Mr Neutral Man

Mr Neutral Man

28-10-2022

18:49

Howard Hughes Corp $HHC is a two to four bagger sitting in plain sight. Today, Bill Ackman is trying to squeeze out minority shareholders to keep all the upside to himself. I will get into the valuation shortly, but first let me explain how Ackman is trying to screw us

2) How did billionaire hedge fund manager Ackman wind up with 27% of $HHC AND his entity is now tendering for another 12% of the shares outstanding? Ackman famously bought CDS for $27mm before the Covid outbreak in 2020 and turned it into $2.6bn.

3) Despite being a decade long Chairman of $HHC, he did not prepare the company for the impending crisis. $HHC wind up in a liquidity crunch and the company issued him $500mm of new shares at bargain basement price of $50. Now heโ€™s launched a tender offer? What is his play?

4) @Carl_C_Icahn Ackman is trying to create his own Berkshire Hathaway by redomiciling $PSH into US soil. He has the hubris to prove heโ€™s better than Buffett. @matt_levine Ackman could potentially get around the investment company Act of 1940 by acquiring $HHC

$PSH has $9.8bn of securities (cash doesnโ€™t count) and $HHC has $9.5bn of total assets. If Ackman uses an additional $2-3bn of $PSHโ€™s asset to buy $HHC, the mix becomes very close to 60% $HHC and 40% public securities of $PSH. The ratio will be too perfect to be a convenience.

6) Why does Ackman always buy large chunks of of $HHC when it is in the $50-60 range? I think $HHC is worth conservatively $111. We assume impairment in many assets and high cap rates. This represents 86% upside. In a bull case, $HHC could also be worth $250-400 in five years.

7)$HHC has complexity. The main NAV components are a.Stabilized Assets of office, MF, and retail b.Unstabilized and under construction assets c.Resi land in MPC d.Commercial land in MPC e.Seaport in NYC f.Ward Village in Hawaii g.Other assets and liabilities

8) Stabilized operating assets are worth $4.2bn. We assume 5/6/7% for MF/retail/office respectively compared to mgt guidance of 3.8/5.4/6.9% These are generally the best and newest Class A products in their markets

9) Next up is unstabilized and under construction assets worth $650mm. Unstabilized assets are 48-94% leased already. We use 1.0 to 1.3x book value to value these assets.

10) Residential land in Master Planned Communities (MPC) at $1.6bn vs $2.9bn per management NAV guidance. We assume $/acre that is 20% lower than Q2 2022, 12-15% disc rates instead of 7-9%, and 2% annual land growth instead of 4.5-7%. We impaired Douglas Ranch by 50%.

11) Commercial land worth $2.45bn. This is the only asset where our valuation is higher than mgt guidance. This is also the most promising part of the $HHC story. We believe there are 496 acres of core development worth $2mm/acre with unbelievable reinvestment opportunities.

12) I personally love the Seaport in NYC and believe it has the potential to become a trophy asset. NOI is about to inflect higher. But the investment community is more pessimistic. I am taking a 40% impairment to historical cost to be conservative.

13) Ward Village condo towers are worth $1.2bn. Keep in mind that 4 of the remaining 8 condo towers are over 90% presold. Buyers have put down 20% non-refundable deposits. This is a high margin predictable business, not a speculative condo development business.

10)Other assets of $1.9bn. We assume no value for Maui Ranch land, remaining air rights at the Seaport in NYC and 80% interest in air rights in Fashion Show Mall in Vegas.



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