Our two cents - Howard Hughes needs cash and it chose to restructure the company instead of selling it outright to investors. This is interesting to the local commercial investor, as well as a current or potential tenant in one of their buildings and retail outlets, as we see a potential shift in attitude from HHC, from “won’t sell” to “let’s talk.”
————
The Howard Hughes Corp. plans to sell over $2 billion in real estate from New York City to Sacramento, California, as well as assets such as the corporate jet as it refocuses to become "a nimble and efficient business."
The publicly traded developer of expansive, master-planned communities announced the plan Monday a few months after it revealed it was conducting a thorough strategic review of its business, including the potential sale of the company. Howard Hughes also named a new CEO and said it would relocate its Texas headquarters from Dallas to The Woodlands to reduce annual overhead expenses by $45 million to $50 million.
Howard Hughes plans to focus on its core master-planned communities in The Woodlands, The Woodlands Hills, Bridgeland, Ward Village in Honolulu, Summerlin in Las Vegas, and Columbia, Maryland, and reinvest its savings into the company.
"We looked at every alternative we could pursue from spinning off certain assets to looking at management and strategy to maximize our value to shareholders," said Bill Ackman, chairman of the board for Howard Hughes, in a conference call with investors and members of the media.
Howard Hughes also considered a potential sale of the company, bringing in 35 potential investors qualified to either buy the entire company or a substantial part of the business, he said. But the feedback from investors was there wasn't the capital available to buy Howard Hughes outright and it wouldn't make sense to break up the development firm.
Even though a number of assets proved Howard Hughes owned a substantial amount of the land rights in a community, boosting the quality of the company's surrounding real estate, Ackman said not all real estate fit this mold. The company also owned several properties considered to be "non-core," without the ability to have "sufficient influence and control," to make an attractive return on capital, he said.
Non-core properties that Howard Hughes is selling, according to the investor presentation include:
110 N. Wacker Drive, a more than 1.5 million-square-foot office tower being built in Chicago's West Loop area
85 South St. in New York City
The 653-acre former American Cyanamid site in West Windsor, New Jersey
A never finished mall in the Elk Grove area of Sacramento, California
The Outlet Collection at Riverwalk in New Orleans
The Bridges at Mint Hill in the Charlotte, North Carolina, area
Monarch City, a proposed 261-acre mixed-use project in Allen, Texas, a growing suburb about 25 miles north of downtown Dallas
In all, Howard Hughes expects the $2 billion in asset sales, including the company's 2017 Gulfstream G450 jet, to be done in the next 12 to 18 months, with an estimated $600 million expected in net proceeds to the company after debt repayment and transaction costs. Leaders told CoStar News during the investor call they are also considering selling the company's stake in Circle T Ranch in the Dallas area that landed some new zoning and is home to a big regional campus being built for thousands of Charles Schwab employees.
Other assets sales being considered include the M.D. Anderson medical campus in The Woodlands and various hospitality properties in the Woodlands as well as some retail properties in its master-planned communities across the country.
Meanwhile, Howard Hughes named Paul Layne as the company's new CEO, effective immediately. He replaces David Weinreb, who he will also replace on the company's board. In his new leadership role, Layne, who has been with the firm for eight years, will also oversee the relocation of Howard Hughes from Dallas to The Woodlands, which leaders say will allow the company to become more focused and profitable as it rids itself of redundant overhead. When CoStar News asked about the number of employees potentially being laid off as a result of the company restructuring, leaders said the majority of staff would be offered opportunities in The Woodlands, but said it was too early to comment on a number of jobs affected by the move.
"Dallas is arguably the best market for employment in the country and we will be focused on retaining employees in the move," Layne said on the conference call.
Howard Hughes has nearly 36,000 square feet of office space in One Galleria Tower at 13355 Noel Road in Dallas, according to CoStar data.
The Woodlands, which includes 2.3 million square feet of existing office space, is about 95% leased in terms of office space, with its largest contiguous space only totaling 13,000 square feet. This could have leaders focused on bringing more office space to The Woodlands to accommodate the needs of Howard Hughes.
The relocation expenses to The Woodlands are expected to range from $38 million to $40 million, including severance, retention and relocation. The costs are expected to hit the bottom line in the fourth quarter of 2019.
With information from CoStar - Candace Carlile, Houston Business Journal, and Howard Hughes Corporation