HHC - Howard Hughes Corp

[hyten1]

what do people think of hhc?

[Myth465]

What do you think?

[hyten1]

complicated situation, still looking at it, just a note, blackstone etc purchase 5.2mil share of hhc at $47 and change as part of the reorg investment plan

 

 

[rogermunibond]

Hyten - is that $37?  Why would Blackstone buy at $10 over the trading price?

[maxprogram]

It's hard to peg any kind of precise value to any of HHC's assets, but I think there is certainly a lot of potential upside, and not much downside.

 

It's trading at an Enterprise Value of about $1.8 billion right now. Their Master Planned Communities (the biggest of which is Summerlin) have a net interest of ~13,500 acres, which I think could be worth at least $1 billion ($74k an acre, with about 7 or 8 lots per acre in Summerlin). They just sold some unfinished lots to other homebuilders for over $500k an acre.

 

Some other "premier" properties are the South Street Seaport, Victoria Ward Centers, and Landmark Mall. The South St. Seaport in NYC is on the books for $2.9mm, probably worth 100x or more that amount. The Ward Centers in Honolulu are on the books for $320mm, probably worth at least 2x that if not up to $1bb. The rest of their properties have a book value of $400mm, but many need to be developed and could be worth more. The company is relatively unlevered and they have the opportunity to either sell properties to a developer or take on some new debt and have someone develop some of the good properties. (For example, one of the smaller properties, Cottonwood Mall, is a mile away from my office and is 11 acres of empty land in a prime location. Before the crash, it was slated to be a $500mm mixed use development.)

 

So, hard to put a value on but some good potential especially with Ackman and connections to Brookfield. Now that they are out of bankruptcy they can start the ball rolling on realizing some value in these properties.

[hyten1]

rogermunibond you read it correct its $47 and change

[Guest Bronco]

This stock is up nicely today.  Any reasons?

 

 

[vn35]

The current valuation of HHC holdings  are presented already (in the CS Boston paper).  I think the downside is probably limited but a good upside is there.  I will take a nibble on this.

 

[momentumgeek]

Which CS paper? The GGP initiation from 9/13/2010 or is there another more complete one?

[rogermunibond]

HHC has been fantastic.  Massively underpriced at the spinoff.  Anyone have an inkling of the IV now?

[txlaw]

Reading Ackman's letter, I can't help but think about how his insights apply to JOE as well.

 

The difficulty is that the real estate assets owned by HHC are notoriously difficult to value.  First, you should consider that their long-term value - the value that can be achieved by a long-term owner - is, in my opinion, materially higher than their liquidation value.

 

. .  .

 

For our MPC assets, one can make assumptions about the timing and number of future lot sales and then discount back these cash flows over the 30-or-so-year life of the project at a discount rate you deem appropriate. The problem with such an approach is that small changes in assumptions on discount rates, lot pricing and selling velocity, inflation, etc. can have an enormous impact on fair value.

 

For our development assets, one needs to make assumptions about what will be built, when it will it be built, to whom it will be leased, what rents it will achieve, what expenses it will incur, and what multiple an investor will place on these cash flows. Again, even highly sophisticated real estate investors will assign substantially divergent values to the same assets when using their own assumptions.

 

. . .

 

In light of the complexity of our asset base and the inadequacy of GAAP accounting to track our progress, you should now understand how important it is to get the right management team in place with the right incentives.

 

I'm guessing Bruce Berkowitz would wholeheartedly agree with almost all of what's in Ackman's letter.

[Junto]

It is hard to discuss HHC without reading the informed analysis by @ToddSullivan; http://Www.valueplays.net

[gfp]

http://www.sec.gov/Archives/edgar/data/1195979/000120919111022881/xslF345X03/doc4.xml

[rogermunibond]

Junto are you shilling for Todd Sullivan.  'Cause it's hard to read the informed analysis of Todd Sullivan behind the paywall.

[ShahKhezri]

Looking to see what kind of pop Tilson gives it today:

 

http://www.valueinvestingcongress.com/images/VIC_P11_Agenda.pdf

 

Just a hunch he's probably going to talk about HHC.

[accutronman]

Tilson's presentation on HHC (as well as his short thesis on JOE) is located here: http://www.marketfolly.com/2011/05/whitney-tilsons-presentation-on-st-joe.html

 

The exciting part about HHC is the potential worth of the Hawaii property (Ward Center) as well as the Ala Moana air rights:

 

Ward Centers is comprised of approximately 60 acres situated along Ala Moana Beach Park and is within one mile of Waikiki and downtown Honolulu. Ward Centers currently is a 550,000-square-foot shopping district containing six specialty centers and over 135 unique shops, a variety of restaurants and an entertainment center, which includes a 16-screen movie theater. In January 2009, the Hawaii Community Development Authority approved a 15-year master plan, which entitles a mixed-use development encompassing up to 9.3 million square feet, including up to 7.6 million square feet of residential (4,300 units), five million square feet of retail and four million square feet of office, commercial and other uses.

 

 

The Howard Hughes Corporation also owns the rights to develop a residential condominium tower over a parking structure at Ala Moana Center, one of the most visited and profitable shopping centers in the world. Ideally located between downtown Honolulu and the world-famous Waikiki Beach, Ala Moana hosts more than 42 million visitors each year. The parking structure is designed to accommodate the construction of a condominium tower and is located adjacent to Nordstrom.

 

Have held HHC since the spin-off...definitely a winner!

