JOE - ST. JOE CO

[thepupil]

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.

 

According to the 10/2018 commentary on FAIRX, they have a 30% position in JOE and 40% in cash/tsy's. Discussed upthread is that FAIRX has the right to redeem Shareholders in kind.

 

It's not clear to me that FAIRX will be a forced seller of JOE but they may become a forced distributor of JOE and then beleaguered FAIRX holders would have to make their own decisions. FAIRX is interesting in that it has a lot of highly depreciated securities and in theory owns a valuable tax asset.  Not sure how that will all work out.

 

Spek, Minto and JOE are forming a JV to build an active adult community in the middle of the west bay sector. It's really the first material residential development with respect to that huge plot of land. From my cursory look yesterday the details of this JV are not disclosed.

 

EDIT: I find the unwind of the Fairholme family and what will happen in the future really fascinating.

http://www.fairholmefundsinc.com/Documents/FairholmeFundsInc20181029.pdf

Fairholme provided a recent update.

FAIRX has about $1 billion of NAV, has about 40% cash. Bruce and Fairholme affiliates own 18% of the fund.

FOCIX has about $187mm of NAV, has 55% cash. Bruce and Fairhome affiliates own 49% of the fund.

FAAFX has about $73mm of NAV, 62% cash, Bruce and Fairholme affiliates own 53% of the Fund.

 

For simplification, I group short term bonds in with cash.

 

So it looks like FOCIX and FAAFX have pretty much lost outside shareholders and the funds have the cash at the ready to redeem them. FAIRX a little less so.

 

Grouping the three funds as one, Fairholme today is a  $1.2 billion fund that has $500 (40%) million of cash and $300 million (25% or so of Bruce and affiliate ownership). This $1.2 billion fund has a $323 million (25% or so of Fairholme NAV), 41% controlling stake in JOE. JOE itself has $250 million of cash.

 

 

 

[Gregmal]

Yes, just to touch on what others have said I'll clarify and add a few things.

 

I don't think JOE is a GREAT investment right now, although I did just take a small position. I agree RIGHT NOW it'd need it to lose a few more dollars off the share price. Berkowitz and his fund may create pressure, but the same thing as Winters and CTO, I could care less about this because it's a short term technical issue that if nothing else, may create an even better entry for long term minded shareholders.

 

Minto is a big name 55+ community developer and the Margaritaville concept has been a huge success so far. Getting things together, even if it is not off the ground yet, is a big deal. It will bring people to the area, and also give the area tons of publicity and free promotion.

 

So, in summary, I still think this one is 3-5 years away. But if the price is good enough I'm fine starting to buy sooner and then just waiting it out.

 

 

[Williams406]

No stock repurchased in the 4Q despite December prices in the $13's. 8% of outstanding repurchased full-year 2018, 34% over the past four years. Still a solid amount of net cash on the balance sheet.

[Gregmal]

Yup, another pro who froze up when it mattered most.

[Saluki]

New article on St Joe

 

https://seekingalpha.com/article/4254537-st-joe-nearing-tipping-point

 

I think their thesis is still the same, but this analysis just adds more data and maps/charts.

 

My thesis is simpler.  I've been going to Florida every year since my dad retired there (1995).  Except for the past couple of years, it's been the fastest growing state every year.  The past couple of years it's been replaced by Texas but is still at number 2.  Palm Beach County grew by leaps and bounds when they expanded the airport, Panama City just replaced their airport with a new one on land owned by St Joe. A lot of the infrastructure needed to grow the areas owned by St Joe is being paid for by the State or Federal Government out of the Oil Spill funds from the BP settlement. As Miami has gotten more expensive, people moved up to Ft Lauderdale and Palm Beach, as that got expensive people started buying in Tampa and Orlando, as that keeps going up and up, owning beachfront land in the number 2 growing state with a 0% income tax through a company with zero debt it's hard to find a way that this company goes to zero.  It's been sitting there in my portfolio doing nothing for a couple of years, and I'm patient, but my patience is not infinite. 

