Description

For those unfamiliar with JOE (The St Joe Company) it is a diversified real estate development company that owns ~170k acres in Northwest Florida. The majority of this land is along ~40 miles of coastline between Destin and Panama City Beach. 90% of this land is within 15 miles of the Gulf of Mexico. JOE develops homesites, apartment buildings, commercial centers, and hotels on these land holdings. They also operate in a few other small lines of business.

 

While JOE does own land elsewhere, I will be focused on their land holdings in the Bay & Walton counties in this writeup (which is the area between Destin & Panama City - the big, far left chunk of land holdings in the below picture). 

 

 

Before I get into this writeup - while it is simplistic from a high level, there is a large amount of detail associated with this idea. I cannot possibly cover all of it in a single writeup so a lot will be left out. I look forward to having an active discussion of these in the comments.

 

This is likely a name that invokes a strong, negative emotional reaction from most people that see it. These sort of hidden-asset or slow land development plays typically never work out as people hope they will and history is littered with examples of these that trade sideways for decades. So how is JOE any different? 

 

Well, after decades of trading sideways, JOE’s business has finally inflected positively. Historically, JOE’s profits have come from land sales and most development didn’t create much value. This led to highly publicized short attacks from people like Einhorn and Tilson who claimed JOE had no attractive real estate left, ascribed low average price/acre land values to JOE, and came up with fair values much below the corresponding market prices. I honestly don’t blame them for their opinions at the time. Looking back at the older financials and development projects paints an ugly picture. Pre-2015, JOE appeared to be a slowly melting ice cube that was only making money on rural land sales at low prices per acre. So what has changed since then?

 

1. The Bay-Walton Sector plan. This sector plan was approved in 2015 and gives them legal rights to develop 170k residential dwelling units, 22 million sq ft of retail, commercial, & industrial space, and 3k hotel rooms on lands within the Bay and Walton counties in Florida. This sector plan represents 110k of JOE’s 170k acres. This event alone proved that JOE was no longer useless timber/swamp land. 

2. JOE shifted focus to recurring revenue projects. I will dig into this later in the writeup, but I think this point is crucial for the thesis. JOE now owns over 1 million square ft of commercial leasing space, ~1400 multi-family units, and almost 500 hotel rooms. Recurring revenue streams have represented ~⅓ of JOE’s profits over the past few years, and this number will likely continue to expand.  

3. JOE began utilizing experienced and successful partners rather than going it alone. This is especially important considering they’ve expanded into segments that are new to JOE. This change has driven the quality of their developments sharply upwards (To give you a better idea of this point, look up some pictures of JOE’s current development - Latitude Watersound Margaritaville - and compare it to the pictures from the older short presentations).   

4. Covid sent net migration to Florida (and specifically to JOE’s region in Florida) into overdrive. Population growth in both Bay County & Walton County over the past 2 years has exploded and JOE is the only developer in the area with significant land holdings to benefit from this. 

5. Due to the aforementioned population growth, JOE has hit a tipping point in local awareness and credibility which should bolster their results going forward.

6. Current development has proved that much of JOE’s land is highly valuable. In fact, a lot of it is worth many multiples of what was assumed. This isn’t just the case for their land in highly desirable areas. This is also true for what was thought of as less desirable timberland 10+ miles inland.

7. The story has transitioned from being heavily asset-based to earnings driven. 

 

Before I get into the thesis, I’d just like to note - this isn’t just a covid story. JOE’s business inflection has been a decade in the making, brought on by strong decisions JOE made to pivot its business model circa-2011. Without this pivot, I would not be interested in JOE and I believe covid would have simply provided a small one-time bump to results. Instead, due to the position management had put JOE in entering 2020, covid provided an acceleration of already occurring themes. 

 

The Area:

First of all, in order to believe in JOE’s success, you have to believe that the Bay/Walton area is going to grow. This is the main hurdle for the thesis. The biggest recommendation I have for anyone to get comfortable with this point is to visit the area. Everyone has preconceived notions of what they will find when they get there, and while some aren’t surprised by the quality, almost all are surprised to find what is currently taking place.

 

If you talk to management, they will tell you to do exactly that. They will also recommend talking to professionals in the area that have a finger on the pulse of regional growth (realtors, chamber of commerce, school superintendents, etc). The story that you’ll find combining all of the above is one of a region that is rapidly growing. If we look at census numbers - from 2010-2020, Walton County was the 4th fastest growing county in Florida and the 15th fastest growing county in the US with 37% population growth. This was entirely driven by net migration. Walton County moved into the top 10 fastest growing counties in the US during covid, with an additional ~7% population growth from April 2020 - April 2021. As an aside, 4 of the top 15 fastest growing counties in the US are located in Florida, primarily driven by counties with high proportions of retiree migration. If we look at net migration rather than population growth, Walton County had the 2nd highest net migration in Florida from 2020-2021, and the 5th highest in the entire US. This is a good data point to assert that the area is both very popular among migrators (which is where all the population growth going forward will come from) and that the area is accelerating relative to other areas in Florida. Further, estimates for population growth over the next 25 years are about 45k (~60% growth) for Walton County and about 35k (20% growth) for Bay County (numbers which I personally think are rather low). Keep in mind, JOE controls the majority of the supply of homes in both counties. 

 

We can also look at Panama City’s international airport (Northwest Florida Beaches International Airport) to get an idea of growth in travel to the area. This airport opened in the summer of 2010 after JOE donated the land to bring an international airport to the region. From 2010-2015, Beaches International Airport saw relatively stable passenger numbers - averaging about 850k. Perhaps not coincidentally, passenger growth really started to pick up post-2016 when JOE’s development due to the sector plan started to accelerate. In 2011, Beaches saw 869k passengers. By 2016, the number was 897k. Each subsequent year after has seen significant growth (minus the covid blip, which wasn’t nearly as pronounced as other airports). Overall, passenger growth has nearly doubled since the sector-plan was approved.  

 

Airport Passenger Numbers:

2011 - 869k

2012 - 883k

2013 - 816k

2014 - 815k

2015 - 890k

2016 - 897k

2017 - 939k

2018 - 1056k

2019 - 1275k

2020 - 822k

2021 - 1598k

2022 - 1397k ytd vs 1326k ytd for 2021

 

 

I know most people seeing this are probably thinking to themselves, “Well that’s great, but we’ve seen plenty of boom/bust cycles in Florida before. The housing market is about to turn over. What’s different this time?” The difference here is the nature of the demand. In the past, boom/bust cycles in Florida have primarily been driven either by speculative investments or over-extended consumers buying second homes. The current demand in Bay/Walton, however, is driven by people buying primary homes and moving to the area full-time. This is a boon for JOE in more ways than one, which I will get into later in this writeup.  

 

As for the attraction of Florida itself, I think this one is rather self-explanatory - no state income tax, lower cost of living, sunny and warm weather all year, and some of the best beaches in the world. For these reasons (among others), Florida has been one of the fastest growing states in the US for decades now and shows no signs of slowing down. For the past 50 years, Florida has averaged population growth of about 300k annually, which is only surpassed by Texas and California. More recently, Florida has been the number one state in terms of net migration for each of the past 5 years. This isn’t a huge surprise considering Florida’s share of retiree migration - from 2015-2019, Florida captured a whopping 20% of all retiree migration in the US which is more than double the next closest state (Arizona).

 

As for JOE’s region in particular, most people are caught off guard by the quality of the area. Many are probably biased with the memory of pictures from either Einhorn’s or Tilson’s short attacks. However, these pictures were cherry-picked and JOE’s current developments are largely focused on a different area than the shorts were. While I urge you to read both the Origins and Margaritaville sections of this writeup to get a better idea of the quality in specific JOE communities, visiting in person is a necessity here. Both Origins and Margaritaville are extremely comprehensive, well thought out projects. I would also urge anyone interested to look up pictures or visit the 30A area. This is the vicinity of their Origins and WaterColor properties. Just flip through pictures of a few neighborhoods here like WaterColor, Rosemary, or Inlet (I included a few beach pictures of Inlet & Rosemary beaches in the below google drive link). These neighborhoods are unbelievably nice - there’s a reason why the area has been dubbed the Hamptons of the South. I’d also highly recommend looking at pictures of their clubs - WaterSound and WaterColor. 

