Howard Hughes Corp., struggling along with other businesses during the COVID-19 pandemic, has pared its workforce, shut down construction projects and postponed portions of its recently announced transformation plan, which includes moving the corporate headquarters to Houston from Dallas.
The real estate and land development company, which operates The Woodlands, Bridgeland and other master-planned communities around the country, is nevertheless taking steps to carry itself through the slowdown caused by the pandemic.
It closed public and private stock offerings on Tuesday that were expected to net it $594 millionand closed Monday on two loans totaling more than $490 million for a residential development in Hawaii and for two office towers it recently purchased in The Woodlands.
Alexander Goldfarb, senior research analyst and a managing director at investment bank Piper Sandler, said the company will survive the disruption, but development will slow as it relies on land sales to home builders to fund new projects.
“To a large degree they can stop their outward cash spend and have a portfolio of income-producing properties,” Goldfarb said.
Company officials did not respond to a request for comment.
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Hughes’s portfolio includes retail, office and multifamily properties, all of which are expected to be affected as tenants may not be able to make timely rental payments. Revenue from office and multifamily accounted for 13 percent of sales last year. Retail was responsible for 12 percent.
The company has closed its three hotels in The Woodlands. The properties, which accounted for 7 percent of its 2019 revenue, will be closed for an undetermined amount of time. It has stopped developing land that has not been scheduled to be sold and is postponing certain developments, though it did not say which ones.
The oil downturn presents another challenge.
Hughes’ Houston-area communities, which also include a new development called The Woodlands Hills, rely heavily on the oil and gas industry. A glut of oil in the market, combined with a decline in demand due to the pandemic, has resulted in an oil price collapse. On Tuesday, oil was trading at just above $20 a barrel, down from more than $61 in December.
“In the event that oil prices fall and remain depressed for a sustained period, demand may decrease for housing and commercial space in The Woodlands, Bridgeland and The Woodlands Hills and hotel rooms at our hospitality properties in The Woodlands,” the company said in a prospectus related to the stock sale.
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Hughes, which also owns and manages Summerlin in Las Vegas, Ward Village in Honolulu, Columbia in Maryland and the Seaport District in New York, had 1,500 employees at the end of last year. It has not disclosed its current count.
Last fall, after an expected sale of the company did not materialize, officials announced a transformation plan involving cutting expenses by $50 million per year, in large part by moving its headquarters to Houston, selling $2 billion in non-core assets and installing new leadership. There could be unexpected costs relating to the relocation should some executives decide not to move and leave the company, according to the prospectus.
The new loans and capital raised through stock sales will help shore up the company’s balance sheet, Goldfarb said. Some 2 million shares sold to the public at $50 a share. Pershing Square Capital Management, a New York hedge fund whose CEO, William Ackman, is chairman of Hughes Corp., purchased 10 million shares at the same price, giving the company control of nearly 30 percent of the outstanding stock.
Shares of Hughes stock closed down 8 percent to $50.52 on Tuesday.
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