Since U.S. mall owner General Growth exited bankruptcy last month, its stock has gotten a nice lift. But shares of its less noticed spin-off, Howard Hughes Corp, have really soared.
Since General Growth issued about $2 billion worth of shares at $14.75 in mid-November, the mall owner’s stock price has grown more than 6 percent — trading around $15.70 on Thursday afternoon. Meanwhile, Howard Hughes’ thinly traded shares have gained nearly a third, or 32.8 percent, in roughly the same period, now trading around $54.45.
What is driving the stock?
The Howard Hughes Corp may bear the name of a legendary U.S. industrialist of yesteryear, but it is the names of the people now leading the company — primarily hedge fund manager William Ackman — that are pushing the shares higher, said JMP Securities analyst Jim Wilson.
“I don’t think it’s any more than that,” he said.
Ackman, who heads Pershing Square Capital Management, is the chairman of Howard Hughes Corp, which owns a collection of land, undeveloped malls, a master-planned community business, mixed-use projects, and even General Growth’s headquarters.
Although some of its properties produce income, the bulk of the assets are land and development projects, which are risky and difficult to value.
“It would appear to me that you have a whole series of smart investors in here, and other investors are just following where the smart investors go,” Wilson said.
Pershing’s pre-bankruptcy investment in General Growth of less than $200 million is now worth more than $1 billion. Through its holdings of shares, warrants and stock, Ackman’s hedge fund controls about 28 percent of Howard Hughes.
Like Ackman, Howard Hughes’ other top officers have stakes in the company — 7-year warrants paid out of their own pockets. CEO David Weinreb put down $15 million and President Grant Herlitz, $2 million.
For Alan Gold, an investor and founder of the Accessory Lady retail chain, it was Weinreb’s name that sealed the deal.
“When it comes to being a real estate developer, David has a very, very, very successful track record,” said Gold, now retired. “If he went into it and put his money into the deal, that was good enough for me. I didn’t have to do much else.”
THE VISION THING
T2 Partners, part of Tilson Funds, was among those receiving Howard Hughes shares when General Growth emerged from bankruptcy, Tilson managing partner Glenn Tongue said, declining to say whether the firm still owned the Howard Hughes shares because it hasn’t filed its disclosure statement.
Tongue said the stock’s value is still unknown because management has yet to present to investors its long-range plans.
“There’s lots and lots of assets, and lots of things to do with the assets. But you still need someone to articulate what that vision is before a firm like ours is going to try to estimate intrinsic value,” Tongue said.
The company’s leaders are working on that, said Weinreb, who grew up with Ackman in Chappaqua, New York. The two rekindled their friendship about 13 years ago.
“We have set our sights on getting our hands around the many opportunities that exist within our dynamic portfolio and evaluating and prioritizing those opportunities,” he said.
Some analysts have suggested that Howard Hughes — basically an opportunity fund that will not realize its value for years — would be taken private.
“That certainly is not in our plan,” Weinreb said.
The Howard Hughes name might put off some, since the industrialist, film producer and aviator died an eccentric recluse. But Weinreb defended the choice.
“If you study the brilliance and precision that Howard Hughes executed throughout his business career, it speaks to the kind of organization that we’re building,” he said.
The company’s assets include four master-planned communities with 14,653 acres available for sale. About half of those are in Summerlin, Nevada, outside of Las Vegas, with an expected sell-out date stretching into 2039. It also has four mall development projects totaling 647 acres, seven malls ready for redevelopment totaling 1 million square feet of leasable space.
Finally, it has interests in 11 other real estate properties or projects. That includes General Growth’s Chicago headquarters. Howard Hughes Corp could eventually construct a larger building on the property, Weinreb said.
It also includes Manhattan’s South Street Seaport and Victoria Ward, a mall in Honolulu that has been permitted to be expanded and redeveloped into a multiuse project.
“We just had a plan approved over the coming years for 9 square million feet of vertical construction,” Weinreb said. “While the market is not right to build a new city today, the opportunity to do that systematically while still keeping the income stream that currently exists at Ward in place is a very dynamic opportunity.”