 

To get a better idea of the area, here is a google drive with pictures of each large development. I’ve also included some pictures of the 30A area: https://drive.google.com/drive/folders/1FP_G7lHbj24JC6uwwlhJGtu5JamQXrbA?usp=share_link

Here is a project update video for all JOE properties under development:

https://www.youtube.com/watch?v=Dau4jbhjRtY

 

Of course, not all of JOE’s developments are nice and high-end. They have a few communities (specifically the ones near downtown Panama City) that are aimed at entry level buyers in worse locations. Reason being, as JOE is bringing the majority of housing online in the area, there is demand across the entire affordability spectrum. The interesting thing to note here is that these properties are actually much cheaper than the average property in the US with much lower cost of living, all while being within a few miles of incredible beaches. While they’re not the most pleasing communities I’ve ever laid eyes on, these communities have also benefited from migration to Florida over the past few years. JOE has routinely sold a few hundred lots annually in these communities since 2018. 

 

So beyond the perks of Florida, what makes JOE’s area so attractive? Let’s start with the crown jewel of the area - the beaches. Look up any list of best beaches in either Florida or the US, and I can guarantee you that a Walton County beach will be on the list. This is a huge draw for the area. Walton County has some of the nicest natural beaches I have ever seen.

 

If those beaches don’t appeal to you, I’m not sure what beaches will. More importantly, I think the beaches in Walton County are respectively better than most others in popular coastal cities of Florida. The only other one I’ve been to that compares would be Sanibel Island. Most others are either too crowded or don’t have the natural beauty of Walton County beaches. 

 

Another attractive part of JOE’s region is the typical home lot you see here. Northwest Florida is a bit unique compared to other residential propositions in Florida. If you are looking for a yard in a coastal city in Florida (think Miami, Naples, Ft Myers), they’re nearly impossible to find (ask me how I know). Most neighborhoods have houses piled on top of each other on tiny lots with little to no land. Typically, what would have been a small yard is either spent on a pool or a patio. For some families coming from states where yards are a given, this can be a deal breaker. However, JOE’s developed area is one of the only places along the Florida coastline where you can find lots with land. For families looking for that white picket fence lifestyle where your kids can go outside and play in the yard, JOE’s area is the only place in Florida you’ll reliably find it. 

 

Another interesting note regarding most other popular coastlines in Florida is that the only additional areas to develop are significantly inland. Let’s take Naples for instance - Naples is probably the closest comp in Florida to the Walton County area. The entire Naples coastline is developed over 10 miles inland. Hence, if you’re looking to develop/live near the coastline, you’ll have to find it elsewhere. Perhaps more importantly, development in Naples is pushed up to the Everglades. So even if you wanted to develop here, you’re quickly running out of usable land to do so. You see similar stories all across the southern tip of Florida (Miami, Fort Lauderdale, Naples, Fort Myers, etc). Hence, for a lot of the new population growth that is looking to come to the coastline of Florida over the next couple decades, it will have to come in less developed regions like Bay/Walton county.  

 

The last point regarding NW Florida’s value proposition is the cost of living. Cost of living in the area is either right around or significantly below the national average. When you have many residents coming from the New York, Chicago, and California areas, this represents a significant reduction intheir  cost of living. The idea of living near one of the most beautiful coasts in the US for the national average cost of living sounds like a good deal to me. 

 

Can the area absorb JOE’s pace of development?

I think a lot of people will look at the headline absolute number of homes JOE is bringing to the area and compare it to the current population and immediately write off the idea. JOE is planning on bringing 24k homes to Walton County. Walton County currently has ~80k people, so you’re talking about nearly doubling the population just with JOE’s homesite development. JOE is planning on bringing 145k homes to Bay County, which currently has 180k people, so you’re talking about potentially tripling or quadrupling the population there. 

 

There are 2 things to keep in mind here. First, JOE’s land holdings represent the vast majority of undeveloped land in both Bay & Walton counties, so there isn’t much competition in this regard. Second, you’re talking about over 100 years of pipeline with these entitlements. 

 

JOE has stated their goal is to be delivering 2,000 homesites (including Margaritaville) annually by 2024. Some of these are in other counties, but that's a rather small portion of the total. Let’s assume 1,900 of these homesites are in Bay or Walton (this would suggest just under 100 years of homesite pipeline). Both Bay & Walton counties average 2.4 persons per household, so adding 1,900 homes is the equivalent to adding 4,500 people. While I think this represents a realistic number for the area, this does outstrip population estimates a tad. Estimates are for Bay County to add ~1,500 people annually and Walton County to add ~2,000 people annually for a total of ~3,500 people (we have actually seen much higher growth than that in the past ~6 years). However, the situation is certainly more nuanced than this comparison.

Realistically, JOE is causing population growth in the area, not simply benefiting from the population growth. JOE owns a vast majority of the supply of undeveloped land in the area. The reason population growth has been lower historically and why the Bay/Walton coastline is less developed than other coasts in Florida is simply because JOE hasn’t developed it. They’ve been sitting on this undeveloped land for decades, and the sector plan was the key to unlocking entitlements for development. Population growth in the area moving forward should be higher simply because JOE is now making these developments. What has hampered the growth of the area in the past wasn’t a lack of demand in the area, it was a lack of supply coming online. 

 

To get some further comfort with this idea, we can look to either side of JOE’s undeveloped land holdings where development has spread much further to the north. Take a look at the image below - JOE’s land holdings are circled in red. As you can see, development in JOE’s areas have only made it about 1 mile inland. 

 

Directly to the west, we have Fort Walton. Development at Fort Walton has spread 6 miles inland (and up to 10 miles in certain locations), and the only reason that number isn’t higher is because development backs up against the very large land holdings of the Eglin Air Force Base. To the east we have Panama City. Development here has spread nearly 20 miles inland. Naysayers here will probably say, “But you’re cherry-picking that number! There’s parts of Panama City that are only developed 3 miles inland!” This is true - however, it is only true because that section of Panama City bumps up against JOE’s undeveloped land holdings. You can see this in the picture above where the only area left to develop in Panama City is circled in red, representing JOE’s holdings.

 

Others will likely say (and validly I may add), “What about the undeveloped land between Highway 30A and Highway 98 along the Emerald Coast (circled in green above)? Surely this is more desirable land than most of JOE’s holdings? If JOE’s land is so ripe to be developed, then why hasn’t this area been developed first?” I agree, this area would be phenomenal to develop. However, the reason it hasn’t been developed is because it is State-owned conservation land. Realistically, if you want to develop in the Walton County/30A area, JOE has the only large-scale land holdings capable of doing so. 

 

Regarding population growth in these adjacent areas, we can take a look at growth in Fort Walton when development started moving inland. In 1970, Fort Walton’s County had the exact same population as Walton County today. Over the next 25 years, population doubled from 80k to 162k, or a bit over 3k per year (over a much smaller area of land). Panama City is less relevant, as development and population really started to grow here back in the 1940s. I’ll go out on a limb here and say that the migration situation in the US has changed a bit since then. However, over the next half a century, the area routinely grew in excess of 2k persons annually.

 

While there are plenty of different ways to look at the trajectory of development in the region, there is precedent for JOE’s anticipated development and population growth along all areas of the Florida coastline. 

JOE’s Entitlements/Sector Plan:

Above is a good visual on how JOE’s land holdings overlap with the Bay-Walton Sector Plan. Everything in green was undeveloped before the sector plan, and therefore was included in the plan’s entitlements. The red areas, however, already had entitlements before the sector plan so they were purposefully left out. 

 

In total we have:

Residential Entitlements:

24k in Walton County on 13k acres

145k in Bay County on 97k acres

2.2k Breakfast Point on 1k acres (outside the sector plan)

 

Commercial/Hospitality Entitlements:

5.16M sqft of retail

6M sqft of industrial

11.5M sqft of office, light industrial, & manufacturing

1,350 hospital beds

4060 hotel rooms

23 golf courses

 

So what exactly does this mean and why is it so important? Before the sector plan, essentially all of JOE’s land in Bay/Walton was zoned as agriculture timberland with conservation easements that prohibited any development. As a result of the sector plan approval, they now have legal rights to develop on said land. There are conservation lands built into the sector plan, but JOE is able to plan these out. This allows them to efficiently take advantage of its most desirable land. So the question has evolved from “can they develop on this land” to “how do they use the entitlements on this land.” 

 

How exactly has this impacted their financials since the sector plan was approved? Take a look below:

Revenue Generating Assets

Joe’s revenue generating assets are broken into 3 segments - residential, hospitality, and commercial.

Residential:

While residential has 2 different segments itself, it is mostly made up of JOE developing homesite lots which are sold off to homebuilders. A lot of these are actually contracted takedown schedules with homebuilders, which serves to both smooth out lumpiness and provide JOE with decent visibility into future revenue. The other segment is a JV with Minto Communities (Latitude Watersound Margaritaville, or LWM) to create a retirement community in Bay County. 

