Howard Hughes Holdings Inc. · NYSE:HHH
Howard Hughes — Ira Sohn Conference 2017
50 slides from Howard Hughes's conference presentation, May 8, 2017
Slide 1: SimCities
SimCities Ira Sohn Conference May 8, 2017 Pershing Square Capital Management, L.P.
Slide 2: Disclaimer
Disclaimer The analyses and conclusions of Pershing Square Capital Management, L.P. ("Pershing Square") contained in this presentation are based on publicly available information. Pershing Square recognizes that there may be nonpublic information in the possession of the companies discussed in this
Slide 3: Land Development is Typically a High-Risk Business
Land Development is Typically a High-Risk Business History is replete with boom and bust cycles and bankruptcies in the land development business. Why? Land developers typically use large amounts of recourse leverage Substantial capital must be spent long before the first lot is sold There is
Slide 4: Donald Bren, the Largest Land Developer in the U.S., is the 27th Wealthiest Man
Donald Bren, the Largest Land Developer in the U.S., is the 27th Wealthiest Man in the U.S. Forbes ranks Bren as wealthiest real-estate developer in the U.S. Bren built his fortune developing The Irvine Ranch MPC over the last 40 years successfully navigating boom and bust real estate cycles 3
Slide 5: Bren Owns The Irvine Ranch Master Planned Community (MPC)
Bren Owns The Irvine Ranch Master Planned Community (MPC) Donald Bren turned a minority investment in 1977 in a land development project in Southern California into a $15B+ personal fortune 1976 Today At the time of Bren’s investment, The Irvine Ranch was already an established MPC. One of the keys
Slide 6: An MPC is a Real World SimCity
An MPC is a Real World SimCity An MPC is a large-scale (typically 10,000+ acres) privately owned development, where the owner has substantial control over planning, zoning, the release of property for sale, and development MPC land values tend to increase at a more rapid rate and have less volatil
Slide 7: The Irvine Ranch
The Irvine Ranch The Irvine Ranch is a 93,000-acre property that includes nine miles of coastline along the Pacific and accounts for 20% of Orange County In 1977, Donald Bren (along with four other investors) bought The Irvine Ranch for $337 million. Over time, he bought out his partners to obtain
Slide 8: What Were the Keys to Bren's Success?
What Were the Keys to Bren’s Success? 1. He invested in well-located real estate with favorable long-term demographics 2. He bought into an existing MPC where a significant upfront investment had already been made and the community was already established 3. He used the growing value of land to mini
Slide 9: What Was His Approach to Land Development?
What Was His Approach to Land Development? The Irvine Ranch has followed these guiding principles for more than 50 years, beginning more than 10 years before Bren acquired the land 1. Maintain land under a single owner (Bren bought out his partners so he had total control) 2. Establish a master plan
Slide 10: How Can One Invest with Donald Bren?
How Can One Invest with Donald Bren? Donald Bren Comments Regarding The Irvine Ranch: “Developing this property in the best possible way is the most important thing in my life. I expect to be working on this into my 90s” “There is no price that is acceptable” The Irvine Ranch is a private company an
Slide 11: How Can a Public Market Investor Participate in Bren's Approach?
How Can a Public Market Investor Participate in Donald Bren’s Approach to Land Development and Long-Term Value Creation?
