Howard Hughes Corporation (NYSE: HHC) is a unique type of real estate company. Specifically, Howard Hughes is a developer of large-scale master-planned communities, or MPCs. Some of the company's communities have over 10,000 acres of land and amenities that make them more like small cities than housing developments.
The unique part is the long-term value-creation strategy. The general idea is that Howard Hughes sells some land to residential builders, who create neighborhoods. These neighborhoods create the need for commercial properties, which Howard Hughes builds and keeps as income-producing assets. This makes the surrounding land more valuable, so the company sells more to developers. And given the size of Howard Hughes' MPCs, the process can take decades to play out.
In a nutshell, by controlling the supply of land in a city-sized area, Howard Hughes is in a unique position to maximize shareholder value. Here's a snapshot of where Howard Hughes' business stands today and what investors should watch over the next five years.
Howard Hughes Corporation today
Howard Hughes Corporation has six MPCs in its portfolio today, as well as the Seaport District in Manhattan. Its largest community, and also the location of its headquarters, is The Woodlands in the Houston area, which has more than 28,500 acres, and its Summerlin community in the Las Vegas area is also massive at 22,500 acres.
To be sure, Howard Hughes wasn't unscathed by the pandemic. Its two biggest geographic markets (Houston and Las Vegas) were both particularly hard hit as the COVID-19 outbreak started, and the retail and hotel portions of the portfolio weren't performing well. In the face of the uncertainty, Howard Hughes was forced to sell 12 million new shares at fire-sale prices to raise capital.
However, the company has emerged much stronger financially than pre-pandemic. It ended 2020 with about $1.2 billion in liquidity, more than twice as much as the end of 2019, which gives it tremendous financial flexibility to take advantage of the hot real estate market and any other opportunities that arise.
Things to watch
Within its communities, Howard Hughes owns income-producing commercial properties that it operates or leases to tenants. This includes 7.7 million square feet of office space, 2.9 million square feet of retail, 4,558 multifamily units, more than 1,350 self-storage units, and hotels with about 900 rooms.
As the communities get built out, it's fair to assume that this portfolio will grow substantially. In the Woodlands community alone, Howard Hughes has identified over 2.3 million square feet of near-term commercial development opportunities, with an additional 721 acres of commercial land to build out over the next two decades. Here's a breakdown of the development potential Howard Hughes sees with some of its largest MPCs.