Bill Ackman is one of the highest-profile billionaire investors today. When he puts money to work, the market pays attention.
Right now, he's betting $1.4 billion -- roughly 13% of his entire portfolio -- on a single stock. This stock is unknown by most, and misunderstood by many. It takes a little digging into, but there's a reason Ackman is willing to risk a ton of capital on its future.
NYSE: HHH
Key Data Points
This stock has a very strange history
Ackman's pick has a familiar name, but the vast majority of investors can't say what it does. The company is Howard Hughes Holdings (HHH 0.11%), named after American aerospace engineer and billionaire business magnate Howard Hughes.
Howard Hughes Holdings has a strange history. It was originally spun off from General Growth Properties in 2010. At the time, General Growth Properties was a sprawling REIT with a huge and varied portfolio of real estate assets. To call the business complex would be an understatement. It owned everything from New England office buildings and suburban malls to air rights (the rights to build above something) over properties in Las Vegas. Management believed the market would have a difficult time accurately valuing the company as it emerged from bankruptcy, so they spun off many of these disparate assets into a company called Howard Hughes Corp, later renamed Howard Hughes Holdings.
At the time, Ackman was participating in General Growth Properties' bankruptcy and was therefore named Chairman of Howard Hughes Holdings. This is when his bet on the company began -- nearly 15 years ago.
Almost immediately, the market rerated Howard Hughes stock, sending its valuation from 0.4 times book value, a 60% discount to the listed value of its assets, to 2.8 times book value, a 180% premium. From there, however, shares went on a multiyear slide. They're now priced at just 1.1 times book value.
It turns out that the market is still having a tough time valuing the stock. To remedy this, the company recently revealed that it would streamline its assets even further in an attempt to become more of a master planned community (MPC) business. It is this business that Ackman believes will add huge value to the stock over the years ahead. But what exactly is an MPC business?
HHH Total Return Level data by YCharts
Ackman thinks the market doesn't understand this stock
Master-planned communities are exactly what they sound like: communities built around a predesigned plan. Howard Hughes owns many of these projects in places like Houston, Las Vegas, Maryland, Hawaii, and Phoenix. There, the company sells some land to commercial real estate developers and homebuilders. It uses those proceeds to build key strategic properties office space, retail infrastructure, roads, schools, and even fire stations. The idea is to maximize the value of raw land by building out as many value-added components as possible. The company's success is undeniable. From 2011 to 2024, for example, the price per acre at its Woodlands MPC in Houston has gone from $364 to $2,273. Howard Hughes is so good at raising the value of its land through development that from 2017 to 2024, it sold 3,447 acres of land for $2.1 billion, yet the total value of its land portfolio still increased from $3.7 billion to $4.1 billion.
MPC developments now contribute more to Howard Hughes' earnings than any other segment. But the company still owns some disconnected assets, such as its interest in lower Manhattan's seaport development, a stake in restaurant chain Jean-Georges, 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 huge value creation for both companies as the market could value the assets more accurately. The same could happen again when these additional assets are spun off from Howard Hughes this year, making the company much more of a traditional real estate play with a focus on highly profitable MPC developments.
Ackman now controls nearly 38% of Howard Hughes. If his $1.4 billion bet is any indication, he believes this year's spinoff could help Howard Hughes' stock price recover quickly. Its proven success in MPC development should drive additional value creation over the long term. It's a complicated investment, but one Ackman appears very confident in.
