The St. Joe Company — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; filed July 31, 2019. St. Joe is a Florida real estate development, asset management and operating company concentrated in Northwest Florida, with residential real estate, hospitality, commercial leasing and sales, and forestry segments.
Financial performance
Amounts below are in millions except per-share data. Comparisons are with the corresponding 2018 period.
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $35.5 | $50.4 | $51.6 | $70.3 |
| Operating income | $10.9 | $29.3 | $8.7 | $28.8 |
| Income before tax | $13.7 | $32.6 | $16.3 | $33.0 |
| Net income attributable to St. Joe | $10.4 | $26.2 | $12.4 | $27.0 |
| EPS, basic and diluted | $0.17 | $0.41 | $0.21 | $0.42 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $12.3 | $37.7 |
- Revenue mix: Q2 real estate revenue was $15.6 million, hospitality $15.6 million, leasing $3.7 million and timber $0.8 million. Hospitality and leasing rose year over year; real estate and timber declined.
- Margins: Q2 operating margin was about 30.6%, versus 58.2% in 2018. Hospitality gross margin was 42.3% versus 27.1%, including insurance proceeds; excluding marina business-interruption proceeds, management reported 34.0%. Leasing gross margin was 70.3%; timber gross margin was 71.4%.
- Cash flow and investment: First-half operating cash flow was $12.3 million. Investing activities used $14.7 million and financing provided $3.0 million; cash, cash equivalents and restricted cash ended at $198.7 million. Capital expenditures were $48.6 million, including $23.7 million in commercial leasing and sales and $10.8 million in hospitality.
- Liquidity and assets: Cash and cash equivalents were $195.6 million at June 30, compared with $195.2 million at year-end 2018. The company also held $2.8 million of debt securities and $36.3 million of preferred stock investments. Total assets were $906.2 million and total equity $542.1 million.
- Debt: Reported debt, net, was $80.2 million, up from $69.4 million at year-end; this excludes $176.9 million of Senior Notes held by a consolidated special-purpose entity. The notes are associated with separately held investments and are presented separately on the balance sheet. Interest expense was $3.0 million in Q2 and $6.0 million for the first half.
Material changes and drivers
- Reported revenue and earnings fell sharply, principally because 2018 included a $23.1 million one-time RiverTown impact-fee receipt. Excluding that item, residential real estate revenue rose 146% in Q2 and 36.5% in the first half. Homesite sales were 151 in Q2 and 182 in the first half, versus 37 and 143, respectively.
- Hospitality revenue increased 20.9% in Q2 and 15.6% in the first half, supported by the reopened FOOW restaurant, the WaterColor Store and higher club membership revenue. The clubs had 1,198 members versus 1,078 a year earlier.
- Timber revenue declined 63.2% in Q2 and 63.9% in the first half. Timber volume fell to 31,000 tons in Q2 from 112,000, and to 61,000 tons for the half from 214,000; the filing attributes market disruption and mix changes to Hurricane Michael.
- First-half operating cash flow was lower than 2018, which included the $23.1 million RiverTown receipt. Investing cash flow also changed substantially: 2018 included large proceeds from investment sales, while 2019 included higher capital spending and $10.8 million of insurance proceeds.
- St. Joe repurchased 471,500 shares for $7.1 million in the first half, compared with 4.1 million shares for $72.5 million in the first half of 2018. No shares were repurchased in Q2; $35.8 million of authorization remained.
Outlook, risks and unusual items
- Management said cash, anticipated operating cash flow and short-term investments should provide sufficient liquidity for expected working capital, capital spending, debt service and authorized repurchases over the next 12 months. The filing gives no formal earnings or revenue guidance.
- Management reported 914 residential homesites under contract at June 30, expected to generate approximately $89.5 million at closings over the next several years; timing and amounts remain subject to change.
- Hurricane Michael damaged the Bay Point and Port St. Joe marinas, which remained closed during restoration, and affected timber and commercial assets. Insurance recovery timing and amount are uncertain and may not cover all losses. Q2 included $3.8 million of insurance proceeds in other income and $1.3 million of business-interruption proceeds in hospitality costs; ongoing closure and repair costs remain relevant.
- On July 5, 2019, after quarter-end, St. Joe bought the remaining 51% of Windmark JV for $11.6 million, becoming its sole owner.
- Construction and development contractual obligations totaled $96.9 million. St. Joe also disclosed guarantees on certain JV loans, $9.4 million of surety bonds, and $1.2 million of accrued litigation-related liabilities. Management said pending matters were not expected to materially affect consolidated financial position or liquidity, but adverse outcomes could affect results or cash flows.
- Risks include concentrated Northwest Florida real estate exposure, volatility in homebuilder closings and land sales, Hurricane Michael recovery, project execution and financing, investment-value fluctuations, and LIBOR’s planned phaseout after 2021. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Investor verification priorities
- Separate recurring operating trends from the $23.1 million RiverTown comparison item and from 2019 Hurricane Michael insurance proceeds.
- Track marina restoration, insurance recoveries, and continuing hurricane-related costs, along with the effect of the storm on timber prices and volumes.
- Verify timing and conversion of the 914 homesites under contract into closings and cash receipts, and monitor project spending against the $96.9 million contractual obligations.
- Assess total debt exposure and guarantees, including the separately presented Senior Notes and loans for consolidated and unconsolidated ventures.
- Monitor liquidity and returns as the company funds development, maintains share-repurchase authority, and completed the post-quarter Windmark acquisition.