Yet Another Value Podcast - Bill Chen on HHC's value and Ackman's pending tender

Episode Date: November 7, 2022

Bill Chen, a real estate investor, returns to the podcast to discuss HHC's value and why Bill Ackman's current tender for the company might undervalue HHC.   HHC model: https://t.co/q6lQ69TeXZ  Chapters  0:00 Intro 2:50 HHC overview  7:15 How HHC can create value over time  9:15 Valuing HHC's operating assets  11:35 Opportunity cost versus other publicly traded real estate  17:35 Valuing HHC's unstabilized assets  19:30 Valuing HHC's Hawaiian assets (Ward Village)  29:55 Valuing HHC's "other" assets  31:40 Valuing HHC's MPC  45:20 Valuing HHC's Seaport asset  50:55 Why is HHC always trading under NAV?  54:00 Will non-Ackman shareholders ever realize value from HHC?  56:25 HHC's OXY deal  1:05:35 HHC's most recent MPC deal versus share buybacks  1:13:00 Ackman's long term HHC plan

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They're moving incredibly quickly with many new features and data sets. As a bonus note, blog readers will know that I run a monthly, well actually buy-monthly, deep dive series sponsored by TECIS. In them, I go deep into industries and companies with fast, and questions using Teague's expert calls. I'd encourage you to check that out if you're interested in seeing how expert interviews can help you learn more about a company and industry. All right, hello, welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast podcast, it mean a lot if you could rate, review, subscribe, follow out wherever you're

watching or listening to it. With me today, I'm happy to have on for the third time, my friend, Bill Chen. Bill is the managing partner at a institutional real estate fund. Bill, how's it going? I'm doing. I'm doing great. How are you, Andrew? I'm doing good. I'm doing good. And we're going to see each other in person next week. So I'm really looking forward to that. But let me start this podcast the way I do every podcast. First, a disclaimer to remind everyone that nothing on this podcast is investing advice. We'll probably be talking about a tender offer associated with the company here. So everybody should just particularly keep in mind not investing advice related to the tender offer, not investing advice. We're not financial advisors. Please do your own work.

Second, a pitch for you, my guest. Again, this is the third time you're on the podcast. So people can go listen to the first two for the full pitch. But I consider you a good investor and a good friend. I think people are once again going to see the degree of due diligence and work you do on the names. We were just going through all the properties that the company owns. And I was like, hey, have you been here? Have you been here? And you're like, yes, I'm a boots on the ground investor. I've been to Hawaii, Vegas, Houston to see all of these things. You do great work on these things. I think that's going to shine through here.

And I have recently learned you have absolutely impeccable taste in Chinese food. So I can vouch for that as well. But all that out the way, the company we're going to talk about is Howard Hughes. The ticker here is HHC. Every value investor, I think, at least knows it. It has probably been burnt once by it. But there's a lot going on with HHC here. I think we want to talk about the value of HHC.

There's a tender offer from Bill Ackman that will actually expire next Thursday or Friday. I can't remember the exact day. I knew that's in play. So I'll just turn over to you. HHC, do we want to start talking about the company? Do we talk about the tender? Where do you want to start? Yeah, I mean, I think, I think just like briefly, what I want to, like, touch upon is, again, like, reiterate, this is not a best of advice.

This is, you know, just what my purpose is to offer a framework and evidence to support that why not tendering your shares into this Dutch auction is a good idea. Like all we're here to do these are my personal opinions, not investment buys, but I think, I think, you know, I will present pretty good evidence today. And also just, you know, framework, the Dutch tender offer is in a range between $52.50 to $60. So the stock, as of right now, trades at $60 to $0.46. So this is the market saying that, you know, if they wanted to, they could just sell into the market today at a range that is higher on the very top range of the. tender offer. So just, you know, I think that's a good framework to kind of think about. And also, I just also want to reiterate, I'm a very long-term-oriented investor, you know, on my previous podcast with Andrew with FRP and Clipper. Like, you know, I let management team run the business that they want to. But in this case, I'm just a little bit critical of

Ackman trying to, you know, gain de facto control of the company. And my purpose today, is to kind of give people a framework to think about how much is Howard Hughes worth with growth potential, right? And, you know, what are the evidence backing up the claims that I've got to lay out, right? And, you know, we've actually published a public model in Excel. Anybody could go and, you know, download it, right? We'll provide a link. I'll put a link in the show notes for anyone. Yeah. Awesome. And we could, you know, play around you could test drive it, you could change the cap rate assumptions, you could, you could change the percentage impairment. So, so it's something that, that, you know, the public has access to

and you could, you know, sensitize and test drive and impair our assumptions. So that's kind of, you know, with that out of the way. I think a good way to think about big picture is the current price is $16. We have put out a model and, and, and, and, we have put out a model, and, and We haven't had $110 per share. Now, this is including some really key assumptions, like we're taking massive impairments on assets, like they're recently acquired Douglas Ranch. We impair that by 50%. The CPO, we impair that by 40%. We're using DCFs of 12 to 15%.

And, you know, the management team have come out with discount rates that are, that are, you know, in the high single digits. It's like, you know, they guided land price appreciation that are 47% we're using 2%. So we're really just scaling back the assumptions and we're still getting to a number that is, you know, 110 versus something that trades at $60 today. And another way, you know, another real important aspect, which I'll get into is that there is, this is a buy something that's at a discount, but there's a tremendous amount of hidden growth. There's a tremendous amount of hidden growth, which we'll get to you a little bit later. There's a hidden growth engine here where you could reinvest capital at 25% return.

You know, like that's what the company officially set today. Cash and cash is 25%. We've gone back, you know, into the analysis independently, like verify a lot of the building level development returns. And we've seen, you know, returns as low as, you know, on the low end is low teens. you know, we've seen IRs as high as 40, 50% on some of the really successful projects, right? Bill, if I can just jump in and you can confirm or deny, but I think the reason that's important is a lot of value investors know stocks that the NAV is 100 in the stock trades for 50, right? And the issue with a lot of these things is it's not great businesses. There's not a lot,

you know, it's the classic, oh, okay, there's a bunch of cash over there. But if you get it tomorrow, awesome, you're going to make a double. If you get it in 10 years, cool, you made a double over 10 years. That's not a great IRA. I think what's important here is you're saying, hey, my very conservative nav is a double from the current stock price. But what's important here, and this will come into play later, if you don't get the 120 tomorrow, that's okay because they've got all these projects that have great return possibilities associated with them so that the NAF five years from now is going to be 180 instead of 120. Please correct me. I'm wrong. But I think that's just really why that's important.

That's, that's exactly correct. And I think that. And this is something that we pay a lot of attention to you. And on a unit level basis, we will go in and we will track, okay, they took a four-acre parcel, built a multifamily on it and spent $100 million. I'm just doing the hypothetical example, right? Spent $100 million on it. They built it to an 8% cap rate. and the market used to be 4%.

