I said before $HHC was spun (at $35)I thought it was worth well over >$100. Now it seems the rest of Wall St. is catching up to that….
The only issue here is that now, with the work they have done and the rebound in housing, my initial valuation needs to go higher. Al Moana condos sold out in 29 hours…. that area is facing a housing shortage. There are 4 more condo towers to be built. They will see increased demand and materially higher prices. Those additional people will make the retail aspect of Ward Centers immensely more profitable that people currently think. Regarding Woodlands/Bridgeland the $XOM campus and its 10k resident (and several thousand more visitors & ancillary workers) will lead to a large retail expansion there that $HHC will build out. The same can be said for Summerlin and Summerlin Center.
Then we have to consider the value of a REIT spinoff down the road
I said when the stock was at $80 I thought there was 2x-3x more value there per share (none of this assumes what they could accomplish with buybacks down the road) and I still maintain that
From Compass
Investment Thesis
We are reiterating our Buy rating on shares of HHC and raising our price target to $120 from $90. We have rebuilt our valuation model for HHC from scratch, and now believe that our valuation fully reflects every material spoke in HHC’s complex value creation wheel. In this report, we include our sum of the parts valuation analysis for HHC and describe in detail how we arrive at a valuation for each dial-moving asset. We are also updating our ATCF estimates to more accurately reflect future land sales, condo sales, and commercial development NOI.Highlights
New Property Level NAV increases $30 to $120. We have rebuilt our property-level NAV for HHC and now find $30 more in value relative to our previous $90 PT, comprising the following: $12 in each of the South Street Seaport and The Woodlands MPC (both from land and developments), $6 each in both the Summerlin MPC (from land sales) and the Columbia MPC (from developments), and -$6.00 less of
value in all other asset combined. Further, our $120 NAV, which assumes a weighted average overall discount rate of 15.2%, is nearly double the company’s adjusted book value of $62.47 (adjusted for depreciation and warrants), and represents $57.53 of value creation potential. This value creation is more important going forward than As-Is NAV (which we will no longer publish) and comprises the followingLand sales becoming much more attractive. 48% of the HHC’s book value lies in the saleable land, and yet only 20% of our $120 NAV comes from our land sales DCF. Still, our $24 NAV from saleable land is materially higher than our previous $10 NAV estimate. We now build in greater price increases and higher volumes of land sales as we expect the housing recovery to continue and for HHC to
potentially benefit greatly from growing demand for raw land from home builders.Condo sales will take over in 2015. Our earnings model suggests that 40% of all cash flow from 2015E-2020E will come from the company’s condo sales at Ward Village and Ala Moana. We assume 30% margins on all condo sales and assume taxes are paid on gains over book value. We employ 15% discount rates on all condo sales except for a 10% rate at Ala Moana and the first 625 units of the
planned 4,000 units at Ward.Development NOI will dwarf the legacy assets. Our earnings model assumes that 35% of all cash flow from 2015E-2020E will come from office, multifamily, retail, and hotel development projects that do not currently generate income. We employ discount rates of 8-25% depending on our level of confidence in our assumptions for costs, timing, and returns. 94% of all value creation in our NAV resides in 6 commercial development assets, and our larger report details these assets at length.
Updating estimates. We are raising our 2013 ATCF estimate to $2.76 from $1.15 and introducing our 2014 ATCF estimate of $3.32,. Our ATCF estimates do not include the exercise of Sponsor and Management warrants in the share count, though our NAV estimate does.