 

I have a decent sized position on this (I sold off about 1/2 at the end of 2018, unfortunately) to try to offset some winners for tax purposes.  But I have been nibbling at it little by little and buying on the dips.

 

Anyone have any thoughts?  Contrary opinions are always appreciated.

 

 

 

[jmp8822]

New article on St Joe

 

https://seekingalpha.com/article/4254537-st-joe-nearing-tipping-point

 

I think their thesis is still the same, but this analysis just adds more data and maps/charts.

 

My thesis is simpler.  I've been going to Florida every year since my dad retired there (1995).  Except for the past couple of years, it's been the fastest growing state every year.  The past couple of years it's been replaced by Texas but is still at number 2.  Palm Beach County grew by leaps and bounds when they expanded the airport, Panama City just replaced their airport with a new one on land owned by St Joe. A lot of the infrastructure needed to grow the areas owned by St Joe is being paid for by the State or Federal Government out of the Oil Spill funds from the BP settlement. As Miami has gotten more expensive, people moved up to Ft Lauderdale and Palm Beach, as that got expensive people started buying in Tampa and Orlando, as that keeps going up and up, owning beachfront land in the number 2 growing state with a 0% income tax through a company with zero debt it's hard to find a way that this company goes to zero.  It's been sitting there in my portfolio doing nothing for a couple of years, and I'm patient, but my patience is not infinite. 

 

I have a decent sized position on this (I sold off about 1/2 at the end of 2018, unfortunately) to try to offset some winners for tax purposes.  But I have been nibbling at it little by little and buying on the dips.

 

Anyone have any thoughts?  Contrary opinions are always appreciated.

 

I don't own this stock, but have reason to want to own it: I like that it is debt free and I like Bruce Berkowitz and I like the hard asset values.  That said, I've been waiting for a recession/huge market selloff to jump in, hopefully at a massive discount from current prices.  I view this as a good bet from the standpoint of there shouldn't be too much/any intrinsic value loss over time - in other words, low risk, long-term appreciation over time.  All that said, this is the type of stock I think could be destroyed when market liquidity goes out with the tide. Perhaps a 75-percent loss in JOE during a 40-percent market correction? Buying this at $5 would be very interesting during a market crash because the true value is there and I think it would snap back quickly towards value of $15-$20 plus.

 

So, why not buy now? I haven't simply because I don't think this will triple anytime soon, which makes me less excited because of the risk to the downside in a recession type-scenario.  Late-cycle (?) this is not a stock I love - all personal thoughts of course.

[Williams406]

Saluki,

 

Thanks for the link to the Christensen Capital work. I've spent a lot of time in FL over the past ten years for a non-resident as well, Gulf Coast and Central more than Atlantic coast and Miami/Keys. Many spots have caused me to wonder why anyone would live in that place (way off the coasts) until I remember that I'm driving with the window down, in short sleeves, in December. I don't see the population-growth tailwind stopping, but people kept moving to FL from 2008-2014 yet JOE land was pretty quiet. Is pop. growth a valid point for the bull thesis? Perhaps, but more is needed.

 

My impression of current management is favorable. I love the headquarters. Giant trailers. Nicely furnished, but nothing fancy, fitting with the major reduction in corporate overhead. I like the strategy of stacking eventual cash-flowing JV's on top of each other, but do worry about how much capital JOE puts in to each JV. 30-A was truly eye-opening for me during a recent tour. The beach, dunes, and communities are truly impressive. Even though JOE's economic exposure to pure beach-front land is limited at this point, seeing that area helped me understand why folks from Texas and Georgia come here in droves. Great balance sheet with a demonstrated willingness to repurchase shares...except for 4Q!

