St. Joe ($JOE) Q423 update and long-term prospects
The inflation protected Flywheel trading at a discount to Book Value that you can give over to your grandkids
$JOE reported earnings on Feb. 21, 2024
Business Description from the 10K:
St. Joe was incorporated in the State of Florida in 1936. We are a real estate development, asset management, and operating company.... The Bay-Walton Sector Plan entitles us to develop over 170,000 residential dwelling units, over 22 million square feet of retail, commercial, and industrial space, and over 3,000 hotel rooms. Approximately 90% of our real estate land holdings are within fifteen miles of the Gulf of Mexico.
JOE owns all the land with effectively zero cost basis. Here’s a visual of their land holdings and current projects under development:
JOE had a strong year in 2023:
What’s the outlook going forward, and what are the key considerations for the future:
Will the strong revenue and earnings growth continue?
Sustainability of the “Great Migration” to Florida
Valuation
1. Will revenue growth and earnings from Residential Real Estate, Hospitality, and Commercial Leasing continue?
Compared to the previous year, 2023 was a strong year:
JOE generates revenue from 1) Selling platted lots to homebuilders, 2) Operating hospitality assets (11 hotels, a country club, golf clubs, etc.), and 3) Commercial Real Estate (office, retail, multi-family, senior living, self-storage, etc.).
The best indicator for demand in the residential real estate vertical is JOE’s pipeline for platted lots. JOE has 2,558 lots spread across ~20 Master Planned Communities (MPCs) that are platted and under development, which means that JOE has already invested capital in the wet and dry infrastructure.
JOE sells lots at virtually every price point from >$1,000,000 for just the dirt in Watersound Camp Creek:
They also have several communities that offer workforce housing at competitive price points.
Bottom line: Because JOE owns all the land, they have the ability to adjust supply to serve the market rationally. In 2023, they sold 1700 lots and homes (through their JV) and are targeting 2,000 sales per year.
Regarding Hospitality, in 2023, JOE opened five new hotels totaling 646 rooms. 2024 will be the first full year of operations for these new hotels. In addition, they are building a new 121-room hotel that will open in 2024, bringing the total hotel portfolio to 1,298 rooms.
As an indication of the strength of tourism in the area, Northwest Florida Beaches International Airport ( JOE donated the land for the airport to the county) served 1,660,479 passengers in 2023, the most in its history. According to JOE management, the region’s hospitality sector is still relatively underserved, and they are projecting strong occupancy from their hotels.
Finally, for the full year 2023, commercial leasing revenue increased by 30% to $50.8 million, as compared to $39.2 million in the full year 2022. JOE’s multi-family portfolio is stabilized but less of a focus than the residential real estate and hospitality verticals :
JOE has ~1mm sq. ft. of commercial space that is currently at a 95% occupancy and another 98k sq. ft. under development:
As relates to the greater St. Joe ecosystem, the 87-acre medical campus that is under construction is located on the same highway as JOE’s 55+ community, Latitude Margaritaville, and should open later this year.
While 2023 was a particularly good year given the step function in revenue from the new hotels and perhaps some catch-up from the pandemic in residential real estate, all three segments of JOE’s business should benefit from continued growth in the region and the “flywheel effect” that comes from greater density and more migration.
2. Sustainability of the “Great Migration” to Florida
Continued migration to JOE’s properties is the lynchpin of the Investment Thesis. There are a few data points that provide support for the “Great Migration” thesis:
Tax data shows migrants coming to NW FL skew toward higher incomes:
2. Census data shows that, even in FL, which is the fastest-growing state, JOE’s counties are among the fastest-growing:
Coast-to-coast migration from the rest of the US highlights the large pool of potential migrants:
2022 Annual Meeting
3. Valuation: How much are we paying for all this?
Joe owns 110,500 permitted and entitled acres (the remainder were put into conservation by the company).
There’s a lot of guesswork involved in valuing the land bank. For illustrative purposes, even though JOE primarily sells platted lots to builders, every year they sell raw land in a couple of transactions, which is probably the best comp for what the land is worth. In 2023, JOE sold 474 acres in 28 separate sales for an average of $44,304/acre:
Using this valuation per acre would value the land bank at around $4.8bil or $82/share versus the current price of $55/share before giving them any credit for the Operating assets, which generated ~$160mm in EBITDA in 2023.
The operating assets are conservatively financed (2/3 of the debt is fixed at an average interest rate of 5.5% and nonrecourse to the parent company).
The other way to value the land bank is to work backward from the current Market Cap, which imputes a value of <$30,000 per acre. For reference, JOE sells platted lots to builders for >$100,000 on average, and the cheapest homes start in the low $400s. It's not unreasonable for the raw land to represent 20% of the value of a completed house, which would suggest a higher value per acre than the market is giving them.
All the guesswork about what the land is worth speaks to the reality that JOE is trading at a discount to the current Book Value despite its strong recent performance and multi-decade land bank.
“Investment is the most intelligent when it is most businesslike.” Ben Graham
JOE’s real estate is irreplaceable and vast (they’ve only developed 2% of the asset). The flywheel is already working as more people move to the region, and the value of the land appreciates. It’s hard to imagine a scenario where the great migration slows down. In the meantime, JOE shareholders own an inflation-protected asset with current cash flow that is growing double digits. Perhaps most importantly, the asset is controlled by a thoughtful Chairman who owns 39% of the common stock and is aligned with common shareholders. This is an investment you can lock away and save for your grandchildren.
Interesting, thank you for sharing Adam!