Now we're using 5% cap rate assumption, but like, you know, and if you build multifamily to an 8% cap rate when market was 4%, you essentially double the value on an unlevered basis, right? Now, if you use some construction loan, the equity, the equity return on equity could sometimes be anywhere from like 4 to 5x

depending on what that equity capitalization is, right? So those, that's really, really unique. And the company has 20, to 30 years of pipeline of these commercial development projects, right? And that's probably the what's more exciting because Andrew, we all been there. We all like first start out. We buy companies that are, you know, deep discounts, their net nets, their textile mills, right? This is not, you know, this is not the original Burshire business. This is probably one of the best real estate businesses that I've come across. So, so, you know, let's let's kind of dig into it. Like,

Let's go into that. Let's go break down that nav. And what I would do is I'll go with easy to understand to more complexity. And I think that's like the easier way to do. So again, there's a, there's a public model up there. And the way we will break down the model is there's operating assets and a $4.2 billion. These are stabilized assets, you know, based on Q2 annualized net operating income, $4.2 billion. And it's a mix of office, retail, and multifamily. We use a 7% cap rate for office, 6% cap rate for retail, 5% cap rate for multifamily. And this is, you know, frankly, a year ago, those multifamily were to trade at 3.5% cap rate. But interest rates have moved, you know, things are different today. And I think that 5% cap rate is appropriate for

multifamily because these are in, you know, they're in their own MPC where they control all the supply. So this applies, you know, some people have given me a pushback and say those cap rates are too low. What's different is that they're all located within their own

MPC where they have this unique NIMB you, NIMB for you, YIMB for me, where they, how huge could build anything they want, but no one else could really build anything. And when you can train that to a zip code, they have these really, really strong dynamics where any new supply essentially is going to come from

power hues, and they have incredible large concentration of supply in their hands. So that's why those seven, six, and five, I think are appropriate. And also keep in mind, none of these assets are older than 10 years. A lot of them were actually built within the last five years. So there's an age element, there's a quality element, there's a strategic location where they have a ton of control within their MPCs. So this is, I call this portion the slap a cap rate, right? You know, take an N.O.I slap a cap rate on it, and you can sensitize it.

It's very easy to figure out. You can sense, let me just ask real quickly on this, because this is a, it's a weird one where I don't disagree like the offices in the offices buildings that they have at a 7% cap rate. I don't disagree with that number, right? And that's 1.6 of the $4.2 billion in your model. But I, like the pushback I had when I was looking at it, it's like, yeah, I don't disagree. But if I looked at publicly traded office buildings, you know, and not just SLG and Vernado,

which are almost exclusively New York, but I mean, people who are across the country, BXP is one, there's a few others. I can't really find one that trades on the public markets that's going for under a 10% cap rate, or I guess it's over, right? 10% is the minimum. Most of them are kind of in the 11 to 13% range. So I get this weird mix where I'm like, okay, I don't disagree with Bill, but at the same time, like both on an opportunity cost basis and where the market's trading.

And look, these guys, it's not just these guys. Elson G's been saying for you, hey, are the stock market values that's a 9% cap rate? And we're selling New York office buildings all the time at a 4% cap rate. That doesn't make any sense. But I guess my push rate would just be, okay, I could just go buy BXP for an 11% cap rate. Why not do that? Does that make sense? So, no, I think that's a great example, you know, great pushback.

And my response to that would be all these other companies that you mentioned do not have this ecosystem control, right? So that's important. The second part is that in any kind of zip code, right, any kind of community, any kind of town, there's a proper mix of office, retail, and multi-family. Right. None of these other companies that you mentioned could just say, oh, you know, office is oversupply. Like we have this commercial acre. You know what? Like we could just build multifamily and retail and like health care, right? So you could change. It's adaptive. You could change the mix. And what happens when you built more multifamily in that area is that is that now you got more residents that creates demand for the office. And this is what's really. unique about their communities, right, is that you still, there's still a great amount of resiland and great amount of commercial land where they could shift that mix, they could build the supply in response to where the demand is. And over time, that mix shifts from that office over to, you know, to more towards, you know, multifamily retail. And also, you know,

they started doing health care as well, right? So, so I think, I think that's a very, very unique distinction. Now, if you're Vornado and you are, you know, S.L. Green, you are a certain percentage in a 300 billion square foot, you know, New York City. And you have no option to shift that mix over to multifamily. You're like confined to the growth rate like off Manhattan, right, which is, you know, like that's kind of confined. That's supposed to, like, in their MPCs, what's very, very different is that, like, what you've got to keep in mind is that most of their MPCs in Summerland and in, in, in, uh, bridgeland, uh, you literally have, they're literally adding 2,000 residents a year in the age, in, in, like, the agent, like, within like, a half mile to a mile radius area. Like, you, you have this huge increase in population. So, so I think that's what makes it a little bit unique. Also, also, I kind of have a opinion that like the public office reeds are are probably on their value but you know the mark them you know so so so this I think this is this is me kind of saying that the cap rates for

some of these high quality SL green and Bornado is probably not correct like if you look at a private transaction that's not what they are but what's unique here is that they can really scale back like when they do build office it's often built to suit with like a 10 15 year you know lease on it. Sorry, I was, I was agreeing with you and I was also looking at the models. No, the only, the only other thing I would say is you said at the end, SLG and Bernato, they're multiple. And I think this would apply to all the office buildings, a lot of the public trade real estate

is not correct. And like, it's just, it's tough because I, again, I do not disagree. I know a friend who, I don't know if you know, Park Hotels, he's done a lot on that. That's the spinoff from Hilton. And if you did what Bill does and you go to each of the individual hotels that Park did, like the boots on the ground and you looked, you'd be like, oh, there's absolutely no way precedent comps. And there's absolutely no way parks, price is right. But it becomes one of those like, oh, unless you're ever going to realize the value for it, it's always going to trade underneath it. So it's this weird, like, when does the catalyst come?

And then it's like, hey, if everything else is trading out a discount to park and you see something else a discount and you see something else a discount, like the opportunity cost versus investment. all these. It's just a little weird chicken or the egg dynamic. Did you want to say anything else on the, did you want to say anything else on the operating, the stabilized operating assets? Or should we move to it? I don't, I don't think there's really anything. I mean, I think, I think, and again, like we, like, there's a model that's available. Like, if you want to shift that to eight or nine percent cap rate for the office, like, like, like, it brings down the that but like you know i think i don't think like it breaks the the the thesis that's what i was doing as you were i was looking at the model and you know if i changed the cap rate on just the office

from seven to ten which i don't think anybody thinks like good stabilized office hours and pretty good metros are going for 10 yeah it takes 500 million off the value but it it doesn't break it certainly doesn't it doesn't it doesn't break pieces yeah okay so that's the operating assets which i'm with you those are the easiest right like They're already producing cash flow. There is a little bit more for them to stabilize to get to. But these are good buildings. They're producing cash flow.

It's generally you take off the calculator. You say, here's the cash flow. You divide by a number to get the. And that's it. So what do you want to talk about next? Well, I mean, the next category is the unstableized and under construction. You know, there's $650 million of value there. And what that category is, is just a collection of assets where it's a mix of all different

prototypes. But, you know, and we just used. use one-time book value to 1.3. So if you think about, when you think about their development, you know, again, going back to that 25% cash and cash return that the CFO just set on the earnings call today, right? Like as they take that, that, you know, asset through construction and get it built and get it, you know, 40, 50% least, that value should be higher than, you know, the capital that they put into, to the project less the debt, right?