 

Historically, residential lot sales have been the biggest revenue driver for the company. As for the numbers, these are lots that have historically sat on the B/S at a very low basis (after all, JOE has been accumulating this land for nearly 100 years). However, over the past 10 years, lot sales at JOE have averaged ~$120k per lot at a 54% margin. Since ~2018, residential lot sales have gone fairly parabolic at JOE. 

 

Lot Sales:

2016 - 106

2017 - 177

2018 - 202

2019 - 379

2020 - 509

2021 - 853

2022 9M- 690

 

So while JOE obviously experienced a covid-related boost, they also started gaining traction pre-covid. However, I think just looking at the boost in numbers and trying to decipher whether or not it’s sustainable or covid-related is somewhat missing the forest for the trees. Most of JOE’s communities are restricted to primary homes, which is verifiable due to the public nature of homestead exemptions in Florida. This means you had a massive influx of permanent residents that will benefit JOE’s other segments regardless of what lot sales look like in the future. This also means that JOE has experienced a proof of concept in most of their communities. As you can imagine, it is much more difficult to convince the first resident to move into an undeveloped neighborhood than it is to convince the 1000th resident to move into a fleshed-out neighborhood. Further, I believe JOE has reached a tipping point in the area regarding awareness of the location. This awareness is likely to cause the trend of people coming to the area to continue.  

 

So what happened at JOE over this period of time? It’s pretty simple - the sector plan allowed JOE to bring many communities (as well as other amenities) online that realized significant demand. The big drivers here were:

• Watersound Origins. This is a large & upscale community that is within a mile of the coastline just west of Panama City Beach. Origins is very near to the aforementioned 30A area, which is very desirable itself. This is a very comprehensive community with a retail center, a grocery store, a golf course (as well as a second planned golf course), an apartment complex, and extensive nature trails. Homebuilding in Origins really started to come online around 2016, but lot sales started as early as 2013. Origins has been JOE’s most financially successful community over the past 5 years - both on an absolute and a relative level. Of the ~850 lots JOE sold in 2021, 300 were in Origins. On top of that, Origins lots are both much higher in average price (anywhere from $130-900k vs $70-80k elsewhere) as well as margin (60%+ vs 50% elsewhere). This community is proof of concept for higher end homesites in the 30A area. 

• Latitude Watersound Margaritaville. This is a very popular 55+ community that is about 10 miles inland and close to the international airport in Panama City. The important information to note here is that Margaritaville has instantly sold out all of its phases. Since coming online in late 2021, Margaritaville has sold nearly 300 finished homes, with the rest of the ~1100 current lots spoken for or under contract. Margaritaville is currently releasing 50 homes/month, all of which are instantly put under contract. Demand here is among the highest of any community in the US. This community is proof that even timberland 10+ miles inland can still be very valuable for JOE.

 

Origins and Margaritaville are the 2 big value drivers for JOE. In order to understand JOE’s prospects, you must understand each. I go into much further detail for each later in the writeup. 

 

Other projects of note but of less importance than the above 2:

• SouthWood. Located in Tallahassee, away from JOE’s core assets. Southwood has sold over 100 lots annually for 2 decades.

• Breakfast point. Houses from $300-600k within a mile of Panama City Beach. Has sold ~50 lots per year for the past decade. 

• College Station. Entry level homes 10 miles from coastline near downtown Panama City. Has sold ~55 lots annually for 3 years. 

• Titus Park. Entry level homes next door to College Station. Has sold ~60 lots annually for 4 years.  

• Park Place. Entry level homes near East Bay in downtown Panama City. Has sold ~55 lots annually for a little over 2 years. 

 

College station, Titus Park, and Park Place are all proof of concept for entry-level type communities near downtown Panama City in Bay County. 

 

Here is a summary table of JOE’s residential lot sales segment:

 

 

On top of that, JOE has many communities coming online within the next few years as well. A lot of these are in areas with proven demand for JOE. These include:

• Watersound Origins West, 2031 entitlements. Adjacent to Origins.

• West Laird, 2185 entitlements. On West Bay Coastline, across the intracoastal from RiverCamps. 

• Ward Creek, 1600 entitlements. Between Origins & Breakfast Point, close to coastline.

• Mexico Beach, 367 entitlements. Unproven area, but lots are nearly on the beach.

• Mexico Beach Townhomes, 160 entitlements. Read above.

• East Lake Creek, 200 entitlements. Between Origins & Breakfast Point, within 1 mile of coastline. 

• East Lake Powell, 360 entitlements. Near Origins.

• Lake Powell, 1352 entitlements. Near Origins. 

• Teachee, 1750 entitlements.

 

All in all, JOE has about 5500 entitlements left in their current communities with another 10000 entitlements that should be coming online in 9 new communities over the next few years. Of those 9 communities, 4 of them should come online within the next year. Considering JOE has typically sold 50-100 homesites at each of their communities for the past 5 years, this represents a large inflection of earnings moving forward. 

 

The other important part of residential would be Latitude Watersound Margaritaville, the 55+ JV with Minto, to which I am dedicating its own section. This is a retirement community about 10 miles inland on the intracoastal waterway, just 10 minutes from the airport.

Hospitality:

This segment generates revenue from JOE’s hotels and club operations. 

 

JOE currently owns 5 hotels and manages another. Just like JOE’s other segments, the price points hit by this segment vary widely - from $100/night at something like the Hilton Garden Inn airport hotel to over $1k/night at the WaterColor Inn. Joe currently has 531 operational rooms with another 767 rooms coming online within the next year. 

Overall, the hotel segment seems to be a very good use of capital. The easiest way to diligence that would be to look at the recently completed JV (the 124-room TownePlace Suites) which is broken out by itself. This hotel took roughly $20mm to complete, financed with $4.5mm in equity and the rest via debt. Currently, the debt/equity numbers sit at $13.6mm & $3.4mm respectively. Compare this to TownPlace Suites profitability levels in 2021, its first full year. Its NOI for FY21 was $3.5mm. It doesn’t matter what adjustments you make to that number, this turned out to be an absolutely brilliant use of capital. If we subtract interest, taxes, and maintenance capex, this would leave us with $2.1mm for a 61% cash return on the JV’s equity. Granted 2021 seemed to be an exceptional year, but 2022 is set to look very attractive as well with NOI on pace for ~$2.7mm.

 

If results from the 767 rooms coming online within the next year look anything like results from TownePlace Suites, the hotel segment alone could be worth a big chunk of JOE’s market cap. Regardless, earnings at JOE’s hotel segment will continue to grow rapidly throughout the next decade.  

 

JOE’s clubs, the WaterSound & WaterColor Clubs, also operate under the hospitality segment. While I’m not a huge fan of the idea of a club from a use-of-capital standpoint, I don’t believe the true value of their clubs lies in the monetary value. I will dig deeper into this idea in the WaterSound Origins section, but I will quickly touch on it here. The real purpose of the WaterSound Club is to provide amenities to the nearby residents and hotel guests. This is a big draw for people looking to come to the area - offering a private stretch of beach, 3 private golf courses, as well as multiple private dining options. 

 

Even though I’m not a huge fan of a club in terms of a use of capital, financial results at WaterSound Club have actually been rather good. The club has largely grown in step with residents moving to the area, growing from 754 members in 2016 to 2,573 members as of September, 2022. Over that time, it has grown revenues by 3x and cash flow by 10x. It is likely on pace to produce NOI of ~$12mm this year on revenues of  ~$40mm. Over the past 10 years, it has never produced a loss or even a major decline in profits yoy. In fact, the club only saw profits drop by $.1mm during covid in 2020. 

 

Management believes that the hospitality section represents a larger benefit to the company than just the financial results. They view it as a marketing arm for the region, and I have to agree with them. JOE’s area, and the emerald coast in general, is a naturally beautiful area which is a fairly well kept secret for those that have not visited. I can think of no better advertisement for the area than to actually experience the region. Considering JOE’s hotels run near 100% capacity from June-October, they have no shortage of captive audience. However, marketing isn’t just the lodging, it’s also the club. When visiting the area, some of JOE’s hotel guests get access to the Watersound Club, which allows them to really experience what it’s like to be a homeowner in the area. If someone makes an annual vacation to JOE’s Watersound area, dines at JOE’s club, golfs at their courses, and relaxes at their private beach every year…. I can make a pretty good guess about where this person will end up retiring. 

Commercial:

In the commercial segment, JOE owns various commercial leasing properties including multi-family, senior living, self-storage, retail, office, and commercial property. We can further break up this segment into 2 separate lines - commercial leasing and residential leasing (multi-family & senior living).

