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By Philip Guziec, CFA | 07-01-2010 03:02 PM

St. Joe Can Afford to be Patient

Morningstar's Anthony Dayrit thinks that Florida landowner St. Joe will be able to cope with the issues stemming from both the economy and the Gulf oil spill.

Securities mentioned in this video
JOE St Joe Corp

Phil Guziec: Hi, I'm Phil Guziec, Co-Editor and Portfolio Manager of Morningstar's OptionInvestor research service, and recently we took a bullish put position selling a put on St. Joe, and I'm here with Anthony Dayrit, our analyst, covering St. Joe to discuss the company.

Anthony Dayrit: Great to be here, Phil.

Guziec: Thanks for coming, Anthony. So, let's start out with the basics of St. Joe. What is the company and what's the company's history?

Dayrit: Sure. Well, St. Joe is a land development company that owns nearly 600,000 acres throughout the Florida, Northwest Florida Panhandle. Beginning around the 1930s, the company started out as originally a timber company, and in order to feed its paper mills started buying up just huge amounts of land throughout Northwest Florida, and buying this for prices as low as $1 to $2 an acre. Today, the company is basically a real estate developer that secures entitlements for the land and then sells it to prospective buyers.

Guziec: So the value of the company basically is in this land that they're developing and selling?

Dayrit: Correct. Now, 70% of the 580,000 acres is located within 15 miles of the coast line as well.

Guziec: So it's pretty prime real estate.

Dayrit: Correct.

Guziec: It's sunny…

Dayrit: Bright sand beaches.

Guziec: -- retirement areas, beautiful, beautiful. Okay. Well, we have a wide moat rating on St. Joe. How do you justify that?

Dayrit: Well, the way we see the wide moat is twofold. One, St. Joe owns this at a near zero cost basis. As I said, they bought a lot of this land for – sometimes even pennies on the dollar. Now, the other part of the wide moat is that if anyone wants to buy land in the next 20 to 30 to even 50 years in Northwest Florida, it's pretty likely that they're going to have to go through St. Joe.

Guziec: How does it add value to this land as it entitles it and sells it? How does the company really create value and monetize the land?

Dayrit: Well, Northwest Florida has traditionally been a pretty underdeveloped region of the state just in terms of the lack of accessible transportation. And one thing St. Joe does is they've been pretty adept at partnering with local municipalities, local governments in developing the land.

The best example of this right now is that the company donated 4,000 acres in Panama City for the construction of a new airport, and in exchange they received land use permits for around 35,000 acres around the entire airport, and they can sell and develop that land as well. So it's really – the company is pretty intertwined with all of the local governments in Northwest Florida, and basically putting in the necessary infrastructure to drive economic growth.

Guziec: So they basically created value for the land surrounding the airport by giving away the land for the airport.

Dayrit: That's correct.

Guziec: That's a beautiful move.

Dayrit: Yes.

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