Aerovate Therapeutics: Broken Biotech, Shell Company? Potential Liquidation

I'm a little late posting this one, but as mentioned in the comment section of my Mid-Year update, I did add Aerovate Therapeutics (AVTE) ($55MM market cap) to my broken biotech basket.  Back in June, Aerovate, a one-shot-on-goal biotech, announced poor topline results from the Phase 2b portion of their AV-101 study for the treatment of pulmonary arterial hypertension (PAH).  A few weeks later, the company announced they were laying off 78% of their staff, costing them $5.6MM, $3MM of which will hit in Q3 and Q4.  Then another week later, AVTE officially announced they were exploring strategic alternatives:

Aerovate has engaged Wedbush PacGrow as the company’s exclusive strategic financial advisor to assist in the process of exploring strategic alternatives, which may include but are not limited to, an acquisition, merger, reverse merger, business combination, liquidation or other transaction.

Notably, they listed a liquidation as a possible outcome, generally we don't see a liquidation called out in the initial strategic alternatives announcement.  One reason might be they don't have any other product candidates, from their latest 10-Q:  

Overview

We are a biopharmaceutical company. Our initial focus was on advancing AV 101, our dry powder inhaled formulation of imatinib for the treatment of pulmonary arterial hypertension, or PAH, a devastating disease impacting approximately 70,000 people in the United States and Europe. On June 17, 2024, we announced topline results from the Phase 2b portion of our Phase 2b/Phase 3 Inhaled Imatinib Pulmonary Arterial Hypertension Clinical Trial of AV-101, or IMPAHCT. Topline data showed that, while AV-101 was generally well tolerated across all dose groups, the study did not meet its primary endpoint for improvement in pulmonary vascular resistance compared to placebo for any of the studied doses or show meaningful improvements in the secondary endpoint of change in six minute walk distance. We also reviewed data from several additional secondary endpoints of the Phase 2b portion of IMPAHCT, which also failed to show meaningful improvements. Based upon these results and in agreement with the independent study advisory committee, we halted enrollment and shut down the Phase 3 portion of IMPAHCT as well as the long-term extension study. AV-101 for the treatment of PAH was our only product candidate in development. At this time, we do not intend to resume development of AV-101 or any other product candidates. In July 2024, we announced the decision to conduct a comprehensive review of strategic alternatives focused on maximizing shareholder value. We also engaged Wedbush Securities Inc. (Wedbush PacGrow) as our exclusive strategic financial advisor to assist in the process of exploring strategic alternatives, which may include but are not limited to, an acquisition, merger, reverse merger, business combination, liquidation or other transaction.

I'm still trying to get my arms around how the new SEC shell company rule is going to play out after going effective July 1, 2024, but it appears that these one-shot-on-goal type biotechnology companies, like AVTE, without other assets might fall into the shell company bucket and could be pushed towards a liquidation as a result.  Others that are continuing development at the same time as pursuing strategic alternatives might make for better reverse merger candidates, which have generally worked out well this year.  But I'm not a lawyer, and thus not entirely sure if this new rule means much to this part of the market since biotechs generally don't make outlandish SPAC-like revenue projections regulators are trying to stamp out.  If others have more intelligent thoughts, as usual please share.

My back of envelope liquidation math:

AVTE is pretty clean, there are minimal dilutive securities outstanding, minimal operating lease remaining and likely the IP value is worthless.  I still struggle a bit with estimating wind down expenses, feel free to use your own estimate, but at today's price, AVTE seems to be relatively cheap compared to my estimate of liquidation value.

If they do go the reverse merger route, there's some nice option value, interestingly RA Capital owns ~32% of AVTE and engineered a successful reverse merger at ELYM with Tenet Medicines that's seen the stock go up almost 200% since that deal was announced in April.