Slide 12: (Ticker: HHC)
(Ticker: HHC)
Slide 13: HHC Owns a Geographically Diversified Collection of Some of the Best MPCs
HHC Owns a Geographically Diversified Collection of Some of the Best MPCs in the Country 12
Slide 14: HHC's MPCs Share Many Characteristics with The Irvine Ranch
HHC’s MPCs Share Many Characteristics with The Irvine Ranch HHC’s MPCs are superbly located large-scale communities, acquired by HHC decades after hundreds of millions of dollars of capital was invested to establish the communities Total Gross MPC MPC Date Founded Acres Population Location Maryland
Slide 15: Like Donald Bren, HHC was not the First Owner of its MPCs
Like Donald Bren, HHC was not the First Owner of its MPCs HHC is the third or fourth owner of many of its MPCs 1. 1950s: Land encompassing the Summerlin MPC acquired by Mr. Howard Hughes and conducted business as The Howard Hughes Corporation 2. 1996: The Rouse Company acquired control of Summerlin
Slide 16: The Howard Hughes Corporation: A Little History
The Howard Hughes Corporation: A Little History 2008 / Early 2009: Pershing Square acquires 25% of GGP for ~$60 million 2009: GGP files for bankruptcy in April 2009 2010: GGP acquires remaining interest in Summerlin from the Howard Hughes’ heirs for $230 million 2010: GGP emerges from bankru
Slide 17: HHC Since IPO
HHC Since IPO Pershing Square has owned HHC since its spin-off from GGP in November 2010 and has never sold a share Stock price performance of HHC from 11/5/2010 to 5/4/2017 $180 $160 $140 $120 $122 Share price $100 $80 $60 $40 $37 $20 $0 16
Slide 18: Since Acquiring Control of its MPCs, HHC has Followed Bren's Strategy
Since Acquiring Control of its MPCs, HHC has Followed Bren’s Strategy HHC owns and controls irreplaceable real estate in some of the best markets Irvine Ranch HHC Most Developers Irvine Key Principals Single Owner/Sole Control Thoughtful Master Plan Reinvest in Land Minimize 3rd Pa
Slide 19: Upon Obtaining Control, HHC Took A Long-Term Approach
Upon Obtaining Control, HHC Took A Long-Term Approach GGP viewed its MPCs as a cash cow to be liquidated to help pay debt service HHC, as a conservatively financed public company, has permanent capital that enables it to follow Bren’s long-term, value-maximizing approach Since obtaining control
Slide 20: Integrated Segments Create Virtuous Cycle
Integrated Segments Create Virtuous Cycle HHC’s three integrated business segments allow it to self-fund the equity required for development from (i) MPC land sales, (ii) cash flow from its operating assets, and (iii) equity in the land Operating Assets create a growing stream of income that provide
Slide 21: A Few Examples of HHC's MPCs
A Few Examples of HHC’s MPCs
Slide 22: The Woodlands
Howrd Hughes. ‘The Woodlands: DEVELOPMENT COMPANY 21
Slide 23: The Woodlands: Key Highlights
The Woodlands: Key Highlights With only 1,000 residential lots and 750+ commercial acres remaining, The Woodlands represents one of HHC’s most mature and well- established MPCs. It is twice the size of Manhattan. Created in 1974, The Woodlands has grown into one of the country’s most recognized MP
Slide 24: Hughes Landing at The Woodlands
Hughes Landing at The Woodlands HHC’s 66-acre Hughes lakefront Landing at Hughes The Woodlands Landing project highlights highlights how a how well planned a well-planned commercial downtown development within an MPC can create meaningful value Hughes Landing at The Woodlands – 2012 23
Slide 25: Hughes Landing now: 1.4M SF of office, 126K SF of retail, a hotel and apartments
• Hughes Landing now: 1.4M SF of office, 126K SF of retail, a hotel and apartments • Completed in just 2.5 years • Projected to generate nearly $50M of net operating income 24
Slide 26: Downtown Summerlin - Now
Downtown Summerlin - Now 25
Slide 27: Summerlin: Key Highlights
Summerlin: Key Highlights Located nine miles from downtown Las Vegas, Summerlin is the premier place to live in Las Vegas Summerlin is a mature 25-year old community with 42K homes and over 100K residents, which is expected to grow to 200K+ by end of build-out With 22,500 total acres in Summerli
Slide 28: Summerlin – Vertical Development Opportunity
Summerlin – Vertical Development Opportunity Similar to Hughes Landing, HHC retained the highly valuable commercial downtown acreage at Summerlin, and has started a large-scale vertical development with 5.5 million SF of entitlements HHC recently completed a retail, office and apartment developmen
Slide 29: Downtown Summerlin & Controlled Commercial Land
Downtown Summerlin & Controlled Commercial Land Downtown Summerlin HHC-owned land planned for 5.5M SF of future development 28
Slide 30: Downtown Summerlin – 2010
Downtown Summerlin — 2010 AP | ee | ey em ey
Slide 31: Downtown Summerlin - Now
Downtown Summerlin - Now 30
Slide 32: HHC's Approach to Value Creation
HHC’s Approach to Value Creation Continue controlled residential land sale program at steadily increasing market prices Achieve stabilization of existing Operating Asset portfolio over the next 2 to 3 years Continue controlled development of new operating assets (office, retail, apartments, ho
Slide 33: What is HHC Worth?
