The Howard Hughes Corporation (“HHC”) (HHC, Financial)
HHC’s uniquely advantaged business model of owning master planned communities (“MPCs”) drove robust performance in 2022 amidst a challenging macroeconomic backdrop.
As mortgage rates rose throughout the year, the relative affordability of HHC’s MPCs remained highly attractive to prospective homebuyers. HHC’s MPCs are well-located in low cost-of-living, low-tax states like Texas and Nevada, which continue to benefit from significant in-migration. Despite a slowdown in the broader housing market, HHC’s land sales were supported by strong pricing growth and resilient volume. Average land sale price per acre increased 32% in 2022, reflecting supply-demand imbalances and historically low homebuilder lot inventories in HHC’s MPC metro-areas (Houston, Las Vegas, and Phoenix).
In its income-producing operating assets, NOI grew 6% in 2022 driven by an increase in rental rates and a steady recovery in leasing back to pre-pandemic levels. In Ward Village, the company’s condo development in Hawaii, the company continues to experience strong condo sales. HHC’s tenth and latest luxury condo tower is already 73% pre-sold despite having launched sales in September. During 2022, HHC repurchased approximately 8% of its shares funded by robust cash flow generation and proceeds from non-core asset sales.
HHC remains well insulated from the impact of rising interest rates and volatility in the capital markets. As of Q4 2022, substantially all of the company’s debt is either fixed rate or hedged and approximately 87% of debt is due in 2026 or later. HHC recently completed $1 billion in financings, extending its weighted-average debt maturity to six years. Additionally, the company’s ability to self-fund future development with cash flow generated internally from land sales and operating assets mitigates its reliance on external financing.
Pershing Square has owned HHC since its spinoff from General Growth Properties in 2010. In 2022, we purchased an additional 2.3 million shares of the company at an average price of $72 per share, which we view as a significant discount to the company’s intrinsic value. The recent purchases increase Pershing Square’s ownership of the company to 32%. HHC’s portfolio of well-located land and high-quality operating assets should deliver resilient long-term value creation throughout various market cycles.
From Bill Ackman (Trades, Portfolio)'s Pershing Square 2022 annual letter.