 

[accutronman]

The Howard Hughes Corporation Reports First Quarter 2011 Results

 

First quarter 2011 net income was $11.5 million, excluding the $126.0 million non-cash charge relating to an increase in estimated value of the Company’s warrants, compared to net loss of $(20.5) million for the same period in the prior year. First quarter 2011 net loss was $(114.5) million inclusive of the non-cash warrant expense.

Master Planned Community land sales, including our share of the sales at The Woodlands joint venture, were $34.3 million for first quarter 2011, compared to $15.1 million for first quarter 2010.

Net operating income for our Operating Assets was $13.5 million for first quarter 2011, compared to $10.6 million for first quarter 2010.

[stahleyp]

it looks like HHC has some warrants. Anyone know anything about them? I've done some digging but haven't found much.

[claphands22]

it looks like HHC has some warrants. Anyone know anything about them? I've done some digging but haven't found much.

 

I think those were only given to insiders...interactive brokers doesn't offer the warrants.

[Liberty]

This looks like an interesting one. I've starting looking at it, but very early stages. I'm mostly looking to learn, far from investing at this point.

 

No updates in a while; anyone still holding it?

[Liberty]

Here's a pretty good report on the spinoff:

 

http://www.hamincny.com/docs/General%20Growth%20Properties%20Spin-Off%20Report%20October%202010.pdf

[mankap]

Here is Bill Ackman's letter to HHC shareholders

 

http://www.valueplays.net/2011/04/07/ackmans-letter-to-howard-hughes-shareholders/

[Liberty]

Here is Bill Ackman's letter to HHC shareholders

 

http://www.valueplays.net/2011/04/07/ackmans-letter-to-howard-hughes-shareholders/

 

Thanks. I've already seen it. There's also a companion letter from Weinberg:

 

http://phx.corporate-ir.net/phoenix.zhtml?c=241177&p=irol-newsArticle&ID=1548151&highlight=

[Olmsted]

Valuing HHC is tricky, as Ackman himself discusses in his letter.  The assets will not be monetized for a while, it is uncertain how much cash will be needed, one would need to predict the trajectory of several regional property markets, discount rates, etc.  I have seen some articles that use HHC's own sales data and extrapolate them to a valuation - but there is a big difference between the price obtained in piecemeal sales and the price for large blocs of undeveloped real estate.  These articles have failed to bridge that gap to my satisfaction.  I do remember doing a discounted cash flow analysis when HHC first started trading, and using the sales data provided in the registration documents - assuming these continued at the same price and pace - it looked like HHC was undervalued by about half (give or take a lot).  But I never became all that comfortable due to the myriad assumptions that went into that analysis. 

 

So imagine my excitement when I noticed a WSJ report on a private-market transaction that may help value HHC!  Calpers sold its portfolio of 28 housing communities in development to Newland Real Estate ("Calpers Downsizes Housing Portfolio", Wed Jan 18, Money&Investing section).  Ah, now we have a comparable transaction that we can apply to HHC's master-planned communities segment.  The article states that the price range for the deal valued each home site at $35,000.  Here's my back-of-the-envelope take:

 

Looking at HHC's 2011 sales, they report sales at an average of $88,000 a lot and $356,000 an acre.  This means that HHC's average "home site" is about .25 acres.  They report that among their master-planned communities they have 14,000 saleable acres - or 56,000 home sites.  At the Calpers price/site - that gives this segment an enterprise value of $1.96b.  HHC also has a bunch of operating assets.  These operating assets do $53m in NOI.  Slap a cap rate of 7% on it, and we have $800m in enterprise value.* 

 

That's an implied enterprise value for the whole company of $2.8b versus $2.4b currently.  About $400m of debt means that the equity market cap is currently $2b, and should be $2.4b.  The stock is undervalued by $400m, or 20%.  Margin of safety?  I think so, and here's why:

 

-I am not terribly familiar with the Calpers portfolio, but I doubt it is as good as the HHC master-planned community portfolio.  HHC's communities are really best of breed, and therefore the simple price/home site metric from the Calpers transaction is probably understates its value significantly.

-HHC is a grab bag of assets and I simplified greatly in the analysis.  Any assets besides "saleable land" and the "operating assets" - that is, the "strategic developments" - are ignored and are pure upside to this valuation.  The Ala Moana air rights?  The Maui land? etc.  If this segment is just worth its book value ($188m), that's another 10% of undervaluation.  Many of these assets are on the books from a long time ago, and should be worth more than book value once some attention is paid to them.

 

To me this was an interesting exercise to see how HHC's development assets are valued compared to a private-market bulk transaction of a similar asset.  It is good to see that even with what I think is a poorer asset quality, the Calpers transaction puts a value on HHC above what the market thinks.  Of course this is based on only one transaction, but I think this exercise is valuable as a supplement to a DCF analysis in order to better "triangulate" a good valuation for HHC.

 

Thoughts?

 

*These numbers are actually quite close to the book value for these two segments.

**All info is from the 10Q for the period ending 9/30/2011

[Liberty]

Thank you Olmsted, very interesting. It does help me create a clearer picture of the value range in my head, but it's still incredibly fuzzy. Too bad, because Bill Ackman's involvement is making this one really interesting to me -- I just know he did a massive amount of due diligence on it..

 

It's not like I have cash to invest anyway, but I do want to learn more about HCC to enlarge my circle of competence, so I really appreciate your contribution.