St. Joe Analysis:
I know, I know. Many are saying "not another real estate company with rates bottoming...". But I still find the below review interesting.
siliconinvestor.com.
JOE BACKGROUND
The St. Joe Company is a Florida-based real estate operating company (REOC), which owns approximately one million acres of Florida land. The St. Joe Company is the largest private landowner in the state of Florida. The one million acre ownership represents three percent of Florida land space. The land is valued on St. Joe’s balance sheet at 1930’s prices. The St. Joe Company participates in land development, commercial sales, industrial development, hospitality development, leisure and resort development, and real estate activities. St. Joe management is focused upon developing/selling this land to maximize shareholder value. St. Joe trades on the New York Stock Exchange under the ticker JOE.
St. Joe owns Arvida Realty Services (ARS), which has a website at arvidarealty.com. ARS has over 100 offices and 3,300 agents in the Florida state. ARS is Florida’s largest independent full-service real estate brokerage firm.
St. Joe’s website is joe.com. The stock is currently trading at approximately $27 per share. There are approximately 79 million shares currently outstanding. As of April 2001, the Alfred I. duPont Trust owned 60.8% of the St. Joe common stock. As of September 30, 2001, the Alfred I. duPont Trust owned approximately 57% of the St. Joe common stock.
St. Joe has taken steps to focus the company’s focus upon property development and away from side businesses. These steps include the following: 1) St. Joe sold their communication operation in April 1996, 2) St. Joe sold their sugarcane operations in March 1999, and 3) St. Joe spun-off their railroad operations, Florida East Coast Industries, in September 2000.
As a REOC, St. Joe is not financially leveraged and economically vulnerable to the same degree as a real estate investment trust (REIT). A REOC typically retains the majority of earnings whereas a REIT pays out 95% of earnings to shareholders. A REOC therefore has an increased amount of financial flexibility due to the existence of retained earnings vs. the payment of earnings as dividends to shareholders. St. Joe is a real estate play. The key issue to keep in mind is the fact that St. Joe is developing their properties into valuable assets. St. Joe is creating property value by developing the surrounding infrastructure surrounding St. Joe’s land development communities.
FINANCIAL RESULTS
St Joe’s financial results are quite impressive. The St. Joe Company announced on October 17, 2001, that its third quarter 2001 Net EBITDA was $42.2 million, or $0.50 per diluted share, compared with $42.4 million, or $0.49 per diluted share, for the same quarter in 2000. These figures reflect St. Joe financial results only, and do not include the spin-off of St. Joe's 54 percent equity interest in Florida East Coast Industries, Inc. on October 9, 2000.
St. Joe pays an annual dividend of eight cents. St. Joe is expected to earn eighty-five cents in fiscal year 2001 (ending December 31, 2001), and ninety-five cents in fiscal year 2002. Assuming St. Joe trades at $27 and earns ninety-five cents in fiscal year 2002, then the company is currently trading at a P/E multiple of 28x. In my opinion, the P/E multiple is a side issue to the potential land sales in the near future.
Return on equity (after deducting from equity goodwill created during the spin-off), was 16.7% in 2000. Prior to the railroad spin-off, the ROE ranged from 1.3% to 7.7% during the 1990’s.
St. Joe increased their NET EBITDA earnings of their real estate business by 127% over 1999. This was the fourth straight year of annual earnings increase. St. Joe provided shareholders a total return of 34% in 2000.
ST. JOE’s VALUATION
St. Joe stock remains inexpensive because: 1) the shares are majority owned by one entity (the A.I. duPont Testamentary Trust owns approximately 46 million of the outstanding 79 million JOE shares; 2) St. Joe has had an identity crisis (the company was previously a diversified company with rail assets and a non-committal management attitude towards property development), and 3) management is in the midst of developing JOE’s five miles of white-sand beaches, 39 miles of Gulf of Mexico coastline, and 256 miles of near-coast waterfront.
