Earnings Call Transcript - JOE Q3 2025

Operator, Operator

Good day, and thank you for being with us. Welcome to The St. Joe Company Third Quarter 2025 Earnings Conference Call. Please note that today's conference is being recorded. I will now turn the conference over to Mr. Jorge Gonzalez, President, CEO and Chairman. Please proceed.

Jorge Gonzalez, President, CEO and Chairman

Thank you, and good morning. I'm Jorge Gonzalez, President, CEO and Chairman of The St. Joe Company. It is my pleasure to welcome you to our quarterly earnings release. I'm joined today by Marek Bakun, our Chief Financial Officer. Yesterday afternoon, after the market closed, we issued our third quarter 2025 earnings release, which can be found in the Investor Relations portion of our website at joe.com, joe.com. This morning, we continue our commitment to quarterly earnings calls to provide our shareholders and the investor community with an opportunity to ask questions about our business and performance. We have always been an open and transparent company that welcomes all feedback and opinions. Because of the types of assets that we own, we encourage shareholders to visit us in person so they can assess the progress of the region and of our company. Before we begin, 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 discuss 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. Let's go ahead and get started. We assume everyone has already carefully reviewed our earnings release, which provides comprehensive details about our performance. So I am only going to mention a few key highlights before we move on to your questions. For the third quarter of 2025, we showed solid performance with 63% growth in revenue and 130% growth in net income when compared to the third quarter of 2024. Residential real estate revenue grew by 94% to $36.8 million from $19 million. The average homesite base price increased to $150,000 from $86,000, and the gross margin increased to 53% from 39%. We also continued to grow recurring revenue with leasing revenue increasing by 7% to an all-time quarterly record of $16.7 million, and hospitality revenue increasing by 9% to an all-time third quarter record of $60.6 million. Our leasing and residential pipelines are also growing. For the first 9 months of 2025, we executed 40 new commercial leases and renewed 43 existing leases for a total of 83 compared to 26 new leases and 27 renewals for a total of 53 during the same period in 2024. At the end of the third quarter, we had 1,992 residential units under contract compared to 1,381 for the same period in 2024. We have over 24,000 entitled units in our residential pipeline in various stages of planning, engineering, permitting, or development. This pipeline includes a wide range of locations, products, and pricing which gives us the flexibility to respond to the ebb and flow of market conditions. Included in commercial real estate revenue for the third quarter is the sale of Watercrest senior living to one of the nation's largest senior living REITs. This sale is part of our core business and an example of how we create value by developing successful operating properties. The land encompassed approximately 7.7 acres and was originally appraised in 2019 at approximately $2.7 million. After development and leasing of the property beginning in 2020, Watercrest was sold in the third quarter for $41 million, resulting in a gross profit of $19.4 million. Senior living is an asset type that is needed for the regional ecosystem, but it is not an asset type we plan to grow as part of our commercial leasing portfolio because these types of assets take longer to lease than multifamily and because they entail considerable operational intensity. The sale of Watercrest is an example of how our operating properties generate recurring revenue, but they are also piggy banks that can be monetized under the right set of circumstances. We anticipate continuing to create asset value by developing operating properties, which we may own for recurring revenue or choose to monetize and reinvest through strategic capital allocation. We will also continue to evaluate nonstrategic timberlands for opportunities to monetize and reinvest for strategic capital allocation. For the third quarter, we continued to execute a measured and multifaceted capital allocation strategy with $20.4 million for capital expenditures, $8.7 million for share repurchase, $8.1 million for cash dividends, and $28.4 million for project debt reduction. It is important to remember that the exact capital allocations will vary from quarter to quarter based on the circumstances of that quarter. For example, in the third quarter, project debt reduction includes $19.2 million for the loan payoff associated with the sale of Watercrest. With the $8.7 million in share repurchase for the third quarter, we are at $24.9 million in share repurchases through the first 9 months of 2025 compared to 0 share repurchases through the first 9 months of 2024, which is a significant year-over-year acceleration. The outstanding share balance is now below $58 million for the first time in nearly 30 years. In the third quarter, we announced a 14% increase in the quarterly dividend to $0.16 per share payable on December 12 to all shareholders of record as of the close of business on November 13. Since we started this dividend program in 2020, we have increased dividend payments by 129%. Beyond the numbers, we are excited about the new daily nonstop flights between Northwest Florida Beaches International Airport, ECP, and LaGuardia Airport in New York City, which is the largest Metropolitan Statistical Area in the country with a population of approximately 20 million people. The company is poised to leverage this new opportunity by expanding marketing efforts to promote the quality of the Watersound lifestyle to this large population base. With this new flight, ECP now has non-stop flights to 7 of the 10 largest Metropolitan Statistical Areas in the country. Now Marek and I are going to answer your questions. As a reminder, in the top right-hand corner of your screen, the words submit a question are visible. Clicking that text will take you to the text entry box where you can type your question and click submit.