 

Starting with residential, JOE owns 5 operational apartment buildings, 64 townhomes, 31 single-family rentals, and 1 senior living facility with an additional apartment building and senior living facility under construction. They also have another 4 apartment buildings at various stages of planning. 

Total units for lease in multi-family currently stands at 1319. JOE has stated that its goal is to get to 2500 units by 2024, which seems about right for the current pace they’re setting. More importantly, they’ve seen ample demand for their multi-family segment. Pier Park Crossings, which was completed in 2019, was 100% occupied by the end of 2019 and has averaged 99% occupancy since. Watersound Origins Crossings, which completed construction in Q4 2021, was at 95% occupancy by the end of 2021. Sea Sound, which also completed construction of 3 of the 4 planned buildings in Q4 2021, was at 95% occupancy for those 3 buildings by the end of 2021. 

 

On top of the 1319 current units, JOE also has 364 units under construction. 216 of those units are coming from Mexico Beach Crossings, which is an apartment building only a few hundred feet from the beach in Mexico Beach. This building is also very close to the Tyndall AFB air force base, which recently started deploying $5B to redevelop the base. The other 148 units are coming from Watersound Fountains, a senior living facility which should come online in 2023.

 

In order to diligence multi-family as a use of capital, we can look at the newly finished Sea Sound apartments. This is an unconsolidated JV, so JOE breaks out numbers specifically for this property. Sea Sound fully opened in Q1 2022, and since has fluctuated between 93-97% occupancy. This is decidedly the worst result of any of their multi-family properties, so any conclusions here should prove to be conservative. Sea Sound took ~$54mm in capital to complete, financed via $17mm in equity and the rest in debt. Sea Sound is on track to produce $3.7mm in NOI, or $2.1mm deducting interest expense. 

 

Moving to commercial leasing, JOE currently has 1.04M net rentable sqft. As mentioned earlier, this comes from various different types of properties including self-storage, office buildings, retail, etc. Most of their properties here sit at or near full occupancy with 2 exceptions. These 2 exceptions are WindMark Beach Town Center and SummerCamp Commercial, which are 2 leftover commercial properties from prior management. Neither of those areas have seen great traction as they are both very far from JOE’s core assets. Eliminating these 2 properties, JOE’s occupancy over the remaining 990k net rentable sqft sits at 95% with some of the properties still at fairly immature states. JOE has stated that it aims to get to 1.8M net rentable sqft by 2024, which is an additional 500k sqft over the next 2 years (when including some unconsolidated JVs). This seems ambitious but doable when considering the properties that should be coming online in the next few years. These include: 

• FSU Health Medical campus. Ambulatory center, urgent care center, emergency center, and 100-bed inpatient medical center. Best guess is this facility will be over 100k sqft once it’s finished.

• West Bay Self-Storage. Likely between 50-100k sqft.

• Watersound West Bay Center. Confirmed as 350k sqft.

• Pier Park City Center

• South Walton Commerce Park Phase 2

• Capital City Bank

 

If we look at the commercial segment’s financial results as a whole, it also paints an attractive picture as a use of capital. As of the end of 2021, JOE has spent roughly $240mm on operational commercial properties. This number is encumbered by $171mm of debt, which is producing about $7.4mm of annual interest expense currently. Hence, JOE has roughly $70mm in equity in their operational commercial properties, which were producing NOI of ~$19mm annually or $12mm after interest (these numbers are rapidly changing due to the pace of JOE’s commercial development).

 

A rather interesting comp to put value creation into perspective here is the “Tyde Apartments” sale which happened in Q4 2021. This is a 4-story, 300 unit apartment building on 20 acres in Panama City Beach. Tyde Apartments sold for $93.5mm, or $311k per door.  Just 2 miles down the road from Tyde Apartments we have JOE’s Pier Park Crossings, which is a 360-unit apartment complex on 45 acres with nearly identical rent rates as Tyde. It took JOE roughly $56mm in capital to complete this complex. Using Tyde as a comp, Pier Park Crossings would be worth $112mm. In this scenario, JOE created $56mm in value with this development. Granted cap rates have gone up a bit since the transaction, but the development clearly created a lot of value even at much higher cap rates.  

 

Keep in mind, the commercial leasing segment started in earnest just over 5 years ago and much of the current footprint is immature. So not only are they currently creating a lot of value by developing these properties, but these results should only get better as the properties mature and they bring more residents to the area. 

 

Recurring Revenue Streams & Segments Feeding Off Each Other: 

Other than the sector plan, this is the most important part of this writeup. JOE has made a conscious effort to create recurring revenue streams over the past 5-10 years, which is primarily made up of the commercial segment. There are obvious financial reasons for this - these revenue streams reduce lumpiness in the business which is attractive to investors, they more than offset fixed/corporate costs in the business so downturns are less ugly, etc. However, the main reason for getting into this business is due to the effect JOE is having on the overall region. JOE is bringing thousands of homes and residents to the area, as well as many thousands of hotel guests annually. All of these people need to consume things in the region. When you bring mass scale development like this to an area, it lifts the entire area. In the past when JOE had planned a residential development, they would sell off the adjacent lots to commercial developers. These developers were then able to reap the benefits of the overall lift that JOE was creating with all the investments they were making in the region. Following JOE’s shift in strategy during the past decade, JOE has decided to get into commercial development themselves to capture this value creation. While this could be scary considering JOE is branching out to a new segment not in their core competency, they spent a long time selecting partners for these businesses that had long histories of successful development themselves. 

 

This segways into my next point - JOE’s segments feeding off of each other. JOE consciously tries to overlap all of their segments - residential, commercial, and hospitality. For example, in most of their residential communities, they have village town centers (commercial leasing space) embedded in. When they make an investment to develop homesites, that investment is creating customers for commercial tenants. So with JOE pivoting to developing these commercial centers themselves, they’re able to take advantage of that accretive value they’re making with homesites. However, I believe it goes further than that. With these village town centers, they’re creating amenities for nearby communities - not just necessities like grocery stores but things like pavilions that hold live music or farmer’s markets, medical centers with primary care doctors, or popular restaurants built right into the neighborhood. All of these things make the neighborhood itself more attractive to prospective buyers in turn, thereby increasing demand in the neighborhood. 

 

All the while, you have the hospitality segment intertwined which not only further feeds into customers for these commercial centers, but also serves as a marketing channel to get people to the area. Hospitality in its current form likely brings upwards of 100k people to the region every year, which will only grow as the segment matures. JOE currently has 531 operational rooms with an additional 767 coming online in the next year. Most of these rooms are in the 30A area with a lesser portion being in the Panama City Beach area. As previously discussed, the 30A area is unbelievably nice and I can think of no better advertisement for the region than to stay in 30A for a week and live among JOE’s ecosystem there. I dive deeper into hospitality as a marketing arm in the Origins section. 

 

Results from the decision to pivot to recurring revenue streams so far speak for themselves. As residents have flocked to JOE’s residential areas over the past 5 years, JOE has added ~500k additional commercial sqft (which has nearly doubled their footprint). These new developments average a 97% occupancy today even though much of it is rather immature. The main reason for that, and part of the reason this segment is so attractive, is because JOE’s commercial developments are the only properties capable of benefiting from much of JOE’s residential developments. Take Origins for example - this is a neighborhood with thousands of permanent residents which has a Publix grocery store (leased from JOE) built into the footprint. If your neighborhood has a grocery store located just down the block, who is going to drive 15 minutes to the next closest grocery store? This is just 1 of hundreds of potential examples of JOE creating demand and then filling it. 

 

If JOE were to only build homesites, I would not be interested in this situation (or at the very least, it would be far less attractive). You need additional infrastructure to both support the population that is there, but also to convince others to move to the area. Nobody is going to want to move to an area with no nearby activities where the closest grocery store is 25 minutes away. By JOE overlapping its segments, it serves to make ALL of its segments stronger. I think JOE’s SummerCamp Beach & WindMark Beach communities serve as the best examples of why this is true. While JOE still sells lots at each, these communities were created by JOE’s previous management in the early 2000s. Each of these communities are directly on beaches along Florida’s NW coast. However, demand for each is anemic and lot prices are not what you would expect. Why is that? Neither is close to any desirable amenities.    

Watersound Origins:

I would like to dive deeper into the Watersound area, which is quintessential JOE. 

 

Watersound is a very comprehensive community that ties all of JOE’s segments together in the most complete way. It is the best example of how they try to overlap all their segments which in turn helps them feed off each other. For this reason, this is by far the best area to understand within JOE’s holdings.

