I was at the Harbor Investment Conference yesterday. I have to say that Mark Axelowitz and Bill Ackman did great job putting this together and the speaker lineup did not disappoint. Not many investment conferences feature Clinton’s Co-Deputy Chief of Staff (Mona Sutphen) speaking about global risks, Ackman answering any question asked for an hour and a lineup of quality managers putting forth great ideas. The intimate setting makes for a very personal event in which all speakers are readily available to talk during breaks.
The speakers were:
- Andrew Feldstein- CEO and Chief Investment Officer, BlueMountain Capital Management
- Mick McGuire- Founder and Managing Member, Marcato Capital Management
- Howard Shainker- Managing Partner of Bow Street LLC
- Mona K. Sutphen- Managing Director, UBS AG
- David Weinreb- CEO, The Howard Hughes Corporation
Now, Howard Hughes (HHC)
CEO David Weinreb gave the presentation and laid out the value proposition for HHC (click here for the webcast).
The Ward Village and Ala Moana Towers, to put it succinctly is worth in excess of the current $2.8B market cap of the entire company. Now, this is a claim I have made here since the company was spun out from General Growth Properties (GGP) in Nov, 2010 but Weinreb finally put some numbers out yesterday.
He illustrated how the residential component of the project equates to ~$2B dollars in value based on current sales figures in the area. It is important to note that the pricing data he used was current numbers. Honolulu currently is facing a shortage of housing and prices are expect to rise 40% over the next few years essentially meaning Weinreb’s estimate will more likely that not turn out to be low. Ala Moana Tower 1 sold out in 29 hours with people camping out over night to buy condos when they went on sale (although he did not camp out, Facebook's (FB) Mark Zuckerberg bought “several”). Now, the value he ascribed to the project excludes the value on 1M sqft of retail space that has been approved and will be built. Again, for reference the Ala Moana mall in Honolulu (owned by GGP) is the single highest grossing mall in the US at over $1500 sqft. So, adding 1M sqft of retail shopping for HHC in the area will add more than a little value
The Woodlands/Bridgeland MPC’s in Houston are simply desperately trying to keep up with demand. Lot revenue from the Woodlands was up 49% over budget in 2012 due to demand from Exxon (XOM) building a new campus there and bringing with them 10,000 employees. The demand they are creating is causing HHC to build retail, office, residential and hotel space that was not even planned a year ago.
Summerlin in Vegas is coming back strong and this demand has resulted in the building of Summerlin Center which will house thousands of resident, office buildings, and 1.5M sqft of retail space; Macy’s (M) and Dillards (DDS) have already committed).
Remember, the Honolulu project we have already determined is worth the current value of the company. So the obvious value of the obove MPC’s is being thrown in for free for current shareholders.
Let’s move onto NYC and the South Street Seaport. Plans have been approved and construction will begin soon. Here is what you need to know about that. It is the 26th most visited tourist destination in the world and quite simply, it is nothing special, save for the location. It is held on HHC’s book at a value of $5.3M dollars. It has 370K sqft currently rented at around $100/sq ft. It was noted that currently 5th Avenue rents for $3000 sqft and Ackman said that disparity for the same collection of tourist will be closed when the new Seaport opens. He also said that he felt that the Seaport will eventually be worth more that the current market cap of the company. Think about it, where in NYC can you rent anything for $100 sqft much less waterfront property? Further, at $100/sqft the Seaport is currently profitable. It will be a cash cow once completed and rent are materially raised.
Now, all of the above ignores the MPC in Columbia, MD, half a dozen other operating properties and a near dozen other office developments currently under way. Again, the value of all of these is free to current shareholders.
All of this assumes of course no other acquisitions are made or developments begun due to demand as we have seen in the Woodlands.
A final point. Weinreb said “I wrote a check for $15M to come to work at HHC and I wold have gladly paid much more would I have been allowed to”.
I rarely if ever give “price targets” on stock because I think they are hostage to far too many vagaries and the emotions of the market. Most of everything above will be completed at some point in 2015 and before then people ought to wake up to the value here (sales, rental information and NOI projections will be produced before the projects are completed).
There are a lot of moving parts here also. For instance as I have said for a while when these operating properties are done and throwing off copious amounts of NOI, keeping them in a C Corp structure makes no sense. Putting them into a REIT structure and spinning that to shareholders does make sense. So when we are talking about a a “price” we have to consider the sum of whatever parts or formations we see down the road.
I do not see Ackman splitting the stock at any point as the price climbs. I easily see $6B-$8B of value here over the next 2 years or so which means a $150-$200 stock price and very possibly more depending on what other moves they may make.