Business Overview
The St. Joe Company (NYSE:JOE) is a real estate development, asset management, and operating company with a strong presence in Northwest Florida. With a diverse portfolio spanning residential, hospitality, and commercial ventures, St. Joe has demonstrated its ability to create long-term shareholder value through strategic investments and prudent capital allocation.St. Joe's core business strategy revolves around the development and management of its extensive real estate assets in Northwest Florida. The company's operations are organized into three reportable segments: residential, hospitality, and commercial.
The residential segment focuses on planning and developing residential communities of various sizes and price points, catering to both homebuilders and retail consumers. The company's residential pipeline includes over 22,500 homesites in various stages of development, engineering, permitting, or concept planning. In the second quarter of 2024, the company sold 186 homesites at an average base price of approximately $140,000, generating a gross margin of 52.3%.
The hospitality segment features a private membership club, hotel operations, food and beverage offerings, golf courses, beach clubs, retail outlets, vacation rentals, marinas, and other entertainment assets. As of June 30, 2024, the company owned, either individually or through joint ventures, 12 hotels with 1,298 operational rooms. Hospitality revenue increased by 38% to a record $62.3 million in the second quarter of 2024, driven by the growth of the Watersound Club membership program and the opening of five new hotels throughout 2023.
The commercial segment oversees the planning, development, entitlement, management, and sale of the company's commercial and forestry land holdings. This includes a diverse range of retail, office, hotel, senior living, multi-family, self-storage, and industrial properties. As of June 30, 2024, the company had approximately 1.1 million square feet of leasable space, of which 96% was leased.
Financial Performance
St. Joe's financial performance has been consistently strong, with the company reporting annual net income of $77.7 million, annual revenue of $389.3 million, annual operating cash flow of $103.8 million, and annual free cash flow of -$36.1 million in its most recent fiscal year.In the second quarter of 2024, the company reported total revenue of $111.6 million, a decrease of 13% compared to the same period in 2023. This was primarily due to a 51% decrease in real estate revenue, which was partially offset by a 38% increase in hospitality revenue and a 19% increase in leasing revenue. The decrease in real estate revenue was attributed to a mix of sales from different communities and the timing of homebuilder contractual closing obligations.
Net income attributable to the company for the second quarter of 2024 was $24.5 million, or $0.42 per share, compared to $34.7 million, or $0.60 per share, in the same period of 2023. The decrease in net income was primarily due to the timing and product mix of sales in residential communities, fewer commercial and one-off land sales, partially offset by growth in hospitality and leasing revenue.
Segmental Performance
The residential segment generated revenue of $31.7 million in the second quarter of 2024, a decrease of 50% compared to the same period in 2023. This was due to a decrease in the number of homesites sold and a change in the mix of sales from different communities. Gross margin for the residential segment was 52.3% in the second quarter of 2024, compared to 53.8% in the same period of 2023.The hospitality segment reported a 38% increase in revenue to $62.3 million in the second quarter of 2024, setting a new quarterly record for the company. This was driven by the growth of the Watersound Club membership program and the opening of five new hotels throughout 2023. Hospitality gross margin increased to 39.2% in the second quarter of 2024, compared to 26.2% in the same period of 2023.
The commercial segment's revenue increased by 15% to $15.4 million in the second quarter of 2024, primarily due to new multi-family and marina leases, as well as other new leases. Gross margin for the commercial segment was 57.1% in the second quarter of 2024, compared to 59.6% in the same period of 2023.
Liquidity and Capital Resources
As of June 30, 2024, St. Joe had $86.7 million in cash, cash equivalents, and other liquid investments, compared to $88.6 million as of June 30, 2023. The company funded $63.9 million in capital expenditures during the first six months of 2024, paid $14.0 million in cash dividends, and repaid a net of $6.9 million of debt.The company's weighted average effective interest rate of outstanding debt was 5.3% as of June 30, 2024, with an average remaining life of 16.9 years. Approximately 67% of the company's outstanding debt had a fixed or swapped interest rate, while the remaining 33% had variable rates tied to SOFR.
Outlook and Guidance
St. Joe has not provided specific financial guidance for the upcoming fiscal year. However, the company's management has expressed confidence in the continued growth of its hospitality and leasing segments, as well as the long-term potential of its residential pipeline.The company's CEO, Jorge Gonzalez, stated, "We continued to focus our efforts on creating long-term shareholder value through investments in our business with an emphasis on recurring revenue streams while distributing excess cash by increasing the upcoming cash dividend by 17% to $0.14 per share."
Risks and Challenges
While St. Joe has demonstrated strong financial performance, the company faces several risks and challenges that investors should be aware of:1. Macroeconomic factors: The company's operations are susceptible to changes in economic conditions, including interest rate fluctuations, inflation, financial institution disruptions, supply chain issues, and geopolitical conflicts, which could impact demand and profitability across its business segments.
2. Regulatory and insurance risks: The company's senior living facilities are subject to various regulatory requirements and insurance-related risks that could affect their operations and financial performance.
3. Dependence on homebuilders: The residential segment's performance is heavily dependent on the financial condition and contractual obligations of homebuilders, which could be affected by market conditions.
4. Seasonality and market variability: The company's revenues and earnings may be subject to seasonal fluctuations and market variability, which could impact period-over-period comparisons.
5. Illiquidity of real estate assets: The inherent illiquidity of real estate assets could limit the company's ability to respond to changing market conditions or capitalize on investment opportunities.