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Date
May 8, 2026 at 10:00 a.m. ET
Call participants
- Chairman — William Albert Ackman
- Chief Executive Officer — David R. O'Reilly
- Director — Mark Grandison
- Co-President — Ryan Michael Israel
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Takeaways
- MPC Earnings Before Taxes (EBT) -- $84 million, up 33% year over year, driven by higher residential land sales.
- Bridgeland land sales -- 62 acres sold at an average price of $60.2 million per acre, compared to 37 acres at $605,000 per acre in the prior year, with net new home sales up 12% in Bridgeland.
- Summerlin land pricing -- Custom lots averaged $7.2 million per acre, and super pads averaged $1.8 million per acre, with new home sales up 6% in Summerlin.
- Operating asset NOI -- Grew 2% year over year and 7% on a trailing twelve-month same-store basis, led mainly by multifamily and office assets.
- Adjusted maintenance free cash flow -- Newly introduced metric intended to better reflect recurring property-level cash available for redeployment, presented for the first time.
- Condo gross profit -- Roughly breakeven for the quarter; management indicates an expected meaningful increase in the next quarter with the closing of Park Ward Village units.
- Estimated future condo revenue -- $5 billion of projected GAAP revenue at sell-up, with Leahi 70% presold as of the quarter's close.
- G&A expense -- $25.8 million, including $3.8 million in Pershing fees, and $3.4 million in Vantage transaction costs.
- Net interest expense -- Decreased year over year due to higher interest income on invested cash balances.
- Balance sheet and liquidity -- $1 billion refinancing completed at the tightest credit spreads in the company's history, $300 million mortgage closed at Downtown Summerlin, and quarter-end cash of $1.8 billion with $929 million at the HHC level, plus significant additional liquidity.
- Vantage acquisition funding -- Pershing preferred commitment, cash, and additional liquidity fully fund the pending Vantage insurance acquisition and current development pipeline, per management statements.
- Annual guidance -- Removed; company will no longer provide annual guidance due to the pending Vantage acquisition and intends to focus on multi-year platform objectives.
- Intrinsic value estimate -- Management states intrinsic value is "about $104 a share"—more than 60% above the reported ~$65 share price—attributed approximately 80% to the real estate business, and 20% to the expected economic interest in Vantage.
- 2030 value target -- Management indicates a long-term goal of "about $211" per share by 2030, representing a stated 233% increase over current price, with planned value mix shifting toward non-real estate segments.
- Vantage acquisition timeline -- Management expects closing in the second quarter following a May 19 regulator hearing, stating, "we will beat our quarter-end estimate absent something unexpected happening."
Summary
Howard Hughes Holdings (HHH +2.83%) reported a 33% year-over-year increase in MPC EBT to $84 million, attributed primarily to higher residential land sales and pricing in core developments. The company completed a $1 billion refinancing at historically narrow credit spreads, enhancing balance sheet flexibility and liquidity, and fully supporting both the Vantage insurance acquisition and ongoing development pipeline. Management has removed annual guidance amid the transition to a multi-segment holding model, emphasizing new KPIs—such as adjusted maintenance free cash flow—to align reported results with long-term intrinsic value measurement.
- Management conservatively estimates current intrinsic value at $104 per share, and targets $211 per share by 2030, planning to deploy $2.5 billion to $3 billion in free cash flow primarily in insurance through Vantage and other higher-return vehicles.
- The newly introduced KPIs prioritize conversion of land value and recurring cash flows, rather than GAAP earnings or annualized metrics, reflecting a shift from quarterly targets to a long-term valuation framework.
- Leadership confirmed the Vantage insurance acquisition is progressing on schedule, and that long-term capital allocation will favor insurance and non-core asset sales to drive returns across an evolving, multi-engine holding platform.
- Recent changes in disclosure and business focus were presented as strategic moves to appeal to a broader investor base, with management reiterating confidence in asset quality, operational execution, and the durable cash flow generation of the business.
Industry glossary
- MPC: Master Planned Community; large-scale, integrated residential and commercial land development with long-term real estate and infrastructure planning.
- NOI: Net Operating Income; a real estate metric representing property revenues minus operating expenses, before depreciation and interest.
- Adjusted maintenance free cash flow: Company-introduced measure for recurring, property-level cash flow available for redeployment after all associated costs, excluding non-recurring items.
- Vantage: Refers to Vantage Group Holdings Ltd., a specialty insurance and reinsurance platform being acquired by Howard Hughes Holdings.
Full Conference Call Transcript
William Albert Ackman: Those of you on the call probably have seen a presentation we put out providing some perspectives on how we think about Howard Hughes Holdings Inc. from a valuation perspective. The company is going through a transition in terms of its business model, and I think there has been a pretty meaningful transition, or at least the beginning of the transition, in our shareholder base. We thought this was a good time for us to share how we think about the company and to provide some, I would say, better metrics to think about valuation going forward. So our plan for the call is we are going to start with David R.
