The St. Joe Company — Q3 2021 Form 10-Q
Business context and period. The St. Joe Company is a real estate development, asset management and operating company focused on Northwest Florida. Its three reportable segments are residential, hospitality and commercial. This unaudited filing covers the quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $54.0 million | $42.0 million | $167.5 million | $96.7 million |
| Operating income | $16.2 million | $11.0 million | $52.5 million | $20.8 million |
| Net income attributable to St. Joe | $15.2 million | $7.8 million | $42.6 million | $25.4 million |
| Diluted earnings per share | $0.26 | $0.13 | $0.72 | $0.43 |
| Operating margin | 29.9% | 26.2% | 31.3% | 21.5% |
| Cash provided by operating activities | Not stated for quarter | Not stated for quarter | $65.1 million | $22.5 million |
Revenue increased about 28% in Q3 and 73% for the nine-month period. Nine-month results included $3.3 million of gains on contributions to equity-method joint ventures, versus $19.6 million in 2020. Q3 other income also included a $2.5 million insurance recovery; nine-month insurance recovery was $3.9 million. The company received $3.6 million from Florida’s Timber Recovery Block Grant Program for hurricane-related lost timber income.
Revenue drivers. Q3 real estate revenue was $23.5 million, hospitality $22.3 million, leasing $7.1 million and timber $1.1 million. For the nine months, those categories were $85.6 million, $58.0 million, $19.1 million and $4.8 million, respectively. Residential revenue growth reflected more homesites sold and a higher average sales price per homesite. Hospitality benefited from stronger lodging and resort demand and the July opening of the Hilton Garden Inn Panama City Airport. Leasing growth reflected new apartment and senior-living properties. Timber revenue declined as fewer tons were sold.
Margins. Q3 hospitality gross margin fell to 26.0% from 35.3%, mainly due to membership incentives, new-property pre-opening and staffing costs, and higher labor and product costs. Nine-month hospitality gross margin was broadly steady at 25.0%. Nine-month residential real estate gross margin rose to 61.3% from 56.0%; leasing margin declined to 56.5% from 71.8%, partly because of new-property lease-up costs and prior-year insurance proceeds.
Financial position, cash flow and liquidity
- At September 30, 2021, total assets were $1.137 billion and total equity was $598.6 million. Cash and cash equivalents were $27.3 million, down from $106.8 million at year-end 2020. The company said it shifted short-term Treasury bills from cash equivalents into investments.
- It held $103.0 million of U.S. Treasury bills classified as debt-security investments and $9.4 million in Treasury money-market funds. Management considers securities generally available to meet liquidity needs.
- Nine-month operating cash flow was $65.1 million. Investing activities used $161.0 million, including $112.3 million of capital expenditures for operating property and equipment and $127.9 million of Treasury-bill purchases, partly offset by maturities and insurance proceeds. Financing activities provided $15.5 million. Cash, cash equivalents and restricted cash ended the period at $29.7 million.
- Reported debt, net was $196.1 million, up from $158.9 million at December 31, 2020. Separately, $177.5 million of Senior Notes is held by a special-purpose entity and is paired with investments held by special-purpose entities, including a $200 million time deposit. The company reported compliance with financial debt covenants.
- Construction and development contractual obligations totaled $260.1 million. The filing states that a significant portion is expected to be funded through committed or new financing. Management believes cash, financing and operating cash generation will cover anticipated needs for the next 12 months.
- The company paid $14.1 million in dividends during the first nine months of 2021, or $0.24 per share. The board declared a further $0.08-per-share dividend payable in December 2021. No shares were repurchased in the nine-month period; $77.4 million of repurchase authorization remained.
Material changes and management commentary
- Residential revenue increased to $75.5 million for the first nine months from $33.5 million. The company sold 494 homesites versus 303; average revenue per homesite, excluding residuals, rose to approximately $125,000 from $86,000. At quarter-end, 1,661 homesites were under contract, expected to generate approximately $160.7 million at closing over several years. The Latitude Margaritaville Watersound joint venture reported 299 homes under contract.
- Watersound Club had 2,158 members, up from 1,448 a year earlier. Management said demand remained strong, citing Northwest Florida’s appeal and more flexible work arrangements, while noting the pandemic’s duration and economic effects remain uncertain.
- The company is investing in hotels, apartments, senior living and commercial projects and says it is emphasizing recurring revenue. It reported $140.6 million of capital expenditures incurred during the nine months, including $70.9 million in hospitality. It does not expect immediate benefits from investments and warns projects may be delayed.
- Hurricane Michael-damaged marinas remained under reconstruction; a portion was expected to reopen by the end of 2021. The company continued to assess insurance claims and said proceeds may not cover all losses.
Risks, contingencies and unusual items
- Operations and real estate are concentrated in Northwest Florida, exposing results to local market conditions, real estate cycles, hurricanes and other severe weather. COVID-19 could still materially affect hospitality and other segments.
- Variable-rate project debt and certain investments reference LIBOR. A hypothetical 100-basis-point increase in applicable rates would increase annual interest expense by approximately $0.7 million, based on September 30 balances. The filing notes uncertainty around LIBOR transition.
- The company had guarantees related to joint-venture and project debt, surety bonds of $24.7 million, standby letters of credit of $3.3 million, and a maximum exposure to loss from unconsolidated joint ventures of $71.3 million. It also reported $0.4 million of accrued liabilities for litigation and other matters. Management did not believe pending matters would materially affect overall financial position or liquidity, but acknowledged an adverse outcome could affect results or cash flows in a period.
- The Florida corporate tax-rate change resulted in a $1.4 million increase in Q3 tax expense from deferred-tax adjustments, partly offset by a $0.4 million benefit on year-to-date earnings.
- No quantified earnings or revenue guidance was provided. The company said results for the nine months are not necessarily indicative of full-year results and that residential and commercial sales can vary by period.
Important facts for investors to verify
- How much of reported earnings and cash generation is recurring versus dependent on land sales, joint-venture contribution gains, insurance recoveries and grant proceeds.
- Progress, costs, occupancy and financing for the substantial construction pipeline and the $260.1 million of contractual development obligations.
- Homesite and home closings versus contracts, including timing and realized prices, and the status of Latitude Margaritaville Watersound.
- Liquidity needs and funding sources as cash declines and project investment continues; distinguish reported debt from the separate special-purpose-entity Senior Notes and related assets.
- Exposure under debt guarantees, joint ventures and hurricane-related claims, as well as the effects of interest rates and LIBOR transition.