Tuesday, March 5, 2013

Follow up on Howard Hughes

In hindsight I should have waited a few days to post about Howard Hughes and link David Weinreb's annual shareholder letter in which he does a superior job of laying out the value proposition of each of the company's developments.  It's a bit lengthy, but Mr. Weinreb is fantastic at communicating the company's vision via the annual letter, definitely worth the read.

The Howard Hughes Corporation Issues Letter to Shareholders

One transaction that I failed to discuss previously and wanted to highlight was the recent repurchase of warrants from the company's initial sponsors:

"Our long-term goal is to increase the value of the company on a per-share basis. We do this by improving our assets through the development process and by opportunistically deploying excess cash. In the fourth quarter, we purchased approximately 6.1 million of the 8 million Sponsor warrants issued as part of our emergence as a public company. These warrants had a strike price of $50.00 per share and a November 2017 expiration date. They were the most expensive and dilutive security in our capital structure. Before their retirement, the warrants represented an economic drag on our per-share progress as every dollar of appreciation of our stock price above $50.00 would require us to generate $1.16 of value. The repurchase of these warrants in exchange for $81 million of cash and 1.5 million shares is a break-even proposition for the company if our stock price equals $81.10 in 2017, a price which we expect will be well below the potential value of our stock at that time. As a result of retiring the warrants, our shareholders now own 10.1% more of the company."
Great transaction for the company and shows how focused management is on realizing shareholder value (great alignment of incentives, but I don't anticipate Mr. Weinreb giving up his warrants so cheaply).

Disclosure: I own shares of HHC

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