Marek Bakun, CFO

Yes, good morning. We have already received a number of questions, so we will go ahead and start with the first one. At the current buyback rate, the company is repurchasing around 1% of the company annually. We have $126 million in cash, our recurring income continues to increase, our outstanding debt has fallen by over $50 million, and the capital intensity of our business is decreasing. Management deserves all the credit here, but why are we building our cash balance instead of increasing the pace of our buyback?

Jorge Gonzalez, President, CEO and Chairman

That is a great question. I appreciate it. It highlights all the positive developments occurring within the company right now. Having cash is a fortunate situation to be in. We have been generating real cash through solid strategies, not through gimmicks or short-term tactics. Many other companies envy this fortunate situation. We are pleased with our cash generation, which is something we began planning for years ago. The execution of our plans has created this outcome. That said, share repurchase remains a priority for us, as we have mentioned multiple times in our capital allocation strategy. As I noted in the opening remarks, we have invested $25 million in share repurchase during the first nine months of 2025, compared to $0 during the same period in 2024. Even after the third quarter, we have continued buying back shares. It's worth noting that the largest cash event we experienced in the third quarter, the sale of Watercrest, took place just a couple of days before the end of the quarter.

Marek Bakun, CFO

Next question. Over the last year, there have been several land and real estate transactions in Bay and Walton Counties at valuations that would support a net asset value materially higher than the current stock price. There seem to be several more opportunities to either sell land or additional assets that are outside of the Bay-Walton sector plan or where significant appreciation has already happened. Why not sell more of these assets at values that are substantial in relation to the current market cap and use the proceeds to significantly reduce our share count while we continue to own a century's worth of future developable land?

Jorge Gonzalez, President, CEO and Chairman

As I mentioned in my opening remarks, we are continuing to evaluate our operating properties and timberlands to identify the best opportunities for monetization and reallocating resources into more strategic capital allocation strategies. We will not sell assets at a discount and will ensure that we capture the value that our shareholders deserve when we monetize our assets, whether they are operating properties or timberlands.

Marek Bakun, CFO

So next question. Great quarter. Joe continues to shine in a sector that has seen some softness. Where does the company see cash levels 12 to 18 months from now? Also noting that the company has done some heavy lifting with CapEx during previous quarters, and we are on a side of reaping revenues from that CapEx. Also, what are the regulatory hurdles, execution restrictions when the company is buying back its own shares? Also, what cash levels does the company feel comfortable with?

Jorge Gonzalez, President, CEO and Chairman

That's a great question and clearly shows your long-term understanding of the company's evolution. I will address the various parts of your question, and if I overlook anything, Marek can add his thoughts. First, regarding cash levels 12 to 18 months from now, it depends on various factors, including our stage in the company's evolution, our capital allocation strategy, and broader economic conditions. As we've mentioned, our capital allocation approach is measured and involves multiple elements. It's not solely about conserving cash; it includes capital expenditures, share repurchases, dividends, and reducing project debt. Next, concerning the regulatory hurdles and execution restrictions in our share buyback program, there are specific requirements we need to follow. This often depends on when we can buy shares during open and closed periods, with different rules applicable for each scenario. Such factors influence our capital allocation strategy, which is why I noted that capital allocation can vary from quarter to quarter. Nonetheless, share repurchase remains a priority in our strategy. Lastly, regarding the cash levels with which we feel comfortable, the response is much like the first: it depends on various circumstances, including macroeconomic and microeconomic factors, as well as our progress in managing and harvesting our residential home sites. Those familiar with running a diverse real estate company understand the importance of liquidity for several reasons. While we aim to maintain liquidity, we also want to ensure our capital allocation strategy yields the best possible returns for our shareholders.

