The St. Joe Company (NYSE: JOE) — 2019 Q3 Form 10-Q
Business context and period: Unaudited results for the three and nine months ended September 30, 2019, compared with the same 2018 periods. St. Joe is a Northwest Florida-focused real estate development, asset management and operating company, with residential real estate, hospitality, commercial leasing and sales, and forestry segments.
Key financial results
Amounts are in millions of dollars except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $32.9 | $23.7 | $84.4 | $94.0 |
| Operating income | $7.4 | $1.9 | $16.1 | $30.7 |
| Net income attributable to St. Joe | $5.7 | $5.5 | $18.1 | $32.4 |
| Basic and diluted EPS | $0.10 | $0.09 | $0.30 | $0.51 |
| Operating cash flow | Not separately provided for the quarter | $14.7 | $46.3 |
- Revenue mix: Q3 real estate revenue was $13.5 million, hospitality $14.0 million, leasing $4.0 million and timber $1.3 million. Nine-month revenue was lower year over year despite growth in hospitality and leasing.
- Margins: Q3 operating margin was approximately 22.6%, versus 8.2% a year earlier. Nine-month operating margin was approximately 19.1%, versus 32.7%. Nine-month real estate gross profit margin fell to 56.3% from 76.6%, largely reflecting the absence of a prior-year one-time item.
- Cash and liquidity: Cash and cash equivalents were $165.3 million at September 30, 2019, down from $195.2 million at December 31, 2018. Cash, cash equivalents and restricted cash totaled $168.6 million. Management said available liquidity and expected cash flows should cover anticipated working capital, capital expenditures, debt service and authorized repurchases for the next 12 months.
- Debt and equity: Reported debt, net was $85.6 million, up from $69.4 million at year-end 2018. The balance sheet also includes $177.0 million of Senior Notes held by a special purpose entity, alongside $206.7 million of investments held by special purpose entities. Total equity was $522.6 million.
- Investment and spending: Nine-month capital expenditures were $77.7 million. The company repurchased 1.14 million shares for $18.8 million in the first nine months; $88.3 million of repurchase authorization remained at quarter-end.
Material changes versus the prior comparable period
- Q3 revenue increased 38.8%, mainly reflecting more residential homesite sales and higher hospitality revenue. Nine-month revenue decreased 10.2%; 2018 included $23.1 million of one-time RiverTown impact-fee revenue. Excluding that item, management reported that nine-month residential revenue rose 92.5% year over year.
- Nine-month net income attributable to St. Joe declined to $18.1 million from $32.4 million. The comparison also reflects lower timber activity and the prior-year RiverTown fees; timber revenue declined 50.9% as volume and prices were affected by Hurricane Michael’s impact on the market.
- Hospitality revenue rose 15.3% for the nine months, supported by reopened and newly opened food and retail operations and higher club membership revenue. The marinas remained closed following Hurricane Michael.
- Operating cash flow fell to $14.7 million from $46.3 million. The prior-year period included the $23.1 million RiverTown receipt; current-period cash use also reflects higher development and operating-property expenditures.
Outlook, commentary and risks
- No specific revenue or earnings guidance was provided. Management emphasized investing in development and leasing opportunities to grow recurring revenue, while maintaining liquidity and investment discipline.
- At September 30, 995 residential homesites were under contract, which management expected to generate approximately $83.0 million at closings over the next several years; timing and final amounts remain uncertain.
- Hurricane Michael continues to affect the marinas and timber operations. Insurance proceeds and repair costs may occur at different times, and the company cautioned that recovery amounts and timing are uncertain. Nine-month 2019 results included $5.3 million of insurance proceeds in other income and $1.3 million of business-interruption proceeds in hospitality revenue, as well as $1.7 million of hurricane expenses.
- Other unusual items included $2.3 million of gains on land contributions to unconsolidated joint ventures for the nine months and a $1.2 million deferred-tax expense related to Florida’s reduced corporate tax rate.
- Construction and development contractual obligations totaled $111.0 million at quarter-end. The company also disclosed loan guarantees, including a guarantee associated with a joint-venture hotel loan, and $10.7 million of surety bonds. Litigation and environmental matters are described; accrued aggregate liabilities were $1.2 million, and management said it could not quantify certain potential environmental costs beyond existing accruals.
- Principal risks include concentrated Northwest Florida real estate exposure, cyclical and irregular homesite sales, local economic and housing conditions, development and permitting execution, natural disasters and insurance recovery, investment valuation and credit risk, and guarantees or obligations tied to joint ventures. Management also noted LIBOR transition uncertainty.
Important facts for investors to verify
- Homesite contracts: closing schedule, cancellation exposure and realization of the estimated $83.0 million.
- Hurricane recovery: remaining insurance claims, restoration timelines and the operating outlook for the closed marinas and affected timber assets.
- Development funding: use of the $111.0 million contractual-obligation figure, committed financing availability and any changes in project costs.
- Debt and guarantees: distinction between company debt and special-purpose-entity notes, joint-venture obligations, guarantee exposure and applicable covenants.
- Cash quality and capital allocation: concentration in commercial paper and preferred securities, future capital expenditure needs, and pace of share repurchases.
- Comparability of earnings: effects of the prior-year RiverTown fees and current-period insurance proceeds, land-contribution gains and tax adjustments.