The St. Joe Company — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. St. Joe is a Florida real estate development, asset management and operating company concentrated in Northwest Florida. Its reportable segments are residential, hospitality and commercial. Prior-year segment results were reclassified to match the 2020 presentation.
Financial performance
Unless otherwise noted, amounts are in millions of dollars. Comparisons are with Q1 2019.
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $18.6 | $16.0 |
| Operating loss | $(1.3) | $(2.2) |
| Net income (loss) attributable to St. Joe | $(1.5) | $2.0 |
| Basic and diluted earnings (loss) per share | $(0.03) | $0.03 |
| Cash provided by (used in) operations | $3.1 | $(1.2) |
| Cash used in investing activities | $(80.3) | $(2.7) |
| Cash used in financing activities | $(1.3) | $(0.3) |
- Revenue mix and changes: Real estate revenue was $5.8 million, up from $4.6 million; hospitality was $6.6 million, down from $7.4 million; leasing was $4.3 million, up from $3.5 million; and timber was $1.9 million, up from $0.5 million. Total revenue rose about 16%.
- Margins: Real estate gross margin was 69.0%, compared with 60.9%. Hospitality gross margin was negative 10.6%, versus positive 4.1%. Leasing gross margin was 86.0%, including $0.7 million of Hurricane Michael business-interruption proceeds; excluding those proceeds, it was 69.8%. Timber gross margin was 89.5%, versus 80.0%.
- Drivers of earnings: Investment results swung to a $1.6 million loss from $6.0 million of income, primarily reflecting a $4.8 million unrealized loss on preferred stock, versus a $2.0 million unrealized gain in Q1 2019. Other income included a $4.3 million gain on land and mitigation credits contributed to an unconsolidated joint venture, compared with a $1.5 million land-contribution gain in the prior-year period. Interest expense increased to $3.3 million from $2.9 million.
- Cash flow and investment: Cash, cash equivalents and restricted cash fell $78.5 million to $110.2 million. Investing cash use included $33.0 million of operating-property expenditures and $49.9 million of purchases of debt securities, principally U.S. Treasury bills. Capital expenditures for operating property and equipment totaled $34.5 million, versus $10.0 million.
- Balance sheet and liquidity: Total assets were $913.0 million and total liabilities $392.1 million at March 31. Cash and cash equivalents were $106.4 million; investments included $50.0 million of debt securities and $2.4 million of equity securities. Debt, net, was $98.3 million, excluding $177.1 million of Senior Notes held by a consolidated special purpose entity. Management said cash, financing and operating cash generation were expected to cover anticipated needs for the next 12 months, while noting COVID-19 uncertainty.
- Equity: St. Joe repurchased 411,113 shares for $6.8 million during the quarter, at an average $16.55 per share. Repurchases are subject to maintaining at least $100 million in cash, cash equivalents and/or investments.
Material changes, outlook and risks
- COVID-19: The filing reports temporary closures or restrictions affecting hotels, retail outlets, beach clubs and food and beverage operations, along with travel restrictions and reduced activity. Management warned that material declines in one or more segments during 2020 were possible, but said the duration and extent of effects were unknown. Hospitality revenue fell 10.8%, and the segment moved to a gross deficit.
- Operating developments: Pier Park Crossings’ 240 apartments were completed in Q1, with 236 units reported under lease at March 31. St. Joe reported 979 residential homesites under contract, expected to generate approximately $91 million at closings over several years; timing and final amounts remain subject to change.
- Projects and capital commitments: Construction and development contractual obligations totaled $106.0 million at March 31, a significant portion expected to be funded through committed financing. The company reported $40.8 million of Q1 capital expenditures. Management described a strategy of investing in projects intended to increase recurring revenue and long-term value; no quantified earnings or revenue guidance was provided.
- Debt and guarantees: Debt, net, increased from $92.5 million at December 31, 2019. Financing agreements were reported in compliance with financial covenants. St. Joe has guarantees associated with certain joint-venture and project borrowings; some guarantees can be reduced or become full recourse under specified circumstances. The company reported $17.2 million of surety bonds and a $1.9 million standby letter of credit.
- Other contingencies and unusual items: Litigation and environmental matters are in the ordinary course; accrued aggregate liabilities were $0.8 million. Management said it could not quantify potential environmental rehabilitation costs above current accruals. Hurricane Michael-damaged marinas remained closed and under restoration; insurance recovery timing and sufficiency were uncertain. A new $15.3 million Airport Hotel loan was entered into in March, with no principal outstanding at quarter-end.
- Additional risks: Real estate demand, homebuilder closings, construction costs and financing availability; hospitality demand and tenant rent collections; concentration of land in Northwest Florida; investment valuation and credit risk; hurricane recovery; and transition from LIBOR, which was referenced by some debt agreements.
Important facts for investors to verify
- Subsequent hospitality demand, property reopening and the COVID-19 impact on occupancy, revenue, costs and cash flow.
- Whether homesite contracts close as expected and whether the stated approximately $91 million of anticipated closings is realized on the expected timetable.
- Project spending, remaining contractual obligations, financing availability, debt maturities and exposure under joint-venture guarantees.
- Changes in the value and credit quality of investment holdings, particularly preferred stock and commercial paper, and the company’s liquidity relative to its $100 million repurchase threshold.
- Progress and insurance recovery for Hurricane Michael-damaged marinas, and developments in environmental, litigation and other contingencies.
- Underlying leasing performance excluding insurance proceeds, and the sustainability of results that included land-contribution gains and investment fair-value changes.