Earnings Call Transcript - JOE Q4 2025

Operator, Operator

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

Jorge Gonzalez, Chairman and CEO

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 call. I'm joined today by Marek Bakun, our Chief Financial Officer. On Wednesday after the market closed, we issued our fourth quarter and full year 2025 earnings press release, which can be found in the Investors section of our corporate website at joe.com. Before we begin discussing our results and answering your questions, I would like to remind everyone that Wednesday'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 can 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. This morning, we are continuing 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 may assess firsthand the progress of the region and of our assets. 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 we are only going to mention a few key highlights of both the fourth quarter and full year before we move on to your questions. For the fourth quarter, we continued the year-over-year growth of the previous three quarters with a 24% increase in revenue and a 58% increase in net income. Capital allocation in the fourth quarter was $18.5 million in capital expenditures, primarily for growth, $15.1 million for stock repurchase, $9.2 million for dividends, and $8 million for debt reduction. The $15.1 million in stock repurchase was the highest of any quarter in 2025. For the full year, revenue increased by 27% to $513.2 million from $402.7 million, and net income increased by 56% to $115.6 million from $74.2 million. Earnings per share increased to $2 from $1.27. Not including the one-time large timberland sale in 2014, we surpassed $500 million in revenue for the first time in 20 years and reached $2 per share for the first time in 23 years. However, we are now a different company than we were 20 years ago. Back then, the company's financial performance was achieved primarily as a bulk seller of assets with only 15% recurring revenue. Today, the company is a diversified real estate operating company with 56% recurring revenue. The company now has a more sustainable and diverse business model with a demonstrated ability to grow multiple revenue streams, all while simultaneously increasing the value of the underlying land assets and what we call the virtuous circle of value creation, where an investment in one segment creates value for the other segments. In addition to the growth we had for the full year, we continue to refine our operations and improve profitability. Homesite gross margins increased to 51% from 47%. Leasing gross margins increased to 57% from 54%. Hospitality gross margins had a slight decrease to 31% from 32%, which was primarily due to opening expenses associated with the new golf course, The Third, and the renovation of the Shark's Tooth Clubhouse. It is important to note that the hospitality gross margin of 32% in 2024 was a significant increase from 20% in 2023. For the full year, we continued a measured and multifaceted capital allocation strategy, with 47% for capital expenditures, primarily for growth, 33% for dividend payments and stock repurchases, and 20% for project debt reduction. We accelerated stock repurchases with the repurchase of 798,622 shares as compared with a repurchase of 70,985 shares in 2024. The average price of shares repurchased in 2025 was $50.10, which considering the share price as of the close of the market yesterday was a good value for our shareholders. Since 2015, the company has used $653.6 million to repurchase 34.9 million shares of the company's stock, representing 37.8% of the original shares, bringing the outstanding share balance below 58 million for the first time in nearly 30 years. Outside of the financial numbers, we continue to fill the pipeline for potential future growth. We have local and state government approval for 10 detailed specific area plans, or DSAP, each with at least 1,000 acres of fully entitled mixed-use projects. We have only started to develop three of the 10 approved DSAPs, so we have a long runway for future growth. An encouraging sign is that we continue to receive inquiries from new potential homebuilders from outside of this market who want to join our homebuilder program. So we plan on breaking ground on two more DSAPs in 2026 to accommodate our growing homebuilder demand. At the end of the year, our residential homesite pipeline had approximately 23,900 homesites in various stages of planning, engineering, permitting, or development, which is an increase of 2,200 homesites compared to the end of 2024. At the end of the year, our commercial segment had 94,500 square feet under construction in the WaterSound Town Center and West Bay Center, of which approximately 76% is preleased. We continue to receive inquiries from national and regional tenants who are noticing the growth of this market and are interested in leasing space from us. In order to continue to meet this growing demand, in 2026, we plan on breaking ground on new commercial buildings in the WaterSound Town Center and West Bay Center totaling approximately 54,000 square feet. We are also planning on breaking ground in a new apartment complex and executing several new commercial ground leases. In our hospitality segment, we continue to increase our club membership program, and we continue to be focused on increasing occupancy and margins in our hotels while continuing to assess and plan for opportunities for new hotels, marinas, and club amenities. Now Marek and I are going to answer your questions.

