Business Overview and History

The St. Joe Company (NYSE:JOE) is a dynamic real estate development, asset management, and operating company with a strong foothold in Northwest Florida. Originally founded in 1936 as a timber company, St. Joe has evolved over the decades to become a leading player in the regional real estate market, leveraging its significant land holdings to create thriving residential, hospitality, and commercial developments.

St. Joe's origins trace back to the early 1900s when it was primarily focused on the timber and forestry business, owning and managing large tracts of land in Northwest Florida. In 1936, it was incorporated as the St. Joe Paper Company, a major timber and paper producer. Over the next several decades, the company expanded its operations, acquiring and developing significant land assets across the Florida Panhandle.

A major milestone in the company's history came in the 1970s when it began developing its first master-planned community, called WaterSound. This project laid the foundation for the company's future growth in residential, commercial, and hospitality real estate. Throughout the 1980s and 1990s, the company continued to expand its real estate portfolio, developing additional communities and acquiring strategic properties.

In the late 2000s, St. Joe faced significant challenges due to the housing market downturn and recession, which led to substantial losses and the need to restructure the business. The company worked diligently to weather the storm, focusing on its core strengths and making strategic investments to position itself for future growth.

Another challenge the company has faced is the impact of natural disasters, such as Hurricane Michael in 2018, which caused significant damage to the company's properties and operations. St. Joe has worked to recover from these events, investing in infrastructure and mitigation efforts to protect its assets and prepare for future challenges.

Today, St. Joe's portfolio encompasses over 170,000 acres, with approximately 87% of its real estate located in the Florida counties of Bay, Gulf, and Walton. Strategically situated within 15 miles of the Gulf of Mexico, St. Joe's properties have benefited from the region's robust population growth and demand for residential, hospitality, and commercial offerings.

Diversifying Beyond Real Estate Development

While real estate development has historically been St. Joe's core business, the company has in recent years sought to diversify its revenue streams and operations. In addition to its residential, hospitality, and commercial segments, St. Joe has made strategic investments in complementary businesses, such as its private membership club Watersound Club, hospitality operations, and leasing activities.

The Watersound Club, for example, provides club members and guests access to a range of luxury amenities, including golf courses, beach clubs, and other resort-style offerings. This diversification has helped St. Joe hedge against the cyclical nature of real estate development, smoothing out revenue and earnings fluctuations.

Financial Performance and Liquidity

St. Joe's financial performance has been solid, with the company reporting net income of $77.71 million and total revenue of $389.29 million in the fiscal year ended December 31, 2023. The company's operating cash flow for the same period was $103.85 million, while free cash flow amounted to -$36.12 million.

As of December 31, 2023, St. Joe had $86.07 million in cash and cash equivalents, with a net debt position of $545.73 million. The company's balance sheet remains healthy, with a current ratio of 1.49 and a debt-to-equity ratio of 0.92, indicating adequate liquidity and solvency.

In the most recent quarter (Q3 2024), St. Joe reported revenue of $99.01 million, representing a 2.4% year-over-year increase. However, net income decreased by 13.4% to $16.84 million, primarily due to the timing of homesite closings and product mix of sales in different residential communities, as well as a reduction in equity income from unconsolidated joint ventures. This decrease was partially offset by growth in hospitality and leasing revenue. Operating cash flow for the quarter was $27.73 million, with free cash flow of $14.01 million.

As of September 30, 2024, the company's liquidity position remained strong, with $82.75 million in cash and a debt-to-equity ratio of 0.87. The current ratio improved to 2.51, and the quick ratio stood at 2.44, indicating a robust ability to meet short-term obligations. St. Joe has various loans outstanding totaling $448.46 million, with maturities ranging from March 2025 through March 2064. The weighted average effective interest rate on these loans was 5.1%, with 66.9% of the debt outstanding having fixed or swapped interest rates.

Quarterly Results and Outlook

In the third quarter of 2024, St. Joe reported a 16.9% increase in hospitality revenue to $55.4 million, compared to $47.4 million in the same period of the prior year. Hospitality gross margin also improved, rising to 34.1% from 23.8% in the third quarter of 2023. Leasing revenue grew by 19.1% to $15.6 million, up from $13.1 million in the prior-year quarter.

However, real estate revenue declined by 31.5% to $28.0 million in the third quarter of 2024, down from $40.9 million in the same period of 2023. This decrease was primarily due to the mix and number of homesites sold, as well as the timing of homebuilder contractual closing obligations.

