Executive Summary / Key Takeaways

• Howard Hughes Holdings is fundamentally a developer and operator of premier Master Planned Communities (MPCs) and complementary real estate assets, generating value through a unique cycle of land sales funding strategic developments that mature into income-producing operating assets.
• Recent performance, particularly in Q1 2025, demonstrates robust momentum in MPC land sales, driven by strong homebuilder demand and record prices per acre in key markets like Summerlin, defying national housing market softness.
• The company maintains a solid liquidity position, bolstered by cash flow from operations, successful asset refinancings, and innovative MUD receivable sales, providing flexibility for development and strategic initiatives.
• A significant strategic shift is underway, transforming HHH into a diversified holding company via a $900 million investment from Pershing Square, aiming to acquire high-quality operating businesses and potentially build an insurance arm to enhance returns and diversify risk.
• Management projects continued strong performance in 2025, guiding for record MPC EBT ($375M midpoint) and Operating Assets NOI ($262M midpoint), underpinning expected Adjusted Operating Cash Flow of $325M-$375M, providing a strong foundation for the new strategic direction.

The Foundation: Master Planned Excellence and a Unique Value Cycle

Howard Hughes Holdings Inc. stands apart in the real estate landscape, built upon a foundation of developing and nurturing large-scale, long-term master planned communities (MPCs). Since its founding in 2010, the company has cultivated a distinctive business model centered on creating vibrant, self-sustaining environments in high-growth markets across the United States, including Summerlin in Las Vegas, The Woodlands, Bridgeland, and The Woodlands Hills in the Greater Houston area, and Teravalis in Phoenix.

This model operates on a powerful value-creation cycle. It begins with the MPC segment, where HHH plans, develops, and sells residential and commercial land to homebuilders and developers. The cash flow generated from these land sales is then strategically reinvested into developing commercial properties, such as retail, office, and multifamily assets, within these same communities. These "Strategic Developments," once completed and stabilized, transition into the "Operating Assets" segment, generating recurring rental revenue and Net Operating Income (NOI). This stable income stream further fuels new strategic developments, enhancing the appeal of the MPC land and driving increased demand and higher prices, perpetuating the cycle.

While the company's core strength lies in this integrated real estate development and management, it appears to lack specific proprietary technological differentiators in the sense of a unique, patented technology moat akin to those found in manufacturing or software firms. The company's operational effectiveness appears to stem from its expertise in large-scale planning, development execution, market positioning, and potentially leveraging standard IT systems for operations, leasing, and sales, rather than a distinct technological advantage over competitors in the traditional sense. Risks related to IT network disruption are noted, highlighting the reliance on standard information technology. The strategic narrative focuses on real estate and future operating company acquisitions, not technological innovation as a core competitive edge.

In the competitive arena, HHH faces a diverse set of rivals depending on the segment. In MPCs, it competes with other large-scale community developers and homebuilders like Lennar (LEN), distinguishing itself through the quality of its planning, amenities, and the long-term vision for its communities, which consistently rank among the nation's best-selling. In operating assets, it competes with various REITs and property owners in the retail (e.g., Simon Property Group (SPG)), office (e.g., Vornado Realty Trust (VNO)), and multifamily sectors, leveraging the captive demand and integrated environment of its MPCs as a competitive advantage. Strategic Developments compete with other developers in urban and suburban markets, with HHH's projects benefiting from prime locations within its established communities or unique urban sites like Ward Village in Honolulu.

Performance Reflecting Strategic Execution

The first quarter of 2025 demonstrated the continued strength of HHH's core real estate operations, particularly within the MPC segment. MPC EBT surged to $63.3 million, a remarkable 161% increase compared to $24.3 million in the prior-year period. This significant growth was primarily fueled by a substantial increase in land sales revenue, rising to $71.6 million from $32.4 million, driven by higher volumes and impressive pricing. Specifically, the company benefited from the sale of 29 superpad acres in Summerlin at an average price exceeding $1.5 million per acre and a 31% year-over-year increase in residential acres sold in Texas (Bridgeland and The Woodlands Hills). The average price per acre across the MPC portfolio reached $991,000 in Q1 2025, reflecting both sequential and year-over-year improvement.

