Valuing Diversified Real Estate Companies

My guest on the show today is Jorge Gonzalez, the CEO of The St. Joe Company. St. Joe is a 2.53 billion dollar market cap company whose main asset is a huge landholding in Northwest Florida. A lot of investors may remember that the company has been the subject of a number of short reports over the last decade but since Jorge became CEO in 2015, St Joe has consistently grown its revenue and EBITDA—and has diversified its revenue base. Also, after a period of time in which the stock was unable to break out, over the last year it has risen to levels that had not been seen since the mid-2000s.

Given the company’s recent success, I was excited to talk to Jorge about his vision of the future of the company and what people may not be appreciating its asset base. Specifically, we discussed:

- What it means to operate as an owner-oriented company;

- The demographic trends that are fueling growth in Northwest Florida;

- What the shorts have gotten wrong over the years;

- How the company approaches the risk of hurricanes in the region; and

- What Jorge has learned from the company’s Chairman, Bruce Berkowitz of Fairholme Capital

This episode of Compounders: The Anatomy of a Multibagger is sponsored by Tegus, an innovative and disruptive company that is changing the way professional investors work. For more information, please visit: https://www.tegus.co/

Timestamps:

- 1:18 Introduction

- 2:36 Being named the next CEO of St. Joe

- 3:19 Shifting St. Joe’s strategy, culture, and process of execution

- 4:08 Adjusting corporate strategy to expand the total market size

- 5:18 St. Joe’s vast land holdings and unique moat

- 6:38 Florida’s demographic shifts and how that might affect St. Joe

- 8:18 How COVID has affected the trends driving St. Joe’s business

- 9:52 Handling cyclicality at a macro and geographic level

- 11:46 Building a recurring revenue stream in a traditionally cyclical business

- 15:28 Further enhancing an already improving business model

- 18:05 Balancing an expansion beyond Florida with internal investment opportunities

- 19:10 Choosing between internal development, partnerships and the sale of land assets

- 20:58 The synergies that exist between residential, commercial, and other infrastructure

- 24:04 Ensuring expertise exists within a small core team

- 25:45 What does a good partner look like for St. Joe?

- 27:36 What does St. Joe mean by “owner-oriented?”

- 29:19 Why St. Joe invests so heavily in growth over buying back shares

- 30:52 Lessons learned from Bruce Berkowitz

- 31:51 How decisions get made at St. Joe

- 34:40 How to decide which people should be on the bus

- 37:17 What factors did David Einhorn get right in his 2015 short analysis?

- 38:42 St. Joe’s remaining developable acreage

- 40:14 How St. Joe benefits from a 50-year master development plan

- 41:58 What attractions are missing from St. Joe’s core counties

- 42:58 Building win-win relationships with government stakeholders within the community

- 45:27 How St. Joe avoids being seen as “too powerful” within the community

- 46:37 Building storm resiliency in an area directly affected by environmental challenges

- 49:49 The benefits of building modern infrastructure from scratch

- 50:57 How modern community design has improved over the years

- 52:35 Futureproofing a home or community as a real estate developer

- 55:14 How an investor should approach St. Joe

- 58:31 St. Joe’s key performance indicators and measures of success

- 59:47 Why St. Joe is still a “cheap” investment

- 62:07 Looking at book value per share as an assessment of St. Joe’s progress

- 62:50 Instilling a long-term mentality within a corporate culture

- 64:14 Why mistakes are sometimes more valuable than are successes

- 65:42 The most misunderstood aspect of St. Joe 

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All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.