 

This all starts with homesites, as that is what brings your commercial customers to the area. This is a bit of a “chicken or the egg” type problem - getting that first homesite filled is the hardest part because you don’t have adjacent developments. Without amenities, residents won’t want to move to the area. However, without residents in the area, it would be unwise and difficult to build a bunch of amenities. JOE solved this by utilizing the 30A area as well as their Watersound Club to get the ball rolling with homesites, and it has snowballed from there. The 30A area is attractive enough by itself to convince residents to move. This is a very high-end, developed coast along the most beautiful beaches in the US. Take a look at the pictures of the 30A area in the attached google drive. However, JOE also had the nearby Watersound Club, which was built by previous management, to attract residents. This was a big draw for Origins residents who want to live that beach/country club lifestyle.    

 

 

As stated above, Watersound is an extremely comprehensive community. First came the Watersound Club with its private beach, private dining, 3 golf courses, sports courts, gym, and high-end boutique hotels. Next followed residential housing with 2k residential homesites entitled for Origins, about 1k of which have already been filled (as a side note, these homesites are intertwined with nature trails, as nature is also a big draw for the area). This was quickly followed by the commercial segment - grocery store, medical facility, retail shopping, apartment buildings, townhomes, and a senior living facility. They even have a high school at the entrance to Origins. This community has nearly everything you could ever want or need.

 

All of these different segments feed off each other just by existing, and any growth here just boosts demand for the other segments. JOE has created and filled homes for about 1500 families in this area, mostly over the past 4 years. Those families need places to buy groceries, stores to shop at, and activities to do, all of which JOE provides in the immediate area. As JOE builds more of these amenities and necessities, it only makes the area more appealing to prospective families, which in turn benefits JOE’s residential segment. As more families move to the area, this necessitates the building of additional amenities. There are circular benefits here from JOE expanding any of its segments. You get the point.  

 

The Watersound Origins area is relatively new, with homebuilding in Origins mostly starting around 2017(there was a bit before then, but this was pre-sector plan and the entitlements lie outside the sector plan). Since then, JOE has sold about 1000 homesites in the Watersound area, or about 170 a year. Compare this to 106 lot sales for the ENTIRETY of JOE in 2016. This number has consistently ramped up as the area has evolved. As you can imagine, it’s much harder to convince a family to move to a mostly empty conceptual community compared to a fully-fleshed out community. If we look at homesite sales in the Watersound area over the past 5 years, the numbers reflect that:

2017 - 56

2018 - 90

2019 - 146

2020 - 165

2021 - 296

2022 9M - 206

 

However, this doesn’t really give you a full idea of what the demand environment has been like. For most of the Origins phases over the past 5 years, each phase has been under contract to a single builder. The limiting factor here for how quickly they could move lots was how quickly they could develop lots. Each phase has had a waitlist for homes far exceeding the available inventory. So while yes, the headline number of lots sold in Origins since 2016 is impressive, it doesn’t paint the correct picture of what demand was actually like in Origins over this period of time.  

 

To give you an idea of what current demand is like in Origins, let’s take a look at the Naturewalk Phase of Watersound Origins. The Naturewalk Phase consists of 466 lots that are all under contract to Kolter Homes. Lot construction started in 2019 and home deliveries started in 2020. Since that time, they’ve been selling over 100 lots per year specifically in this neighborhood. About half the lots in this phase are already spoken for. For the remaining half, or about 220 lots, there is a 650-person waitlist. Just to be on this waitlist, you must take an in person tour, complete a 3hr buyer seminar, and have proof of 20% down… and the in person tours are booked out for a month. So the waitlist isn’t just fluff, it’s serious buyers.

 

As for the financials of lot sales in Origins - it takes JOE roughly 60k to develop a lot here. Around 2018, JOE was selling lots here in the low 100s (or around a 50% margin). Currently, lots are selling from $150-200k (or a 60-70% margin). Lots are typically anywhere from ⅛-¼ acre in size, but due to unused land built into communities, JOE can probably only build around 2 lots per acre in Origins. This means that in Origins, JOE is generating ~$350k in revenue per acre and ~$230k in profit per acre.  

 

I think it’s clear that the Origins area is very attractive for JOE, and the remaining life of Origins is better than just those 600 remaining lots. JOE has about 10k acres directly adjacent to Origins along the intracoastal waterway. Development is already underway here with Origins West having 103 lots already under development. JOE is entitled for over 2000 homesites in Origins West. Below is a satellite image of Origins - current development is in red while the yellow is adjacent land owned by JOE. This is just the adjacent land in Walton County - directly east of here, JOE also owns all the unused land. 

 

     

So how large could Origins ultimately get? Well, Origins is their only residential community in Walton County. The Bay-Walton Sector Plan entitles JOE to 24k homes on 13k acres in Walton County. Over 90% of these 13k acres are located directly adjacent to Origins along the intracoastal waterway. This land is visible in the picture above - a few thousand of these acres are in yellow south of the waterway, and the rest of it is the land directly north of the waterway. Management claims they will continue to build in Origins as long as there is demand. Hence, it is likely that Origins winds up utilizing all of JOE’s residential entitlements in Walton County, or 24k homes. The more pertinent question is how quickly they can move 24k lots rather than questioning the ultimate size of the community.  

 

The important note to keep in mind here is that all these residents moving to Origins boost JOE’s recurring revenue segments. Let’s move to the commercial side, where Watersound has apartments, townhomes, a retail town center, a Publix, and a self-storage facility. On the residential side, the apartments leased up to 95% occupancy in less than 3 months. All of the town center & supermarket space is 100% leased, of which there is ~165k sqft. The self-storage facility came online in Q3 2021, and leased up to 89% by Q3 2022. None of this happens without Origins bringing in a huge amount of new residents. Due to these commercial properties being embedded within the planning of the neighborhood, it all but guarantees there will be significant demand for these properties.  

 

Lastly, you have the hospitality side of Origins. Here you have 2 boutique hotels (Watersound Inn & Camp Creek Inn) and the Watersound Club. Camp Creek Inn is currently under construction so we will focus on the other 2 properties. 

 

The Watersound Club is both a main draw and a beneficiary of residents in the area. As mentioned earlier, it has a private beach, access to 3 private golf courses, various other sports courts, and private dining options. Since 2016, membership at the club has grown from 754 to 2573 currently. Over that time, it has grown revenues by 3x and profits by 10x. It is likely on pace to produce cash flow of around $11mm this year on revenues of around $40mm. Over the past 10 years, it has never produced a loss or even a major decline in profits yoy. In fact, the club only saw profits drop by $.1mm during covid in 2020. Not too shabby for an asset I mainly look at as a draw to the area. Considering JOE has cumulatively spent $84mm on the Watersound Club since 2001, it has actually turned out to be a rather attractive investment in its own right. As Origins continues to grow and new residents move to the area, the Watersound Club is poised to be one of the main beneficiaries.  

 

Hotels are slightly different from the other segments in terms of the circular benefits. While hotels do benefit from the commercial side (at the end of the day, hotel guests need amenities nearby and are customers for commercial tenants), JOE mainly looks at the hotel side as a marketing arm for the area. I think the Watersound Inn does a great job at marketing the Watersound Origins area for JOE. The Watersound Inn is a highly regarded, 4-star boutique hotel. Rooms here go from ~$200/per night out of season to over $1k per night in season. According to management, occupancy runs at 100% nearly all summer long. Guests at the Watersound Inn benefit from the amenities of the Watersound Beach Club, so they really get to access what it feels like to be a Watersound resident and club member. For their stay, they’re living in the 30A area, golfing at Watersound’s courses, eating at the Watersound Club, relaxing at Watersound’s private beach, and shopping at Watersound’s shops. I could not think of a better way to advertise the area to potential future residents. 

 

Overall, the entire Watersound Origins area has been a smashing success both financially and optically for JOE. Financially speaking - they cannot develop homesite lots fast enough to satisfy demand, the apartment buildings leased up instantly, all of their commercial space leased up instantly as JOE is creating the demand and is the only developer capable of capitalizing on it, and their hospitality division is growing in step with the massive influx of residents. Any growth here (of which there has been a lot) in any segment simply increases demand for their other segments. Qualitatively speaking - if you’re affluent and looking to move to Florida, Origins is a very attractive option as it encapsulates everything you could want or need in a single area. Further, Watersound acts as a proof of concept which should provide credibility for JOE’s developments in the area moving forward. 

Latitude Watersound Margaritaville

As mentioned at the beginning of this writeup, JOE has made a conscious effort to bring on great partners with expertise and a long history of successful projects in whatever niche they’re expanding into. This is a prime example of that - JOE partnering with Minto Communities to build a much better retirement community than JOE could on its own.