Disclosure: I own shares of AVTE 

Howard Hughes: PSH Considering a Take-Private Offer

Just a brief news post, I'll use the comment section to update my thoughts as this situation develops.  Last night, 8/6, Pershing Square (37.5% owner) updated their 13D in Howard Hughes (HHH) ($3.2B market cap) disclosing the following change:

“The Reporting Persons are and intend to continue evaluating the possibility of various potential alternatives with respect to their investment in the Issuer, including a possible transaction in which the Reporting Persons and/or one or more of their affiliates (either alone or together with one or more potential co-investors) may acquire all or substantially all of the shares of Common Stock in the Issuer not owned by them and their affiliates and in connection therewith take the Issuer private (a “take-private”). Jefferies LLC began advising the Reporting Persons on August 6, 2024 in connection with this evaluation. The Reporting Persons may discuss their evaluation and the potential alternatives, including a potential take-private, with one or more prospective co-investors, which discussions are expected to be conducted on a confidential basis. In the event the Reporting Persons explore such a potential transaction, there can be no guarantee that an agreement regarding such potential transaction can be reached and/or consummated.

I find the timing rather odd so soon after the spinoff of Seaport Entertainment (SEG), the spinoff was designed to remove some of the complexity and cash burning assets from Howard Hughes, return it to a pure play master planned community developer story.  In theory, HHH then might re-rate closer to its NAV of $100+.  If the plan all along was really to dump Seaport Entertainment, come in to scoop up HHH on the cheap, why is Pershing Square backstopping the SEG rights offering?  Just strange to spend $30 million in cash expense to spin SEG, backstop SEG, and then take HHH private so soon after.  Should have just bought it before the spin and save the legal bills.

Possibly this is the result of Ackman pulling the IPO of his closed end fund after selling a stake in his GP raising expectations for growth, he could need an investment vehicle or non-securities assets to redomicile Pershing Square Holdings Ltd to the United States and avoid being under the 1940 Act.

As for the potential price or structure, I'm prepared to be disappointed, NAV is likely well over $100 per share, but is unlikely to be realized in a transaction.  As a reminder for those newer to the company, back in 2019, Howard Hughes did run a full strategic process that failed to produce a buyer willing to pay the asking price.  Have things changed much since?  Brookfield (who notoriously don't pay fair value) was involved in the GGP restructuring and was an HHC shareholder for a while, but otherwise, Pershing Square might be the only buyer so I'm not getting my hopes up for a large premium.  The language in the 13D suggests a cash offer to go-private, that's preferable in mind than some convoluted structure where Howard Hughes shareholders trade discounted HHH shares for discounted PSHZF in some share-for-share merger.

Disclosure: I own shares of HHH and SEG 

HilleVax: Failed Vaccine Trial, Pre-SA, Trading Below Cash

HilleVax (HLVX) (~$85MM market cap) is a clinical-stage biotech that focuses on developing vaccines, their initial focus has been on a vaccine (HIL-214) designed to treat severe acute gastroenteritis events in infants.  On Monday, the stock crashed below cash as HilleVax announced their HIL-214 trial did not meet its primary endpoint and showed no clinical benefit observed across secondary endpoints.  Unfortunately, little other disclosures were made; there was no announcement of seeking strategic alternatives, no workforce reduction and no estimate of current cash.  The only mention of a go forward strategy was the line:

The Company plans to discontinue further development of HIL-214 in infants and is exploring the potential for continued development of HIL-214 and HIL-216, HilleVax’s Phase 1 ready vaccine candidate, in adults.

The piece about continuing to explore the potential development of HIL-216 is slightly concerning as broken biotechnology companies go.  HIL-214 (the failed vaccine) was licensed from Takeda (which owns 14% of HLVX), HIL-216 was a separate licensing agreement with a Chinese pharmaceutical company, Kangh, and thus management might make the argument the HIL-214 failure shouldn't cloud the potential for HIL-214.  However, as we've seen with many others, often the board along with their advisors determine that the cost of capital is too high to continue on their own and they'll likely decide to pursue strategic alternatives.