O’Reilly giving a comprehensive brief update on the quarter. I will talk a bit about KPIs. Ryan will speak briefly about valuation, introduce Mark to the group, and then we will leave the substantial majority of the time for Q&A. So why do we not start with David? Go ahead, David.
David R. O’Reilly: Thank you, Bill. Good morning, everyone. I am going to start with the first half of the presentation, and as you probably saw, it is organized into two parts. The first part really focuses on the first quarter results of Howard Hughes Holdings Inc. Communities’ real estate business. Using the slides from the supplemental, I am going to be covering the four key performance areas of our communities: master planned communities, operating assets, condominiums, and then other expenses along with our debt and liquidity position. As you saw, we are introducing several new KPIs this quarter, and we believe these better reflect how we manage the business and how long-term value accrues within each segment.
I will reference those as I cover the results. Then we will turn to the second half of the presentation, where, as Bill mentioned, he and Ryan will do a deeper dive in what those new metrics reveal about our current valuation and the long-term growth of this platform. The goal is always to give investors a more complete picture of where Howard Hughes Holdings Inc. is headed, and why we believe the stock represents a compelling opportunity. I am also sure you noticed that our earnings release no longer includes annual guidance.
Given the pending acquisition of Vantage, we have elected to remove annual guidance expectations and will instead shift our focus to longer-term objectives by platform, consistent with how we allocate capital and measure success internally. With that said, the first quarter results I am about to review, and specifically our land sales and MPC EBT, were ahead of our expectations. And if not for the transaction, we would have increased MPC EBT guidance for the year. With that, let us talk about the first quarter performance, starting on slide four with the company highlights. It was a strong start to 2026.
The real estate engine did exactly what we needed it to do: it grew cash, it provided pricing power, and it converted more land into long-duration income. We saw strong MPC earnings growth, continued leasing momentum across the operating assets, and the company ended the quarter with substantial liquidity. On slide five, as part of this new supplemental, we are providing a simpler road map to show how performance of our communities connects to the overall valuation of this platform.
We will be focusing on the following four key areas that we will step through in turn: Master Planned Community EBT and margin-affected residual land value; operating asset adjusted maintenance free cash flow; condo gross profit; and other expenses, which includes G&A and net interest expense. So let us start on slide six with the MPCs. Earnings before taxes was $84 million in the first quarter, up 33% year-over-year driven by higher residential land sales. In Bridgeland, we closed 62 acres at an average price of $60.188 million per acre. That compares to 37 acres and $605,000 per acre last year, with net new home sales in Bridgeland up 12%.
In Summerlin, custom lots averaged $7.2 million per acre, and super pads averaged $1.8 million per acre. New home sales in Summerlin were up 6%. The point is not just that volumes were higher. The point is that we are converting scarce entitled, developer-ready land into cash at an increasingly attractive price in markets where we effectively control supply. We are not selling land. We are harvesting scarcity. As our communities mature, price becomes a primary driver of MPC value, which means we can generate more cash from fewer acres while protecting the long-term economics of the land bank. Shifting to operating assets on slide seven.
Our operating asset NOI grew 2% year-over-year and 7% on a trailing twelve-month same-store basis. Within the portfolio, multifamily and office were the primary drivers of same-store growth, supported by continuing leasing activity and the burn-off of rent abatements. More important than the quarterly print is what this segment represents for the holding company we are building. Operating assets are the steady cash flow engine. As we move land into vertical development and lease-up, we convert one-time MPC proceeds into a growing, recurring base of NOI diversified by asset type, tenant, and market.
This quarter, we are also introducing adjusted maintenance free cash flow because we believe this metric gives a cleaner read on the recurring property-level cash flow that is actually available to redeploy. Turning to condos on slide eight. At Ward Village, we completed ‘Ōlana and broke ground on Lē‘ahi, which is already 70% presold. Across the platform, we have approximately $5 billion of estimated future GAAP revenue at sell-up. Condo gross profit was roughly breakeven in the first quarter as expected and will increase meaningfully in the second quarter with Park Ward Village closings.
Condo profit is always going to be recognized in large blocks when towers deliver, so the quarterly pattern is going to remain lumpy even though the underlying economics are largely locked in through presales. These projects are largely de-risked well in advance of GAAP recognition. We typically presell the majority of the units, fund construction with buyer deposits and nonrecourse construction loans, and lock in our margins years before delivery. Estimated future condo gross profit—the total projected gross profit from condo towers under construction or in active predevelopment, the vast majority of which are already presold—highlights the embedded condo cash flow well ahead of when it appears on the income statement.