I mean, because they have a historical track record creating value there. So, you know, I think the 1.3-time book value is only for the multifamily. And then everything else is like 1 to 1.1. So you could also, people could also mess around with that, with that number. You know, if you want to adjust it all the way down to one, like, you know, it doesn't break the model. And that's 600 million of value, which 600 million is a lot of, it's a lot of money. but you know when your when your model's putting out 12 billion and you're saying hey we're basically valuing 600 million of at cost ish like it doesn't break the even if you're

these guys wasted a bunch of money on these projects haircuted by 20% like I it doesn't really move the model there so yeah yeah yeah okay so we've gone through the operating asset the stabilized operating assets we've gone through the unstabilized I think the next one if I'm just going down the list is do you want to talk seaport next no let's say seaport we're going to go easiest to understand to more, more complex over time, right? Seaport is the most controversial, but I'm with you,

there's more, there's more important things to talk about, more valuable things to talk about, I guess MPC is the next or, we'll do more village because I think, yeah, so, so what more village is,

what more village. Go ahead, no, go ahead, no. I was just going to, these matter, right? These are the Hawaii, they're the condos,

1.1, 1.2 billion dollars of value in your thing. So that's about 10% of, the gross asset value here and me rambling out the way now I'll turn it over to you so so what is this they own a six 60 acre site like right on the water in halaloo in the area called war village right so think like like tall glassy high end like you know waterfront towers in in in alalua hawaii that they sell for 1,400 hours a square foot right it's basically like mad prices and what's really unique is that the buyers in Palauulu will put 20% hard deposit, it means that they put that deposit down. They can't, if they walk away from it, they forfeit 20% down payment, right? And these

towers are pre-sold. So, so they, they still have the right to build, I believe, eight or nine towers in total, right? And, and they are, there's a full out of those eight or nine remaining are 90% pre-sold. So like, like, like, this is not a speculative development business. This, this is basically a manufacturing business where Pete, the customer has given you a hard, you know, a hard non-refundable deposit can't walk away from. And, and, you know, on the Q2 earnings call today, they just closed, you know,

I believe they just got about $200 million of cash proceeds. I'm like closing, closing out two-third of the units in a tower that they, they, they, you know, they just closed. So, so this is a part where if you look into the supplemental and you look at, you know, like the four towers that are under contract, right, that are, that are like, you know, that are, I mean, so there's two of them that they're building right now, and then there's two that are, they haven't put a shovel on the ground, but all four of them are over 90% pre-sold with 20% hard deposits, you know, collected from, from buyers. And then there's four more remaining

that, you know, they haven't pre-sold yet, right? So, so this is an area where we're using an 11% discount rate, right, to discount all the future cash flow. We're assuming a 30% you know, profit margin and also like a tax rate. But the key to understand is that half of all the future condo sales are 90% pre-sulled with 20% you know, hard deposits that they can walk away from. So, so, so, you know, there's a certain, like, bird and hen element in here. And, and people, I don't think, like, people need to, like, get into the weed as much. Just, like, understand that dynamic. Understand this is not a speculative development. This is not like, you know, you build the condo tower. Now you got to go market it.

And then you're subject to the winds of, like, mortgage rates and whatnot. And I think, like, something like, if I remember correctly, 50% of buyers are basically cash. Only 50% of hire actually require some sort of mortgage. Like the buyers who buy these assets are the kind that don't need, like they're not subject to the mortgage market. So who, because, you know, when I was pregnant for this podcast, I meant to see this earlier, but I remember like every time I look at HHC and I've looked at a lot, when I was like, oh, I'm just going to look at a simple operating company,

simple real estate company. And then I'm looking like, oh, three different MPCs, Hawaii condos. And I think the Hawaii condos are actually, it's, the MPCs require more assumptions, but I think the Hawaii condo business is actually a little harder to wrap your head around just because like they're pre-selling and all this sort of stuff. And it just, it doesn't mesh with the way as a non-real estate person. I kind of think about real estate or I think a condo in New York, right? They go build it. And then a month, a year before it's open, they're desperately trying to sell the units and stuff. So, so, no, this is a good point.

So like, like the best example is for. Nate will actually develop a condo tower call, I believe, 220 Park, right? Like, no, no, that's funny. It was like one of those, you know, billionaire road towers. And in 2020, people were like, are they actually going to close on this? And they, like, these are like $40, $50 million condo units, right? And they close every single one of them were closed because people put a, like, a 20 or 30% hard deposit on it five years ago.

Yep. And in 2020, they all close. and I think that those towers sold out for like two billion dollars if I remember correctly so that is the right model this this is like not a traditional speculative like we're going to go build it we're going to sweat bullets and see see if we could sell it right like there's another conflict poetry company called training place holdings right which is the oh sims building oh i know So, but that's a polar opposite, right? They built everything and then they went to market and they're like having a really

all time moving the units, right? So this is a totally different business model. This is a manufacturing business. It's almost like you're almost manufacturing widgets at this point and people are saying take my 20% deposit and we can't walk away from. The 220 Park is also that I thought so and I just looked at up. that's where ken griffin bought the most expensive home ever 200 238 million condo in 220 but let let me ask about what so these are people i mean you're going and you're putting up the money i mean it's

five or six years before the condo is actually going to get delivered it's a giant beautiful kind condo and why who's who's the typical buyer for this type of uh this type of condo so um if i remember correctly a lot of it are actually kind of west coast tech executives because like if you're if you're California and and Washington like you're very wealthy you really you could you could access Hawaii a lot easier in the East Coast there's a big Japanese buyer presence there and then there's uh I think only 20% is actually local for for like the uh so so so a lot of that buyer base is you know not sensitive to to mortgage rates and just I thought it might be a lot of Japanese buyers and just have those I've looked at some

a lot of the timeshare companies have a lot of business in Hawaii and they'll say look 20% plus of our customers come from Japan and that has been a disaster post-COVID because obviously COVID hits travel but then Japan has really strict travel policies I think that's starting to come back but have they been able to sell kind of for the past couple of years with the COVID restrictions you know it may be a little bit more I mean they haven't had any trouble no exactly and that's that's even with like a new tower like I guess like a fifth tower that's taken out to market like like just the pre-selling in this quarter was like 40% right like it's just like I'm just not seeing any evidence of slow down like I thought earlier this year that that the the velocity would slow down and it didn't right like it's just like if there's one thing that's consistently surprised me is the strength of the Hawaii condo market And then I guess just to build on it, so like a lot, the stuff that's done that's all sold, pre-sold, like that they'll be getting done.

The future about obviously you think, again, I'm cheating off your model. 400 million of value is coming from the under construction, about 800 million is coming from the future construction. Yeah. The good news there is the future construction. It's not, as you said, it's not on spec, right? If for some reason the buyers aren't coming in or something, they can pause or they can shut this project down.

You're not going to burn. Oh, they don't, they don't put a shovel in the ground. unless like i i think their rationales they don't put a shovel ground unless it's 80% pre-sold like so people you get the pre-sell up to you like 60% and then they can't get to 80 like they they won't build it and then it's 30% margins right so once you're at 80% pre-sold with 30% margins you've covered your whole cost basis so then you can go sell the rest of the cut i'd love to get one of those condos for cheap but okay and then also just to clarify like like like you see that 417 right that 417 I think I think there's about $200 million that that's actually like like you know in the Q3

like that's like in the pocket now the case is based off Q2 right and then out of out of that 783 it's really six towers if I remember correctly and there's two of it that's pre-sold yeah like when you look at that 417 plus 783 in the model like the way really think about is that the 417 is under construction today out of that 783 call it like a 3 third of it is 90% pre-sold. So, so, like, it's not like that 783 is still to be pre-sold. Like, like, there's, there's a, there's a really big chunk, like, there's probably more than half of the net present value that's, like, already pre-sold. Yep. Yeah. Anything else we should be talking about with Ward? No, I mean, I think, I think, like, that's, that's, I mean, it's just,

I've been out there in person, uh, it's land constraint. You got the ocean on one, one side. You got the mountain in the back, there's, like, nowhere to go. It's chronically under supply. People love it, you know, qualitatively, like, there's, just like, just look at the pre-sell numbers, look at the pre-sell numbers, and look at the historical margins. And, and also just like from a risk perspective, you know, people complain that they got too much leverage, right? They got too much leverage.

But, like, if you think about from the perspective of, of generally, selling out the next four towers will probably get them about, you know, $700 to $900 million of cash inflow. And so we've now talked about operating assets, unstabilized assets, and the Ward Village assets. That's on your numbers, about $6 billion of value. So we've now covered basically all of the liabilities. And look, a lot of the liabilities are secured mortgages that are at the asset level. And we haven't even talked about the asset that these are covering. But so it's a little bit funky math, but at this point, we've covered all the, we've covered all liability value. So now we're just kind of getting some equity value.

