Accounting change crimps profit for Howard Hughes

An accounting change has curtailed the developer of Ward Village from claiming profits on condominium sales in unfinished towers before buyers complete their purchases.

As a result, Howard Hughes Corp. reported a relatively small $6.7 million profit from three condo sales at its completed Waiea and Anaha towers during the first three months of the year compared with a $60.5 million profit in the same period last year based on condo sales at four towers of which Waiea was the only one finished.

Revenue from Ward Village condo sales was $10.8 million in the first quarter compared with $80.1 million a year earlier.

The Texas-based company noted the change in a quarterly financial report issued Tuesday.

Under a previous accepted accounting practice, Hughes Corp. claimed a portion of proceeds from condo sales on units still under construction in relation to the percentage of construction that was complete.

Hughes Corp. began building its first tower in 2014 at the master-planned Kakaako community, and claimed a $27 million profit that year from Waiea condo sales.

Since then, Waiea and Anaha were finished and most of the sales proceeds and profit already have been counted from the two towers where only about 20 units have not been sold or had sales close yet.

A third tower, Ae‘o, also previously produced considerable revenue and profit for Hughes Corp. The tower with $1 million average unit prices was 65 percent complete at the end of last year. During the first three months of this year, Hughes Corp. reported executing 30 binding sales contracts at A‘eo. Only five units remain unsold in the 465-unit tower anchored by a Whole Foods Market.

A fourth tower under construction, Ke Kilohana, also is nearly sold out and has had considerable proceeds booked previously. This tower is on schedule for completion early next year.

The accounting change was issued by the Financial Accounting Standards Board, a nonprofit that establishes standards for companies that follow what are called generally accepted accounting principles.

A major result of the change is that Ward Village condo sales fell far short of being the biggest source of revenue for Hughes Corp., as they had repeatedly been in recent years.

Hughes Corp. has real estate operations in about 15 states that include retail properties, a waterfront redevelopment project in New York and master-planned communities where the company sells land.

Overall, the company earned $1.8 million on $162 million of revenue in the first quarter compared with a $5.7 million profit on $232 million of revenue a year earlier.