The St. Joe Company (NYSE: JOE) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company is a real estate development, asset management and operating company focused on Northwest Florida, with residential, hospitality and commercial segments. Financial amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $87.8 | $73.0 | +20.3% |
| Operating income | $16.0 | $11.3 | +41.6% |
| Operating margin | 18.2% | 15.5% | +2.7 percentage points |
| Income before taxes | $17.8 | $12.9 | — |
| Net income attributable to St. Joe | $13.9 | $10.4 | +33.7% |
| Diluted earnings per share | $0.24 | $0.18 | — |
| Net cash from operating activities | $27.6 | $19.2 | — |
| Capital expenditures for operating property and equipment | $14.3 | $44.0 | — |
Revenue mix shifted toward hospitality: hospitality revenue increased 60.4% to $39.3, leasing revenue rose 21.2% to $14.3, while real estate revenue declined 6.9% to $34.2. Real estate gross profit was $18.2, with a 53.2% gross margin, versus $16.3 and 44.4% a year earlier. Hospitality gross margin improved to 22.9% from 6.5%; leasing gross margin declined to 49.7% from 54.2%.
Equity income from unconsolidated joint ventures more than doubled to $7.4, including $8.3 from the Latitude Margaritaville Watersound JV, versus $3.9 a year earlier. Interest expense increased 37.1% to $8.6, primarily as completed projects ceased capitalizing interest and project financing increased. Depreciation, depletion and amortization rose to $11.2 from $7.3, mainly reflecting new hospitality and commercial assets.
Balance sheet, debt and liquidity
- At March 31, 2024, cash and cash equivalents were $89.8, up from $86.1 at year-end; cash, cash equivalents and restricted cash totaled $94.2.
- Total assets were $1,537.7 and total equity was $704.9. Debt, net, was $452.0; outstanding debt principal before discounts and issuance costs was $457.4. Separately, the consolidated balance sheet included $178.2 of Senior Notes held by a special purpose entity, alongside $203.8 of investments held by special purpose entities.
- Weighted average effective interest rate on outstanding debt was 5.3%; 66.2% of debt was fixed-rate or swapped, and average remaining debt life was 17.0 years. Variable-rate loans excluding swapped balances averaged 7.6%.
- Debt principal maturities total $33.9 in the remainder of 2024 and $66.2 in 2025. A $26.8 North Bay Landing loan matures in September 2024, with an extension option subject to conditions; the company said it had been seeking a HUD-insured refinancing commitment.
- Operating cash flow was $27.6; investing cash outflow was $14.7 and financing cash outflow was $9.5. The company paid $7.0 in dividends and made $2.3 in debt principal payments.
- Management stated that cash, financing arrangements and operating cash generation are expected to provide sufficient liquidity for anticipated needs over the next 12 months. It reported $37.8 of construction and development contractual obligations at quarter-end.
Material changes and operating trends
- Residential: Consolidated homesite sales were 216, versus 327 in Q1 2023. Average base revenue per homesite, excluding residuals, increased to approximately $117,000 from $62,000, reflecting community mix and the prior-year inclusion of 100 lower-priced undeveloped SouthWood sites. Residential gross margin rose to 50.0% from 42.0%.
- Pipeline: St. Joe had 1,335 homesites under contract, expected to generate approximately $119.8 of revenue plus residuals over several years, compared with 1,915 sites and approximately $165.0 a year earlier. The unconsolidated Latitude Margaritaville Watersound JV had 562 homes under contract and completed 177 home sales in the quarter.
- Hospitality: Growth reflected more club members and hotels and amenities opened during 2023. Watersound Club had 3,433 members, up from 2,653. St. Joe reported 1,053 operational hotel rooms, versus 492 a year earlier, excluding 124 rooms at an unconsolidated JV. Hotel gross margin turned positive, but remained modest at 2.2%.
- Commercial: Leasing revenue increased, while commercial and forestry real estate sales fell to $1.4 from $5.9. Timber revenue declined to $1.2 from $1.7, with both volume and average price per ton lower.
Outlook, risks and contingencies
- No specific full-year earnings or revenue guidance was provided. Management expects to continue developing residential, hospitality and commercial projects, funding commitments with operating cash, existing cash, land, partner capital and financing. It cautioned that project timing may be delayed and returns may take time.
- Management described demand across segments as strong, attributing it to migration into Northwest Florida, limited housing supply and cash buyers. It also cited inflation, elevated interest rates, higher insurance and operating costs, labor shortages, supply-chain disruption and geopolitical uncertainty as headwinds. It said homebuilder performance on contracts continued and cancellations had not increased.
- Business and asset concentration in Northwest Florida exposes results to regional conditions, weather and natural disasters. Residential sales mix, sporadic homebuilder transactions, hospitality seasonality and non-recurring commercial land sales can cause substantial period-to-period variability.
- Interest-rate sensitivity is material: a hypothetical 100-basis-point increase in applicable rates would increase annual interest expense by approximately $1.5, based on variable-rate debt at quarter-end.
- The company provides guarantees on certain consolidated and unconsolidated JV debt and other obligations. It had $27.7 of surety bonds and other financial guarantees and $0.6 of standby letters of credit; management had not recorded a guarantee obligation, apart from a $0.1 credit-loss allowance. The company’s maximum exposure to loss from unconsolidated JVs was $109.3.
- Accrued liabilities for litigation and other matters were $0.4. Management did not expect pending matters to materially affect consolidated financial position or liquidity, but noted adverse outcomes could affect results or cash flows in a particular period. Environmental assessments are ongoing; management could not quantify future rehabilitation costs above existing accruals or provide a reasonably estimated range.
- The company was in compliance with financial debt covenants. Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the North Bay Landing loan was refinanced or extended after its September 2024 maturity date, and the status of other near-term maturities.
- How much of earnings growth is supported by recurring operations versus JV equity income, particularly the Latitude Margaritaville Watersound contribution.
- Progress on hospitality profitability and occupancy as newer hotels and amenities mature, including the effect of higher interest and operating costs.
- Residential contract closings, homebuilder activity, sales mix and the conversion of homesite contracts and residual receivables into cash.
- Actual capital spending, project commitments, JV guarantees and liquidity needs relative to management’s 12-month liquidity assessment.
- The impact of higher rates, insurance costs, regional concentration and weather risks on demand, project economics and debt-service capacity.
- The company declared a $0.12-per-share dividend on April 24, 2024, payable June 13, 2024 to shareholders of record May 15, 2024; verify subsequent payment and future dividend decisions.