Business Description
Howard Hughes Holdings Inc. (HHH) owns, manages, and develops commercial, residential, and mixed-use real estate throughout the United States. The company's core business revolves around its portfolio of large-scale, long-term Master Planned Communities (MPCs) and the development and operation of commercial assets within and sometimes outside these communities.
Its main strategy in building the MPCs is Building the Most Sought-After Communities in the Nation:
HHH's strategy focuses on creating entire ecosystems within its MPCs, driving demand for residential land sales, and then developing and holding income-producing commercial assets (office, retail, multifamily, hospitality) to serve the growing population and businesses within these communities. This integrated approach aims to capture value across the entire real estate development lifecycle.
As the management described during the investor day, "Howard Hughes is now positioned to be a pure-play real estate company with a unique self-funding business model"
The company has three segments:
In 2024 Investor Day, the company mentions the adjusted operating cash flow as a performance metric because it's the cash that is available for capital allocation: 1) future developments; 2) shares buybacks; 3) debt paydown.
While the number in 2024 was not bad:
The number is expected to be down in 2025, mostly due to the lack of condo sales.
The following slides give a glimpse of the company's MPCs and operating assets, mainly to show the sustainability of its MPCs' EBTs, and the the growing NOIs from the operating assets:
Some details of the accounting of the main performance metrics: EBT, NOI, adjusted operating cash flows:
NAV calculation framework
For valuation calculation, it's better to use the framework the company illustrated on the 2024 Investor day, which results in $118 NAV a share.
Recent Strategic Transformation: In May 2025, Pershing Square Holdings, L.P. (led by Bill Ackman, who is now Chairman of HHH) made a $900 million investment in HHH. This investment is intended to transform HHH into a diversified holding company, leveraging its core real estate expertise while potentially acquiring controlling interests in various growth-oriented public and private companies. This marks a significant evolution from its historical focus purely on real estate development and management.
SWOT analysis
Strengths
Strong Brand Recognition: Established communities like The Woodlands and Summerlin command premium pricing and attract demand.
High barriers to entry:
The company pretty much has a monopoly on the real estate within its master planned communities.
The communities have a good reputation for sustained demand of new residents.
The same can be said for the offices, retails, and multifamilies owned by the company in the MPCs. There are minimal competitors for these assets to serve the residents in the communities.
Master-Planned Communities as Ecosystems (Efficient Scale & Network Effect).
Proven Ability to Create Value: History of successful placemaking and generating attractive returns on development.
Weaknesses
The real estate market is inherently cyclical. Economic downturns can reduce demand for land and commercial space, impacting HHH's profitability and cash flow.
The success of newer MPCs (like Teravalis) and the densification of existing ones depend on continued successful execution.
Geographic Concentration: Significant exposure to Texas and Nevada, making it vulnerable to regional economic shifts in those areas.
Opportunities
Strategic Acquisitions and better capital allocation under Holding Company Structure with a famed capital allocator, Bill Ackman, and his Pershing Square Capital Management: Potential to acquire undervalued or growth-oriented businesses, diversifying revenue streams to mitigate the ups and downs of the MPCs land sales.
Narrowing of NAV Discount: Historically, HHH has often traded at a discount to its estimated Net Asset Value. Successful execution in capital allocation could narrow this gap.
Threats
Impact of Pershing Square Management Fee: An ongoing management fee not partially not based on the size of the company could be potentially a material drag on total shareholder returns.
Execution risk in capital allocation by Pershing Square Capital Management. Bill Ackman talked about building or acquiring an insurance company to mimic the Berkshire Hathaway holding structure. It's been done by other hedge fund managers and the results are not exceptional.
References
2024 Investor Day Presentation
Updates
2025/05/23 Valuation based on NAVs provided by the company
If we use the NAVs provided by the company on 2024 Investor Day, we got:
Assume the operating assets and condominiums can cover the liabilities from corporate, which is mostly true even from the cash flow positive.
Let's also say the new investment from Pershing Square Capital Management only takes care of the management fees with no residual values. Also assume PSCM provides no additional values to the company.
We are then left with $104 NAV per share. The company has about 60 million shares outstanding before new shares issued to Pershing Square Capital Management, and about 69 million shares after. The new NAV would be $90 a share. It's the same as Bill Ackman's Feb 2025 terms by coincidence. If I use a 10% discount for a buy below price, that's $81 a share.
For conservative sake, I would use the lower number from 2025/05/05 valuation for my buy below price, which is $72 a share.
2025/05/05 Valuation
Bill Ackman's Pershing Square finally closed on a deal to acquire a $900 million stake in Howard Hughes Holdings Inc. at $100 a share (official release, cnbc news) in exchange for getting annual management fees from HHH based on some calculation of the equity appreciation. In the process, Pershing Square will transform the company into a diversified holding company, a "modern-day Berkshire Hathaway". That allows HHH to sell its real estate portfolio in a well-paced manner to realize the full potential of the net asset value of the portfolio by using the diversified portfolio of income streams to stabilize the cash flow of the company.
While the initial deal terms in February called for $90 a share for the same $900 million stake and Pershing Square would receive 1.5% of Howard Hughes’ equity market capitalization annually as the management fee (that's 60,393,938 * $66 * 0.015 ~ $60 million assuming a share price of $66 a share), the new deal today on 5th May, in addition to the increased share price to $100 a share, only charges $3.75 million quarterly base fee ($15 million annualized) and a quarterly management fee equal to 0.375% of the increase in HHH’s equity market capitalization above the Reference Market Cap of the Company (that market cap is adjusted for inflation).
0.375% * 4 = 1.5%, so the new percentage-based management fee is similar to the old terms except it only uses the equity increase from the Reference Market Cap of the Company (the Reference assumes the share price of $66 a share, adjusted for inflation annually) instead of the whole market capitalization of the company. That inflation adjustment is effectively a slight discount on the management fee for that portion of the market cap compared to the original terms in February.
For the post-transaction market cap before any potential increases, HHH only pays $15 million instead of the $60 million annual management fee in the February proposal. That is a huge discount in exchange for not having the opportunity to reduce the fee if the market cap of the company goes down. Well, it has to go down 75% to break even, so the new terms are definitely much better. I think the company management had done a terrific job to negotiate for such terms from Bill Ackman's Pershing Square.
I am always a fan of Bill Ackman. The book The Confidence Game shows that he is a very rational and smart investor who is fearless of the big guys while doing the right thing (e.g. by calling the company bluff and shorting MBIA). Over the years, I have also seen his work on General Growth, Chipotle, Herbalife, Alphabet, Canadian Pacific Railway, Universal Music Group, etc. I really admire his talent and his take on the value investing principles shared by Warren Buffett and Charlie Munger. I believe his recent bet on UBER would be a miss, but that doesn't change my overall portrait of him.
Pershing Square Holdings would be a good vehicle to invest in Bill Ackman's talent; however, it is not available in my brokerage, Robinhood. Now Howard Hughes Holdings (HHH) is a good opportunity for me to ride on his investing talent. I will have a write-up about the company soon. In the meantime, I see a 20% discount of the $90 a share purchase price in his February proposal to by a good buy-below price of the stock, which is $90 * 0.8 = $72 a share.
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