Howard Hughes Creates New Holding Company To Allow Separation Of Assets
The Howard Hughes Corp. has a new corporate structure after its board of directors approved a plan to create a holding company that will become the new parent company of the publicly traded development and investment firm.
The reorganization allows Howard Hughes to separate its commercial real estate assets, which include master-planned communities throughout the United States, from the other businesses it owns.
An entity called The Howard Hughes Holding Corp. will replace the firm on the New York Stock Exchange and current executive staff and board members will keep their roles at the holding company. The reorganization is expected to take effect Aug. 11, and the developer's stock is converting to stock in the new holding on a one-for-one basis.
"The Company believes that implementation of the reorganization will promote the growth of its businesses, including by providing additional flexibility to fund future investment opportunities and to segregate assets and related liabilities in separate subsidiaries," a Monday release from Howard Hughes said.
Alexander Goldfarb, managing director at Piper Sandler & Co. who analyzes Howard Hughes' stock, told Bisnow the reorganization would likely keep Howard Hughes’ real estate assets under one umbrella company.
“In tribute to a world run by lawyers, HHC created a parent to oversee the now-separate legal entities that run real estate versus the non-CRE businesses,” Goldfarb wrote in a note to investors Monday.
Goldfarb said investments that were likely to be held by separate entities included the Las Vegas Aviators, a Triple-A minor league baseball team affiliated with the Oakland Athletics that Howard Hughes purchased in 2017, and the company’s $55M stake in Jean-Georges Restaurants.
“From a flexibility standpoint, it's much better for the debt service to be tied one-to-one to the contractual operating real estate business versus an operating business,” Goldfarb said in an interview, adding that the reorganization will make it easier for Howard Hughes to bring in partners or start joint ventures at its assets that aren’t real estate-related.
“This is all really legalese,” he said. “The company stays the same, the business stays the same, everything stays the same. It’s just how, from a corporate perspective, everything is lining up.”
A representative for Howard Hughes didn't respond to Bisnow’s request for comment.
The announcement was generally well received on Wall Street. Howard Hughes’ stock was up 2.6% in premarket trading Monday but has since given back some of those gains. As of midday, the firm’s stock price was $82.32 per share, up around half a percent from Friday.
Howard Hughes has a portfolio of large mixed-use assets and is best known for its master-planned communities in Texas, Maryland, Nevada, Hawaii and Arizona, as well as its holdings in Lower Manhattan’s Seaport District.
The company posted a $22.7M loss on $196.3M in revenue in the first quarter, which was in line with analyst expectations but down from a $2.1M profit in the first quarter of 2022.
Howard Hughes blamed the shrinking profits on equity losses tied to Jean-Georges' New York food hall, fewer condo sales at its Hawaii property and higher interest rate expenses. The master-planned community segment of Howard Hughes, however, posted a 5% increase in earnings before taxes over the same period.
The company closed the first quarter with $417.7M in cash on its balance sheet and a total debt burden of $4.8B, with 85% of its debt maturing in 2026 or later.
