Bill Ackman is one of the most prominent billionaire investors today. When putting money to work, the market pays attention.
Right now, he’s betting $1.4 billion, or about 13% of his entire portfolio, on a single stock. This stock is unknown to most and misunderstood by many. It takes a bit of research, but there’s a reason Ackman is willing to risk a ton of capital for his future.
This stock has a very strange history
The Ackman Pick has a familiar name, but the vast majority of investors can’t tell what it does. The company is Howard Hughes Holdings (NYSE:HHH)named after the American aerospace engineer and billionaire business magnate Howard Hughes.
Howard Hughes Holdings has a strange history. It was originally created by General Growth Properties in 2010. At the time, General Growth Properties was a sprawling REIT with a huge and diverse portfolio of real estate assets. To call it business complex would be an understatement. It owned everything from New England office buildings and suburban shopping centers to air rights (the right to build on top of something) on properties in Las Vegas. Management believed the market would have difficulty accurately valuing the company as it emerged from bankruptcy, so it spun off many of these disparate assets into a company called Howard Hughes Corp, later renamed Howard Hughes Holdings.
At the time, Ackman was involved in the bankruptcy of General Growth Properties and was therefore named president of Howard Hughes Holdings. That’s when his bet on the company began, almost 15 years ago.
Almost immediately, the market revalued Howard Hughes stock, increasing its valuation to 0.4 times its book value, an increase of 60%. discount at the listed value of its assets, at 2.8 times the book value, i.e. a rate of 180% prime. From there, however, shares fell over several years. Their price is now just 1.1 times their book value.
It turns out that the market is still having trouble valuing the stock. To address this issue, the company recently revealed that it would further streamline its assets with the goal of becoming more of a planned community enterprise (MPC). It’s this activity that Ackman believes will add significant value to the stock over the coming years. But what exactly is an MPC company?
Ackman thinks the market doesn’t understand this title
Planned communities are exactly what they sound like: communities built around a predefined plan. Howard Hughes owns many of these projects in places like Houston, Las Vegas, Maryland, Hawaii and Phoenix. There, the company sells land to commercial real estate developers and home builders. It uses these profits to build key strategic properties, offices, retail infrastructure, roads, schools and even fire stations. The idea is to maximize the value of raw land by building as many value-added features as possible. The success of the company is undeniable. From 2011 to 2024, for example, the price per acre in its Woodlands MPC in Houston rose from $364 to $2,273. Howard Hughes is so good at increasing the value of his land through development that between 2017 and 2024 he sold 3,447 acres of land for $2.1 billion, but the total value of his land portfolio is still increase from $3.7 billion to $4.1 billion.
MPC developments now contribute more to Howard Hughes’ profits than any other segment. But the company still owns disconnected assets, such as its stake in the Lower Manhattan seaport development, a stake in the Jean-Georges restaurant chain, ownership of the Las Vegas Aviators minor league baseball team and an 80% stake in the air rights above Fashion. Show mall. The company plans to spin off these assets into a separate company by the end of 2024.
When Howard Hughes was spun off from General Growth Properties, it resulted in enormous value creation for both companies as the market was able to price the assets more accurately. The same thing could happen again when these additional assets are sold to Howard Hughes this year, making the company a much more traditional real estate company, focused on highly profitable MPC developments.
Ackman now controls nearly 38% of Howard Hughes. If his $1.4 billion bet is any indication, he thinks this year’s fallout could help Howard Hughes’ stock price recover quickly. Its proven success in the development of MPC should generate additional value creation in the long term. This is a complicated investment, but one in which Ackman seems very confident.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool posts and recommends Howard Hughes. The Motley Fool has a disclosure policy.
Billionaire Bill Ackman has just made a unique bet on this stock. Is it time to buy? was originally published by The Motley Fool