Marek Bakun, CFO

Thank you, Jorge. We have a few questions. The first one, are there any new multifamily units on the horizon for 2026 or 2027, any new hotel operations or acquisitions planned?

Jorge Gonzalez, Chairman and CEO

In my opening remarks, I mentioned that we do have plans to break ground on a new apartment complex. The location of it is really focused on the potential of the FSU Health campus. So it's in that vicinity. In terms of new hotels, we're constantly planning and getting prepared for the right timing of when we may move forward with new hotels. Similar with acquisitions, we're always looking at the market, and if the timing is good and there's an opportunity for us to gain value, we will execute those opportunities.

Marek Bakun, CFO

Next question. After the opening of Topgolf at the Pier Park, any new developments coming in the near future for the area?

Jorge Gonzalez, Chairman and CEO

So Pier Park East is an important project for us. We believe that it is going to be the city center of the Pier Park area. We are being very thoughtful in planning that property and in choosing tenants. We've always wanted to have two major anchors for Pier Park East. We have one, as the questioner asked, in Topgolf. The second anchor, we're pleased to report that we finalized a ground lease with a really exciting family-oriented surf park concept. So that's going to be the second anchor for Pier Park East. We're currently in the process of planning the balance of that property, including potentially breaking ground on infrastructure in 2026.

Marek Bakun, CFO

Share prices have climbed nearly 40% since the last quarter. Does management still view buybacks as a prudent allocation of capital at this price?

Jorge Gonzalez, Chairman and CEO

Capital allocation, as we've said many times, is multifaceted for us and buying shares back is always a component of capital allocation. Also, as we've said many times, there's a facts and substance context to that depending on what's happening in the quarter at the macro and micro level. But the short answer to the question is, yes.

Marek Bakun, CFO

Awesome year. Why pay down debt here when the stock seems unusually priced relative to the per acre implied value? So interest is a real dollar expense, minimizing interest and increasing earnings is always a positive. As Jorge just mentioned, in 2025, 47% of our capital was allocated for dividends and repurchases. At the same time, we were able to pay down debt. Some of the debt that was paid down was related to the Watercrest sale, but we feel that lowering interest is always a positive.

Jorge Gonzalez, Chairman and CEO

And I think, if I can just add, anybody that has owned or run a business before understands the importance of paying down project debt because it is not a GAAP expense, it's a real cash expense.

Marek Bakun, CFO

Can you help break down the 47% year-over-year increase in real estate revenue in Q4? The higher average price on homesite sales and the sale of the 136 North Splash Drive plus Watersound Villas make up some of the lower homesite sales number. But what accounts for the rest of the delta, higher residuals?

Jorge Gonzalez, Chairman and CEO

So specifically to the residuals, we do disclose in our 10-K the flow-through of the residuals. And just for the full year, there was $13.6 million of new residuals that did go across all four quarters. But yes, there were residuals. But in addition to the average sales price, the villas of the townhome sales, there were also normal land sales that we have had and will continue to have within the company. So that really details it out just through normal activity that we have.

Marek Bakun, CFO

How are you thinking about replacing the high-value homesites at Camp Creek as we start running out of lots? Are there plans for other similar high-price point neighborhoods, more commercial land sales?

Jorge Gonzalez, Chairman and CEO

We always think about having a higher end retail custom homesite product. It's not just Camp Creek. We've also done that in Origins as an example, Powell Landing West, where we sold quite a few retail custom homesites at a very high value. We are in the process of planning and permitting a replacement product, and they're not exact replacements. There is some overlap in terms of pricing and so forth. This one is going to be in Origins West right next to a very exciting art park that we think is going to be very attractive to residents. We don't have an exact timeframe for this new product, but we are pretty far along in the planning and permitting of this neighborhood.

Marek Bakun, CFO

Do you have any updates on lake amenity or Pigeon Creek neighborhood?

Jorge Gonzalez, Chairman and CEO

The lake amenity refers to a feature we are planning for Lake Powell at the Watersound Club. We are making significant progress in developing that concept and are focused on determining the right programming. We feel very positive about this project, although we are still in the planning and programming stages. Pigeon Creek is one of the development areas we have previously mentioned. We are currently in talks with a builder who will be entering the market for this project. We are advanced in those discussions and feel cautiously optimistic about turning them into action fairly soon.

