Marking the fourth increase since the beginning of the year, billionaire investor Bill Ackman (Trades, Portfolio) disclosed earlier this week he boosted Pershing Square Capital Management’s stake in The Howard Hughes Corp. (HHC, Financial) by 0.11%.
The guru’s New York-based hedge fund is known for taking large positions in a handful of underperforming companies and pushing for change in order to unlock value for shareholders. While he has found success in recent years with Chipotle Mexican Grill Inc. (CMG, Financial) and Starbucks Corp. (SBUX, Financial), one of Ackman’s most well-known activist targets, which did not end well for him, was Valeant Pharmaceuticals. He also pursued an unsuccessful short of Herbalife Nutrition Ltd. (HLF, Financial), which he bowed out of in 2018.
According to Real-Time Picks, a Premium GuruFocus feature based on 13D, 13G and Form 4 filings, Ackman invested in 17,915 shares of The Woodlands, Texas-based company on April 12, impacting the equity portfolio by 0.02%. The stock traded for an average price of $74.95 per share on the day of the transaction.
He now holds 16 million shares of the real estate company, which account for 13.65% of the equity portfolio. GuruFocus estimates Ackman has lost 9.83% on the investment since establishing it in the fourth quarter of 2010.
About Howard Hughes
Spun off from General Growth Properties in 2010, the company owns, develops and manages commercial, residential and mixed use real estate throughout the U.S.
It operations are divided into five segments, with Strategic Developments contributing the most to its revenue in 2022 at 42.30%.
In his annual shareholder letter for 2022, which was published in March, Ackman said the company “remains well insulated” from the effects of rising interest rates and volatility in the stock market, which resulted in a robust performance last year.
Specifically pointing to Howard Hughes’ advantage of owning master planned communities, he wrote:
“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.”
Further, the guru noted he expects the company’s “portfolio of well-located land and high-quality operating assets” to “deliver resilient long-term value creation throughout various market cycles.”
Financial review
Howard Hughes reported its financial results for the fourth quarter and fiscal 2022 on Feb. 27.
For the three months ended Dec. 31, the company posted net income of $52.80 million, or earnings of $1.07 per share, which was down from the prior-year quarter. Revenue of $482 million also declined from the year-ago period.
Results for the full year showed net income of $185.40 million, or $3.65 per share, on $1.61 billion in revenue. Both figures were up from 2021.
Looking ahead to 2023, Howard Hughes expects revenue from condo sales to range from $45 million to $55 million. Earnings before taxes in the Master Planned Communities business are also projected to decline between 25% and 35% year over year. Further, it anticipates the net operating income for operating assets to see a decrease of 2% to a 2% increase.
The company will reveal its first-quarter 2023 earnings on May 8.
Valuation
Howard Hughes has a $3.77 billion market cap; its shares were trading around $75.09 on Friday with a price-earnings ratio of 20.19, a price-book ratio of 1.06 and a price-sales ratio of 2.33.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
As 78 out of 100, the GF Score indicates the company is likely to have average performance going forward. While it received high rating for GF Value and momentum, the profitability, growth and financial strength ranks were more moderate.
Howard Hughes also has a business predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Guru interest
Of the gurus invested in Howard Hughes, Ackman by far has the largest stake with 32% of its outstanding shares.
Baillie Gifford (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Murray Stahl (Trades, Portfolio), Donald Smith & Co., Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Joel Greenblatt (Trades, Portfolio) and Keeley-Teton Advisors, LLC (Trades, Portfolio) also had positions in the stock as of the end of the fourth quarter.
Portfolio composition and performance
The majority of Ackman’s $8.78 billion equity portfolio, which 13F filings show was composed of six stocks as of the fourth quarter, is invested in the consumer cyclical sector. The industrials and real estate spaces have much smaller representations.
The guru’s other holdings as of Dec. 31 were Lowe’s Companies Inc. (LOW, Financial), Restaurant Brands International Inc. (QSR, Financial), Chipotle, Hilton Worldwide Holdings Inc. (HLT, Financial) and Canadian Pacific Railway Ltd. (CP, Financial).
Pershing Square reported on its website it returned -8.8% in 2022, outperforming the S&P 500’s return of -18.11%
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
