I needed to deliver 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 seemingly that Ackman takes it personal at someplace between $95-$105/share.
Under are administration’s NAV slides:
Notice the usage of the phrase “conservative sum of the components” within the second bullet. I am certain attorneys took a detailed take a look at this deck earlier than it was revealed and the corporate might want to justify a reduction to this quantity in a personal sale transaction (which they’ll and can, not suggesting it’s going to go for $118).
The majority of the NAV is within the land, which is just a little squishy and unlikely to be valued correctly by public market buyers, it isn’t usually that land banks commerce at NAV. Nevertheless, because the under slide reveals, most of their land worth is situated in Summerlin exterior of Las Vegas, the place land gross sales to homebuilders have been sturdy for a while and the MPC lengthy reached crucial mass.
The nascent MPC of Floreo in Arizona, the place the land worth is least stress examined, is just 7% of the MPC NAV. Moreover, mortgage charges stay stubbornly excessive regardless of the Fed beginning to ease brief time period rates of interest, it would not seem to be we’ll get a fast snap again to the place current 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 growth 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 industrial land actual property, that does not fairly add up. Moreover, they’ve solely simply began their first workplace constructing in Bridgeland, industrial properties are years (decade?) off in Teravalis/Floreo, it is arduous 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 not too long ago introduced the final two buildings (situated close to the seaside, would change a part of the land occupied by their gross sales heart on the IBM constructing) as extremely luxurious. Only a few years in the past, this value per sq. foot would appear unattainable, excessive rise growth is a dangerous endeavor, conserving the low cost fee fixed whereas bumping up the value 60% would not instantly scream “conservative sum-of-the-parts” valuation to me. However they’ve achieved terribly nicely in Ward Village, breezed via a number of potential financial headwinds since growth there began over 10 years in the past.
For the working property, they do look like on the conservative aspect.
Their workplace property are primarily situated in rising fascinating areas with out a few of 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 transferring their headquarters as soon as once more, this time simply contained in the MPC from the City Heart to Hughes Touchdown so as to deal with it (there’s additionally a luxurious multi-family asset being constructed there) and release the premium area they beforehand occupied within the OXY buildings.
So net-net, working properties are in all probability just a little undervalued, the industrial land and condos barely overvalued given the timing of these money flows and dangers concerned in growth. We all know that Ackman cannot pay $118/share, he is a fiduciary to his personal buyers who could be backing the deal, someplace between $95-$105 appears proper to me (no arduous math, only a guess). He owns 37.5% of the corporate, whereas there’s seemingly a course of ongoing to determine different bidders, its arduous to think about one other bidder keen to pay extra (in any other case they might have again in 2018-2019 when then HHC ran the same strategic 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 supply extra not too long ago) that I believe 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 crimson sweep he is seemingly assured within the financial local weather going ahead, presumably bulled up on animal spirits eager to safe a giant win.
In his fund’s quarterly replace name yesterday, he stated, “..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 nicely with it.
Disclosure: I personal shares of HHH and a few calls on HHH