I needed to convey Howard Hughes Holdings (HHH, fka HHC) ($4.1B market cap) again up entrance as they only had their investor day this previous Monday the place they laid out a $118/share NAV and its been 3.5 months since Pershing Sq. filed their 13D with out a lot of an replace. I imagine it’s possible that Ackman takes it personal at someplace between $95-$105/share.
Beneath are administration’s NAV slides:
Observe the usage of the phrase “conservative sum of the elements” within the second bullet. I am positive legal professionals took a detailed have a look at this deck earlier than it was printed and the corporate might want to justify a reduction to this quantity in a non-public sale transaction (which they will and can, not suggesting it will go for $118).
The majority of the NAV is within the land, which is a little bit squishy and unlikely to be valued correctly by public market traders, it isn’t usually that land banks commerce at NAV. Nevertheless, because the beneath slide reveals, most of their land worth is situated in Summerlin outdoors of Las Vegas, the place land gross sales to homebuilders have been sturdy for a while and the MPC lengthy reached essential mass.
The nascent MPC of Floreo in Arizona, the place the land worth is least stress examined, is barely 7% of the MPC NAV. Moreover, mortgage charges stay stubbornly excessive regardless of the Fed beginning to ease quick time period rates of interest, it does not appear to be we’ll get a fast snap again to the place present dwelling stock jumps again to regular ranges within the close to time period. Leaving the one recreation on the town new stock.
Howard Hughes has noticeably pulled again on improvement in final yr or two because of close to zero workplace demand and elevated building prices, however there’s been minimal change to the asset worth of their business land actual property, that does not fairly add up. Moreover, they’ve solely simply began their first workplace constructing in Bridgeland, business properties are years (decade?) off in Teravalis/Floreo, it is onerous to sq. that math in my head even with wholesome low cost charges.
In addition they bumped up their Hawaii (and now additionally Woodlands) apartment value per sq. foot up considerably as they’ve just lately introduced the final two buildings (situated close to the seaside, would exchange a part of the land occupied by their gross sales heart on the IBM constructing) as extremely luxurious. Just some years in the past, this value per sq. foot would appear unattainable, excessive rise improvement is a dangerous endeavor, retaining the low cost price fixed whereas bumping up the worth 60% does not instantly scream “conservative sum-of-the-parts” valuation to me. However they’ve finished terribly properly in Ward Village, breezed via a number of potential financial headwinds since improvement there began over 10 years in the past.
For the working property, they do seem like on the conservative facet.
Their workplace property are primarily situated in rising fascinating areas with out among the complications of enormous gateway markets and their occupancy ranges present that at 88%. The lagger of their portfolio is Hughes Touchdown within the Woodlands, they’re shifting their headquarters as soon as once more, this time simply contained in the MPC from the City Middle to Hughes Touchdown in an effort to concentrate on it (there’s additionally a luxurious multi-family asset being constructed there) and liberate the premium house they beforehand occupied within the OXY buildings.
So net-net, working properties are in all probability a little bit undervalued, the business land and condos barely overvalued given the timing of these money flows and dangers concerned in improvement. We all know that Ackman cannot pay $118/share, he is a fiduciary to his personal traders who can be backing the deal, someplace between $95-$105 appears proper to me (no onerous math, only a guess). He owns 37.5% of the corporate, whereas there’s possible a course of ongoing to determine different bidders, its onerous to think about one other bidder prepared to pay extra (in any other case they’d have again in 2018-2019 when then HHC ran the same strategic alternate options course of, presumably with out Ackman has a bidder since he did not replace his 13D on the time).
Ackman has an attachment to Howard Hughes (he is primarily the corporate’s founder and has added to his possession stake alongside the way in which, throughout Covid and thru a 2022 tender provide extra just lately) that I feel the market is underestimating, his Forbes cowl is commonly mocked, however the byline to the 2015 article is about how he’ll flip Howard Hughes (not Pershing Sq.) into his model of Berkshire Hathaway. He is been an outspoken supporter of President-Elect Donald Trump and Republicans within the 2024 election, with the pink sweep he is possible assured within the financial local weather going ahead, presumably bulled up on animal spirits eager to safe an enormous win.
In his fund’s quarterly replace name yesterday, he mentioned, “..we do not suppose that Howard Hughes goes to develop an actual franchise right now as a public firm.” He is actually the one one who can change that along with his possession stage and the construction of HHH, he’ll take it personal inside 1-2 months and do properly with it.
Disclosure: I personal shares of HHH and a few calls on HHH