Marek Bakun, CFO

Yes. And Jorge talks about the seeding and harvesting. It is definitely great to see the harvesting, and what you saw in this quarter is the growth in cash from some of the harvesting, and it also allowed for us to accelerate repurchases and increase dividends to our shareholders. Moving on to the next question. Great execution and appreciate the color and philosophy around Watercrest. Any progress update on the talks with a large-scale builder interested in the entire Pigeon Creek, DSAP.

Jorge Gonzalez, President, CEO and Chairman

Those talks are ongoing. We don't have anything specific to report at this moment in time, but we are encouraged with the progress that has been made in those talks.

Marek Bakun, CFO

So next question. We have stayed in one of your beautiful Twin Beachfront Vacation Homes in Panama City Beach, great place for the family, by the way, we love them. Just wondering if there are any plans for the beachfront lots about a block east, which also includes several acres across the street. I think it's called Waverunner.

Jorge Gonzalez, President, CEO and Chairman

So the project is actually called Wavecrest internally, so close on that stuff, and it is a well-located property very close, including frontage on the beach, just east of those 2 homes that are mentioned in this question. If you look at the map directly to the north, there is a lot of our land holdings on the other side of 98, which if you look at the presentation we did at the shareholder meeting, had a couple of DSAPs. That is a future growth area. Clearly, having that growth to the north will continue to add value to this property that we have right at the beach directly south of there. And if I could just quickly add to that, the Watercrest property that we're talking about has a pretty significant amount of frontage on the Gulf of Mexico. That frontage doesn't get created every day. So we've been very thoughtful about what are the highest and best uses for that property. We have been evaluating it for quite some time because it's a property that's unique by fronting on the Gulf of Mexico. And when we reach a conclusion of what the highest and best use is for that property that can create synergy, like Marek mentioned, with potentially other more inland land holdings, we'll execute that strategy.

Marek Bakun, CFO

Okay. Next question. Has management identified or received interest on additional opportunities to monetize some of the assets within the hospitality or leasing segments?

Jorge Gonzalez, President, CEO and Chairman

Like I mentioned in my opening remarks, we're constantly evaluating all of our assets, whether they're operating properties or timberlands to determine what is the best strategy, hold and continue to receive recurring revenue or monetize like we did with Watercrest. So yes, it's dialogue that we have, and it's an evaluation that's ongoing.

Marek Bakun, CFO

Given the look-through implied piggy banks, would you consider increasing the pace of the measured capital allocation via share repurchases? So we continue to, as Jorge stated in his press release, we continue to look at our assets, the piggy banks, as Jorge mentioned. We also look at the cash and look at the forward cash to see what opportunities continue to adjust to our measured capital allocation. As Jorge mentioned in his opening statement, we have increased this year's repurchases compared to prior years because we always look and evaluate our overall capital allocation strategy. Okay. The company has 46 completed townhomes at Watersound Origins Crossings with only 14 leased. Are all of the currently unleased townhomes up for sale?

Jorge Gonzalez, President, CEO and Chairman

So we are no longer executing long-term leases. It is our intent over time to go ahead and sell the remaining 46 townhomes that we have in there. So the 14 that you mentioned have already transacted. So we're managing the leases in order to be able to manage sales. We decided that selling the townhouses individually would create the best value instead of selling them as a group, and so far, this has proven to be the right choice. We have successfully sold the townhouses at the anticipated price levels, and we plan to continue this approach. As Marek mentioned, we are gradually transitioning from a commercial leasing asset to residential real estate sales for this asset.

Marek Bakun, CFO

Okay. It seems like there have been a significant uptick in lot sales at WindMark Beach. The community has expanded quite a bit over the past 5 years. Can you talk about what is going on there? Is there an area maybe hitting an inflection point? Is there an ability to expand the scale of the community in the future?

