phenomenon, and we'll be participating like everyone else. Is there an opportunity for someone such as ourselves to be a disruptor? Remains to be seen. There's a lot to happen. It's really hard to the future. But clearly, it's going to enable making better decisions, and we're already using this as a tool to help our decision-making.

And a follow-on question would be, do you care to speculate at all on if it might change the nature and duration of the underwriting cycles as you describe them?

The one thing -- well, it could. The only thing I have historically, Tucker, that I can look back on is the when we had all the property cat modeling that came to the marketplace, the big argument was supposed to be standardizing the way we look at risk and it would make soft market go away forever. And I've heard this for a hard market for that matter. And that was used like in the mid-'90s when AIR, the RMS, all the cat modeling came up. And guess what, it didn't solve the cycle, what's happening in each cycle.

And I think it's because it's a human nature like everything else, it's between the human system, right? It's one thing that the model is giving you a number, but it's another thing to actually act upon it and execute on that basis. Many reasons for that, one of which might be or has always been the way underwriting teams are compensated. So there's always these things really mucking around what ultimately the decision will be made.

So I'm not saying it's going to be the same thing, but I -- the only one thing that I remember in my lifetime in my career that it did not change the cyclical nature of the businesses because there's human intervention in there. So when are you going to ask me when do you think we'll have no human interventions? I don't think I'm going to see this in my lifetime. And so it gives us plenty of opportunity to take advantage of the market.

Thank you. I appreciate your insights as a former actuary. I remember the description of what happened well. That was my previous life. And I am just counting on you to reproduce what happened at the Arch now that you're at Howard Hughes.

And I would now like to turn the call back to Bill for closing remarks.

Thank you. So thank you all for joining. We're excited about the current state of play at Howard Hughes, and we look forward to being in touch next quarter. If you care to join next week, we will be discussing the Vantage underlying portfolio in some detail. We welcome you to that -- to the Pershing Square call next week. Thanks very much.

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by, and welcome to Howard Hughes First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Joe Valane, General Counsel. Please go ahead.

Good morning, and welcome to the Howard Hughes Holdings First Quarter 2026 Earnings Call. With me today are Bill Ackman, Executive Chairman; Ryan Israel, Chief Investment Officer; David O'Reilly, Chief Executive Officer; Carlos Olea, Chief Financial Officer; Jill Chapman, who leads Investor Relations at Pershing Square; and Mark Granderson, who joined the Howard Hughes Board just yesterday.

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 in relation to their most directly comparable GAAP financial measures. Certain statements made today that are not in the present us 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 first 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, Bill Ackman.

Thank you, Joe. So those of you on the call probably have seen a presentation we put out providing some perspectives on how we think about Howard Hughes from a valuation perspective. The company is going through a transition in terms of its business model, and we think there's been a pretty meaningful transition or at least the beginning of the transition of our shareholder base. We thought this was a good time for us to kind of share how we think about the company and to provide some, I would say, better metrics to think about valuation going forward. So our plan for the call is we're going to start with David O'Reilly, giving kind of a comprehensive brief update on the quarter. I'll just talk a bit about kind of KPIs. Ryan will speak briefly about valuation. We'll introduce Mark to the group, and then we'll leave the substantial majority of the time for Q&A.

So why don't we start with David. Go ahead, David.

Thank you, Bill. Good morning, everyone. I'm going to start with the first half of the presentation. And as you probably saw, it's organized into 2 parts. The first part, it really focuses on the first quarter results of Howard Hughes communities real estate business. Using the slides from the supplemental, I'm going to be covering the 4 key performance areas of our communities, master planned communities, operating assets, condominium and then other expenses along with our debt and liquidity position. As you saw, we're introducing several new KPIs this quarter, and we believe these better reflect how we manage the business and how long-term value accrues within each segment. I'll reference those as I cover the results.

Then we'll turn to the second half of the presentation, where, as Bill mentioned, he and Ryan will do a deeper dive on what those new metrics reveal about our current valuation and the long-term growth of this platform. The goal is always to give investors a more complete picture of where Howard Hughes is headed and why we believe the stock represents a compelling opportunity. I'm also sure you notice that our earnings release no longer includes annual guidance. Given the pending acquisition advantage, we've elected to remove annual guidance expectations and will instead shift our focus to longer-term objectives by platform, consistent with how we allocate capital and measure success internally.

With that said, the first quarter results I'm about to review and specifically our land sales and MPC EBT, we're ahead of our expectations. And if not for the transaction, we would have increased MPC EBT guidance for the year. With that, let's talk about the first quarter performance, starting on Slide 4 with the company highlights.

It was a strong start to 2026. The real estate engine did exactly what we needed to do -- it grew cash, it provided pricing power and it converted more land into long-duration income. We saw a strong MPC earnings growth, continued leasing momentum across the operating assets and the company ended the quarter with substantial liquidity. On 5, as part of this new supplemental, we're providing a simple road map to show how performance of our communities connects to the overall valuation of this platform. We'll be focusing on the following 4 key areas that will step through in turn. Master planned communities EBT and margin affected residual land value, operating asset adjusted maintenance free cash flow, condo gross profit and other expenses, which includes G&A and net interest expense.

So let's start on Slide 6 with the MPCs. Earnings before taxes was $84 million in the first quarter, up 33% year-over-year, driven by higher residential land sales. In Bridgeland, we closed 62 acres at an average price of $688,000 per acre. That compares to 37 acres and $605,000 per acre last year. with net new home sales in Bridgeland up 12%. In Summerlin, custom lots averaged $7.2 million per acre, and super pads averaged $1.8 million per acre, and new home sales in Summerlin were up 6%. The point -- it's not just that volumes were higher. The point is that we're converting scarce entitled Developer Ready Land into cash at an increasingly attractive price in markets where we effectively control supply. We're not selling land. We're harvesting scarcity.

As our communities mature, price becomes a primary driver of MVC value, which means we can generate more cash from fewer acres while protecting the long-term economics of the land bank. Shifting to operating assets on Slide 7. Our operating asset NOI grew 2% year-over-year and 7% on a trailing 12-month same-store basis. Within the portfolio, multifamily and office were the primary drivers of same-store growth, supported by continuing leasing activity and the burn-off of rent abatements. More important than the quarterly print is what this segment represents for the holding company we're building.

Operating assets are the steady cash flow engine. As we move land into vertical development and lease-up -- we convert onetime MPC proceeds into a growing recurring base of NOI diversified by asset type, tenant and market. This quarter, we're also introducing adjusted maintenance free cash flow because we believe this metric gives a cleaner read on the recurring property level cash flow that is actually available to redeploy.

Turning to condos on Slide 8. At Ward Village, we completed Galana and broke ground on Linux, which is already 70% presold. Across the platform, we have approximately $5 billion of estimated future GAAP revenue at Cello. Condo gross profit was roughly breakeven in the first quarter as expected and will increase meaningfully in the second quarter with Park Ward Village closings. Condo profit -- it's always going to be recognized in large blocks when towers deliver. So the quarterly pattern is going to remain lumpy even though the underlying economics are largely locked in through presales. These projects are largely derisked well in advance of GAAP recognition. We typically presell the majority of the units fund construction with buyer deposits and nonrecourse construction loans, and lock in our margins years before delivery. Estimated future condo gross profit, the total projected gross profit from condo towers under construction or an active predevelopment the vast majority of which are already presold, highlights the embedded condo cash flow well ahead of when it appears on the income statement.

I want to spend a minute because I think the capital mechanics here are worth walking through. They make these economics of condo development unusually compelling. Our primary contribution to these projects is land, along with a modest amount of cash. We contribute that land and that modest cash is our equity. From there, buyer deposits are collected at signing, often years before towers deliver, and they fund a meaningful portion of construction costs. Nonrecourse construction financing covers the majority of the remaining required capital. The result is that we're delivering towers worth hundreds of millions of dollars with very little of our own cash actually at risk. When units close, buyers pay the full purchase price we've repaid the construction loan and the profit flows to us. It's a model where our buyers and lenders are essentially financing the construction, and we collect the upside at the end.

That's what we mean when we say condos are self-financing capital recycling tool. And it's why this business generates returns that are difficult to replicate. Beyond condos, projects like One River Row, on Bridgeland Green and others in our pipeline followed that same land to income pattern, convert entitled land into durable NOI grow the recurring cash engine and raise the long-term earnings power of the platform.

On Slide 9, we'll turn to other expenses. G&A expense was $25.8 million in the quarter, including $3.8 million of Pershing fees and $3.4 million of Vantage related transaction costs. And net interest expense declined year-over-year due primarily to the amount of interest income we've received from our invested cash balances during the quarter and on a trailing 12-month basis.

On Slide 10, I'll turn to the balance sheet and wrap up. We completed a $1 billion refinancing at the tightest credit spreads in the company's history during the first quarter. Importantly, this execution occurred after announcing the Vantage acquisition, which we view as a strong external validation of both our balance sheet and our strategy. The transaction extended our maturities and added $230 million of incremental liquidity -- we also closed on a $300 million mortgage at Downtown Summerlin. At the end of the quarter, we finished with $1.8 billion of cash, comprised of $907 million at the HHH level and $929 million at HHC level and significant additional liquidity.

That position combined with the Pershing preferred commitment, fully funds Advantage acquisition and supports our current development pipeline, while continuing to preserve our flexibility for future capital allocation decisions. So the overall takeaway for the quarter I think it's the real estate foundation of Howard Hughes is doing its job. It's generating strong cash flow, demonstrating pricing power in our emphasis and expanding our base of recurring NOI. We and recycling capital in a way that supports our evolution into a multi-engine holding company. The first quarter performance primarily reflects the resilient demand in our communities that lead to bottom line results. MPC earnings will continue to be lumpy quarter-to-quarter depending on when large parcels close. But what matters for us and what I encourage you to focus on is the multiyear growth in recurring cash flow and the value embedded in the land and condo pipeline rather than the precise results of any given quarter. The new metrics Bill and Ryan are going to walk through in a minute are designed with exactly that in mind to make it easier to connect reported results to intrinsic value.

And with that, I'll turn it over to Bill.

Thanks, David. So what we've what we're doing here, maybe just to back up for a second, I think historically, the company has tried to create kind of a quarterly number that shareholders could annualize and maybe put a multiple on. The vast majority of companies are valued that way. Analysts estimate earnings, the market assigns a multiple based on the inherent growth and predictability of that earnings stream, and that helps people come to a value. The problem with that metric is it doesn't really work for Howard Hughes. We really have 3 different segments perhaps 1 of them, the operating asset segment, you could certainly value at a multiple of a metric. But the other 2 are a bit unusual.

So our MPC business is really a business of owning land and that the goal of these communities is to make them really attractive places to live, and we've developed assets to meet that demand in our operating asset segment. And over time, what that's done is brought more residents into the communities, increases the demand for land. That's led to continuous at well in excess of inflation increases in the value of our land portfolio. But putting a multiple on the profit, the GAAP profit from a portion of land sell for a quarter, not particularly helpful metric. What really matters is, well, how much cash do we generate from our land sales during the quarter and what's the value of our remaining land.

And so our new metric is going to focus on those 2 levels. What's interesting about these communities is every acre of land, we know for a certainty we're going to sell. We don't know precisely which quarter we're going to sell it and so what matters to you is what do we generate during the quarter? What price did we achieve? And what's the value of the remaining land that we own. So that will play into the metrics we're talking about.

With respect to operating asset NOI is a metric while net operating income is a metric that's used by really every real estate company. At the end of the day, what we focus on is the cash that's generated from this portfolio. So what is -- you start with NOI, but you got to take off their costs associated with maintaining those assets, we're putting tenants in those assets, and we want to reflect those costs, we get to a cash flow metric our condominium business. So we don't have an infinite supply of land in Honolulu. We've got a finite supply of land. We have an amazing team, and that team is actually a valuable asset of the company that we're not today assigning value to. We do think over time, we'll have more opportunities to access more land and continue that business.

But today, for the purpose of -- we want these metrics to be simple to understand and also conservative. And so what we're saying is, look, we've got a finite talent today and the basis of that finite amount of land, we tend to build a certain number of condominiums. We estimate a gross profit -- and that's how we get -- and we present value that today to kind of keep track of the remaining value of that portfolio.

So if we go to Page 13 on the new metrics. So what we're going to give you is kind of the residual value of our remaining acreage undiscounted and uninflated. What we meant to say is we sell lots for $1,800,000 or acres for $1,800,000 in Summerlin, we're going to use that to value the remaining residential land portfolio at the end of the quarter. Now that, I believe, is a conservative metric because land values have compounded at rates well in excess of the cost of capital that you should discount them at Hard Hughes. And let me just make my case for that for a second. We've compounded land values in the teens in Summerlin, correct? Okay. So let's pick a number. It's been water over the last 5 years. 15%?

5 years, it's been just under 15% in Summerlin and 68% Wolman Hills in Bridgeland.

Okay. So in Summerlin, which is a further built out community, you've got land that's appreciated 15% per annum. Again, because it's the certainty we will sell this land because these are fully developed communities, the discount ratio used there would be a relatively modest spread over treasury. So using today's value for the land is 1 that I think is a very conservative measure of remaining land. If land continues to appreciate at these kind of levels and you discount them back at levels, the land values are even greater than what we're showing. And operating asset adjusted maintenance free cash flow, what are we doing here, we're starting with NOI, and we're getting to an actual free money we can spend metric after all the costs associated with owning these assets.

And then we project the profits from Romanian condominium deliveries. It's pretty straightforward to do this because, for example, for the units that we have under contract, we know exactly what price we're selling for -- we generally have GMP contracts we lock in to the most part, the cost to build them and then we -- it's a present value calculation.

With that, let me just -- we're not going to take you through every page of the deck because we want to leave a lot of time for answering questions. Ryan is just kind of just focus on some summary valuation pages. We'll start with today's value and how we get to what's possible over the next 5 years.

Sure. Thank you. So what we wanted to do, as Bill mentioned, in the pages that we've provided that we won't walk through all the details on this call is we wanted to show you how using the metrics that we believe are the right way to think about long-term value when we make our own internal valuation as well as tracking our progress over time. I'll just highlight on Page 27, kind of the takeaway, we believe today using those metrics, and as Bill mentioned, conservatively trying to come up with a value for HHH.

We think that the intrinsic value of the business based on those metrics is about $104 a share, which is more than 60% higher than the roughly $65 share price today. And when you look at that in detail, nearly 80% of that is coming from the Howard Hughes Communities real estate business, and about 20% of that is coming from the economic ownership percentage that Howard Hughes will have a Vantage, which we are on track to close very shortly. So we believe that the shares are very undervalued relative to our estimate today. But if you go to Page 42, a what you'll see is really our benchmark for how we believe we can grow the intrinsic value of Howard Hughes over the next 5 years.