I want to spend a minute because I think the capital mechanics here are worth walking through. They make the economics of condo development unusually compelling. Our primary contribution to these projects is land, along with a modest amount of cash. We contribute that land, and that modest cash is our equity. From there, buyer deposits are collected at signing, often years before towers deliver, and they fund a meaningful portion of construction cost. Nonrecourse construction financing covers the majority of the remaining required capital. The result is that we are delivering towers worth hundreds of millions of dollars with very little of our own cash actually at risk.
When units close, buyers pay the full purchase price, we repay the construction loan, and the profit flows to us. It is a model where our buyers and lenders are essentially financing the construction and we collect the upside at the end. That is what we mean when we say condos are a self-financing capital recycling tool. And it is why this business generates returns that are difficult to replicate. Beyond condos, projects like 1 River Row, 1 Bridgeland Green, and others in our pipeline follow that same land-to-income pattern: convert entitled land into durable NOI, grow the recurring cash engine, and raise the long-term earnings power of the platform. On slide nine, we will turn to other expenses.
G&A expense was $25.8 million in the quarter, including $3.8 million of Pershing fees and $3.4 million of Vantage-related transaction costs. Net interest expense declined year-over-year due primarily to the amount of interest income we received from our invested cash balances during the quarter and on a trailing twelve-month basis. On slide 10, I will turn to the balance sheet and wrap up. We completed a $1 billion refinancing at the tightest credit spreads in the company’s history during the first quarter. Importantly, this execution occurred after announcing the Vantage acquisition, which we view as a strong external validation of both our balance sheet and our strategy. The transaction extended our maturities and added $230 million of incremental liquidity.
We also closed on a $300 million mortgage at Downtown Summerlin. At the end of the quarter, we finished with $1.8 billion of cash, comprised of $[inaudible] at the HHH level, and $929 million at the HHC level, and significant additional liquidity. That position, combined with the Pershing preferred commitment, fully funds the Vantage acquisition and supports our current development pipeline, while continuing to preserve our flexibility for future capital allocation decisions. So the overall takeaway for the quarter: the real estate foundation of Howard Hughes Holdings Inc. is doing its job.
It is generating strong cash flow, demonstrating pricing power in our MPCs, expanding our base of recurring NOI, and recycling capital in a way that supports our evolution into a multi-engine holding company. The first quarter performance primarily reflects the resilient demand in our communities that lead to bottom-line results. MPC earnings will continue to be lumpy quarter to quarter depending on when large parcels close. But what matters for us, and what I encourage you to focus on, is the multiyear growth in recurring cash flow and the value embedded in the land and condo pipeline, rather than the precise results of any given quarter.
The new metrics Bill and Ryan are going to walk through in a minute are designed with exactly that in mind: to make it easier to connect reported results to intrinsic value. And with that, I will turn it over to Bill.
William Albert Ackman: Thank you, David. So what we are doing here—maybe just to back up for a second. I think historically, the company had tried to create a quarterly number that shareholders could annualize and maybe put a multiple on. The vast majority of companies are valued that way. Analysts estimate earnings, the market assigns a multiple based on the inherent growth and predictability of that earnings stream, and that helps people come to a value. The problem with that metric is it does not really work for Howard Hughes Holdings Inc. We really have three different segments. Perhaps one of them, the operating asset segment, you could certainly value at a multiple of a metric.
But the other two are a bit unusual. Our MPC business is really a business of owning land, and the goal of these communities is to make them really attractive places to live. And we have developed assets to meet that demand in our operating asset segment. Over time, what that has done is bring more residents into the communities, increase demand for land. That has led to continuous—well in excess of inflation—increases in the value for our land portfolio. But putting a multiple on the GAAP profit from a portion of the land sales for a quarter is not a particularly helpful metric.
What really matters is: how much cash do we generate from our land sales during the quarter, and what is the value of our remaining land? And so our new metric is going to focus on those two levels. What is interesting about these communities is every acre of land, we know for a certainty we are going to sell. We do not know precisely which quarter we are going to sell it in. And so what matters to you is: how much cash do we generate during the quarter; what price did we achieve; and what is the value of the remaining land that we own? So that will play into the metrics we are talking about.
With respect to operating assets, adjusted maintenance free cash flow—what are we doing here? We are starting with NOI and we are getting to an actual “free money we can spend” metric after all the costs associated with owning these assets. Our condominium business—so we do not have an infinite supply of land in Honolulu. We have a finite supply of land. We have an amazing team, and that team is actually a valuable asset of the company that we are not today assigning value to. We do think over time we will have more opportunities to access more land and continue that business.
But today, for the purpose of keeping these metrics simple to understand and also conservative, what we are saying is: we have a finite amount of land today, and on the basis of that finite amount of land, we intend to build a certain number of condominiums. We estimate a gross profit. That is how we get—and we present value that today to keep track of the remaining value of that portfolio. So if we go to page 13 on the new metrics, we are going to give you the residual value of our remaining acreage, undiscounted and uninflated.
