Howard Hughes to Shed Overhead, Sell Assets

After a four-month strategic review, real-estate developer Howard Hughes Corp. announced a “transformation” plan that includes cutting overhead by as much as $50 million and selling about $2 billion of non-core assets.

The Dallas-based company’s shares fell more than 18% to $128.38 in after-hours trading Monday as it also named a new CEO, appointing Paul Layne, president of its central region, to replace David Weinreb.

“We are taking bold and decisive actions to better position the company over the long term,” he said in a news release. “We believe a leaner, more focused and decentralized approach dedicated to delivering high returns and delighting our customers will generate enormous value for our shareholders, and continue to greatly enhance the communities in which we operate.”

HHC said it will save $40 million to $45 million per year will result from a reduction in corporate G&A, and $5 million will result from a reduction in overhead costs allocated to development properties and capitalized under GAAP.

It also expects to realize $600 million of net cash proceeds from the sale of non-core assets, which it will use for share repurchases and development opportunities.

“The company will refocus its investment and development activities in our core MPCs [master-planned communities], where it has extensive unexploited demand for near- to intermediate-term developments,” it said.

HHC is known for its development of master-planned communities, which are located on more than 80,000 acres across the U.S., including Columbia, Md., and Summerlin, Nev. But according to The Wall Street Journal, its strategy has received a “chilly reception” from Wall Street on its strategy centered on master-planned communities.

“[Howard Hughes] is a type of developing growth story within real estate that we do not believe has really been seen in the market in more than 30 years,” Vahid Khorsand, an analyst at BWS Financial, wrote in a research note.

The company said CFO David O’Reilly will have an “enhanced role” partnering with Layne to execute the turnaround plan.