1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Holly LaFon
Holly LaFon
Articles (8704)  | Author's Website |

Bill Ackman Comments on The Howard Hughes Corp

Guru stock highlight

May 17, 2018 | About:
The Howard Hughes Corporation (NYSE:HHC)

During the quarter, HHC adopted a new revenue recognition standard that significantly reduced GAAP revenue and earnings for the quarter, but had no impact on the company’s intrinsic value or cash flows. Up until this quarter, HHC recognized revenue for its condominium projects using percentage of completion accounting where units under contract to be sold were recognized into revenue as the corresponding condominium tower was constructed. The new accounting requirement better matches cash flows as condo sales are recognized only when unit sales are completed and title is transferred to the buyer. We believe some analysts and investors were confused by the change as HHC’s stock declined despite strong demonstrated value creation during the quarter. During the quarter, the company opportunistically acquired about 1% of its shares outstanding for $120.33 per share as each of HHC’s core master planned communities (MPCs) showed continued growth and business progress as we describe in detail below.

Ninety-five percent of the 1,381 available condo units in HHC’s Hawaii Ward Village’s four existing towers under construction are now under contract or have been sold. HHC began pre-sales of its new 751 unit condo tower offering (A’ali’i) in January. In four months, the tower is already 39% pre-sold, highlighting the continued demand for high quality, differentiated, Ward Village for-sale product. With only 25% of its entitlements utilized, Ward Village offers substantial continued value creation for HHC over the next decade. The company’s outright ownership of its land allows it to carefully control the pace of deliveries, enabling HHC to meet market demand while substantially reducing the risk of oversupply.

In Summerlin, Las Vegas, continued strong land sales and increasing home prices generated continued strong cash flows. HHC began construction of the ballpark for its wholly owned Las Vegas 51s Triple A baseball team, which is expected to cost approximately $115 million and is estimated to produce approximately $7 million of cash flow. This is an attractive expected return from an amenity principally designed to increase the value of Downtown Summerlin and the surrounding property owned by HHC.

At the South Street Seaport, HHC finalized new leases (ESPN, Malibu Farms) and new sponsorship agreements (Lincoln Motor, Heineken). The Seaport is not just a real estate asset that will generate rental income, but an operating business that will have sustained sponsorship and business income in addition to rental income. Live Nation recently announced a summer 2018 rooftop concert series at the Seaport which will further enhance the visibility and attractiveness of the Seaport to the community, and increase demand for remaining space and more corporate sponsorships.

In Chicago, HHC began construction on a 53-story, 1.4 million sq. ft. Class A office development at 110 North Wacker. The total estimated cost of the project is $761 million with an estimated 7.9% unlevered yield on cost. HHC arranged third-party debt and preferred and common equity commitments, which reduce HHC’s cash investment to the project to just $49 million. HHC will retain a significant portion of the profit on the project with its share of stabilized cash flow estimated to be over $19 million. To date, we believe that few HHC shareholders have assigned significant value to this non-core asset.

In its Operating Asset segment, HHC increased its projected stabilized net operating income target from $255 million to $291 million as a result of the addition of three new developments to its pipeline. As a growing percentage of HHC enterprise value is represented by stabilized, cash-flow-generative real estate assets, it should become easier for investors to underwrite the value of its assets and HHC’s intrinsic value, which we believe is substantially greater than the current share price.

From Bill Ackman (Trades, Portfolio)'s first-quarter 2018 shareholder letter.

About the author:

Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


Rating: 3.0/5 (1 vote)

Voters:

Comments

nikkisheaver
Nikkisheaver - 2 months ago    Report SPAM

I was diagnosed with COPD 5 years ago and was taking Spiriva and Advair plus nose sprays to slow down progression. My symptoms have always been shortness of breath, and dizziness. I am a 54 year old male. the Spiriva wasn’t really working and I could not tolerate them for long due to severe side effects, so this year our family doctor started me on Natural Herbal Gardens COPD Herbal mixture, We ordered their COPD herbal treatment after reading alot of positive reviews, i am happy to report with the help of Natural Herbal Garden natural herbs I have been able to reverse my symptoms using herbs, my symptoms totally declined over a 9 weeks use of the Natural Herbal Gardens COPD natural herbal formula. My COPD is totally reversed! Their official web page is www . naturalherbalgardens . com After the herbal treatment I also finally was able to give up smoking after 20 years. I ‘m thankful to nature

Please leave your comment:


Performances of the stocks mentioned by Holly LaFon


User Generated Screeners


mathew94Short 2
daniel.e.millmanValue Composite + Positive Mom
pbarker46Begin
kelly66Rel Yld-FCF-PEG
zollaroncash
HOLKLSUMini Group 2018 Energy & Finan
DBrizannarrow21Jul2018 1205p
DBrizanwide21Jul2018 1134p
DBrizanholdings21Jul2018 1119p
DBrizanwide21Jul2018 1044p
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat

{{numOfNotice}}
FEEDBACK