For the first nine months of 2024, St. Joe reported a 34.2% increase in hospitality revenue to $157.0 million, compared to $117.0 million in the same period of the prior year. Leasing revenue also grew by 20.2% to $44.7 million, up from $37.2 million in the first nine months of 2023. Real estate revenue, on the other hand, declined by 34.8% to $96.7 million, down from $148.3 million in the prior-year period.

Despite the decline in real estate revenue, St. Joe's overall performance has been resilient, reflecting the company's successful diversification efforts and the strength of its hospitality and leasing operations. The company remains cautiously optimistic about its future prospects, citing the continued growth and migration trends in its core Northwest Florida markets.

Segment Performance

St. Joe operates in three main reportable segments: residential, hospitality, and commercial.

The residential segment plans and develops residential communities across various price points and sells homesites to homebuilders or retail consumers. As of September 30, 2024, the company had 1,380 residential homesites under contract, expected to generate approximately $122.3 million in revenue, plus residuals, at closing. Key residential communities under development include Watersound Origins, Watersound Origins West, Watersound Camp Creek, Breakfast Point East, and the Latitude Margaritaville Watersound community, which is being developed through an unconsolidated joint venture.

The hospitality segment includes the Watersound Club, hotel operations, food and beverage outlets, golf courses, beach clubs, retail outlets, gulf-front vacation rentals, marinas, and other entertainment assets. As of September 30, 2024, Watersound Club had 3,530 members, up from 3,090 members a year earlier. Key hospitality assets include the WaterColor Inn, The Pearl Hotel, Camp Creek Inn, and the Embassy Suites by Hilton Panama City Beach Resort.

The commercial segment focuses on leasing commercial property, multi-family, senior living, self-storage, and other assets. It also manages the planning, development, and sale of commercial and forestry land holdings. As of September 30, 2024, the company's leasing portfolio consisted of approximately 1.18 million square feet of leasable space for mixed-use, retail, industrial, office, self-storage, and medical uses, with a 96% occupancy rate. Key commercial projects include the Watersound Town Center, Watersound West Bay Center, and an 87-acre medical campus developed in partnership with Florida State University and Tallahassee Memorial Hospital.

Risks and Challenges

While St. Joe has demonstrated its ability to navigate challenging market conditions, the company faces several risks and challenges that investors should be aware of. These include:

1. Concentration in Northwest Florida: Approximately 87% of St. Joe's real estate assets are located in the Florida Panhandle, making the company highly dependent on the economic and demographic trends of this region.

2. Cyclical nature of real estate development: The real estate industry is inherently cyclical, and St. Joe's fortunes are closely tied to the health of the residential, commercial, and hospitality markets.

3. Regulatory and environmental risks: As a real estate developer, St. Joe is subject to various regulatory and environmental requirements, which could impact the company's operations and profitability.

4. Competition: St. Joe faces competition from other real estate developers, hospitality providers, and commercial property owners in its markets, which could affect its ability to maintain or grow its market share.

5. Dependence on homebuilders: A significant portion of St. Joe's residential revenue is derived from sales to homebuilders, making the company's performance dependent on the financial health and contractual commitments of these partners.

Despite these risks, St. Joe's diversification efforts, strong balance sheet, and strategic land holdings position the company well to navigate the challenges facing the real estate industry.

Conclusion

The St. Joe Company has evolved from its timber industry roots to become a diversified real estate development, asset management, and operating company with a strong presence in Northwest Florida. While the company has faced headwinds in its real estate segment, its strategic investments in hospitality and leasing operations have helped to mitigate the cyclical nature of its core business.

The company's financial performance remains solid, with growing revenues in its hospitality and leasing segments offsetting declines in real estate sales. St. Joe's strong liquidity position, with a healthy cash balance and manageable debt levels, provides flexibility to pursue growth opportunities and weather potential market downturns.

Looking ahead, St. Joe's continued focus on diversification, prudent capital management, and responsiveness to market trends will be critical in driving long-term shareholder value. As the company navigates the complex real estate landscape, investors will be closely watching its ability to capitalize on the growth opportunities in its regional markets while managing the inherent risks of its business model. The success of key projects such as the Watersound Club, the expansion of its hospitality offerings, and the development of commercial properties like the Watersound Town Center will play crucial roles in shaping the company's future performance and growth trajectory.