ST JOE Co quarterly report, Q3 FY2023

The St. Joe Company (NYSE: JOE) — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023; unaudited. St. Joe is a Northwest Florida real estate development, asset management and operating company, with residential, hospitality and commercial segments. Comparisons are with the periods ended September 30, 2022. Dollar amounts below are in millions unless stated otherwise.

Financial performance and liquidity

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Revenue	$101.4	$57.6	$302.5	$190.7
Operating income	$20.3	$12.2	$73.4	$51.2
Income before tax	$25.5	$16.2	$83.7	$57.2
Net income attributable to St. Joe	$19.4	$12.3	$64.5	$42.8
Diluted earnings per share	$0.33	$0.21	$1.11	$0.73

Q3 revenue rose 76.0% and net income attributable to the Company rose 57.2%. Real estate revenue increased 130.6% to $39.9 million; hospitality revenue rose 63.4% to a quarterly record $47.4 million; leasing revenue increased 29.7% to $13.1 million.
For the first nine months, real estate revenue was $144.3 million, hospitality $117.0 million, leasing $37.3 million and timber $4.0 million.
Margins were mixed. Residential real estate gross margin was 46.2% in Q3, versus 60.7% a year earlier, primarily reflecting community and homesite sales mix. Hospitality gross margin was 23.8% versus 24.1%; nine-month hospitality margin was 21.0% versus 22.3%, with new-property opening costs a factor. Nine-month leasing gross margin declined to 49.7% from 55.3%, reflecting higher costs and start-up and lease-up expenses.
Equity-method income from unconsolidated joint ventures increased to $8.7 million in Q3 and $18.4 million for nine months, principally from Latitude Margaritaville Watersound. The JV completed 189 home sales in Q3 and 502 in nine months, versus 117 and 200, respectively, in 2022.
Interest expense rose to $8.4 million in Q3 from $4.7 million and to $21.8 million for nine months from $13.0 million, primarily due to increased project financing and higher interest rates.
Nine-month operating cash flow was $92.3 million, compared with $30.3 million. Investing cash outflow was $81.5 million, versus $139.1 million; financing cash inflow was $46.9 million, versus $61.3 million. Cash, cash equivalents and restricted cash ended at $103.0 million, including $11.0 million of restricted cash.
At September 30, cash and cash equivalents were $92.0 million, debt securities were $10.0 million, and reported debt, net, was $453.1 million. Principal outstanding on debt was $458.9 million; the separate $178.1 million Senior Notes held by a special-purpose entity are also reported as a liability and supported by related SPE investments. The weighted-average effective rate on outstanding debt was 5.2%; 66.9% was fixed-rate or swapped, and the weighted-average rate on variable-rate loans was 7.6%.
Total assets were $1.542 billion and total liabilities $848.5 million at quarter-end. St. Joe paid $18.7 million in dividends during the nine months; it made no share repurchases in 2023 and had $80.0 million of repurchase authority available.

Material changes and business developments

Residential homesite closings increased to 254 in Q3 from 78 and to 881 for nine months from 490. However, average base revenue per homesite, excluding residuals, fell to about $103,000 in Q3 from $141,000 and to $105,000 for nine months from $117,000, due mainly to sales mix. Residential gross margin also declined year over year.
Hospitality growth reflected increased club membership, new amenities and hotel openings, as well as the acquisition of The Pearl Hotel in December 2022. Five hotels opened during the current period. Watersound Club had 3,088 members at September 30, up from 2,573 a year earlier.
Leasing revenue benefited from new multifamily, senior living and other leases. The portfolio had approximately 1.082 million rentable square feet and was 96% leased at quarter-end.
Timber revenue declined 27.3% for nine months to $4.0 million, principally because average selling price fell to $16.62 per ton from $23.71, partly offset by slightly higher volume.
Debt increased from $391.4 million of principal at December 31, 2022 to $458.9 million at September 30, 2023. The Company refinanced the Watersound Origins Crossings loan in March, raising principal to $52.9 million and fixing its rate at 5.0%; it also began the process of refinancing the North Bay Landing loan, which matures in September 2024.

Outlook, risks and contingencies

Management reported continued strong demand across segments, which it attributes to Northwest Florida growth, migration, limited housing supply and cash buyers. It said higher rates have affected buyer financing and sentiment, but had not increased homebuilder cancellations; no cancellations were reported for homesite contracts in the current period.
Inflation, interest rates, insurance costs and supply-chain disruptions are increasing costs; supply-chain issues have extended hospitality and commercial project timelines. Management noted that sales mix and seasonality can materially affect period-to-period revenue and margins. The filing provides no numerical earnings or revenue guidance.
Management believes cash, financing arrangements and operating cash generation will be sufficient for anticipated working capital, capital expenditures, debt service, JV contributions, repurchases and dividends over the next 12 months. Nine-month capital expenditures were $176.3 million; construction and development contractual obligations were $58.8 million.
Variable-rate project debt creates rate exposure: a hypothetical 100-basis-point increase in applicable rates would increase annual interest expense by approximately $1.5 million. The Company said it was in compliance with financial debt covenants at quarter-end.
St. Joe had $41.0 million of surety bonds and other financial guarantees and $0.2 million of standby letters of credit. It also has guarantees associated with certain joint-venture debt; the filing reports maximum exposure to loss from unconsolidated JVs of $120.7 million. No liability was recorded for the JV guarantees, beyond a $0.1 million allowance for credit losses.
Accrued liabilities for litigation and other matters were $0.4 million. Management did not expect pending matters to materially adversely affect financial position or liquidity, but noted an adverse outcome could materially affect results or cash flows for a reporting period. Environmental assessments are ongoing; management could not quantify potential costs above existing accruals or provide a reasonably estimated loss range.
The Board declared a $0.12-per-share dividend on October 25, 2023, payable December 8 to shareholders of record November 9. Disclosure controls were deemed effective; no material change in internal control was reported. The filing reported no material changes to previously disclosed risk factors.

Investor verification priorities

Assess how much reported earnings growth depends on Latitude Margaritaville Watersound JV income, home-sale closings and related estimates of homesite residuals and fees.
Track homesite pricing and margins by community, particularly the effects of sales mix and the lower average base revenue per homesite.
Verify the pace and returns of new hotel and commercial projects, including whether occupancy and operating performance absorb opening costs and higher interest expense.
Review debt maturities, variable-rate exposure, guarantees and the planned refinancing of North Bay Landing; distinguish reported debt from Senior Notes held by the SPE and associated investments.
Monitor cash generation against capital spending, contractual commitments, restricted cash, JV funding needs and the Company’s dividend and repurchase plans.
Follow construction delays, insurance and operating costs, demand and cancellation trends, and developments in litigation or environmental assessments.