Reading Ackman's letter, I can't help but think about how his insights apply to JOE as well.
The difficulty is that the real estate assets owned by HHC are notoriously difficult to value. First, you should consider that their long-term value - the value that can be achieved by a long-term owner - is, in my opinion, materially higher than their liquidation value.
. . .
For our MPC assets, one can make assumptions about the timing and number of future lot sales and then discount back these cash flows over the 30-or-so-year life of the project at a discount rate you deem appropriate. The problem with such an approach is that small changes in assumptions on discount rates, lot pricing and selling velocity, inflation, etc. can have an enormous impact on fair value.
For our development assets, one needs to make assumptions about what will be built, when it will it be built, to whom it will be leased, what rents it will achieve, what expenses it will incur, and what multiple an investor will place on these cash flows. Again, even highly sophisticated real estate investors will assign substantially divergent values to the same assets when using their own assumptions.
. . .
In light of the complexity of our asset base and the inadequacy of GAAP accounting to track our progress, you should now understand how important it is to get the right management team in place with the right incentives.
I'm guessing Bruce Berkowitz would wholeheartedly agree with almost all of what's in Ackman's letter.
