[Just In] CEO Bets $50 Million On His Own Company!
Now here is a CEO that I could invest alongside…
His name is David Weinreb, and he is the top dog at real estate development firm Howard Hughes Corporation (HHC).
Howard Hughes is in the business of developing real estate in Honolulu, New York, Houston and Las Vegas.
What you need to know is that CEO Weinreb has made a huge $50 million bet on the success of the very company that he is leading.
With $50 million of his own cash, Weinreb acquired stock warrants that give him the right to purchase shares of Howard Hughes Corporation at $124.64.
But this isn’t the usual case of a fat cat CEO being given options or warrants.
Let me explain…
Money Talks — And $50 Million Is A Lot Of Money!
Let’s consider for a moment what this bold bet really means.
First, how many CEOs can you name that put $50 million of their own cash on the line alongside shareholders?
I can’t name any.
I love how Weinreb has aligned his interests with the shareholders that he works for. Like shareholders, this man put up his own cash for a piece of the action.
Second, not only did he put $50 million of his own capital at risk, but he did it through warrants that have an expiry date.
If Weinreb purchased shares of Howard Hughes Company and the share price didn’t go anywhere for the next 6 years, he would still have $50 million in stock.
But he didn’t. He purchased warrants that expire in six years.
If the stock price of Howard Hughes isn’t higher six years from now, Weinreb’s $50 million is going to be worthless. Now that shows some conviction!
Third, there is only one reason for Weinreb to make this bold $50 million bet on Howard Hughes warrants.
Clearly, he thinks that the share price of this company is going significantly higher over the next six years.
If you are into watching for clues from the insiders of publicly traded companies to determine whether a stock is worth buying, then I would suggest that this is the biggest clue your stock market sleuthing is ever going to uncover.
Better still, Weinreb seems to be a fellow that is worth paying attention to. Because over the six years that he has been CEO of Howard Hughes, he has already overseen a 207 percent increase in HHC shares versus just a 102 percent return for the S&P 500!
What Else Do You Need To Know?
It isn’t just Weinreb that is aligned with shareholders.
The entire management team and Board of Directors — which own 21 percent of Howard Hughes Corporation — are also correctly incentivized.
If the group leading this company is going to make serious money, that means shareholders are going to make serious money as well. This is the only way publicly traded companies should be run in my opinion.
As you would probably guess, given that the CEO just bet $50 million on the stock going up in fairly short order, I believe that Howard Hughes shares today are very attractively valued.
And there is a reason that those shares are currently cheap: the market isn’t paying attention to this company.
Howard Hughes (HHC) has a unique business model for a publicly traded company. As a result, it doesn’t fit into any of Wall Street’s existing boxes.
The company isn’t a REIT, it isn’t a homebuilder and it isn’t a land developer.
Instead, it is all three of those things.
Wall Street has analysts assigned to each of those three sectors but no analysts assigned to cover all three. The result is that there are only a handful of analysts covering this company.
I believe this lack of coverage is the reason that Howard Hughes offers an extremely compelling value proposition today.
The value investing shop Boyar Asset Management pegs the intrinsic value for shares of Howard Hughes at $171 per share.1 That is 33 percent upside from the current share price as Howard Hughes continues to develop its world-class real estate portfolio.
But we don’t need to try and get too precise here. After all, nobody knows the true value of Howard Hughes better than its CEO David Weinreb. And his $50 million bet tells you everything you need to know.
Here’s to looking through the windshield,
Financial Analyst, The Daily Edge