The St. Joe Company $JOE
A Florida land developer with more land than that of Chicago
St. Joe is a real estate development, asset management and operating company. They are doing practically all of their business in the Florida Panhandle.
With that one sentence, confusion is already sown.
Why? Because humans read it, that’s why. And what better creature to bring bias and fallacy into the equation?
What is the Florida Panhandle?
That’s a serious question. Humans have preconceived notions. At the risk of sounding Woke, people do have unconscious biases. Once people hear certain words they check out mentally. They make automatic associations and assumptions.
So, like I asked, what is the Florida Panhandle?
Is it the Emerald Coast, where the Gulf’s glistening emerald green waters welcome you for a luxury stay?
Or is it a strip of surf and sand to get your party on, from Pensacola to Panama City.
Or is it the Redneck Riviera, abused by out of town partiers and drunkards.
Or perhaps it’s a quiet retirement establishment.
There’s a reason why companies spend so much on marketing.
Perhaps due to mainstream media you think this is the Florida Panhandle.
THE HUMAN CONDITION
Human propensity is to create stereotypes via hasty generalizations, not keeping constant their comparisons and controlling for variables, conflating categories and false dichotomies.
To most, Florida consists of swamp land, Disney land and Miami.
Under this sort of framing St. Joe must be swamp land. Now you might say that no one would be that stupid. In which I would reply, “You’re sadly mistaken.”
Most people jump to conclusions and make hasty generalizations.
The problem is that once people get a narrative in their head they won’t allow themselves to be confused with the facts.
Because new facts means that the narrative needs to change.
The problem with that is that people attach their identity and egos to narratives. They convince themselves that they believe in a narrative because they’re a good, virtuous person. And how are they supposed to reconcile a new narrative while their ego is attached to an old narrative? The answer is cognitive dissonance or, dear I say, intellectual honesty.
Which is to say that if you change the facts you change the narrative and this forces people to change. And people don’t like to change.
The problem with this is that people are intellectually lethargic and personally incredulous.
Another issue is that people aren’t incentivized to change their beliefs until a situation forces it upon them. This means that the general populous will maintain their bigoted beliefs about Florida because it doesn’t serve them to change. Demonstrating tribal allegiance by either talking down on “that republican state” or laughing at the Florida man stereotype brings people closer together. This means that people are incentivized not disincentivized to remain myopic and foolish.
It causes them to miss an opportunity rather than cost them a current benefit. This is simple omission vs. commission. And people are more than happy to sin insofar as it falls into the category of omission.
Now that we know this of the human condition, what might we conclude?
“The most exciting returns are to be had from an asset class where those who know it best, love it least, because they have been hurt the most.” - Don Coxe
My psychoanalytical investigation of the human condition also aids us in understanding why people are still referencing a short report that was published over a decade ago.
That short report was largely right at the time of its publication. Notice how I used the past tense in that last sentence. The company was being run as a bust out, control fraud, principal-agent problem to enrich the insiders and act as a supplemental lifestyle company by auctioning off its land.
More recently (if 6 years is recent) another popularly referenced short report was published on them. Here it is if you wish to review it too.
My explanation of the human condition helps you better understand why these outdated short reports are still being referenced. People are intellectually lethargic and thus make appeals to authority (which David Einhorn is). People also latch onto stories and don’t relinquish them, regardless of whether the stories changed.
Master planned communities in the real estate sector are boring. People want exciting growth stocks.
*Checks notes*
Oh, apparently St. Joe grew revenue 54% YoY. But who cares, it’s still “boring”.
And that boring 54% revenue growth YoY brings us to the next section.
THE NUMBERS
A problem that people have with St. Joe is their erratic earnings, especially in regards to their residential segment. Another problem people have is not recognizing that it’s more than just a residential play. The below spreadsheet demonstrates their growth over the last several years.
As a public service announcement, If you notice something wonky with the older real estate revenue figures it’s because I added timber revenue in with it due to St. Joe doing that with the last 3 year figures in their recent filings. This will help us keep constant our comparisons and control for variables when looking at numbers from pre 2020.
I’m not in St. Joe for the residential real estate, although them developing that is crucial for the thesis to play out. I’m in St. Joe for the hospitality and leasing/commercial segments. And oh boy have those segments been doing well. Even in 2022 when real estate fell 30% YoY the hospitality and leasing/commercial segments helped cap the full year loss to only -6%.
On a trailing twelve month basis it’s trading at 25x FFO.
Is that rich or is that cheap?
Idk. What I do know is that on average over the last 6 years St. Joe has grown their revenue by 27.55%. Let’s not forget that Jorge Gonzalez became CEO in 2015 and that the Bay-Walton Sector Plans genesis was that same year. It takes time to build a master planned community. A theme that keeps popping up in this article is one of patience. Which will be difficult for many, as the average watch time per video view on TikTok is 3 to 5 seconds.
SO… WHO IS ST. JOE?
St. Joe is a Master Planned Community developer in the panhandle of Florida.
That phrase, “Master Planned Community” isn’t something to glaze over.
The problem with such a phrase is that it requires a long term vision. Not just for the developers but the shareholders. In today's day and age of free tendies, rocket ship emojis and hedge fund redemptions, no one has time for a long term vision.
St. Joe’s land bank is roughly 168,000 acres. That’s their first PR mistake. People don’t do acres, they do square miles and even then people are terrible at measurements. 168,000 acres is equivalent to 264 square miles.
Let's put that in comparison with some cities you might be familiar with in square mile terms.
Chicago = 227
New Orleans = 169
Corpus Christi = 162
Denver = 153
Raleigh = 149
Las Vegas = 141
Atlanta = 135
Tampa = 113
Sioux Falls = 82
Miami = 36
New York = 469
People don’t know how big an acre or square mile is let alone 10, 100 or a 1,000. So to say 168,000 acres or 264 square miles literally means nothing to people.