 

The announced JV developments will take time to get going, so sustainable, material cash flow seems 18 months+ out, but a lot of activity is happening at Breakfast Point and WaterSound Origins in terms of lot sales in the interim. I do think Latitude Margarita could really move the needle for JOE. I visited the Daytona project a few months ago and was impressed with build quality and #'s of people on the sales tour (free rum punches would have been a nice touch, though). Without a lot of experience looking at other planned communities like that (and there are a lot of those types of communities today), I can't offer a comparative viewpoint, but generally liked what I saw. IF JOE's Latitude Margarita JV does well, it's location is such that I think people will be surprised at how much value is unlocked south of that land and how quickly. JOE owns nearly all of it. But best case, that is still several years out.

 

In short, I like a lot of the elements I see at JOE, but worry about the macro. Should a recession hit, I suspect much of the activity I saw comes to a screeching halt. If JOE is halfway through a massive capex development spend, I'm not sure you can count on share buybacks at that point. Does JOE go to zero? No. But are there plausible scenarios giving you a poor or uninspiring return? Sure. I like jmp8822's thoughts but would be a heavy buyer well before the stock hit $5. I'm not a big enough player to keep it from hitting $5 if it were so inclined so jmp8822 might get that shot, but I'd own a big stack of shares before that point.

[Saluki]

Thanks for the feedback, guys. I always like to hear other points of view so that I'm not so in love with a position that I ignore the possible downsides. 

[Williams406]

Annual meeting webcast replay and meeting presentation.

 

http://ir.joe.com/events-and-presentations

[Saluki]

I've been adding to this little by little each time the price dips towards $16.00.  I like the huge capex spend which I think will be an inflection point for them.  I was concerned that Hurricane Michael would do a lot to derail their plans and cause huge losses for them but it looks like only a couple million dollars of damage and rather than derail their plans, the need for new housing and office space to replace what was damaged by the hurricane may actually give them a tailwind.

 

New light commercial construction (20,000 sq feet)

https://finance.yahoo.com/news/st-joe-company-announces-construction-203100631.html

 

New residential community to be built in 2020

https://finance.yahoo.com/news/st-joe-company-announces-commencement-201000527.html

 

New residential community to be built in 2020

https://finance.yahoo.com/news/st-joe-plans-develop-residential-212209047.html

 

I like to be right for the right reasons, but if I'm right for the wrong reasons and still make money, I won't complain :)

 

I still think this will take a couple of years to be firing on all cylinders, but by then I think it will be too obvious and too late to get in.  A shock to the economy (like 2008) could hit this harder than other companies because it's undeveloped land, but other than that I don't see a lot of downside.  It's hard to go to zero if you run a lean operation and don't owe any money. 

[Williams406]

The projected $900 million cap ex spend relative to an $850 million enterprise value is interesting to think about. I think you're right about 24 months or so before the company gets the recurring cash flow snowball rolling from stacking commercial JV's. During the interim some lot sales will roll in along with their hospitality/timberland segments but it will take time for those commercial JV's to get built and cash flow. In an extended recession or shock, though, that $900 million cap ex is a much, much smaller number.

 

I took a second trip over Memorial Day weekend to check out Pensacola Beach-Panama City Beach area during a peak time. Although I didn't spend much time in JOE country, I did drive 30A a few times and drove/walked around Watersound Origins again. That community--and Camp Creek--is interesting for it's close proximity to 30A. It's not technically on 30A but is really close. JOE has huge land tracts cleared with utilities on the lots ready to go. Margaritaville Latitudes to me is still the key development to watch over the next several years. If that gets traction, development can happen in a lot of directions.

 

My hope had been that the company would be able to do joint ventures with progressively smaller capital contributions while continuing stock buybacks if pricing makes sense...really "Singleton" this thing. It looks to me like they have turned down the dial on buybacks as they contemplate JV capital requirements.

[Williams406]

I've attached a pdf of home prices from 2004-2018 along the 30A corridor. The link below has Florida population growth by MSA each decade since 1970. The 30A data is of limited utility in evaluating JOE today, but does hint at the impact financial distress can have on home prices and demand.

