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Consistent Insider Buying of Howard Hughes by Bill Ackman – Insider Weekends

  • May 28, 2023

After reviewing the list of top five insider purchases, we realized that we have written about the two that we found interesting in the past including Energy Transfer LP (ET) and Axon Enterprise, Inc. (AXON). We covered Axon in an article titled A Tale of Two Insider Purchases last week. This week we ventured beyond the top transactions and decided to instead focus on an interesting purchase by a famous activist investor, Bill Ackman.

When I think of Bill Ackman, I wonder which story about the billionaire founder of Pershing Square Capital remains etched in investor’s memories. Whether it was the unflattering Vanity Fair article from a decade ago titled Billionaire Bill Ackman’s Ill-Fated Bike Ride: “His Mind Wrote a Check That His Body Couldn’t Cash” or his public feud with Carl Icahn on CNBC about Herbalife, which Mr. Ackman believed was a criminal enterprise.

“I’ve about had it with this guy. He’s like the crybaby in the schoolyard.” – Carl Icahn

Considering the big 76% drop in Herbalife (HLF) over the last five years and the challenges Carl Icahn is facing due to the Hinderberg short report about Icahn Enterprises (IEP), Bill Ackman is probably feeling pretty good right about now. Unfortunately for him, he closed the Herbalife short years before the stock started its big decline.

Mr. Ackman’s Pershing Square Capital Management runs a concentrated portfolio and according to their 13-F filing and form 4 filings, 100% of the portfolio is concentrated in their top 10 positions. Howard Hughes (HHC) is one of the fund’s top five positions, representing roughly 12% of the 13-F portfolio. Bill Ackman serves as the Chairman of the Board of Howard Hughes.

Howards Hughes is a real estate company that is not structured as a REIT, and therefore does not have to pay out over 90% of its earnings in the form of a dividend. Pershing Square has been buying shares of the company for a while, starting in November of 2022, taking a break for a short period of time, before resuming share purchases in mid-March of this year.

Howard Hughes specializes in creating MPCs or master planned communities. MCPs are custom-built communities with a variety of amenities such as trails, quality educational institutions, upscale retail and dining, and more. Many of these MPCs are often located near areas of new business and economic growth, and Howard Hughes currently has communities located in places like Houston, Texas and Oahu, Hawaii. As of Q1 2023 (ended March 31, 2023) Howard Hughes seems to be primarily focusing on this business segment, with over 2.7 million square feet currently being constructed, with expected development costs totaling around $1.8 billion.

This focus on new development may raise some concerns about debt as total debt sits around $4.8 billion currently. As noted in their Q1 2023 investor presentation, the debt maturity for these liabilities is staggered with around 87% of the debt maturing in 2026 or later:Howard Hughes Debt Maturity

While MPCs are the main focus of the company, Howard Hughes also has a Seaport business segment – a privately owned multi-block district in Manhattan. The historic waterfront area is currently being revitalized by the company, introducing mixed-use real estate with other amenities typically found in their MPCs. In addition, the company has a diversified mix of operating assets including office, apartment and retail assets.

Howard Hughes Operating Assets

Overall, financial results for the company have been a mixed bag. For the fiscal year 2022, there were significant decreases in net home sales, yet overall net income attributable to shareholders increased to $184.5 million from $56.1 million in the prior year. Howard Hughes has various business segments (that mostly contribute towards developing MPCs) that are valued in different ways.

Total earnings before taxes (EBT) for all the segments was around $430 million in fiscal 2022, and all segments except the Seaport segment recorded gains. However, MPC EBT did decrease by around $33 million YoY to $282.98 million. As for the recently released Q1 2023 results, Howard Hughes recorded a net loss of $22.7 million when compared to net income of $2.1 million in Q1 2022. 

Howard Hughes, despite having many plans for developing new communities, still only has eight MPCs developed and currently operating. The company currently has 2.7 million square feet under construction and has active projects in five communities.

