HHC - Howard Hughes Corp

[KJP]

I find it funny that Seritage has 57 pages and HHC has 7 pages. 

 

I made the same comment in the Seritage thread.  I suspect Buffett plus a superficially easier to model business explains Seritage's greater appeal.  But I don't think it's a close question whether you'd rather own Seaport + Ward Village + Summerlin + Woodlands + 50 N. Wacker, et al. for the next 20 years over Seritage's collection of assets.

 

I agree with you.....but I'm not sure how relevant the comparison is unless price is factored in. HHC's EV is nearly $8B, SRG's is $3.1B.

 

The discussion was about the apparent relative levels of interest in the two companies.  If choosing how to prioritize my time, I'd start with the company whose assets are of far higher quality.  But based on the amount of discussion on the two boards, it doesn't appear that most people agree with that approach.

 

 

[NBL0303]

I find it funny that Seritage has 57 pages and HHC has 7 pages. 

 

I made the same comment in the Seritage thread.  I suspect Buffett plus a superficially easier to model business explains Seritage's greater appeal.  But I don't think it's a close question whether you'd rather own Seaport + Ward Village + Summerlin + Woodlands + 50 N. Wacker, et al. for the next 20 years over Seritage's collection of assets.

 

I agree with you there is no question about which assets you would prefer, but I feel compelled to recite value investing scripture: it is really a question of whether you like Seritage's assets at $2 billion (and the totality of its capital structure) versus Howard Hughes at $6 billion (along with its capital structure).  I know I am being annoying because you were probably implicitly incorporating their respective market values in your thoughts - but the OCD value investor that I am - I wanted to at least make it explicit.

 

Edit: Sorry I didn't realize someone else had already made this point.

[Spekulatius]

The key question is with asset quality though. Granted, SRG may be a 60c on the dollar valuation, but those are retail assets RE assets, which are structurally challengened. It is better to purchase assets that are valued at 90c on the dollar when they are likely to appreciate compared to assets for 60c on the dollar that may be falling in value, especially in conjunction with leverage.

[Foreign Tuffett]

Is anyone looking at this here? It strikes me as notable that the stock is trading at ~ the same price it was at 5 years ago.

[Gregmal]

Is anyone looking at this here? It strikes me as notable that the stock is trading at ~ the same price it was at 5 years ago.

 

I've been keeping an eye on it, but have the following reservations.

 

I think it's high quality, and cheap, but... dont exactly see major catalysts.

 

I also think it's highly overrated in the sense that it often gets presented as an under the radar, orphan name. I've always seen this as a hedge fund hotel with kind of a mini BRK type of cult like following to it. It definitely isn't off the radar.

 

They own assets that will likely face the same type of challenges any real estate co will in the present environment, there is not A TON unique to how they go about their business; the difference IMO, while there, is generally exaggerated.

 

Because of some of the above misconceptions, I think it got way ahead of itself 4-5 years ago, and has been paying the price since. I'd also speculatively gander that the hedgie underperformance and as a result redemption and selling has been an overhang here. I'd probably start dabbling soon with a 1-2% position, but I think you need to really play the LOOONG game here with this one. It'll take time to shake out the above mentioned issues.

[Saluki]

Is anyone looking at this here? It strikes me as notable that the stock is trading at ~ the same price it was at 5 years ago.

 

It's trading at the same price, but the story has gotten better.  South Street Seaport should start making money this year, the Hawaii project sold out phase I of the condos and they are now building phase II and III. North Wacker was taken offline, but once the property is rehabbed, it should be a big money maker and Houston and Las Vegas are plugging along nicely too (No major damage to Houston properties in last year's hurricane). I like it longterm but I don't want to sell anything to add to it. 

[BG2008]

Shhh, I'm rooting for the shares to fall more.  Please $85 a share....I'll take $90

[ander]

Pershing Square cut its stake by 40%+ in HHC according to 13F. Smallest holding now.

[BG2008]

CEO buys $5.5 million https://www.sec.gov/Archives/edgar/data/1498828/000117911018012786/xslF345X03/edgar.xml

President buys $0.5 million https://www.sec.gov/Archives/edgar/data/1498828/000117911018012788/xslF345X03/edgar.xml

 

It's interesting that Ackman held onto the shares for the past 5-6 years when shares traded as high as $160 a share in 2014 and 2015.  But now is a bad time to own it at $109. Hmm.  From a price movement perspective, there's probably a chance that HHC could trade lower if home building drops off. 

[BG2008]

$85!! $85!!

[Saluki]

CEO buys $5.5 million https://www.sec.gov/Archives/edgar/data/1498828/000117911018012786/xslF345X03/edgar.xml

President buys $0.5 million https://www.sec.gov/Archives/edgar/data/1498828/000117911018012788/xslF345X03/edgar.xml

 

It's interesting that Ackman held onto the shares for the past 5-6 years when shares traded as high as $160 a share in 2014 and 2015.  But now is a bad time to own it at $109. Hmm.  From a price movement perspective, there's probably a chance that HHC could trade lower if home building drops off.

 

I think he mentioned a couple of quarters back that he sold shares and replaced them with derivatives which gave him the same exposure but freed up cash for other investments.  Some of the the projects in the pipeline, like redeveloping Landmark mall into a mixed use community will take years to play out, so i'd be surprised he thought it was a hold at $160 and a sell at $109. 

[NBL0303]

$85!! $85!!

 

Did it actually trade close to $85?

[KJP]

$85!! $85!!

 

Getting closer ...

[BG2008]

FYI, bought a bunch in the mid $90s. Didn't bottom tick it and probably will never be able to fine point the bottom ever in my career.  But this should do well in the long run.  Really hoped that it would go to $85 despite having a sizable position already.   

