Pershing Square Holdings, Ltd., an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. For the first half of 2021 and year-to-date through August 17, 2021, the Company’s NAV per share, including dividends, increased by 7.3% and 5.8%, respectively, and the Company’s share price increased by 4.7% and 2.0%, respectively, compared with the S&P 500 which returned 15.2% and 19.5% over the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Pershing Square Holdings, the fund mentioned The Howard Hughes Corporation (NYSE: HHC) and discussed its stance on the firm. The Howard Hughes Corporation is a The Woodlands, Texas-based real estate company with a $4.9 billion market capitalization. HHC delivered a 12.75% return since the beginning of the year, while its 12-month returns are up by 54.50%. The stock closed at $88.31 per share on September 28, 2021.
Here is what Pershing Square Holdings has to say about The Howard Hughes Corporation in its Q2 2021 investor letter:
“In 2020, David O’Reilly, formerly HHC’s CFO and President, became the company’s CEO, and Jay Cross, formerly President of Hudson Yards, became its new President. Since then, management has executed a strategic plan to transform the company into a leaner and more focused organization which allowed it to successfully navigate the COVID-19 pandemic amid a challenging backdrop for the industry.
In April, HHC held an Investor Day to highlight the attractiveness of the company’s unique Master Planned Community (“MPC”) business model and the substantial opportunity to accelerate commercial development, including 2 million square feet of development already in progress. For the first time in its history as a standalone public company, management presented a sum-of-the-parts net asset valuation framework that, in aggregate, valued the different components of its portfolio at $150 per share, a 68% premium to its share price on August 17, 2021.
In Q2, HHC continued to experience a robust recovery with strong land sales momentum in its MPCs, stable performance in office and multi-family properties, and an improving outlook for its retail, hospitality, and ballpark assets.
HHC’s MPCs in Houston, Texas, and Las Vegas, Nevada, are situated in tax-advantaged states which are beneficiaries of the continuing trend of out-of-state migration from California and other higher-tax states. New home sales in HHC’s MPCs, a leading indicator of future demand, increased 23% in the second quarter, and show signs of continued strength.
HHC’s NOI increased 20% sequentially relative to the first quarter, and 42% compared to the prior year, driven by a strong recovery across retail and hospitality assets which were most impacted by COVID 19. Retail rent collections have steadily improved to 80% benefiting from a rebound in foot traffic and strong leasing activity in the company’s retail footprint in Downtown Summerlin and Ward Village. Likewise, hospitality NOI in the second quarter substantially improved from breakeven profitability in Q1 as overall occupancy levels in HHC’s hotels increased by nine percentage points.
In Ward Village, the company continues to experience strong condo sales. Its newest condo tower, Victoria Place, which launched in December 2020, is already 94% pre-sold. HHC is also making significant progress on the development of the South Street Seaport in New York City where it is opening several new concepts that are well positioned to benefit from the post-COVID-19 recovery in New York City foot traffic. The company recently received approval from the NYC Landmarks Preservation Commission for its proposed plan for a building at the site of an empty parking lot at 250 Water Street, paving the way for an eventual transfer of air rights which will unlock significant commercial value for the Seaport.
HHC is experiencing solid business momentum across its portfolio. We expect that the impact of the pandemic on the company will be largely transitory, and believe in the continued long-term growth in intrinsic value of the company.”
sean-pollock-PhYq704ffdA-unsplash (1)
Based on our calculations, The Howard Hughes Corporation (NYSE: HHC) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. HHC was in 25 hedge fund portfolios at the end of the first half of 2021, compared to 27 funds in the previous quarter. The Howard Hughes Corporation (NYSE: HHC) delivered a -8.69% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
