The St. Joe Company — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. St. Joe is a Northwest Florida real estate development, asset management and operating company, with residential, hospitality and commercial segments. All amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $57.6 | $54.0 | $190.7 | $167.5 |
| Operating income | $12.2 | $16.2 | $51.2 | $52.5 |
| Net income attributable to St. Joe | $12.3 | $15.2 | $42.8 | $42.6 |
| Diluted EPS | $0.21 | $0.26 | $0.73 | $0.72 |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $30.3 | $65.1 |
Q3 revenue grew about 6.6%, while operating income fell about 24.7% and attributable net income declined about 18.7%. For the nine months, revenue increased about 13.8%; operating income decreased about 2.4%, while attributable net income was broadly unchanged.
- Revenue mix: Q3 real estate revenue was $17.3 million versus $23.5 million; hospitality was $29.0 million versus $22.3 million; leasing was $10.0 million versus $7.1 million. For nine months, real estate revenue was $82.1 million versus $85.6 million, hospitality $74.9 million versus $58.0 million, and leasing $28.2 million versus $19.1 million.
- Margins: Real estate gross margin was 58.4% in Q3 versus 63.8% and 57.0% for nine months versus 61.3%. Hospitality gross margin was 24.1% in Q3 versus 26.0% and 22.3% for nine months versus 25.0%. Leasing gross margin was 51.5% in Q3 versus 56.3% and 55.3% for nine months versus 56.5%.
- Cash flow and investment: Nine-month operating cash flow fell to $30.3 million from $65.1 million. Investing cash outflow was $139.1 million, compared with $170.7 million, and financing cash inflow was $61.3 million, compared with $25.2 million. Total capital expenditures were $229.6 million; operating-property and equipment expenditures were approximately $159.9 million.
- Liquidity: At September 30, cash and cash equivalents were $18.8 million and U.S. Treasury securities were $74.0 million, for $92.9 million combined. Cash, cash equivalents and restricted cash totaled $26.8 million; restricted cash is not necessarily available for general use. Management said cash, financing arrangements and operating cash generation were expected to cover anticipated needs for the next 12 months.
- Debt and assets: Debt, net, rose to $321.1 million from $223.0 million at year-end 2021; principal outstanding was $326.8 million. Separately, $177.8 million of Senior Notes is held by a special-purpose entity with associated investments. Total assets rose to $1.340 billion from $1.208 billion, including net real estate investment of $883.8 million versus $690.1 million. Debt’s weighted-average effective rate was 4.6%; 40.3% was fixed-rate. The company reported compliance with financial debt covenants.
Material changes versus prior period
- Hospitality growth reflected increased club membership and new or expanded hotel, restaurant, retail and marina operations. Watersound Club had 2,573 members, up from 2,158 a year earlier.
- Leasing growth came from new multifamily and senior-living leases. Approximately 93% of 1,042,703 leasable square feet was leased, compared with 87% of 984,603 square feet at December 31, 2021.
- Residential revenue and margins weakened: Q3 homesite sales were 78 versus 119, and nine-month sales were 490 versus 494. Management cited sales mix, closing schedules and development timing.
- Higher hospitality and leasing costs, including labor, supplies, start-up and lease-up costs, and higher depreciation weighed on margins. Interest expense increased to $13.0 million for nine months from $11.6 million, reflecting increased project financing and higher rates.
- Year-to-date share repurchases totaled $20.0 million (576,963 shares); dividends paid were $17.7 million, or $0.30 per share, versus $14.1 million, or $0.24 per share.
Outlook, risks and unusual items
- Outlook: Management reported strong demand across segments and attributed regional growth to Northwest Florida’s appeal and workplace flexibility. It also said inflation, rising rates, supply-chain disruption and other economic pressures affected buyer sentiment, project costs and delivery timing. Delays had generally not increased cancellations, but could shift revenue recognition. No specific numerical earnings or revenue guidance is provided.
- Development commitments: The company reported $169.0 million of construction and development contractual obligations. Surety bonds and other financial guarantees totaled $36.7 million, and standby letters of credit totaled $19.4 million. Management said a significant portion of commitments would be funded through committed or new financing.
- JV and guarantee exposure: Maximum exposure to loss from unconsolidated joint ventures was $86.9 million, including investments, guarantees, receivables, contribution requirements and derivatives. The company had numerous project and JV guarantees; terms and recourse vary.
- Rate risk: A hypothetical 100-basis-point increase in applicable rates would increase annual interest expense by $1.9 million based on September 30 balances. Some debt referenced LIBOR, scheduled to cease publication in June 2023; agreements provide alternatives, but their relative cost and other transition effects were uncertain.
- Hurricane and contingencies: Hurricane Michael-related insurance recovery gains were $4.2 million for nine months, compared with $3.9 million; proceeds and recovery timing remain uncertain. Bay Point Marina fully reopened in Q3, while a portion of Port St. Joe Marina was expected to open in 2022. Accrued litigation and other claims were $0.4 million; environmental rehabilitation costs beyond accruals could not be reasonably estimated. Management did not expect pending matters to materially affect financial position or liquidity, but noted adverse outcomes could affect results or cash flows.
- Other items: Q3 2022 included a $1.4 million gain on land and impact fees contributed to a JV. Nine-month results included $1.1 million of design costs for plans no longer pursued and a $0.6 million homeowners’ association assessment. Prior-year nine-month results included $3.6 million of timber recovery grant income. A $0.1 million early debt-extinguishment loss was recorded after a loan amendment.
Important facts for investors to verify
- Whether residential homebuilder closings, sales mix and delivery timing sustain demand and margins as interest rates and housing conditions change.
- Progress, remaining cost and financing for the company’s large development pipeline and $169.0 million of contractual obligations.
- Debt maturity, floating-rate exposure, covenant headroom and the company’s guarantees for consolidated and unconsolidated projects.
- Whether hospitality and new leasing assets can absorb opening, staffing and operating costs and improve margins as they mature.
- Timing and sufficiency of Hurricane Michael insurance recoveries, marina restoration and any environmental or litigation developments.
- Availability of liquidity for planned investment, dividends and repurchases; $80.0 million of repurchase authorization remained at September 30, 2022.