[no_free_lunch]

Can you expand on how you derive your price target?  Do you have any links to a valuation model?  I really want to like this one but the work to model it out seems quite extensive.

[BG2008]

The key question is with asset quality though. Granted, SRG may be a 60c on the dollar valuation, but those are retail assets RE assets, which are structurally challengened. It is better to purchase assets that are valued at 90c on the dollar when they are likely to appreciate compared to assets for 60c on the dollar that may be falling in value, especially in conjunction with leverage.

 

+1

[ander]

How are you guys valuing HHC? (e.g., cash flow, current property values, timing, etc.)?

[Deepdive]

Can you expand on how you derive your price target?  Do you have any links to a valuation model?  I really want to like this one but the work to model it out seems quite extensive.

 

I think over 90% of the analysts feel the same way

[Foreign Tuffett]

Any thoughts on why HHC has been flat over the last six years? Off the top of my head:

 

* Energy downturn hurt Houston MPCs

 

* Seaport still hasn't gained critical mass -- and isn't going to generate as much cash flow as was once thought

 

* Investors are cautious due to HHC's reliance on the historically fragile Las Vegas housing market

 

* Ackman selling off much of his position didn't engender much confidence

 

* Stock was probably somewhat overvalued in 2013. It has taken awhile for intrinsic value^TM to catch up to the stock price.

 

* HHC has lots of long tail-type assets that don't generate much cash flow. There haven't been any catalysts^TM to force the market to bid this up to NAV

 

 

[Eye4Valu]

Any thoughts on why HHC has been flat over the last six years? Off the top of my head:

 

* Energy downturn hurt Houston MPCs

 

* Seaport still hasn't gained critical mass -- and isn't going to generate as much cash flow as was once thought

 

* Investors are cautious due to HHC's reliance on the historically fragile Las Vegas housing market

 

* Ackman selling off much of his position didn't engender much confidence

 

* Stock was probably somewhat overvalued in 2013. It has taken awhile for intrinsic value^TM to catch up to the stock price.

 

* HHC has lots of long tail-type assets that don't generate much cash flow. There haven't been any catalysts^TM to force the market to bid this up to NAV

 

FT-I don't want you to get a cease and desist. Those words are trademarked.

[Deepdive]

Any thoughts on why HHC has been flat over the last six years? Off the top of my head:

 

* Energy downturn hurt Houston MPCs

 

* Seaport still hasn't gained critical mass -- and isn't going to generate as much cash flow as was once thought

 

* Investors are cautious due to HHC's reliance on the historically fragile Las Vegas housing market

 

* Ackman selling off much of his position didn't engender much confidence

 

* Stock was probably somewhat overvalued in 2013. It has taken awhile for intrinsic value^TM to catch up to the stock price.

 

* HHC has lots of long tail-type assets that don't generate much cash flow. There haven't been any catalysts^TM to force the market to bid this up to NAV

 

FT-I don't want you to get a cease and desist. Those words are trademarked.

 

Someone on the call today acknowledged that they are creating a lot of value and NAV is growing.  But he lamented that HHC should do something to pay a dividend, even a small one, so that the institutions will own the stock.  Six years is a long time for a stock to languish. 

[Gregmal]

Just thought I'd bring up, as it may be useful for bigger picture context, or maybe not... I occasionally spend time reading old write ups, older annual reports, or just tangential info relating to companies I follow; There was a time before this was spun out, where the HHC assets were largely considered the "bad" assets. Yes this was an odd time but the reasons I think they were viewed as such had to do with where the economy and RE markets were. Which if nothing else, highlights the various waves of market cycles and how far we've come. Maybe also where we are in the cycle. Who knows.

 

I am noticing that RE is starting to get broad stroked "cheap" treatment. Just like how every auto trades at 5-6x, I am beginning to notice that a surprising number of high quality companies are trading at big discounts to NAV. Personally I prefer this not occur; as it could mean we are in for a longer dull period until the perception of what's causing this widespread sentiment changes. Much easier to change a few things with one company to get a better valuation than have to have an entire sector have something change.

[NBL0303]

 

I am noticing that RE is starting to get broad stroked "cheap" treatment. Just like how every auto trades at 5-6x, I am beginning to notice that a surprising number of high quality companies are trading at big discounts to NAV. Personally I prefer this not occur; as it could mean we are in for a longer dull period until the perception of what's causing this widespread sentiment changes. Much easier to change a few things with one company to get a better valuation than have to have an entire sector have something change.

 

Good points. Just curious, "I am beginning to notice that a surprising number of high quality companies are trading at big discounts to NAV." Which high-quality ones are you referring to/interested in? Thank you.

[Castanza]

http://clarkstreetvalue.blogspot.com/2019/03/howard-hughes-updated-thoughts-2019.html

 

A good read on HHC.

[Gregmal]

 

I am noticing that RE is starting to get broad stroked "cheap" treatment. Just like how every auto trades at 5-6x, I am beginning to notice that a surprising number of high quality companies are trading at big discounts to NAV. Personally I prefer this not occur; as it could mean we are in for a longer dull period until the perception of what's causing this widespread sentiment changes. Much easier to change a few things with one company to get a better valuation than have to have an entire sector have something change.

 

Good points. Just curious, "I am beginning to notice that a surprising number of high quality companies are trading at big discounts to NAV." Which high-quality ones are you referring to/interested in? Thank you.

 

VNO depending on the cap used for office space is pretty wildly undervalued, HHC supposedly trades at a massive discount, Griffin Industrial trades well below, FRP Holdings probably $20 per share below, Consolidated Tomoka $30 per share, Washington Prime trades 10 football fields away from the asset value...Probably a few more but these conditions have me wondering if the market at then moment is just planning to perpetually discount these things, much like we've seen in other sectors like auto and airlines. Which means they may not be as attractive as I've previously thought.