Jorge Gonzalez, President, CEO and Chairman

So we've been very pleased when we executed a new strategy for WindMark several years ago. In WindMark, we were selling lots or hub sites on a retail basis. And we made a decision that that was a very difficult strategy to execute in that location. I believe at the time, we were selling 2 or 3 lots per year. It's a location that it's challenging for folks who are not from that area to purchase a home site and find a builder. So what we decided when we changed the strategy in WindMark was that we would get volume and absorption if we transitioned WindMark into a builder program, and particularly a builder that would initially build a lot of spec homes because we thought keys would sell a lot better for consumers than going through the mechanics of buying a lot and finding a custom homebuilder. That strategy has turned out to be true and has been very successful. We have been selling a lot of home sites, and our builder in WindMark has been selling a lot of homes. We still have quite a few to go in WindMark, and we also own surrounding properties that if the trend continues, we'll have opportunities to expand the program.

Marek Bakun, CFO

Yes. And Jorge, just to add to that, there's about 800 developed lots. Most of them are now homes, and there's a couple of hundred more lots currently under development in there. So it will be very close to 1,000 units in the WindMark community within a reasonable period of time.

Jorge Gonzalez, President, CEO and Chairman

Absolutely. And just a quick follow-up. In the original WindMark master plan, there was a plan for a golf course. That's a potential area that we can look at transitioning into other higher and best uses.

Marek Bakun, CFO

Next question, early reads commentary from Discover Watersound Weekend, nice concept. So again, it's just a comment. It's one of the events; there were a lot of good events for that to really showcase the beautiful assets that are developing in that area; there was also a 5K & 10K run, which was nicely attended. It really was a fun event, and the weather was magnificent for us. So it really was a great weekend. I encourage everybody to come out next time.

Jorge Gonzalez, President, CEO and Chairman

You saw a big jump in average home site prices this quarter, roughly 150,000 versus around 86,000 last year. Could you help us understand how much of that was driven by mix versus genuine like-to-like pricing strength and whether you think these margins are sustainable into 2026? In our Qs and our earnings releases, we often say that our residential home site numbers quarter-to-quarter are based on the mix that we have in that particular quarter. We have a lot of active residential communities. Those communities offer a wide range of pricing, products, lifestyles, and we have a wide range of margins. So we always caution shareholders when they look at our residential home site figures to look beyond quarter-to-quarter and look at the trends, particularly over a 12-month or 24-month period. One of the reasons why we have deliberately diversified our residential segment with residential communities that offer a wide range of price points and products is because each community behaves differently in different economic times, which is a great portfolio to have. For example, our higher-end communities like Camp Creek tend to be more agnostic to interest rates, mortgage interest rates because the type of consumer that is purchasing that product is probably more focused on how, for example, the stock market is doing. So really, it has more to do with the mix of what closings we had in any particular moment than anything else.

Marek Bakun, CFO

Yes. Just to add in our shareholder presentation that we did in May, we did provide some history on margins on our residential, and they have been around that 50% mark for a number of years. And as Jorge just mentioned, different communities with different price points do have different margins. And we also place lots under contract that sometimes, in most cases, span longer than a 12-month period. So you have to look at the community, the contract, how phasing works to kind of get the more specific numbers. But if you look back historically, we've been closer to that 50% margin on our residential lots. Could you estimate cumulative capital spending over the next 3 to 5 years? Assuming it doesn't grow very significantly, I would echo the sentiment in favor of repurchasing more shares.

Jorge Gonzalez, President, CEO and Chairman

Like I mentioned in answering one of the earlier questions, we have the high-class problem of our operations generating actual cash. And generating actual cash in executing the strategy that we have been consistently executing for many years now. Capital allocation, again, we view it as a multifaceted strategy and share repurchase is a priority for us.

Marek Bakun, CFO

What is St. Joe's estimate of the current value of its land inventory at the end of Q3 2025? What is St. Joe's estimate of its recurring revenue at the end of Q3 2025?

Jorge Gonzalez, President, CEO and Chairman

I'll start with the last part. I think the recurring revenue, that's an easy calculation to make. And I think Marek can maybe give you some high-level number of that because really, our hospitality revenue and our leasing revenue are the 2 traditional recurring revenue types. In terms of the land valuation, we, in our annual meeting, we did provide for the first time ever a snapshot of the valuation range done by a third party of our operating properties. We mentioned at that meeting that we were going to be over time, working on a similar approach for our timberlands, our land holdings. That's something that is currently in process.