What we mean to say is if we sell acres for $1.8 million in Summerlin, we are going to use that to value the remaining residential land portfolio at the end of the quarter. Now that, I believe, is a conservative metric because land values have compounded at rates well in excess of the cost of capital that you should discount them at Howard Hughes Holdings Inc. And let me just make my case for that for a second. We have compounded land values at the teens in Summerlin. Correct? Correct. Okay. So let us pick a number. It has been what over the last five years? 15%?
Five years, it has been just under 15% in Summerlin, and it has been, okay, 6% to 8% in Woodlands Hills—in Bridgeland. Okay. So in Summerlin, which is a further built-out community, you have got land that has appreciated at 15% per annum. Again, because it is a certainty we will sell this land—because these are fully developed communities—the discount rate I would use there would be a relatively modest spread over Treasury. So using today’s value for the land is one that I think is a very conservative measure of remaining land.
If the land continues to appreciate at these kinds of levels and you discount them back at lower levels, the land values are even greater than what we are showing. For operating assets, adjusted maintenance free cash flow: we are starting with NOI and getting to the free cash after all the costs associated with maintaining assets and leasing. Then we project the profits from our remaining condominium deliveries. It is pretty straightforward to do this because, for example, for the units that we have under contract, we know exactly what price we are selling for.
We generally have GMP contracts; we lock in, for the most part, the cost to build them; and then it is a present value calculation. With that, we are not going to take you through every page of the deck because we want to leave a lot of time for answering questions. Ryan is just going to focus on some summary valuation pages. We will start with today’s value and how we get to thinking what is possible over the next five years.
Ryan Michael Israel: Sure. Thank you. So what we wanted to do, as Bill mentioned, in the pages that we provided that we will not walk through all the detail on this call, is show you how, using the metrics that we believe are the right way to think about long-term value—what we use in our own internal evaluation as well as tracking our progress over time. I will just highlight on page 27 the takeaway.
We believe today, using those metrics, and as Bill mentioned, conservatively trying to come up with a value for Howard Hughes Holdings Inc., we think that the intrinsic value of the business based on those metrics is about $104 a share, which is more than 60% higher than the roughly $65 share price today. And when you look at that in detail, nearly 80% of that is coming from the Howard Hughes Holdings Inc. Communities real estate business, and about 20% of that is coming from the economic ownership percentage that Howard Hughes Holdings Inc. will have in Vantage, which we are on track to close very shortly.
So we believe that the shares are very undervalued relative to our estimate today. If you go to page 42, what you will see is really our benchmark for how we believe we can grow the intrinsic value of Howard Hughes Holdings Inc. over the next five years. And we actually think that we have the ability—and it is one of the reasons we are so excited to have Mark join us, as he will be very helpful as we achieve these metrics—to grow the intrinsic value of the business to roughly more than $200 a share.
We have about $211 that we have derived conservatively for our valuation in 2030, which is about 3.3 times the current share price of $65, or a 233% increase. And what is interesting about that metric is today, nearly 80% of the value of Howard Hughes Holdings Inc. is coming from the real estate business. But we actually think over the next five years we are going to have much more of the value coming from Vantage, other insurance, and some of the high durable growth companies we seek to acquire. So that ratio will shift to about two-thirds coming from things that are not related to real estate.
And the way that we get there at a very high level is that we will be looking at the Howard Hughes Holdings Inc. Communities real estate business, and we will be using a lot of the excess cash we do not think is needed for reinvestment into the communities that could be allocated to higher returns in other parts of the business, particularly insurance.
We have about $2.5 billion to $3 billion of cash that we are expecting we will be able to generate over the next five years, which can be somewhere in the order of 65% to 80% of the current market cap of the company, and we believe the insurance business—particularly having Mark’s help—will be a very valuable place to put that. With Vantage, which we are very excited about given the business and given the team that is there, we believe we can improve the returns on equity from something in the low to mid-teens to something that could be in the high teens or even better.
If we can do that, we can allocate a significant portion of that $2.5 billion to $3 billion of free cash flow over the next five years to build up the capital base. And as the returns on equity at Vantage improve, the multiple that the market—and we—would assign to Vantage for being a higher return on equity business should also increase. As a reminder, we are buying this business at a headline purchase price of 1.5 times book value, but we believe by the time we close, given the accretion of the book value, it will be about 1.4.
We think we can increase the intrinsic value of this business to something that is worth north of two times over the next five years. And so that is going to be a significant reason why the value at Vantage will be growing so quickly over the next five years and will really help become the driving force of the increase in intrinsic value of Howard Hughes Holdings Inc.’s equity over time and make Vantage really the leading asset that we will have in insurance—a key focus of that business.
William Albert Ackman: Thank you, Ryan. I thought to introduce Mark Grandison, and he will be available, obviously, to answer questions. We actually began a conversation with Mark well more than a couple years ago in connection with an investment that Arch made in the Pershing Square management companies. We got to know Mark a bit there. Then we learned of his departure when we read about it in the press when Mark stepped down from being CEO of Arch Capital Group. In light of our plans for Howard Hughes Holdings Inc., a year ago we started a conversation with Mark.