 

https://florida.reaproject.org/analysis/comparative-indicators/growth_by_decade/population/reports/#page_4

30A_Home_Prices.PDF

[Spekulatius]

Hmm, mean housing in Panama City ~200k vs beach front property ~$1M. Seems that the real Smart play would just be to buy an average house ins Panama City. If the high end gets traction, prices for are average housing can’t stay at $200k, if not 200k is probably ok.  Heads I win, tails I don’t lose...

I know it’s naive...,

[Williams406]

Before you make any offers, bear in mind that Panama City is different than Panama City Beach, which in turn is different than 30A. Being quite familiar with high-end, gulf-front homes in SW Florida (I bike and run by them constantly while on vacation in my much cheaper rental) 30A nevertheless was impressive--a .2 acre lot far from the gulf in Watercolor is $1.5m. I don't really see JOE as a play on high-end real estate getting any more traction in NW Florida than it has now, though. If Panama City Beach and Panama City simply attract people to live, retire, and work there, JOE will do nicely. They have the inventory to supply that growth and few others do in any kind of scale.

 

 

[Spekulatius]

Before you make any offers, bear in mind that Panama City is different than Panama City Beach, which in turn is different than 30A. Being quite familiar with high-end, gulf-front homes in SW Florida (I bike and run by them constantly while on vacation in my much cheaper rental) 30A nevertheless was impressive--a .2 acre lot far from the gulf in Watercolor is $1.5m. I don't really see JOE as a play on high-end real estate getting any more traction in NW Florida than it has now, though. If Panama City Beach and Panama City simply attract people to live, retire, and work there, JOE will do nicely. They have the inventory to supply that growth and few others do in any kind of scale.

 

I am not buying anything. I understand the difference between an average house in a city and a beachfront luxury house, but ai think if the luxury housing market really gains traction’s, the people that live there to run the economy will need 250k houses and buying those would tear more risk.

 

With luxury homes on the fringes, my experience is that they can run cold very quickly in a recession. This area is far out there and without doubt, in a housing decline, these types of areas are the first to hit the skids. I have seen this happened two times on the fringes of the Bay are for example in 2002 and in particular in 2006-2010. Those areas were in the dumps long after he Bay Area core had recovered.

[Williams406]

Spekulatius,

 

I appreciate your Bay Area observation and agree that NW FL is very susceptible to recession risk. I think the 30A price data 2004-2018 validates that concern. The link below is simply news formalizing the deal on Margaritaville Latitudes. Groundbreaking scheduled by end of 2019.

 

http://ir.joe.com/news-releases/news-release-details/minto-communities-margaritaville-holdings-and-st-joe-company-0

[Gregmal]

Question for those that follow it more closely than I...

 

Have they completely ceased repurchasing stock? I just started nibbling again under $17, same idea really as my first entry, good for a quick 50c-$1 pop and if it goes lower gets into a nicer area to buy in more size and then flip on the way up for a few bucks. Share count IIRC was around 61M last year. Now only 60M. For a while these guys were taking out 10% or so per year.

[Saluki]

IIRC from the conf call,  they plan on using most of the cash for the planned capex, including recycling cash profits from finished projects in the pipeline, so I don't see buybacks in the near term.  This is my 3rd or 4th biggest position (neck and neck with SSW depending on the day) so I thought I was fully loaded but when it dipped below $17 I couldn't help myself and bought a little more.  I'm overweight in real estate (i own HHC, TPHS and SRG too) but when I think about what could go wrong, it's hard to find a way to make this go to zero, so either the surprises are on the upside or it just sits there at the same price for a while. It's a big position for me, but not one of the ones that would keep me up at night.

[Gregmal]

Agree 100% with regard to downside and being overweight much of the RE stuff.

 

I do wish they'd continue the buybacks here though, especially if they do see a meaningful revenue inflection point occurring in the next few years; borrowing say, $75-$100M a year for the next half decade to annihilate the share count would create a lot of value for shareholders and hardly put the company in an onerous position.

