Howard Hughes (HHC, Financial) initiated an effort this year to increase visibility and transparency into its business. HHC started conducting quarterly conference calls and releasing a quarterly supplemental information package, which provides investors and analysts with additional detailed data about its business. HHC conducted its first ever Investor Day on May 17, 2017 at the South Street Seaport in New York City. Pershing Square also presented Howard Hughes at the Sohn Conference on May 8, 2017 in a presentation entitled SimCities. We believe that the increased transparency will showcase the significant underlying value at HHC over time.
HHC continues to make steady progress across its three business lines – Operating Assets, Strategic Developments and Master Planned Communities (MPCs). In its Operating Asset portfolio, Howard Hughes has steadily increased its projected stabilized net operating income target to $245 million. In its Strategic Development segment, Howard Hughes sold an additional 65 condo units at Ward Village in Hawaii during the first half of the year, increasing the percentage of total units closed or under contract at its four condo towers to 85%, with three towers at more than 93% sold, and the fourth at 69%. The South Street Seaport is on track to open in New York City in summer 2018. In its MPCs, HHC will likely generate over $100 million in land sales at Summerlin (Las Vegas) for the fifth year in a row. Land sales are increasing in Houston as that market is showing signs of a rebound as crude prices have stabilized.
HHC refinanced its existing bonds with a new $800 million bond issuance in a positive net present value transaction, saving 150 basis points in interest and extending the maturity date by 3.5 years. It then subsequently closed on an incremental $200 million bond add-on at a yield-to-worst of less than 5%. HHC now has $660 million of cash on its balance sheet, which will allow it to finance its remaining development projects without the need to raise additional equity capital.
David Weinreb, HHC’s CEO, sold some of his expiring warrants, exercised warrants to purchase $50 million of common stock and agreed to purchase $50 million in new warrants from the company which he is restricted from selling or hedging for the next five years. Along with a smaller purchase by Grant Herlitz, HHC’s President, this is one of the largest investment commitments that we have seen by a management team.
During the quarter we net settled our HHC warrants shortly before their expiration according to their terms (the warrants were not exercisable). By doing so we slightly reduced our notional exposure to HHC, disposed of the only Level 3 asset that we owned, and now own only HHC common stock and total return swaps.
From Bill Ackman (Trades, Portfolio)'s second quarter 2017 shareholder letter.
