The St. Joe Company (NYSE: JOE) — Q1 2023 Form 10-Q
Business context and period. This unaudited quarterly report covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022. St. Joe is a real estate development, asset management and operating company concentrated in Northwest Florida, with residential, hospitality and commercial segments.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $73.0 million | $64.9 million |
| Operating income | $11.3 million | $20.2 million |
| Income before taxes | $12.9 million | $18.0 million |
| Net income | $9.5 million | $13.5 million |
| Net income attributable to St. Joe | $10.4 million; $0.18 per diluted share | $13.4 million; $0.23 per diluted share |
| Net cash from operating activities | $19.2 million | $19.8 million |
Revenue increased 12.5%, while operating income fell about 44% and attributable net income fell about 22%. Operating margin was approximately 15.5%, down from 31.2%. Higher costs, depreciation and interest expense more than offset revenue growth. Equity income from unconsolidated joint ventures improved to $3.7 million from a $0.5 million loss, largely reflecting higher home-sale activity at Latitude Margaritaville Watersound.
- Revenue by category: Real estate $35.0 million, down 4.8%; hospitality $24.5 million, up 50.3%; leasing $11.8 million, up 34.1%; and timber $1.7 million, down 42.5%.
- Margins and costs: Real estate gross margin declined to 42.3% from 58.4%, mainly due to the mix and pricing of homesite sales. Hospitality gross margin was 6.5%, versus 8.6%, including $2.4 million of hotel pre-opening costs. Leasing gross margin fell to 54.2% from 58.0%; timber gross margin fell to 88.2% from 93.3%.
- Cash flow and investment: Operating cash flow was $19.2 million. Investing activities used $27.2 million and financing activities provided $26.9 million. Cash, cash equivalents and restricted cash ended at $64.2 million. Management reported $69.6 million invested in capital expenditures; cash-flow statement expenditures for operating property and property and equipment totaled approximately $44.0 million, reflecting different reported categories.
- Liquidity: Cash and cash equivalents plus Treasury Bills classified as investments totaled $80.0 million at quarter-end, versus $78.3 million at December 31, 2022. Management said cash, financing arrangements and operating cash flow should cover anticipated needs for the next 12 months.
- Debt: Debt, net was $420.7 million at March 31, compared with $385.9 million at year-end; principal outstanding was $426.8 million. The separate $177.9 million of Senior Notes held by a special-purpose entity is also reported as a liability. Weighted-average effective debt interest rate was 5.0%; 69.9% of debt had fixed or swapped rates. Variable-rate loans averaged 7.1%.
Material changes and operating developments
- Consolidated homesite closings rose to 327 from 181, but average revenue per homesite, excluding residuals, declined to about $62,000 from $150,000. Management attributed the change to community sales mix, including 100 entitled but undeveloped SouthWood homesites.
- Latitude Margaritaville Watersound, an unconsolidated joint venture, completed 149 home sales, versus 18 a year earlier. It had 679 homes under contract at quarter-end, with estimated sales value of about $337.8 million at closing.
- Hospitality growth reflected the December 2022 acquisition of The Pearl Hotel, additional hotel rooms and facilities, increased club membership and reopened marinas. Watersound Club membership rose to 2,653 from 2,271 year over year.
- Leasing growth came from new multifamily, senior living and other leases. Approximately 1.0 million of 1.034 million rentable square feet was leased; 869 of 952 completed multifamily and senior-living units were leased.
- Timber revenue declined amid lower prices and volume: 95,000 tons sold at an average $16.44 per ton, compared with 107,000 tons at $26.63.
- Debt increased in part after a March refinancing of the Watersound Origins Crossings loan, raising principal from $44.0 million to $52.9 million and setting a 5.0% fixed rate through its 2058 maturity. Interest expense increased to $6.2 million from $4.2 million.
Outlook, risks and contingencies
- The filing provides no numerical earnings or revenue guidance. Management said demand remained strong across segments, but emphasized that results depend on project timing, real estate sales mix and seasonal hospitality demand.
- Management cited inflation, higher interest rates, supply-chain disruption, financial-institution disruptions and geopolitical conflicts as headwinds. These have increased costs and delayed some home deliveries and hospitality and commercial projects. Management reported no material increase in cancellations and said builders had met contractual obligations.
- All real estate assets and operations are in Northwest Florida; approximately 90% of land holdings are within 15 miles of the Gulf of Mexico. This geographic concentration increases exposure to local economic conditions, severe weather and hurricanes.
- Construction and development contractual obligations totaled $76.9 million. Surety bonds and other financial guarantees were $22.0 million, and standby letters of credit were $9.1 million. The company also has guarantees related to certain joint-venture and project debt; it had not recorded an obligation for those guarantees, but disclosed potential exposure.
- Outstanding debt maturities included $28.1 million in 2024, $66.8 million in 2025 and $64.1 million in 2027. The company stated it was in compliance with debt covenants at March 31, 2023. A 100-basis-point increase in applicable rates was estimated to increase annual interest expense by $1.3 million.
- Pending litigation and environmental matters are described as ordinary-course matters; accrued aggregate liabilities were $0.4 million. Management did not expect pending matters to materially affect financial position or liquidity, while noting an adverse outcome could affect results or cash flows in a period.
- The company paid a $0.10-per-share dividend in the quarter and declared another $0.10 dividend for payment June 15, 2023. It had $80.0 million of repurchase authorization remaining and made no repurchases during the quarter.
Important facts for investors to verify
- Whether residential sales mix and homesite pricing recover, and how the 1,915 company-community homesites under contract convert to closings and cash receipts.
- Whether the planned hotel and commercial projects open on schedule and whether pre-opening, lease-up and operating costs moderate.
- Debt growth, near-term maturities, variable-rate exposure, refinancing terms and the scope and conditions of company guarantees for projects and joint ventures.
- Whether the $76.9 million of construction and development commitments and planned capital spending can be funded without materially weakening liquidity.
- How Northwest Florida concentration, weather and hurricane exposure, higher insurance costs, interest rates and local demand affect asset values and operations.
- Whether joint-venture earnings—especially Latitude Margaritaville Watersound—remain a meaningful and sustainable contributor to reported results.
Filing notes: The company reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.