The rapid deceleration in revenue in the last two quarters has to do with a combination of seasonal effects, timing of completion of various projects and the macro environment with rising mortgage rates and low office occupancy. Recent results give me pause but Mr. Ackman, as Chairman of the Board, has more insight and thus continues to invest in the company.

Welcome to edition 684 of Insider Weekends. Insider buying decreased last week with insiders purchasing $125.83 million of stock compared to $154.55 million in the week prior. Selling also decreased to $1.02 billion compared to $1.16 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio for last week went up to 8.13. In other words, insiders sold more than 8 times as much stock as they purchased. This week, the Sell/Buy ratio was unfavorable, compared to the prior week when the ratio stood at 7.52.

Notable Insider Buys:

1. Energy Transfer LP (ET): $12.65

Executive Chairman Kelcy L. Warren acquired 1,500,000 shares of this energy-related services provider, paying $12.78 per share for a total amount of $19.17 million. Mr. Warren increased his stake by 2.50% to 61,578,477 shares with this purchase.

You can view the list of recent insider transactions for Energy Transfer LP here.

P/E: 9.51Forward P/E: 8.06Industry P/E: 7.01
P/S: 0.45Price/Book: 1.45EV/EBITDA: 8.26
Market Cap: $39.99BAvg. Daily Volume: 10,981,29352 Week Range: $9.15 – $13.67

2. Prelude Therapeutics Incorporated (PRLD): $5.53

Shares of this clinical-stage biopharmaceutical company were acquired by 7 insiders:

  • Director David P. Bonita acquired 869,565 shares, paying $5.75 per share for a total amount of $4.99 million. These shares were purchased indirectly by OrbiMed Private Investments.
  • CEO Krishna Vaddi acquired 13,756 shares, paying $5.56 per share for a total amount of $76,540. Mr. Vaddi increased his stake by 1.31% to 1,067,275 shares with this purchase.
  • Chief Financial Officer Laurent Chardonnet acquired 5,000 shares, paying $5.50 per share for a total amount of $27,500. Mr. Chardonnet increased his stake by 13.45% to 42,165 shares with this purchase.
  • Chief Legal Officer, Corp Sec. Bryant David Lim acquired 2,400 shares, paying $5.39 per share for a total amount of $12,936. Mr. Lim increased his stake by inf% to 2,400 shares with this purchase.

You can view the list of recent insider transactions for Prelude Therapeutics Incorporated here.

P/E: N/AForward P/E: -2.71Industry P/E: 26.35
P/S: N/APrice/Book: 1.51EV/EBITDA: -0.77
Market Cap: $290.06MAvg. Daily Volume: 101,34752 Week Range: $4.165 – $8.9

3. Royalty Pharma plc (RPRX): $32.38

CEO, Chairman of the Board Pablo G. Legorreta acquired 150,000 shares of this biopharmaceutical company, paying $32.25 per share for a total amount of $4.84 million. These shares were purchased indirectly by a trust.

You can view the list of recent insider transactions for Royalty Pharma plc here.

P/E: 43.76Forward P/E: 8.24Industry P/E: 26.35
P/S: 6.15Price/Book: 2.44EV/EBITDA: 19.88
Market Cap: $14.51BAvg. Daily Volume: 1,925,44652 Week Range: $32.02 – $44.66

4. RenaissanceRe Holdings Ltd. (RNR): $189.08

President & Chief Executive Officer Kevin O’Donnell acquired 13,020 shares of this insurance company, paying $192.00 per share for a total amount of $2,499,840. Mr. O’Donnell increased his stake by 4.60% to 296,025 shares with this purchase.

You can view the list of recent insider transactions for RenaissanceRe Holdings Ltd. here.

