Earnings Call Transcript - JOE Q2 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to The St. Joe Company Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is also being recorded. I would now like to hand the conference over to Jorge Gonzalez, President, CEO and Chairman of The St. Joe Company. Please go ahead.

Jorge Luis Gonzalez, President, CEO and Chairman

Thank you. Good afternoon, everyone. I am Jorge Gonzalez, President, CEO and Chairman of The St. Joe Company. It is my pleasure to welcome you to the quarterly earnings call of The St. Joe Company. Yesterday afternoon, after the market closed, we issued our 2025 second quarter earnings press release, which can be found in the Investor Relations portion of our website at joe.com. As a reminder, in a housekeeping matter in the top right-hand corner of your screen, the word submitted question is visible. Clicking that text will take you to the section where you can type in your question and then click submit for later in this call. I'm joined today by Marek Bakun, our Chief Financial Officer. As we discussed at our 2025 Annual Meeting of Shareholders back in May, we committed to launching quarterly earnings calls to provide our shareholders and the investor community with another opportunity to engage with management and ask questions about our business and performance. We have always been an open and transparent company that welcomes engagement in any form throughout the year. Because of the types of assets that we own, we always encourage shareholders to visit us in person so they can assess the progress of the region and of the company. We are excited to begin this new chapter of investor engagement as the company continues to execute on our strategic transformation. Over the past several years, we have evolved from primarily a transactional land sales company to a diversified real estate operating company with multiple recurring revenue streams. Our strategy centers on growing and enhancing the ecosystem in Northwest Florida by developing scalable master-planned residential communities and businesses in hospitality and commercial leasing that generate recurring revenue. We call this our virtuous circle of value creation, where investments in one area enhance the value of our adjacent assets. The essence of our business is we connect people to place. Before we begin discussing our results and answering your questions, I would like to remind everyone that today's press release and the statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission. Additionally, during today's call, we will be discussing non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in our earnings release. Our earnings release provides comprehensive details on our performance, so I'm not going to read all the details, but I will briefly focus on some key highlights before we move to your questions. For the second quarter, we continue to show solid organic growth with a 16% growth in revenue, 20% growth in net income, led by a 27% growth in real estate revenue. What is particularly encouraging is the continued growth of our recurring revenue streams. Leasing revenue increased by 11% to a quarterly record and hospitality revenue increased by 10% to a quarterly record. Through the first 6 months of 2025, recurring revenue is now 63% of our total revenue, which is a significant transformation of the company. In the second quarter, we continued to execute a measured and multifaceted capital allocation strategy with $36.5 million in capital expenditures for growth, $10.1 million for share repurchase, $8.1 million for cash dividends, and $7.7 million for project debt reduction. We have accelerated share repurchase with $16.2 million through the first half of 2025, leaving the outstanding share balance below $58 million for the first time since 1996 or 29 years ago. Beyond the numbers, there were several relevant events in the second quarter that I would like to briefly mention in case anyone missed them. On April 1, the Bay County Commission approved the Pigeon Creek Detailed Specific Area Plan, or DSAP, with entitlements for over 3,000 residential units and over 400,000 square feet of commercial. We are already in discussion with a homebuilder interested in the entire DSAP that will be a new addition to our builder program. On May 5, we launched WaterSound Real Estate, a boutique real estate brokerage located in the WaterColor Town Center with several other future locations planned. This is our latest asset-light business to complement our existing title and insurance businesses that generate recurring revenue from capital investments we have already made. On May 7, Delta announced year-round daily nonstop flights between New York City's LaGuardia Airport and Northwest Florida Beaches Airport, ECP. This is an exciting opportunity for us to reach a new and heavily populated market. On June 10, the Florida Governor and Cabinet approved the issuance of $414 million of bonds for the construction of a new FSU Health Teaching Research Hospital in Bay County on our medical campus on State Road 79. On June 27, Topgolf opened its doors in Panama City Beach as our main anchor for Pier Park City Center, an exciting new entertainment district. On June 30, the Florida Governor signed a state budget for the fiscal year 2025, '26, which includes a $5 million appropriation to Bay County for the planning of a new sanitary sewer plant in the northern part of State Road 79 corridor to help support future growth. In closing, no matter the high quality of our real estate assets, the quality of our people is what stands out. We have a hard-working team that is committed to executing our shared vision, and it is an honor and privilege to be a part of the journey with them. So now we're going to transition to the question-and-answer part of the call. We're going to read the