I guess next place to go, it's either other assets or the MPCs, which we- I think other assets is that will be easier to cover because if you look at the other assets, in essence, it's all a lot of is cash. Yeah. Like, so it's easy to understand, right? A lot of it is cash and restricted cash. A lot of it is kind of prepaid expenses, you know, in this business, you know, whether there's construction, sort of like, there's all these pre-paid expenses. And then there's about a half

billion dollars worth of municipal, like what is called muds and sins. So in Nevada and Texas, when they built the lots for sale, when they put in the infrastructure, the government will actually reimburse them, right? So you could think of that as half a billion dollars immunity bond, right? Like, in that sense, that's what it is. Right. So that amounts to $1.9 billion. And also, like, keep in mind, like, they own some like cats and dog assets, like they still have more air rights in New York City near the seaport, right? Like, a little people, like, like, we're saying that's worth zero. They have, like, air rights above the fashion show air more in, like, in Vegas, right, on

the trip, right? Like, like, we're saying that's zero. Like, there's some land in Maui. Like, we're saying that's zero. So there's $1.9 billion that's mostly prepaid expenses, cash, and essentially muni bond, right? I'm glad you with the muds, because that's the one thing. I think people see to be like, oh, what's that?

It's like, it's pretty much money good. That's the government basically saying, hey, if you build here and you get a whole MPC, that's going to be a massive tax base. Like, we would love to supplement that to get the tax base going and get that kind of going up, which I think brings us nicely into, let's talk about the MPCs. These are the majority of the value of the company. This is what, when Ackman goes and he pitches HHC at, you know, sewn conference or whatever, the first thing he always says is, look, if you,

the way to get rich is if you have an MPC and you hold it for 50 years and you develop it properly, you're going to get really rich. He's given the, I think it's Irving out in California. Irvine, yeah, Irvine company. This is what he loves. This is the key asset to HAC. So I'll flip it over to you. Sure, sure. So there's a residential component and there's a commercial component. And I think like, you know, we can use the word MPC and sometimes like you can kind of get caught up in the semantic, like MPC sense for master plan communities, right? Like, for those people who are new to your story, like, just want to explain to that. Like, like, what is it exactly?

I mean, a good way to think about it is that, like, any town that you live in, let's say, like, there's a town that you live in that's like 100,000 resident, right? Like, how did it start, right? Like, how did that town, how did that, like, small city start? I mean, at some point, it was probably all potato farms or just like a patch of dirt, right? like literally like that's that's what it is right and i think anyone even without a real estate background understands some like some some basic principles about that where where if you like an mpc that has 10 000 residents you're going to sell the land for on a per acre basis you're

going to sell the land for a lot less than when you got 20 000 30 000 40 000 50 000 you know like Like when you get to 90,000 resident and you only have land for that remaining 10,000, you're going to sell that land for really, really high price, right? And on the commercial side, this kind of same dynamic. Like, like, think about every town, every city has, like, a downtown area has, like, some sort of, like, dense commercial hub, right? And, and, like, you could have a few hundred acres in, like, a central location. And, and it's not going to be worth a lot.

lot in the beginning when you only have five or 10,000 residents. But as more residents move in, those parcels go up in value tremendously, right? So that's what these two, that's what these two assets are, right? The MPC residential, you know, represents the residential lot that they own in, in Las Vegas, right? In Summerland, Las Vegas, in Bridge, which is, you know, outside of the, you know, it's a little northwest of Houston. And there's a little there called Woodland Hills, which is like further up north. And they just bought a place in Arizona called Douglas Ranch, right, which is probably the, the earliest, like in early stages. And am I missing any?

Hold on. Give me a second. I'll see residential. So you have bridge land, what's that? The remains of the Maryland asset, am I thinking? No, the Maryland is purely commercial. Okay. Maryland is so, so it's, it's mostly Bridgeland, Summerland, and Douglas Ranch.

Now, me being the boots on the ground guy, I've been out there and I've seen all of them, right? I've seen, I've seen all these assets. The only thing I haven't seen is a new acquisition in, in Arizona. So what, what I've done now, what I've done is, is that like, like, we basically said that higher interest rates, you know, Home building is going to slow. We've taken the average land sale price, cut it by 20%, and taken down future land price growth to 2% from like the company guided to 4% to 7%.

Company guided to, you know, discount rates that are, you know, 7 to 9% and we're using 12 to 15, right? Now, I want to like differentiate this from like, you know, there's another company called 4 star, right? what they do is they like buy raw land they put the infrastructure and then they sell it to home builders right yep and and those are typically three year kind of like life cycles right that that's that's not what this business is because what four star is they turn raw patch of you know dirt into finished lots for home builders to buy right um but they don't invest in

retail they don't invest in offices they don't invest in medical they're invest in multi-family they don't build communities. They don't do placemaking, right? Placemaking is really, like, if you think about how Hughes is in the business of doing, they're in the business of putting in different pieces to a town so that it makes it attractive for people to live there, right? And what that does is that, and you see it in the numbers, you see year after year the residential land prices go up.

Like if you look at the historical, you know, they've been able to hit, you know, in that 5 to 7%, And there are some years where you see these dramatic increases in a lamp price, right? And it's exactly what you said, right? The first homes, when you're selling it, there's no one around. There's no infrastructure. People are taking a chance. They're betting.

You're going on promising, hey, I'm going to build this infrastructure. But they're going to get a discount. But guess what? The second round of homes, they say, oh, there's 200 homes around here. There's a store. There's a grocery center. The third round of homes. Oh, there's a thousand stores.

There's a Whole Foods. There's a movie theory. By the last round of home is like, oh, my God. these are the last homes in the area it's all built up there's all this experiential stuff the schools are out there we've got the best schools like everything's brand new like the more you do the more developed it gets it's a little bit it reminds me of nobody likes malls anymore but it's a mall right it's a network effect the first stores get the cheapest deal by the last stores when it's 95% leased up everyone's to be there because that's where all the traffic that's where all the everything is

yep yeah i mean literally they're building cities and cities have network effects right so so so And I think that this is where, like, like, where I think there's, there are issues with GAAP accounting when it comes to real estate, right? Like when you sell these parcels and you add a nice retail, like a nice retail strip mall or like a nice experiential place in a community, the gap accounting does not take into account the fact that like now your residential land has appreciated. But, like, you see that in the land price appreciation when they sell the land, right? So you do see that. But, like, from a mad perspective, the book value still stays the same, but the book value has actually gone up. And another thing is, like, keep in mind, like, these parcels don't sell out in three years. There is, like, a 30-year inventory.

And, like, another dynamic is they usually have 10 to 15 builders in the, in the, in these communities. So it's not like they're begging builders to come built. Like the builders are all fighting for these land parcels. I actually had a conversation with the CEO of Green Brick Partners, which is a very custom home builder. And he says, he says as a builder, he goes, Howard Hughes is the last company I want to deal with because they have all the control, like the way, like they make the builders compete for like, yes, they have the best land. But like, that's not our business because from a builder perspective, like Howard Hughes has all the control, all the power.

Yep. Yep. So MPCs, I guess we mainly focused on the residential side, though. I think the same dynamics apply to the commercial side. This is $4 billion of value out of the, you know, the gross asset value. I think you've got here is about $12 billion. So this is really the big swing here. Everything matters, right?

