JOE - ST. JOE CO

[Spekulatius]

Land development / MPC companies need to reach a critical mass of development to catalyze value creation. St Joe hasn't yet reached this point, and it's unclear to me what would cause this to change in any reasonable time frame. I think Nitor is too bullish, and Kerrisdale is too bearish. It seems more likely that the company continues to slowly meander along, neither creating or destroying much value.

 

Sounds about right.

 

 

Or buy MLP. Hawaiian Real Estate is red hot in some areas ::)

I think that buying a nice waterfront home (high & dry if possible) anywhere in NW Florida is a much better investment.

 

I would definitely agree. Buy the actual real estate.

 

I've looked at JOE for a long time. I actually thought to myself about 6 months ago,"hey JOE is starting to look interesting". That said, it's basically just a larger CTO, with lower quality assets, in a less desirable area, with the same problems, and a decade plus of catching up to do. It's at best just a good trade vehicle here. I don't think you have much downside and you have Berkowitz implementing an aggressive buyback at your back. So trade the fluctuations, which is what I think any competent owner of this(outside of Bruce) is doing. The Kerrisdale thesis is basically just an updated version of Einhorn's short, and the SA article is basically just a wordy reiteration of the hopes and dreams that have gotten Fairholme stuck in quicksand.

[rkbabang]

Kuppy likes JOE

 

"not every acre is next to million dollar homes.  …A surprising number of them seem to be… It’s already noon and we’ve seen less than one percent of the portfolio… It’s just amazing. The shorts are soooo wrong here."

 

http://adventuresincapitalism.com/2018/06/13/hey-joe-ya-goin-land/

 

[DooDiligence]

Kuppy likes JOE

 

"not every acre is next to million dollar homes.  …A surprising number of them seem to be… It’s already noon and we’ve seen less than one percent of the portfolio… It’s just amazing. The shorts are soooo wrong here."

 

http://adventuresincapitalism.com/2018/06/13/hey-joe-ya-goin-land/

 

I should take a drive.

It's only 2 hours away & I want to visit some of the venues along 30A.

 

https://30a.com

[Saluki]

I have a good sized position in St Joe.

 

If you invert, and try to find a way to make St Joe go to zero, you can't do it.  They have tons of cash, only 53 employees at the headquarters and land (if you really believe it's all rural timberland) that can be sold off little by little to keep the company afloat for decades. Since it can't go to zero, you can lose some money if it's overpriced, but you have to weigh that vs the upside.

 

I think Berkowitz has been working on this for a decade, but some of the catalysts are starting to look good. 

 

JOE donated land for the new airport, which is doing more flights than expected, and they own all the land around it that can be leased for commercial use. I've seen what expanding the Palm Beach airport did to PB County over the past 20 years.  There used to be orange groves in Boynton Beach, now it's all planned communities. 

 

The Port of St Joe is being reopened and the dredging, drydock lots of the other improvements are being paid for by the BP spill fund. 

 

Florida is the fastest growing state behind Texas and if you want to live near the water, everything up the Atlantic coast is taken.

 

I won't sit on this for a decade waiting, but I think if something is going to happen with this stock (in a good way) we will start to see the seedlings coming out of the ground in the next year or two.  If the airport keeps growing, the land around it gets leased to businesses, and the land around the port is leased to companies that rely on it and JOE keeps developing the home sales which make the other lots more valuable the income will go up and one of the rationales for the shorts (that's a lot of market cap for not a lot of earnings) will go away. 

 

[SI]

What happens if Berkowitz is a forced seller? Any thoughts on if the 3 SEC attorney that Kerrisdale talked to had it right?

[Saluki]

What happens if Berkowitz is a forced seller? Any thoughts on if the 3 SEC attorney that Kerrisdale talked to had it right?

 

1.  Well, if they are a forced seller that won't hurt JOE, only the stock price, which would allow me to purchase more at firesale prices, if it still looked like a good company with a long runway.

 

2.  Fairholme sold less than 1.5% of their position last quarter, and they have been having lots of redemptions due to losses from SHLD, I believe, so their attorney probably has a different opinion than Kerrisdale's.  This is not unusual, a lot of Supreme court cases are 5-4, so if clones of the Justices were in private practice, nearly half would've given you the "wrong" answer.

 

3.  From scanning the rule I note that the fund has some discretion in how to classify their positions.  It could be that they see it differently or they are calculating the position differently.  For example, what if Bruce B says "don't count my money in the fund in calculating how many days it would take to sell the position because I'm not redeeming, so the calculation should be based on the non-insider investor funds." I'm not saying it's right, just that it's possible.

