Daniel Schmerin: Bruce, I’d like to return to The St. Joe Company (NYSE:JOE) (“St. Joe”) and wrap up. You recently said that if you could only invest in one of our positions, St. Joe would be it. A shareholder asks a slightly different question: If you had no investment positions at all, what is the first investment you would put money into today? Would it still be St. Joe?
Bruce Berkowitz (Trades, Portfolio): Yes, it would.
Daniel Schmerin: So what is happening at St. Joe these days that gives you cause for optimism and what is the timeline for meaningful profitability?
Bruce Berkowitz (Trades, Portfolio): I should give everyone a taste of the new activities starting at St. Joe in Northwest Florida. St. Joe is increasing jobs in the area by helping to create global high-tech manufacturing facilities. St. Joe signed its first global high-tech company, GKN plc (“GKN”), an automotive and aerospace components company. Hopefully they will open up before the end of this year. St. Joe is increasing primary home choices for the first time, building apartments to rent as well as townhomes and condominiums to increase density. Of course, there is also the further expansion of retail and village spaces that go along with more jobs and more homes.
St. Joe is trying to increase the quality of education, looking to build new schools and very much focused on the “STEM” areas: sciences, technology, engineering, and mathematics. They are in talks to expand the healthcare system in the area. They’re working hard on a very large biomedical engineering project. Of course, they’re also looking to continue to increase tourism. I believe that Northwest Florida Beaches International Airport has crossed a million legs. I know airlines are exploring additional routes. For the first time they’re starting the process of looking to build new hotels and a new convention center. They’re also finalizing plans for a very large national sports facility.
I’m sure people haven’t heard of Triumph Gulf Coast. Triumph Gulf Coast is a nonprofit corporation that was created by the Florida legislature to distribute about a billion and a half dollars of funds for economic damages in the State of Florida that resulted from the 2010 Deepwater Horizon oil spill.
Florida’s Governor Rick Scott executed the Triumph legislation earlier this month, and it is now in effect. Triumph Gulf Coast attempts to establish, hold, invest, and administer this trust of a billion and a half dollars for the economic recovery, diversification, and enhancement of eight Northwest Florida counties that were disproportionately affected by the spill.
St. Joe owns property in five of the eight counties, with significant ownership in three of the counties – Bay, Gulf, and Walton counties.
I mentioned GKN. We’re constructing a 137,000 square foot building at Venture Crossings, which is proceeding well and should be completed later this year. St. Joe is constructing the building and leasing it to GKN. GKN has started the hiring process, and we expect them to create 170 aerospace manufacturing jobs with a median annual salary of about $65,000. We also expect another 400 to 500 jobs to be created from the knock-on, secondary effects associated with this new facility.
I mentioned apartments. St. Joe is constructing 240 units in a joint venture with HomeCorp near Pier Park. It is expected to commence in the third or fourth quarter of this year. St. Joe will be the majority owner of the JV and owns most of the land surrounding this project.
We expect many more starts to come, so I tell everyone to stay tuned.
Daniel Schmerin: Here’s an interesting one we received. Given that the Intergovernmental Panel on Climate Change expects that the oceans will rise between 11 and 38 inches by 2100, can you please discuss how much, if any, of St. Joe’s highly desirable real estate properties would be at risk?
Bruce Berkowitz (Trades, Portfolio): The coastline in Northwest Florida typically has higher elevations than other parts of Florida. For example, the gulf front at our Watercolor Inn has an elevation of 13 feet. Pier Park North commercial center has an elevation of 30 feet. Watersound Origin, one of our growing communities, has an average elevation of 35 feet. And our high-tech manufacturing area at Venture Crossings is adjacent to the airport with elevations ranging between 50 and 60 feet above sea level.
St. Joe is going to be A-OK, at least for the next few hundred years. I think those of us living in Miami have a lot more to worry about.
Daniel Schmerin: For the last several years, shares of St. Joe have underperformed the market and its peer groups. What action do you anticipate the company will take to highlight the value for investors of its cash and property, and when? And what actions will the company take to potentially increase capital allocation for shareholders, whether in the form of dividends or accelerated buybacks, especially given the strength of St. Joe’s balance sheet?
Bruce Berkowitz (Trades, Portfolio): I’m happy to report the company is executing on its plans. It’s focused on recurring revenues, executing joint ventures to maintain low fixed cost structures, working hard to diversify the regional economy. We’ve been very lucky and fortunate to have great support from the state and local officials, be it from Governor Rick Scott, Commissioner Adam Putnam, and many others who believe there’s a bright future for Northwest Florida. I’m quite excited.
And in terms of capital allocation, more capital will be directed toward new programs and projects. But St. Joe will still have significant excess liquidity, and shareholders could see substantial amounts of capital used to continue repurchasing shares if the price is right.
Daniel Schmerin: Another shareholder asked, “Are there accommodations for us small fry investors to go down to St. Joe and get a tour of the facilities and the region itself?” How would you recommend people go down and tour this area? And is Joe doing enough to promote itself?
Bruce Berkowitz (Trades, Portfolio): All of our shareholders are welcome at St. Joe. Feel free to call St. Joe and arrange a visit. Tell them I encouraged the visit. Shareholders who visit will be pleasantly surprised and it’s going to get easier and easier to get to the area, because every year, we expect more direct flights into Northwest Florida Beaches International Airport. And we’re hoping to see flights from the New York area in the not-too-distant future.
St. Joe is moving faster and faster on all fronts. However, they are still exercising prudence. Every project must be profitable from day one. Every project must add value to all other current or future projects. St. Joe has at least 30 years of organic growth ahead. People at St. Joe want to make sure that they achieve this tremendous growth with minimum risk to the company and communities. It’s my belief that the company is now ready for whatever may come.
From Bruce Berkowitz (Trades, Portfolio)'s June 29, 2017, public conference call transcript.
