The primary public draft of the Seaport Type 10-12 got here out on Friday, I took a fast learn of it, listed below are some preliminary ideas that I will doubtless come again to because the spinoff approaches someday in Q3. Howard Hughes Holdings (HHH) goes to be spinning 4 important 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 Avenue Seaport itself, some neighboring buildings and the 250 Water St improvement website (which HHH/SEG just lately received a lawsuit that units the stage for development), all of which Howard Hughes has sunk over $1B into during the last decade and continues to be bleeding money (-$55MM in 2023). Up to now, the Seaport has been a catastrophe (HHH took a $672.5MM impairment on the Seaport final 12 months) and waste of capital, the challenge was began a 12 months or two after Tremendous Storm Sandy destroyed a lot of the outdated construction in 2012 and was underwritten at a 4-6% return on price.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 during the last 5-7 years (alongside the Ackman covid capital elevate). Perhaps centered administration can flip this round? There are a complete of 11 bodily buildings on the Seaport, as an entire 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 vainness funding) with the acknowledged technique to companion with Jean-George sooner or later as an anchor tenant in new developments (Jean-Georges leases all the 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 large improvement tasks (250 Water St and Vogue Present Air Rights).
- The Las Vegas Aviators (highest income grossing minor league crew), 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 transferring to the Las Vegas strip (the place the outdated 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 Vogue Present Mall on the Las Vegas strip, which is positioned on the north finish of the strip close to Treasure Island and the Wynn inns. Howard Hughes has introduced in Anton Nikodemus because the CEO of Seaport, his earlier cease was because the President/COO of MGM’s Metropolis Middle in Las Vegas and earlier than that he led the event of MGM’s Nationwide Harbor and Springfield, MA casinos. I’m going yearly to a convention within the Metropolis Middle and have visited the Nationwide Harbor property, each are spectacular gaming resorts which are properly run. The Vogue Present Mall and the opposite 20% of the air rights are owned/operated by Brookfield Properties (which acquired Common Development Properties (GGP), the unique mother or father of Howard Hughes). There’s been a major improve in provide on the north finish of the Las Vegas strip up to now 12 months 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 Vogue Present Mall within the medium-to-long time period.
Every of those are a bit tough 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 Type 10-12 launch was how this firm can be capitalized given it loses cash and sure will for the close to future, plus the plan is clearly to sink cash into their improvement 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 critical discussions with Pershing Sq. Capital Administration, L.P. (“Pershing Sq.”), which by means of 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 comply with (i) train its professional rata subscription proper with respect to the Rights Providing at a value of $100 per share of our widespread inventory and (ii) buy any shares not bought upon the expiration of the Rights Providing on the Rights Providing value, as much as $175 million within the mixture. The backstop settlement might end in Pershing Sq.’s affiliated funds proudly owning as a lot as % of our widespread inventory if no different stockholders take part within the Rights Providing. Any capital raised by means of 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 underneath the Revolving Credit score Settlement (as outlined herein), we consider we can have ample capital to put money into and drive inside and exterior progress alternatives within the leisure, tourism, hospitality, gaming, meals and beverage and reside leisure areas.
Rights choices can typically be juicy particular conditions (is that this a Greenblatt particular, spin + rights providing?), they arrive round not often, however typically sign a possibility 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 charge based mostly SOTP. HHH trades for 1.1x guide worth at this level (regardless of holding lots of land/buildings at historic price), HHH is the upper high quality asset, guessing Seaport will commerce at a reduction to guide.
We do not know the spin ratio but, however at 80% of guide, Seaport is roughly value ~$6-7 per HHH share previous to the rights providing, or about 10% of the HHH market cap. That doubtless means we see pressured promoting, might be an fascinating one to maintain on the watchlist.
Disclosure: I personal shares of HHH (fka HHC)