Running through my typical back of the envelope liquidation math:

HilleVax does have an ATM in place they leaned on pretty heavily in Q1 to raise approximately $15MM, if they continued into Q2 (which you can tell they did a bit based on the change in share count from 3/31 to 5/6 when the last 10-Q was published) it would only add upside to the math.  The risk is really in the burn rate going forward from here (also note, my Q2 number above is an estimate based on Q1) since we don't have any indication from management on their plan, my $50MM in a total guess but using some experience from the last dozen or so of these, hopefully it is directionally correct.

There could be two catalysts here, one on the announcement of strategic alternatives and another on the ultimate conclusion, but HLVX is a bit riskier than others that are further along in their wind down process.

Disclosure: I own shares of HLVX

Mid Year 2024 Portfolio Review

** Note, I'm a little late in posting my mid-year review as I was unplugged a bit for the last couple weeks.  Back dating the post to its usual spot.**  

My blog portfolio is essentially flat year-to-date with a gain of 2.99%, well behind the S&P 500 with a gain of 15.29%.  The broken biotech basket performed well but was generally offset by declines in a lot of my legacy holdings and just malaise in my speculative M&A ideas (crossing my fingers that M&A picks up in the second half).  Long term performance remains solid at a 21.75% pre-tax IRR.

Closed Positions:

• Quite a bit of churn happened in the broken biotech basket, I sold Eliem Therapeutics (ELYM), Homology Medicines (FIXX), Graphite Bio (GRPH), Kinnate Biopharma (KNTE), Reneo Pharmaceuticals (RPHM), Cyteir Therapeutics (CYT), AVROBIO (AVRO) and Theseus Pharmaceuticals (THRX) as each of these had some sort of buyout or reverse merger transaction.  If there was a CVR component, I held through the merger and sold shortly after.  Some of these rallied significantly post reverse merger, but in attempt to stick to the original thesis, I generally sold after the shareholder base turned over a bit.
• I got spooked out of both Instil Bio (TIL) and Aclaris Therapeutics (ACRS) -- although I made a nice profit on ACRS -- as both management teams don't appear to be following the reverse merger and/or buyout with a CVR strategy.  Instil Bio has yet to sell their new manufacturing facility and I don't have confidence in the property valuation, plus TIL included the line of their intention of "Exploring opportunities to in-license/acquire and develop novel therapeutic candidates in diseases with significant unmet medical need."  Aclaris announced alongside their Q1 results "we have decided to progress ATI-2138 into a proof-of-concept Phase 2a trial in patients with moderate to severe atopic dermatitis", however this one might be worth looking at as BML Capital Management has accumulated a significant stake and could push ACRS to revisit their go-forward strategy.
• Sio Gene Therapies (SIOX) made their liquidating distribution and is now pushed into the non-traded bucket.  Similarly, Merrimack Pharmaceuticals (MACK) made its liquidating distribution, the remaining penny or two is now in a non-traded liquidating trust.
• Pieris Pharmaceuticals (PIRS) announced they are pursuing a similar strategy as MACK did, minimizing corporate expenses in an effort to extend their cash runway long enough to capture any milestone payments among their disparate portfolio of development partnerships.  I sold to capture a tax loss, but will continue to monitor this one for a re-entry, if any of their milestones do hit, the return could be a multiple of the current market cap.
• MariaDB (MRDB) and Asensus Surgical (ASXC) were similar situations, cash burning companies with potentially valuable IP that was subject to a non-binding tender offer, if the tender fell through, both could be worthless.  Luckily for me, both deals went to a definitive agreement and I sold each as the spread tightened to a normal range.
• First Horizon (FHN) was added shortly after their transaction with TD Bank broke in middle of the short lived bank crisis last year, this spring FHN passed over the long-term capital gains mark for me and I booked the profit.  I could see FHN being an acquisition target for one of the super regional banks trying to use an acquisition as a springboard into a higher regulatory tier category.
• I should probably leave the traditional merger arbitrage trades to the experts, I exited Spirit Airlines (SAVE) after the judged ruled against the merger on anti-trust grounds, Albertsons (ACI) hasn't gone to court yet, but under the current administration, likely faces a similar result.  Unlike Spirit, Albertsons is cheap on a standalone basis and their PE sponsor Cerberus is likely to seek liquidity in other ways if their merger with Kroger (KR) fails.
• NexPoint Diversified Real Estate Trust (NXDT) and Transcontinental Realty Investors (TCI) both fall into a similar bucket for me, real estate companies trading at very wide discounts to their NAV, but with management in no hurry to close those gaps (or simply unable to in the current interest rate regime / real estate market).  NXDT has seen some recent insider buying that improves the story, but it has been several years since the old closed end fund converted to a REIT and little has been done to simplify the portfolio or tell the story.

