Results: Howard Hughes Holdings 1q26
Master plan playing out!
Original review: Howard Hughes Holdings - Ackman's Berkshire?
Tag for finding my other articles on this stock: HHH
Key takeaways
Howard Hughes released a new set of metrics and valuation methodologies. These are useful, especially adjusted maintenance free cash flow for the Operating Assets segment. Management peg per share value at $104 today with potential for $211 by 2030 - their deck is linked below. Share price today is $63.
Thesis and valuation update
No change to thesis. The real estate business shows momentum and is generating cash which will mainly be redeployed into Vantage, the new insurance subsidiary. That acquisition should close soon. Marc Grandisson, the ex-CEO of Arch, one of the best-performing insurance companies of the last 25 years, has joined the HHH board. This bodes well for Vantage.
The new valuation framework is similar to mine and produces a similar outcome. I’ll update mine for the new metrics and republish it in the next few weeks.
Notes
Operating summary
MPC EBT +33% on higher land sales. “The real estate engine did exactly what we needed to do. It grew cash, it provided pricing power and it converted more land into long-duration income.”
Operating Asset TTM same-store NOI +2%, driven by leasing and the burn-off of rate abatements in multifamily and office.
Strategic Developments: broke ground on The Launiu which is 70% pre-sold.
G&A high this quarter at $25.8m on $3.4m of Vantage acquisition costs.
New metrics
MPCs: residual land value, undiscounted and uninflated.
Operating assets: Adjusted Maintenance Free Cash Flow. This is NOI - interest - amortisation of deferred leasing costs - depreciation of tenant improvements. It’s a good proxy for “cash we can take out”. It should grow high single digit organic (mid-single digit same store rental growth + 3-5% from operating leverage) plus 1-2% from building new assets. It is well diversified, with Office, Retail, and Multifamily making up about 30% each and Other the rest.
Strategic Developments: gross profit after tax of remaining condo sales from projects in development and advanced predevelopment.
New valuation methodology
Detailed deck here.
Their 1q26 valuation is “basically a liquidation value”. NPV is higher if they keep rationing the supply of land, reinvesting in communities, and building the commercial land themselves so they keep the development profit.
Balance sheet
$1bn debt raised at tightest credit spreads in HHH history. Half at 5.875% due 2032, half at 6.125% due 2034.
Repaid $750m of 5.375% notes due 2028.
$300m 5y mortgage at Downtown Summerlin raised at 5.52%.
$1.8bn in cash. Including the PSH Vantage preferred, all plans fully funded.
General commentary
Summerlin land values have compounded at just under 15% over 5 years and the cost of capital should be a modest spread over treasuries given this is an established community and it is a virtual certainty the land will be sold.
Real estate overall will generate $2.5-3bn of excess cash by 2030. (This is after building out more Operating Assets. Unclear if it is pretax or after.)
Focus for the next few years will be on injecting additional equity into Vantage rather than buying additional operating companies, in the expectation that Vantage will do 15-20% ROE and be valued at 2x equity.
Beginning of a meaningful transition in the shareholder base.
Shifting from annual guidance to long term objectives per platform, “consistent with how we allocate capital and measure success internally”.
Thanks for reading - if you enjoyed reading this please like and restack, and do get in touch if you have questions.
Pete
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