 

4.  Treasury asked the SEC to postpone the December 2018 effective date of that liquidity rule.  See pp 34-35 here

 

https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-That-Creates-Economic-Opportunities-Asset_Management-Insurance.pdf

 

The SEC is an independent agency and doesn't have to follow the recommendations, but i'd be surprised if they didn't consider them and talk it over with Treasury. 

 

5.  A fund can also write to the SEC for a "no-action" letter to allow them to hold the position even if it's not complying with the rules.  The SEC could deny it, then they would have to sell (or litigate it if they thought the SEC was wrong, which is what happened when the SEC tried to register hedge funds and their rule was overturned by the courts) but it would be a very aggressive act for them to go after a fund while the no-action is under consideration.

[SI]

all good points, thanks Saluki.

[thepupil]

As a last resort, couldn't Fairholme just distribute JOE (or anything else) to FAIRX holders?

 

http://www.fairholmefundsinc.com/Prospectus/StatutoryProspectus.pdf

 

For redemptions paid in cash, each Fund typically expects to meet

redemption requests using the Fund’s then-existing holdings of cash or cash equivalents. Subject to market conditions and other

considerations, at times, such as during stressed market conditions, a Fund may use proceeds from the sale of securities to meet

redemption requests. Unless otherwise prohibited by law, each Fund also reserves the right to pay redemptions in kind, using

portfolio securities to pay redemption proceeds, and may meet redemption requests partly in cash and partly in portfolio

securities.

 

 

[LongTermView]

I should take a drive.

It's only 2 hours away & I want to visit some of the venues along 30A.

 

I wouldn't mind checking it out. Let me know if this turns into a group field trip.

[rkbabang]

I should take a drive.

It's only 2 hours away & I want to visit some of the venues along 30A.

 

I wouldn't mind checking it out. Let me know if this turns into a group field trip.

 

I have no plans to go to Florida, but I’d love to hear what you guys think if you check it out.  I’m also looking forward to Kuppy’s part two of his blog post.  I’ve been looking for something real estate related.

 

I’ve also been looking at retail focused REITs lately, trying to find something with high quality shopping centers rather than malls since the whole sector has taken a beating. Kimco maybe, or like Kimco, but smaller.

[Saluki]

As a last resort, couldn't Fairholme just distribute JOE (or anything else) to FAIRX holders?

 

http://www.fairholmefundsinc.com/Prospectus/StatutoryProspectus.pdf

 

For redemptions paid in cash, each Fund typically expects to meet

redemption requests using the Fund’s then-existing holdings of cash or cash equivalents. Subject to market conditions and other

considerations, at times, such as during stressed market conditions, a Fund may use proceeds from the sale of securities to meet

redemption requests. Unless otherwise prohibited by law, each Fund also reserves the right to pay redemptions in kind, using

portfolio securities to pay redemption proceeds, and may meet redemption requests partly in cash and partly in portfolio

securities.

 

Well, I don't know if that is enough to comply with the rule but it's certainly something that they could bring up if they were asking for a no-action letter (i.e. our customers have known we've had this position for a decade and they knew the plan for emergency liquidation if it was needed).  Also, they could ask that their old positions be grandfathered in and could, ironically, cite to the Kerrisdale report for arguing that they should get it because they could be harmed by short sellers if forced to sell publicly. 

 

Also, I did some more googling and it looks like the SEC postponed the rule effective date:

 

https://www.sec.gov/rules/interim/2018/ic-33010.pdf

 

So for large funds (over $1billion) they have until June 2019 to comply (absent a no-action or interpretive letter) and for smaller funds they have until Dec 2019 to comply. 

[frugalchief]

A couple of weeks old, but ground breaking on Pier Park Crossing JV apartments..

 

http://www.newsherald.com/news/20180627/city-st-joe-break-ground-on-pier-park-crossings

[gfp]

Man, poor Bruce just can't catch a break.  Basically a Category 5 hurricane about to hit JOE straight on.  Stay safe DooDilligence!  At least you're on the west side of it..

 

Interesting legacy if JOE gets decimated by a historic hurricane in the same week that SHLD files for bankruptcy...

[DooDiligence]

Man, poor Bruce just can't catch a break.  Basically a Category 5 hurricane about to hit JOE straight on.  Stay safe DooDilligence!  At least you're on the west side of it..

