The St. Joe Company (NYSE: JOE) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; unaudited. Comparisons are with the corresponding 2020 periods. The company is a Northwest Florida real estate development, asset management and operating company, with residential, hospitality and commercial segments.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $72.2m | $36.1m | $113.5m | $54.7m |
| Operating income | $30.8m | $11.1m | $36.3m | $9.8m |
| Net income attributable to St. Joe | $24.2m | $19.2m | $27.4m | $17.7m |
| EPS, basic and diluted | $0.41 | $0.33 | $0.47 | $0.30 |
- Q2 revenue approximately doubled year over year. Real estate revenue rose to $41.1m from $17.6m, hospitality to $22.6m from $11.6m, and leasing to $6.4m from $4.9m. Timber revenue was $2.2m versus $2.1m.
- Q2 operating margin was approximately 42.6%, versus 30.8%. Revenue and operating income growth reflected stronger real estate sales and hospitality activity.
- Q2 net income included a $3.2m gain on land contributed to an equity-method joint venture, versus a $15.3m gain in Q2 2020. The prior-year comparison also included larger land-contribution gains in the first half. These gains affect comparability.
- For the first half, residential real estate revenue increased to $53.1m from $17.0m; hospitality revenue to $35.7m from $18.2m; and leasing revenue to $12.0m from $9.2m. Commercial and rural real estate sales were $8.2m versus $5.1m. Timber revenue decreased slightly.
- First-half segment margins were mixed: residential real estate gross margin was 57.6% versus 55.9%; hospitality gross margin was 24.6% versus 14.3%; leasing gross margin declined to 56.3% from 79.3%, reflecting start-up and lease-up costs and prior-year insurance proceeds.
Cash flow, balance sheet and liquidity
- For the six months, operating cash flow was $47.2m, compared with $12.5m. Investing cash outflow was $128.0m, including $67.7m of operating-property expenditures and $108.0m of purchases of debt securities, partly offset by maturities and other proceeds. Financing cash inflow was $7.5m.
- Cash, cash equivalents and restricted cash totaled $36.8m at June 30, down from $110.1m at year-end. Separately, the company held $110.0m of U.S. Treasury Bills classified as investments; management considers securities generally available for liquidity needs.
- Total assets were $1.102bn and stockholders’ equity was $568.9m. Debt, net, was $183.1m; the debt table reports $186.0m principal before unamortized discounts and issuance costs. The balance sheet also reports $177.4m of Senior Notes held by a special-purpose entity, alongside $205.8m of investments held by special-purpose entities.
- First-half capital expenditures were reported as $84.1m in the liquidity discussion. The filing also reports $222.4m of construction and development contractual obligations at June 30, with a significant portion expected to be funded through committed or new financing.
- The company paid $9.4m in dividends during the first half ($0.16 per share); the board declared a further $0.08 per-share dividend payable September 10, 2021. No shares were repurchased in the first half; $77.4m of repurchase authorization remained.
Material changes, outlook and risks
- Management said demand across segments remained strong, citing Northwest Florida growth, regional appeal and workplace flexibility. It stated that the recovery remained ongoing and that COVID-19’s magnitude and duration were uncertain; declines versus historical norms remained possible. No quantified full-year revenue or earnings guidance is provided.
- Residential activity strengthened: 1,349 homesites were under contract with homebuilders, expected to yield approximately $129.0m at closing over several years. The Latitude Margaritaville Watersound joint venture had 185 homes under contract, expected to yield approximately $68.6m at closing. These are expected amounts, not recognized revenue or guaranteed collections.
- The Hilton Garden Inn near the airport completed construction in late June and opened in July 2021. The company expected a portion of the hurricane-damaged marinas to reopen by year-end 2021; timing and sufficiency of insurance recoveries remain uncertain.
- Key exposures include concentration of land and operations in Northwest Florida; real estate demand, homebuilder closings and development timing; hospitality seasonality and renewed pandemic disruption; construction costs and project financing; and hurricane, environmental and litigation matters. Management reported $0.7m of accrued liabilities for litigation and other matters and said it could not estimate future environmental rehabilitation costs above existing accruals.
- The company had guarantees related to certain joint-venture and project borrowings, surety bonds of $22.7m and standby letters of credit of $6.3m. It reported compliance with financial debt covenants. Variable-rate loans expose it to interest-rate changes; a hypothetical 100-basis-point increase would add approximately $0.6m to annual interest expense on the specified outstanding loans. The filing also notes uncertainty surrounding the transition from LIBOR.
- Management believed cash, financing arrangements and operating cash generation would be sufficient for anticipated needs over the next 12 months, including capital spending, debt service, JV contributions and dividends. This is a forward-looking assessment, not a guarantee.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operations versus land-contribution gains, insurance recoveries and other unusual items.
- Whether contracted homesites and JV homes close as expected, and the timing and margins of those sales.
- Liquidity after planned development spending: distinguish cash from Treasury investments, restricted cash and special-purpose-entity assets.
- Total debt exposure, maturities, project-level guarantees and funding needs against the $222.4m of contractual development obligations.
- Recovery and reopening progress at the marinas, and whether insurance proceeds adequately cover restoration and business-interruption losses.
- Whether hospitality demand, apartment lease-up and senior-living occupancy support planned projects and future recurring revenue.