And we actually think that we have the ability, and it's 1 of the reasons we're so excited to have Mark come join us as he'll be very helpful as we achieve these metrics to grow the intrinsic value of the business to roughly or more than $200 a share. We have about 21 in that we've derived conservatively for our valuation in 2030, which is about 3.3x the current share price of 65% or 23% increase. And what's interesting about that metric is today nearly 80% of the value of Howard is coming from the real estate business. But we actually think over the next 5 years, we're going to have much more of the value coming from Vantage, other insurance and some of the high durable growth companies we seek to acquire.

So that ratio will shift to about 2/3 coming from things that are not related to real estate. And the way that we get there at a very high level is that we will be looking at the Howard Hughes Communities real estate business, and we will be using a lot of the excess cash that we do not think is needed for reinvestment in the communities that could be allocated a higher returns in other parts of the business, particularly the insurance, we have about $2.5 billion to $3 billion of cash that we're expecting we'll be able to generate over the next 5 years, which could be somewhere in the order of 65% to 80% of the current market cap of the company. And we believe the insurance business, particularly having Mark's help will be a very valuable place to put that. with Vantage, which we're very excited about, given the business and given the team that's there, we believe we can improve the returns on equity from something in the kind of low to mid-teens to something that could be in the high teens or even better.

If we can do that, we can allocate a significant portion of that $2.5 billion to $3 billion of free cash flow over the next 5 years to build up the capital base. And as the returns on equity advantage improve the multiple that the market and we would assign Vantage for being a higher return on equity business should also increase. As a reminder, we're buying this business a headline purchase price book value, but we believe by the time we close, given the accretion of the book value, it will be about 1.4. But we think we can increase the intrinsic value of this business is something that's worth north of 2x over the next years. And so that's going to be a significant reason why the value of Vantage will be growing so quickly over the next 5 years and will really help become the driving force of the increase in intrinsic value of Power uses equity over time and make Vantage really the leading asset that we'll have an insurance a key focus of that business.

Thank you, Ryan. So I thought to introduce Marc Grandisson and he'll be available, obviously, to answer questions. So we actually began a conversation with Mark well more than actually a couple of years ago in connection with an investment that Arch made in the Pershing Square management companies. We got to know market bit there. Then we learned of his departure when we read about it in the press, when Mark stepped down from being CEO of large Capital Group. And in light of our plans for Howard Hughes. A year ago, we started at least a conversation with Mark.

He was still otherwise encumbered at the time, and he was trying to decide what he wants to do with his life and thinking about all kinds of different things. We kind of kept the conversation going. We took a very significant step in signing an agreement to acquire Vantage, and we kept talking to Mark. And our thoughts here are -- well, Brian and I, other members of the Pershing Square team have analyzed insurance companies from a perspective of an investor, either 1 of us is an operating -- has any operating experience in the insurance industry and an industry where you can make a lot of money, and it's an industry where you can lose a lot of money if you don't know what you're doing. And while we're buying company with a very capable team. I think it's as important that at a Board level, we have 1 or more directors who really understand the industry. And Mark was by far our #1 choice. There really wasn't a close second in terms of without embarrassing him, really the iconic executive of the last, I would say, a couple of decades, I spent almost 25 years at Arch building 1 of the most profitable, most successful insurance platforms. And we just thought that experience was incredibly relevant, and we are delighted to bring remarked to Howard Hughes.

So maybe, Mark, if you could just give a little background because not everyone knows who you are, and then we'll open it up to questions for the group.

Well, thanks, Bill, for all the wonderful comments. It's -- I feel very honored and privileged to be part of that group. I'm very happy that we got to this lending and really looking forward to help the whole team really develop your vision, your collective vision of I think a diversified platform with insurance being an anchor. I think like you, I firmly believe if you do it well, you can really lead to wonderful reasons in our results. and also like the fact that you are collectively going to wait for it. There's a timing issue going along, and it's not a quick hit, and it's really -- if we deliberately build it the right way, this could be a formidable and it will be a formidable business. I've been 35 years in the business.

I was most recently ACGL CEO. I was 1 of the founding members back in 2001 after the terrible events of 9/11. With a very similar vision that you would hear me talk about all the time, which is about underwriting excellence, being focusing on the cycle, focusing on allocating capital to the right places where it gives good returns and really surrounding yourself with a good team. good talented individuals and focusing on underwriting expertise. The difference between a top quartile in insurance and the bottom quartile is 20%, 30% difference, meaning the ones at the bottom are actually losing and actually going by the wayside, and we've seen many of them build just alluded to that.

I'm excited to join because I like the vision, like I said, I'm here to help the board understand the business, demystify some of the things. I know it's not as easy to understand from the outside world. It could be opaque. Most a lot of the investors and the shareholders of how we use or have built to know perhaps expertise or exposure to insurance and going to make sure we're trying to make sure collectively that you were bringing along to that journey altogether.

What else I'm going to bring to the table. I'm looking forward to work with everyone here, obviously, and also with Greg and his team, known Greg for 25 years. We were neighbors in Bermuda. So he's a great executive in the platform we built at the right time, right after the market turn in 2019, Beautiful timing, hard in legacy, it was highlighted in the package before. And it's really hard to create that kind of platform, and it did very, very good job. It's both insurance and reinsurance. So it allows us to the company to really participate across the board in as many opportunities as possible. And again, being selective on the underwriting.

So I'm very looking forward to demystify, help teach the Board and the investors and it's going to be a long-term play for everyone here. and I've seen it before. And I think the playbook is there. It's worked. I've seen it work. And I think we have all the elements to make it 1 of the best emerging and surging insurance platform alongside with the real estate platform and whatever else, Bill and Ryan will find along the way to create something very unique and once in a lifetime. So I'm very excited to be here. So thanks for having me here, Bill.

Thank you, Mark. So with that, operator, why don't we open it for questions.

[Operator Instructions] Our first question comes from the line of Anthony Paolone of JPMorgan.

My first question, maybe for Bill, just help me understand. I'm not that close to all the different things happening at Pershing Square and the specifics around that. So can you maybe just talk to whether anything on the capital raising side there has any direct implications back to HHH, whether mechanically, you got to buy shares or whether there's a greater commitment or just anything we should think about there related to HHH activities at Pershing Square.

Sure. So last week, we did 2 listing transactions, an IPO of an entity called Pershing Square USA. -- which is a U.S. listed closed-end investment company listed on New York Stock Exchange. And we also did a direct listing in effect of the management company, some people might call it the GP of Pershing Square, the entity that receives fees from various funds that we manage. As part of the IPO pitch for Pershing Square Inc., we pointed out that it's a bit of an unusual alternative asset management company. I think analogies would be Blackstone or KKR or others in that 1 we're small relative to others in terms of scale, but the capital base is very unusual and that 98% of our assets are in, so to speak, permanent capital vehicles. And the 3 examples we gave our London-listed anti-anticalled Pershing Square Holdings, Person care USA, which is this new entity we launched and then Howard Hughes, we put in the same camp. It's not an investment company per se.

It's an operating company, a C-Corp -- but it's a very important, I would say, leg to a 3-legged stool. So I would say the significance of that transaction is not -- we're not -- we actually can't buy more stock in Howard Hughes. We're contractually -- our agreement with the board is to stop at 47%. But I would say the importance of Howard Hughes to the Pershing Square platform was very -- something we emphasized to a great degree as part of the IPO transaction. And this is -- we describe Bertin Square. This is a permanent holding. We intend to be a forever owner of Howard Hughes, and our goal is to build a valuable diversified holding company led by this insurance platform. over the next many decades. That's the idea.

Okay. And then my second question is you show just the demonstration of value and how much insurance plays a role in that. So my question is, with it being such a big driver, why continue to hold things like multifamily or some of the other assets in real estate? And should we see that kind of move over to potentially add or to the insurance side over time?

Sure. So the answer is like if you look at Howard us over the last 15 years, we were a dedicated real estate company. And basically, every dollar of cash we generated, we reinvested in real estate. For example, we bought another MPC as a result of having excess cash that we actually couldn't employ in our existing sort of MPCs. What the transaction accomplished a year ago kind of widen the aperture of things that we could do. I think what we've learned over time is a dedicated pure-play real estate development MPC business is not 1 that the market assigns a high value to -- or another way to think about it, the market side is a very high discount rate to those kinds of cash flows. All that being said, as demonstrated by the -- our expectations of $2.5 billion, $3 billion of cash that we're going to generate from that business over the next yes, it's a meaningful cash flow generator.

So I think the pivot we're making is we're going to reinvest every dollar of excess cash into things other than real estate. But our definition of excess cash is not just free cash flow. And what I mean to say is we intend to continue to build out -- the golden goose here for the real estate company is that we want the Woodlands, we want Summerlin, we want these communities to continue to be amazing ranked in the top a handful of places to live in America. And in order to do that, we're going to be building apartments when we need more apartment buildings. We're going to build in office buildings.

We need more office buildings. But there are some number of assets that may be noncore that are not critical for us to own that we're going to look at and examine and say, does it make sense for us to own this asset forever because it's critically important to our market share in the Woodlands and office space. Or is it a tertiary asset that there's a buyer who will pay a much higher price for than our cost of capital would allow. And so that's an examination that we're going to do over time. But the nature of the Howard Hughes real estate business is it sort of self-liquidating in a manner of speaking.

And that, obviously, we have a finite amount of land that over the next whatever number of decades, we're going to sell. We have a finite amount of condominium development land, and we're going to build out those units, and we're going to generate a bunch of cash. We have cash flows that come from our operating asset portfolio that we expect those to grow on a same-store basis. We expect them to grow because we're going to continue to develop whatever the communities need to make them really attractive places. But I would say on the margin, if it doesn't -- if it's not critical and core it becomes something that is some stabilized asset or better owned by someone else, we'll sell it.

Our next question comes from the line of Alexander Goldfarb of Piper Sandler.

Bill and David, and welcome Board, Mark. Not sure if we're limited to just 2 questions or not, if we are fine. But just first, I want to say I love the new disclosure much more streamlined, much more to the point and I think much easier having covered this company for a long time, much easier to comprehensive Bill, on the Vantage deal, is there anything that could delay the second quarter closing? I didn't know if any regulations, paperwork, anything like that? Or we're on track that this will close in the second quarter. SP1 This will close in the second quarter. We have a scheduled date -- a hearing date, which is the 19th of May with the Delaware regulator transactions typically can close within actually a couple of weeks of that hearing date. So I think we'll beat our quarter end estimate absent something unexpected happening, but I don't expect the unexpected here.

Okay. Second question is I think you said the value of the company currently, as you do your math, is $104 a share. Bill, you bought your stock into the company at $100 a share. Is that the delta versus what you guys previously disclosed of $118 a share for the company's value, I would have -- I was a little surprised by the 104, but maybe it's just the math on the dilution and also I would assume you guys have better insight into the value of the company versus what we estimate from the outside.

Yes, I think we're -- number one, we're being conservative because the way we're looking at the I mean the true value of the company, you'd build a DCF on the MPC community and you compound the land values over time and discount them back at a discount rate that I believe would be lower than the -- where you would appreciate them. What we're saying is let's come up with a simple metric that's hard to argue against. We're also -- with the value of the commercial land, we're assuming a sale to a third party. Obviously, when you sell land to a third party, you're giving up the -- they build in an opportunity for a development profit and everything else. If we develop that land ourselves, we get the benefit of that development property. So there -- this is quite a conservative way to think about the value of the company. There are obviously some dilution associated with our $100 a share primary investment. Ryan, do you want to add anything else?

Yes. The 1 thing I would say, Alex, we try to give a very conservative snapshot for the 104 figure. Another way to look at this, which is outside of the Howard these context, when we value businesses at Pershing Square. We often think about what the business will produce over the next 5 years, and then we think about that as a value and we might discount that future value back to today. So 1 thing you would note on Page 42, we conservatively estimate $104, but we also then roll forward that we believe by 2030, the value will be around to $211 which is a 16% growth rate in intrinsic value over a period of time. Another way to think about that is focus on the 211 discount that back I think we would argue that you should discount that back at a substantially lower rate than 16%, given the high-quality nature and the increasing predictability and high growth of the business. That's another way to think about value. If you were to do something like that, using a more modest discount rate, you can get to numbers that are easily 25%, 30% higher than that $104 figure.

So to Bill's point, there's a lot of different ways to look at this, but I think that 104 would be by far the most conservative way to look, but we just wanted to lay out a very simple explanation for people as to how they can start to think about kind of the most conservative value for building Howard Hughes relative to the current share price. Another way to say it is, I think of 104 is basically like a liquidation value of the company. it's after tax, after all the various expenses associated as opposed to a -- almost like a going concern type value where the expectation would be we'd be building out all the commercial land.

We'd be embedding a certain profit margin. We'd be assuming that the -- we'll be selling land at higher prices in the future and discounting it back at a much lower discount rate. And those would all accrue to a higher value. But I think this is a very fair way to think about the company and provides kind of an easy -- a relatively straightforward metric for us to judge the company every quarter. It makes everyone's life easier -- and I think simplifying the way people think about the company, and particularly the real estate assets of the company, I think, will go a long way to making this a more ownable stock by a broader array of investors.

That's helpful. And then just a final question for you. Obviously, data centers are a huge topic these days. You guys have a lot of land. I realize the value of Summerlin or the Houston portfolios may not make sense to add a data center to that. But when I think about West Phoenix, -- you have a huge amount of acreage, and it would seem like that would be potential to have sort of co-located power generation data center, et cetera. So Bill, as you look or David, as you guys look at your land holdings and what is sellable for residential versus potentially if there's a bid from to do data center or power plant combo. Is that at all an option or the view is residential is still the highest and best use -- and as far as maximizing the MPC, that's -- you want to stick with the formula that you have to date versus trying something new.

Yes, I would say we have an extremely open mind with respect to West Phoenix. It's an amazing asset. It has all the attributes that you've talked about, access to power, access to water in a very, I would say, pro business kind of favorable environment and we have enormous scale. And we bring a lot of value to any 1 of those players. There are AI companies raising money at $1 trillion valuations. In the context of that, you look at the this very, very valuable land we own. It might be an interesting transaction to have someone not only where they want to build data centers or power, but there are some pretty aspirational people in the technology world that want to build cities and they want to build a community around the company that they're building.

So -- and we would be 1 great outcome for us is we bring in a partner who write a big check, and then we become an asset light, if you will, developer of whatever that community is. and we make it an ideal place to live in the way that the company has historically built communities with like, for example, the Woodlands or Summerlin -- we do the same in Phoenix, but we have -- the anchor is someone for whom having access to everything from nuclear power to the small nuclear actives and all the interesting technology, and they do it with a blank sheet of paper. I think it's a pretty good opportunity. So that's something we're totally open to and something that would -- could be transformational in terms of value creation for the company. Our -- we're valuing that asset at cost in this. Another -- we bought that asset, what 6 years ago or so?

Just over 3 years ago.

3 years ago. Okay, time 3 years ago. But the world has changed, I would say. The world's moved at least 6 years in the last 3 years in terms of what that property can be used for.