He was still otherwise encumbered at the time, and he was trying to decide what he wanted to do with his life and thinking about all kinds of different things. We kept the conversation going. We took a very significant step in signing an agreement to acquire Vantage, and we kept talking to Mark. Our thoughts here are, well, Ryan and I—other members of the Pershing Square team—have analyzed insurance companies from the perspective of an investor.
Neither one of us has any operating experience in the insurance industry, and it is an industry where you can make a lot of money and it is an industry where you can lose a lot of money if you do not know what you are doing. While we are buying a company with a very capable team, I think it is as important that at a board level, we have one or more directors who really understand the industry. Mark was by far our number one choice—there really was not a close second—in terms of, without embarrassing him, really the iconic executive of the last, I would say, couple decades.
Almost twenty-five years at Arch building one of the most profitable, most successful insurance platforms. We thought that experience was incredibly relevant. We were delighted to bring Mark to Howard Hughes Holdings Inc. So maybe, Mark, could you just give a little background because not everyone knows who you are, and then we will open it up for questions for the group?
Mark Grandison: Well, thanks, Bill, for all the wonderful comments. I feel very honored and privileged to be part of the group. I am very happy that we got to this landing, and I am looking forward to help the whole team really develop your vision—your collective vision—of having a diversified platform with insurance being an anchor. I think, like you, I firmly believe if you do it well, it can really lead to wonderful results. I also like the fact that you are collectively wanting to wait for it. There is a timing issue going along, and it is not a quick hit, and it is really if we deliberately build it the right way, this will be a formidable business.
I have been thirty-five years in the business. I was most recently ACGL CEO. I was one of the founding members back in 2001 after the terrible events of 9/11, with a very similar vision that you would hear me talk about all the time, which is about underwriting excellence, focusing on the cycle, focusing on allocating capital to the right places where it gives good returns, and really surrounding yourself with a good team—good talented individuals—focusing on underwriting expertise. The difference between a top quartile performer in insurance and the bottom quartile is 20% to 30%—meaning the ones at the bottom are actually losing and actually going by the wayside, and we have seen many of them.
Bill just alluded to that. I am excited to join because I like the vision. I am here to help the board to understand the business, to demystify some of the things. I know it is not as easy to understand from the outside world. It can be opaque. A lot of the investors and shareholders of Howard Hughes Holdings Inc. have built, perhaps, no expertise or exposure to insurance, and we are going to make sure—or try to make sure collectively—that we are bringing you along into that journey altogether. What else am I going to bring to the table? Looking forward to working with everyone here, obviously, and also with Greg and his team.
I have known Greg for twenty-five years. We were neighbors in Bermuda, and he is a great executive. The platform they built at the right time, right after the market turn in 2019—beautiful timing. Hard E&S legacy. It was highlighted in the package before, and it is really hard to create that kind of platform, and they did a very, very good job. It is both insurance and reinsurance, so it allows the company to really participate across the board in as many opportunities as possible—and again, being selective on the underwriting. I am very much looking forward to help demystify, help teach the board and the investors, and it is going to be a long-term play for everyone here.
I have seen it before, and I think the playbook is there. It has worked. I have seen it work. I think we have all the elements to make it one of the best emerging and surging insurance platforms, alongside the real estate platform and whatever else Bill and Ryan will find along the way, to create something very unique and once in a lifetime. I am very excited to be here. Thanks for having me here, Bill.
William Albert Ackman: Thank you, Mark. We will now open the call for questions.
Operator: Star 11 on your telephone. To remove yourself from the queue, you may press 11 again. Our first question comes from the line of Anthony Paolone of JPMorgan. Your line is open, Anthony.
Anthony Paolone: Great. Thanks. Good morning. First question, maybe for Bill. I am not that close to all the different things happening at Pershing Square and the specifics around that. Can you talk to whether anything on the capital-raising side there has any direct implications back to Howard Hughes Holdings Inc.—whether mechanically you have to buy shares or whether there is a greater commitment—or just anything we should think about related to Howard Hughes Holdings Inc. from the activities at Pershing Square?
William Albert Ackman: Sure. Last week, we did two listing transactions: an IPO of an entity called Pershing Square USA, which is a U.S.-listed closed-end investment company listed on the New York Stock Exchange, and we also did a direct listing, in effect, of the management company that some people might call the GP of Pershing—the entity that receives fees from various funds that we manage. As part of the IPO pitch for Pershing Square Inc., we pointed out that it is a bit of an unusual alternative asset management company.
Think analogies would be Blackstone or KKR or others, in that we are small relative to others in terms of scale, but the capital base is very unusual in that 98% of our assets are in permanent-capital vehicles. The three examples we gave were our London-listed entity, an entity called Pershing Square Holdings; Pershing Square USA, which is this new entity we launched; and then Howard Hughes Holdings Inc., which we put in the same camp. It is not an investment company per se; it is an operating company, a C-corp. But it is a very important, I would say, leg to a three-legged stool.