 

Latitude Watersound Margaritaville is the JV between JOE and Minto Communities. This is a 55+ community built around the lifestyle of Jimmy Buffett. Watersound Margaritaville is the third Margaritaville that Minto has built, the first 2 being in Daytona Beach and Hilton Head. From Margaritaville’s website describing the lifestyle of the communities -  “You’ve earned a life where every day feels like an escape. Hang your hat where your heart is at Latitude Margaritaville Watersound, the 55-and-better lifestyle where fun and relaxation meet. Inspired by the legendary music and lifestyle of Jimmy Buffett, this is where life rolls easy, neighbors are friends and the party never ends. Awesome recreation, FINtastic dining and entertainment will make the town center the place to be—all just a golf cart ride away from your masterfully crafted new Latitude Margaritaville home. Escape to island-inspired living as you grow older, but not up.”

 

Margaritaville has been a massive success for Minto. Over the past 4 years, the Daytona Beach and Hilton Head locations have both continually won awards including being among the top selling MPCs in the US, best 55+ communities, best customer home purchase & ownership experience, etc. Each of these communities has routinely sold over 500 homes annually since delivering their first homes in 2018. 

 

To give you a better idea of demand - the Daytona Beach location was announced in 2017 with the sales center opening in the fall of that year. On the night before their opening, they had over 300 people camped outside their sales center overnight to try to get a lot. 

 

Demand at Latitude Watersound Margaritaville (“LWM”) has not been any different. In fact, demand was so high that they implemented a lottery system to determine who would get homes. LWM released the first 200 homesites in May 2021 via the lottery, all of which were put under contract instantly. As they progressed through the year in 2021, they began releasing 50 homesites a month via the lottery. In terms of their customer acquisition channel, there are over 550k members registered with Margaritaville to receive ongoing updates regarding their projects. 

 

As of Q3 2022, LWM has delivered 247 finished homes, with the first delivery being in October 2021. The main reason why deliveries haven’t kept up with demand so far has been due to supply chain issues. LWM simply cannot build houses fast enough to satisfy demand. While they’ve only delivered 247 homes, they have an additional 641 homes under contract. Considering they’ve only been releasing homesites for 15 months as of Q3, this equates to LWM selling about 60 homes per month which is an incredible number. 

 

While it’s clear that demand at LWM is very robust, that’s only part of the reason why LWM makes JOE much more interesting. LWM is 10 miles inland - basically in the middle of nowhere. Until a few years ago, this was land that everyone assumed was worthless. They would throw it into their NAV calculations at something like $1,500 per acre. Well, it turns out that these lots are going for up to $150k each, and the commercial land surrounding LWM (all of which JOE owns) will likely wind up being worth a few hundred thousand per acre - yet another example of the massive ripple effects of JOE’s developments.

 

Regarding how large LWM could get - this question is a bit more difficult than Origins. The initial phase of Margaritaville will include ~3,500 homes. However, LWM is smack dab in the middle of JOE’s land holdings in Bay County. According to JOE, LWM is “easily expandable to tens of thousands of homes.” Take a look at the below satellite image of LWM. The red area is the current LWM phase. I find the yellow area to be the most likely route of expansion for LWM along the intracoastal waterway. However, JOE owns tens of thousands of acres in ALL directions from the current phase. Phases 1-4 are already complete, which are all located in the red area. Phases 5-8 are planned to happen just above the red area, just north of West Bay Parkway. Just like with Origins, management claims they will continue to build in LWM as long as there is demand. So realistically, the upper bounds for how large LWM could get is the number of entitlements in Bay County - 145k (minus some of their smaller communities in Bay County). Again, the more pertinent question here is how many homes they can sell annually as they have enough supply to continue building homes for >100 years.   

 

So what could Origins and Margaritaville be worth?

This section is mainly a thought experiment and not actually how I’d go about valuing the company. It is rather eye-opening to consider how much Origins + LWM could be worth, while only representing a small percentage of JOE’s overall land. 

 

Margaritaville is planned for “tens of thousands of homes.” Quite a wide range of outcomes there. Realistically, we have no clue how many homes LWM will ultimately have. However, we can put some numbers on estimates for annual sales. LWM is currently releasing and selling 50 homes/month. Both the Daytona Beach and Hilton Head locations have been selling 500 homes/annually and they opened in 2018. Demand at LWM is far, far outweighing how quickly they can get lots developed and homes built. It seems likely that LWM will be selling at least 500-600 homes annually for the foreseeable future even with higher mortgage rates. 

 

Regarding JOE’s financial interest in the JV, it is a 50/50 split with Minto. However, the unimproved lots JOE is contributing to the JV are also being returned at $10k per lot. Hence, when LWM sells a home, JOE earns 50% of the profit margin + $10k. The average home at LWM is currently going for high $400s, but there are some prime lots with homes starting at $1.2mm (none of these have flowed through the financials yet). A blended average sales price of homes moving forward is likely in the low $500s. 

 

Putting the above together, we can discern that if LWM sells 600 homes annually, JOE would earn ~$37mm. At only 300 homes annually, JOE would earn ~$18mm. I think this is a good range of outcomes to consider. Discounting these scenarios back @ 10% gives us a range of ~$300-500mm for Margaritaville.

 

As mentioned above, LWM is smack dab in the middle of their land holdings. They can build outwards from the current footprint in any direction. From talking to JOE management, their standpoint is if the demand is there, they’ll keep building in LWM. It’s very possible that my assumptions here wind up extremely conservative. For those of you that think the numbers for the ultimate size of LWM are unrealistic, I urge you to take a look at The Villages in central Florida. This is a retirement community that was the fastest growing area in the US over the past decade. The Villages began in earnest in the 90s, and since then they have sold over 70k homes. Over the past 20 years, The Villages has averaged nearly 3k home sales annually. While I’m not saying this is a realistic growth trajectory for LWM, this does show that there is precedent for the size that LWM plans on. 

 

Origins is a bit older of an area, with over 1k homesites already sold. This makes it much easier to pin down what Origins could be worth. Origins has 2600 entitlements left in its current phases, but again, JOE has thousands of acres directly adjacent to Origins along the intracoastal. JOE has the ability to build 24k homes in their Origins community. So far, JOE has seen significant demand at Origins which has exceeded their developing pace. To date, JOE has sold about 170 homesites in Origin annually, which has accelerated to nearly 300 homesites annually over the past 2 years.

 

Regarding the financials of Origins lot sales - we have a fairly wide range here depending on the phase/neighborhood. Stillwater was a 2018-2020 phase and the most recent lot sales were for $110k each. Over the past year, Naturewalk has sold lots for $130k each. Greenway is currently selling lots from $120-300k each. Camp Creek is currently selling lots from $600-1,000k. Each of these lots are typically costing JOE $50-60k to develop, so these sales are generating a lot of cash. To give an idea on what the rest of Origins could generate, we’ve got about 220 lots left in Naturewalk, 93 lots in Pines, 275 lots in Powell Landing, and 109 lots in Camp Creek. Using the average most recent sales in each of these communities, just the remaining ~600 lots in Origins would generate ~$125mm in profit. This is on just 600 of JOE’s 170k acres. 

 

For an overview of what all of Origins could be worth, here are some assumptions. Starting with the more conservative side - let’s assume the rate of sales in Origins cools off back to the 170 homesites annually. At this rate, JOE could be selling houses at Origins for the next 140 years, producing an income of roughly $15mm annually. Discounting this back @ 10% would be worth about $200mm today. On the aggressive end of assumptions, we could assume 300 homesites sold annually (the number we’ve seen for the last 2 years). At this rate, JOE could be selling houses at Origins for the next 80 years. Discounting this back @10% gives you $370mm in current value for Origins. 

 

However, I am separately breaking out Camp Creek, the extremely high-end neighborhood in the Origins area where lots are currently going for $600-900k+. There are 262 lots in Camp Creek, of which JOE has already sold 153 in the past 2 years (that have flowed through the financials - 10 have already sold but haven’t hit financials yet). The remaining 109 lots should generate somewhere around $70mm for JOE over the next 2 years.

 

So, all in all, we have Origins generating anywhere from ~$15-30mm annually for the foreseeable future, LWM generating anywhere from $15-40mm annually for the foreseeable future (we’ll have more clarity in the next few years), as well as $70mm in Camp Creek over the next 2 years. Putting this all together, Origins + LWM is likely worth anywhere from ~$500mm-$1B for JOE. 

 

It’s interesting to note that even if we assume ~25k homes get built at each site (which represents ~$4.5B in future cash flows), you’re likely only using ~ 20k acres of JOE’s land. That represents ~11% of their total land holdings and only ~18% of the land in their sector plan. 