Our next question comes from the line of John Kim of BMO Capital Markets.

I've had some technical issues, so apologies if you've already addressed this. But on the KPIs that you introduced as far as MPC residual value and the condo remaining profits, -- does that essentially incentivize you to maximize price going forward and not sell and in essence, not generate as much current cash flow.

Goal -- I mean maybe David can speak to our approach. We've generally take an approach to optimize the combination of, I would say, volume and price and make sure that we're not stuffing -- we don't want a bunch of homebuilders with excess land inventory, and we don't want to -- we want to manage the supply in a manner where we can continue to grow the per acre value of the asset. It's actually -- again, it's not critical to us whether we sell x dollars of land in any particular quarter. What matters to us is we're building these amazing communities, and we're managing our scarce asset in a thoughtful way. But David, maybe you want to speak to that?

I think Bill, you summarized it perfectly, which is we're not selling assets to maximize any metric. We're selling assets to maximize the value of the company. and we do that by selling just enough land to homebuilders to keep up with underlying home sales. Sell them too much land and they're oversupplied and in a downturn, they'll make a terrible decision that will negatively impact the rest of our dirt. -- sell them too few and we're going to strangle affordability in our communities. So we are tracking underlying home sales in each of our communities daily. -- making sure that we're preparing the right amount of lots to keep up with those home sales to maintain equilibrium as best we can across our communities.

Said another way, simply because we're changing the KPI, that's really just to help the market better understand the company, understand our progress in creating intrinsic value, but really no impact on how we think about how we auction land each quarter.

Okay. That makes sense. I mean the KPIs, I mean, that information was already there before, but you just want us to focus more on the remaining values of your land and kind of profits?

Look, 1 of the concerns I had is that people were looking at the company and saying, "I want to put a multiple on like a next 12-month estimate of MPC EBIT. And it's really just not the right way to think about an asset like land, which you're going to sell over time and where the land values are going to appreciate over time. The right way to think about an asset like that is either on a present value basis or -- and maybe the simplest way to think about it is okay, how much do we sell during the quarter, how much cash did we take in and what's the remaining land worth -- it's a bit like -- we're a bit like -- we got oil on the ground -- and unlike we're on the ground, which is incredibly volatile, our oil gets more valuable over time as people move into the communities.

But there's a finite amount of it, and we want to be smart about we're kind of like OPEC. We don't want to dump it on the market at any 1 time. We want to be thoughtful about how we extract it and how we convert it into cash over time. But we don't want you to put a multiple on the amount of drilling that happens in any 1 quarter because that's really just a function of kind of -- sometimes it can be a function of rates, sometimes rates back up a bit and there may be a pause in sales.

So one thing is a certainty people want to live in the Woodlands. People want to live in Summerlin. They want to live in our communities, which means this -- and the land just gets more desirable over time. We're at the place in the Woodlands now where there's really no more residential lots. It's only commercial acreage. We'll get there at some point in some as well, which means we're going to sell every acre of residential land over time in summer. I can't tell you exactly what date, but I'm confident that the land we sell in future years is going to be worth a lot more than land we sell today.

And that's why we're never in a rush to meet. And we certainly don't want management thinking about, "Oh, I put out a guidance number and I want to make the number by well, let's just discount to land a bit to -- we want people to be focused on the things that matter for growing the value of the company. So these metrics are much for internal use as they are for external observation.

And when you talk about allocating more capital to advantage rather than reinvesting back into besides selling stabilized assets that you mentioned before, what are some of those investments that you would have made that are now either being deferred or removed going forward in the MPC business.

I don't know that we had already arrived at a place where we had excess cash flow expected to be generated from condo sales from other parts of our business. But if we were a pure-play real estate company, we would have tried to figure out other places to put that money in real estate-related assets. What we're doing now is we're saying, look, now we have a really good place to put that money. We think the driver of value in the slide that Ryan showed you is, one, we think the nature of the insurance business, a profitable insurance operation with assets managed by us for no cost, we think, is approaching 20-plus percent ROE business. Those are returns very hard to achieve in a relatively low leverage kind of real estate company.

So one, the returns are higher. Two, the business that we're buying here for effectively 1.4x book value becomes worth something comfortably north 2x book value, if we can achieve our objectives. And so every dollar we can put in kind of Vantage appreciates both because the ROE is higher; and two, the value that the market will assign to that capital that's invested in Vantage is much higher than the -- so that Therefore, our incentive is to invest every marginal dollar advantage as opposed to buy another MPC -- if we have had this business plan 3 years ago, instead of buying West Phoenix, we would have put an extra $600 million into advantage.

Thank you. I would now like to turn the call back over to Bill Ackman for closing remarks. Sir?

Okay. Ending early. I guess my closing remarks are the company is going through an important transition that we think it's going to create a lot more value for shareholders over time. We're incredibly excited about it. We have the -- we think we have all of the things needed to achieve that objective. One, we've got a great core very profitable business. And I think the team has -- is thinking about it the right way, and the numbers are great. And I would say we have mayors around the country that are great including in New York City for sending people to business communities that are pro business and pro capitalism and we happen to own assets in states that are aligned with that objective.

So I think Howard Hughes owns real estate assets in the right places, and we're going to generate a lot of cash from that business. And now we have a very good place to put that capital Vantage transaction, I expect will close earlier than the end of the quarter. We're excited about that. We're excited about the Vantage team. I think they're excited to be part of a permanent -- it's a lot more fun and insurance business to know kind of have a long-term business, you want to have a long-term owner, and we've achieved that. I think with Mark's addition to the Board. I think the Board is now very well positioned to help oversee this important transformation.

And I think the only thing that's missing in the share price is some new shareholders who -- because I think we scared away some of the real estate shareholders -- and hopefully, we'll start to attract people who are excited about the business plan going forward. And with that, absent any further questions, we'll end the call. There are no further questions. Thank you so much, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Howard Hughes Holdings Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

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 Fourth Quarter 2025 Earnings Call. With me today are Bill Ackman, Executive Chairman; David O’Reilly, Chief Executive Officer; Ryan Israel, Chief Investment Officer; and Carlos 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 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 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, Bill Ackman.

Thank you very much, Sean. And let me just add one addition to the room, Jill Chapman. Jill was formerly Head of IR for Hilton, and we're very pleased to announce that we brought her on in an IR capacity at Pershing Square, and she's also going to help, of course, with our investment in Howard Hughes.

While we're 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, good question and some questions I've received from shareholders is how should we think about this business? What are the metrics that we should follow?

And I think Howard Hughes over time, also suffered a bit from shareholders trying to figure out how do I think about this business. And the conventional public company, there's usually a certain amount of GAAP earnings or an adjusted 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 multiples determined based on the persistency and the growth of those kind of earnings over time.

And when you think about the Howard Hughes business, it's very challenging in our view and actually, it's hard to get to proper indication of value using a conventional approach. And I think you have to think about the business according to its sort of different components. So the easiest place to begin, of course, is with stabilized income-producing real estate assets, apartments, office, retail, et cetera. Obviously, these are easy -- relatively easy to manage. There are plenty of comparables you can look at.

And I think the only complexity at Howard Hughes is thinking about as we lease up assets, right, assets that are 95% rented, fully stabilized, it's easy, but we always have some amount of development, some amount of lease up in the portfolio. But still, I think that's a pretty easy place to begin.

Then there's 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 don't start building until we have sold a substantial majority of the units in these projects, and we've got a very good track record of delivering them on time and on budget. It's a very low-risk business compared to what people normally think about an economy business where you're highly speculative, you have to build as soon as you can because you've levered up to buy a piece of property.

Here, of course, we own the real estate outright. We can pick our moment and we don't start construction until we know this is going to be a successful product with a lot of demand. And today, we've got how -- many million square feet left of product without -- why don't we start there, Hawaii?

Well, just in Hawaii alone, we unlocked another $3 million to $4 million of entitlements this past year.

Okay. So the $3 million to $4 million plus...

Plus the existing pipeline that's in the portfolio today that's largely presale, as you noted though.

Okay. So you can think about that, it's a bit like drilling oil. There's a finite amount of it. However, we have an incredibly talented team in Hawaii. We've built a real franchise and brand in Hawaii. And if you're a major land owner in Hawaii, and you want a partner to deliver -- turn that land into a valuable condominium product. There's no better place to turn than Howard Hughes. So I expect that what is today a $3 million to $4 million square foot pipeline of new product is going to grow over time as we either buy other land or we joint venture or other property in Hawaii because of the franchise we've built. So there's an existing pipeline, you can sort of value on a DCF basis, and there's an option on the franchise, if you will, and our ability to develop other assets.

And of course, there's the MPC business. And I think, again, people are looking to put -- how do I come up with a metric, what -- profits from PCs and it's kind of grown over time. And so can I -- what's the right multiple and how do I think about it? And that's where I would say, I don't 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. Some of these lots can be sold ultimately to homebuilders who in turn will build homes and sell them to customers.

But we're very judicious in the way that we bring that property to market in that we have a finite supply, we want to sort of optimize between kind of price and volume. We want to make sure that our homebuilders never end up with too much inventory. And we -- as a result, and the way we've managed it, we've been able to -- if you look at the compound annual kind of growth rate in our residential land values on a per acre basis in our various MPCs, it's 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're delivering the right product and we're doing it in a way the market is never saturated with excess supply.

And it's a really great business. But it's not one where -- sometimes you're 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. And a year later, we could say, you know what, we're 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 kind 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 kind of 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 we convert into cash every year. NOI from the stabilized assets, profit from our existing MPCs. And as we sell off residential land, if you will, gone forever.

But one of the things that we've been able to accomplish as a company is while we have a finite supply of land, we've 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're 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's going to be worth more in the future. And we're just making a decision, is it better to monetize a piece of land -- residential land today? Or are we going to do better holding it for the next year or 2 years and allowing it to kind of appreciate in value?

So maybe not the -- again, this is not a company that's going to be a simple -- you get one number every quarter, and you can put a multiple on it or you can annualize it and get to a value. It's a business where we're going to do our best, and we'll work with Jill. We'll work with the team and coming up with some kind of good sort of KPIs you can track on a quarterly basis to see how much progress we're making.

But the places where I would focus is the growth in NOI, the per acre value of the finished lots that we deliver on each of their communities, how quickly is that growing? That gives you some sense of the value of our remaining land assets and then the progress we're making in terms of delivering economies and the margins that we're generating and then our ability to continue to extend that franchise. So that's real estate.

We expect to close our Vantage Holdings transaction. We remain confident we can get it done by the upcoming quarter, let's say, by June, that process requires certain regulatory approvals. We've had the various meetings and sort of some more has come in the relative short term, but I see no reason why we won't meet kind of our expectations. Now with the addition of a $2.1 billion 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're going to want to point you to growth in the book value of the insurer and the returns that we're earning on that book value as kind of key indicators of our progress in building a valuable insurance company. I would say both insurance companies today are valued based on precisely that if they can earn high returns on capital, they're deserving of a higher multiple of book value, they are in the low returns, they're deserving of lower multiple.

As we kind of ramp up the investment portfolio from a pure play fixed income portfolio that's externally managed by BlackRock and Goldman Sachs to one managed by Pershing Square with greater emphasis on kind of higher return kind of common stock investments. And as we kind of grow the insurer with a focus on profitability, we expect to be able to build a very profitable, high ROE insurer kind of over time. And we'll do our best to give you metrics to kind of 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 kind of compound annual growth in intrinsic value as opposed to any straightforward earnings metric? I'm sorry, it's not as easy as a widget company when 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're happy about.

The -- I guess the last point I would make is we will spend some time on this topic at the upcoming next quarter meeting, I don't think maybe before the closing of Vantage, but just -- and provide enough time for us to kind of help the market come up with some KPIs to think about kind of big business products.

With that, I'll turn it over to Ryan Israel. Go ahead, Ryan.

Thanks, Bill. And as Bill touched on, I just wanted to really explain to people again why we're so excited to have the upcoming closing of Vantage is the first transaction to really help transform Howard Hughes into a diversified holding company. And as we talked about in December, we think that the insurance business itself is a very good business, and we really think the platform that Vantage has created is incredibly valuable and will [indiscernible] Howard Hughes shareholders benefits.

Vantage itself is actually a very diversified insurance platform across it's more than 2 dozen lines of business, both in the specialty insurance and the reinsurance segments. It's got a great and highly experienced management team. The CEO, Greg Hendrick, has been in the business for more than 30 years and has a very strong reputation.

We also think one of the things that's unique about Vantage is that it has very limited risk to its existing reserves. The company was founded in 2020. And so one of the nice benefits is that a lot of the problems in the insurance industry today in terms of reserving exists because companies wrote business in 2015 to 2019 time frame for which they're effectively underreserved. So Vantage is really sidestepped any of these problems because of how recent it is. And that made it increased our confidence in doing diligence, the company's book value is very strong and it's reserves were appropriate.

Naturally, the company has the appropriate licenses and credit ratings that we think are great. And ultimately, we think what we're doing, the capital that we're putting in and the umbrella from Howard Hughes will be able to enhance those credit ratings over time.

And then importantly, for an insurer, one of the key components for insurers is writing profitably, as Bill mentioned. But the other side, and you could argue perhaps even the more important side for the highest returning insurers over time, is actually the investment returns that they can earn on our portfolio. Every insurance company has flow that they generate for claims that they're receiving cash in today for premiums and then claims will be paid out later to generate [indiscernible]. At the same time, they have a large capital base. And so the combination of those 2 factors really leads to their overall invested asset portfolio.

As Bill mentioned, Vantage has been invested in fixed income, which has a lower return, although we've outlined in December where we think fixed income products actually can have a fair amount of risk as well in a variety of ways.

What we plan to do is leverage the investment expertise of Pershing Square in order to really help improve the investment asset returns over time and naturally then also the returns on equity by allocating a meaningful portion of that investment portfolio towards the common stocks. And based upon Pershing Square's more than 2-decade track record, we think that could be very additive to Vantage's returns on equity and ultimately, shareholder returns.

So the way that we think about Vantage overall is that this business can be a higher return and faster-growing business that we can ultimately use to meaningfully enhance Howard Hughes' overall growth profile, while at the same time, providing a very valuable diversification of its earnings streams as it provides a different type of profile other than the real estate business.

As sort of Bill mentioned earlier and David and Carlos will also touch on, we believe that Howard Hughes real estate business is going to generate a meaningful amount of excess cash beyond what needs for reinvestment, particularly over the coming next few years, and that provides a valuable source of opportunity to be reinvesting in Vantage first in order to pay down ultimately the financing primarily the Pershing Square Holdings preferred stock, but also over time, we think the ability to put in more capital into Vantage, which is earning a very high return according to the strategy, we think we'll be able to implement could be a good use of capital, along with looking for other control-oriented businesses in different business lines over time.

And with that, I'll turn it over to David.