While national housing market headlines suggested softening, HHH's communities saw solid new home sales, totaling 543 homes in Q1 2025. This represented a sequential improvement and outpaced Q3 and Q4 2024 results, indicating resilient underlying demand. Management attributes this resilience to the quality of life offered in their MPCs and a continued undersupply of both finished new homes (one month or less inventory in Bridgeland and Summerlin vs. less than two months nationally) and vacant developed lots (VDLs) (11-12 months supply vs. an estimated 20 months equilibrium). This tight supply dynamic is expected to keep homebuilder demand for HHH's land elevated.

The Operating Assets segment also contributed positively, with NOI reaching $64.0 million in Q1 2025 (excluding unconsolidated ventures), a 6% increase from $60.4 million in Q1 2024. This growth was driven by strong performance in both the Office and Multifamily portfolios. Office NOI increased due to robust leasing activity and expiring rent abatements in The Woodlands and Summerlin, despite lower occupancy in some other properties. Multifamily NOI benefited from continued lease-up at newer unstabilized assets and improved leasing at stabilized properties, which ended the quarter at 96% leased. The acquisition of Waterway Plaza II in The Woodlands, a market where HHH's existing portfolio was essentially full, adds needed inventory and is expected to provide a strong unlevered cash-on-cash return upon stabilization, while also offering a long-term covered land play.

Strategic Developments, while not yet generating significant recurring revenue, showed an improved EBT of $1.2 million in Q1 2025, compared to a loss of $5.4 million in Q1 2024. This improvement was largely due to the absence of final remediation costs related to the Waiea condominium project incurred in the prior year, partially offset by a loss from the deconsolidation of the Victoria Place homeowners association following the tower's completion and transfer of control. Demand for HHH's condominium pipeline remains solid, representing $2.7 billion of future revenue expected between 2025 and 2028. Key projects like The Park Ward Village (97% pre-sold), Ulana Ward Village (100% pre-sold), Kalae (93% pre-sold), and The Ritz-Carlton Residences (70% pre-sold) are significantly de-risked by high pre-sale percentages. The recent approval of additional residential entitlements in Ward Village, potentially adding 2.5 million to 3.5 million square feet, provides significant long-term development opportunities beyond 2030.

Financially, HHH reported net income from continuing operations of $10.8 million in Q1 2025, a significant improvement from a loss of $21.0 million in Q1 2024, primarily reflecting the strong MPC performance. The company ended Q1 2025 with $493.7 million in cash and cash equivalents and $1.0 billion in undrawn lender commitments. Recent actions like the sale of MUD receivables in September 2024 ($176.7 million cash) and May 2025 ($180 million cash) have provided substantial liquidity, used to pay down debt and enhance financial flexibility, particularly for the Bridgeland notes. While the company was not in compliance with certain property-level debt covenants as of March 31, 2025, resulting in restricted cash flow at those specific properties, management stated this did not materially impact overall liquidity or the ability to operate these assets. The company manages interest rate risk on its variable-rate debt ($1.5 billion outstanding at Q1 2025) through derivatives, noting that a 1% increase in floating rates would increase annual interest costs by approximately $3.4 million before capitalization.

A Transformative Strategic Shift

Building upon the solid foundation of its core real estate business, Howard Hughes Holdings is embarking on a significant strategic transformation. On May 5, 2025, Pershing Square Holdco, L.P. invested $900 million by acquiring 9 million newly issued shares at $100 per share, a substantial premium to the market price. This transaction is designed to pivot HHH into a diversified holding company, aiming to acquire controlling stakes in high-quality, durable growth public and private operating companies across various industries.

