We came across a bullish thesis on Howard Hughes Holdings Inc. (HHH) on Substack by Bulls On Parade. In this article, we will summarize the bulls’ thesis on HHH. Howard Hughes Holdings Inc. (HHH)’s share was trading at $75.49 as of Feb 14th. HHH’s trailing P/E was 64.53 according to Yahoo Finance.
Aerial view of a commercial real estate development in progress, showcasing the company’s mastery of the sector.
Howard Hughes Holdings (HHH) is a leading real estate developer with a strong focus on master-planned communities located near major economic hubs. The company’s strategy is built around selling raw land to homebuilders, while retaining ownership of commercial real estate assets that generate long-term income. This dual approach allows Howard Hughes to benefit from both the appreciation of its land and the demand for nearby commercial spaces as residential developments take root. The company’s land holdings have proven highly valuable, particularly in light of the ongoing housing shortage in the United States, which is exacerbated by an estimated 4.5 million-home deficit. Howard Hughes is uniquely positioned to capitalize on this supply-demand imbalance through its vast real estate portfolio, which includes land acquired for as little as $3 per acre in the past, now worth millions.
In recent years, Howard Hughes has undergone significant restructuring, particularly after the infusion of capital from Bill Ackman’s Pershing Square Capital and Brookfield Asset Management. The company has refocused on its core business of land development while divesting non-essential assets, such as the South Street Seaport in New York and the Las Vegas Aviators baseball team. This shift has enabled the company to streamline its operations and concentrate on its high-growth master-planned communities. The consistent growth in operating income, with new records set each year since 2021, is a testament to this strategy. In 2024, Howard Hughes anticipates a record net operating income (NOI) of approximately $257 million, driven by its diverse portfolio of office, retail, and multi-family properties within these communities. Strategic partnerships, such as the collaboration with Sony Group Corporation to build new film studios in Summerlin, have also helped enhance the value of its land and assets, attracting further commercial development.
A key component of Howard Hughes’ long-term value creation strategy is its ability to grow the value of its land by selectively selling residential parcels and condominiums while retaining key assets. This approach accelerates land appreciation, allowing the company to reinvest proceeds into further development, debt reduction, or shareholder repurchases. With strong demand for housing and commercial spaces post-pandemic, the company has been able to take advantage of rising property values. Furthermore, Howard Hughes’ strong balance sheet, with 86% of its debt fixed or capped, provides stability in the face of rising interest rates. The company is also on track to reduce its long-term debt, improving its financial position over the next five years as new condominium units are sold.
Howard Hughes is significantly undervalued based on its Net Asset Value (NAV), which management estimates at $118 per share, representing a 37% discount to its current market price. This NAV accounts for both the capitalization rate of its operating assets and the value of its land holdings, as evidenced by recent land sales. The company has introduced a new guidance metric for adjusted operating free cash flow, which accounts for debt and administrative expenses, giving a clearer picture of profitability. For 2024, the company projects adjusted operating cash flow of $541 million, suggesting significant upside potential. With a 16x free cash flow multiple, Howard Hughes’ market capitalization could reach $8.66 billion, implying a fair value of approximately $175 per share, offering a 56% upside from the current price.
While there are risks, including the possibility of rising costs or delays in construction projects and the potential for increased interest rates on its floating-rate debt, Howard Hughes’ land holdings, particularly in Las Vegas, remain a key growth driver. The company’s ongoing projects in Texas, Maryland, Hawaii, and Arizona further bolster its growth prospects. The potential involvement of Pershing Square in a takeover adds an additional layer of upside, but the real value lies in the long-term potential of its land holdings and operating assets.
Howard Hughes Holdings Inc. (HHH) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 39 hedge fund portfolios held HHH at the end of the third quarter which was 35 in the previous quarter. While we acknowledge the risk and potential of HHH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than HHH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.