Thank you, Ryan. Look, against that backdrop of the Pershing investment and our announced acquisition of Vantage, 2025 was both transformative strategically, but it was also one of the strongest operating years in our history. And in 2025, I just want to highlight that 100% of what I'm going to talk about in our earnings and cash flow were generated by the real estate platform. Our evolution into a diversified holding company is being funded by a real estate engine that continues to perform at a very high level. And I want to talk about each one of those segments now, starting with Master Planned Communities.

Our MPC EBT hit a record this year of $476 million, driven by selling 621 residential acres at an average price per acre of $890,000. Demand was strong in both Summerlin and Bridgeland, where pricing and margin expectations really exceeded the levels that we have predicted at the beginning of the year. Excluding the bulk sale of undeveloped land in Summerlin, finished residential land sold at a record price of $1.7 million per acre, really demonstrating the strength of our entitled and developed product and the embedded value within our communities.

Strategically, within our MPC segment, I'd like to think that we're not just selling land, but we're really harvesting scarcity. Our communities mature and remaining acreage declines, pricing power, not acreage volume becomes a primary driver of long-term profitability. We make deliberate decisions each year regarding how much land to monetize versus hold based on supply-demand dynamics and long-term value creation.

We also reached a major milestone this year with the grand opening of Teravalis in Phoenix West Valley. Spanning 37,000 acres and entitled for up to 100,000 homes over time, Teravalis represents one of the most significant long-duration growth engines in our portfolio and remains in the early stages of monetization.

Shifting now to our operating assets. within the operating asset portfolio, we also had a record year, delivering full year NOI of $276 million, up 8% year-over-year. I think this increase was highlighted by same-store office NOI increasing 11% and multifamily increasing 6%. This really reflects the strong leasing momentum and the disciplined asset management executed throughout the year. Occupancy across our stabilized portfolio remains healthy.

Importantly, and as Bill highlighted earlier, this segment is our cash flow engine. Unlike MPCs, which generate episodic quarterly earnings tied to land sales, operating assets produce durable recurring cash flow that provides stability to the enterprise supporting both development and capital allocation flexibility.

In the fourth quarter, we completed [indiscernible] along the Woodlands waterway. Leasing has begun ahead of expectations, and we anticipate this asset will contribute meaningfully to NOI growth as it stabilized. Over time, we expect the operating asset portfolio and the NOI associated with it to represent an increasing share of the recurring cash flow of the company.

Now on to strategic development and specifically our condominium platform. Our condominium platform continues to serve as a powerful internally generated capital engine. During 2025, we contracted $1.6 billion of future condo revenue, the strongest year in the company's history. Multiple projects remain substantially presold, including the Park Ward Village at 97%, [indiscernible] at 93%. While condominium earnings are tied to completion timing and can be lumpy, particularly within Hawaii, where Ward Village is home to our highest value developments. Our approach has evolved to significantly derisk execution.

We require substantial presales prior to vertical construction, utilize approximately 60% nonrecourse loan-to-cost financing. Buyer deposits in this financing make these projects largely self-financed, and our presales materially reduced refinancing risk. These developments are expected to generate significant cash flow upon closing, providing capital that can be redeployed across our communities and increasingly across platforms. We view this condo platform as not speculative development but disciplined capital recycling.

Finally, last week, we announced [indiscernible], an 83-acre sports and entertainment development in Bridgeland, anchored by the Houston Texans new global headquarters and training facility. [indiscernible] District exemplifies the value embedded in our land positions and our ability to activate them through thoughtful public private partnerships. This project enhances long-term recurring revenue potential increases the value of the surrounding land and reinforces the power of our Master Planned Communities model. Importantly, projects of this scale are strengthened, not constrained by our broader capital base as a holding company. Overall, 2025 demonstrated both the durability of our real estate engine and the strategically planned evolution of our company.

With that, I'm going to hand it off to Carlos to talk about 2026 guidance and our financial results.

Thank you, David, and good morning, everyone. 2025 results exceed our guidance, and as we look ahead to 2026, we think it's 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, including an outsized bulk landfill 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 million to $465 million. We believe this metric remains the most appropriate consolidated metric as it captures the performance of our operating engines and alliance with how we evaluate capital generation. For MPC, we expect EBIT to be in the range of $343 million to $391 million. 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 discipline 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 onetime transactions. Our objective in the MPC business is not to maximize any single year's MPC EBT, but to optimize long-term fair acre value and reinvest internally generated capital at attractive risk-adjusted returns.

Moving on to operating assets. NOI is expected to range between $279 million and $290 million, including our share of NOI from our JV assets. This is an implied increase of 1% to 5% compared to our '25 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 condominium. Condominiums under construction and in predevelopment, which are substantially presold, represent approximately $5 billion of remaining expected gross revenue over their life, resulting in an estimated $1.3 billion in profits on 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 ‘Ilima, are expected to close in 2030 and represent 41% of this future revenues with margins exceeding 25%. For 2026 specifically, we expect condominium gross revenue of approximately 700 to -- $720 million to $750 million, with estimated profit of $108 million to $128 million at margins of 15% to 17%. This is driven primarily by closing of the 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-20s except, as I mentioned from Melia and ‘Ilima, which we expect to be in the high 20s when they close in 2030. This backlog provides meaningful visibility into 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 million and $92 million with a midpoint of approximately $87 million. This includes assumed inflation growth compared to last year as well as a shift in the mix of compensation from noncash to cash. Please note that this range includes the $15 million 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 million 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 million senior notes with $1 billion 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 branches 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 8-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 continue to trade at or on 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 modeled 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 billion 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 fixed cash obligations. We believe this structure enhances flexibility and positions the company to grow while maintaining prudent leverage parameters.

And speaking of leverage, let's 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 cab be misleading. Instead, we financed 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 balance with a meaningful pool of unencumbered assets. MPC land remains unencumbered, except for short-term reimbursable infrastructure facilities. Condominium projects utilized approximately 60% nonrecourse loan to cost financing and have substantially result significantly reducing maturity of 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 in 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 are now ready to take questions. Operator, please open the line.

[Operator Instructions]

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

Our first question comes from John Kim with BMO Capital Markets.

I wanted to ask on the kind of margin for [indiscernible] related to infrastructure work, was that unexpected those costs? And maybe if you could talk about cost pressures overall development. I think you mentioned mid-20s margins on the remaining towers versus I think it's a little bit lower than what you achieved at Victoria Place.

Thanks, John. I appreciate the question. And it's one that we're focused on closely, obviously. The infrastructure costs that are going into Ward Village, including the upgrade of water sewer and electric that Carlos mentioned in his prepared remarks, we're all anticipated. Given the location of Park Ward Village and the size of Park Ward Village, it has a slightly disproportionate share allocated to it, but that will benefit future towers as they'll have a smaller amount allocated to it. And this is one of those rare towers where the GAAP margin that Carlos provide guidance on and the cash margin are slightly disconnected as a result.

A couple of other things are impacting the margin at Park Ward Village. One, it's the second row tower. So it clearly shouldn't have the same margins as Victoria Place, which was a front row tower. And two, it has a slightly greater amount of retail than most of the towers that we've built in the past. That retail square footage, obviously, we don't sell. So the cost to build it is still there and the revenue associated with it is future NOI, not sale price per square foot.

If you compare another comparable tower, a second row tower like [indiscernible], which we sold about $1,100 a foot at a 25% margin versus the Park Ward Village at $1,500 a foot and a 17% to 19% margin, that price per foot profitability is almost on top of each other and does not take into account the incremental NOI will generate from 10,000 additional feet of retail space.

Okay. And my second question, maybe for Bill, you talked about how to value Howard Hughes 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? And maybe if you can comment on the 30 acres sold in your commercial portfolio -- on commercial land in the [indiscernible]?

So we take a very long-term view with respect to commercial real estate holdings in our kind of core MPCs. We think that one of the things that's made the kept occupancy high and rental growth growing during very challenging periods like COVID and other sort of economic downturns is the fact that we don't have the same kind of competitive dynamics that you would if you had multiple kind of owners of your assets.

Over time, we've considered, do we bring in a partner, sell a 49% interest in certain assets. That is, of course, something we could always consider in the future, but we do think there's a lot of value taking the long-term view in controlling our destiny and really limiting the competition that would be afforded by having someone be a major owner of commercial assets within our communities.

And then with respect to the 30 acres, I mean David could speak to it, but we generally don't like selling commercial land ever. But there are times when there's, for example, a user or an anchor that we think is going to bring a lot of value to the surrounding property and their sort of mandate is they have to be an owner because they're planning to be there forever, and we -- we struggle with that, but we ultimately have made some sales. Those were not driven by return on capital decisions, they were driven by the fact that the user insisted, if they're going to move the Chevron headquarters, for example, to our part of town, they want to own the asset outright as opposed to have a lease.

David, anything further there?

Yes. The only thing I would add is that 30 acres that were sold this year, this quarter were really on the edges of the Woodlands. It wasn't the commercial land that we own in the city center. We consider that land incredibly valuable. Some of this out on the periphery that was sold to educational and health care users are adding to the community, but it was not what we would consider some of our highest-value commercial land for future development that will create outsized risk-adjusted returns and recurring NOI.

Our next question comes from Alexander Goldfarb with Piper Sandler.

Bill, just following up on Vantage, had a chance to touch base with our insurance analyst and just going over the combined ratios, real estate [indiscernible] 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 in Vantage's overall profitability, what's the sort of time line that you would think we would see that? Is that a year? Is that 5 years? Is that 2 years? Like how should we think about profitability improvement at Vantage once you guys consummate the deal?

Sure. So I would start with by saying that Vantage is a brand-new insurer, and they're 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 sort of 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 just the scale economies, if you will, or the operating leverage inherent to growth.

I think on top of that, beginning later this year, we're 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 kind of more profitable insurer. But it's not Vantage is sort of going according to their original business plan, I would say. And the owners took a long-term view. They made the necessary investments in infrastructure people and otherwise for this to be a very successful multi-line specialty insurer. And as they get to scale, they'll naturally become more profitable.

Yes. And I would just 2 quick things to that. First of all, when you -- we put out some materials on this over sort of the fall and winter last year. But I would say well-run insurance companies [indiscernible] some of the lines Vantage participates and often have combined ratios that are in the low 90s. And the way we like to look at it is you can disaggregate the combined ratio into 2 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, and ensure that would be operating at sort of this lower 90s combined ratio would have a loss ratio on the insurance, it's something in the low 60s. 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's consistent with what you would want to see for a well-run insurer. It's 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 had actually achieved the scale. So they were billing 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're 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's one of the things we're excited about.

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 where we think the SG&A ratio will have some embedded operating leverage, if you will, because they've 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.

The second thing I would point out, though, is Vantage actually is currently profitable, both in terms of the combined ratio that they're achieving today and what we think they will going forward. And then as Bill mentioned, we think we'll further benefit sort of 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.

Okay. And then second question is housing affordability is clearly a big topic today. There's the whole SFR -- well, I don't want to say debate, but executive order out there. But there's also a build to rent seems to be something that is looked favorably on -- you guys have created a lot of value in terms of what people see in terms of living at your MPCs. But is there more opportunity that you guys can do on the affordability front with build to rent or other initiatives to sort of broaden out the number of people who can buy homes or your view is, hey, when you look at the mix that your MPCs provide, you sort of are hitting all the different price points and all the different income levels that would be appropriate for residential within your submarkets?

Great question, Alex. Thanks. I would tell you that we focus intently across all of our MPCs. Because as you know, when we sell land to homebuilders, we're dictating the size of the homes, the setback of the homes, the design of the homes and the implication is really the price of the homes. So as we're selling dirt to homebuilders, we're trying to hit the broadest range of home prices out there so that we can attract the widest swath of buyers with the most diverse backgrounds and incomes. Single-family for rent has been a modest part of our portfolio. We've done one small community in Bridgeland, and it was really to fit a need that we saw within that community.

And I think that our traditional kind of more dense multifamily product, it's part of that need as well. And as you know, we're always developing to meet the deepest pockets of demand within our communities. So I would tell you that we work hard to try to address the affordability to try to hit price points at all places within the spectrum to attract buyers. And I think SFR is a strategy. I think it's a very small one for us as there's a lot of existing inventory in communities like Summerlin, like Bridgeland, like the Woodlands, where there is kind of that non-institutionally owned but shadow market of homes for rent.

The next question comes from Eli [indiscernible], who's Individual Investor.

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?

Sure. So we think our first priority for excess cash that's generated. I define excess cash as cash not needed to be reinvested in our communities at Howard Hughes. We expect over the next several years to generate a fair amount of excess cash in that number to grow materially over time. But the first priority is when we close the Vantage transaction, Howard Hughes will own a majority economically of the company 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 to own 100% of the insurer. So depending upon that, how much of the preferred is outstanding as much as $1 billion, that will be the first use of excess cash.

Once the insurer is 100% owned by Howard Hughes, then incremental excess cash would be used principally to make other operating 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'd like to turn the call back over to Bill Ackman for any further remarks.

Sure. So look, our original thesis on helping transform Howard Hughes into a diversified holding company, it was based on the fact that while management has done an excellent job with the company, we've really built a focused, very successful MPC condominium business in the company. It's not gotten the recognition. We argue it's deserved as a public company. And a big part of that in our view was that the market assigns sort of too high a cost of capital to kind of the core real estate development and land ownership business.

So I'm pleased in some sense that in a relatively short period of time, about 7 or 8 months, I think there's 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's a massive -- it's about 40% reduction in our cost of debt capital on a spread basis. And 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'll have to -- we've got more progress to make. I think we need to do a better job helping investors understand the business.

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've entered into a transaction to core Vantage, we haven't closed, that's kind of upcoming. But I'm very pleased with the progress we've made over the past 7, 8 months and the company itself, the real estate operation is really running on all cylinders.

And we're in a world where I would say, unfortunately, some of the more blue states and particularly one that city I'm 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'm hedged because I live in New York, but we benefit as people leave the city and move to -- move to communities like the ones that are managed by Howard Hughes.

But I appreciate your participation on the call and look forward to being back to you in a few months. Thanks so much.

Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Howard Hughes Holdings to acquire Vantage Group Holdings Ltd. Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Joe Valane, General Counsel. Please go ahead.

Good morning, and welcome to a special conference call for Howard Hughes Holdings. With me today are Bill Ackman, Executive Chairman; Ryan Israel, Chief Investment Officer; David O'Reilly, Chief Executive Officer; and Carlos Olea, Chief Financial Officer.

Before we begin, I would like to remind everyone that 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. While we believe 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 this presentation 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 Bill.

Thank you, Joe. Why don't we really begin with very high level where we started, which is in May, earlier this year, Pershing Square entered into a transaction to acquire a 15% stake in Howard Hughes, as part of the plan to transform Howard Hughes into a diversified holding company. What we've shared since May is the initial part of our business plan was planned to build or acquire an insurance company that would become a base to build a diversified holding company.