Marek Bakun, CFO

And with a relative question, what is the status and current timing around Pigeon Creek? At the Annual Meeting and prior calls, it was mentioned that the lots could possibly be sold outright to a single developer. Is this still on the table? And is there any update or timing?

Jorge Gonzalez, Chairman and CEO

So first, what we said at the Annual Meeting was that Pigeon Creek, even though it's sizable, over 3,000 potential units, what we said is that we're in discussion with just one builder. We never indicated that we had a particular preference for a business structure on that project. So that still holds true. We're in discussion with one homebuilder who is new to the market for all of Pigeon Creek, which is over 3,000 units. And like I said in the previous answer to the previous question, we're pretty far along in those discussions, and we're cautiously optimistic that we'll be able to execute those discussions into action relatively soon.

Marek Bakun, CFO

Could you talk about the progress of some of the big projects along State Road 79 corridor? FSU Health Campus, potential commercial around it and potential new residential builders along the corridor?

Jorge Gonzalez, Chairman and CEO

State Road 79, as I mentioned in our last Annual Meeting, is an area of our land holdings that currently has a lot of energy and interest. We created a video for those who want to take a look at it on our webpage about the State Road 79 corridor. Ward Creek is progressing well with our four homebuilders constructing homes across a wide range of prices and product types. The FSU Health Campus is also very exciting and moving along nicely. The first phase of that campus, a medical office building, 80,000 square feet, has been completed for a couple of years and is essentially full with clinical practitioners. The second phase is a teaching hospital and academic health center that will leverage the synergies between research, teaching, and clinical delivery, all under the FSU Health concept. This hospital is making good progress and we believe it will be a significant catalyst, not only for the State Road 79 corridor but for the region as a whole. Its impact will extend beyond just clinical delivery at the hospital due to the academic health center model, which will also add considerable value to that part of our holdings in the region.

Marek Bakun, CFO

Your LTV is under 25% when looking at your income-producing assets. Your LTV is well below 25%, and your cost of debt is in the low single digits. Why do you believe that paying down debt is a good use of capital? Why isn't the ideal debt level a lot higher than where you are today?

Jorge Gonzalez, Chairman and CEO

So like I said before, anybody that has owned a business, has run a business, they understand the importance of managing debt because at the end of the day, cash is king. Cash is what matters. Free cash flow is what matters. And when you have real expense associated with debt, it makes sense for that to be part of the capital allocation strategy. We've been very thoughtful, very methodical in how we pay down debt. And we feel pretty good about what we've done so far, and we intend to continue the same strategy.

Marek Bakun, CFO

And Jorge, if I may add, I want to say that not all debt that we have is equal. So if I look at the apartments debt, which is long-term HUD insured up to 42 years at a very low fixed rate, that's the type of debt that we're not paying down. It's just amortizing over normal life. It's the debt that's shorter life that we may choose to pay down and to save interest. But as far as the debt, as you mentioned, the new apartment community, it would be normal and consistent with our strategy to have debt on the new apartment community, especially if we could continue to obtain long-term HUD insured financing.

Jorge Gonzalez, Chairman and CEO

Absolutely. And that's what we mean about us being thoughtful in how we pay down our project debt. We're not doing that randomly from a top-line perspective. We're looking at each project, we're looking at the specifics of the debt of each project, and the ones that we believe are going to create a savings for the company, we're going to pay down that debt. And generally speaking, as Marek said, the debt we have, the HUD loans for our apartments are terrific. We have yet to find any program as good as the HUD loan program for apartments. So we do intend to continue when we have apartments to follow that loan program. And we're also not paying down the debt for the apartments. We're paying the debt down for projects that have higher interest rates and present more challenges for us.