But this is the big swing. Anything else we should be talking about just on the assumptions or how people should be thinking about these MPCs? So, yeah, so on the commercial side, I want to get to the commercial side, right? Because on the residential side, we have a $1.6 billion figure, and that's a DCF, right? And it's like, how do we, the commercialize the only side where we've like come out and said that the management team has guided to a, I believe, we're a $2 billion number. And we're willing to stick our neck out and say, no, no, that's worth 2.4, right? That's, that's what we're like, what 20% above what management team has set to us.

And it's like, why are we willing? Why are we so, like, gone to hold and saying that this MPC commercial portion. And the reason is because, like, if you look at the model, what winds up happening is that every analyst, like, if you look at J.P. Morgan model, what they do is they say, oh, like, you historically sold land anywhere from half a million to a million dollars an acre on the commercial side, right? let me comp that. I'm going to apply a tax rate on it, right? And I am going to, like, do a DCF on it, right? And that's totally flaw, right? Totally flaw. And the reason why it's flawed is that the company strategically will sell these commercial land to a, to like a fire station police department. So they're essentially like kind of giving that land away and because you need those public, you know, facilities in your community, right? And then the remaining land, what they're doing, is that especially those that are like closer to to what the town center area they will put an

office they'll put retail they'll put you know multi-family and that's where that 25% on-lever cash and cash come from and and like being the person that I am I've been to the woodlands I've been to downtown Columbia I've been out to Summerland I spend most at least two trips in every single one of these and I can tell you that the remaining parcel that they have there's there's 200 acres in in summer one there's 200 acres in in woodland minimal and there's 96 acres in Columbia those are worth a lease you know a lease uh two million dollars each right so that in itself is about a billion dollars of value and then the remaining portion you know we value those at quote like 360 to 727 for the remaining parcels right and that is a key differentiator

on like why our models different than like everyone else is you know jay morgan et cetera and and i i've asked the management team i'm like why don't you guys stress this and they're like you know people don't leave us already like when we came out and told them like this commercial acre is so valuable like they they like won't believe and i'm like this is where you every single year they could probably put a half a billion dollars and this is this is on a on lever basis they could probably put a half a billion dollars of capital into the ground, right? And, and, like, the lever portion will be a fraction of that, maybe, maybe 20, 30% of that.

And that, that, like, you know, that, that equity pushing will earn, you know, 25% is what they've done historically, right? Yep. So, so this is a key driver, the growth engine. And, and, you know, from, like, I've looked at the IRS, like, I don't think, I think the worst projects are low teams. Like we've seen IRs as high as, you know, 40%. And this is the portion where like we're kind of pounding the table and say like, yes, like you're buying

something at half of nap, but this is the part where if you have to sit there and wait, like they could just keep putting, you know, and another thing, another thing I want to mention is that downtown Columbia, I went to downtown Columbia, I think four years ago. It hasn't hit like critical mass. You're like not sure if it's going to be successful. The thing is that, like, as you add more office and as you have more multifamily, now it's denser. Now your risk of it not working out has gone down dramatically, right? Like, we just, you know, my interns and I just did analysis on 20 acres, on 20 acres in downtown Columbia.

They built two multifamily in office, a rush on ice skating rink, and they still got land left over. And I think in that sense, once they develop it, like each acre of land. and is worth somewhere like $7 or $8 million. So you like, you take land that everyone think is worth a million dollars an acre. Once you develop, it's worth, you know, $7 to $8 million. Like the rule of thumb is you probably take the end state and divided by three to get to like an impute a pre-development value. So like if it's worth $8 million, like divided by three, that that's, you know, actually closer to $3 million. We're using two, right?

and they have kind of 496 acres that are core and the remaining are less valuable because it go a little bit further away from from the town centers but you know this is the part where where where they could create you know a ton of growth from this is you hold the mpc and you get rich over 40 years so at this point because I do want to I I've been very bullish because look I think anybody who looks at this sees what Ackman sees it when they look at this right? You see the MPC. You see the value. So I've been pretty bullish. We've been pretty bullish. We've almost covered all the value. And I do want to get to my pushbacks. But let's cover the last two pieces of values here, right? The first would be the last piece of value would be

Seaport, which I think is the most controversial project. And then the second piece would be the capitalized G&A expenses. We can get there in a second. But Seaport. I'll just sum it up. Seaport is downtown Manhattan. This was their trophy property for a long time. I think it's fair to say it's been bungled. And it's the first thing that everybody talks about when they talk about C-Port, when they talk about H-HC. And at this point, you know, to me, they've put a billion dollars of value into it. We've already covered $12 billion of value here, which more, which covers all the liabilities, the stock price, and then some. I don't think C-Port matters that much at this point. I think it's going to be a lot more successful than the Bears think just based on

kind of expectations. But I'm rammed a little bit. I'll toss it over you on. So, so I'll I think a little bit of context is, like, important, right? Like, one, I think it's, it's, it's hard to develop in New York City. Like, like, when we, when we did the clip of podcasts, I'm like, I'm like, you want to own New York City assets because it's so darn hard, right? It's so darn hard to develop here, right? And also, like, I think some context is important because, like, everyone's like, these guys are idiots, the management team, the idiot, look at the albatross that is the seaport, right? I think some context is important because, like, if you follow what's happened. to retail rent in New York City, New York City high street retail, like all the major

quarters, like Times Square, like, you know, Harrow Square, like Soho, etc. Retail rent across the board, New York City is down 40% since 2016. When they, when they like, you know, like, it wasn't that longer before that. And I would actually say the management team and also like, oh, let's throw COVID in here as while, right? Like, they were like gaining traction and then COVID happened and like the movie theater went out of business, right? Like it's just like, this is meant to be a restaurant entertainment experiential place, right? So for two years, they lost everything. They have, they lost everything and they have to like, basically like re-develop, retent the space, right? Like, like, let's put some

historical, like, let's put some context. It's like, are there, are there factors that were out of their control? Like, like, was it in their control that retail rent will go down 40, 50% in New York City, right? Like, like, that's just, that's just what happened to retail in New York City, right? Is it in their control that COVID happened? No, like, like, those control that New York City lost international tourists for two years at this point. Yeah. Yeah. Now, now, what was in their control was that the previous management team, like there was one concept in there called ten course of Como I think was like too high end for the area right because I think he was like I think he had a vision that was like a little bit outtouch of

the neighborhood right that was in their control and and that is a fault of theirs right now what's also like there are some office space in there like and like as we know office is tough in New York City right so so it it's like why is a seaport important it's that people absolutely hate it. They have zero expectation. I actually, I'm there all the time. I spent way too much money there. I take my kids there. We love it. And why is it important? I think it's important because if it works, right, if the Seaport worked, that like half a billion dollar figure, because like, like, I kid you not, like, that could swing to like almost two billion dollars of value. And it's like, how do you get there? So like in New York City, you have all these

places like Rockefeller Center, Times Square, and, you know, like, CEPA could kind of emerge as one of those areas where, where, like, those are trophy assets or if you were to sell that, like, there's probably some family who will want to own the CIPA or the Rockefeller Center, right? So, so I think that's what's important. Another thing to consider is that the CIPA literally gets sponsors that pay them seven-figure sponsor fees, right? It's like there's, there's, there's, there's, uh, Heineken, I think pays him a million dollars just in sponsors, right? Like, there's like no cost. It's basically all force of my mind, which like makes you think like, like if the seaport was such a horrible

place, why are they, why are sponsors paying how to use, what, seven figures just to put their name up? I told you my buddy proposed the other day and he sent me, I was looking at the pictures. I was like, where'd you press? Oh, he proposed at seaport on one of the peers or something because it's a beautiful spot, right? Like I do think a lot of investors when they look at HC and they've been burnt and they thought Seaport was going to be worth $2 billion four years ago, they look at it and they think it's this huge time, it's this huge sink of money. And yeah, it's probably not worth the billion dollars they spent on it, but that doesn't

change that it's a really good asset and there are, they're still developing it and they're still upside to that. Anyway, hey, Bill, we have covered all the assets here, right? That's $12.5 billion value. there's $6 billion of liabilities. Cool, that's book value. Nobody's going to debate that. You capitalize the G&A at 8% to get another billion dollars loss of GNA. Take all that out. And again, the model will be in the show links. People can go look at the model if they want. That gets you to $5.5 billion of value. That's over $100 per share and price versus the current stock price is 60.