And we're taking a page from Mr. Buffet & Bircher Hathway, the early days of Berkshire. Buffett acquired a small insurance company and manage that insurance company in a very interesting manner differently from other companies, took very relatively low insurance risk with the goal of underwriting profitability as paramount, used much less leverage than a typical insurance company, but invested a substantial portion of the investment portfolio in common stocks and created an insurance operation that generated 20% plus returns on equity over a 60-year period of time, building a substantial majority of the value of that company.

Learning from Mr. Buffett, we've taken a similar approach and we began a search for either a management team to hire and build a business behind or a company that we could acquire at a price that made sense for Howard Hughes that we could build into a core of this business. And we're delighted to report today that we've done the latter, which is certainly our preferred choice because building from scratch takes time. The company we're acquiring, Vantage has been built from scratch. It's been a joint venture of 2 highly respected private equity firms, Hellman & Friedman and Carlyle, effectively a 50-50 joint venture. They recruited a very talented management team and built the company, the systems really every element of the business with a plan eventually for a public offering.

We were introduced to the Vantage team, actually by the team at Jefferies and the private equity owners. And that began a conversation that led to this transaction. The path -- the private equity strategy is one where ultimately they're seeking liquidity in -- I think, their business plan was to take the business public. What we offered is an all-cash execution at a full and fair price that enabled all parties to be excited about a potential transaction.

The purchase price is $2.1 billion in cash. That price represents 1.5x this year, 2025 estimated book value. It's a lockbox transaction, so to speak. So the earnings accretion that takes place between the signing of the contract and closing enures to the benefit of Howard Hughes as the 100% owner of the business, that anticipated growth in book value over the -- between now and when we close the transaction, should bring down the purchase price to effectively 1.4x book value, which we think is a very attractive price for the platform that we're -- and team that we're acquiring as part of this transaction.

We intend to close the transaction as promptly as practicable. Insurance companies have a significant regulatory review. This is a -- both a Delaware and a Bermuda-based insurer. We require approvals from both jurisdictions. The sources for the transaction come from $1.2 billion of Howard Hughes' balance sheet. That's some of the $900 million of capital we invested plus excess cash at Howard Hughes, still leaving a nice cash cushion in the real estate subsidiary to run that business. We provided an up to $1 billion backstop on extraordinarily favorable terms for Howard Hughes. And by the way, this is a -- there's no commitment fee. Howard Hughes were to find a superior form of financing, you could choose to pursue that financing.

One of the things we committed to do when we did this transaction in May, is to bring the full resources of Pershing Square behind Howard Hughes, including myself and Ryan Israel, who became officers of the company and the full Pershing Square team, which works alongside the Howard Hughes team in executing upon this transaction, due diligence, and we'll continue -- and we've really had a fabulous working relationship ever since.

The terms of this preferred stock are basically mimicked. It's effectively what we're doing is Pershing Square Holdings is going to own preferred stock that really behaves like common stock in all respects in this insurance subsidiary. And we've given Howard Hughes, the ability to buy it back from us as quickly as they can or it can, I'm speaking now from Pershing Square's perspective and the preferred holding perspective, at the same effective purchase price, the 1.5x book value.

So since it's historically been a real estate company and real estate parlance, the way I would describe this is we're buying insurer at kind of an earlier stage of existence. It's a building in the process of leasing -- being leased up and getting to a sort of full profitability.

And we're going to improve that profitability by Pershing Square managing this asset. So we're sort of buying it at an 8% cap and it's going to turn into a 5% cap asset, but we're giving Howard Hughes the ability to buy out our interest at that same going in multiple. And if we are successful as we expect to be here in Vantage continuing to be actually improving its profitability on the kind of liability side of the balance sheet on the insurance operation, if we can prove the investment of the assets, this business will be worth considerably more than 1.5x book value over the next several years when Howard Hughes will likely exercise its option to buy out its interest from the company.

What attracted us to Vantage, among other things, was a highly diversified portfolio of businesses -- of business lines in which they write business that makes it reduces its exposure to any one sort of sector of the market. What this means is the company can be very opportunistic in writing the business that only makes sense. And that is what we mean by buying a platform. The insurance market is notable where different segments of the sort of the sort of different lines of business are -- in sometimes the market is attractive. Other times, it's not. And the key to a successful and profitable operation is playing when the price is right and stepping aside when it's less attractive, much easier to do so with a diversified portfolio of business.

Management team is extremely experienced, decades of experience prior to forming this company. One of the benefits of buying a business that's only 5 years old is we don't have to worry about asbestos liabilities hidden that were entered into 30 years ago. It's a very clean portfolio, relatively easy for us to underwrite the liabilities, all the necessary licenses in place, an A- S&P and Best, credit ratings.

The balance sheet is very well capitalized. The company really has made it focused really entirely on the insurance business and not on the management of the assets. All of the assets have been outsourced to I think, a combination of BlackRock and Goldman Sachs, think a highly rated fixed income portfolio with thousands of CUSIPs. It's not a -- the goal there was to -- there was no surprises, not to achieve anything particularly interesting in terms of investment returns. And it's -- we start out with a great balance sheet and a portfolio that ultimately under our management, we expect we can earn much more attractive returns.

Lastly, we'd like the size of Vantage. A smaller company would have taken us a lot longer to build into an interesting enterprise. Vantage is at a scale which is -- it enables it to write lots of different businesses and be attractive to its customers and is a very highly material transaction in the transformation of Howard Hughes.

With that, Ryan, why don't you take us through some of the details on the company.

Sure. So as Bill mentioned, Vantage is a leading specialty insurance, reinsurance and third-party partnership capital platform. It was formed in 2020. As Bill mentioned, it's a combination of 2 private equity firms and the founding management team, including the CEO, Greg Hendrick. In terms of some details over the last 12 months ending September, the company has written about $1.2 billion premiums that's roughly evenly balanced between the specialty insurance business, which is about 60% of that and 40% in the reinsurance.

And one point here the reinsurance that the company does is much more specialty in nature and has almost no exposure to catastrophe insurance, which is what is typically thought of in the industry to be the primary focus of reinsurance. And so it really is differentiated both in its primary specialty insurance and the reinsurance portfolio, which we think is highly advantageous. Another thing that we like about the business is AdVantage, which is their third-party asset-light capital vehicle that does some reinsurance in the property and natural catastrophe space. What we like about that is for the business, it's actually a high-margin asset-light fee stream, and that deployed about $1.5 billion of capital this year. Overall, the book value is about $1.3 billion as of September. As Bill mentioned, we would be expecting that to increase going forward until we close the acquisition at some point next year in the first half. Very strong credit rating and just under 370 employees.

The business is highly diversified both across its business lines and the duration of its reserves as Bill mentioned, one of the things we really like about the business is a highly diversified insurer, which with Vantage has about 2 dozen different lines. We've shown about a dozen on the page just to give you a general flavor of the areas in which it participates.

The advantage of that is you can play in the markets where the pricing is the best. At the same time, to the extent that in the insurance business, you inevitably get certain things wrong, no one mistake is going to have a huge impact on the company, which we think provides a better opportunity for growth, while at the same time being less risky. Similar story with the duration of reserves, very strongly balanced portfolio across short-tail lines, medium tail lines, and longer, pretty evenly balanced between the shorter medium and longer tail lines of business. And what's nice about that is, ultimately, the longer tail lines provide more float for investment income, but the shorter tail lines give you more certainty into making sure that the policies that you've written, if you made any mistakes, you can quickly fix them.

As I mentioned on the prior page, overall, a very important point for us is there is very limited catastrophe reinsurance exposure, less than 1% of overall gross written premiums this year. So the management team, as Bill mentioned, is also very strong. Greg Hendrick, who is a co-founder and has been with the company and helped create the company since it started 5 years ago, a very good executive, had nearly a 35-year career in the space overall working for several different companies. The last role that he had was the CEO of AXA XL before it was sold and very strong tenure and track record there and has a very strong team underneath him as well. And I think one of the things that's important to point out on this page is actually a lot of the executives have been on this since Vantage started but actually have worked with Greg at some prior companies before.

So this is a team that, while the business has been around for 5 years and is very strong, also has a lot of prior experience in working together, which we think is an added benefit.

Just to give you a few kind of key financials on the business. All of these numbers are kind of as of the end of September on the prior 12 months. So we would expect given the business is growing that they will be increasing over the coming months and years. In terms of the overall business that has been written, the gross written premiums, the company is doing about $1.6 billion but they don't maintain all of that business. And therefore, the net retention of those premiums is about $1.2 billion, just over 70% of what they write, they ultimately retain. And then what's earned on the income statement that you would see is just under $1 billion overall for the 12 months ending September 30.

The company's loss ratio is about 61.4% as of this period as expense ratio is just under 36% for a combined ratio of 97%. And one thing I would point out here is that when we look at a lot of different P&C companies over time that have achieved scale that expense ratio is a fair amount lower than 36%, which Vantage has. A lot of times, it gets close to that 30% or even sub 30% ratio.

Vantage because it was started just 5 years ago is now getting to the point where we believe they have sort of the minimum efficient scale. They've made a lot of investments appropriately to get to this point, but we think going forward as the company writes initial business, we'll see some real leverage in that expense ratio going forward because they've already made the necessary investments on which they can grow in a highly incremental way in the future.

Overall, the company is showing about a return on equity this year of about 13%. We've put it a pretax number because as of right now, the company is not paying taxes. We expect over time, they are likely to pay still working on sort of the exact tax structure, which will have a better idea and finality on as we get closer to the close. In terms of the balance sheet on the right-hand side of the page, the company, as I mentioned, is about $1.3 billion of book value to date. Its invested assets are a little over 2x that level of just under $2.8 billion, as Bill mentioned, a very safe in terms of its fixed income portfolio, very little credit risk, a lot of government securities and about 10% cash.

One thing I would point out is, in general, companies tend to pay 1% to 2% and 10% to 20% of the profits to have a manager like Pershing Square manage their assets for them. But under our services agreement, Howard Hughes, Pershing Square will be managing this $2.8 billion portfolio for free. So no incremental fees. Just on the management fees alone before any profits, that could result in a kind of $30 million to $60 million annual savings which we think is a very valuable thing for Vantage and ultimately, Howard Hughes shareholders and really highlights what we think is a very attractive services agreement for the Howard Hughes shareholders overall, and in particular, with this transaction.

So now I'll turn it over to Bill, who can kind of walk through some of the key value drivers for Vantage under Howard Hughes ownership.

So we think Vantage is a very attractive insurance company on a stand-alone basis but one that becomes an even better business when it becomes part of Howard Hughes and part of a diversified holding company.

Among other things, Howard Hughes provides incremental credit support and just overall kind of a reduction in risk by virtue of being part of a holding company type system. Howard Hughes has other sources of cash that the real estate business over time, we expect to be a major driver of cash flow that we will not be able to invest in the communities, sort of excess cash that will go to the holding company. That's -- those are resources that could be deployed in the insurance business.

Of course, as Ryan mentioned, the fact that we're going to manage the assets for free, that's the best deal ever in the insurance industry and the business itself, we think just the natural operating leverage of getting to scale, we think will make Vantage a much more profitable insurer. And there are meaningful differences between an owner like Howard Hughes, which views Vantage as a permanent lifelong holding, if you will, than a firm -- private equity firms, and again, 2 of the most talented firms in the industry, the buyers here, but their business model requires returning capital to investors within a finite period of time. When you're building a business with a goal of returning capital in 7 years, your -- the way you think about that business is different than if you were to own that business with a forever timeframe.

One of the first things we're going to really make clear to the Vantage management team and something we've spoken to them about over time. So our focus here is going to be on profitability, not rapid growth. We're not looking for an exit. This is an important core holding of Howard Hughes, and we want to build one of the best insurance operations in the world.

One of the other benefits of being part of a consolidated enterprise, even if we're -- Vantage were an independent public company, would have the normal pressures associated with meeting analyst expectations. And typically, that comes with expectations of premium growth and the nature of the insurance business, as we've learned over time, followed many successful and some unsuccessful companies is you never want to be under pressure to write business.

You want to pursue the business that makes sense and you want to step aside when there's nothing to do. It's much harder to do that if insurance is your only source of profitability. Howard Hughes does not have any -- the team is not -- it's historically been a real estate company. It was really important to us that we bought a business with a highly experienced team.

And we spent a fair amount of time with the Vantage team over the last several months, and we're very excited about the opportunity to work from them, to learn from them and to work on building business with them. And I think the -- we -- our sense is obviously, the full Vantage management team didn't hear about this transaction until late yesterday. But this is a very, very comfortable home for Vantage and for its team, and we're very excited to have the opportunity to meet all of them and work with them over time.

And then Pershing Square's ownership of Howard Hughes, we think, is another important leg to the stool. So Pershing Square today in affiliates, we own 47% of Howard Hughes that also gives the company the flexibility to not be focused on kind of short-term objectives, but to build value for the very long-term. Insurance companies fundamentally make promises some of which extend many years into the future, the creditworthiness of an insurer is critically important.

Vantage starts with an A- rated balance sheet. We think that credit profile improves materially by becoming part of the Howard Hughes family. And then the fact that Howard Hughes is backed by Pershing Square well, it's not technically a subsidiary because a technical subsidiary would be a 50-plus percent ownership. We think of Howard Hughes really much the same way as a majority owner would think of a business, hence, our willingness to provide $1 billion of effectively bridge equity here without a commitment fee.

And over the last 15 years, we've been very supportive of Howard Hughes' business and stepping in periodically when capital was required. We don't think that capital will be required here other than with respect to this transaction, but having a very strong, well-capitalized owner. Pershing Square owns Howard Hughes in 2 pieces. About 2/3 of our ownership is through a company called Pershing Square Holdings, which is a London Stock Exchange listed entity with $20 billion or so of assets, also in S&P A- rated company.

And then we also have -- the other piece is held by the Pershing Square management company, what some people call the GP, the entity receives the fees from the funds that we manage. That is also a very valuable net debt-free enterprise. We have not yet sought a credit rating, but I think it would be likely in excess -- or certainly in the A category as an unlevered, highly profitable business with recurring cash flow. So Howard Hughes has the benefit of a very creditworthy 47% owner, and that enures to the benefit ultimately of Vantage and its policyholders. We've sort of graphically reflected this on this page, sort of 2 layers of support, supporting Vantage, which itself on a stand-alone basis is an A- rated company.

So following the transaction close, we expect to invest additional primary capital advantage. This will delever the company's balance sheet. One of the things we've talked about that was sort of unusual that Buffett did, but we certainly today understand the logic. Most insurance companies operate, let's say, they have $1 billion of capital. They'll typically write $1 billion of premium a year. Buffet with $1 billion of capital would write $300 million, $400 million, maybe $500 million of premium a year. So much lower leverage insurance operation.

