St. Joe ‘Not A Prisoner’ Of Land Prices
The St Joe company reported results yesterday evening. “Despite a spate of hurricanes, St. Joe Co. officials said they had an increased net profit in 2005, but expect the coming year to bring flatter sales and fewer speculative buyers. ‘We do not expect the fevered market of the past couple of years,’ said Peter Rummell, chairman and CEO of St. Joe, which owns more than 800,000 acres in Florida, most of it in the Panhandle.”
“If anything, Rummell said, ’some of the speculators may have exited the market.’”
“Rummell acknowledged sales had slowed in the last six months of the year. Hurricanes and a general slowing of the housing market were key factors, particularly in resort areas in the Panhandle, he said. In all, St. Joe had 43,716 acres in various stages of development across the state, with about 9,000 units of more than 39,000 planned residential units sold or under construction.”
And from the firms press release. “‘We are pleased with our 2005 performance, especially considering the challenges we faced in the third and fourth quarters,’ said Rummell. ‘Traffic and sales activity did slow in the third and fourth quarters, particularly in our resort residential projects. We are looking forward to the spring market with cautious optimism,’ said Rummell. ‘However, resort sales have remained slow thus far in the first quarter.’”
“‘We have remained disciplined in a slowing market, and I believe our discipline will benefit those investing in JOE for the long-term. We see a market returning to a more sustainable growth pattern going forward. Many developers might feel pressure to do any deal they could in a slowing market,’ said Rummell. ‘But because of JOE’s unique advantages, including essentially no holding costs for our low-basis land, we don’t succumb to such pressure. Unlike many developers, we are not a prisoner of land priced at retail and often financed with debt.’”
“In the fourth quarter of 2005, JOE sold 9,110 acres of rural land at an average price of $2,712 per acre, compared to 3,369 acres for an average price of $5,105 per acre in the same quarter a year ago. For the year ended 2005, JOE sold 28,958 acres of rural land at an average price of $2,378 per acre, compared with 20,175 acres of rural land at an average price of $3,372 per acre in 2004.”
“‘The rural land buyer profile continues to shift away from neighbors in Northwest Florida to those living outside the region. Only 28 percent of our rural land customers in 2003, including those purchasing RiverCamps home sites, lived more than 120 miles from the land they purchased. By 2005 buyers from outside the region had increased to 63 percent.”
“On December 31st, JOE owned approximately 838,000 acres, concentrated primarily in Northwest Florida. These holdings included approximately 338,000 acres within 10 miles of the coast of the Gulf of Mexico and approximately 500,000 acres outside the 10-mile coastal perimeter, including approximately 48,000 acres in southwest Georgia. ”
“At the end of 2005, JOE had land use entitlements in hand or in process for approximately 41,700 residential units.”
“Cost of sales for home sites in 2005 consisted of $25.4 million in direct costs, $3.9 million in selling costs and $3.0 million in indirect costs.” The firms financials report that they sold those sites for $402 million.
“Cost of sales for homes in 2005 consisted of $375.4 million in direct costs, $27.8 million in selling costs and $37.1 million in indirect costs.” St. Joe sold those homes for just under $1.8 billion.”
There is no shortage of land in Florida, and these huge mark-ups show that the housing bubble is just making some rich at the expense of homebuyers.
That’s the funny thing about Florida real-estate, especially when you’re not talking about beachfront property. Take the greater Orlando area. All the land is essentially the same. There are no mountains, hills, etc. One piece of swampland is exactly like another. So you’d see properties flipping in some huge new development–in some cases a house or unit changing owners three times before it’s built!–while all around it is empty, equivalent land! Realisically–there’s plenty of “supply”. There’s no reason for escalating prices except for stupidity and greed.
St Joe has been around a long time and has been one of Florida’s largest private land holders.
They have owned those 800,000+ or - acres for decades, maybe even centuries. Originally land purchased from the government to grow trees for paper production. 25-30 years ago St Joe realized they could make more money shifting to developement rather than paper production.
I think that is one company that won’t have to worry too much about a RE Bubble unless prices revert to pre 1940’s prices they were paying when they bought the land.
Since they own a lot of the builders (I beleive they own Arvita for one) who put up houses and planned communities on this land I think their profit margins must be through the roof.
Hopefully St Joe will keep some of that ocean front property in the Panhandle free of developement. If you want to see Florida at its best go out to the Panhandle just south west of Tallahassee and there are miles and miles of undeveloped white sand beaches with no one for miles.
when the bubble pops, who is going to want land or a home in NW Florida?
can they log that land if lumber prices go up?
NW Florida has a nice climate, excellent restaurants, a couple of good public school systems, and hasn’t been insanely overdeveloped like the peninsula has. And between government land holdings (the DoD alone controls a Delaware-sized amount of woodlands south of I-10) and permanent conservation easements, the majority of land within ten miles of the coast between Pensacola and Panama City is off the books for further development.
As someone that lives there, the thing that irritates me about St. Joe is that the pressure from stockholders to keep profits up has led them to scaling back on their old plans to add a fair amount of affordable housing to the area. A few years back, they had a few developments where new homes in Panama City Beach were in the $100-$150K range, which is workforce housing for the teachers and police officers in the area, but their stockholders just don’t want to see more of those low margin kinds of projects anymore, so they don’t happen.
SOMETHING WICKED THIS WAY COMES
Fed Focus
Paul McCulley
Managing Director PIMCO
February 7, 2006
mcculley@pimco.com
“…When the cyclical turn comes, it will be a wicked turn, our guts say, as conventional policy gives way to unconventional property market weakness….”
How about a link for the PIMCO commentary?
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/FF/2006/FF+February+2006.htm
Good luck with this article. He takes most of it explaining why fed. funds ended up higher than he thought they would (as if we care). I think the bottom line is that he thinks they’re overdoing it, hence the scary last paragraph (quoted above)
However, maybe Jeffolie can help, because I didn’t come away with much insight.
Again, I agree with John Law. I’d think St. Joe could revert to the lumber business in the worst case, waiting for a recovery in prices.
I’ll be interested in watching this one fall and then see if it makes sense as a lumber play to buy at the bottom.