Whitney Tilson, T2 Partners managing partner, explains why realty company Howard Hughes is attractive now. “We think the book value is very conservatively stated,” he says. The Fast Money traders also discuss opportunities in the homebuilding space.
Full video and interview below (See T2’s recent presentation on HHC here:
we’re seeing when’s next in silicon valley. let’s start with housing. three big names giving bullish commentary on the market. here’s what they had to say. once iunemployment stabilize, people feel comfortable buying a home. you can see a snapback much the same as march of ’09. in terms of housing, we might be at the end game. prices are down to a kind of normal level. they haven’t overshot normal. so maybe in terms of housing, this is it. this is it. if i had a way of buying acouple hundred thousand single family homes and had a way of managing them i would load up on them and i would take mortgages out at very, very low rates. positive sentiment from three pretty big names. b bill acheman. next guest, whitney tillson, also an investor and he joins us on the fast line.whitney, welcome back. thanks for having me. why howard hughes? well, it’s not so much in our view a play on the u.s. housing market. howard hughes was spun out of when general growth properties emerged from bankruptcy, howardhughes was a collection of 34 sort of development orturnaround properties that didn’t really fit with the mall portfolio of general growth. and we actually think this is the more attractive piece. we have sold. howard hughes has 34 fabulousproperties. four of them are master planned communities that are really directly related to housing. the rest are various malls,southside sea ports in new york city. ward centers in honolulu.and the key is that they’re all either need to be turned around or just development properties so they’re not currently cashflowing but you’ve got an incredible operator, the ceo, and a great capital allocator who’s chairman of the company and shareholder and we’re betting on the overall portfolio of assets and the management and the board, the chairman of the board here. and it’s even with the run-up it’s had recently, still tradingat a slight discount to book value and we think it’s conservatively stated and hard to say exactly what it’s worth but we think more than today’s price. are you intrigued by the name and the fact of insiders owning some 50% of stock in warren and you obviously can make the jump that they’ve got a lot of skin in the game, right? insiders do. are you on their backs sort to speak?absolutely. we love following the smartest money in the world and where they put their money and when the ceo and bill is well-known in his track record, especially in the real estate area, very well-kno well-known, if you dig in further to david, the ceo’sbackground, a real estate guy, he’s a visionary. he is incredibly driven and taking this job, he took something like more than $15 million out of his own pocket and bought call options that he cannot sell and edge for something like six or seven years so he really put a ton of his own skin in the game and almost unprecedented to see a ceo coming in to a company like this.normally granted stock options. that didn’t happen here. he’s got a huge amount of skin in the game. yeah. let’s stay on that note one second, whitney and then tail off to something else. let’s get stephanie involved, as well. it is a great story and what’s the best way to value this asset? how do you do it? well, we think first about the downside protection and we’re buying at a discount to book and book value set when it was coming out of bankruptcy a little over a year ago when the markets were more depressed and south street sea port carried on the books like 5 million or $3 million and this is an asset that the management of that the management of this company would not sell today ifsomeone were to offer them $100 million for it. so that gives you an example of one of the 34 assets. so we think book value is a very good floor here and this in terms of upside, go through theproperties and of the 34 properties, the most of the value is imbedded in ten of them. for example, the bridgeland master planned community outside of houston. and there the housing market is very strong. and they just reported a fabulous quarter. and overall for howard hughes and bridgeland is one of the key drivers. you know, another master planned community outside of vegas is sort of hanging in there and vegas is a much weaker housing market so you really have to do some careful analysis of the properties and so it’s a story that’s fairly complex and that’s one of the reasons the stock is cheap, we think. most investors don’t want to do the work. let’s segue and talk about netflix for a second. i want to get inside your mind for the last 24 hours, right? apple comes out with theannouncement of the new ipad. i’m wondering your thoughtsright then and there about the long play in netflix. you did see a pullback in shares at that moment but then you come to realize, well, okay, now apple lets you sign up for netflix directly through itunes and give me a train of thought on where you are right now on netflix vis-a-vis the new ipad. it’s a plus for netflix. it’s a higher resolution screen and a much better viewing experience for all of netflix’s customers. but secondly, netflix has a muchhigher profile positioning, much easier for netflix to capture new customers through itunes and so far. there’s rumors out there about some speculation that somehow netflix paying apple 30% of the revenues received as typical of an app on the itunes store. but it’s not been disclosed what the economic terms are but it’s nothing close to that. you know, netflix here has tens of millions of subscribers. so there’s a real plus. it’s a win-win here and there may be some small economic arrangement but my guess is very favorable to netflix and help drive growth for netflix and a big positive. great having you as always. talk to you soon. thanks. let’s show shares of howard hughes again. you saw that spike as we were having the conversation about it. a play not only of his and as he said bill aikman. very clearly, the move. the highs of the days up better than 4%. what do you think about real estate? big names are behind it but looking at the big names including whitney and warren buffett, people with long-term horizons and a gik lie me, two months is long term horizons. they’re talking about multiple years in the future. give you an example. an incredible amount of activity in dr horton today and buying the puts, the april 14 puts. 55,000 traded today, judge. these are just out of the money puts on the rise despite the fact that the stock is working to the upside. the 40% off the lows of october. it’s up 12% year to date. you would expect to see some kind of a pullback so i’m not saying any of the folks are wrong. i believe in the housing market, as well. i think there’s room for a pause or pullback. what would your best play be in housing right now, howard hughes for example, a home depot or lowe’s or any builders for that matter? they’re extended to pete’s point and try to look at nonconventional companies and 75% of the revenues tied to real estate and or housing and a great business and carried them through the downturn. they were structured in to an reit. a great ceo and management team and a nice yield while you wait. it’s still attractive despite the move. steve, what about you? housing is ahead of itself. you have to separate what buffett’s saying about single family housing and housing stocks. housing stocks, just overvalued. some are losing money. they have weighed too much to assume recovery. the facts are that the new homescoming on the market, why buy them when they’re at a premiumto the one that is are still going to come out of foreclosure?best thing that’s happened is the banks are very disciplined of foreclosed homes on the market and not foreclosing, as well.the supply is very, very big. cortez, the other way on this one?scott, completely right. i’m sick the last two days but my memory is still intact. short the home builders on spread and underperformance. let’s remember, too, that the moguls moving in the housing most of them told us there would be no double dip and no longer debatable. we are at new lows. bullish wrongly on housing for two years. but look. the names had an incredible run for six months. builders massively outperformedthe market. the main reason i got short last week on shb, the main reason is looking at building materials, the same six-month run since labor day, up about 35%. during that time, you have lumber, copper and aluminum down. some as much as 10%. when they’re down, the builders have had a bit of an excessive run to the upside. i think housing goes lower fromhere. whipping you around today. we showed you a chart of those names today. can’t be feeling that great. i like the positions much better on tuesday than today. i bet you did. i think pete makes a great point of the buffetts and achmans on the day. we are starting to feel a bottom but you have to look further out to own the housing market. i think if you play a shorter term, people leaving the housing market which i’m starting to do. today i picked up shares of pff on preferred shares and looking at top ten shares of holding, bank of america, wells fargo, own preferred shares in the bank stocks for a lower volatility, a nice return, a little bit of a yield on those types of names and playing the housing market rather than betting on housing names or reits. getting volatility from now fora few years.
