Wall Street Doesn't Know How to Value This Stock -- and That Could Be Great News for Patient Investors

Howard Hughes Corporation (HHH 0.23%) is unlike any other publicly traded real estate company. It isn't a real estate investment trust, it isn't just a developer, and it isn't a homebuilder. Rather, it develops large-scale master-planned communities in a real-life version of the popular video game Sim City. In this Fool Live video clip, recorded on Oct. 1, Fool.com contributor Matt Frankel asks David O'Reilly, CEO of Howard Hughes, why the market has such a tough time valuing its stock and why this could be a great thing for long-term investors. 

Matt Frankel: I would like to ask you, do you think that the market has a tough time valuing your company just because of how unique the business model is. I feel like a lot of times, analysts don't know really how to place value on your assets. How do you value land that you're going to sell 20 years from now? Do you think the market really has a tough time valuing it? How has that really played into the company's performance over the years?

David O'Reilly: Absolutely, and it's a great question, Matt, something that we're very much focused on the investor relations side. I do think that we are admittedly a more complicated story than just the multi-family REIT or a home builder, but that's where the value comes. In a fast-paced world where everybody has too much to do, it's a lot easier to look at a earnings-per-share and multiple and move onto the next company.

For us, it takes a little bit more work, and we appreciate that and we're asking investors to do a little bit more to get up to speed on Howard Hughes. But our job is to make it as easy as possible and to that end, we've started issuing more detailed guidance on each one of our business segments starting last year. We held the Virtual Investor Day in April where we walked through some of the parts analysis on a piece-by-piece basis, illustrating how we think one way it could be done trying to make it easier for any new investor who wants to look at Howard Hughes.

I think most importantly, coming out of this pandemic and having gone through a downturn, we've proven out the strength of our business model and we've really prevailed through this pandemic. Over the past year, we've outperformed the REIT homebuilding indexes and we're on a great trajectory to increase our NAV. Now, as much as we all want to shrink our discount and close the gap between intrinsic value and our share price, what we are most focused on is growing our net asset value.

Converting raw acres of commercial land into income-producing assets and outsize returns. We've been developing multi-family buildings between 7% and 8% return on cost in what most would argue is a 4% or sub-4% cap rate environment. If we continue to do that and we continue to drive our net asset value higher at a double-digit rate, even if that discount remains constant, we're going to deliver outsize returns to our shareholders.