Marek Bakun, CFO

Yes, Jorge, you're exactly right. We disclose both the growth in recurring revenue, which includes hospitality and leasing. As you mentioned in your opening, the commercial revenue at $16.7 million was the largest single quarter in leasing in the history of the company. Additionally, the hospitality revenue for the quarter at $60.6 million was the largest in the third quarter. Normally, the second quarter is a bit larger, but for Q3, this was the biggest. To directly answer your question, the recurring revenue is $169 million in hospitality for the first nine months compared to $157 million last year, and in leasing, it's $49.4 million versus $44.7 million. Well, who is going to be the builder for LLP 3, and I think that's Longleaf Park 3.

Jorge Gonzalez, President, CEO and Chairman

The phase of Watersound Origins that we refer to as Watersound Origins West includes several different phases in various stages from engineering to permitting to development. Our strategy in Origins West will mirror that of Origins, which involves a collection of semi-custom and custom builders who will produce unique offerings in our region by providing various floor plans and architectural styles. We don’t plan to alter our approach by working with just one builder; instead, we will continue engaging multiple builders. Similar to Origins, our goal for Watersound Origins West, once completed and populated with homes, is for it to have the look and feel of a custom or semi-custom community.

Marek Bakun, CFO

Okay. Average home site sale price of $150,000 versus $86,000 is a significant jump. How can you help me understand that increase? And how should we be thinking about this going forward?

Jorge Gonzalez, President, CEO and Chairman

Yes, I think the answer is similar to the previous couple of answers I've given. And we have consistently mentioned this in all of our disclosures. Our residential home site numbers are primarily driven by timing and mixture of communities.

Marek Bakun, CFO

Okay. Can you highlight with respect to the ebb and flow of the development cycle where hospitality and leasing is? For context, it seems the heavy load of investment from 2018 through 2024 period is concluded and the hyper growth is waning. People continue to view abating growth numbers in these segments as signs of slowdown rather than simply a development cycle. Is there any color on when you expect growth to accelerate there?

Jorge Gonzalez, President, CEO and Chairman

So yes, we went through an exponential growth period, particularly in hospitality. As an example, we opened 5 new hotels in a 12-month calendar period, which is pretty amazing when you consider that hospitality assets are operating assets and not real estate assets. We continue to believe that there are market opportunities for us to continue to expand the hospitality segment. We have different concepts at different stages of planning, engineering, and design and permitting. As to whether we'll exactly match the same pace that we had in that 1 year, it's hard to say. It's really a function of where we are in evaluating those projects. But we still have plans to continue to expand the hospitality segment at the right time, with the right product and right locations. In terms of commercial leasing, we have, as we've been mentioning in all of our disclosures for a couple of years now, we are particularly focused on our WaterSound Town Center, West Bay Town Center, and our FSU TMH health campus. Just those 3 areas alone have the potential to more than double our commercial leasing portfolio. And the way that you create valuable leasing assets is not by just looking up and down like a road like 98 and doing a series of strict commercial centers. You're never going to get the high leasing rates and create the value in those portfolios that we're trying to create. Our strategy to focus on those town centers is very deliberate and very measured because we believe if we focus on those town centers, we're going to create portfolios with the highest leasing rates in our region.

Marek Bakun, CFO

Jorge, I would like to add that West Bay, one of the three locations you mentioned, is just starting to develop. Latitude has already built and occupied over 2,200 homes in that area. This is an excellent location, and we are just beginning the development because the market conditions are favorable due to the significant growth in residential.

Jorge Gonzalez, President, CEO and Chairman

And then one last quick thing. In the WaterSound Town Center, we mentioned this in the last couple of quarters. We've had a particular focus on attracting national apparel brands to the WaterSound Town Center, particularly in the building that we have under construction. And we've been pretty pleased with the progress we have made in attracting those brands to the WaterSound Town Center. And we plan on making some announcements about our progress in the near future.

Marek Bakun, CFO

Can you talk generally about pricing and the level of discounting versus a year ago? Kudos on a great performance.

