Howard Hughes Corp. Exploring Sale Of Company

Developer of major mixed-use districts The Howard Hughes Corp. is exploring a possible sale of the company, along with other options to maximize shareholder value, the Dallas-based REIT confirmed in a statement Thursday. 

Options on the table include everything from a sale of the firm, to the formation of a joint venture to a strategic spinoff of company assets. Howard Hughes also hasn’t ruled out a recapitalization of the company and changes to its existing corporate structure, the firm said. 

Analysts following the company and its stock told Bisnow the firm is likely to land back in private hands after its time on the New York Stock Exchange. 

"This was privately owned, and Brookfield was the owner of it before it was spun out," said Hamed Khorsand, principal and research analyst at BWS Financial. "It would not surprise us to see this go back into private hands." 

Howard Hughes is behind massive mixed-use projects such as The Seaport District in Lower Manhattan, Downtown Columbia in Maryland and The Woodlands in Houston. To deal with its massive portfolio of assets, the board of directors hired Centerview Partners to assist in determining how to best maximize shareholder value in the midst of concerns over the company's sluggish stock performance.

"Our business continues to perform extremely well across our three core segments, with price per acre of land sold, net operating income, and condo sales all exceeding our expectations; however, our stock continues to languish below its net asset value per share,” Howard Hughes CEO David Weinreb said in a statement.

“The Board and management are determined to close the significant gap between our share price and the company's underlying net asset value. We look forward to reporting to shareholders on the results of our strategic review and will remain focused on executing our plans during this evaluation process.”

The company has not set a time for determining its next steps, but said it will offer updates when a final decision is made. 

CNBC reports potential buyers in the event of a sale could include Blackstone Group and Brookfield Property Partners. Brookfield bought REITs Forest City Realty Trust and GGP last year, part of a strategy to capitalize on assets undervalued in the stock market.

Howard Hughes could pursue a spinoff, or sell the company's interest in the Seaport District in New York, analysts say. The project is considered an albatross on the company's stock by some, and Wall Street has become impatient with it.

New York is already dealing with existential challenges to the real estate market, and the Seaport's neighbors have campaigned against some of Howard Hughes' plans. Howard Hughes took out a $250M, five-year loan to fund a portion of the Seaport redevelopment earlier this week.

“The company is doing incredibly well," said Alexander Goldfarb, managing director and senior REIT analyst at Sandler O’Neill + Partners. "Unfortunately, they have a really large project here in New York, The Seaport, that has been just weighing on the stock because it is a development project that won’t fully complete for another few years.” 

The Seaport, which has yet to complete construction and benefit from rent rolls, operating restaurants and full offices, is not the only dead weight, Goldfarb said. 

"You had Bill Ackman (the chairman) sell a bunch of shares last year that started this downward pressure (on the stock), and then the Seaport just taking longer than folks expected to start earning a profit is the second weight, so it has really depressed the shares," Goldfarb said. 

Upon news of Howard Hughes' exploratory move, its stock soared 29.7%, its highest single-day growth ever, until trading was halted, according to Seeking Alpha. More than 2.5 million shares changed hands, more than 16 times its average over the past three months.

Looking forward, Goldfarb said Howard Hughes has much to be optimistic about with other projects performing well across the South, West, East Coast and Hawaii. His bet is some type of sale will occur at this point. 

“I see either a sale of the company or significantly selling down their ownership in the Seaport," Goldfarb said.