I would say the significance of that transaction is not that we are—we actually cannot buy more stock in Howard Hughes Holdings Inc. We are contractually—our agreement with the board is to stop at 47%. But I would say the importance of Howard Hughes Holdings Inc. to the Pershing Square platform was something we emphasized to a great degree as part of the IPO transaction. We described Pershing Square—this is a permanent holding. We intend to be a forever owner of Howard Hughes Holdings Inc., and our goal is to build a valuable, diversified holding company led by this insurance platform over the next many decades. That is the idea.
Anthony Paolone: Okay. Thanks for that. And then my second question is you show the demonstration of value and how much insurance plays a role in that. With it being such a big driver, why continue to hold things like multifamily or some of the other assets in real estate, and should we see that kind of move over to potentially add more to the insurance side over time?
William Albert Ackman: Sure. If you look at Howard Hughes Holdings Inc. over the fifteen years we were a dedicated real estate company, basically every dollar of cash we generated we reinvested in real estate. For example, we bought another MPC as a result of having excess cash that we actually could not deploy in our existing MPCs. What the transaction accomplished a year ago is it widened the aperture of things that we could do.
I think what we have learned over time is a dedicated pure-play real estate development MPC business is not one that the market will assign a high value to—or another way to think about it, the market assigns a very high discount rate to those kinds of cash flows. All that being said, as demonstrated by our expectations of $2.5 billion of cash that we are going to generate from that business over the next five years, it is a meaningful cash flow generator. So I think the pivot we are making is we are not going to reinvest every dollar of excess cash into things only in real estate.
But our definition of excess cash is not just free cash flow. We intend to continue to build out—“the golden goose” for the real estate company is that we want The Woodlands, we want Summerlin, we want these communities to continue to be amazing—ranked in the top handful of places to live in America. In order to do that, we are going to be building apartments; we need more apartment buildings. We are going to be building office buildings; we need more office buildings.
But there are some number of assets that may be non-core—that are not critical for us to own—that we are going to look at and examine and say, does it make sense for us to own this asset forever because it is critically important to our market share—say, in The Woodlands in office space—or is it a tertiary asset where there is a buyer who will pay a much higher price than our cost of capital would allow? That is an examination that we are going to do over time.
The nature of the Howard Hughes Holdings Inc. real estate business is it is sort of self-liquidating, in a manner of speaking, in that we have a finite amount of land that over the next whatever number of decades we are going to sell. We have a finite amount of condominium development land, and we are going to build out those units and generate a bunch of cash. We have cash flows that come from our operating asset portfolio. We would expect those cash flows to grow on a same-store basis, and we expect them to grow because we are going to continue to develop whatever the communities need to make them really attractive places.
But I would say, on the margin, if it is not critical and core, it becomes something that, if a stabilized asset is better owned by someone else, we will sell.
Operator: Thank you. Our next question comes from the line of Alexander David Goldfarb of Piper Sandler. Your line is open, Alexander.
Alexander David Goldfarb: Hey. Good morning, Bill and David, and welcome aboard, Mark. First, I want to say I love the new disclosure—much more streamlined, much more to the point, and much easier to comprehend. Thank you. Bill, on the Vantage deal, is there anything that could delay a second quarter closing? Any regulations, paperwork, anything like that, or are we on track that this will close in the second quarter?
William Albert Ackman: This will close in the second quarter. We have a scheduled hearing date, which is May 19, with the Delaware regulator. Transactions typically can close within a couple weeks of that hearing date. I think we will beat our quarter-end estimate absent something unexpected happening, but I do not expect the unexpected here.
Alexander David Goldfarb: Okay. Second question is I think you said the value of the company currently, as you do your math, is $104 a share. Bill, you bought your stock into the company at $100 a share. Is that the delta versus what you previously disclosed—$118 a share for the company’s value? I was a little surprised by the $104, but maybe it is just the math on the dilution. I would assume you guys have better insight into the value of the company versus what we estimate from the outside.
William Albert Ackman: Yeah. I think, number one, we are being conservative because of the way we are looking at the— I mean, the true value of the company, you would build a DCF on the MPC community, and you would compound the land values over time and discount them back at a discount rate that I believe would be lower than the rate at which you would appreciate them. What we are saying is: let us come up with a simple metric that is hard to argue against. We are also—with the value of the commercial land—we are assuming a sale to a third party.
Obviously, when you sell land to a third party, you are giving up the opportunity for a development profit and everything else. If we develop that land ourselves, we get the benefit of that development profit. So this is a quite conservative way to think about the value of the company. There is obviously some dilution associated with our $100 a share primary investment. Ryan, do you want to add anything else?
