Howard Hughes May Be Worth Up to 25% More Even After Record Gain

(Bloomberg) -- Howard Hughes Corp. could be worth as much as 25% above its 42% climb on Thursday after news the company is exploring options, including a potential sale, Jefferies analyst Jonathan Petersen wrote in note earlier.

The company’s sum-of-the-parts valuation is around $165 per share, according to Peterson. However, a 10-15% discount could still be applied to the deal price, similar to other recent real estate transactions.

The eye-catching valuation is based on three parts. He sees the company’s rent-paying properties and commercial bank worth $73/share, while its 7,085 acres of land for future single-family home development is worth $77/share.

The third piece of Howard Hughes, its Ward Village condo development in Hawaii, is worth $15/share, Petersen wrote. He also sees a spin off of the commercial-rent paying assets into a real estate investment trust as a way to “close the valuation gap” as it would be easy to underwrite.

The most likely comparable takeout value to Howard Hughes can be seen in Forest City Realty Trust Inc.’s sale to Brookfield Asset Management Inc. last year, where Forest City was valued at 10% discount to its sum-of-the-parts/net asset value in the transaction, Jefferies wrote.

Forest City has similarities to Howard Hughes, as it was a larger developer with projects across the U.S. Petersen said he sees a similar scenario for Forest City and a deal at a 10% discount would represent $150/share. He has raised Howard Hughes’ price target to $151 from $145.

Before Thursday’s gain, shares had dropped 35% from a high of $142 hit in July 2018. An“orphan stock”, it has no public market peers, according to Petersen.

To contact the reporters on this story: Joshua Fineman in New York at jfineman@bloomberg.net;Brad Olesen in New York at bolesen3@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk, Steven Fromm

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