questions as they come up on the screen. So please, I encourage you if you have any questions, click on the question button and submit them to us so we can read and answer your questions. The first question is, would the Board consider reviewing the current access policies to ensure that hotel guest usage in our WaterSound Club does not dilute the premium experience and investment for members? There's currently 3 hotels on 30A that we allow access to our club amenities out of a total of 12 hotels. At this moment in time, we don't have a plan to change that current policy. The next question is about distributed cash from Latitude Margaritaville WaterSound. Could you provide color on the decision-making of how much capital or cash is kept at Latitude versus being distributed out to the joint venture partners? The answer to the question is there's not a specific formula that the partners execute ourselves and Minto on the actual distribution. It's a decision that's made based on how the business is going, how sales are going, how closings are going, the infrastructure needs, the capital needs for the infrastructure. So there's not a specific formula. It is something that we work together with our partner as part of the normal day-to-day execution of the joint venture. The next question, what is the number of acres contributed to the Margaritaville joint venture with Minto? It is approximately 2,600 acres. Next question. What can you tell us on the ground in terms of what you're seeing in terms of population growth in the area over the past year? Do you think it's possible that we can see the housing market in the area above the national trend? You returned $26 million to equity holders in the form of dividends and buybacks. Do you believe you have reached a point where we can return close to $100 million annually to shareholders in the manner you did this past quarter? Let me answer those questions one section at a time. What can you tell us on the ground in terms of what you're seeing in terms of population growth in the area over the past year? As we shared at the annual meeting, Bay and Walton County are among the fastest growing counties in the state of Florida by rate. We are still seeing that level of in-migration coming into our area. We're not seeing any material difference in that aspect. So the answer to the question is we expect to see a continuation of the trend in the growth rate that we've been seeing in both Bay and Walton County. Could you see the housing market in the area above the national trend? Time will tell. But so far, our region is certainly doing better than many other parts, many other metro markets in the country. Regarding the return of capital, we don't know. Capital allocation is something that we look at daily. We make decisions based on what's happening at the ground level, what's happening at the macro level, at the micro level, share price. But as I've said many times, and we talked about in great detail at the annual meeting, it is something that is very important to us. It is top of mind, and we're constantly thinking about capital allocation in the best way that we can create value for our shareholders. The next question, what is going on with memberships? So two things about memberships. First of all, and I think that question is probably because the individual asking the question noticed that there was a slight decrease in memberships for the quarter. But a lot of that has to do with two things. One, we had an adjustment or recalibration of membership types, particularly legacy family memberships, which created a bit of an anomaly in the math of the membership. We actually had 113 new full members join so far. The second thing is we did expect a little bit of a slowdown in membership because we increased the entry fee significantly starting in January of this year and the monthly dues. So every time we've done that, the trend has always been that when we do that, there's a bit of a slowdown in new memberships reacting to the increase in entry fees and memberships. Over time, the market absorbs the increase and then we get back on another up cycle in membership growth. Next question. There was a nice pickup to 482 newly contracted homesites this quarter. Were there any major communities that drove this number? The answer is no. There was not one major community that drove that number, that was spread out over all the active communities that we have. What is currently the main bottleneck to sell more than the 1,000 homesites that you have averaged in the last year? I think I'm not sure I would call it a bottleneck, but probably the same driver that affects all builders nationally. Relief in mortgage interest rates would certainly be very helpful in us accelerating and going beyond not only to the 1,000 per year, but even going beyond the 1,000. We are still seeing good traffic in the sales centers. We are still seeing good in-migration into our region. We still get positive feedback about the quality of the product that is here. So it's a matter of interest rates decreasing so the consumer will feel a little bit more comfortable about making that final decision. Next question. How do you view the vehicle traffic you’re generating over time, especially when traffic conditions already seem challenging? Yes, infrastructure, including transportation and utilities, is a crucial part of our operations. As a company, we consistently plan for the next 3, 5, 7, and 10 years. We collaborate extensively with our partners at the state, regional, and local levels to strategize for future infrastructure development. It's always a challenge to find the right timing; you can be either ahead of the curve or behind it. Nonetheless, we continually engage with our partners to ensure that infrastructure development keeps pace with growth. The next question was about how