[SI]

Anyone have insight to Berkowitz, did his last Form 4 indicate he was redeeming in kind? How much of his position is held in his fund that he doesn't control?

[Guest cherzeca]

I have a long standing position in fairx, which has become principally a JOE surrogate, and I see JOE is getting very jiggy...like 5 year high jiggy.  anyone following JOE as I am just a Berkowitz fan in this respect

[Gregmal]

The shovels seem to be ready and there is a clearer picture of the development plan. They are going about it in a very lucrative manner. Another company I own, Pure Cycle, is basically experiencing the same things. These type of sleepy hard asset companies often take forever to get going, but once things start buzzing, theres a lot of money to be made because value unlocks itself quite rapidly. I was quite disappointed to see the idiots at Consolidated Tomoka basically just blow out all of their land holdings wholesale style to anyone willing to take it. Tens of millions in value was destroyed. Whereas here, they are going about it in a way which lets them capture that value. As Mark Harding, CEO of Pure Cycle stated in relation to their land development:

 

"We're really looking at users, builders on this thing rather than kind of sell it to somebody who is going to sell it to somebody. So we want to be a little bit more patient with that because we've got -- we really are monetizing the project very nicely, and I don't want to miss out on sort of undervaluing the commercial which then continues to grow in value because of what we're doing on the residential."

 

JOE is doing exactly this.

[Williams406]

Adding to Gregmal's comments: JOE is pursuing residential and commercial JV all over their land holdings to generate recurring revenue post development.  In the 2019 annual meeting presentation, the company indicated it expects $900 million in capital spending on it's land through 2021, much of that JV partner capital. That isn't light years away from the current EV of JOE.

 

The 2018 annual presentation has some excellent maps that show the scale of JOE landholdings but also indicate how much control JOE holds over future development between Panama City in the east to the start of 30A in the west. Look at where current development stops as you move inland, JOE owns practically all of it. Although this has been true for a long time, JOE now has the strategy and is implementing it. I've walked Breakfast Point and Watersound Origins developments...the shovels aren't just ready, they're digging. If you want to build an apartment building, office building, hotel, Starbuck's, convenience store, etc. you are talking to JOE.

 

Great balance sheet and a no-frills cost culture. I'd watch the Margaritaville development closely. Most of their JV announcements relate to land adjacent to current development. The Margaritaville plan is massive and if successful, will put a large development that can push south over time to meet with development coming up from the coast. Mostly on JOE land. JOE will have a piece of the development itself, and the resulting grocery stores, gas stations, medical offices, etc. I see a snowball just starting to roll and wish Bruce well with this. And the GSE's. Especially those.

[DooDiligence]

John Prine played at the 30A songwriters festival this week

 

Between this & the Frank Brown songwriters festival, NW FL

is fast becoming a magnet for talented new musicians.

 

Affordable luxury waterfront homes & low cost of living.

(no income tax or sales tax on grocery & prescriptions)

& an abundance of recreation & entertainment choices.

 

Only one caveat, if your a libtard (and I am),

this is the underbelly of the bible belt.

[thepupil]

on a levered equity basis (HHC has more debt), for $1.2 billion I'd rather own 24% of HHC than all of JOE. on an unlevered basis, I'd rather own an 1/8 of HHC than all of JOE.

 

better demographics, better dirt, scaled up commercial portfolio now providing some degree of positive carry. just seems like HHC can create more value over the next decade or 2.

 

JOE had $4mm of leasing revenue last quarter. HHC is on its way to $300 million of NOI (maybe I should count JOE's kind of profitable hospitality ops to be fair?). JOE is obviously earlier in its life of developing recurring earnings via JV's but the scale to me matters a lot.

 

I look at JOE every few years. They seem like they're always making progress. it always seems very slow very slow though.

 

I'll have a look again as you all seem to be arguing its at an inflection point