The St. Joe Company (NYSE: JOE) — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also presents unaudited fourth-quarter results. St. Joe is a real estate development, asset management and operating company concentrated in Northwest Florida, with residential real estate, hospitality, commercial leasing and sales, and forestry segments. It owned approximately 175,000 acres at year-end; management said most 2019 revenue came from activity on about 2% of its land holdings.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $127.1 million | $110.3 million |
| Operating income | $31.3 million | $29.4 million |
| Net income attributable to St. Joe | $26.8 million | $32.4 million |
| Basic and diluted EPS | $0.45 | $0.52 |
| Cash from operating activities | $30.4 million | $41.4 million |
| Cash and cash equivalents at year-end | $185.7 million | $195.2 million |
| Total debt, net, including special-purpose-entity notes | $269.6 million | $246.1 million |
Revenue rose 15.2% and operating income rose 6.5%, while net income attributable to the company fell 17.3%. Operating margin was approximately 24.6%, versus 26.7% in 2018. Total cost of revenue was $64.1 million, yielding gross profit of approximately $63.0 million, or 49.6% of revenue; the comparable 2018 figures were $59.0 million and 53.5%.
Fourth-quarter 2019 revenue was $42.7 million, operating income $15.2 million, net income attributable to St. Joe $8.7 million, and EPS $0.15. In fourth-quarter 2018, revenue was $16.3 million, operating loss $1.3 million, and net loss attributable to St. Joe $0.1 million; reported EPS rounded to zero.
Operating cash flow was lower year over year and below reported 2019 capital expenditures of $114.3 million. The company separately reported $74.2 million of investing cash outlays for operating property and property and equipment; development and acquisition spending on real estate intended for sale is reported in operating cash flows. Cash, cash equivalents and restricted cash totaled $188.7 million at year-end. Management stated that cash, financing arrangements and operating cash flows were expected to cover anticipated working capital, capital expenditures, debt service and authorized repurchases for the next 12 months.
Balance-sheet debt, net, was $92.5 million, plus $177.0 million of senior notes held by consolidated special-purpose entities. The filing states there is no recourse to St. Joe on those senior notes beyond the special-purpose entities’ assets. Debt, net, excluding those notes, increased from $69.4 million in 2018. Total equity was $529.7 million. The company paid no cash dividends in 2019 or 2018.
Material changes versus 2018
- Real estate revenue increased to $61.5 million from $52.2 million. The comparison is affected by a $23.1 million one-time RiverTown impact-fee receipt included in 2018. Excluding that item, residential real estate revenue increased to $41.1 million from $19.7 million; homesite sales rose to 379 from 202.
- Hospitality revenue increased 18.8% to $46.1 million, and hospitality gross margin improved. Growth reflected club membership and new or reopened food and retail operations; 2019 gross profit also included $1.3 million of marina business-interruption insurance proceeds.
- Leasing revenue rose 13.9% to $15.6 million, reflecting new leases and completed apartment units. Forestry revenue fell 30.4% to $3.9 million; timber volumes and prices were affected by Hurricane Michael’s impact on regional markets.
- Rural and timberland sales included approximately 1,498 acres for $11.7 million, including $9.9 million from non-strategic Leon County land. This materially contributed to forestry-segment income.
- Investment income declined to $10.7 million from $12.2 million, including a $5.3 million unrealized loss on preferred-stock investments in 2019. Income tax expense was $9.4 million in 2019, compared with a $0.7 million tax benefit in 2018, which included valuation-allowance and other tax benefits.
- Share repurchases declined to 1.26 million shares for $20.8 million from 5.24 million shares for $93.4 million. At year-end, $86.2 million remained authorized, subject to maintaining at least $100 million of cash and cash equivalents.
Outlook, risks and unusual items
Management expects 2020 capital expenditures to exceed 2019 spending as projects advance and new projects begin; it does not expect the full benefit of these investments in 2020. Year-end residential homesite contracts covered 930 sites, expected to generate approximately $84.3 million at closings over several years. The company also reported 468 apartment or assisted-living units, 597 hotel rooms and 130,785 square feet of commercial and hospitality space under development or construction, with expected openings at various times in 2020 and 2021. Project timing may be delayed.
Hurricane Michael’s effects remained significant: two marinas were closed during reconstruction, with no revenue expected there until rebuilding is complete. The timing and amount of further insurance proceeds are uncertain and may not cover all losses. The company recorded $5.3 million of insurance recovery and $2.7 million of hurricane-damage losses in 2019. Timber sales and market prices also remained affected.
Key risks include concentration in Northwest Florida and dependence on regional growth; seasonality and transaction timing; real estate demand, financing costs and mortgage availability; lengthy and discretionary entitlement and permitting processes; construction costs and execution; hurricanes, climate and other natural hazards; environmental obligations; and risks from joint ventures and debt guarantees. St. Joe disclosed $98.8 million of construction and development contractual obligations, $10.7 million of surety bonds and $1.5 million of accrued liabilities related to litigation and other matters. It had not recorded a liability for the disclosed guarantees of unconsolidated joint-venture debt.
Additional risks include LIBOR-linked borrowing arrangements, investment-company status determinations, and Fairholme’s influence: clients of its investment adviser beneficially owned approximately 44.3% of St. Joe shares at year-end, and the adviser is associated with the company’s chairman. Management said it expected to maintain high liquidity and pursue investments intended to expand recurring revenue. The filing provides no formal earnings or revenue guidance.
Grant Thornton issued unqualified opinions on the 2019 financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- How much of reported earnings and operating cash flow is repeatable after adjusting for the 2018 RiverTown fee, land sales, insurance recoveries, investment marks and tax effects.
- Whether the 930 contracted homesites close as expected, and whether reported contract value and project margins are realized.
- Project-level spending, financing needs, occupancy and lease-up progress as the large development pipeline moves into operation.
- The schedule, cost and insurance recovery for Hurricane Michael restoration, especially the closed marinas and affected timber assets.
- Debt maturities, covenant compliance, floating-rate exposure, and the scope and potential cost of guarantees on joint-venture borrowings.
- Use of the remaining repurchase authorization relative to the company’s $100 million minimum-cash condition and increased capital-spending plans.
- Entitlement, environmental, litigation and other contingent exposures, as well as the governance implications of Fairholme’s ownership and investment-adviser relationship.