And typical insurance company might invest as much as 3x their capital. So in that example, the $1 billion capital example might invest $3 billion, but would have a portfolio very much like the Vantage portfolio almost entirely fixed income. What Buffet did was took 100% of the float invested in short-term treasuries where he took no risk, and then he invested about approaching 100% of the equity in common stocks. And he managed the insurance company in a very low leverage fashion.

We think that approach a low-leverage insurance operation, coupled with a low leverage investment operation with a portion of the portfolio in common stocks yields a higher return, lower risk overall operation. We have not yet begun the conversation with regulators. Of course, the Vantage team reached out where we'll be shortly reaching out to the various regulators and rating agencies, but we'll begin a dialogue about our business plan and the plan is to gradually increase Vantage's allocation to common stocks. And this is where Pershing Square can bring significant additional value to the company.

It's, I guess, anticipating my words on the previous page, here sort of the bullet points. But the beauty of a low-leverage insurance operation is that when the business is really good, you can put the pedal down and pursue those opportunities. But you can also comfortably step away. It's a win for the policyholders because the company has much more underwriting capacity and creditworthiness and managing the assets in a less leveraged fashion and a minimal higher-return fashion, we think, will ultimately lead to kind of a better long-term outcome. But these are sort of the key prongs to kind of the asset liability strategy for the company.

Last but not least, on the investment of the assets as many of the people on this call understand, we entered into arrangement that was somewhat unusual in May with Howard Hughes, where I became Executive Chair. Ryan became CIO. We take no cash or equity compensation or options or otherwise the full Pershing Square team from finance, accounting, legal, transaction execution, make your list capital markets, et cetera, as we make available to the company, and we receive a management fee -- base management fee and a management fee -- variable fee from Howard Hughes. In exchange for that, we bring all of those services.

One of the important services we're bringing here is the management advantages assets for no fee, and that will enable the company to earn a much more attractive return. We highlight on this page kind of the long-term record of Pershing Square, if we didn't charge fees to our investors. So it's been a 21.5% compounded return for the last 22 years. That's 1,080 basis points per annum above the S&P. Many people think beating the S&P by 100 basis points over a 20-year period of time would be a major accomplishment. There are very few investors in the world who have beaten the S&P by 1,100 basis points per annum over that period and a largely unlevered or very modestly levered strategy in recent years.

Our business model began as a traditional hedge fund with open-ended funds where money could come and money could go as we've described in our insurance presentation at our annual meeting, over the course of that history in the 2016 timeframe, we made a very unfortunate investment in a company that where we lost money, which itself is a bad thing. But what compounded the mark-to-market losses for the firm is that investors -- we had a perception that investors would redeem and people started betting against the firm by shorting our portfolio and then investors did redeem which required us to liquidate assets. Having been through that experience, we made a decision to become really a effectively entirely permanent capital firm. So today, 95% of the assets of Pershing Square are in public vehicles in which we're the controlling shareholder.

And the beauty of that is we're not subject to the risk of capital flows coming in, which in the earlier years of Pershing Square were highly dilutive, capital kind of a run at the bank, so to speak, which was the experience we had in the kind of beginning in 2016, '17 timeframe. So by the end of 2017, we exited the open-end effectively exited. We didn't force anyone to leave, but we -- every investor who wanted their capital, we give them their money back. And we've managed for the last 8 years with a permanent capital base. And our results have improved significantly. On a gross basis, again, gross, a fee basis, which we think is a relevant metric here because we'll be charging no fees to Vantage.

We've earned a 28% compounded return for the last 8 years, that's 1,360 basis points above the S&P at a time when the S&P has been a very strong performer, a mid-teens return for the S&P is pretty extraordinary. Our returns have been approximately double that on an annual basis with vastly larger margin. I attribute some of that, obviously, to the permanent capital, but also a lot of it to the fact that we have a team that's worked very closely together over more than a decade, Ryan and I, Ryan joined Pershing Square 17 years ago, and the investment team has an average tenure of comfortably more than a decade working together, which is also very unusual in our industry. And we also showed the last 5 years, which is the period that people often focus on.

We show net returns here. One, because regulators require you to show both gross and net, even if the relevant metric here is gross. But to point out that the fee savings is highly material. The fee we charge effectively 510 basis points of fees with the management fee and incentive fee over the 22-year history of the firm, and we will not be charging. The power of compounding that 5% is a very material difference. The difference, I think it's been a 70-fold return had you invested in Pershing Square at the beginning of time and paid note fees. Net of fees, that number is more like 27 fold. So it's a very material benefit that we were bringing to the Vantage transaction, and ultimately, to Howard Hughes.

I want to turn it over to Ryan to talk a little bit about plans to how the company is going to improve its operating profitability.

Yes. So as I mentioned before, the company right now is expecting a combined ratio for this year of 96% versus on the prior page, as I said, something closer to 97% for the 12 months ended September 30. And really, we believe that there's an opportunity to bring down that combined ratio into the future. And it really relates to the company scaling up more. We think, as I mentioned, the company's achievement in efficient scale, which is allowing it to write at a 96% ratio, which is pretty good overall relative to the peer set.

That said, given the company's focus on specialty lines, on its diversified business and really just the strength of the team. We actually think that the company grows, there can be some real improvement in that combined ratio going forward. We also think, at the same time, one of the benefits to Vantage of the Howard Hughes acquisition is being inside of the holding company as a subsidiary gives company the ability to write business at the right time in the right way, removing some of the pressures that it has when it's not right to write that business.

We think that the combination of sort of improved scale over time as well as being part of a holding company, which allows it to candidly just operate we think, in a better way than it could as a stand-alone public company or under ownership in the private equity market is something that will help the business improve its underwriting profitability, both of which will ultimately lead to an improved return on equity in the future under Howard Hughes ownership.

So the way that ultimately, we think we see the future for Vantage under Howard Hughes ownership is a business which can earn even higher returns on equity what's currently doing. As I mentioned, right now, the business is about a 13% return on equity, we believe, over time due to the combination of improved underwriting results and then everything coming from the holding company structure and Pershing Square's fee-free investment performance with a greater allocation of common stocks can allow the business to ultimately a achieve high teens or even greater return on equity over time while doing so with much lower risk, which we think is a very attractive and valuable proposition in the public markets.

To sort of highlight that, we've shown on this page sort of how insurers are valued in the public markets based upon the return on equity and where they sit within certain categories. So if you look, the first handful of companies are kind of pure-play specialty providers, which earn attractive high teens to low 20s ROEs. And those companies actually trade anywhere between 2x and 3x book value.

At the bottom of the page, there are a couple of insurers, Arch and AXA, which traded a lower than 2x book value multiple, but have a lot more exposure to the natural catastrophe reinsurance markets, of which Vantage has very limited exposure, as we talked about before, stepping away through the complexion of different types of business models and all the comps that we've shown here, we think it's reasonable to think that companies that earn a high teens to 20% type return on equity in the public markets despite some differences in business mix, tend to trade north of 2x book value.

Which, of course, makes the effective acquisition price of 1.4x -- obviously, we think a very appealing in light of our business plan for the company.

And so as we mentioned here, the effective purchase multiple at the time of the close is about 1.4%. As Bill mentioned earlier, we believe that we will likely invest additional primary capital. And what's nice about that is you're providing that capital book value, which means that pro forma for kind of incremental capital, we would expect that the overall multiple going in would be something lower than 1.4x. And if ultimately, we're successful in achieving the improved return on equity over time, we believe that, that could be something that's worth more than 2x book value in the future.

Right. So a way to think about this investment is we're creating the company at something like less than 1.4x book value. The plan is to grow book value at a higher compound rate have achieved a return on equity of high teens or in excess of 20%. And then the business becomes worth a higher multiple. So you get the benefit of growth in book value plus a higher multiple, the combination leads to a very attractive return for Howard Hughes. Again, no plans to sell the business, but we expect the market to recognize these elements reflected in the valuation of overall Howard Hughes.

So let me just comment on the preferred stock arrangement that we entered into with Howard Hughes. The preferred is noninterest-bearing preferred. It's treated as parry pursue with Howard Hughes' common stock. It doesn't have a fixed term where it's required to be redeemed at some point in the future. It's broken up into 14 tranches, enabling the company to kind of buy it back and sort of pieces over time. Howard Hughes has given effectively 14 call options to buy back the preferred. It's really meant as a bridge equity commitment, where we're paying the same price as Howard Hughes is for a security that ultimately is convertible into Vantage. And then we're giving Howard Hughes the ability to buy back.

We expect Howard Hughes to buy back this investment. I think the half life of the security, we expected something less than -- probably less than 2 years. And we've given Howard Hughes 7 years, however, to buy back, after which point Pershing Square has the rights or Pershing Holdings, which is -- the Pershing Square fund that owns this instrument, the right to convert the preferred into Vantage ownership and then ultimately require Vantage to be listed on an exchange.

The purchase price for each -- the call options are struck at the time going in 1.5x multiple of book value. If we achieve our objectives for the company, book value is going to grow at a very nice rate. The business is going to become much more profitable. It will be worth substantially more than 1.5x book, but Howard Hughes gets the right to buy back the interest at that same -- the negotiated price that we are acquiring the business for. The security itself is subject to a mandatory repurchase in the event of a change of control of either Howard Hughes or Vantage.

So just very high level. We think this is a truly transformational transaction for Howard Hughes. It begins our journey now as a diversified holding company. It's obviously a business that is largely uncorrelated with Howard Hughes' core real estate operation. It's a business that will -- the nature of insurance is insurance generates a lot of cash for investment. We're enhancing Vantage in a couple of ways.

One, just the combination with Howard Hughes, the nature of a permanent owner and the flexibility it gives the company to pursue the business, only the business that makes sense. I think, is on its own, a very powerful contributor to Vantage's future profitability. The enhancement to Vantage's credit profile, our plans to add additional primary capital to the business. We'll make this a much stronger company, which, of course, insurance is a very credit-sensitive enterprise. We think that's a very meaningful contribution to the business.

As Howard Hughes' real estate operation generates more and more cash, we have a natural place to deploy that excess cash first in redeeming the preferred stock. And if all we did at Howard Hughes was reinvest all of our free cash flow and building a very, very profitable insurance operation that would on its own, transform Howard Hughes into, we believe, an enormously valuable company over time. Higher return, faster-growing business is going to meaningfully accelerate the company's overall growth profile and Howard Hughes gets material benefits in Pershing Square taking over the investment operation. of the company.

With that, operator, I'd like to turn it over to shareholders to ask some questions or analysts as well. Thank you.

[Operator Instructions] Our first question comes from Alexander Goldfarb with Piper Sandler.

Great. And I guess, congrats, Bill, on this. I know you've been working hard. Two questions. The first is clearly a lot of macro uncertainty right now in the market's concerned about AI valuations, S&P, et cetera. How do we get comfortable you guys transitioning the Vantage portfolio and putting money to work right now and certainly all the talking heads have diverging opinions on the state of the markets today?

Sure. So one I would say, we've kind of been in this business a long time. Pershing Square has got a 22-year track record. And we've had lots of interesting and challenging. We've had a financial crisis. We had a COVID crisis. We had a 9% interest rate Federal Reserve. And we've done very well over a very long period of time. And that's because we're we are not investing in index funds here.

So we're not betting on where the stock market is going to be in the next 6 months or 12 months. We invest in -- generally, the strategy of Pershing Square on the equity side is to invest in the highest quality durable growth companies in the world, businesses that we believe over many, many years and decades, will be valuable companies, really regardless of the -- what people are saying on CNBC this morning.

So I would say I think the long-term record speaks for itself. But it's -- our strategy is a pretty concentrated one. So we -- if you look at our record over time, and there are various ways to see our public record, I think -- it's really been pretty uncorrelated to the markets generally, and we've done a good job over time buying these very resilient businesses. The kind of companies we like to own are sort of large, even mega cap durable growth companies with very strong balance sheets, and they tend to be the dominant company in their respective sector or industry.

We are also a very influential investor. As you know, we buy minority stakes in companies. And then even with those minority stakes, we were able to get a very large amount of influence on companies, which helps us help steer them the right way or if necessary, recruit the right management teams to run them.

We've done -- we've stepped into situations where the company was challenged, and we've helped kind of fix the benefit. It's a strategy that's not particularly correlated with for example, what people are thinking about with respect to AI. All of that being said, I'm actually pretty bullish about markets generally. There are some enormously powerful forces that are coming into play.

Among them, just even from the Biden administration, people have almost forgotten about $1 trillion whatever $500 billion of infrastructure investments that are shovels just going into the ground. The CHIPS bill. We have this massive, to your point, AI investment data centers and otherwise, power, we have the productivity enhancements of AI, which are clearly real, I'm sure in your business, you're seeing it, and we certainly are seeing it here, just talking to a lawyer last night about how AI is major -- massively more productive.

All of those benefits will enure to companies and operating margins. So I'm quite bullish on markets. We have a Fed with an easing posture. We have a President who wants the midterms to go well. And we've got the most pro-business President in America. So I do think there are a lot of very powerful forces that are supportive of equity markets. But we don't -- to my point, what people pay for when they invest with Pershing Square is our differentiated performance.

And we're giving that to Vantage and Howard Hughes for free. And I think that's going to enure -- do you want to add something? Go ahead.

And I think I agree with everything Bill said. I would add, Alex, just when you think about the investment portfolio specifically, first of all, this is a transaction we think is going to close by the second quarter of 2026. There will be no change in the investment portfolio until that period of time. So I'm sure there will be macro narratives that may even change by that time. But there won't be any short-term change in the portfolio until the close.

And then secondly, as we mentioned, we plan to gradually move the investment portfolio towards common stocks, but we will always be keeping a very short-term treasury, I think, kind of 30-day treasuries with 0 credit risk, 0 investment risk relative to the amount of reserves or float that is in the business. So when you look at the portfolio overall, the way I would think about it is there's going to be up to half of that portfolio long-term that is still going to be in basically cash without any risk.

And then I think over time, we're going to be gradually building up the rest of that portfolio towards common stock. So one of the things I think is interesting aside from just Pershing Square's ability to kind of navigate these macro and micro narrative successfully over time is there is a nice staging and sequencing of this. So the way I think about it is we have the ability over time to deploy into specific situations very attractive capital.

But we also have -- if you want to think about it almost as dollar cost averaging effective, we will be gradually deploying the portfolio towards common stocks. So whether markets are up or down from the Vantage perspective over the next several years, we believe that we have balancing and checks and balances in there to help us be making attractive investments.

Okay. And then the second question is, David and his team have done a phenomenal job on the MPCs, defying the high interest rates, et cetera. But that said, can the real estate compete with the investment returns, meaning like from a capital perspective, will the real estate still be able to get Howard Hughes capital or the way that you guys look at it, the insurance business is so much more productive from an ROI perspective that will see less capital to real estate more to insurance?

Yes. Look, the good news about Howard Hughes today, 15 years in, if we've done this transaction, I don't know, 7 years ago, there would be a battle between where capital should go because the real estate business itself didn't generate excess cash. And is that your background noise. Maybe you can mute because we're hearing a lot of background noise on the call, sorry.

