The St. Joe Company (JOE) is a real estate development, asset management, and operating company with a significant footprint in Northwest Florida. Tracing its roots back to 1936, this publicly-traded company has evolved from a traditional timber and forestry business into a diversified real estate conglomerate that is shaping the future of Florida's Emerald Coast.
Business Overview and History
The St. Joe Company was originally incorporated in 1936 as the St. Joe Paper Company, focused on timber and forestry operations. Initially owning and managing over 800,000 acres of timberland, the company has transformed itself over the decades, leveraging its vast land holdings to develop a multifaceted real estate business. In 1997, the company changed its name to The St. Joe Company to better reflect its evolving business model.
In the 1990s, the company began diversifying its real estate holdings and shifting its focus towards residential, hospitality, and commercial development. However, the early 2000s brought significant challenges following the housing market downturn, forcing the company to write down the value of many of its land holdings and residential projects. To navigate this difficult period, the company worked to strengthen its balance sheet, streamline operations, and focus on its core markets in Northwest Florida.
Around 2010, The St. Joe Company began to see renewed growth opportunities in its residential and commercial segments as the housing market recovered. The company leveraged its substantial land holdings to develop master-planned communities, such as Watersound Origins and Latitude Margaritaville Watersound. It also expanded its hospitality offerings, opening new hotels, clubs, and amenities under the Watersound Club brand.
Over the past decade, The St. Joe Company has undertaken a number of strategic initiatives to diversify its business and capitalize on the growth in Northwest Florida. This has included forming joint ventures to develop multi-family, senior living, and commercial properties, as well as expanding its timber and forestry operations.
Today, the company operates in three primary segments: Residential, Hospitality, and Commercial. The Residential segment plans and develops a diverse range of residential communities, selling homesites to homebuilders and retail consumers. The Hospitality segment features a private membership club, hotels, golf courses, vacation rentals, and other entertainment assets. The Commercial segment oversees the planning, development, and leasing of retail, office, industrial, and other commercial properties.
The company's real estate holdings are primarily concentrated in Northwest Florida, with approximately 87% of its assets located in the Bay, Gulf, and Walton counties. Notably, around 90% of the company's land holdings are within 15 miles of the Gulf of Mexico, positioning it to capitalize on the region's growing popularity as a desirable destination for residents and tourists alike.
Financial Performance and Ratios
The St. Joe Company's financial performance has been largely positive in recent years, despite facing headwinds from macroeconomic factors such as inflation, elevated interest rates, and supply chain disruptions.
For the most recent quarter, the company reported revenue of $104,333,000 and net income of $18,921,000. The company's operating cash flow for the quarter was $29,841,000, while its free cash flow amounted to $21,831,000.
Key financial ratios for the company include: - Gross Profit Margin: 41.5% - Operating Profit Margin: 23.7% - Net Profit Margin: 18.4% - Return on Assets: 4.8% - Return on Equity: 10.4% - Debt-to-Equity Ratio: 0.84
Liquidity
The company's balance sheet remains healthy, with a current ratio of 1.50 and a quick ratio of 1.50, indicating strong liquidity. The company's long-term debt-to-capitalization ratio stands at 45.4%, suggesting a prudent approach to leverage. As of September 30, 2024, the company had cash and cash equivalents of $82.7 million.
Quarterly Performance and Highlights
In the third quarter of 2024, The St. Joe Company reported a 17% increase in hospitality revenue to $55.4 million, compared to $47.4 million in the same period of the previous year. Hospitality gross margin also improved, rising to 34.1% from 23.8% in the third quarter of 2023. This growth was driven by strong performance across the company's club, hotel, and other hospitality operations.
Leasing revenue increased by 19% to $15.6 million in the third quarter of 2024, up from $13.1 million in the same period of 2023. The company's leasable square feet grew by 9% to 1.18 million square feet, with the percentage leased reaching 96% as of September 30, 2024.
However, real estate revenue decreased by 32% to $28.0 million in the third quarter of 2024, compared to $40.9 million in the same period of the previous year. This decline was primarily due to the mix and timing of homesite sales across the company's residential communities.
For the first nine months of 2024, the company reported hospitality revenue of $157.0 million, a 34% increase from the $117.0 million generated in the same period of 2023. Leasing revenue also grew by 20% to $44.7 million, up from $37.2 million in the first nine months of 2023. Real estate revenue, on the other hand, decreased by 35% to $96.7 million, compared to $148.3 million in the same period of the prior year.