As of September 30, 2001, the company had 79,833,876 shares outstanding. This figure reflects the recent buybacks through September 30, 2001. At a current market price of $27, the market cap is $2.16 billion. The balance sheet indicates approximately $1 per share in cash assets. Cash flow is being utilized for the stock buyback plan. The one million acres of Florida land are stated on the balance sheet at a price reflecting 1930s valuations. St. Joe’s property represents a significant portion of the remaining Florida beachfront and waterfront properties.
In 2000, St. Joe completed a tax-free spin-off of Florida East Coast Industries, Inc. This spin-off will allow management to focus upon property development.
In 2000, management completed the first $150 million stock buyback program and began a second $150 million stock buyback plan. The second stock buyback plan was completed in 2001. The third stock buyback plan began in 2001. This plan is a $200 million stock buyback program, which is currently in effect. During the fourth quarter of 2001, management has stated plans to repurchase approximately one million shares from the public.
Beginning in 2000, management identified timberland for sale as residential and recreational properties. St. Joe began to sell tens of thousands of rural acres, which were previously designated as timberland. This distinction between timberland and residential land will create significant shareholder value.
During the third quarter of 2001, St. Joe repurchased a total of 1,127,550 shares, including 590,400 shares purchased from public shareholders and 537,150 shares from the Alfred I. duPont Testamentary Trust, the majority stockholder of St. Joe and the Trust's primary beneficiary, The Nemours Foundation. From the completion of the spin-off of Florida East Coast Industries, Inc., about one year ago, St. Joe had repurchased 7,935,300 shares by September 30, 2001. That represents approximately 9.3 percent of the then outstanding shares, at an average price of $23.46 per share.
At September 30, 2001, the company had 79,833,876 shares outstanding of which 45,792,192 shares were held by the Trust and 2,082,108 shares were held by the Foundation. At September 30, 2001, the company had 79,833,876 shares outstanding. At September 30, 2001, $145.9 million remained of the company's third stock repurchase authorization of $200 million.
“REGIONAL PLACE-MAKING” as a BUSINESS STRATEGY
Management has placed emphasis upon developing their Florida property into desired living quarters and regional vacation-destinations. Key factors to consider include the following:
A. In 2000, St. Joe broke ground on SouthWood, which is a 4,250-home planned community on 3,800 acres of natural lakes and rolling hills.
B. Management has focused its efforts to improve/develop the infrastructure surrounding its undeveloped properties. These efforts include the following: 1) the Federal Aviation Administration approved the relocation of the Panama City airport to a site on St. Joe land (this will create economic growth for St. Joe’s northwest Florida communities), 2) St. Joe has provided land for right-of-way road development, 3) St. Joe donated land for a new hospital to be built in Walton County, which is nearby St. Joe’s WaterColor property development, 4) St. Joe donated land for the development of two new schools, and 5) St. Joe dismantled the paper mill at Port St. Joe (this mill was a relic of the old industrial economic base).
C. The northwest Florida property development, WaterColor, began sales in 2000. Prices have ranged from inland prices of $270,000. Inland premium Gulf-front residences contracted for an average of $1.22 million.
D. The SummerWood development program, which is near Panama City, includes homes priced between $130,000 - $160,000. SummerWood home sales are anticipated to create earnings for the next 20-years.
CATALYSTS
Potential catalysts include the following: 1) the continuance of a significant stock buyback plan from significant and public St. Joe shareholders, 2) an aging population strongly desires the opportunity to live primarily in Florida or purchase a second home in Florida, and 3) St. Joe continues to develop residential areas on the Florida coastline. The property development continues to add shareholder value on a regular basis. St. Joe’s total enterprise value reflects, in part, what the company is worth today. It takes only a look at the pictures of residential development to understand the value distinction between underdeveloped Florida coastline and a developed Florida community on prime coastline. The addition of an airport, schools, roads, and a complete infrastructure provide enterprise value in assessing the true value of St. Joe.
I believe that as long as St. Joe continues to develop the Florida communities, then investors will prosper with an increasing St. Joe earnings stream. The individual share price will continue to increase in value as St. Joe reduces the number of outstanding shares available in the marketplace. |