 

Interesting legacy if JOE gets decimated by a historic hurricane in the same week that SHLD files for bankruptcy...

 

Dodged another bullet, not only here in Escambia county but also because I looked hard at JOE a while back & passed on it.

 

---

 

On another note, I care about the Saints too & still have a small inventory of 18K fleur de lis jewelry left over from an old side hustle.

 

I'd love to see them pull out another Super Bowl win so I could go visit a few of my old B2B customers around the state.

 

As a child, my Dad took me to a Harlem Globetrotters game against Archie Mannings' Saints.

At the time, I was vacillating between them & the Falcons & chose the Saints when I got Archie Manning's autograph.

I can't find the autograph & am not a rabid fan anymore but still catch an occasional Saints game.

 

Black & Geauld baby!

[gfp]

Man, I was just watching the most absurd live streaming from Brett Adair in Port Saint Joe, FL.  They abandoned their truck to run into a house but the video feed kept filming from inside the vehicle as the storm surge came up and swept the truck away.  It just went offline finally.  Scary stuff!

[DooDiligence]

Man, I was just watching the most absurd live streaming from Brett Adair in Port Saint Joe, FL.  They abandoned their truck to run into a house but the video feed kept filming from inside the vehicle as the storm surge came up and swept the truck away.  It just went offline finally.  Scary stuff!

 

I feel for those guys down over there.

 

Still remember Frederick & Ivan & of course Katrina.

 

30A will probably be a long time coming back.

[Gregmal]

Not sure if anyone still follows this but I finally took a starter position here. I still think it needs to shed another $2 or so to fully compensate one for the risk investing in this "swamp", but with Minto happening, and the rest of Florida again rocking, I think 3-5 years from now this has the potential to be a really exciting situation. At the current price, as long as Bruce keeps eating into the share count, I think it's worth waiting around for either a quick snap back to $16 or less optimally, Florida to get back to full bobble mode.

[NBL0303]

At the current price, as long as Bruce keeps eating into the share count,...

 

Gregmal - have Bruce/Fairholme been buying? Thank you.

[Gregmal]

At the current price, as long as Bruce keeps eating into the share count,...

 

Gregmal - have Bruce/Fairholme been buying? Thank you.

 

By my estimates, he's taken out something like 10% of the shares outstanding YTD. By the start of 2020 I don't think it is unreasonable for there to be about 50M shares outstanding, should the price stay within 10-15% of here.

[thepupil]

thanks for highlighting this. The combination of share count reduction, capital return, and price decline has led to modern JOE era low in enterprise value.

 

$730 million EV and $850 million of market cap

 

When I have a look the "non-dream" assets on the balance sheet, it looks like "the dream" is probably at an all-time low in price. By "dream", I mean that the West Bay Sector plan accelerates and becomes thriving area.

 

For example, they have about $100 million in "resorts and leisure" operating properties. this made $7 million in the first 9 mo's of 2018. So that looks like it's worth the balance sheet value. They have $112 million in commercial leasing operating properties, which also made $7 million in the first 9 mo's of 2017. So that also looks like it's worth about the balance sheet value. I'm not trying to do a precise valuation here, just saying that the operating properties don't appear to be egregiously overvalued on the balance sheet. This is a big change from Mr. Einhorn's JOE. Just pulling in a random 9/2011 10-Q, there were $242 million in "operating property" but only $4.7 million of that was commercial and $57 million was forestry...$180 million was non-income producing residential.

 

The stripped down JOE of today seems to a) actually have some income producing assets b) be making progress on the West Bay c) be far more focused.

 

I agree it's worth a starter position on the share count reduction, decline in price of the dream, short squeeze optionality that always exists with this name, etc.

 

Also agree that it's still not knock your socks off cheap, despite the fact that the stock was this price in....wait for it...wait for it...

 

 

1996.

 

[thepupil]

no, I'm not long. As others have alluded to, the pro-forma EV/Acre for the remaining land, the majority of which is the West Bay project, is still not quite there yet. Because of the "story stock" and berkowitz "cultiness" of the stock i'm not sure if it will ever get to where i can comfortably pull the trigger. I am selling puts on it because of the built in "cash put". If JOE goes down 30% the implied EV/Acre goes down by much more because of all the cash

 

the way I divide JOE's assets

 

1. Rummell era "place making" developments and their remnants (Rivertown, Summercamp, Rivercamps, Watersound, Watercolor, probably some other names i'm forgetting since i am not home and am going of the top of my head here) - these in my opinion are the least exciting. Einhorn did a wonderful job showing that these were 1) mismarked and in need of impairment 2) never produced a high (or even positive) ROI.