Jorge Gonzalez, President, CEO and Chairman

Not sure if that pricing in terms of home sites. Well, we really haven't been discounting any of our pricing. So from a residential home site perspective across all of our residential communities, we don't discount pricing. We have a pretty good feel for what pricing we want to achieve in order to achieve our margins in every residential community. When we negotiate with our homebuilders and our builder programs, pricing, pace, number of takedowns per quarter, product type because we want to make sure we don't have 2 builders in the same community building the exact same product to cannibalize each other. So those are all the things that we discuss when we negotiate builder takedown agreements with our builders. But again, if the individual who asked a question meant home site pricing, we really have not been discounting home site pricing.

Marek Bakun, CFO

Yes. Jorge, just to add exactly what you just said, we transact with homebuilders, and we have not been reducing any or discounting any of our prices. In your view, how far away are we from the area becoming less of a secondary tertiary market for both national builders and institutional real estate firms? What else besides the hospital and direct flights is needed to get there? And are there any new signs emerging that you could share with us in terms of the area getting closer to that point?

Jorge Gonzalez, President, CEO and Chairman

Every area goes through a cycle of growth, and ours is currently experiencing that growth. We have detailed the growth rates in Bay-Walton County multiple times at our annual meetings, and this growth is ongoing. For this growth to persist, a variety of assets is necessary, and the hospital is one of those vital assets. It's important to understand that this is an academic health center model that includes teaching, research, and clinical services. Across the country, academic health centers are regarded as the most successful healthcare delivery systems. These facilities serve as significant economic engines in their respective markets. We are very optimistic about the impact that the academic health center with FSU Health will have in our area, especially since the medical campus is located almost centrally within our land holdings. Regarding the question about more direct flights, we believe that the new flights to New York City, one of the largest metropolitan areas, will create increased exposure for our region to a larger population. In short, we feel we are moving in the right direction; we are certainly growing and attracting broader audiences of both consumers and businesses. We now receive inquiries from businesses interested in our region, something we didn't experience a couple of years ago when they rarely returned our calls. Now, they are reaching out to us, indicating a positive trend.

Marek Bakun, CFO

Now that the business is more on a run rate, when will you show more midterm and long-term financial framework, KPIs, long-term revenue, cash flows and cash flows per share, et cetera? I think it's fair that we have always considered the importance of providing good information to our shareholders. We will continue to look at options that we have and how we can present information that we hope our shareholders appreciate and use. We've added a number of schedules to our MD&A disclosure on a quarterly basis that allows for hopefully consistent and recurring information that can be used to analyze our business.

Jorge Gonzalez, President, CEO and Chairman

Yes. The question is very relevant. This growth in our recurring revenue was intentional. We have seen significant growth, and when we analyze it on a quarter-to-quarter basis, a pattern is developing. This pattern will enable both the investor community and the company to have greater consistency in assessing all the aspects mentioned in the question, especially regarding cash flow.

Marek Bakun, CFO

Is it accurate to conclude that there is progress accelerating for home site pricing as older builder contracts conclude and new ones kick in? College station, for instance, seems to see about a 50% increase on lot prices from 2022.

Jorge Gonzalez, President, CEO and Chairman

Yes. We always consider market conditions, and our market has been growing due to migration. Whenever we evaluate a new phase of our existing residential communities, whether with a new builder or one of our current builders, we aim to increase the pricing of the home sites. This approach is contingent on market conditions and can vary by project and location, but it remains a key goal for us.

Marek Bakun, CFO

So Jorge, these were great questions from informed shareholders. There are no more in the queue.

Jorge Gonzalez, President, CEO and Chairman

Okay. Maybe let's wait just a couple of seconds to see if there's any more questions that come in.

Marek Bakun, CFO

This call is an incredible and highly unique example of shareholder transparency engagement. On behalf of shareholders, thank you both for the continued opportunity to learn more about the company and engage with management.

Jorge Gonzalez, President, CEO and Chairman

We greatly appreciate the comment. We feel that we are transparent, and we're going to continue to be transparent in every way we can with our disclosures and our earnings calls. Again, thank you for joining us today. We appreciate your interest. We appreciate the great questions that were asked today, and we look forward to speaking with you again next quarter. Thank you.

Operator, Operator

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