P/E: N/AForward P/E: 6.64Industry P/E: 8.99
P/S: 1.47Price/Book: 1.62EV/EBITDA: N/A
Market Cap: $9.5BAvg. Daily Volume: 431,41752 Week Range: $124.18 – $223.8

5. Axon Enterprise, Inc. (AXON): $194.95

Director Hadi Partovi acquired 10,000 shares of this defense weapons and body camera company, paying $190.75 per share for a total amount of $1.91 million. Mr. Partovi increased his stake by 2.64% to 388,817 shares with this purchase.

You can view the list of recent insider transactions for Axon Enterprise, Inc. here.

P/E: 102.61Forward P/E: 52.13Industry P/E: 18.60
P/S: 11.28Price/Book: 10.26EV/EBITDA: 113.19
Market Cap: $14.4BAvg. Daily Volume: 1,154,87752 Week Range: $83.01 – $229.95

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Royal Caribbean Cruises Ltd. (RCL): $79

Director Arne Alexander Wilhelmsen sold 897,125 shares of this cruise company for $79.62, generating $71.43 million from the sale.

You can view the list of recent insider transactions for Royal Caribbean Cruises Ltd. here.

P/E: N/AForward P/E: 11.43Industry P/E: 15.43
P/S: 1.89Price/Book: 7.08EV/EBITDA: 23.12
Market Cap: $20.2BAvg. Daily Volume: 3,532,45052 Week Range: $31.09 – $81.16

2. Walmart Inc. (WMT): $146.42

Shares of Walmart were sold by 2 insiders:

  • Director Robson S. Walton sold 455,660 shares for $149.98, generating $68.34 million from the sale. These shares were sold indirectly by a trust.
  • Executive Vice President Daniel J. Bartlett sold 6,600 shares for $147.78, generating $975,368 from the sale.

You can view the list of recent insider transactions for Walmart Inc. here.

P/E: 35.2Forward P/E: 21.44Industry P/E: 22.05
P/S: 0.63Price/Book: 5.45EV/EBITDA: 12.44
Market Cap: $394.95BAvg. Daily Volume: 6,376,45752 Week Range: $117.9 – $154.64

3. Royalty Pharma plc (RPRX): $32.38

Director Rory B. Riggs sold 1,750,000 shares of this biopharmaceutical company for $32.82, generating $57.43 million from the sale.

You can view the list of recent insider transactions for Royalty Pharma plc here.

P/E: 43.76Forward P/E: 8.24Industry P/E: 26.35
P/S: 6.15Price/Book: 2.44EV/EBITDA: 19.88
Market Cap: $14.51BAvg. Daily Volume: 1,925,44652 Week Range: $32.02 – $44.66

4. PTC Inc. (PTC): $131.03

Shares of this software company were sold by 2 insiders:

  • Director Blake D. Moret sold 218,000 shares for $132.75, generating $28.94 million from the sale. These shares were sold indirectly by Rockwell Automation.
  • President and COO Michael Ditullio sold 2,000 shares for $135.00, generating $270,000 from the sale.

You can view the list of recent insider transactions for PTC Inc. here.

P/E: 48.71Forward P/E: 25.1Industry P/E: 24.79
P/S: 7.84Price/Book: 6.16EV/EBITDA: 31.33
Market Cap: $15.51BAvg. Daily Volume: 708,87952 Week Range: $97.97 – $139.91

5. DraftKings Inc. (DKNG): $23.38

Shares of this digital sports entertainment and gaming company were sold by 2 insiders:

  • Chief Financial Officer Jason Park sold 372,166 shares for $24.92, generating $9.27 million from the sale. 23,960 of these shares were sold as a result of exercising options immediately prior to the sale.
  • Chief Executive Officer and Chairman of the Board Jason Robins sold 350,000 shares for $24.43, generating $8.55 million from the sale. 5,849 of these shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for DraftKings Inc. here.

P/E: N/AForward P/E: -28.17Industry P/E: 25.43
P/S: 4.16Price/Book: 10.6EV/EBITDA: -9.44
Market Cap: $10.8BAvg. Daily Volume: 11,628,80052 Week Range: $10.515 – $26.405

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer:  Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.