 

2. raw timber (this is almost gone)

 

3. Bay County (and some walton county) land in the "path of progress" and remaining infill locations aka West Bay Sector. this is the most exciting and interesting. if you go through the bay county property appraiser you can click on lots of JOE land and see they own entire industrial parks, large plots of highway frontage land, even a 17 acre piece of land on the beach if my memory serve me correctly (its listed as a condo/timeshare development opp.) and then a huge city size block of land that they put the airport on.

 

4. cash managed (in a very restricted way) by berkowitz

 

 

the reason the Rivertown sale is nice is because it converts category 1 to category 4. There are still lots of lots and developments in category 1 that can be sold without much additional capex . As category 4 gets to be a bigger % then i become more interested.

 

ultimately i would like JOE to become more like what consolidated tomoka looks like. they slowly monetize their low basis land via tax efficient 1031 exchanges. the cool part is JOE has 180K near PCB acres to CTO's 11K near Daytona (we can call them the spring break stocks) and JOE has more cash and its in berkowitz's control so the potential is much greater for a large scaled up real estate and stock conglomerate.

 

but i'm not biting just yet.

 

Almost 5 years after this post, I feel like we're getting close lol

[Gregmal]

Yea I don't mind what Bruce is doing here. It's hard to really put a ton of faith into a 10-15 year hold, but if it's possible to be super optimistic about something over that time frame, this is it. What Minto has done for Daytona is huge. I thought the panhandle was on the cusp before the crisis, and I kind of feel like it's getting back there now. But it needs time. Too many people have hyped themselves into these types of stories with the "I want to believe" crap. Florida is a contagion state as far as development goes. JOE's land is probably the last area of decent quality, vastly undeveloped RE. If you build it, they will come. In the meantime, simplifying the company and buying back a ton of stock is a great way to springload this. It's what I wish CTO would have done, but unfortunately those guys don't have a clue or a care when it comes to things like that. If somehow you could merge FRP, CTO, and JOE, I would love that company.

[bizaro86]

Only if FRP management was in charge...

[SI]

Berko has the company buying back stock but bruce been selling which doesn’t smell on the up and up but that is the least of a long’s worries. What worries me(as a potential long myself) is that with it as 77% of the fund, and the fund having done terribly it seems natural that joe share pressure would continue in the least as mutual fund sellers continue(last q the fund shrunk 20% to under $600mn). Bruce’s selling only acts as an accelerator hurting Bruce’s fund. With it as 77% of the fund, who would stay even if you liked bruce and joe, why not take a tax loss and save the 1% fee and buy joe itself??

 

What i really think any long has to consider is that bruce is a forced seller if/when the sec enforces its 15% illiquidity cap. If they do, bruce is forced to sell his position from 44% to 9% IF Bruce’s funds don’t continue to shrink. I am sure as joe chair, the company would take bruce out of a portion of the shares but that would be one large marketability discount in a spot secondary that i have been waiting for.

 

From seeking alpha:

 

St. Joe Company (JOE): JOE is the largest stake by far at ~77% of the 13F portfolio. The bulk of the position was purchased in the 2008-2009 time frame and there have only been minor adjustments since. Last three quarters of 2017 had seen a combined ~14% increase at prices between $16.35 and $19.55. Currently, it trades at $14.91. Berkowitz’s ownership stake is at ~44% of the business. Last three quarters have seen minor trimming.

 

 

 

 

 

[Spekulatius]

Not sure if anyone still follows this but I finally took a starter position here. I still think it needs to shed another $2 or so to fully compensate one for the risk investing in this "swamp", but with Minto happening, and the rest of Florida again rocking, I think 3-5 years from now this has the potential to be a really exciting situation. At the current price, as long as Bruce keeps eating into the share count, I think it's worth waiting around for either a quick snap back to $16 or less optimally, Florida to get back to full bobble mode.

 

I have no clue about Florida and Minto, but isn’t Minto more a competitor than a positive for JOE? I also feel like we are closer to the end of the real estate cycle than the beginning. Berkowitz fund holding represents ther ist of a huge liquidity even. I just bought some BWEL where there was a liquidity event too an shares have cratered 15% in a short time. BWEL also trades at a 10 year low and actually seem to have decent fundamental. I own other real estate stocks that trade at 5 year + lows with very decent fundamentals. I do think hast JOE is finally worth the current valuation, but I am not sure I like the current setup.