Here's the rest of Garrett's analysis of St. Joe's, the paper products company that made a switch to the real estate biz a few years back. I'd asked him to get back to me with his results for Moat, as well as the rest of YUMMMMY. I'll post my comments later.
In a message dated 6/20/2005, Garrett Smyth writes:
To bring you up to date with our conversations, the question you posed to me was “Do they have a moat?”
My answer is this. St. Joe Company doesn’t own all the land in Florida but they do own a significant portion.
Here is the other interesting point about them. St. Joe Company is broken up into four different companies:
St. Joe Towns & Resorts -- resort developers.
St. Joe Land Company -- real estate brokers for luxury homes.
St. Joe Commercial -- commercial real estate division.
Advantis --- commercial real estate management.
Location, Location, Location, -- We’ve heard those three rules of real estate before. Imagination, Imagination, Imagination -- St. Joe is banking on this being the next three rules of real estate for the baby boomer generation. They want to create: Places to Live - Places to Work - Places to Escape.
St. Joe is looking to offer not only community style developments with a small town feel, but they are also offering tracts of land for those who want to feel they are back to nature while still being located near a developed area. They even have The St. Joe Community Foundation to protect the environment and to build healthier communities while preserving a quality of life. St Joe has even turned 130,000 acres of land into wildlife preserves.
St. Joe seems to have the most developable land in the panhandle. They are the king of their castle, and if you want to go to the undeveloped land in Florida’s Northwest panhandle, it seems that you will have to deal with King Joe.
So as I go through the YUMMMMY checklist:
Y - Do you want to own it? Yes, after living in the area I like the area as well as the prospect of owning property in the area
U - Do you understand it? Yes, I have encountered already people who are looking for areas where they can get away from the craziness of their everyday life and slow down and not necessarily people ready to retire. Just people looking to slow down a bit.
M - Is there a Moat? Or Monopoly? While this isn’t the only castle in the area, it seems to be the biggest and baddest and they are involved in so many aspects of the area.
M - Management? Peter Rummel has been extremely successful in areas that I know real well. Hilton Head Island, Amelia Island, Disneyworld, and I have seen his first installment in the area called Watercolors which has many people very impressed as having quality and distinction.
M - Margin of Safety? In using your formulas for Excel, I don’t know that this company has a good Margin of Safety. I get a MOS for 15% return price of $15. Current Stock price – $82.56 In one year the stock has gone from 40 to 82. Am I missing something in this valuation?
M - Mr. Market - The trend has been going up for the past year.
Y - Yield? 1 % - Not real confident in my yield calculations.
Based on my homework, it seems that I shouldn’t buy the stock. It’s more likely that the better value might come from buying some property that JOE develops in this area. It seems like a good company -- just not at a good price for either the stock or the land right now because I know that area has gone through a steep increase in value and could be subject to a bubble burst. But I might keep an eye on it for the future if it should become a value.
Any further explanation of the Yield would be helpful and I am not 100% confident in figuring my MOS. I am not sure that I am using the correct figures.
Thanks for the input.
Garrett W. Smyth