Marek Bakun, CFO

Thank you for all the hard work. Greatly appreciate this call, and management's continued execution in recent years. Over the past 10 years, there appears to be a high correlation between return on investment capital, earnings per share and the stock price. In 2023 and 2024, the company's recurring income grew significantly, but earnings per share, return on invested capital declined as a result of lower lot income and land or asset sales. During this period, Joe's stock price underperformed. Over the past 12 months, earnings per share and return on invested capital have increased meaningfully, heavily driven by an increase in income and asset sales and the stock price has gone up considerably. Assuming we all agree the company's net asset value is meaningfully higher than the current stock price, does the company agree that future stock appreciation is highly dependent on the company's ability to continue growing EPS and increasing return on investment capital from its current levels? And is the company aware of the importance of driving return on investment capital growth when it comes to long-term stock performance? Thank you again.

Jorge Gonzalez, Chairman and CEO

That's a very insightful, detailed and well thought-through question. And the best way we can answer that is with a simple yes.

Marek Bakun, CFO

Over the past year, there have been many lot sale transactions in areas around St. Joe's land and in places close to our developments, with these transactions happening at notable premiums compared to our lot sales. For instance, D.R. Horton seems to have bought lots near Breakfast Point for $146,000 each. In SweetBay, Panama City, lots were sold for more than $130,000 each. Even in Freeport, lots are approaching $100,000 each. These prices are significantly higher than what St. Joe has been achieving, which has recently been in the low to high 80s and 90s at Breakfast Point, or around $90,000 at Breakfast Point East. Additionally, these transactions reflect typical market rates of 20% or more of the eventual home price, while we are currently selling our lots at discounts to these rates, sometimes in the low teens. I believe one of the easiest ways to materially enhance our cash flows in the coming years, particularly as more DSAPs become available, is to adjust our MPC lot prices to better match market value, ideally between 20% and 25% of the finished home price. Moreover, given our strong competitive position in the area, it's puzzling why we wouldn't be setting prices rather than following them. Can you provide more insight on this? Thank you.

Jorge Gonzalez, Chairman and CEO

Again, another long and thoughtful and detailed question, and I can assure the individual who submitted the question this is something that we monitor very closely, literally every day. We have a pretty good handle on what's happening in the market with direct competitors. Not all communities are direct competitors to our communities. I can also assure the questioner that we don't sell lots at a discount. One of the things that may not be obvious to folks is, we believe we're the only developer that has a back-end participation when we sell homesites to builders. We don't believe anybody else in the market has that. So when you just go on the Property Appraiser web page and just take a quick simple look at comps, you have to be careful, and I caution readers not to assume that this is an apple-to-apple comparison with our transactions with homebuilders because again, we're the only developer to our knowledge that has a back-end participation where we get a part of the profit of the sales price of the home that the builder sells. Our back-end participation is also not uniform. It's not one size fits all. They're all different based on the homebuilder, based on the price point, based on the community. So again, I would caution folks when they go on the Property Appraiser web page to take a look at comps that there are a couple of layers deeper than that, particularly with us because of the back-end participation. I will also assure the questioner that we don't sell lots at a discount.

Marek Bakun, CFO

What is the company's short- and long-term goals for the percent of revenue that is recurring?

Jorge Gonzalez, Chairman and CEO

Our probably we have several different important parts of our business strategy. And as most everybody knows, arguably, the most important one is to continue to grow recurring revenue. So that is going to continue to be an important part of our business strategy, and we want to continue to grow our recurring revenue because that is a more sustainable and scalable revenue stream than just pure transactions.

Marek Bakun, CFO

How is AI going to be implemented into the infrastructure of operations inside of St. Joe?

Jorge Gonzalez, Chairman and CEO

Like every operating company and business in really not just the country, but the world, we continue to explore AI as a tool to improve our operations, like everybody else is doing. It's an emerging technology. It's very dynamic. It changes literally day-to-day, and we continue to explore how we can use those tools to improve the efficiency of our operations.

Marek Bakun, CFO

What is the company's estimate of the average value per unused acre of land in the portfolio? And if answered per developable acre of land, then please disclose how many acres of land will not be able to be developed? Thank you.

Jorge Gonzalez, Chairman and CEO

That's a question that requires a lot of time to respond to because there are many different layers of what makes an acre developable, not developable. There's a lot of different layers of different types of development, different types of open space, green space conservation. We don't have a one-size-fits-all number. If you look at our previous disclosures, we do have a lot of different information in our tables and in our footnotes that perhaps if somebody just read those and put them together, they can start making some assumptions. But there's not a one-size-fits-all headline number to answer the question.

