Saturday, July 08, 2006

My Island Looks Expensive; St. Joes (JOE) Looks Cheap
A View of the Real Estate Bubble
From Your Vacationing Cheap Stocks Editor

St Joes Corp
Ticker: JOE
Market Cap: $3.63 billion
Price: $48.65
P/E: 32
Dvd Yield: 1.4%
Enterprise Value: $3.98 billion
Acres: 800000
EV/acre: $4975

We've been enjoying some rest and relaxation on a small island strip of NJ coast we call our summer home. I've not been completely on vacation, however. As I ride up and down this island, and see the ridiculous property prices, I can't help but to wonder...

And wonder I have, which has given rise to a few calculations. You see, on our little island, I'd estimate there are about 40 properties on each street from bay to ocean. This includes 4 beachfronts, and 2 bayfronts. Based on recent prices, I'd estimate that an entire street worth of property would sell for about $30 million based on the following:

Beachfront home(4 per block): $1.5 million each
Bayfront(2 per block): $1 million
Oceanside(14 per block): $750 thousand
Bayside (20 per block: $ 600 thousand

Total Value/Street: $30.5 million

This is actually a very conservative estimate, and does not include streets, or infrastructure, just private property and homes.

So, theoretically, 130 streets worth of property, or an area of approximately 5 miles by 1/4 mile, or about 800 acres, about 1.25 square miles, would be worth about $4 billion. We know this calculation is a bit ridiculous; if every homeowner on 130 streets put their house on the market, property values would plummet. Still, it is food for thought.

We know of a company that is also worth about $4 billion based on Enterprise Value, St. Joes Corp, which we've written about in the past and have a position in. The company owns about 800,000 Florida acres, more than 300,000 acres of which is within ten miles of the Gulf of Mexico.

St. Joes has had quite a run-up over the past few years, hit $85 in 2005, but now trades for less than $50. This profitable company has no doubt been stung by a pullback and slower growth in Florida real estate. We see tremendous value in these shares for investors with a little patience.

So does Third Avenue Funds, led by the legendary Marty Whitman. Third Avenue owns a huge stake in St. Joes, about 14 percent, and has been adding to positions. We were pleased to note Michael Winer's (Portfolio Manager of the Third Avenue Real Estate Value Fund--while we don't own this fund, we do own Third Avenue Small Cap Value, which also has a position in St. Joes) column much of which focuses on St. Joes in the latest letter to shareholders. This letter is typically fantastic, and I'd urge you to see for yourself. Winer's explaination of why St. Joe's is still safe and cheap is outstanding.

Back to our little NJ island. A real estate agent friend of mine told me the other day that there are hundreds more homes for sale this summer compared to last. Sales are down as much as 50 percent. This should surprise no one.

Finally, I've been thinking. What's more valuable, 800,000 acres of prime Florida land, or 800 acres of a NJ barrier island? I guess value is truly in the eye of the beholder.

*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

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