St. Joe ($JOE)...Update from The Annual Meeting
“Don’t wait to buy real estate. Buy real estate and wait.” - Will Rogers
St. Joe hosted its Annual Shareholder Meeting on May 14, 2024, at its newly opened Camp Creek Inn (one of 5 hotels St. Joe opened in 2023) in NW Florida:
Here’s the Deck from the Meeting.
I attended the event last year but was not able to make it this year. St. Joe has been a strong performer and is trading near its all-time highs, which begs the question:
How much upside is left? How does the risk/reward skew from here?
First, the valuation: St. Joe. has a $3.4 billion market cap and is trading at around ~$20,000/ acre:
The business is currently generating ~$100mm in Free Cash Flow after sustaining CapEx, so it’s not cheap on traditional metrics of valuation:
As relates to framing the long-term opportunity, Chairman of the Board Bruce Berkowitz (who owns ~40% of the common stock) had this to say:
The key point to draw from this quote is, “….It’s a story that’s going to last for many decades, and it’s going to have a very high terminal value.”
Where is this coming from? On a probabilistic basis, why is it likely that this “high terminal” value will materialize? Here are a two points to ponder - one about the past and one about the future:
1. St. Joe has already shown that they can monetize its land bank through homesite sales and the development of recurring streams of revenue:
Since 2016, they have invested ~$1bil in building out their various Master Planned Communities, Commercial, and Hospitality Projects:
And this has driven substantial revenue and earnings growth:
At the same time, they have managed to get leverage on their expense base:
Which has flowed through to earnings:
In the meantime, the company has carefully managed its balance sheet and has only borrowed debt (much of fixed and fully amortizing) at the project level so everyone can sleep at night:
CEO George Gonzalez describes the business in the following manner:
As you guys know, we love to make investments that we call it the virtuous circle, right? We make an investment in one segment, and that segment helps the other segment. We make an investment in that other segment, and it helps our third segment, as we call it the virtual circle.
2. The Future: St. Joe has only developed 2% of their Land Holdings:
Everything in Green, Yellow, and Brown is part of The Bay-Walton Sector Plan, which lays out the 50-year plan for 110,000/168,000 of St. Joe’s acreage.
There are 9 Detailed Specific Area Plans (DSAPs) in total, and JOE has only started construction on 4 of them.
In the medium term, JOE has a great opportunity to increase its commercial leasing and hospitality portfolio:
The construction of the West Bay Parkway (circled in red below), which slices directly through St. Joe’s land holdings, is strategically very important because it opens up vast tracts of land that were heretofore inaccessible :
Equally exciting, Latitude Margaritaville, St. Joe 55+ community, which it is building in a JV with Minto, has already sold 1700/ 3500 homes in Phase 1 and is approved for another 5,000 units in its second phase (which surrounds the West Bay Parkway referenced above):
The growth in Latitude Margaritaville has been exponential, which has never been seen in this region before. There’s no indication demand is slowing down.
Concluding thoughts: Where's the downside protection with mortgage rates still near 20-year highs? Isn’t real estate one of the most interest-rate-sensitive investments?
CEO George Gonzalez had this to say when asked about interest rate risk:
So one of the questions I get asked often and I call it a canary in the coal mine, when folks are getting nervous about the market about interest rates rising, the canary in the coal mine for us are our homebuilders. So the conversation usually start, they'll call me and they say, hey, we have a takedown coming up in 30 days, can we delay that by 2 weeks or 30 days? And I haven't had those phone calls in 4 or 5 years. So -- and we haven't done any phone calls or near that. So that's a canary in the coal mine for us. And our homebuilders still feel pretty good about the market even with the higher interest rates. And I think part of the -- because that's a question I get asked.
The Backlog for homesite sales is as strong as ever:
The bottom line: The “Great Migration” from pretty much everywhere in the lower 48 states to Florida in general and NW Florida in particular has set St. Joe up for a multi-decade opportunity. St. Joe has proven they can generate significant cash flow, and the future looks bright. As Will Rogers said, just wait.