Segment Performance
Residential Segment: During the three months ended September 30, 2024, revenue from homesite sales decreased $15.6 million, or 48%, compared to the same period in 2023. The average base revenue, excluding homesite residuals, per homesite sold was approximately $86,000 and $103,000 during the three months ended September 30, 2024 and 2023, respectively. Gross margin for the residential segment decreased to 39.1% during the three months ended September 30, 2024, compared to 44.6% during the same period in 2023.
For the nine months ended September 30, 2024, revenue from homesite sales decreased $44.0 million, or 37.3%, compared to the same period in 2023. The average base revenue, excluding homesite residuals, per homesite sold was approximately $115,000 and $105,000 during the nine months ended September 30, 2024 and 2023, respectively. Gross margin for the residential segment was 48.4% during both nine-month periods.
As of September 30, 2024, the company had 1,380 residential homesites under contract, expected to result in revenue of approximately $122.3 million, plus residuals, at closing over the next several years. The company's unconsolidated Latitude Margaritaville Watersound joint venture had an additional 426 homes under contract as of September 30, 2024.
Hospitality Segment: Hospitality revenue increased $8.0 million, or 16.9%, to $55.4 million during the three months ended September 30, 2024, compared to the same period in 2023. Hospitality gross margin increased to 34.1% in the third quarter of 2024, compared to 23.8% in the third quarter of 2023.
For the nine months ended September 30, 2024, hospitality revenue increased $40.0 million, or 34.2%, to $157.0 million, compared to the same period in 2023. Hospitality gross margin increased to 33.3% for the first nine months of 2024, compared to 21.0% in the same period of 2023.
As of September 30, 2024, the company's Watersound Club had 3,530 members, compared to 3,090 members as of September 30, 2023, an increase of 440 members. The company had 1,050 operational hotel rooms, excluding 245 hotel rooms related to unconsolidated joint ventures, as of both September 30, 2024 and 2023.
Commercial Segment: Leasing revenue increased $2.5 million, or 19.1%, to $15.6 million during the three months ended September 30, 2024, compared to the same period in 2023. Leasing gross margin was 50.0% during the third quarter of 2024, compared to 48.1% in the same quarter of 2023.
For the nine months ended September 30, 2024, leasing revenue increased $7.5 million, or 20.2%, to $44.7 million. Leasing gross margin was 50.3% during the first nine months of 2024, compared to 49.7% in the same period of 2023.
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 96% of the space leased. The company also had 1,380 multi-family and senior living units completed, of which 1,110 were leased, as of September 30, 2024.
The commercial segment also generated $9.4 million in revenue from six commercial and forestry real estate sales during the first nine months of 2024, with a gross margin of 61.7%.
Risks and Challenges
The St. Joe Company faces several risks and challenges that could impact its future performance:
1. Concentration in Northwest Florida: The company's heavy concentration of assets and operations in Northwest Florida exposes it to regional economic and environmental risks, such as hurricanes and other natural disasters.
2. Macroeconomic Headwinds: The company is susceptible to the effects of inflation, rising interest rates, supply chain disruptions, and labor shortages, which could constrain its ability to develop and sell properties profitably.
3. Dependence on Homebuilder Demand: The company's residential segment is heavily dependent on homebuilder demand, which can be volatile and subject to market cycles.
4. Regulatory and Environmental Risks: As a real estate developer, the company must navigate a complex regulatory landscape and comply with environmental regulations, which could delay or impede its projects.
5. Competition: The company faces competition from other real estate developers and hospitality providers in its markets, which could pressure margins and market share.
Outlook and Guidance
The St. Joe Company has not provided specific financial guidance for the upcoming fiscal year. However, the company's management has expressed cautious optimism about the long-term growth prospects of the Northwest Florida region, citing continued population and economic expansion, as well as the region's natural amenities and high quality of life.
The company's diversified business model, with exposure to residential, hospitality, and commercial real estate, is expected to help mitigate the impact of any individual market headwinds. Furthermore, the company's strong balance sheet and liquidity position should enable it to navigate the current macroeconomic challenges and selectively pursue new growth opportunities.
Conclusion
The St. Joe Company is a well-established real estate company that has successfully transformed itself from a timber and forestry business into a diversified real estate powerhouse. With a significant presence in the attractive Northwest Florida market, the company is well-positioned to capitalize on the region's growth and evolving lifestyle preferences.
While facing some near-term headwinds, the company's diversified business model, financial strength, and long-term growth prospects make it an intriguing investment opportunity for those seeking exposure to the dynamic real estate market in Florida's Emerald Coast.