But to say they own the equivalent of 2 Atlantas, 7 Miamis or half a New York City gets people's attention.
They operate in 3 segments: residential, hospitality and commercial.
Hospitality is what I care about.
Their hospitality is increasingly becoming a larger part of their total revenues. And that’s at a time where their other segments are growing too. It’s not as though some segments are shrinking and thus allowing hospitality to disproportionately represent revenue.
Who and what is St. Joe and what are they trying to accomplish?
They’re a master planned community developer. The name of the game is to build houses, amenities & CRE and collect recurring revenue on the amenities and CRE. The issue and conundrum is that it’s difficult to sell amenities and CRE without homeowners (consumers). And it’s hard to sell houses when there’s nothing around for them to do, jobs to work or general infrastructure. The lead time on projects can take years, trails, golf courses, marinas etc. In the meantime the property is less desirable since it’s lacking such things. But as more people move in and the more amenities that are developed, the more the value of the surrounding land is worth. At some point a critical mass gets hit. Enough momentum is built that it creates a center of gravity. It is my belief that we are at and past that point.
2020 was the last time that St. Joe reported 4 segments (Inflection point???). Since then they now report residential, hospitality and commercial. You’ll be hard pressed to find any meaningful rural land sales on their behalf recently and the days of old when they were in the timber business aren’t completely gone but are dwarfed by their three segments they report. I try to take notice when numbers start positively inflecting and when all of management's hard work starts paying off.
Some say that the Florida Panhandle is becoming an emerging industrial market. Hmmm, that’s worth thinking about.
POPULATION GROWTH, AIRLINE TRAFFIC & HOUSE PRICES, OH MY!
Let's take a look at the map below.
Let me zoom in for you.
You might be concerned about that red but I’m not. That’s Gulf County. And I’m concerned with the Bay-Walton Sector Plan.
That’s Walton, Bay and Gulf County Florida. Which is where 86% of their real estate is located.
This is quite relevant due to their Bay-Walton Sector plan. This is a long term master plan that includes entitlements and legal rights to develop over 170,000 residential units and over 22 million square feet of retail, commercial and industrial use on approximately 110,500 acres of their land holdings. That accounts for 65% of their entire land portfolio.
For those who are color agnostic and don’t like pretty pictures, how about some numbers. The growth rate is well above the country's average. And yes, I also notice that the growth rate is slowing. But that’s, in part, the consequence of base effects and nothing goes up in a straight line. At some point the rate of change slows. I’m not concerned about this, however.
Walton County, Florida Population 2023
I try to be transparent in my research because there is a whole mish mash of convoluted contradictory data out there. So the above chart shows what it shows. And then I came across this chart.
Walton County, FL population by year, race, & more | USAFacts
One chart says 2.77% growth from 2020 → 2021 and the other chart says 5.6%. That’s either a 50% haircut or a 100% over estimation. I’m not one to appeal to authority nor am I one to ignore the reality of the problems associated with someone grading their own homework. I have settled on the second chart being true due to the following “official” chart.
Resident Population in Walton County, FL (FLWALT1POP) | FRED | St. Louis Fed
This is all to say that even the wrong and lower estimates of population growth are still superior to the vast majority of the United States.
Let's switch gears and take a look at Northwest Florida Beaches International Airport Activity Report, we also see a positive trend. Total Passengers is directionally positive going back to 2017.
As you might have noticed, the Total Passengers were recorded in August. The reason being is that I started writing this in August. But fear not, things are still doing well. If you don’t believe me then you can read this article. Here’s a picture to entice you to read it.
Now, onto house prices.
According to this cite:
Monroe County, Florida is the most expensive typical home value in the state.
Walton County, Florida has the second highest value. Interestingly enough it’s above Miami-Dade County.
Then you have Bay County.
Bay County is where St. Joe’s Margaritaville is located. And although the typical house price in Bay County is $347,400 St. Joe is selling theirs for 50% over that.
My point is that residential home prices aren’t falling off a cliff like the interest rate fanatic chicken little’s were predicting.
The number one rule in real estate is: location, location, location. Population growth, airline passengers and home prices all are converging and act as an indirect synthetic proxy for the opportunities which St. Joe can manifest. You can think of airport traffic as a kpi (key performance indicator), I do.
These data points highlight the tail winds that are in St. Joe's favor. Now, of course, booming geographic growth doesn’t necessarily mean that St. Joe will do well. Gross negligence, perverse incentives and blatant incompetence can ruin the best of situations and can grab defeat from the jaws of victory. That’s not my base case and as a matter of fact, that sort of management team got kicked out of St. Joe.
WHAT ABOUT GLOBAL WARMING?
What about it?
If you’re concerned about owning property by the ocean then don’t.
I get it. If the water rises then problems will happen. Most of their land won’t be affected though. Sure, much of what they’ve developed in the last few years will be destroyed but think of it on the bright side, wherever the new water line rises it will create a new oceanfront view.
Also, by the time that ocean levels do rise to that point, if they do rise to that point, St. Joe will have built out much more of their master planned community. And let's not forget that many of their assets are recently built. This means that they’re built to the highest and newest standards.
Here’s a map to make you think I did due diligence on this.
Simply put, It’s a risk I’m willing to take.
In conclusion
2023 was the year of the never happening recession, a banking crisis and high historically normal interest rates. All of these macro factors were supposed to be St. Joe's unraveling. Yet, the only thing that has been broken were new records.
Company record for a single year revenue in hospitality and leasing
New volume record for residential homesite sales
I’ll let you think about that.
With that all said, I’m done for today.
Matter of fact, I just might top off my shares.