The primary public draft of the Seaport Kind 10-12 got here out on Friday, I took a fast learn of it, listed below are some preliminary ideas that I am going to seemingly come again to because the spinoff approaches someday in Q3. Howard Hughes Holdings (HHH) goes to be spinning 4 primary belongings into the newly created Seaport Leisure (SEG) that can concentrate on “intersection of leisure and actual property”:
- The Seaport District in Decrease Manhattan, which incorporates the South Road Seaport itself, some neighboring buildings and the 250 Water St growth website (which HHH/SEG just lately gained a lawsuit that units the stage for building), all of which Howard Hughes has sunk over $1B into over the past decade and continues to be bleeding money (-$55MM in 2023). So far, the Seaport has been a catastrophe (HHH took a $672.5MM impairment on the Seaport final yr) and waste of capital, the mission was began a yr or two after Tremendous Storm Sandy destroyed a lot of the previous construction in 2012 and was underwritten at a 4-6% return on price. The event had many delays and hasn’t come near the unique profitability projections a decade or so later, as a long run HHH shareholder, I blame the Seaport for a lot of the underperformance over the past 5-7 years (alongside the Ackman covid capital elevate). Possibly centered administration can flip this round? There are a complete of 11 bodily buildings on the Seaport, as a complete it’s about 2/third’s leased at this level.
- 25% curiosity in Jean-Georges Eating places that was acquired for $45MM (doubtlessly an Ackman self-importance funding) with the said technique to associate with Jean-George sooner or later as an anchor tenant in new developments (Jean-Georges leases your complete Tin Constructing in a JV with SEG for a meals corridor idea). This funding jogs my memory of MSGE/Sphere’s funding in TAO Group the place they argued TAO’s nightclub experience might be used on the Sphere and different leisure venues, TAO was ultimately divested. The Jean-Georges funding feels very non-core and might be offered to lift capital for his or her two huge growth initiatives (250 Water St and Style Present Air Rights).
- The Las Vegas Aviators (highest income grossing minor league workforce), the Oakland A’s AAA affiliate, and the corresponding newish Las Vegas Ballpark positioned in Howard Hughes’ Summerlin grasp deliberate neighborhood. The A’s are shifting to the Las Vegas strip (the place the previous Tropicana was positioned) in a pair years, the present plan is to maintain the Aviators in Summerlin, however TBD on how that impacts attendance/income. HHH did pay $16.4MM for the remaining 50% of the Aviators they did not personal in 2017 and the ballpark price roughly $125MM in 2019.
- 80% curiosity within the air rights above the Style Present Mall on the Las Vegas strip, which is positioned on the north finish of the strip close to Treasure Island and the Wynn motels. Howard Hughes has introduced in Anton Nikodemus because the CEO of Seaport, his earlier cease was because the President/COO of MGM’s Metropolis Heart in Las Vegas and earlier than that he led the event of MGM’s Nationwide Harbor and Springfield, MA casinos. I am going yearly to a convention within the Metropolis Heart and have visited the Nationwide Harbor property, each are spectacular gaming resorts which might be properly run. The Style Present Mall and the opposite 20% of the air rights are owned/operated by Brookfield Properties (which acquired Normal Progress Properties (GGP), the unique dad or mum of Howard Hughes). There’s been a major improve in provide on the north finish of the Las Vegas strip prior to now yr with the opening of Resorts World and the Fontainebleau (each of which post-opening are relative ghost cities). However with Nikodemus onboard, it clearly indicators that they intend to redevelop the Style Present Mall within the medium-to-long time period.
Every of those are a bit troublesome to worth and do not fairly match right into a typical public actual property firm (though HHH/HHC will nonetheless be a little bit of an odd ball public inventory following the spin, it helps on the margins). My query previous to the Kind 10-12 launch was how this firm can be capitalized given it loses cash and certain will for the close to future, plus the plan is clearly to sink cash into their growth belongings, that query was answered with disclosure that Seaport intends to conduct a $175MM rights providing with Ackman’s Pershing Sq. backing it up plus money from HHC, giving SEG roughly ~$200MM in money at closing:
Seaport Leisure expects to conduct a $175 million Rights Providing of fairness to our stockholders following the distribution. In reference to the Rights Providing, the Firm is in severe discussions with Pershing Sq. Capital Administration, L.P. (“Pershing Sq.”), which by funding funds suggested by it’s HHH’s largest shareholder, concerning a possible backstop settlement which might be entered into previous to the distribution. Pursuant to that settlement, if finalized, Pershing Sq. would conform to (i) train its professional rata subscription proper with respect to the Rights Providing at a worth of $100 per share of our frequent inventory and (ii) buy any shares not bought upon the expiration of the Rights Providing on the Rights Providing worth, as much as $175 million within the combination. The backstop settlement may end in Pershing Sq.’s affiliated funds proudly owning as a lot as % of our frequent inventory if no different stockholders take part within the Rights Providing. Any capital raised by the Rights Providing would additional strengthen our steadiness sheet. With over $ million of liquidity, primarily consisting of (i) $23.4 million of money contributed by HHH pursuant to the Separation Settlement, (ii) anticipated proceeds from the anticipated Rights Providing and (iii) quantities out there beneath the Revolving Credit score Settlement (as outlined herein), we imagine we can have ample capital to spend money on and drive inside and exterior progress alternatives within the leisure, tourism, hospitality, gaming, meals and beverage and stay leisure areas.
Rights choices can typically be juicy particular conditions (is that this a Greenblatt particular, spin + rights providing?), they arrive round hardly ever, however typically sign a chance as a result of the corporate is providing all shareholders the chance re-up typically at a reduction.
The Seaport spin goes to be a problem to worth, cannot actually do a cap fee based mostly SOTP. HHH trades for 1.1x e book worth at this level (regardless of holding a whole lot of land/buildings at historic price), HHH is the upper high quality asset, guessing Seaport will commerce at a reduction to e book.
We do not the spin ratio but, however at 80% of e book, Seaport is roughly price ~$6-7 per HHH share previous to the rights providing, or about 10% of the HHH market cap. That seemingly means we see pressured promoting, might be an fascinating one to maintain on the watchlist.
Disclosure: I personal shares of HHH (fka HHC)