What is HHC Worth?
Slide 34: Valuation
Valuation Like The Irvine Ranch, in light of the complexity and long-term nature of HHC’s assets, HHC is difficult to value GAAP accounting does not explain the true economics of the business Short-term cash flows do not reflect the long-term economics of the business Book values of assets do
Slide 35: Back of the Envelope: Operating Assets
Back of the Envelope: Operating Assets We use projected stabilized net operating income (“NOI”), an appropriate capitalization rate, and discount this value to the present and subtract the remaining cost to complete The vast majority of HHC’s income-producing Operating Assets are within its MPCs,
Slide 36: Back of the Envelope: Residential Acreage at MPCs
Back of the Envelope: Residential Acreage at MPCs Because of the substantially lower risk of predicting lots sales in mature MPCs (it is effectively inevitable, although subject to macro factors in the short term), we believe one should use very low discount rates to discount future cash flows from
Slide 37: Back of the Envelope: Other Assets
Back of the Envelope: Other Assets HHC owns a collection of other assets that it inherited as part of its spin- off from GGP, which can be valued using comparable transactions Some of these assets include: 110 North Wacker, arguably the best development site in Downtown Chicago, where HHC just s
Slide 38: Back of the Envelope: Our Approach
Back of the Envelope: Our Approach Pershing Square believes that the sum of the Operating Assets, residential MPC land acreage, and Other Assets approximate the current enterprise value of HHC What else do you get for $122.12 per share? 37
Slide 39: Seaport District Upon Completion in 2018
Seaport District Upon Completion in 2018 38
Slide 40: Seaport District: Key Highlights
Seaport District: Key Highlights HHC’s redeveloped and revitalized Seaport District will serve as a premier destination for New Yorkers and as an anchor for the growing Lower Manhattan community 400K+ SF of retail, entertainment, and restaurant space consisting of: A newly built and architectura
Slide 41: 2010/2011
2010/2011 40
Slide 42: Ward Village: Key Highlights
Ward Village: Key Highlights HHC owns and controls an enormously valuable 60-acre coastal vertical MPC in Honolulu Ward Village is currently comprised of 1.3M SF of retail, industrial and office space, but will be redeveloped as part of a comprehensive MPC At full build–out, HHC will deliver 4,0
Slide 43: Ward Village
RL) VILLAGE |
Slide 44: Waiea
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Slide 45: 9M SF of Condo and Retail Development
9M SF of Condo and Retail Development 44
Slide 46: Back of the Envelope: 37M SF Future Development
Back of the Envelope: 37M SF Future Development The value of HHC’s future commercial development opportunity can be estimated by comparing the value created with the 3.9M SF of development since formation and using it to estimate the value creation potential of the remaining 37M SF. Since 2011, HH
Slide 47: What About Taxes?
What About Taxes? HHC is structured as a C-Corp and has historically benefited from NOLs, but will likely become a limited tax payer in the next 1 to 2 years. HHC’s business strategy is highly tax efficient. Operating Asset NOI is shielded by depreciation and interest expense HHC has $4B of exis
Slide 48: And HHC's Balance Sheet?
And HHC’s Balance Sheet? HHC maintains a conservatively funded balance sheet with mostly non-recourse debt Since its IPO, HHC has invested billions of dollars without having to issue equity HHC has enough cash and liquidity on hand to meet all existing development funding commitments 2/3rd of
Slide 49: Talented & Aligned Management Team
Talented & Aligned Management Team HHC’s management is aligned and incentivized to deliver long-term value to shareholders with a significant economic stake in the company At IPO, management purchased non-tradable six-year warrants CEO David Weinreb owns warrants to purchase 2.4M shares and has
Slide 50: How Can I Learn More?
How Can I Learn More? HHC started conducting quarterly calls this year and plans to host its first Investor Day on May 17th HHC provided a comprehensive Supplemental Information package and hosted a conference call for the first time as part of its Q4 2016 earnings report May 17th, 2017 Investor