Ryan Michael Israel: The $104 figure—another way to look at this. We tried to give a very conservative snapshot. Outside of the Howard Hughes Holdings Inc. context, when we value businesses at Pershing Square, we often think about what the business will produce over the next five years, and then we think about that as a value. We might discount that future value back to today. One thing you would note on page 42: we conservatively estimate $104, but we also then roll forward—we believe by 2030 the value will grow to $211, which is a 16% growth rate in intrinsic value over that period. The way to think about that is focus on the $211 and discount that back.
I think we would argue that you should discount that back at a substantially lower rate than 16%, given the high-quality nature and the increasing predictability and high growth of the business. If you were to do something like that—using a more modest discount rate—you could get to numbers that are easily 25% to 30% higher than the $104 figure. So, to Bill’s point, there are a lot of different ways to look at this. The $104 would be by far the most conservative way to look.
We just wanted to lay out a very simple explanation for people as to how they could start to think about the most conservative value for Howard Hughes Holdings Inc. relative to the current share price.
William Albert Ackman: Another way to say it is I think of $104 as basically like a liquidation value of the company. It is after tax, after all various expenses. As opposed to almost like a going-concern type value where the expectation would be we would be building out all the commercial land, embedding a certain profit margin, assuming that we would be selling land at higher prices in the future and discounting it back at much lower discount rates. Those would all accrue to a higher value. But I think this is a very fair way to think about the company and provides a relatively straightforward metric for us to judge the company every quarter. It makes everyone’s life easier.
I think simplifying the way people think about the company—in particular, the real estate assets of the company—will go a long way to making this a more ownable stock by a broader array of investors.
Alexander David Goldfarb: That is helpful. And then the final question for you. Obviously, data centers are a huge topic these days. You guys have a lot of land. I realize the value of Summerlin or the Houston portfolios may not make sense to add a data center to that. But when I think about West Phoenix, you have a huge amount of acreage, and it would seem like that would be potential to have a colocated power generation/data center, etc. As you look at your land holdings and what is per-sellable for residential versus potentially if there is a bid from a tech company to do data center or a power plant combo, is that at all an option?
Or is the view that residential is still the highest and best use, and as far as maximizing the MPC, you want to stick with the formula you have to date versus trying something new?
Ryan Michael Israel: Yeah. I would say we have an extremely open mind with respect to West Phoenix.
William Albert Ackman: It is an amazing asset. It has all the attributes that you have talked about—access to power, access to water—in a very, I would say, pro-business, favorable environment, and we have enormous scale. We bring a lot of value to any one of those players. There are AI companies raising money at trillion-dollar valuations. In the context of that, you look at this very, very valuable land we own—it might be an interesting transaction to ask someone not only where they want to build data centers or power, but there are some pretty aspirational people in the technology world that want to build cities, and they want to build a community around the company that they are building.
One great outcome for us is we bring in a partner who writes a big check, and then we become an asset-light developer of whatever that community is. We make it an ideal place to live in the way that the company has historically built communities—for example, The Woodlands or Summerlin. We do the same in Phoenix. But the anchor is someone for whom having access to everything from nuclear power—to these small nuclear reactors—and all the interesting technology, and they do it with a blank sheet of paper. I think it is a pretty good opportunity. That is something we are totally open to and something that could be transformative in terms of value creation for the company.
We are valuing that asset at cost in this context. We bought that asset, what, six years ago or so?
David R. O’Reilly: Just over three years ago.
William Albert Ackman: Three years ago. Okay. It seems like six years. But the world has changed, I would say. The world has moved at least six years in the last three years in terms of what that property can be used for.
Alexander David Goldfarb: Thank you.
Operator: Sure. Okay. Next question, please. Thank you. Once again, to ask a question, press 11 on your telephone. Our next question comes from the line of John P. Kim of BMO Capital Markets. Please go ahead, John.
John P. Kim: Thank you. I have had some technical issues, so apologies if you have already addressed this. On the KPIs that you introduced as far as MPC residual value and the condo remaining profits, does that essentially incentivize you to maximize price going forward and, in essence, not sell and not generate as much current cash flow?
William Albert Ackman: Our goal—we, and maybe David can speak to our approach—we generally take an approach to optimize the combination of volume and price and make sure that we are not stuffing—we do not want a bunch of homebuilders with excess land inventory, and we do not want to manage the supply in a manner where we can continue to grow the per-acre value of the assets. It is not critical to us whether we sell X dollars of land in any particular quarter. What matters to us is we are building these amazing communities, and we are managing our scarce asset in a thoughtful way. But, David, maybe you want to speak to that.
David R. O’Reilly: I think, Bill, you summarized it perfectly, which is we are not selling assets to maximize any metric. We are selling assets to maximize the value of the company. We do that by selling just enough land to homebuilders to keep up with underlying home sales. Sell them too much land and they are oversupplied, and in a downturn, they will make a terrible decision that will negatively impact the rest of our dirt. Sell them too few, and we are going to strangle affordability in our communities.