So over 110. I said over 100. It's the same. So I think we've done a nice job covering all of the different pieces of HHC's value. let's get to, I want to do the pushback and then maybe we can wrap around to Acmin at them. Look, I think the first pushback, and we started to address it earlier, but the first pushback is like the nav work, you can go look at the company's history of investor days. They're always pointing to a nav that's 100, 150, and the stock price is 50 or the stock price is 100 and they point to NAV 150. I think the first piece of pushback a lot of people would give is, hey, this is similar

to what I said with the tower reits earlier. okay cool the theoretical values there but this is just never going to close it just it just kind of sucks as a public market stock yeah well so so like let me push back on that right people like it wasn't that long ago where if we were going to do the nav the nav the nav would have been like like using the same model right just by changing the cap rate like like three and a half percent for multifamily which literally like what they were transacting at right and And, you know, like, even lower than 6% for retail, right? Like, so there's a big component of that being.

And also, like, the purpose of me putting, pegging like a 110 number to it is also like, hey, like, I, you know, decisively wanted to people to just say, hey, like, like, like, like, like, I think you, most people could have set this nap without a ton of pushback. Like, like, what do I personally think? I personally think the MAB is higher than this, right? I personally think the NAB is higher than this. But like I think we talked about some of the areas where you were probably pretty conservative on the NAB in there too, right? So, so, so like, like I think that's important, right? It's, it's like, and I think like there was, there was like a, so you have this big

interest rate move and you have to incorporate that. So the NAP came down because of the interest rate move, right? And then like there's a certain element of like, so like I was having this debate with someone who's really, really intelligent, I think that the nav that was put out there years ago was too bullish, right? And the nap today is too conservative, right? And the question is like, did they create value in this time? I think the best way to determine that would be just like, look at the NOI, look at the NOI, put a cap rate on it, right? And like kind of like take away some with that that's associated with it, like it'll be very clear to people that they create a

tremendous amount of value. Let's go to the next. So that actually transitions into the next point pretty easily because I think the other thing that a lot of investors, including me, would say when they look at this thing, okay, I don't doubt the value is there. But a lot of people at this point just maybe management can execute, maybe they can't, but I think a lot of people are very skeptical on kind of capital allocation and the value ever grew into shareholders. And I mean this in two ways. You know, there's the Seaport issue, which we've talked about, a billion dollars into it. Maybe it's worth $500 million.

Maybe it's worth a billion. But most people think they've probably lost money on that. And some of that's outside of their control. But then there's things like at the height of the pandemic, right, end of March 2020, they go out and they need capital, right? And how do they raise capital? They do $100 million stock issuance to the public. and $500 million to Bill Ackman at $50 per share, which I think is important in context of the tender.

But, you know, a lot of people think, oh, 500 million to bill, 100 million to public. A lot of people think they're giving him a sweetheart deal doing that, right? And then there's right now, I reread their investor day getting ready for this podcast. And they are gung ho on their nav and attacking the nav discount, right? They say, hey, our nav is way above the current share price. At the end of 2021, we do a $250 million repurchase in 90 days. In 90 days, we buy back $250 million at $100 per share. And guess what?

We're going to keep doing that to attack than that. Q2. They buy back $2.2 million of stock at $89 per share. Q3, they buy back basically no stock. And the stock is under $70 per share. And then right now, the stock is $60 per share. And they're not buying back anything because they're waiting on Ackman's tender to go through. Right.

So a lot of people just look at the capital allocation, the deals with Ackman. And they just say, this isn't a business that's going to get. run for HHC's minority shareholders, they're going to bungle it through bad investments. They're not going to buy back shares at the right time or they're going to let Ackman capture all the value. So I threw a lot out there, but I do think that is people who follow this. I think that's the real concern here. Yeah. Yeah. So let me separate some of these issues. So like the capital raised in COVID, right? Like I think, I think like you have to take into context in terms of like, who is the executive in place today?

versus, like, who was there? So, like, what was going on at the time was that, you know, actively push out the previous CEO, right? And then they had an interim CEO in place. And ironically, like, like, again, like boots in the ground. Like, I was in the woodlands, like when they were doing the woodlands deal, right? So the Woodland Towers deal. So they did that deal, which, like, we kind of get into this.

There's actually a lot of strategic value to do that deal. was actually like on an on a standalone financial basis actually makes a ton of sense but like they they they they did deal and then COVID happened right and so that was that was done when the in an intern CEO and they promptly like let him go right so can I just pause you yeah just what bill's referring to is the tell me if I'm wrong the woodland's deal is Occidental who at the time people forget oil was not a hundred then. Occidental was a four seller they were over leveraged they have a big headquarters in, right in Howard Hughes area. And at the end of 2019, Howard Hughes strikes a $565 million deal to buy this.

And, you know, COVID happens six weeks later. But I don't think anyone would say, like, this is a distress seller. It's a strategic deal. As you said, like, nobody's going to knock that deal until COVID comes maybe, you know? So I get you. But just to give that background. And I think it's, like, important. And like, like, again, like, it's like, are there?

like have allocation like in line with like their state of value of like we control supply right like like the occidental deal was going to be like 11% of all the class a and it's actually frankly probably the best building in the woodlands so like if someone else would have came in and took over 11% supply in a market now that someone else becomes a competitor and i think this is like very very unappreciated by the market right and they got like basically a percent cap rate and oxy uh had a 13 year uh you know lease with them so so in that sense like like and also like this is done at a much lower interest rate right so so oxy's investment grade right at 13 you buying eight 8 percent 13 year cap rate investment grade like that's yeah yeah and and and and

so i i think like people forget that forget like don't see the strategic value don't see like the the pure financial math behind it you know they were able to get like that but like they based what went wrong was that the interim CEO went out and you know got bridge financing for it and they got caught you know they got caught with the pets down in that time period right so they were forced to do they were they were forced to do you know the equity rates like like if you if you asked me yeah like I absolutely hated that equity deal I hated that equity deal because one I think like one they got themselves put in that situation right two like they probably didn't need to raise 600 million

I mean, I think like $2,300 million because they still have a decent amount of cash balance. Now, it's a little bit Monday morning quarterback and like, who knew COVID would have turned out, right? And that's the one I, I do think it's weird that they gave, you know, 80% plus of the deal to Ackman when Ackman's got this massive COVID windfall from the puts that he very smartly bought. But, you know, that's the one I hit them for the least because end of March 2020, as you're saying, it's really easy to look back in hindsight and say, hey, they could have just wrote it out. day they could have recovered but people forget we're probably living in the we're probably living in the best scenario for that but we didn't know like you didn't know when people were going to be able to read literally like like days without revenue was like a thing that people talk about right like like people forget that like Gavin Baker like like what what was not

in your bingo car what was not in your bingo car stress testing a company was days without revenue yeah like restaurant companies nobody to nobody thought like these things are shutting down it's like hey nobody can go to McDonald's you're like a McDonald's you can't go to McDonald's the operating lease becomes all yeah it was just absolutely correct so that's the one I hate them hit them for the least but I do think like so so on the buyback so on the buyback right now my my dab model right like like I have you know one 10 number but I still think it's higher right so when you think about like, like when I, when I measure a company's share buyback, I don't look at the share

price and then say, oh, you bought at this now the stock's down here. I look at like, what is your nap? By the way, they bought back at like, started by bag on 100, but like on a blended basis, I think, I think the cost is 90, right? The stock is at 60. Again, like, you Monday morning back it, but like I tend to look at the world from the perspective of, okay, like, if your Nab was 150, which, like, I agree with them. And they have, like, if you read the James Morgan notes, management team have privately told people that they were worth as much as 170. Again, like, people won't believe it, right? So, like, from a decision-making perspective, like, if you really think your stock is worth 150 and as high as 170, like, and you go out and

you do a massive, I have to know a share buyback at 90, that makes all the sense in the world, right? I'm 100% with you. I'm not trying to quarterback them on the stock price. What I'm trying to quarterback them on is you bought it 90 when you thought your shares were worth 170. Now your shares are at 60, so they're even cheaper. Yeah, your values probably come down just because of interest. But they're not buying.

