Why Bill Ackman Is Bullish on Howard Hughes Corp

Motley Fool analyst Matt Argersinger recently returned from the 2017 Sohn Investment Conference in New York City, where he heard some of Wall Street's top investors and fund managers take the stage to share their views on various companies.

And in this segment from Market Foolery, Matt discusses why Bill Ackman, founder and CEO of Pershing Square Capital, believesHoward Hughes Corp. (NYSE: HHC)is undervalued at its current price, considering the company holds a massive portfolio of valuable real estate.

A full transcript follows the video.

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This video was recorded on May 10, 2017.

Mac Greer: Let's go on to a company I don't know much about, real estate development company Howard Hughes.

Matt Argersinger: Yeah, this was Bill Ackman's pick. Pershing Square, we all know Bill Ackman. This was interesting from Bill Ackman. He got on stage -- for those who know Bill Ackman, he's usually very energetic, he's in the public eye a lot, he's charismatic -- he was rather subdued when he was on stage making this pick.

Greer: And just to clarify, because maybe some of us don't know Bill Ackman. We've talked about him recently in terms of Herbalife, he's very much short Herbalife, on the other side of that bet is Carl Icahn --

Argersinger: They've had a little bit of a Clash of the Titans on that.

Greer: A bit of a clash, we're still waiting to see how that plays out. But, most associated with Herbalife, also has a big stake in Chipotleas well.

Argersinger: That's right. His fund, Pershing Square's main fund, has not done well the last couple years. So maybe that's part of it. So his pitch was Howard Hughes Corp. We know the name Howard Hughes, the famous aviator, explorer, and filmmaker. But Howard Hughes Corp is basically a big real estate owner. They're one of the largest owners of what is called master plan communities, MPCs, in the country. These are essentially big swaths of developed land, either land with housing developments or commercial property, big swaths of land. Howard Hughes owns it. It's kind of a nice business when you think about it. Hughes generates income from real estate sales, operating income for leases, it reinvests back into the property and improves land values, it brings in new residents, new commercial leases, the demand goes, and as the prices rise, it's a little bit of a virtuous cycle. Ackman's bottom line point was, at about $122 a share for Howard Hughes, which was the price before he made the presentation, he thought an investor was getting essentially the entire business of Howard Hughes, plus, the Seaport District in Manhattan, which they also own, which is an amazing several acre spot, one of the premiere spots in Manhattan --

Greer: Nice real estate.

Argersinger: Yes. A large piece of land in Hawaii, and about 37 million square feet of future development across Howard Hughes' portfolio, all for free.

Greer: And Houston, you left out Houston. [laughs]

Argersinger: Yeah, they're one of the biggest, I forget what it's actually called, but it's a piece of land, one of the premiere places in Houston.

Greer: Respect.

Argersinger: Yeah, it's three times or four times the size of Manhattan itself. Anyway, this is, according to Ackman, one of the premiere real estate companies in the world. And I think we have a service here or two that has recommended Howard Hughes in the past. It's one that hasn't really been on my radar, but it's one that I'm going to be taking a closer look at.

Mac Greer owns shares of Chipotle Mexican Grill. Matthew Argersinger owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool recommends Howard Hughes. The Motley Fool has a disclosure policy.