 

However, this section only analyzes the financial impact from residential lot sales in Origins & LWM. The commercial opportunity from these 2 developments should be massive. Between Origins & LWM, we are talking tens of thousands of homes, all of which will need commercial centers. And JOE is the only commercial developer with the capability of benefiting from these residents (along with their partners of course). This is already on display at Origins, but take a look at the site plan for the current phase of LWM. The areas circled in red are earmarked for future commercial development including a grocery store. All of the phases at LWM will be planned with commercial development built right in. 

 

The Villages Call Option

I don’t think a writeup on JOE would be complete without a section on the call option of Margaritaville turning into “The Villages 2.0”. 

 

First off, it's well established that Florida owns the retiree migration market. Within the Florida market, The Villages gets an obscenely high proportion of this migration (probably somewhere close to 10% which is very high for a single location). Over the past 20 years, The Villages has sold on average 3k homes annually. Since inception in the 90s, The Villages has sold over 70k homes. As a result of this phenomenal growth, The Villages is the largest active adult community globally. While Margaritaville is incredibly popular, it has only done ⅕ of The Villages’ average annual sales in its first year.  

 

So why is The Villages so popular? I think it boils down to the lifestyle that is made possible by the immense amount of amenities offered in the area. The Villages is basically Disney World for retirees. The community encompasses ~30 square miles in central Florida (~50 miles northwest of Orlando) and contains ~50 golf courses, shopping centers, recreational centers, clubs, healthcare facilities, etc… It is known for having the largest and most diverse collection of amenities of any community on the planet (does this sound familiar at all to JOE’s strategies?). Because of the proximity to these amenities, everyone uses golf carts for everyday travel. It really feels like a close-knit, unified community.

 

Regarding the amenities themselves:

• There are clubs for just about any topic you can imagine. Think things like bridge, painting, political debate, etc… They even have an 8k sqft woodworking shop. 

• They have pickleball, tennis, softball leagues… basically any sport that retirees can still actively play.

• Just like being a member at any other golf club, their courses have no green fees. They’re all covered by an annual membership. However, this means you can play at ANY of the 50 courses whenever you want. 

• 3 town squares for dining, shopping, & entertainment. Each square has its own theme - Spanish Springs, Spanish theme with adobe-colored shops. Brownwood, 19th century cattle town theme. Lake Sumter Landing, quaint seaside theme. There is free nightly entertainment at each town square, and ticketed shows regularly at Spanish Springs. 

 

On top of the amenities, I think retirement communities have this sort of snowball effect as they grow. The reason someone moves to a retirement community is rather simple - they want to be around other people around the same age with the same lifestyle as them. So as more people move to the area, the area becomes more desirable to those looking for this lifestyle. I think Margaritaville has a unique tie-in to this that I will cover in a moment. 

 

Margaritaville has already been associated as a potential Villages 2.0 by some of the media. It’s not hard to understand why - JOE & Minto are mimicking much of what The Villages does. Margaritaville is heavily focused on providing all the amenities you could ever need embedded within the community. While they’re clearly nowhere near the level of The Villages yet, the breadth of amenities in the first year of development is impressive. For the first slate of homesites (about 1k homesites), Margaritaville has an amphitheater for live music, sports courts for a wide range of activities (even down to things like bocce ball/horseshoe courts), restaurants, bars, a grocery store, commercial shopping, a clubhouse, a fitness center with a pool & spa, and a massive community pool with a poolside bar. All of this is contained in a community where the primary mode of travel is by golf cart. While Margaritaville certainly isn’t anywhere near The Villages amenity standards yet, they certainly have the land & entitlements to get there. 

 

Where Margaritaville & The Villages differ a bit is in the lifestyle they cater to. The Villages is marketed towards active adults - they’re going after the retirees that are interested in golf, debating, continuing education, etc. Margaritaville is essentially going after an “island escapism” lifestyle (after Jimmy Buffett) - retirees that want to relax, drink, and party with their peers while listening to live music. This can certainly be seen in Margaritaville’s flagship amenity which would be their amphitheater. From Margaritaville’s website - “Phase one Town Center amenities include a dynamic Town Square that features an amphitheater with a thatched roof bandshell, full-size concert stage, jumbo screen for concerts and movies, and special recessed dance floor that provides a little give and spring for dancers.”

 

This brings me to the aforementioned snowball effect. While I believe all retirement communities benefit from them somewhat, Margaritaville should benefit from them immensely. This is one large party community. I think the 2 biggest variables that could make a party community more popular are more people and more amenities. Imagine if JOE were to get to a level with tens of thousands of residents with multiple town centers, each with its own amphitheater displaying a different type of live music each night. This place would become some sort of year-round Woodstock for retirees. 

 

While turning into The Villages 2.0 is certainly not what I am expecting for Margaritaville, all the facts lead me to believe that it is entirely plausible. 

Additional Valuable Land Parcels:

To reduce clutter, I am attaching a google drive folder with associated pictures rather than embedding them here. Each listed number here will correspond to the number of the photo in the google drive.  

 

JOE has a lot of interesting land left. I think the most interesting parcels are the ones that are going to benefit from the ripple effects of adjacent JOE developments, which is mostly what I will cover here. I would like it to be noted, it is unlikely any of this land will be monetized via land sales. Comparing these parcels to land sale comps is only so useful. It is most likely that all of this land is developed in one way or another and monetized either via leasing or homesite sales. 

 

1. As previously mentioned, both Origins and LWM have copious amounts of adjacent land which management will continue to develop as long as there is demand. However, this is more interesting than just homesite development. Considering Origins has ~165k embedded commercial leasing space with only 1k current homes, how much embedded leasing space do you think Origins & LWM will have once they’ve each built 10k? 

2. All the land along the intracoastal waterway. Best case scenario here is actually that all of this land gets used in their Origins & LWM developments over the next 50-100 years. If that were to happen, it would mean a homerun for JOE. Regardless of how this land gets used, it is highly valuable. 

3. Specifically, their intracoastal waterway lots with a view. I did not touch on this point in the LWM section, but it’s fairly important financially. None of LWM’s lots along the intracoastal with a view have flowed through their financials yet. These lots are worth far more than the other lots in LWM. The lots themselves are worth 100-150k, and the homes being built on them are starting at $1.2mm. In the rest of LWM, homes are going for an average of mid-400s. These current intracoastal lots, as well as any future intracoastal lots, are worth quite a lot to JOE. There are 30 of these vista lots in the initial LWM phase.

4. All the land bordering West Bay. JOE already has one development along West Bay - RiverCamps. While historically this wasn’t one of their fastest selling communities, it was financially very attractive. I think it’s also important to keep in mind that RiverCamps was a community created in 2003 by previous management before there was much development in the area. They also didn’t create any amenities either embedded in the community or nearby. The closest grocery store or retail shopping is 15 min away with no traffic. Any current development with more comprehensive community plans would likely be far more popular. However, lots here are still very lucrative with bayfront lots going for anywhere from $200-500k.

5. Land along Mexico Beach. While this land is very far from core JOE assets and thus outside of their ecosystem, there are a few reasons why it could be very desirable. First, they own 250 acres directly along the coastline here. 2 lots have sold directly adjacent to this land in 2022 for $780k per acre and $1.15mm per acre. They also own a few thousand acres across the street, less than a mile from the beach, where their Mexico Beach development is taking place. This will include townhomes, single family homes, apartments, and a commercial village. Part of the reason why this could be so attractive is due to the Tyndall Air Force Base directly next door. This base holds a few thousand residents, and recently started deploying $5B that congress appropriated to redevelop the base.  

6. Undeveloped land SOUTH of Highway 98 (known as Back Beach Road to locals). There is a very small amount of undeveloped land here, and JOE owns a lot of it. Highway 98 sees anywhere from 30k-50k average daily drivers along the section between Panama City Beach and Destin (which is where the majority of JOE’s developments reside) This is one of JOE’s primary assets OUTSIDE of the Bay-Walton Sector Plan. Nearby undeveloped land south of 98 has sold for around $700-800k per acre in the past year. However, this land is absolutely ripe for commercial development at some point down the road. JOE has about 160 acres here.  

7. Land adjacent to Pier Park North. I haven’t discussed Pier Park North in this writeup, but this is a combination of 320k sqft of commercial leasing space as well as a 360-unit apartment complex. This is directly along Highway 98, very close to the parcels from #6 above. JOE has thousands of acres directly adjacent to the north of Pier Park North. This land starts within a mile of the coastline and also backs up to West Bay. This is a prime location for additional residential development, as it is in a great area both amenities-wise and in terms of proximity to the coastline. This is also outside of the Bay-Walton Sector Plan. 

