Tuesday, 22 January 2013

Another Instance of Emerging Value - West Windsor?

HHC will be meeting with residents on Jan. 30 to discuss development plans for the 658 acre, former site of American Cyanamid across from the mall on Quakerbridge Road in New Jersey.
What could be going on here? My speculation is that plans for some kind of multi-family, mixed use property will be announced... I say this because there is already a 1.1 million sq. ft. shopping center across the road.

Here is an example of a free option in the stock.  Currently, I just slap $100,000 against each acre for a value of $66 million ($1.46/share on a fully-diluted basis).  But I am quite sure that if recent events are even loosely relevant precedents, investors will soon see some of the hidden value in this thing.  For example, take a look at slide 30 in the investor presentation on the website: 4.8 acres was contributed into a JV at a value of $15.5 million to build 314 condo units for Millenium Phase II in the Woodlands. This equates to $3.2 million per acre!  Now, flip to slide 41 and you will see that land was contributed into another JV to build 375 condo units in downtown Columbia at 6.7x book value ($20.1 mm vs. $3mm book value).  So regardless of how much less you think the New Jersey land is worth relative to the examples listed above, I am quite confident that my $100,000/acre (remember, this isn't farmland) will prove ultra-conservative.

From the Howard Hughes website:

West Windsor is a former Wyeth Agricultural Research & Development Campus on Quakerbridge Road and U.S. Route One near Princeton, New Jersey. The land is comprised of two large parcels on Quakerbridge Road that are bisected by Clarksville Meadows Road and a third smaller parcel. The approximate 352 acres north of Clarksville holds the former Wyeth Campus and the 300 acres south of Clarksville is largely vacant land. The third parcel (approximately six acres) is separated from the balance of the land by an adjacent rail line. Across Quakerbridge Road is the Quaker Bridge Mall, a two-level, 1.1 million square foot regional shopping center owned by Simon Property Group. The mall is anchored by JCP, Macy's, Lord & Taylor, and Sears. The property opened in 1975 and has over 120 stores.

Full disclosure: I still own lots of this stock!!!  And I have never met an employee of the company.  I just like puzzles, and HHC is the most interesting puzzle I have ever looked at.

Sunday, 20 January 2013

Zuckerberg Bought HHC Condo Units

So it appears FB's Zuckerberg got himself several condos in ONE Ala Moana (article here).  Good choice Mark!  :)

Sunday, 13 January 2013

HHC: A few speculations

With the news of Ward Village in October, announcement of recontinuing construction of the Summerlin Centre in September, and Seaport news in August of last year, some of the most anticipated headlines regarding HHC's key development properties have already come to pass. In none of these instances did the stock move materially on the day of annoucement. 

Perhaps HHC was waiting until all these press releases were published before offering to buy back the warrants from Blackstone, Fairholme, and Brookfield.  But another part of me is thinking that the warrants have been on Weinreb's mind since the spin-off.  Here is a purely speculative statement: Weinreb believes the MPC revenues will begin shooting up soon (maybe we'll even see it in the Feb. reporting) and wanted the warrants cancelled now before it would be significantly more expensive to do so. Assuming the stock hits my 2 year target of $100, this would save shareholders $67.5 million (or $1.50 per share) on just the buyout of Blackstone's/Fairholme's 2.25 million warrants alone.

Here's another way to look at it: It cost HHC $30 to cancel each of the warrants.  Blackstone/Fairholme held 2.25m warrants combined, so HHC outlayed $67.5 million.  The $30 buyout price also implied a $80 breakeven price ($30 + $50 strike), which also happened to be ~10% above where the stock closed on the day of the announcement (Dec. 10).  So assuming that the same 10% premium would have applied had the deal been struck later, this would imply that at $100, Blackstone/Fairholme would have demanded $60 for each warrant ($110 minus $50 strike). 

At a $60 buyout price for the warrants, HHC would have to pay Blackstone/Fairhome $135 million (2x the settlement in December). In other words, when the stock price hits $100, this would mean that Weinreb and Herlitz (or maybe it was Richardson who was behind the negotiations) doubled shareholders' money on the cancellations. If this happens by December 2014, the 2-year compounded return would be 41% - difficult for the company to beat any other way.

But still, I'd like to "use the force" here...and speculate that either the next quarterly reporting will be excellent, or will include additional news about deals made recently. The news flow regarding commercial property development has been deathly quiet since October, save the few announcements in December about a few tenants signing on.  It is likely that management is holding back everything possible because of the bad optics that would result if positive news were to be published shortly after the warrant cancellations. If I look back to the buyout of Morgan Stanley's portion of the Woodlands, it took about 4 months until 3 Waterway Square was announced. Now, I'm not suggesting that there was assymetric information in those negotiations, but rather that the silence after the conclusion of such an agreement can be a hint of things to come.