Previously Undisclosed Positions:

• I've initiated a small position in DMC Global (BOOM) which owns three separate and distinct industrial businesses.  The company has announced a strategic review to sell two of the three businesses, leaving behind a multi-family residential building products business (Arcadia).  I didn't buy earlier in the story because it is unclear to me why Arcadia is chosen one to remain in the public shell, but the situation changed when Steel Partners (savvy, NOL maximizing conglomerate) lobbed in a $16.50/share offer (shares currently trade sub $14).  BOOM has acknowledged the offer and stated they'll consider it as part of their greater strategic alternatives process.

Current Portfolio:

I will be doing some reshuffling of my personal balance sheet, likely withdrawing cash from this account in the near future so keep that in mind when I post the year end results.

Since this is a pretty brief update, thought I'd include my current watchlist with a little blurb on each, as always, feel free to share any ideas or provide any pushback.

Disclosure: Table above is my taxable account/blog portfolio, I don't manage outside money and this is only a portion of my overall assets. As a result, the use of margin debt, options or concentration does not fully represent my risk tolerance.

Vanda Pharmaceuticals: 2 Bidders, Entrenched Management, Upcoming Business Catalysts

Vanda Pharmaceuticals (VNDA) (~$365MM market cap) is a biopharma company with a number of drugs either already being commercialized, on the cusp of commercialization or in late stage trials.  I have no idea if any of these are valuable franchises (as always, if you have any insights, please share them):

• Hetlioz -- commercial treatment for the treatment of Non-24-Hour Sleep-Wake Disorder in the U.S., it is facing generic competition as of December 2022 and has a few legal battles in its attempt to get additional approved indications
• Fanapt -- recently approved for biopolar disorder, launching commercialization in Q3 2024
• Ponvory -- recently acquired from Johnson & Johnson (this came from Actelion Pharmaceuticals) for $100MM, treatment for multiple sclerosis, launching commercialization in Q3 2024
• Tradipitant -- treatment for gastroparesis, PDUFA date set for 9/18/24
• Misaperidone -- treatment for schizophrenia and bipolar disorder, new drug application expected to be submitted in early 2025

On top of that grab bag of drugs (to my untrained eye, they don't appear to have a coherent strategy), Vanda has approximately $5.40/share of net cash and marketable securities on the balance sheet after subtracting out all liabilities (shares currently trade under $6/share).  Where things get a bit interesting, Vanda has received two unsolicited bids from potential buyers, both of which have received the cold shoulder from the board, as a result the buyers went public trying to get shareholders to exert pressure:

5/7/2024: Vanda Pharmaceuticals Confirms Receipt of Revised Unsolicited Takeover Proposal from Future Pak -- offer was for $7.25-$7.75 in cash per share, plus a CVR.  Future Pak seems like an odd buyer as the company is a privately held pharma contract manufacturer and packaging business that has the financial backing of private credit provider Colbeck Capital Management.  The board rejected the proposal:

Vanda Pharmaceuticals Inc. (Vanda) (Nasdaq: VNDA) today announced that the Company’s Board of Directors (the “Board”) carefully reviewed the revised unsolicited proposal from Future Pak, LLC (“FP”) to acquire the Company for $7.25 to $7.75 per share in cash plus certain Contingent Value Rights (“CVRs”) and, after having consulted with the Company’s independent financial and legal advisors, unanimously concluded that the proposal substantially undervalues the Company, creates significant risk and uncertainty and is not in the best interests of the Company and its shareholders. Accordingly, the Board has rejected the proposal.