Okay. So on the 60, I mean, if you just spend a half a billion dollars, like now with the condo towers that are closing, let's see if they keep buying max shares. They didn't in Q3, though. What's that? No, they did buy back some, but there's a cadence. their cash flow, right? So the way that you think about this business is that, like, this isn't, this isn't some, like, there's some lumpiness to their cash flow, right? So they have this

Hawaii, you know, condo tower that they just closed, right? They'll probably get about, I think, like, $250 million of cash that comes in. Let's see what they do with that. Like, there's, there's, there's, there's, I think that's a little bit too early to say, to, to see, because, because, yeah. I, I hear you. It's just, you, it's just, you, it's, it's. In the queues, they give, they give some interesting disclosure because they give post-Q buyback numbers. Yes. So you can actually see, like, in the Q2Q, they say, hey, we've bought back another 370,000 shares in July. And then in the Q3 queue, they say, we bought back 370,000 shares in Q3.

So you know they didn't buy a single share in August and September. And like, I don't know. I just look at that. And you, Andrew, again, like, it goes to like, where does their cash to buy back shares? I know, I know. But you go from 2.2 million shares in Q2 when the stock's 90s. to basically zero in Q3 and then your largest shareholder who you've done a sweetheart deal with announces a tender in October like it just it just looks to me bad and I just look at this I'm like

hey why aren't they if that's thing why aren't they buying back like averaging it out over the entire year instead of like blowing their whole load in Q2 you know their their their cash flow isn't this like not but they instead of doing 2.2 in Q2 and I get like they probably thought it was a great deal in Q2. They could do a million in Q2, a million in Q3, and like kind of dollar cost average it over the whole year instead of just like going all at once, you know? I agree, right?

I agree. They probably could have like measure that out, right? And I don't know, like maybe if the stock price actually was, you know, 150, like will we be having the same conversation today? Like, like, you get what I'm saying? It's, it's, it's, it's, it's. let me switch from the buyback because you've listened to this podcast you've been on this podcast you know i love buyback so that's always but let me ask about some other investments right like one thing i did hear from i mean i mean i i kind of want to like just put it out there like like there's the i think the stop price reflects the fact that like a lot of these points that you you bring up right there's absolutely no doubt about that yeah there's like like and i think like as a reference like Ackman's COVID distressed, distress price was a $50 deal, right?

The stock is at 60. Ackman's doing a Dutch tender offer between 5250 to 60, right? I think the price tells you a lot about what kind of discount is being baked in into, yeah. And I think that's why you're ringing the bell here, right? You're saying like, look, about a lot at 50 in COVID. He's trying to buy a lot at 60, like, before you tender your shares, think about this. there is a lot of value here, you're just trying to lay out, hey, here's where all the value is. Yeah, yeah. And it's like, one thing that I learned is that sometimes these transactions, like,

you're like, I, I effing hate them. I'm gross out by it. But the right thing to do is to put your emotion aside and like, buy. Because I did buy more at 50 when, when Ackman bought them COVID, right? And I was, I was disgusted by And I don't like ACMA at this point, right? And, and I like, how am I those? And I bought a 50 on COVID because I knew like that took away the liquidity issues. And it took away that extreme last town risk. And if you think capital allocation, I want to talk a little more capital allocation, but if you think capital allocation has been a problem and Bill's on the board, he owns 27%. He's the control shareholder here. But guess what? After he does the tender, he's going to own 40%. He's basically the, Like, he has majority control at that point, like the capital allocation problems are going to go away real fast at that point. Let me just ask two more small questions on capital allocation. One thing I've heard from a lot of shareholders is last year, the company's out here saying the NAD discount, like, we're really going to focus on checking the Nafk discount. And then the next thing they do is they go and they buy the Arizona MPC.

And I think we like MPCs, but I do think people said, hey, you're trading in a big DAV discount. You've got decades worth of inventory to go attack at Woodlands and stuff. Like, why at Summerlin and stuff, why are you going and getting another MPC here, you know? Yeah, I mean, I, you know, in a perfect world, I would love for these guys to just put capital, put shovels in the ground in their existing MPC, sell the land, and just use it like TPL all the way to like a multi-bagger, right? Yep. because that that it is self-funded because the putting shoveling ground doesn't require a lot of capital right and the um the the Douglas ranch like I'll be honest with you like I don't like that deal it is their core competence like building NPCs is their core confidence right I don't I don't like it like a lot of other people it buddies the story it you know it is what it is I don't have a lot of good answers to defend it. They did say that they're expecting to sell a thousand lots, like right out of the gate.

And I think that there's some perception that they need to put a lot of dollars into the infrastructure. And what the company is basically saying is that they actually don't, right? But so it's yet to be seen like does it, does it like money up the narrative? Yes. Like, you know, do I have shown opinions on it one way another? Like, not at this point. yeah and look it's 600 million so again it's not it's not the huge needle mover but if you're out there saying hey we're trading at two-thirds of nav and then you go do this big acquisition

that's going to take years like maybe it pays off but it's just the capital allocation all right last one on capital allocation then i do want to talk a little bit about acumen and then i hate talking to you guys we talked reluctant just they did an investment into the john george restaurant they announced it at uh at the investor day it's small right it was 55 million in total no the John George has a lot of strategic value, actually. I know, it had strategic, but I just thought, like, the history of real estate people investing into restaurant businesses is, is not great. And it's just, it's weird that John George, so I'll push back on that. And we don't have the time to, like, to go really into it.

But the John George investment, what's, what's unique about it is that it actually, so, so like, what's kind of, because I've been there a lot. right like they've actually replaced the hospitality management of like melville farms and i think they have a chance restaurant to be operated under john george right because it this is a very tough environment for restaurant operators for hospitality operators and i even at these restaurants before john jose took over and after john jorge took over john george hospitality group is absolutely phenomenal in terms of providing you you know the service and the quality of the food right and And I think that there's a longer conversation is that what is a, like, it used to be the ratio between like an office tower and the ground level retail.

The ground level retail is worth way more the office tower above it, right, for the same score of footage. That's change, right? And now there's a dynamic world. Like there are restaurant, there are office tower owners all over the world who's asking John George to say, hey, can you come and open up one or your restaurants right yep so so it's it's you know you know they claim that it's nassalite but but i think that investment in john george has a lot of strategic value because i think john george

is very important to the success of the seaport i i hear you it just you know as soon as i said it looks bad i was like oh no you know andrew like what what good strategic decision has been like conforming. Let's think about that. At the end of the day, right, like if you have to make like good strategic decisions, like you're probably doing something that like runs against the grain a little bit. Let's,

so I think we've covered, you know, a lot of people have thoughts about macro and rates. Yeah. I don't. Yes, rates could keep going up. Like I think the cap rates you use are pretty conservative.