Marek Bakun, CFO

And Jorge, just under disclosure, as you mentioned, we have also disclosed, including in last year's shareholder meeting presentation, how many acres we have been using on an annual basis to generate the revenue that we have been generating. So that data is also available for a number of years back. That would be a good way to think about it. Based on the current market demand and pricing, what's you're planning to develop? Do you think you can achieve $750,000-plus lot prices on our future premium communities?

Jorge Gonzalez, Chairman and CEO

Like I said to an earlier question, our goal is always to have a high-end premium retail custom lot product. It's going to ebb and flow over time in terms of location and in terms of what the actual price is. So yes, we're always working at trying to create the highest premium, the highest value communities in the region.

Marek Bakun, CFO

I've noticed you guys typically transfer land to LLCs when a monetization event is on the horizon. In this slide, you recently transferred land atop sale the parcel across from Powder Room and the Pier Park City Center into such entities. You mentioned the surf park at city center, would you care to detail the other two locations, and how/when you envision the monetization occurring?

Jorge Gonzalez, Chairman and CEO

When we create LLCs or special purpose entities for our projects or land holdings, it's not exclusively because we intend to transact or sell that asset. There are a couple of different reasons why we do that. So I wouldn't just assume that just because we created an LLC, it means that we're anticipating selling an asset. As I mentioned during the last earnings call, we are looking at all of our assets because we consider particularly all of our operating assets as piggy banks. I have said that many times before. We are constantly looking at the piggy banks and making assessments about how those piggy banks fit into the broader strategy of the company, how accretive they are to our other segments and what return they provide to us and what would be the price if we monetize them right now. So when we look at all those factors, we reach conclusions where some assets we believe they are in the best interest of the company to monetize and sell, while others are not.

Marek Bakun, CFO

Any color you can provide on how the nonstop flight from New York has been performing for Delta? Do you think the flight is here to stay?

Jorge Gonzalez, Chairman and CEO

So to answer the last question first, time will tell. It's still early. So it's very difficult for Delta or anybody to say definitively what the long-term plans are. But I can tell you, preliminarily, we believe it's been performing well. We have started a campaign to increase awareness in that market. And so far, we're pleased with the early results of that campaign in terms of how many folks in that market go to our web pages to look at hospitality offerings. Also, that has translated and has started to translate into higher occupancies and reservations from that market. So early preliminary results are, we're encouraged. We're cautiously optimistic. And we hope that not only is the flight here to stay, but our hope is that Delta will add flights because the demand is so great.

Marek Bakun, CFO

One more question. Great to see the brokerage business growing. Could you talk about the progress there? And anything that surprised you with how it's been received in the market?

Jorge Gonzalez, Chairman and CEO

The biggest surprise is the reception from the agent community. We have been very surprised in a positive way about how many agents call us expressing an interest in joining our brokerage. We had anticipated some of that would happen, but not to the scale that we have. And yes, we're pretty pleased with the start of the brokerage business. It's still in its infancy. So we still have a long way to go in terms of achieving our business goals with it. But so far, we have been very pleased with the reception of the agent community and the way that business is progressing.

Marek Bakun, CFO

Okay. Is there any new info on West Bay Parkway Walton segment? It is good to see that at least part of the road is underway.

Jorge Gonzalez, Chairman and CEO

We 100% agree. We also are very happy to see that part of the road is underway. We continue to work very closely with the transportation planning organizations, with the FDOT in moving forward with the next step in the process, which is civil engineering and permitting of the road. There's been good progress made on that end, and we are cautiously optimistic about the road and the potential timing.

Marek Bakun, CFO

There are no more questions.

Jorge Gonzalez, Chairman and CEO

Okay. We'll wait just one more second in case there's a last-minute question. Okay. I think then that's the last question. Thank you again for joining us today, and for your interest in The St. Joe Company, and look forward to speaking with you again next quarter. And again, we welcome anybody and everybody to come to our market and look at the area and look at our assets. Thank you.

Marek Bakun, CFO

Thank you.

Operator, Operator

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