Howard Hughes (HHC)

The real estate market continues to be hot. Sure, interest rates are going up, but mortgage rates are historically low. Jobs growth is going to continue to boom. All of this means housing plays should continue to do well.

Howard Hughes (HHC) is a housing play, with a reopening twist.

On the housing side, Howard Hughes develops master-planned communities. It owns land in what it considers high-growth areas. This means Summerlin, Nevada; Woodlands Hills and Bridgeland near Houston; Columbia, Maryland; Honolulu, and Maui. It preps the land for development and sells it to homebuilders. They develop communities. Then HHC develops commercial assets like office buildings, shopping areas, restaurants and storage units that feed off the communities.

That’s an interesting synergy. The company calls this a continuous value-creation cycle. “We plan, develop and manage small cities in markets with strong long-term growth fundamentals,” says the company. It has about 7,000 residential acres of land remaining to be developed and sold, and 3,200 acres designated for commercial development or sale. (It has developed about 80,000 acres so far, for context.)

On the reopening side, HHC owns property in the Seaport District on the East River in Lower Manhattan. There, it is developing the Tin Building (market to offer fresh specialty foods, seafood, dining and other products; opening expected in early 2022), renovating a pier to offer restaurants and bars, and developing the Lawn Club, which will convert 20,000 square feet of the Fulton Market Building into an indoor/outdoor area for lawn games. It also has a minor league baseball park in Summerlin, which will start hosting games again.

In the background, the company has a mini-turnaround going on in that it is cutting costs, selling off non-core assets, and cleaning up the balance sheet. At the end of last year, it had $1 billion in cash. It did capital raises via stock and debt last year, and also early this year.

An insider bought nearly a half-million dollars’ worth of stock at $97.17 recently. We like insiders buying as it means they are willing to put their own money into the company they work for.

Bill Ackman’s Pershing Square owns 19.80% of the stock, or around $1 billion worth. If Bill thinks it is good thing. So do we.

Tactics: Buy now as a multi-year hold and ride the coming economic expansion.