I think you can haircut them. I don't know if you want to touch quickly on macro rates. I mean, let's, I mean, so like, there's, there's macro, the secular, there's, like, interest rates, right? Like, another thing we didn't talk about all day is that, like, there's a circular trend of people in California and Northeast moving to Texas and Nevada, right? So there's, like, a structural, I mean, this is like, everyone knows this. There's this big structural movement, big structural, like, migration to these areas. On interest rates, like, I would just point out that we've looked at the maturity, right? Like there's almost $2 billion of general unsecured, right, that expires in 2018, 2031.

And those are fixed rate, right? So you have a lot of runway before, like in a higher interest rate environment, you have to deal with it. And you generally should be able to increase, you know, your rent and your NOI while you have the same interest costs. And then you have the latter, you know, you have probably, I think, 40, 50 different properties that are, that have, you know, mostly fixed rate at the property. level, right? So, like, the way that they have the debt capitalize, it, you know, it gives me a little, like, it doesn't keep me up at night, even though, why, some people have complained that it's, it's too high. So, so I think, I think I just want to point that out. From a macro perspective, you know, it, it, I think, you know, a lot of the, uh, one thing that is

interesting is that like if you look at their Q3 land sale like everyone the headline would be you know home building is in the is is in the dumps like no one's buying homes anymore but like their year over year land sale is actually higher than the year before so so I was kind of very positively surprised by it I think there is look higher interest rates are definitely going to hurt right higher mortgage rates are definitely going to hurt and that's why we bought down like you know if you look at the JP Morgan model, they, I think they have like a, I think Jake Morgan model for residential has something like, something like $3 billion for residential land value. And, and we got that at 1.6. You know, we've like already, you know, kind of like, you know, the heck out of it.

Perfect. Okay. So last thing I want to talk about here. So we came to the, we came out of the beginning. this is the reason we're doing it right acman's he owns 27% of this through pershing he's trying to get over 40% with this tender i think you were just trying to lay out hey the value before he tender the value here is much much higher consider this before you do but let's talk about like obviously actman's trying to buy 13% more of this because he thinks there's value here but i do think there's an interesting thought of hey what are acman's long term plan for hc so i just wanted to give you a second talk about that. So this is probably where I'm going to sound like, you know, like, like the lease,

you know, like, like, like, like, this is like, this is not my strength. My strength is on the real estate side, like the, the, I think the, I think the issue, uh, like, as I thought through it, uh, and by the way, thank you to your podcast because James podcast with you. I was going to mention, and people I started, people started messaging me. They're like, hey, like, I think Ackman's going to buy. I'm like, what are you talking about, right? And I looked into it.

I looked at the Investing Company Act of 1940. And it's like, you could have 40% securities and guess what? Like the asset heavy, right? And it's like, what's a book value of how are you? It's like exactly $9.5 billion. And I think persons like, like, like, excluding cash is like $9 or $10 billion. He's got to buy more, but he's got to shift some of those assets over. It's like, it's almost that like that 6040 mix is almost like too much.

too perfect of a ratio for that to be a coincidence and i like everyone knows what bill's referring to i did a podcast with james elabar including the show notes where we talked about pershing and one of the things james talked about this is all james not me it's like look howard as bill's saying Howard Hughes bill owns a lot if he took control of it this would be his way out of the 40s company act to get PSH over to a u.s listing or something so so so like a lot of people are saying like well like Why not just buy PSH? You know, why not just? So, so I thought about it some more.

And my thought is, okay, like, like, and if anyone know this better than I do, please reach out, right? Please reach out to me. I'm bell at risingpartners.com. Please reach out. My understanding is that, is that there won't be a take private, right? He gains control. There won't be a take private.

And because he needs how he used vehicle to stay public. Like if I'm wrong people, please correct me, right? He needs a how he used vehicle to stay public. And then at some point, there's going to be some sort of a merge or some

sort of transaction where he brings the assets from PSH, Prussian score holdings, which is traded on Euronex, right? Because I don't think he could use the currency domicile vehicle and red domicile into the U.S. Right. If I'm wrong, please people will let me know.

And I think like he needs, so like you can kind of make an argument that he's a structural buyer here. Right. And and, and I think, I think like what I'm trying to do is raise awareness so that when that does, if it does occur and it's interesting, because person's core herself trades at a 30% discount in that. Right. So you could take that like like like in a way you can say, okay, like, like, like, I'll be less, less, like, angry at Bill Ackman if, like, you know, if the stock were higher in that merge got to happen. Like, like, I still won't prefer it because it will be, like, like, I just want pure play exposure to, to this vehicle. Like, this is what I sign up for. This is what I understand. Do I want to get more exposure, like, to Bill Ackman's, like, stock picking ability? Like, like, I probably don't need that, you know? look, so I guess the way I've kind of looked at it is it's two birds with one stone, right?

The first bird is he clearly thinks HHC is undervalued. And this lets him deploy a lot of capital to buy HHC at rates that, you know, you look, he put it into a lot of money into it at $50 per share during the height of COVID. Like getting a lot more money into it at $60 per share now probably looks really attracted to him. So that's the first bird. But then I do think there's like a little bit of bank shot where he's saying, hey, at some point, if I want PSH to get over into the US and I want to, you know, the 1940s act and all that, HHC is a perfect vehicle for that. And by going from 27% ownership to 40% ownership, I'm just getting a little bit closer to that bank shot too. So that's how I kind of look at it. But look, Bill, I think we've talked a ton about everything. I mean, we're bridging to do our podcast. Anything we didn't hit on HHC you think we should have talked about or anything you wish we had hit a little harder? I don't think so, man. I think I think we cover, we cover so much.

I mean, I think maybe the only thing will be like just like, just like the near term cash inflow. You know, like if you look at the model, there's probably going to be an inflow of $30 million like between now and the year end just from the Hawaii condo's closing, right? Yep. So I think that's like, you know, at today's part, it's like 10% market cap, right? you know, that, that gives a company, you know, like leeway to, to, to, to, to, to, to, to, to, to, to, to, to, to, you know, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, like, some of it, like, like, like, some of it, like, those specific assets just haven't hit, like, the true stabilized, you know, um, that, you know, um, that, operating income. So there is like another easy half a billion dollar potential pickup just from the NOIs hitting the guided stabilized numbers provided by management team. Right. So that's another $10 or upside. Right. And another thing, nothing just like there's constantly like that bucket of

$650 million of unstabilized. Those are all those are all going to convert into, you know, NOI producing cash flow producing assets like there's this constant stream of assets that that that you've prepaid for but hasn't generated any cash flow so like when you look at this like you need to be a little bit forward looking kind of got got to like escape to where the puck is a little bit because anything that's like because like if you think about a development business you're putting up the money you're putting shovel ground you're developing it right but the cash flow may not show up for three four years perfect perfect well bill this has been great looking forward to see you next week anybody again i'm going to include the link to the model

in the show notes so anybody who wants to go look at it can play around with it see like look i i actually think it's pretty conservative this is a name that's caused a lot of heartache to a lot of investors and i i do the values there man it's oh oh bill looking forward to see you next week appreciate you coming on looking forward to the fourth appearance at some point in the future and we will uh i'm coming for Jeremy rapers record man at this point you know I'll let him know. Every time somebody says that, I'll let him know. And he says that nobody's taking that ground from me. But what's he at now? Eight? Seven or eight. Seven or eight. All right. I'm not free. So I don't know. I got a shot.

All right. Talk to you, buddy. Okay. Yeah. Talk to you with. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. please do your own work and consult a financial advisor. Thanks.