The St. Joe Company (NYSE: JOE) — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results; amounts below are in millions of dollars unless stated otherwise. St. Joe is a Northwest Florida real estate development, asset management and operating company, with residential, hospitality and commercial segments.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $42.0 | $32.9 | $96.7 | $84.4 |
| Operating income | $11.0 | $7.4 | $20.8 | $16.1 |
| Net income attributable to St. Joe | $7.8 | $5.7 | $25.4 | $18.1 |
| Diluted EPS | $0.13 | $0.10 | $0.43 | $0.30 |
| Operating cash flow | Not separately reported | Not separately reported | $22.5 | $14.7 |
- Q3 revenue increased 28%; operating income rose 49% and attributable net income rose 36%. Operating margin was about 26%, versus 23% a year earlier.
- Nine-month revenue increased 15%. Net income growth included significant nonrecurring gains on land contributed to joint ventures; see unusual items below.
- At September 30, cash and cash equivalents were $102.4, debt securities $50.0 and equity securities $2.7. Cash, cash equivalents and restricted cash totaled $107.5, down from $188.7 at year-end 2019.
- Debt, net was $143.4, up from $92.5 at year-end; the company also reported $177.2 of Senior Notes held by a consolidated special-purpose entity and supported by related assets. The filing says debt covenants were met.
- Total assets were $1,003.9 and total equity $552.4. Nine-month investing cash outflow was $140.8, including $95.4 of capital expenditures and $58.9 of debt-security purchases. Financing provided $37.1, including $53.1 of borrowings.
Material changes and operating trends
- Residential: Q3 segment revenue was $16.4 versus $11.1; 162 homesites sold versus 94. Nine-month revenue rose to $33.5 from $28.6, with 303 homesites sold versus 276.
- Hospitality: Q3 revenue increased to $16.8 from $13.9, and gross margin improved to about 36% from 28%, helped by a longer vacation season, membership growth and cost management. Nine-month revenue declined to $34.8 from $36.6 as pandemic-related closures and restrictions affected mid-March through mid-May; recovery from June through September partly offset the decline. The Clubs by JOE had 1,448 members, up from 1,066.
- Commercial: Q3 segment revenue was $8.7 versus $7.5; nine-month revenue increased to $26.8 from $18.3. Growth reflected leasing, new apartment assets and timber sales. Nine-month timber volume rose to 275,000 tons from 143,000.
- The company combined commercial leasing and sales with forestry into one commercial segment beginning in 2020; prior-period segment information was recast.
Outlook, risks and unusual items
- Management stated that cash, financing arrangements and operating cash flow should be sufficient for anticipated working capital, capital spending, debt service, joint-venture contributions, authorized repurchases and dividends for the next 12 months. No numerical earnings or revenue guidance was provided.
- COVID-19 disrupted hospitality operations: properties temporarily closed or operated with limits from mid-March, gradually reopening in May. Further disruption, closures, weaker travel demand, tenant payment issues or economic deterioration could materially affect results, cash flows and financial condition.
- Nine-month other income included a $15.3 gain on land contributed to the Latitude Margaritaville Watersound JV and a $4.3 gain on land and mitigation credits contributed to the Sea Sound Apartments JV. These gains materially boosted reported income and are not equivalent to recurring operating cash flow.
- Hurricane Michael-damaged marinas remained closed during restoration. Insurance recovery timing and amounts are uncertain; the company recorded $1.1 of hurricane-damage losses in the first nine months of 2020 and no insurance-recovery gain in that period.
- Development commitments included $124.1 of construction and development contractual obligations. Surety bonds were $21.7 and standby letters of credit were $5.7. The company also has guarantees related to certain joint-venture and project loans; guarantee exposure can increase under specified default or covenant circumstances.
- Interest-rate risk includes LIBOR-linked borrowings; a hypothetical 100-basis-point increase was estimated to raise annual interest expense by $0.2. The filing noted uncertainty around LIBOR’s expected discontinuation after 2021. Litigation and environmental matters were described as ordinary-course contingencies; accrued related liabilities were $0.8.
- Subsequent event: the board declared a $0.07-per-share cash dividend on October 28, payable December 9, 2020.
Important facts for investors to verify
- How much of reported year-to-date earnings and segment results depends on land-contribution gains, and the cash timing and economics of those joint ventures.
- Progress, funding needs and expected returns for the $124.1 of construction and development commitments and projects under construction.
- Whether hospitality demand and operations remain resilient amid COVID-19, and when Hurricane Michael-damaged marinas may reopen or receive further insurance proceeds.
- Debt balances, joint-venture guarantees, covenant compliance and the effect of LIBOR transition on borrowing costs.
- Closings and collection timing for 1,401 residential homesites under contract, estimated by the company to generate approximately $119.3 over the next several years; these amounts are subject to change.
- Liquidity and investment values, including the distinction between available company cash and assets held in special-purpose entities or restricted for specific purposes.