I needed to carry Howard Hughes Holdings (HHH, fka HHC) ($4.1B market cap) again up entrance as they only had their investor day this past Monday the place they laid out a $118/share NAV and its been 3.5 months since Pershing Square filed their 13D with out a lot of an replace. I imagine it’s seemingly that Ackman takes it non-public 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 positive legal professionals took an in depth have a look at this deck earlier than it was revealed 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’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 traders, it is not typically that land banks commerce at NAV. Nevertheless, because the under slide reveals, most of their land worth is positioned in Summerlin outdoors of Las Vegas, the place land gross sales to homebuilders have been sturdy for a while and the MPC lengthy reached vital mass.
The nascent MPC of Floreo in Arizona, the place the land worth is least stress examined, is simply 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 present dwelling stock jumps again to regular ranges within the close to time period. Leaving the one sport on the town new stock.
Howard Hughes has noticeably pulled again on improvement in final yr or two as a result of close to zero workplace demand and elevated development 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 onerous to sq. that math in my head even with wholesome low cost charges.
Additionally they bumped up their Hawaii (and now additionally Woodlands) rental worth per sq. foot up considerably as they’ve lately introduced the final two buildings (positioned 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 worth per sq. foot would appear unattainable, excessive rise improvement is a dangerous endeavor, protecting the low cost fee fixed whereas bumping up the worth 60% would not instantly scream «conservative sum-of-the-parts» valuation to me. However they’ve finished terribly nicely in Ward Village, breezed by a number of potential financial headwinds since improvement there began over 10 years in the past.
For the working belongings, they do seem like on the conservative facet.
Their workplace belongings are primarily positioned 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 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 unlock the premium house 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 improvement. We all know that Ackman cannot pay $118/share, he is a fiduciary to his personal traders who could 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 seemingly a course of ongoing to establish different bidders, its onerous 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 an identical 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 best way, throughout Covid and thru a 2022 tender provide extra lately) that I believe the market is underestimating, his Forbes cowl is commonly mocked, however the byline to the 2015 article is about how he’s going to turn Howard Hughes (not Pershing Square) into his version 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 at this time as a public firm.» He is actually the one one who can change that together with his possession stage and the construction of HHH, he’ll take it non-public inside 1-2 months and do nicely with it.
Disclosure: I personal shares of HHH and a few calls on HHH