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hey everybody we are going to talk about a really unique real estate company I've had in my portfolio for a while um that a billionaire wants to buy in its entirety um preferably sooner rather than later um so before we dive in please take a minute and check out the link you see on your screen fool.com Frankle get the top 10 stocks to buy right now for my sponsor the mly fool it's the best way to support this work I'm doing on YouTube again fool.com Frankle and please click subscribe to my channel if you don't already I keep up with a lot of real estate and financial companies especially I cover personal finance topics like Social Security and I'd love to love to um have you keep up with all my content so let's Dive Right In the billionaire I'm talking about is Bill Amman he's very well-known um big presence on on Twitter or X or whatever you want to call it right now but he is looking at a company that he already owns a lot of it's called Howard Hughes Holdings ticker symbol is HHH it's one of the larger investments in my portfolio it's not my biggest but it's definitely a top 10 holding for me uh really interesting business let me get into it real quick I'll share my screen okay so if you're not familiar um Howard Hughes Holdings they're a developer of large scale master plan communities or MPCs but not what you would normally think of as a master plan Community I mean my community has 220 houses in it and was called a master plan Community when they were building it it's really not um these are more like small cities than you would normally think of as just a community um if you've ever been to the woodlands in Texas that's an example of a Howard Hughes master plan Community Summerland in Las Vegas which people think is like its own city um has its own downtown area and everything that's a Howard Hughes developed master plan Community there are a handful of these in the United States and the continental United States there's also one at Hawaii um the ward Village condominium uh development is Howard Hughes project there's a lot of these there's one in Arizona that's just getting started um they bought they spent $600 million and bought 37,000 acres of land near Phoenix where they're going to develop a whole new one from scratch um that's getting started right now and is really excited so the company describes itself as a real life version of the video game Sim City um and it that's really the best description I've heard of it it has an ultra long-term Focus which honestly is a turnoff to a lot of in vors so the general business model is to so think of this Phoenix community that I just mentioned 37,000 Acres the business model is to gradually take a piece of that land and sell it to residential developers those developers will build homes and neighborhoods that will create demand for cons commercial amenities just as a simple example if you have a neighborhood like mine with 200 homes maybe there's a need for a gas station and convenience store out front that's a commercial property uh that's a very small example maybe there's a need for a little office building but Howard Hughes will build those hold on to them generate rental income for itself and collect that use that rental income to you know build more properties the presence of those commercial amenities retail stores offices Etc makes the surrounding land inherently more valuable to home builders so they sell off a little bit more the builders create some more homes and they build even more bigger amenities things like that like a shopping mall maybe or something like that or a hotel tell and this value creation cycle continues and in a a community the size of a small City this process can take many many many years or decades in the case of the Phoenix Community it's estimated it would take about 50 years for that to really be built out um but being able to control the supply of land to that extent in a city-sized area is a massive Advantage when it comes to long-term value creation so because of this Ultra long-term Focus you you know you buy a plot of land in Phoenix and you tell your investors this is going to take 50 years to fully pan out the market has a tough time valuing the company because of it and not only that it a few different things have weighed on it on its valuation lately the real estate market slowed down that's made land sales slow down in a lot of cases um High concentration of office properties are in that portfolio I mentioned they build commercial amenities they have a lot of office and Retail um which valuations have have you know dropped significantly over the past couple years um so those have weighed on the stock price the stock price has been a disappointment to investors I've been an investor in Howard Hughes for a while I'm essentially break even on the stock and I've owned it for about 10 years um so it's pretty much been dead money in my portfolio for 10 years I'm not going to you know sugarcoat that um and it it was up a quite a bit but uh the recent real estate market and economic conditions have you know kind of take made it take a turn for the to the downside and so where does Bill acman come in so persing Square uh Bill amman's hedge fund owns about 37% of Howard Hughes today that stake has increased over the years but amman's been a big holder since the beginning the company was spun out from General Growth Properties in bankruptcy in the wake of the financial crisis and Amman was kind of LED that he he was formerly the company's uh chairman uh until recently and recently it's been confirmed that Amman is weighing a bid to take the rest of the business private essentially buy the 63% of the shares that he doesn't own so he's considering making an offer Howard Hughes has formed a committee to evaluate any offer we don't know if any anything's come in yet um but that's where we stand right now and Bill Amman was going to start a brand new investment vehicle a new closed down fund that kind of fell apart it's supposedly still in the works but it got taken off the table for the time being so this is kind of the replacement project it seems for the for right now um he's always loved this company um loved the model thought it could be a big value creation um model over the long term um and if you look at just kind of the the sum of the parts valuation um so it's not hard to see why he likes this so I mentioned it it's declined in value quite a bit and not just the stock price the inherent value of the assets as you can see right here um the estimate that they did like this in 2021 this is 24% lower than it was but keep in mind so this is about a $75 stock as I'm recording this this is where they see the sum of the parts valuation and since this has been this presentation has made this was the 2023 investor presentation we should see a new one pretty soon um the cport uh the New York City seport was one of their assets that business has been spun off separately you can actually buy that as its own as its own um publicly traded company uh cport Entertainment Group SE I believe is the ticker so we have to back out this $20 a share in estimated value but if we do that even if we take out that $20 that gives us sum of the parts total after debt which is what this is of about $109 a share so if the Stock's trading around $75 the intrinsic value value of the business is about $109 conservatively this is designed to be a conservative analysis um it's not hard to see why Amman might be uh eager to to get the rest of this in Ping's portfolio um so here are the possible outcomes as I see it so number one the most likely outcome I see is that acman is going to offer a modest premium to the current stock price which is around $75 I would expect an offer for to come in in the 90 to $100 range um anything more or less than that I would be I think anything less than 90 should just be rejected outright and anything over a 100 would surprise me like I said the company's latest valuation estimate gives about $109 a share so my preference would be for Howard used to stay public I feel like the falling rate environment will be a big Catalyst for the those um those property values I mentioned uh for land sales just a really good thing for its entire business and its intrinsic value should go up quite a bit um as rates fall which is another thing I think Amman has on his mind I would prefer the business to stay public um but you know if an offer came in at about $100 a share and the management accepted I I wouldn't be that upset um I'd love to hear what you think about it uh the business in general uh if you're a shareholder what you're hoping happens please uh click Subs subscribe to my channel again if you don't already um and thanks for listening I want to thank the mly fool for sponsoring this video The mly Fool is a company that provides investing insight and stock recommendations for investors of all skill sets and risk 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