St. Joe Company

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

A real estate development, asset management, and operating company primarily focused on large-scale, master-planned communities in Northwest Florida.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

The St. Joe Company (JOE) is a unique real estate development company primarily focused on large-scale, master-planned communities in Northwest Florida. Unlike typical homebuilders, JOE acts as a master developer, acquiring large tracts of land, designing communities, and developing the infrastructure before selling finished plots to other builders and developers. This business model provides more control over the long-term vision and community feel but also exposes the company to more risk and a slower operating pace.

Business Description:

  • Revenue Streams: JOE’s revenue is driven by sales of residential and commercial land, as well as by its hospitality operations through hotels, clubs, and restaurants. Notably, they operate several master-planned communities in the Florida panhandle with the most mature one being Watersound Origins.

  • Residential Real Estate: Revenue here consists mainly of land sales, to both individual purchasers and homebuilders. The residential segment includes the communities of Latitude Margaritaville Watersound and Watersound West Bay. There has been strong growth in lot sales in these communities, especially Watersound, which has a large amount of development planned for the future.

  • Commercial Real Estate: This revenue stream is mainly driven by rental income from commercial tenants in its master-planned communities, such as the Watersound Town Center and the Panama City Beach Airport. It includes retail properties, and commercial development lots.

  • Hospitality: The company’s hospitality segment includes resorts, restaurants, golf courses and club memberships.

  • Competitive Landscape: JOE does not face direct competition from other development companies in its specific locations. Its unique focus on master planning and creating entire communities rather than just building houses gives a competitive advantage that is very hard to replicate, especially if you take into account the local relationships that they have built. However, as JOE sells to other builders, these builders can compete with each other and impact JOE if they start selling a better product or price point.

  • Geographic Focus: Most of its assets and projects are located in Northwest Florida, a growing area that has been a key driver of JOE’s business. The focus on Panama City Beach and surrounding counties is deliberate to take advantage of a specific area.

  • What Makes JOE Different: The scale of the communities that JOE develops is extremely impressive. The long-term nature of its projects, with a strong commitment to designing cohesive communities, makes them unique in this segment. The focus on creating “experiential” places, with entertainment, dining, recreation and housing combined, is a key differentiator.

Financials In-Depth:

  • Recent Earnings: The latest 10-Q Report, filed in November 2024, shows a continued increase in net income from operations ($42 million) as well as increases in revenues across all segments, with real estate revenue increasing a bit and a slight decrease in hospitality revenue. It’s worth noting that the company has had a steady positive growth in revenues and profit over the past several quarters and even after the recent housing correction.

  • While the company has achieved profits in the last quarters, growth rates are declining which may hurt growth in the long term if revenue growth does not pick back up.

  • Revenue Trends: The company has seen a continued increase in revenues in the residential real estate sector, driven mainly by increasing demand for properties in its master-planned communities and has been trying to diversify their commercial and hospitality revenues.
  • Profit Margins: As the company sells lots rather than complete homes, their profit margins seem stable and high. Overall, JOE’s margins have remained attractive, with growth in revenues outpacing the cost of revenues. For example, the gross profit for their hospitality segment is around 30%.
  • Debt: JOE carries an extremely low debt profile, allowing flexibility in growth opportunities. It primarily utilizes a revolving credit facility and other smaller loans, and they have been working on bringing down the total amount of debt on their books. A substantial portion of their assets is in cash or cash equivalents.
  • Working Capital: JOE’s working capital management seems adequate, and has become more aggressive in inventory management. They have improved their overall cash conversion cycle by reducing the number of days they need to carry inventory, which reduces costs.
  • Share Buybacks: The company is actively buying back their shares. This is to improve shareholder value through reduction in shares outstanding.
  • Recent Changes and Concerns:
    • There have been concerns that JOE may be over reliant on its Watersound Origin community and that there may be a lack of demand in the long term after the completion of the development. JOE management has indicated that they plan to expand and open new communities across the area to increase revenues.
    • The company has been investing and building out new projects such as the Park City Beach which may take some time to contribute to profits. The success of the new communities remains to be seen and may face some problems if the locations are not desirable, or there is a lack of demand.
    • JOE management has responded to these issues by stating that they have made some adjustments to prices to deal with increased competition from other real estate companies as well as trying to attract clients to different communities based on their preferences and amenities.
    • JOE has been facing some issues related to increases in interest rates and construction costs, which is slowing development down in most of the country. JOE is still generating profits which is a sign of resilience, but management is keeping their development costs in check through aggressive inventory management and by being located in a geographically low-cost area of the country.

Moat Analysis:

  • Rating: 2 / 5

JOE possesses a narrow moat due to a combination of factors, but it is not without limitations.

  • Economic Moats:
    • Geographic advantage: JOE’s focus on Northwest Florida provides a unique strategic edge. The specific areas of development have a strong level of tourism and residential demand. It is hard to create similar locations elsewhere, which limits the scope of competition.
    • Scale of Development: JOE operates in extremely large areas of land, planning and creating entire communities. This creates barriers to entry, especially considering the relationships they have developed with local governments over the years. Creating the required infrastructure, acquiring the amount of land required, and obtaining the required permits are factors that protect against competitors trying to replicate their strategy.
    • Brand JOE has a high reputation in the Florida panhandle and is seen as a developer of high-quality communities that create value for its clients and customers. Their strong branding allows for some pricing power and higher sales values compared to other companies.
  • Moat Weaknesses:
  • Switching costs: The buyers have a lot of choices in builders. If they feel that they can find better value or quality elsewhere, buyers will switch to other providers and developers.

Risks to the Moat and Business Resilience:

  • Real Estate Market Fluctuations: The real estate market has been showing signs of volatility with increasing rates and less demand. This will negatively affect sales and could cause problems if the company needs to sell properties at lower prices than expected. Although this seems true, the company has managed to maintain its growth through the recent turndown.
  • Competitor Strategies: Although JOE has specific regional advantages, if a competitor makes a better or more desirable product, people may flock to it even at a higher price point. This can quickly erode value creation by the company.
  • Economic Slowdowns: If the economy falters, that can greatly affect demand for real estate properties, negatively affecting their sales revenue and putting significant pressure on the company. However, the company has been resilient to these changes due to its stable financials.
  • Management Execution: Although the concept of the company sounds easy, development companies are extremely complex. Management needs to continuously execute on its expansion plans and not become complacent.

Understandability Rating:

  • Rating: 3 / 5 The business model is relatively straightforward to understand but analyzing it requires an understanding of the unique way they operate. Understanding the details around the zoning regulations and other issues can be complicated for investors who are new to development.

Balance Sheet Health Rating:

  • Rating: 4 / 5 JOE demonstrates a healthy balance sheet and conservative financial management. The company has low debt and high amounts of cash and cash equivalents. While the real estate industry can be volatile and can affect revenue and cash flow, the company appears well positioned to meet this challenge.

Disclaimer: This report is for informational purposes only and does not constitute financial advice. Investment decisions should be based on thorough research and consultation with a qualified financial advisor.