club memberships grew despite lower numbers. Higher membership dues played a significant role in this. We raised both the entry fee and the monthly dues quite a bit in January of this year, leading to increased revenue for the club. Additionally, we now have three golf courses, which has also contributed to higher fees. Our hotel occupancy and rates were strong in the second quarter. Next question. You have 1,209 homesites under contract, which is a decline versus previous years despite having more active selling communities and more national builders. This implies that you have fewer homesites under contract per community and per builder. What is driving this decline? And how do you think about this metric versus prior years? Well, the answer is we closed a lot of lots in the first half of this year. Also, as I've mentioned before, it's difficult to create an algorithm or a methodology on lot closings, because the time it takes to engineer, permit, and develop infrastructure in any one subdivision phase is not linear and takes approximately 2 years. Sometimes it's a year, sometimes it's 1.5 years. So when looking at that metric, I would just caution shareholders against overreading that metric because there are many components to delivering lots or homesites that are not easy or don't apply to a linear formula. But we sold a lot of lots. So that displaced a lot of the lots under contract. In our discussions with all of our builders, and we talk to them regularly, we don't feel that there's any material difference in that pipeline that causes us any concern at this point. The next question: Does the Board believe Florida Senate Bill 1622 customer review assigned into law this year by the governor to have a negative effect on St. Joe's real estate holdings, especially in Walton County? The answer is no. We don't anticipate it will have any effect on St. Joe's real estate holdings. The next question is, there is a massive discrepancy between the market cap and NAV. How do you plan on closing that? Any consideration for getting sell-side coverage? Our focus as management is to continue to grow the company, continue to grow in the most profitable way possible, and also in the best way possible that's going to create shareholder value. That's our focus. That’s what our team is focused on daily. The next question: CapEx and lot development seems significant relative to the number of lots planted under development. Can you give us some color here? Is it possible this CapEx is going towards lots and permitting planning? Yes, first of all, CapEx includes both soft dollars and hard dollars. Soft dollars are dollars that we spend in planning, engineering, permitting. And of course, hard dollars are dollars that we spend in actually putting infrastructure in the ground. It's a combination of both. And again, it's very difficult, and I would caution against looking at any residential home site metric as it relates to timing, and not reading too much into it at any one time just because of that 2-year window that's a big variable in the time it takes to engineer and permit and develop homesites. Next question: When will Phase 2 Margaritaville break ground and what is its size? Will the pricing and market positioning be similar to Phase 1? Thanks and great work to all the team members. We received approval for the detailed specific area plan immediately west of Latitude. I believe it was 1 or 2 years ago from Bay County. That's approved for over 4,000 units. We have been engaging in planning with our potential joint venture partner, extending the joint venture from Latitude to the property to the west. We are in discussions with our partner about the transition and the expansion of Latitude into that new area. At this point in time, we anticipate having a very similar market position in terms of pricing and product. In terms of when we'll actually break ground, we don't have an exact projection for that. But if you can look at the 3,500 units that were approved in the first joint venture and the current run rate that we're on annually, it's probably going to be a couple of years away when we break ground for the second Latitude project. But we do feel very positive about our relationship with our partner and the continued market acceptance and the traffic that we're seeing in the sales center. Next question: Your income from equity accounted investments is getting material due to Latitude Margaritaville, but the sum of the earnings of your two Pier Park JV's and soon the WaterSound Fountains Independent Living JV are negative, and the value of those two assets doesn't currently show in the P&L. What is the earnings potential of these properties as they ramp up? Is Joe the logical owner of these properties? A couple of those properties mentioned are still in the startup lease-up phase, particularly the Fountains, and that project was delayed on the construction side. So we started leasing later than we anticipated. Residence Inn is the other hotel joint venture that was referenced. That’s still in the startup stabilization phase. We believe they're both great locations, and the long-term potential of those two assets still appears good. For example, Fountains, Watercrest, our other senior living facility took a while to lease up. They don't have the same leasing trajectory as apartments. They take longer than apartments. Watercrest was slow to lease up, and now is in the 90th percentile and quite profitable for us. There's no reason to believe that WaterSound Fountains will be any different from that. We are constantly looking at all of our assets, whether it's a joint venture or one of our projects, assessing its long-term potential and profitability and making decisions on our long-term ownership of that asset. Next question: What needs to occur for the West Bay Bridge to be built? And what kind