8. Breakfast point area. This area already had its own entitlements when the sector plan was approved. For this reason, it was left out of the sector plan so that JOE could benefit from the extra entitlements. These include 1,760 residential units, 440 apartment units, 160k sqft of commercial space, 75k sqft of office, and 750 hotel rooms. 

Valuation: 

I don’t think there is any one right way to think about valuation for JOE, but here is how I think about it. I approach it from an earnings standpoint rather than an asset standpoint. Reason being, the only value undeveloped land represents to JOE is their future earnings potential as JOE is not selling off land. Also, as mentioned, JOE has pivoted to a recurring-revenue based strategy. Hence, this will make up much more of JOE’s income moving forward. I will value each segment separately for a SOTP valuation, as the deserved multiple for each is vastly different.

 

Keep in mind here, earnings from these segments are going to be growing incredibly rapidly from here. JOE is in very early stages in both its commercial and hospitality segments. I am valuing JOE based on 2024 numbers as the vast majority of the projects coming online by 2024 are already in the ground with most of the capital already outlaid.

 

Commercial:

Commercial is broken into 2 parts - multifamily and commercial leasing. Multifamily currently has 1107 units, with an additional 576 under construction which should be open by 2024. Additionally, they have 4 apartment complexes at various stages of planning. 

 

Commercial leasing currently has a bit over 1M sqft of rentable space, with an additional 500k sqft coming online by 2024. There is also a significant amount of commercial real estate in various stages of planning, but no details as of yet regarding the sizes. 

 

 

JOE also has a fairly minor forestry operation in their commercial segment, which includes the growing and selling of pulpwood and sawtimber. Forestry steadily generates $6mm in revenue and $5mm in income annually. 

 

Putting this all together, by 2024, the commercial segment should be generating $40mm in income on $70mm in revenue. At a 20x multiple (which seems fair for the nature of these earnings as well as current cap rates), this represents $800mm. Deducting the $170mm in project level debt for this segment, we are left with $630mm in value. 

Hospitality:

Hospitality is broken into 2 parts - Hotels & Clubs. JOE currently operates 531 hotel rooms with an additional 767 coming online by 2024. They also have 1 additional hotel in the planning pipeline. 

 

JOE’s club segment currently has 2,573 members, which has grown in step with home sales in the area. In fact, it has grown rather reliably at ~.8 members per JOE homesite sale in the area so we can at least estimate what membership might look like by the end of 2024.  

 

 

On top of their hotels & clubs, JOE also makes a small recurring sum with their marinas in the hospitality segment. This represents only ~$1mm annually. 

 

For hospitality in 2024, we have ~$180mm in revenue generating $53mm in income. Accounting for minority interest, income is ~$47mm. Based upon other hospitality players, a fair multiple for this segment is likely about 12x which represents $560mm. Deducting the $90mm in property level debt for hospitality, we are left with $470mm in value. 

 

Residential:

Residential is by far the hardest segment to value. The appropriate multiple is hard to pin down and lot sales are obviously not recurring in nature compared to the other segments. However, there are a few things that offset this. First off, we know JOE’s homesite backlog which is homes/lots that are under contract but haven’t flowed through the financials yet. Second, most of their homesites are on takedown schedules with homebuilders so these actually are recurring in nature up to a point. Obviously if the homebuilders aren’t seeing the demand for what they’re building then the schedules will slow down, but these aren’t one-off sales regardless. To give you an idea on backlog, JOE has 2,376 homesites under contract that haven’t hit the financials yet.

 

I think it’s helpful to look at residential on an individual community basis to get an idea on what a range of sales could look like:

 

 

Adding all this up gives a range of $50-110mm in profit from residential sales by 2024, with the base case being ~$75mm. Keep in mind, the base is 1400 homesite sales vs JOE’s stated goal of 2000. The base of $75mm compares to profit of $84mm in 2021 & $40mm in 2020 (both of which were pre-Margaritaville selling 600 homes annually). With this in mind, I think these assumptions are most likely very conservative. However, I think it makes sense to be overly conservative here considering the nature of the business and the covid-related bump over the past 2 years. 

 

So what kind of multiple do we put on lot sales? While this will certainly be their most volatile segment and any earnings here actually depletes their asset base, JOE has a certified residential pipeline of over 100 years. There aren’t many earnings streams you can say that about. I think 10x here is fair considering all of the above. This leaves us with a range of $500-1,100mm in value for this segment. Normalized earnings should become clearer in the next year or 2 as we distance ourselves from the covid boom. 

 

Also in the residential segment would be camp creek lot sales. These were purposefully left out of residential as these lots will run through the financials over the next year and represent a large source of income to JOE. The remaining 109 lots should generate ~$70mm for JOE when considering the range of $600-1,000mm per lot for the first 153 lots. 

 

Altogether, this leaves us with a range of $570-1,1700mm for the value of the residential segment.

 

Corporate:

It is well documented that as revenues have gone parabolic at JOE, corporate costs have remained flat. This is a point of pride with management and something they aim to continue. Over the past 6 years, corporate costs have been in the $20-23mm range. Feel free to capitalize this how you want, but I’m using a value of -$200mm for the drag of corporate costs. 

 

Total:

Commercial - $630mm in value on $40mm NOI 

Hospitality - $470mm in value on $47mm NOI

Residential - $570-1,170mm in value on $50-110mm NOI

Corporate - ($200mm) in value on -$21.5mm in corporate costs

Total - $1,470-2,270mm in SOTP value on $115-175mm EBIT

 

JOE’s current market cap is $2.0B. So comparing the value of what's in the ground today vs JOE’s market cap, the numbers represent a range anywhere from getting the rest of JOE’s land for free to $600mm for the rest of JOE’s land. Keep in mind, JOE’s current revenue generating projects in Bay/Walton exist on less than 3,000 acres, or less than 3% of the land in the Bay-Walton Sector Plan. They’ve used less than 5% of their commercial entitlements, close to 1% of their residential entitlements, and around 25% of their hotel room entitlements. If the Bay/Walton region continues to grow, the commercial & hospitality segments alone will make up more than the entire market cap within ~5 years and will still have decades worth of growth left. 

 

JOE’s hospitality and commercial segments should be growing earnings at 20-30% annually for the foreseeable future as they grow off a small base (~200k additional commercial sqft annually, ~300 additional MF units annually, and ~200 hotel rooms annually). Expansion of Margaritaville & Origins will be a huge tailwind for commercial as town centers will be embedded in the communities. Residential should also continue to grow (albeit not in a straight line) as they expand their community count.  

Risks:

1. Slowdown in housing. 

 

Counterpoint: This is certainly a risk, but one that is short-sighted in nature. This is a 100-year opportunity, and I am not too worried about a few quarters of poor demand due to the macro environment. I am instead worried about the decades-long secular trend of people migrating to Florida (and the emerald coast region specifically). 

 

However, JOE does seem to be shielded from this somewhat. JOE’s popular communities are still seeing demand in excess of supply even in this environment. Don’t just take my word for it, call up a realtor that covers Margaritaville or Origins and they’ll tell you the same thing. 

2. The Bay/Walton region doesn’t grow.

 

No counterpoint here. I think this is the main risk and hurdle for the thesis. In order for anyone to believe in an investment in JOE, one must believe in the region. All evidence I’ve seen points towards growth in the region being a near certainty over the long-term (again, who knows quarter to quarter). Whether that’s looking at the quality of the area, the enduring popularity of Florida, the migration of retirees, case studies of other coastlines in Florida, etc… they all point to the likelihood of the Bay/Walton region growing. 

3. Hurricane or storm risk. 

 

Counterpoint: This is likely the first risk that comes to mind when most people think of an investment in a developer along the Florida coastline. However, I believe this risk is a bit overblown. First off, modern building techniques and codes have come a long way. For an example of this, look at the recent hurricane in the Ft. Myers area. Older homes that took a direct hit were completely destroyed. On the other hand, newer homes suffered next to no wind damage. I don’t think any of JOE’s properties really pose a risk in terms of wind damage. However, flood damage is always a risk. JOE is somewhat mitigated from this given that their coast of Florida is much higher elevated than the rest of Florida, so the storm surge poses less of a risk. 

 

The interesting thing about hurricanes is that they also act as somewhat of a boon for JOE. If a hurricane comes through and wipes out a bunch of older homes, it creates demand for new housing in the area. If we go back and look at Hurricane Michael in 2018, this destroyed a lot of homes in the Panama Beach area. This created a bunch of demand for JOE in Panama Beach post-2018, which we are able to see through neighborhoods like Breakfast Point. Lot sales doubled in Breakfast Point between 2018 and 2019.

 

 

Catalyst

Continued rapid earnings growth from recurring revenue projects