The rationale behind this shift, as articulated by management and Pershing Square, is the market's historical valuation of HHH as a pure-play, non-investment-grade real estate developer, which has assigned a "very-high cost-of-capital" to the business despite its strong underlying asset values and operational performance. By diversifying into other industries, HHH seeks to potentially earn higher returns on capital, reduce its exposure to real estate cyclicality, and ultimately improve its overall credit profile with the long-term goal of achieving investment-grade status for the holding company. Bill Ackman's return as Executive Chairman and Ryan Israel joining as CIO signal a strong commitment to executing this new strategy, drawing on Pershing Square's expertise in identifying and investing in high-quality businesses. Building or acquiring an insurance company is highlighted as a high priority for initial investment under this new diversified structure, mirroring a key component of the Berkshire Hathaway (BRK.B) model.

The core real estate business is expected to continue operating as planned, focusing on developing its existing MPCs and strategic assets. Management anticipates that as the MPCs mature and the need for horizontal development capital diminishes over the coming years, the real estate subsidiary will generate increasing amounts of excess cash flow. This cash, combined with the newly injected capital and potential future financing, will be available to the holding company to fund acquisitions in line with the new diversification strategy.

Outlook and Risks

Management's outlook for 2025 reflects confidence in the continued strength of the core real estate segments, providing a robust base for the new strategic direction.

• MPC EBT: Projected at a midpoint of $375 million, representing a 5% to 10% year-over-year increase and a new all-time high, driven by record residential land sales and price per acre, particularly significant superpad sales in Summerlin expected in Q2 and Q3 2025.
• Operating Assets NOI: Projected at a midpoint of $262 million, a range of flat to up 4% compared to 2024, which would also be a new full-year record, driven by strong performance in office and multifamily.
• Condo Sales Revenue: Projected at approximately $375 million, driven entirely by the closing of units at the Ulana workforce housing tower in Q4 2025, which is not expected to generate gross profit. This highlights the lumpy nature of condo earnings but points to future revenue from market-rate towers delivering in subsequent years (e.g., Park Ward Village with nearly $700 million contracted revenue).
• Adjusted Operating Cash Flow: Projected to range between $325 million and $375 million, with a midpoint of approximately $350 million.
• Cash G&A: Expected to range between $76 million and $86 million, with a midpoint of $81 million, reflecting cost savings.
• Cash Position: Expected to end 2025 with approximately $600 million in cash, excluding potential benefits from additional MUD sales.

While the outlook is positive for the core business, the company faces significant risks, particularly associated with the new strategic direction. The ability to successfully identify, acquire, and integrate high-quality operating companies, especially in industries unrelated to real estate, presents substantial execution risk. Macroeconomic conditions, including interest rate volatility and potential recession, could impact real estate demand, development costs, and the performance of operating assets, potentially affecting the cash flow available for diversification. Litigation risks related to past developments and construction defects also persist. Debt compliance remains a factor to monitor, although management indicates no material impact on overall liquidity.

Conclusion

Howard Hughes Holdings is at an inflection point, leveraging the demonstrated strength and cash-generating potential of its award-winning master planned communities and growing portfolio of operating assets to embark on a transformative strategic shift. The core real estate business, evidenced by record MPC EBT and Operating Assets NOI projections for 2025, provides a robust financial engine. This performance, coupled with a solid liquidity position enhanced by strategic asset sales and refinancings, forms the foundation for the new vision as a diversified holding company.

The $900 million investment from Pershing Square and the leadership changes signal a clear intent to diversify beyond real estate, aiming to unlock value by acquiring durable growth businesses and potentially building an insurance platform. This strategy seeks to address the market's historical valuation of HHH's pure-play real estate model and pursue higher, more stable returns. While the execution of this new diversification strategy presents inherent risks, the underlying real estate assets continue to perform strongly and are expected to generate significant cash flow to support future acquisitions. For investors, HHH represents an opportunity to invest in a high-quality real estate platform with a clear path to continued growth, now coupled with the potential upside and diversification benefits of a holding company structure guided by experienced investors. The success of the new strategy and the continued performance of the core real estate assets will be critical factors to watch.