of timeline do you envision for that? The question refers to the West Bay Parkway, the road that would connect State Road 79 in Bay County, head west, go over the Intercoastal Waterway, and then come out in Walton County west of WaterSound origins. That is a project that we've been engaged in planning with the Florida Department of Transportation. They have a very specific process for regional roadways like that. The very first step is choosing the alignment, which was chosen. We worked closely with them on that decision. The next step is engineering and permitting of the road. We have been in discussion with local transportation planning organizations and DOT on putting together that next step in engineering and permitting. We don't have an exact timeframe on when the road will be built. But with the success of Latitude, every home built there is another consumer that will appreciate that road. And the more of those consumers we have, the more positive we feel about the potential timing of that road. There is significant real estate activity inland in your area, such as Freeport. While your raw land value is increasing, this isn't reflected in your quarterly results. Do you receive offers from third parties to purchase land? How do you decide whether to sell or hold onto the land, especially if you don’t have immediate plans for it? That’s an insightful question. Occasionally, we receive offers from individuals for various segments of our land. The areas we consider non-strategic, primarily east of the Apalachicola River in Leon County, Gadsden County, and Wakulla County, are where we're inclined to sell at the right price. We're not reducing prices for any land, even if it's deemed non-strategic. The lands to the east of the Apalachicola River fall into the non-strategic category, and we're open to inquiries about selling in those regions. However, we are much more selective regarding land in our core strategic counties like Bay, Walton, or Gulf when it comes to engaging with interested parties. Next question: When do you expect the new marina to start construction on the ICW? So we started construction of that new marina. We performed a lot of grading on that property. We are still waiting for all the permits to be issued before we finalize the plan and move forward and finish the marina. But we have started construction. We're just awaiting all the permits before we can continue developing that marina. Next question: How should we look at the earnings potential of the new St. Joe brokerage boutique? Will all St. Joe's newly built homes be sold through your own brokerage? We have some pretty ambitious goals for the agency. We're taking it one step at a time. We have been extremely pleased with the reaction we've had in the agent community. When we announced that we were forming the brokerage, we were inundated with phone calls from agents in the region wanting to join. Right now, the focus is on the first location, which is in the WaterColor Town Center, and the focus of that location is resales in that part of 30A. We have plans to expand locations in multiple areas in both Bay and Walton. In terms of new home sales in communities, yes, that’s something we're targeting for how our brokerage can be involved in executing that part of our business. Next question: As part of your strategic plan, what is the growth rate goal for recurring revenues in the next 3 to 5 years? I don't know if I can tell you an exact goal at this moment in time. It's project by project. But we obviously, like I said earlier, our focus as a management team is on growth, particularly growing recurring revenue. Next question: Can you talk about the timing of the medical center breaking ground since the bonds have been approved and also the impact on the region? First, the impact on the region. We believe it's going to be a transformational impact on the region, and obviously extremely positive. Having a research teaching hospital in our region will be extremely beneficial for existing residents and prospective residents. So we really believe it's going to be a transformational event for the region. The bonds were issued. FSU is currently in the process of finalizing an agreement with an operator, and as soon as that agreement is finalized, you're going to see the project move forward quickly after that. Next question: Is Pigeon Creek potentially a parcel that you would consider offloading for a sizable chunk of upfront cash to a single builder versus the slow lead approach that seems to be common with the existing builders and MPC? The location of the land and potentially density a large-scale builder could quickly add on the residential side appears to make this sort of transaction appealing. As I mentioned in my introductory comments, we are in discussions with one large-scale builder that has an interest in the entire Pigeon Creek DSAP. We've made a lot of progress in those discussions, and we believe that builder is the right builder to accomplish what the question asks, which is to help accelerate the pace and trajectory of our residential segment, particularly with the scale that Pigeon Creek has. I'm not seeing another question. If there are any more questions that anybody has, please go ahead and send them in. We'll give it a few more minutes to see if there are any other questions that come in. Okay. We're not seeing any more questions. So thank you again for joining us today. I greatly appreciate the questions. There were some really great insightful questions from individuals who know our company well. So I appreciate the questions, the interest, and the engagement. And again, we're looking forward to this new phase of engagement with our shareholders and look forward to speaking with you again next quarter. Thank you. Everybody, have a great day.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.