The Board of Directors January 14, 2025
Howard Hughes Holdings Inc.
9950 Woodloch Forest Drive, Suite 1100
The Woodlands, Texas 77380
Dear HHH Board,
As shareholders of Howard Hughes Holdings Inc. ("HHH" or “the Company") and as a firm that has previously profiled the Company on numerous occasions highlighting the large gap between its share price and our estimate of its intrinsic value in our institutional research publication Asset Analysis Focus, we are writing to express our significant concerns regarding the acquisition proposal submitted by Mr. William Ackman and Pershing Square Holdings on January 13, 2025. We believe the proposal falls significantly short of fairly compensating the shareholders for both the Company’s current asset value and its growth potential. While we hold Mr. Ackman in high regard as an investor and appreciate his long-standing commitment to HHH, the terms of this proposal are wholly inadequate and must be rejected.
The Offer Undervalues HHH’s Net Asset Value and Growth Potential
Pershing Square’s offer of $85 per share represents a 28% discount to HHH’s most recent internal net asset value ("NAV") estimate of $118 per share, provided by the Company on November 18, 2024. This NAV estimate was calculated using conservative assumptions and was likely informed by insights from Pershing Square itself, given its representation on the board. The proposed price not only undervalues the Company’s substantial assets but also fails to provide a meaningful premium for its long-term growth prospects.
The Company’s prior internal NAV estimates were as high as $170 per share and the Company is in a much better position today than it was in the past, as evidenced by a robust pace of land sales alongside higher pricing, Operating Asset’s significant NOI expansion, and the simplification via the Seaport Entertainment spinoff (a decision that we firmly supported). Mr. Ackman’s attempts to frame the offer as a significant premium relative to the Company’s unaffected share price fail to mention the weighted average price over the past 90 days, where the premium is a more modest 6.6%. Moreover, the $85 per share offer is less than HHH’s post-pandemic high of $105.50 reached in May of 2021.
Significant Operational and Strategic Improvements
Since the spin-off of the Seaport Entertainment Group in 2024, HHH has streamlined its operations, offloading $50 million in negative annual operating cash flow and simplifying its investment narrative. This transformation into a pure-play MPC was cheered by many investors (ourselves included) and, we believe, should foster a superior public market performance over time than the prior structure.
Elsewhere, the Company’s operating assets alone generated $241 million in NOI in 2023, a 13% compound annual growth rate over the past decade. With a vast land bank, significant ongoing developments, and a tremendous development pipeline, we believe that HHH is positioned to generate substantial cash flow and long-term value for its shareholders. Given HHH’s ability to self-fund this expansion, it does not need Mr. Ackman’s proposal to improve the business fundamentals, and any acquisition must adequately reflect this growth trajectory and the inflection point of excess free cash flow generation.
Structural Concerns with the Proposal
The proposed transaction structure raises additional concerns. Pershing Square’s intent to acquire a controlling stake while leaving a portion of the shares publicly traded creates uncertainty for minority shareholders. The dual structure risks leaving public shareholders with less liquidity and diminished influence while allowing Pershing Square to reap the majority of the benefits. We also believe the unwieldy structure proposed will likely result in shares continuing to trade at a significant discount to intrinsic value, providing no tangible benefit to minority shareholders.
Furthermore, Pershing Square’s plan to charge a 1.5% annual management fee based on market capitalization—which Mr. Ackman likened to Berkshire Hathaway’s holding company model—introduces a cost burden that contrasts sharply with Warren Buffett’s approach to corporate governance. This raises significant concerns about the alignment of interests between Pershing Square and HHH’s minority shareholders.
A Call for Fairness and Fiduciary Responsibility
We are not opposed to an acquisition of HHH but it must be conducted at terms that fairly compensate all shareholders for the Company’s true value. A transaction at or below the Company’s own NAV estimate, with minimal premium for control, is fundamentally unfair and breaches the board’s fiduciary duty to minority shareholders. We urge the board to insist on a minimum offer price that reflects the most recent NAV estimate of $118 per share—to account for HHH’s considerable growth prospects and operational improvements.
Conclusion
Mr. Ackman’s contributions to HHH as a long-term shareholder and former chairman are commendable, and his belief in the Company’s future is undeniable. His record of creating value for his partners as the controlling shareholder of Pershing Square is also not in question. However, the chutzpah required to propose such a lowball offer, while positioning it as a benefit to shareholders, cannot be ignored. The current proposal does not adequately compensate shareholders for HHH’s intrinsic value, growth trajectory, meaningful future development opportunities, or operational momentum. We strongly urge the board to reject this offer and to advocate for terms that ensure fairness and reflect the full value of the Company.
When posting the news on X (Twitter), Mr. Ackman told the public, “I welcome your feedback.” We hope that he and the HHH board are open to it. Despite a poor share price performance, we believe that Howard Hughes Holdings is in an excellent competitive position as it stands today, and Bill Ackman has been an integral part of that. While we can appreciate Mr. Ackman’s attempt to buy a dollar for $0.50, we highly doubt this well-regarded activist investor would accept such a blatantly insufficient offer if the shoe were on the other foot. In fact, we suspect he would be tweeting from the hilltops in opposition to it.
We are confident that the independent members of this board will prioritize the interests of all shareholders and fulfill their fiduciary duties. We remain open to engaging further on this matter and are willing to provide additional input as necessary.
Sincerely,
Jonathan Boyar
This material does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein in any state to any person. In addition, the discussions and opinions in this letter and the material contained herein are for general information only and are not intended to provide investment advice. All statements contained in this letter that are not clearly historical in nature or that necessarily depend on future events are "forward-looking statements," which are not guarantees of future performance or results, and the words "will," "anticipate," "believe," "expect," "potential," "could," "opportunity," "estimate," and similar expressions are generally intended to identify forward-looking statements. The projected results and statements contained in this letter and the material contained herein that are not historical facts are based on current expectations, speak only as of the date of this letter and involve risks that may cause the actual results to be materially different. Certain information included in this material is based on data obtained from sources considered to be reliable. No representation is made with respect to the accuracy or completeness of such data, and any analyses provided to assist the recipient of this material in evaluating the matters described herein may be based on subjective assessments and assumptions and may use one among alternative methodologies that produce different results. Accordingly, any analyses should also not be viewed as factual and also should not be relied upon as an accurate prediction of future results. All figures are unaudited estimates and subject to revision without notice. Boyar Asset Management disclaims any obligation to update the information herein and reserves the right to change any of its opinions expressed herein at any time as it deems appropriate. Boyar Asset Management clients and its employees own shares of HHH.