In reaching its conclusion, the Board evaluated all aspects of Vanda’s business, including its clinical development pipeline, expanding commercial presence and significant cash balance, as well as the speculative nature of the CVRs given the uncertainty surrounding the achievement of the commercial milestones under FP’s management. The Board believes the revised unsolicited proposal is yet another opportunistic attempt to purchase the Company’s shares at a discount to Vanda’s intrinsic value.

The Board and management team remain confident that Vanda’s robust revenue, strong cash position and efficient operations position the Company well for significant long-term growth and value creation far in excess of the consideration offered by FP.

6/6/2024: Vanda Pharmaceuticals Confirms Receipt of Unsolicited, Non-Binding Indication of Interest from Cycle Group Holdings -- offer is for $8 in cash per share with no CVR component.  Cycle seems a little more credible than Future Pak, they have a few commercial drugs in the market already, in their press release, they included the following explanation for making their bid public:

Cycle issued the following statement regarding its proposal:

“Our proposal for Vanda delivers immediate, compelling and certain cash value for Vanda shareholders with a highly attractive premium. Cycle’s proposal represents a better outcome for shareholders, who would receive all-cash upfront value exceeding that of Future Pak’s cash portion of its latest offer announced May 7, 2024. It would also benefit patients, as Cycle has a proven commercial strategy in the U.S., a strong distribution footprint and an established track record of delivering medicines and individualized support to patients suffering from conditions with high unmet medical need.

While we would have preferred to reach an agreement privately, Cycle is publicly disclosing our proposal for the benefit of Vanda shareholders and to encourage Vanda shareholders to express their views on this proposal to the independent directors of the Vanda Board of Directors.

Given our familiarity with Vanda, its brands and our extensive knowledge of the industry, we believe we can efficiently and quickly complete our diligence. Once we receive access to the required information, we believe that we can complete our due diligence within 2-3 weeks and reach a definitive agreement shortly thereafter.

We stand ready to work immediately with Vanda’s Board and management team to reach an agreement that would provide a compelling premium and certain cash value today for all Vanda shareholders.”

Vanda has acknowledged receipt of the offer, but as of this writing haven't rejected it yet.

Why isn't the board engaging?  Management seems very entrenched here, the co-founder (Mihael Polymeropoulos) is the CEO and Chairman of the Board.  He employs a number of family members at Vanda and does own 3+% of the stock.  Given the near term regulatory catalysts, it could be argued that these are opportunistic bids, but if they run a full a process, maybe they can get an even higher number or Polymeropoulos could partner with a firm that would back a bid for him to take it private.  I've sized this relatively small, it could be more attractive at a higher price if VNDA's board does the right thing and engages with the bidders.

Disclosure: I own shares of VNDA

Ikena Oncology: 50% RIF, Trading Below Cash, Strategic Alternatives

The broken biotech basket has been emptying out lately, but the latest addition is Ikena Oncology (IKNA) (~$75MM market cap), a clinical stage biotechnology targeting cancer therapies, that announced yesterday they are shuttering development on their most advanced therapy candidate, IK-930, reducing their workforce by 53% (they previously did a 35% layoff in January) and will pursue strategic alternatives.  Notably this isn't a full stop of development, Ikena does have another asset (IK-595) that dosed its first Phase 1 patient in December 2023.  But Ikena does a nice job of itemizing their operating expenses in their 10-Q, making estimating future cash burn slightly easier.

