The Howard Hughes Corporation (HHC): Bill Ackman Says it Has Favorable Economic Characteristics

As usual, Pershing Square‘s Bill Ackman discussed in detail all the positions from the fund’s 13F portfolio in its new 2018 Annual Investor Letter. A copy of the letter you can find – here. Among those positions, was The Howard Hughes Corporation (NYSE:HHC), for which Bill Ackman said that in spite of its highest level of residential land sales, which it recorded in 2018, the company is still struggling with investors lack of understanding, which caused its price to drop in the fourth quarter. Nevertheless, Bill Ackman holds the opinion that in time the company would attract more investors who will become open towards the idea that The Howard Hughes Corporation has so much to offer, and that its business is just different from those of homebuilders.

During 2018, HHC continued to make strong business progress. It recently reported the highest level of residential land sales in its master planned communities in HHC’s history. Sales of units in HHC’s Ward Village in Hawaii remained strong. Since the initial pre-sale launch of units in 2014, Ward Village has sold more than 1,900 condo units generating total proceeds of over $2.2 billion at projected 30% gross margins. In addition, HHC now has 50 million square feet of development entitlements within its existing portfolio and is nearing completion of the South Street Seaport development in downtown New York.

HHC’s share price decreased 26% in 2018 and rebounded 13% year-to-date in 2019. While HHC has now operated independently since 2010, it operated quietly, out of view from much of the investment community until 2017 when it had its first Investor Day. Despite HHC’s recent public facing efforts, the company is still not well followed or understood by the investment community which, in our view, is one of the reasons why the company’s stock declined in the fourth quarter. HHC tends to be grouped with homebuilding-related stocks, which declined in the fourth quarter as the market focused on potential housing headwinds.

Today, HHC owns a highly diversified portfolio of operating assets that generate consistent cash flows. We expect that over time, as other investors gain a better understanding of HHC’s business and appreciate that it has different and more favorable economic characteristics than a homebuilder, HHC will achieve a valuation that is more reflective of its intrinsic value that continues to grow at a rapid pace.

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The Howard Hughes Corporation is a big Dallas-based real estate management company. Since the beginning of the year, its’ shares have gained almost 14%, and on March 29, the stock had a closing price of $110. Its market cap is of $4.68 billion, and the company is trading at a price-to-earnings ratio of 83.33.

At Q4’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 37% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HHC over the last 14 quarters. With the smart money’s sentiment swirling, there exist a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in The Howard Hughes Corporation (NYSE:HHC) was held by Horizon Asset Management, which reported holding $184.1 million worth of stock at the end of September. It was followed by Pershing Square with a $120.4 million position. Other investors bullish on the company included Cardinal Capital, Locust Wood Capital Advisers, and AEW Capital Management.

In its last financial report for the full year 2018, The Howard Hughes Corporation reported net income attributable to common stockholders of $57.0 million or $1.32 per diluted share, compared to $168.4 million or $3.91 per diluted share in the previous year.

Disclosure: None.

This article was originally published at Insider Monkey.