Today, we have a real estate business where the communities have reached a degree of maturity where we believe over the next number of years, we're going to generate cash well in excess of what is needed to keep these as the best places to live in the country. We've got a massive investment in land. One of the key objectives of Howard Hughes' communities business is to grow the value of that property.

While the way you grow the value of that property is you make these more and more desirable communities. So when we think about building the marginal apartment complex, it's not just the return we earn the unlevered return on -- or the ROE on that development, which can be very attractive and it can be competitive certainly in the middle teens with the insurance operation but we also think about the benefit to all the land we own in the community, which is very material.

So for example, in Summerlin, where we own billions of dollars of unencumbered land when we built the downtown a number of years ago, it led to something like a 15%, 16% compound annual increase in land value. So the return on the mall we built was modest, I would say, typical for a -- not a mall for the downtown retail district, it was probably in the 5% range. But the real return to the Howard Hughes Community business with many multiples of that because of the impact it had on making Summerlin a more desirable place to live. So all of those things still apply.

We've got a massive -- we have $10 billion, $10 billion, $11 billion of real estate that are moving the needle on that portfolio is incredibly important to us. Now the other thing you should know as a guy who follows the company, we also have $4 billion of condominiums with $800 million of hard deposits that are going to close over the next several years. So we have -- going through a period of time where we have a massive amount of cash kind of coming into the company from that business.

And in light of the maturity of the communities, the amount of cash generated from condos, we're going to have cash we can't find a use for in our small cities. So that's kind of the problem. And if we were just a stand-alone real estate company, we'd have to "buy another MPC" to deploy that capital or we could have used it, I guess, to just buy in shares.

Here now, we have a place to put that capital where we can have a very high return. And I think that is really going to enure to the benefit of the company. But maybe, David, do you want to add anything to what I've said on that?

No, Bill, I think you summarized it incredibly well. And Alex, I read your note this morning, and I think it was pretty much spot on. The only thing I would clarify is that the Vantage team, one of the things we love about this acquisition is the quality of management and I think for that management team to be most successful, it needs to report to those that know the business best which are without a doubt, Bill and Ryan. But I think that Bill summarize the capital allocation strategy of the company perfectly.

Our next question comes from Anthony Paolone with JPMorgan.

Congrats on getting this announced. I guess first question is just when I step back, a lot of what you talked about was buying a business that over the next few years as you execute your plan will be worth a lot more than what you paid for it. I think you can probably say the same thing about a lot of the real estate investments you made, but the stock still -- it never really seem to reflect credit for that.

I mean, what -- in your mind, do you think will change it with this and stands out to you as something the market will latch on to and give you more credit in the future than what you've gotten in the past on the real estate side?

Sure. Look, I think the nature of Howard Hughes' business is it's not your conventional real estate company. It's not a real estate investment trust. It's not invested in one real estate asset class, like the vast majority of other kind of comparable companies. It's a company that does a lot of real estate development. It owns a lot of land. Land is probably half the value of the enterprise.

And it's a C corp and it doesn't pay a dividend. And we think because of all of those aspects, the discount rate, if you will, that the market is assigned to Howard Hughes has been well above what it would be for a traditional sort of REIT or even a public company. And ultimately, stocks trade on the basis of does the company earn return above its cost of capital?

And I think we think the market is assigned too high a cost of capital to Howard Hughes, which is why we felt the business was not making stock market progress despite good underlying business progress. With the transaction that we announced in May, our business plan was we're going to become a diversified holding company, and we're going to invest in a business that can earn even higher sustained returns on equity versus Howard Hughes.

And that business itself is going to diversify the overall platform. So what we've done here is we've begun that journey with a fairly large scale acquisition relative to even the market -- the market value of market cap of Howard Hughes today. So a $2.1 billion acquisition in a -- what we expect to be a high-return specialty insurance company will one, I think, meaningfully improve our return on capital, but also have the effect of bringing down the discount rate that people assign to the business.

One, we become more diversified. Two, insurance companies generally have a much lower cost of capital than a real estate development company. And then I would say, lastly, stocks trade on the basis of supply and demand. We think the universe of people who can own a small-ish cap real estate MPC company, is very small relative to the universe of people who can own a diversified holding company or an insurance operation.

Berkshire today has a $1 trillion or so market cap, a very small percentage of those shareholders just think that investing in Howard Hughes at the beginning of its diversified holding company journey, the base of demand here for a stock that is a relatively small public float. This is 53% of the shares actually trade. There's only a $2.5 billion float for the company, that alone, we think, could cause a meaningful re-rating of the stock.

Yes. And I would just add, there is a very successful company, Berkshire Hathaway, arguably one of the most successful companies ever created that has followed this playbook. So certainly, it's our job in duty to try to redeploy the capital at the highest rates of return. But I think in the public markets, there is very much an analog for if you get this correct, but the market will, over time, appreciate the deployment of capital at high rates of return and how valuable a diversified holding company that has the ability to shift capital between different verticals can be.

Yes. Remember that Berkshire started out -- Berkshire Hathway was a textile business and it was a textile business that was manufactured everything in the Northeast or south of the country. And in America, when people were shifting manufacturing to Asia and other places in the world, it was really a dying business that couldn't compete because the cost of operating in the United States were not competitive and was also a business that was unrecognized by Wall Street and that enabled Buffett to buy ultimately control of that company in the public market.

And then he bought a smallish insurance company, actually, we can kind of check the math, but actually maybe similar in size as a percentage of its book value to what Vantage is to Howard Hughes. And then he began a journey of building a valuable company over time. So you had -- now I would say the big difference is Howard Hughes is not a dying textile company. It's an incredibly profitable business that for all the attributes we've talked about for years, we own property where people are moving in America and the small cities that we effectively manage are among the highest, most desirable places to live in the country.

We really dominate the condominium business and one of those beautiful places to live in America on Waikiki Beach. And there -- we've got many decades, and of course, our new community in Phoenix. There are decades of profitable growth and cash flows from this business. So I think we're starting from a much, much better place than a crappy textile company. And we have the benefit of Mr. Buffett's playbook.

And we have a very strong Buffet actually in the early years, did not do so well in his insurance business. And over time, you kind of learn that business. We have the benefit of those learnings, and we have the benefit of a very capable team that have been building Vantage over the last 5 years.

So you combine Pershing Square's investment track record with Vantage's management's team track record with the credit support from Howard Hughes, the cash flows, the excess cash flows that will come over time from the real estate operation. I think you have the makings for a pretty interesting story.

Got it. And then just one, maybe a follow-up more technically perhaps for Carlos. Just what should we expect to see when you give guidance? And how do we think about what you'll be guiding to with this transaction in motion?

I'm going to jump in on that one. And Carlos, of course, feel free to fill in. One of the things that we've been talking about is exactly that question. So why don't we punt that one to the new year. But look, I think that if you follow the Berkshire playbook, Mr. Buffett doesn't kind of give guidance. He gives you all the information you need to kind of build projections of what the future might look like.

So we have to -- now that we're becoming -- effectively, we're becoming a diversified holding company, we want to think about the kind of key performance indicators that we want that we think that shareholders should be thinking about as they think about this business. So we're going to do kind of a complete rethink on KPIs and trying to be helpful to shareholders and so they can think about the progress of the business over time. So why don't we just wait on that one?

Our next question comes from Meyer Shields with KBW.

I was hoping you could share how you're thinking about maybe using additional M&A activity to either scale up Vantage or to just build a broader array of portfolio assets sort of similar to the way Berkshire Hathaway has done?

So I think our focus in the short to intermediate term at Howard Hughes is today, Howard Hughes, once the transaction closes, we'll own 100% of Vantage from a legal point of view. But economically, Howard Hughes will own less than 100%. So the first priority for excess capital is to buy out -- buy back this preferred or bridge equity that we provided to the company.

Once that's achieved and there's incremental excess cash flow, we'll look at, well, should that money be invested in the insurance operation? Or is there some other really attractive thing for us to do. But I think the point I made earlier is go back to the Berkshire model, we think the substantial majority of Berkshire's value has been created by these massive insurance operation that's been built over time and the investment of those assets, the intelligent investment of those assets.

And when Buffett announces acquisitions, of common stocks, they're almost always really in the insurance operation. Over time, he bought some businesses outside -- in the holding company outside of the insurance operation, even actually bought the Burlington Northern inside the insurance company. But the focus here for the next several years certainly is building out Vantage and investing that portfolio.

Our next question comes from Devon Noble of BofA.

This is Ryan Shelley from BofA. I just wanted to ask about the funding strategy going forward here. Obviously, you guys have a few tranches of unsecured outstanding at the HHH holdco level. Do you guys plan on continuing to issue there to fund both Vantage and Howard Hughes communities going forward? Just any thoughts about how we should be thinking about that from the credit side?

Well, one, I would say, we think this transaction is very credit positive for Howard Hughes overall. One, we have the nature of insurance, the balance sheet of insurance, we're adding several billion dollars of cash and marketable securities to the consolidated balance sheet of the company. And we're buying a unlevered business and one that's well managed, A- credit rating and with the prospect of that credit rating improving over time.

The combination of the diversified -- improvement to diversification of the overall company, the indications of Pershing Square's incremental support for the company, for example, our purchase of this 0% preferred, I think all are suggestive of incremental credit support to the company. We like each of the subsidiaries, if you will, to stand on their own 2 feet.

So we do expect Howard Hughes communities to continue to be a -- to finance itself independently of the holding company. And so I think we have no plans to change our unsecured bond program at the Howard Hughes community subsidiary. Carlos, do you want to add anything there?

No, Bill, I think you said it very well. There's really nothing more to add to your response.

[Operator Instructions] Our next question comes from Jon Petersen with Jefferies.

Congratulations, guys. Maybe just actually to continue on that last line of question just to make sure I understand it. So because I'm not terribly familiar with the holding company strategy and how this works. The retained cash flow inside of each of these subsidiaries, will there be some kind of dividend that's paid to the holding company? Or will any of that cash flow move up to the holding company to fund future growth? Or do we think about it all staying inside the subsidiary?

So our plan for Vantage is to reinvest all of the profits of Vantage into growing Vantage. We think there's a lot of -- I think that money can be put to good use over a long period of time. The insurance -- the demand for insurance is effectively infinite or nearly in the world. The real estate communities business is one, we don't have any plans to buy any other MPCs, if you will.

Our plate is full with what we call Teravalis in Phoenix. It's the very beginning stages of many multi-decade build out of a community starting with lot sales quite recently. And then -- but we do have cities like small communities like -- or small cities like the Woodlands, Summerlin, Bridgeland, et cetera, that are at a stage in their development where they're beginning to generate more cash.

The business model of Howard Hughes is to sell lots to homebuilders, take that cash and use it as equity in vertical real estate development to build out the kind of the assets that make each of these communities are a very attractive place to live and to make sure we have all the other municipal educational, religious and other resources that make these communities a really attractive place to live.

I would say the majority of our communities today are at a stage where they're starting to generate more cash and they will, over time, then we can reinvest as equity and developments that make sense in these communities. To the extent we get to a place, which we -- the other point I would make is our condominium business itself is a very large generator of cash and requires a relatively small amount of cash equity.

We've got about $4 billion of condominiums that will be delivered and closed as these projects get built over the next several years. That's a lot of cash coming into the real estate subsidiary. So to the extent there is excess cash beyond what is needed in that business, that cash will go to the holding company. It will be invested to kind of provide incremental capital for Vantage or we may use it to go buy another business.

But the first priority is to -- for Howard Hughes to have 100% economic ownership of Vantage to the first dollars of excess cash that we generate would go to repurchase the Pershing Square preferred stock. So it's a holding company today that has really not much going on upstairs. We'll have -- when this transaction closes, 2 principal subsidiaries. The Vantage subsidiary, we expect will continue to reinvest all of its cash in the growth of the business and the real estate sub, we expect over time to generate excess cash that will be repatriated to the holding company.

I guess if we think about this business long-term and you have multiple subsidiaries in here, is the right way to think about it, you have a balance of companies that generate a lot of excess cash flow to grow the holding company and then a balance of other companies that have a lot of reinvestment themselves like Vantage. Is that kind of the right way to think about the balance if we're thinking 10 years in the future?

Absolutely. Absolutely.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Bill for any further remarks.

Yes. Thank you. We're going to have spaces on X that you can find under my @billackman, we'll launch that within the next 5 or so minutes and will allow any -- we'll take the questions in the order in which they appear and we look forward to questions from Howard Hughes shareholders and people interested in this transaction. Thank you very much, and look forward to connecting soon.

Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Howard Hughes Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Joe Valane, General Counsel. Please go ahead.

Good morning, and welcome to the Howard Hughes Holdings third quarter 2025 earnings call.

With me today are Bill Ackman, Executive Chairman; David O'Reilly, Chief Executive Officer; Ryan Israel, Chief Investment Officer; and Carlos 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 third 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 third 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 CEO, David O'Reilly.

Thanks, Joe, and good morning, everyone. I'm going to start with a quick overview of the quarter and some highlights for Howard Hughes Communities. Carlos will walk through guidance and our cash flow outlook, before handing it over to Bill and Ryan to share updates on our holding company strategy.

We delivered another strong quarter across every business segment, underscoring the strength of our real estate platform and the value of our transformation into a diversified holding company. Starting with our MPC segment. We had a record quarter, generating $205 million EBT, driven by strong land sales in Summerlin. We sold 319 acres at roughly $795,000 an acre. That included a single 231-acre bulk sale of raw undeveloped land sold at a 75% margin, but below our average price per acre since it required no upfront infrastructure. Excluding that one transaction, the rest of our land averaged about $1.7 million per acre.

We earned more than $14.5 million in builder price participation, reflecting continued home price growth in Summerlin. In Bridgeland, land sales remain steady, and we're gearing up for the grand opening of Teravalis in Phoenix later this month. Model homes are open, builders are active and momentum is strong at Floreo.

While broader national headlines point to slower home sales, we are once again seeing the opposite in our communities, delivering strong results to counter current headlines. Our perpetual cycle of value creation and self-funding model, combined with limited competition continues to give us a major edge. As a result, we expect to finish the year with record high residential land sales, record pricing and a record full year MPC EBT. Given this performance, we're once again raising our full year MPC guidance.

Moving to operating assets. NOI grew 5% year-over-year to $68 million, driven by leasing momentum across the portfolio. Office NOI was up 7%, thanks to strong activity in Colombia and the expiration of some large abatements. We signed 55,000 square feet of new or expanded office leases and the stabilized office portfolio ended the quarter 89% leased. Multifamily NOI grew 2% as new projects in Summerlin and Bridgeland continued leasing ahead of plan. Our stabilized multifamily portfolio is now 96% leased. Retail NOI was up 9% year-over-year, led by great performance at Ward Village and Merriweather District. Our stabilized retail portfolio remains above 90% leased.

