On June 2, David Weinreb, the CEO and Director of Howard Hughes Corp (NYSE:HHC), spent nearly $1 million to accumulate 10,000 shares of the company he is managing at an average price of $99.56 per share. Howard Hughes Corp (NYSE:HHC) has experienced a great run-up since the beginning of the year, from around $46 per share to more than $100 per share. Should we follow David Weinreb into Howard Hughes Corp (NYSE:HHC)? Let’s find out.
$65-$125 per share in intrinsic value
Howard Hughes Corp (NYSE:HHC), the real estate company, operates in three main business segments: Master Planned Communities, Operating Assets, and Strategic Developments. Currently, the company possesses four master planned communities with more than 12,500 acres of land to be sold. Its Operating Assets segment has around 26 properties including 9 commercial mixed-use and retail properties, seven office properties, a 36-hold golf and a multi-family apartment building. The Strategic Developments segment has 21 properties under development.
The company believes that these properties would need substantial development so that they could achieve the best economic results. The Master Planned Communities segment generated the majority of profits, $91.94 million, while the Operating Assets segment contributed $19.5 million in operating income, and Strategic Developments produced a loss of $1.7 million.
Whitney Tilson, in the Value Investing Congress, presented Howard Hughes Corp (NYSE:HHC) as one of his favorite ideas. There were several good areas including Summerlin residential in Las Vegas and Ward Center in Honolulu. Using the DCF approach, he came up with around $900 million to $1.5 billion value for Summerlin, based on management’s estimate of future cash flow in the next 28 years. Ward Center could be worth around $800 million-$1.6 billion, much higher than the current carrying value of around $350 million. For the whole company, he came up with an intrinsic value of $65 to $125 per share.
Bill Ackman was behind the spin-off of Howard Hughes
Howard Hughes Corp (NYSE:HHC) was spun off from General Growth Properties Inc (NYSE:GGP) at the peak of the financial crisis with support from activist hedge fund manager Bill Ackman. Currently, Bill Ackman is the company’s Independent Chairman of the Board. His fund, Pershing Square, held more than 3.5 million shares in the company, accounting for 3% of the total portfolio.
He also owns more than 74.7 million of General Growth Properties Inc (NYSE:GGP), representing as much as 14.8% of his total portfolio. General Growth could be considered the second biggest mall operating REIT, only after Simon Property Group, Inc (NYSE:SPG). While Simon Property Group, Inc (NYSE:SPG) has around 325 retail properties, with around 242 million square feet in total, General Growth ranked the second with 143 shopping malls, with the total size of around 135 million square feet.