The early departure of Howard Hughes Corp. Chief Executive Paul Layne may signal more changes to come from an active board of directors.
Bill Ackman, billionaire hedge fund manager and Hughes Corp. chairman, called Layne, CEO for just under a year, a strong steward during the onset of the COVID-19 pandemic who left the company in an opportunistic position following recent equity and bond offerings. The company announced this week that David O’Reilly, who has served as chief financial officer since since 2016 and was promoted to president in June, was named interim CEO.
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Vahid Khorsand of BWS Financial Inc., an equity research firm based in Woodland Hills, Calif., said O’Reilly not only has intimate knowledge of the company’s finances but its operational processes and plans as well.
“He seems to have been more in tune with what the board was planning and the direction the company was going,” he said.
As Hughes works to recover from the early struggles of the pandemic, the company is benefiting from the national housing boom. On the company’s second-quarter earnings call, O’Reilly noted strong demand in new home sales.
“We attribute a great deal of this to the unique nature of our communities, their incredible amenities and wide open spaces, which is more important to buyers than ever at this point in time,” O’Reilly said on the Aug. 3 call.
With a strengthening balance sheet, Khorsand wondered if the departure of Layne, who was in the first year of a five-year contract, could be a precursor to Ackman, founder of activist hedge fund Pershing Square Capital Management, pushing to take the company private.
As of the end of the second quarter, the company had $931 million in cash.
“With the capital raises they’ve done recently they don’t seem to be in the position of needing the public markets right now,” Khorsand said.
The company could announce more leadership changes when it releases its third-quarter earnings, or even before, Khorsand said in a Tuesday research report on the Hughes Corp.
Whatever the endgame, Goldfarb said he had expected a CEO transition at some point, but not this soon.
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“A lot of companies have quarterly board meetings where board members will get a package, rubber stamp it and move on. That’s not this board,” said Alexander Goldfarb, a managing director and senior research analyst with Piper Sandler & Co. in New York.
Goldfarb said he didn’t think Layne’s departure reflects any concerns with the underlying company. The CEO shuffle, he said, was more akin to a pitching change mid-game. “Paul is a great guy, a great leader and over the past year he executed exactly what the board wanted to do,” he said.
Layne, who took the helm of the company last October, was in the midst of a restructuring when the COVID-19 pandemic hit and shut down its hotels, shopping centers and residential lot sales. Hughes Corp.’s stock price has fallen by more than half since March.
Since then, Layne worked to reopen properties and bring back employees after furloughing close to 800 workers. He was an early adopter of the notion that people in dense regions would seek out spacious residential developments with parks, trails and open-air recreation areas. Hughes Corp. owns, manages and develops some of the country’s largest master-planned communities, including The Woodlands, The Woodlands Hills and Bridgeland in the Houston area.
“What America wants is open spaces,” Layne told the Chronicle in a July interview.
The company’s restructuring efforts came after it undertook a strategic review that analysts believed could result in a sale.
Instead, the board appointed new leadership to refocus the company on its master-planned communities, cut costs and sell assets.
Hughes Corp. shares closed down 0.2 percent Tuesday to $56.08.
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