The Great American Value Creation Company

Riddle me this: Where can you see the “Eiffel Tower,” a pyramid, and a Venetian-style canal complete with gondola rides – all in the same place.

The answer: Las Vegas, Nevada.

It’s been a few months since I’ve written about that iconic town, but it’s on my mind again… just down a less beaten path, you might say.

Back on March 25, I was focusing on casino landlords.

Those businesses have proven to be exceptionally stable in both economic booms and downturns. As I wrote:

… big casinos like MGM, Ceasars, Century, and Bally’s didn’t miss a beat during the shutdowns. They just kept paying their rental dues as promised.

And that’s why their real estate investment trust… landlords just kept paying their dividends as promised.

One of the real estate investment trusts (“REITs”) I’ve profiled numerous times is VICI Properties (VICI), the owner of several famous Las Vegas hotels like Caesar’s Palace, Luxor, Park MGM, and many more.

I hope readers took note. VICI’s one-year total return is 21%, double that of the S&P 500 at about 10.6%. And, as predicted, VICI raised its dividend to the tune of 4.3% last October.

I’m confident that won’t change anytime soon, even if we hit a recession in the next 12 to 18 months. But gaming REITs aren’t the only way Las Vegas can benefit investors these days. That market is big and getting bigger still, with several significant new attractions rising up in the past five years.

This includes Allegiant Stadium, home of the Las Vegas Raiders, which was finished in 2020. And then there’s the Sphere, a 366-foot tall, 516-foot wide ball-shaped venue that opened in 2023 with the world’s most advanced audio and video capabilities.

As for upcoming projects, there’s a major league baseball stadium being built right now that should be ready by 2028. A high-speed railway started last year is still underway. And there are a whole host of multimillion-dollar casino, hotel, and retail properties I could list.

All of these projects mean more jobs.

More jobs mean more residents.

And more residents mean that commercial real estate is the place to be.

Howard Hughes Holdings: A Creative Way to Play Las Vegas

Last Monday, I wrote about meeting Pershing Square founder and CEO, Bill Ackman, a multimillionaire and a man I respect. We spoke about a range of topics, but there was one I was especially interested in asking him about…

Howard Hughes Holdings (HHH). As I wrote, it’s a:

… little-known pure-play real estate development company that owns both income-producing assets – such as offices, retail, and multifamily units – and residential plays like condos, communities, and developable land.

Ackman has big plans for Howard Hughes. He wants to make it “a much more valuable business over a long period of time.”

Pershing Square Holdings has owned shares of HHH for 14 years now, so he’s long since seen their value. But earlier in May, Pershing Square increased its holdings of HHH with a $900 million investment.

As such, Ackman’s Pershing Square now owns 46.9% of shares outstanding – with that, there is much more incentive to make this $4.154 billion market cap company a much, much bigger entity. It also helps that Ackman is now chairman of the board.

One of the ways Pershing Square can grow this investment is through Howard Hughes’ holdings in Summerlin, Nevada. Located just nine miles west of the famed Las Vegas Strip, it’s a master-planned community spread across 22,500 acres.

With another 5,000 acres set aside for future development, Summerlin makes for ideal accommodation for its larger neighbor’s growing employee base.

Howard Hughes already owns and manages a range of residential, commercial, and mixed-use properties there. These include:

• Downtown Summerlin, a prominent outdoor mall featuring retailers, entertainment centers, and restaurants

• One Summerlin, a nine-story, Class A office building with state-of-the-art designs

• A 5% stake in Summerlin Hospital

Since Las Vegas itself isn’t slowing its growth anytime soon, I expect Summerlin to continue thriving as well. It and its investors alike…

Especially those that are backed by billionaires.

Source: summerlin.com

The Great American Value Creation Company

Howard Hughes Holdings actually has three products lines in its real estate focus:

• Master planned communities like Summerlin, located in low-cost, low-tax, pro-business regions, which generated $349 million in earnings before taxes last year

• Strategic developments, which generated $211 million in condo gross profits

• Operating assets, which generated $257 million in net operating income

Like Ackman, I’m extremely interested in this company. Though, unlike him, I still need to do more due diligence before I fully commit.

There’s no doubt that this is a promising investment. But I want to know how much so. In my quest to determine Howard Hughes’ true value, I plan to visit every property in the portfolio, including Summerlin in Vegas…

Bridgeland, The Woodlands, and Woodland Hills in Houston…

Teravalis in Phoenix…

Downtown Columbia in Maryland…

And Ward Village in Hawaii.

These properties have very attractive land appreciation potential, which is a big part of the larger company’s appeal. Going back to Summerlin specifically, its land value has appreciated by a 12% compound annual growth rate since 2017.

In 2017, Howard Hughes’ total land bank was valued at around $3.7 billion. Since then, it has sold 3,942 acres to generate $2.6 billion in land sale revenue. Yet, because of the perpetual cycle of value creation inherent in the premium space HHH works with, its land portfolio is actually now worth $4.8 billion.

My Howard Hughes journey as senior analyst at Wide Moat Confidential will commence in Las Vegas in the coming weeks. I really do believe it’s the beginning of something big, and I can’t wait to share what I find.

Keep reading Wide Moat Daily for “boots on the ground” updates on this road to discovery!

Regards,

Brad Thomas
Editor, Wide Moat Daily