Turning to strategic developments. We reached a new record with $1.4 billion in condo presales, led by Melia and Ilima, our 12th and 13th towers at Ward Village. Both are off to an incredible start and already collectively 57% presold. The Launiu in Ward Village and the Ritz-Carlton Residences in The Woodlands are now 68% and 74% presold, respectively.

Beyond condo sales, we broke ground on the Memorial Hermann Medical Office Building in Bridgeland, the first step in what we expect will become a 1 million square foot medical district. And right after quarter end, we completed 1 Riva Row, a 268-unit luxury multifamily property along The Woodlands Waterway. That project sets a new bar for multifamily living in the area and will meaningfully contribute to NOI once stabilized.

What's most exciting is how the cash flow generated across our communities is reinvested right back into value-creating developments. Projects like Ilima and Melia at Ward Village, or 1 Riva Row in The Woodlands, each one is a perfect example of how we recycle capital to grow both future cash flows and long-term net asset value across our portfolio. It's been a busy and rewarding quarter across Howard Hughes Communities, and I couldn't be prouder of how our teams continue to execute.

With that, I'll hand it over to Carlos.

Thanks, David, and good morning, everyone. I'll start with the recent financings, followed by guidance updates and our view on cash flow generation.

We refinanced about $114 million of near-term maturities during the quarter, pushing them out into 2026 and beyond, including loans at 3831 Technology Forest, Wingspan and 6100 Merriweather. As a result, our 2025 maturities are down to just $76 million, which we expect to refinance before the end of the year.

Turning to guidance. Strong land sales across our MPCs led us to raise full year EBT guidance to $450 million at the midpoint, up $20 million from prior guidance. 2025 will be another record-breaking year. Now not every year will look like this, but it shows the power of our model when all cylinders are firing. Land sales bring residents, residents drive demand for retail and office, and that demand pushes land values even higher.

Operating assets also performed well this quarter, so we're reaffirming full year NOI guidance of $267 million, which is another company record. Our ability to control supply within our MPCs with little to no outside competition continues to be a key advantage.

On condos, we're adjusting our full year revenue target slightly down $15 million to $360 million, reflecting a small timing shift for Ulana closings into early 2026. Ulana remains fully sold and is expected to deliver at breakeven. More importantly, our future pipeline is stronger than ever with $1.4 billion of presales this quarter across Melia, Ilima and the Ritz-Carlton Residence at Woodlands. These projects will generate meaningful cash flows over the next 5 years.

On G&A, we're maintaining guidance between $76 million and $86 million with a midpoint of $81 million. That excludes approximately $13 million of anticipated noncash stock compensation, $10 million of severance expenses and $4 million related to Pershing Square variable advisory fee incurred year-to-date. However, it does include $10 million for Pershing Square's base advisory fee, which we've largely offset through earlier workforce reductions and other cost efficiencies.

Finally, given our outperformance, we are raising adjusted operating cash flow guidance to $440 million or $7.86 per diluted share, up $30 million from our prior outlook. What's important is what we do with that cash flow, is reinvested into our communities to generate even greater value. The projects David mentioned from new condominium towers like Melia and Ilima to value creation developments like 1 Riva Row are exactly where that cash goes, driving higher net asset value and future cash flow generation.

With that, I'll hand it over to Bill and Ryan.

Thank you, Carlos. So my update is really an update about our progress in acquiring an insurance company that will become a base really for the transformation of Howard Hughes into a diversified holding company. Good news is that we've made substantial progress. We identified a target. We've done a significant amount of due diligence. We've done a significant amount of due diligence. We've come to an agreement on price. The seller has begun drafting definitive agreements.

We are still deep in the due diligence process. It is possible that something would emerge that would cause us not to go forward. But based on the work we've done to date; I'm actually growing confidence that the transaction will be completed. And I would say we may be in a position to announce something as early as end of year or possibly in the first quarter. So we're pleased with that progress. I look forward to sharing more details, but a significant development for the company for sure, assuming we can execute on this transaction. That's really my only announcement.

The only other point I would make with respect to what Carlos said, our priority with respect to the cash flows that are generated from our real estate subsidiary are to invest whatever required to continue to build kind of the best places for people to live in the country. The good news is even after that reinvestment of cash into equity to build a downtown office buildings, apartments, the next condominium project, we project that Howard Hughes will generate substantially -- the real estate subsidiary with substantially more cash than we can even spend in that division of the business. Over time, that will generate cash that we can flow up to the holding company that will give us more flexibility in building out our diversified holding company strategy.

With that, why don't we open it for questions.

[Operator Instructions] Our first question comes from the line of Anthony Paolone from JPMorgan.

First question relates to just superpad sales. Those seem to be pretty successful in the quarter. And I'm just wondering, like what -- how do you think of the trade-off of doing more of those and the NPV of just taking the discount and not having to do all the infrastructure and just letting those go versus holding them and taking them a little bit further down and selling more groups of lots as opposed to the superpad?

Tony, thanks for the question. It's David. Look, I think that this was a rare situation where we had a piece of land. And if you remember from the time when you were in Summerlin, it's what we used to call the back bowl. It was due south of the Summit development. It was a particular piece of land that had an unusually high expense of bringing infrastructure to.

And in this unique situation, by selling that superpad at a lower net price per acre or lower gross price per acre, but higher net price per acre, we were able to generate great cash flow for the company. In general, going forward, we don't have another parcel like that. So you should expect us to transact on superpads going forward, consistent with the way we have the past several quarters at a much higher gross and net price per acre.

Okay. Got it. And then just my other question just shifts more over to Bill and thinking about this, the insurance company that you've got teed up. Should we anticipate that like after doing a deal like the one you're contemplating, that uses up the bulk of your sort of capital today? Or do you think you'll have more capacity thereafter to do more deals? And just wondering kind of where this leaves you.

Sure. So we think -- so one, it will consume the available cash that we've injected into the company. And our -- the reason why we're focused on insurance as sort of our first initiative is it's a business that we can contribute very significant value to. If you look at -- again, if we take our Berkshire Hathaway model and look at Buffett achieved over time, my estimate -- our estimate is something like 70% to 80% of the value of the company was created with the launch of insurance strategy and an approach to writing business that created a lot of flexibility for the insurer to, I would say, have more flexible investment approach.

So Buffett historically wrote very little risk relative to capital and invested relatively small amount of assets relative to capital, but invested those assets, about 2/3 of those assets in common stocks and did so effectively. And the beauty of the insurance business is insurance generates a lot of cash. You don't need to issue stock every time you do a deal in the insurance business, you write premium, you collect cash. And over time, you invest that capital and earn a return on the assets and hopefully make money on the insurance side of the business.

If we can achieve both of those objectives, combining kind of Pershing Square's investment expertise with a talented management team running a diversified insurance company platform, we think that asset alone can compound and grow and become a material -- very significant contributor to the growth of the company, the growth of our intrinsic value over time. And then as the real estate subsidiary generates cash that's not needed in the real estate business, that's what's going to give us flexibility to make investments in other assets over time. But insurance is clearly our first priority.

Our next question comes from the line of Alexander Goldfarb from Piper Sandler.

So 2 questions. First, David, only 57% presold on the new condos in Hawaii, I'd expect better out of you guys, just kidding. As far as Ward Village goes, where do you stand on the existing entitlements? And meaning how many more can you build? And what is the status on Phase 2? Is that something that you could see approvals for and launch in the next few years or Phase 2 of Ward Village is something that's maybe 5 or 10 years out?

Alex, great question. Look, I would say that we're thrilled with our 57% presale of over $1.4 billion this quarter and see continued momentum as those projects are super unique and on the best remaining development side in the South Shore of Oahu.

In terms of the initial entitlements, we had through the master development agreement at Ward Village. Beyond these 2 towers, Melia and Ilima, there is one more site that will use the remaining square feet. Beyond that, we do have approval for an incremental square feet, and that incremental square feet could be between $2 million and $4 million depending on the zoning upsizes we get by reinvesting into the community.

So we're already well underway in predevelopment of incremental towers in addition to what we had by right under our original master development agreement.

Okay. That's helpful. And then, Bill, following up on Anthony's question. I realize, obviously, there's a lot of confidentiality, but just big picture, can you just give us some color? Is this pure B2B, as you described before? And is everything in this entity clean? Or are there businesses that you'd want to exit or any legacy -- policies or legacy lines that need to be settled or anything like that?

Look, it's -- I would say it's a very clean transaction for us. It's a platform, kind of a diversified insurance company platform that really fits our -- the criteria that we've outlined. So no business lines that we need to exit. It's not a consumer-facing insurer. Yes.

And can you indicate whether it's domestic or Bermuda or somewhere offshore?

I would say it's -- as many insurers are as a domestic practice and an offshore practice.

[Operator Instructions] Our next question comes from the line of Jon Petersen from Jefferies.

Curious if you could maybe just give us a little more commentary on the Ritz-Carlton Residences at The Woodlands and how that is trending relative to your initial underwriting and then opportunities for other condo projects across the portfolio? Clearly, Ward Village has been a big success and your kind of translating that over to The Woodlands. But where else might we see future condo projects across your...

I'll take the first part of your question. So this has been a bit of a tussle between me and David O'Reilly in the sense that the team designed an absolutely spectacular project, first of its kind in The Woodlands. And I took a look at this project, and I said, we're giving it away at these prices.

And I said, you know what, the community just needs to see this thing built before. So you know what, don't sell any more than half the units. That was our deal, and then I stepped off as Chair of the Board. And unbeknown to me, David has been sneaking out a few units because he achieved prices that he just felt he obligated to sell. That's really the answer.

But we're hitting record prices.

Yes. And so David has continued to -- look, I think it's tremendous value. So for the buyers in the market, I mean, I compare this the quality is of a what you might call billionaire row quality like 220 Century Park South, if you know the building, also a Robert Stern design in New York City that achieved just massive, massive premium over everything else in the market. This is that kind of building, but it's really the first condominium built in the Woodlands. And we just felt that we should be very judicious about the way we sell units. We could have sold the entire project on a presale basis.

And when you compare to Hawaii, Hawaii, we're extremely well established. Everyone knows the quality of the product that we build. And while the team continues to kind of raise price weekly as we sell units, the general goal in Hawaii is to sell 100% of the project or nearly 100% before we even put a shovel on the ground, right?

Whereas in -- we just felt in that light of the fact we're delivering a first of its kind in The Woodlands that we would achieve a better outcome if we were kind of slow walked units until the project is open. So I'm hoping David is going to keep some units, so I can prove my point about what we're going to achieve when people can actually see the finished product.

No doubt. We're about 75% sold now. We have a little over a year before we're ready to welcome our first units, first residents into those units. And we're optimistic that the remaining units that we're holding back right now, we'll be able to sell upon completion when people can see, touch and feel the incredible quality that we're going to deliver.

To the second half of your question, John, there are a couple of sites in addition to the Ritz-Carlton site for future condo projects in The Woodlands, and we're evaluating those real-time, determining where we think deep demand will be, what price per foot that is, what size of units are, et cetera. And we're also evaluating a couple of sites in and around Summerlin, where we could leverage the expertise and skill of our team in Ward Village across the rest of our portfolio to deliver great cash flow results for the company.

Okay. All right. That's very helpful. And then maybe I think...

I got a question for David. What's the spread in price per square foot we've achieved on the later sold units versus the first sold units in the Woodlands? How much of the price per square foot has gone up on a kind of comparable unit?

And well -- one of the challenging parts is that with the Bob Stern design is there are very few comparable units. In general, we've seen from kind of our initial sales to where we are today about $350 to $400 a foot.

Increase?

Increase.

And the average sale price now is what per square foot?

Really high.

That's just a precise number. You understand the point. This is the kind of asset that I think to generate the maximize the profit. We don't have -- we're not like a typical developer that has to sell all the units before you can get a construction loan. So for us, we can be thoughtful about the pace of sale to maximize the NPV of the project.

Okay. All right. That makes sense. And then at Teravalis, I was in the Phoenix Airport recently, saw you guys have some advertisements up there to [indiscernible] people out to that community. Just curious, I mean, just remind me, like what should we be expecting in terms of MPC land sales maybe in 2026 or maybe if you want to give me a multiyear outlook? Like just remind me on where you guys are at on rolling that out.

Yes, absolutely. So we're in a great spot right now. We've sold about 1,000 lots year-to-date in Teravalis, and that will be enough to keep us busy for the near-term future. I think you may be able to see us sell some incremental lots in 2026, but 2027 will probably be a year where we re-up after those lots that we sold this year end up in the hands of residents and homebuyers.

We're excited this Friday. We have our official grand opening at Teravalis. We've already sold our first few lots to different residents that will be constructing their homes right now. And we're incredibly excited with the progress that we've seen and how fast those communities come together.

Our next question comes from the line of Alexander Goldfarb from Piper Sandler.

David, I realize that it's not the fourth quarter and we have to hold off on guidance, but still, the pace of your increases, especially in the land business has been pretty incredible this year. And is there something sort of a ballpark? I think you're tracking $440 million at the midpoint for '25. Is there something that we should be thinking of for '26? So either, one, we don't get too far ahead of ourselves or maybe the pace that you've delivered this year is sort of a new run rate is something sustainable?

Alex, I think it is pretty early right now to feel comfortable providing any sort of guidance on 2026 land sales. I think that 2025 has been remarkable. We've raised guidance twice. Clearly, we didn't expect to see this strength when we gave guidance a little bit less than a year ago.

I think that at this point, I would not advise anyone to extrapolate this year's results into growing future -- further into the future. I think we're going to take it quarter-by-quarter. We're going to see how many homes we sell in our communities, and we're going to sell just enough land to keep up with that at the highest price per acre we possibly can.

But it's not going to hurt if rates come down, obviously, continue to come down.

No, I think that we've achieved these results given the quality of our community as people chase higher quality of life, shorter commutes, more connectivity in nature into these master planned communities [indiscernible] higher rates.

The more like New York and California move socialist, more people want to go to capitalist states like Texas and Las Vegas. [indiscernible] units has been strong. Yes.

Bill, I'm impressed it only took 26 minutes for that. But David, as you look at your inventory, you feel right now there's a good balance between what the builders have bought versus their ability to deliver. Or you think they're a little long on land or a little short on land? I'm just trying to get a sense of the appetite from the homebuilders to buy more right now.

I would tell you that we are selling land to the homebuilders only to keep up with underlying home sales in our communities, and that strategy won't change. We try to keep them at an appropriate supply, which I would argue is between 12 and 18 months of finished lots or vacant developed lots. They're a little bit undersupplied right now. But we like to be a little bit undersupplied than a little bit oversupplied when we have the opportunity.

Thank you. At this time, I would now like to turn the conference back over to David O'Reilly for closing remarks.

I want to thank everyone again for joining us today. As always, if there's any follow-up or any questions, we weren't able to get to, we are always available and look forward to seeing you all soon. Thank you.

Thanks so much. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.