Below is my quick back of envelope liquidation analysis:

The process for these situations is a well worn road at this point, others have also pointed to the new cash shell rules regarding reverse mergers going into effect July 1st could act as a catalyst; I don't think this process will take terribly long.

Some items to note here:

• OrbiMed is the largest shareholder with approximately 23% of the shares.  Recent similar situations, KNTE and THRX, also featured OrbiMed near the top of shareholder registry, both produced good results with cash plus CVR buyouts.
• Bristol-Myers Squibb (BMY) previously had a collaboration agreement with Ikena for IK-175 and IK-412, they declined to go forward with development, but IKNA is looking to sell or out-license these.  Probably minimal value, but could add a few cents per share in upside.
• Ikena Oncology has been quick to already sublease space and sell lab equipment, neither for significant sums, but shows some shareholder friendliness in moving quickly to a shoestring operation to preserve value.

Disclosure: I own shares of IKNA

Seaport Entertainment: Initial Form 10 Thoughts, Spinoff, Rights Offering

The first public draft of the Seaport Form 10-12 came out on Friday, I took a quick read of it, here are some initial thoughts that I'll likely come back to as the spinoff approaches sometime in Q3.  Howard Hughes Holdings (HHH) is going to be spinning four main assets into the newly created Seaport Entertainment (SEG) that will focus on "intersection of entertainment and real estate":

1. The Seaport District in Lower Manhattan, which includes the South Street Seaport itself, some neighboring buildings and the 250 Water St development site (which HHH/SEG recently won a lawsuit that sets the stage for construction), all of which Howard Hughes has sunk over $1B into over the last decade and is still bleeding cash (-$55MM in 2023).  Thus far, the Seaport has been a disaster (HHH took a $672.5MM impairment on the Seaport last year) and waste of capital, the project was started a year or two after Super Storm Sandy destroyed much of the old structure in 2012 and was underwritten at a 4-6% return on cost.  The development had many delays and hasn't come close to the original profitability projections a decade or so later, as a long term HHH shareholder, I blame the Seaport for much of the underperformance over the last 5-7 years (alongside the Ackman covid capital raise).  Maybe focused management can turn this around?  There are a total of 11 physical buildings at the Seaport, as a whole it is about 2/3rd's leased at this point.
2. 25% interest in Jean-Georges Restaurants that was acquired for $45MM (potentially an Ackman vanity investment) with the stated strategy to partner with Jean-George in the future as an anchor tenant in new developments (Jean-Georges leases the entire Tin Building in a JV with SEG for a food hall concept).  This investment reminds me of MSGE/Sphere's investment in TAO Group where they argued TAO's nightclub expertise could be used at the Sphere and other entertainment venues, TAO was eventually divested.  The Jean-Georges investment feels very non-core and could be sold to raise capital for their two big development projects (250 Water St and Fashion Show Air Rights).
3. The Las Vegas Aviators (highest revenue grossing minor league team), the Oakland A's AAA affiliate, and the corresponding newish Las Vegas Ballpark located in Howard Hughes' Summerlin master planned community.  The A's are moving to the Las Vegas strip (where the old Tropicana was located) in a couple years, the current plan is to keep the Aviators in Summerlin, but TBD on how that impacts attendance/revenue.  HHH did pay $16.4MM for the remaining 50% of the Aviators they didn't own in 2017 and the ballpark cost approximately $125MM in 2019.
4. 80% interest in the air rights above the Fashion Show Mall on the Las Vegas strip, which is located on the north end of the strip near Treasure Island and the Wynn hotels.  Howard Hughes has brought in Anton Nikodemus as the CEO of Seaport, his previous stop was as the President/COO of MGM's City Center in Las Vegas and before that he led the development of MGM's National Harbor and Springfield, MA casinos.  I go annually to a conference in the City Center and have visited the National Harbor property, both are impressive gaming resorts that are well run.  The Fashion Show Mall and the other 20% of the air rights are owned/operated by Brookfield Properties (which acquired General Growth Properties (GGP), the original parent of Howard Hughes).  There's been a significant increase in supply on the north end of the Las Vegas strip in the past year with the opening of Resorts World and the Fontainebleau (both of which post-opening are relative ghost towns).  But with Nikodemus onboard, it clearly signals that they intend to redevelop the Fashion Show Mall in the medium-to-long term.