So we are tracking underlying home sales in each of our communities daily, making sure that we are preparing the right amount of lots to keep up with those home sales to maintain equilibrium as best we can across our communities.
William Albert Ackman: Said another way, simply because we are changing the KPI, that is really just to help the market better understand the company—understand our progress in creating intrinsic value—but it has really no impact on how we think about how we auction land each quarter.
John P. Kim: Okay. Makes sense. The KPIs—that information was already there before, but you just want us to focus more on the remaining values of your land and condo profits.
William Albert Ackman: Look, one of the concerns I had is that people were looking at the company and saying, “I want to put a multiple on a next-twelve-month estimate of MPC EBIT.” It is really just not the right way to think about an asset like land, which you are going to sell over time and where the land values are going to appreciate over time. The right way to think about an asset like that is either on a present value basis or—maybe the simplest way to think about it is—how much did we sell during the quarter, how much cash did we take in, and what is the remaining land worth?
It is a bit like we have oil in the ground. Unlike oil in the ground, which is incredibly volatile, our oil gets more valuable over time as people move into the communities. But there is a finite amount of it, and we want to be smart—kind of like OPEC. We do not want to dump it on the market at any one time. We want to be thoughtful about how we extract it and how we convert it into cash over time. But we do not want you to put a multiple on the amount of drilling that happens in any one quarter, because that is really just a function of, sometimes, rates.
Sometimes rates back up a bit, and there may be a pause in sales. One thing is certain: people want to live in The Woodlands. People want to live in Summerlin. They want to live in our communities, which means we will sell this land, and the land just gets more desirable over time. We are at a place in The Woodlands now where there are really no more residential lots; it is only commercial acreage. We will get there at some point in Summerlin as well, which means we are going to sell every acre of residential land over time in Summerlin.
I cannot tell you exactly what date, but I am confident that the land we sell in future years is going to be worth a lot more than land we sell today. That is why we are never in a rush. We would certainly not want management thinking about, “Oh, I put out a guidance number, and I want to make the number—let’s just discount the land a bit.” We want people to be focused on the things that matter for growing the value of the company. So these metrics are as much for internal use as they are for external observation.
John P. Kim: And when you talk about allocating more capital to Vantage rather than reinvesting back into MPCs, besides selling stabilized assets that you mentioned before, what are some of those investments that you would have made that are now either being deferred or removed going forward in the MPC business?
William Albert Ackman: I do not know that we—we had already arrived at a place where we had excess cash flow expected to be generated from condo sales and other parts of our business. But if we were a pure-play real estate company, we would have tried to figure out other places to put that money in real-estate-related assets. What we are doing now is we are saying, well, now we have a really good place to put that money. We think the driver of value in the slide that Ryan showed you is, one, the nature of the insurance business—a profitable insurance operation with assets managed by us for no cost—we think is approaching a 20%+ ROE business.
Those are returns very hard to achieve in a relatively low-leverage kind of real estate company. So, one, the returns are higher. Two, the business we are buying here for effectively 1.4 times book value becomes worth something comfortably north of two times book value if we can achieve our objectives. Every dollar we can put in Vantage appreciates both because the ROE is higher and the value that the market will assign to that capital invested in Vantage is much higher. Therefore, our incentive is to invest every marginal dollar in Vantage as opposed to buying another MPC.
If we had this business plan three years ago, instead of buying West Phoenix, we would have put an extra $600 million into Vantage.
John P. Kim: Thanks.
Operator: Thank you. I would now like to turn the call back over to William Albert Ackman for closing remarks. Sir?
Operator: Okay. Ending early.
William Albert Ackman: I guess my closing remarks are the company is going through an important transition that we think is going to create a lot more value for shareholders over time. We are incredibly excited about it. We think we have all of the things needed to achieve that objective. We have a great core, very profitable business, and I think the team is thinking about it the right way, and the numbers are great. We have mayors around the country that are great for— including in New York City—sending people to business-friendly communities that are pro-business and pro-capitalism, and we happen to own assets in states that are aligned with that objective.
So I think Howard Hughes Holdings Inc. owns real estate assets in the right places, and we are going to generate a lot of cash from that business. Now we have a very good place to put that capital. The Vantage transaction, I expect, will close earlier than the end of the quarter. We are excited about that. We are excited about the Vantage team. I think they are excited to be part of a permanent, long-term business. In insurance, you want to have a long-term owner, and we have achieved that. With Mark’s addition to the board, I think the board is now very well positioned to help oversee this important transformation.
I think the only thing that is missing in the share price is some new shareholders, because I think we have scared away some of the real estate shareholders, and hopefully we will start to attract people who are excited about the business plan going forward. With that, absent any further questions, we will end the call. Hearing no further questions, thank you so much, and have a great day.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