Each of these are a bit difficult to value and don't quite fit into a typical public real estate company (although HHH/HHC will still be a bit of an odd ball public stock following the spin, it helps on the margins).  My question prior to the Form 10-12 release was how this company would be capitalized given it loses money and likely will for the near future, plus the plan is clearly to sink money into their development assets, that question was answered with disclosure that Seaport intends to conduct a $175MM rights offering with Ackman's Pershing Square backing it up plus cash from HHC, giving SEG roughly ~$200MM in cash at closing:

Seaport Entertainment expects to conduct a $175 million Rights Offering of equity to our stockholders following the distribution. In connection with the Rights Offering, the Company is in serious discussions with Pershing Square Capital Management, L.P. (“Pershing Square”), which through investment funds advised by it is HHH’s largest shareholder, regarding a potential backstop agreement which would be entered into prior to the distribution. Pursuant to that agreement, if finalized, Pershing Square would agree to (i) exercise its pro rata subscription right with respect to the Rights Offering at a price of $100 per share of our common stock and (ii) purchase any shares not purchased upon the expiration of the Rights Offering at the Rights Offering price, up to $175 million in the aggregate. The backstop agreement could result in Pershing Square’s affiliated funds owning as much as       % of our common stock if no other stockholders participate in the Rights Offering. Any capital raised through the Rights Offering would further strengthen our balance sheet. With over $      million of liquidity, primarily consisting of (i) $23.4 million of cash contributed by HHH pursuant to the Separation Agreement, (ii) expected proceeds from the anticipated Rights Offering and (iii) amounts available under the Revolving Credit Agreement (as defined herein), we believe we will have ample capital to invest in and drive internal and external growth opportunities in the leisure, tourism, hospitality, gaming, food and beverage and live entertainment spaces.

Rights offerings can often be juicy special situations (is this a Greenblatt special, spin + rights offering?), they come around rarely, but often signal an opportunity because the company is offering all shareholders the opportunity re-up often at a discount.  

Ackman clearly wants more exposure to SEG, by backstopping the rights offering where it'll likely not be fully subscribed, he's increasing his exposure in more shareholder friendly way than he did with Howard Hughes during covid with a private placement that minority shareholders couldn't participate.  His interest in Seaport Entertainment is a bit puzzling to me, Ackman tends to like higher quality companies, something SEG is not.  New York real estate plays have always been challenging to me, especially ones that rely on development, 250 Water St will take several years to build (with original cost estimates of $850MM in 2021, likely higher now) and who knows what the apartment and office leasing environment will be at that point.  Add that with the underwritten low cap rates, the margin of safety in NY development seems extra slim.  It is also worth noting that Ackman has left the board of HHH, this is after he was famously on the cover of Forbes as Baby Buffett for his role in Howard Hughes.  I've seen some speculation that it clears the path for Ackman to make a bid for HHH, unlikely, but who knows.

The Seaport spin is going to be a challenge to value, can't really do a cap rate based SOTP.  HHH trades for 1.1x book value at this point (despite holding a lot of land/buildings at historical cost), HHH is the higher quality asset, guessing Seaport will trade at a discount to book.

We don't know the spin ratio yet, but at 80% of book, Seaport is roughly worth ~$6-7 per HHH share prior to the rights offering, or about 10% of the HHH market cap.  That likely means we see forced selling, could be an interesting one to keep on the watchlist.

Disclosure: I own shares of HHH (fka HHC)