The St. Joe Company (JOE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to The St. Joe Company Annual Meeting. [Operator Instructions] I would now like to hand the conference over to your speaker today, Bruce Berkowitz, Chairman of the Board. Thank you, and please go ahead.

Thank you, Samantha. Good morning, ladies and gentlemen. I am Bruce Berkowitz, Chairman of the Board of The St. Joe Company. It is my pleasure to welcome all of you to our annual meeting that is being held in a virtual meeting-only format via the Internet with no physical in-person meeting. Plans to conduct this meeting virtually were made at the onset of the early travel restrictions and following CDC guidelines as a result of the COVID-19 pandemic. Shareholders who logged into the meeting through the virtual shareholders' website using their control number are automatically registered. Also, we may have guests and shareholders that vote through their brokers that have logged in to attend the meeting. It is now shortly after 9 a.m. Central, at 10:00 a.m. Eastern Time on May 19, 2020, and this meeting is officially called to order. As is our custom, we will conduct the business portion of our meeting first. After the formal business portion of the meeting has been adjourned, we will provide an opportunity for questions and answers. Only validated shareholders may ask questions in the designated field on the shareholders' web portal. Out of consideration for others, please limit yourself to no more than 2 questions. We will answer as many questions this morning as time allows. Though we may not be able to answer every question submitted, we will do our best to provide a response to as many as possible. The website is open for you to submit your questions. We will conduct this meeting in accordance with the agenda and rules of conduct posted on the virtual shareholder meeting website. To ensure an orderly meeting, we require that all participants abide by these rules. Now I would like to introduce the other members of the Board in attendance and ask that each one verbally acknowledge their presence. Cesar Alvarez, unfortunately, will not be able to attend due to a conflict but will be attending the Board meeting that follows the shareholder meeting. I'd like to now introduce Howard Frank.

Good morning, everyone.

Jorge Gonzalez.

Good morning, everyone.

And Thomas Murphy.

Good morning, everyone.

Also with us today are representatives of Grant Thornton, the company's independent registered public accounting firm, who will be available to answer any appropriate questions during the Q&A portion of the meeting. The company's General Counsel, Lisa Walters, will act as the secretary of the meeting. We are being assisted today in the tabulation of proxies and ballots by [ James Hagan ] from Broadridge Financial Solutions. At this time, I appoint [ James Hagan ] as inspector of elections. The notice of the meeting has been mailed to each shareholder of record as of April 9, 2020. The inspector of elections has informed me that 56,350,079 shares of the company's voting stock are present in person or by proxy, constituting a quorum for today's meeting. A list of shareholders on March 25, 2020, the record date, is on the virtual meeting website and may be inspected by any shareholder who is signed in. The final report of the inspector of elections will include the votes, if any, of shareholders present and voting during the meeting. The company's mailing agent, Broadridge Investor Communication Solutions has provided an affidavit of mailing to show that notice of the meeting was given on or about April 9, 2020. A copy of both the notice and the affidavit will be incorporated into the minutes of this meeting. Next, I will describe each proposal to be acted upon, and then we'll take the vote. Since no director nominations or proposals for business were properly filed by a shareholder in advance of this meeting, the business of this meeting is limited to the following 3 proposals: the first proposal before the shareholders is the election of 5 directors to serve for a 1-year term until the next annual meeting. I am standing for reelection as a director today, along with the following nominees: Cesar Alvarez, Howard Frank, Jorge Gonzalez, Thomas Murphy. All nominees, except for Cesar Alvarez, are present today. We recommend the election of these nominees. The second proposal is the ratification of the appointment of Grant Thornton as our independent registered public accounting firm for the 2020 fiscal year. The Audit Committee retained the services of Grant Thornton to audit the company's financial statements for 2020, and the Board recommends that the shareholders ratify the appointment of Grant Thornton. The third proposal is a proposal to approve on a nonbinding advisory basis the compensation paid to our named executive officers as described in the compensation discussion and analysis section, the compensation tables and related narrative disclosures set forth in the company's 2020 annual meeting proxy statement. We recommend the approval of the compensation of our named executive officers. We will now vote on the proposals. Any shareholder who has not yet voted or wishes to change their vote may do so by clicking on the voting button on the virtual meeting website and following the instructions there. Shareholders who have sent in proxies or voted via telephone or internet and do not want to change their vote do not need to take any further action. I will now pause for those who wish to vote. [Voting]

Since everyone wanting to vote has done so, the polls are now closed. Will the inspector of elections, please report the results of the balloting when you are ready?

Mr. Chairman, this initial tally is subject to verification, and the final tabulation may reflect small changes in the vote I have announced. The final tabulation will be set forth in the formal report to the -- of the inspector of election to the secretary of the company, which will be made after the count has been verified. I certify that a majority of the votes cast has voted for the election of each of the nominees as director of the company. In addition, the votes cast favoring the ratification of appointment of Grant Thornton has exceeded the votes cast opposing the action. Finally, the proposal to approve the compensation of the named executive officers has received more votes for than votes against. Thank you, Mr. Chairman.

And thank you. I hereby declare that the director nominees have been duly elected, that the appointment of Grant Thornton as the company's independent registered public accounting firm has been ratified and that shareholders approved the compensation of the named executives. This concludes the official business of the 2020 annual meeting. The meeting is adjourned. Prior to opening up for questions, I will ask Jorge Gonzalez, the company's President and Chief Executive Officer, to provide a brief overview of company operations.

Thank you, Bruce. Good morning, and welcome. Like everyone, we are navigating the disruption and uncertainty caused by the pandemic. We are fortunate that the effect has not been as severe in our immediate area as it has been in other parts of the state or the country. For context, in the 3 counties of Bay, Walton and Gulf, which are where the majority of our assets are located as of last evening, the Florida Department of Health has reported a total of 167 cases, 27 hospitalization and 6 deaths. Even though the effect of the pandemic in our immediate area has not been severe, we continue to monitor the situation day-by-day and make balanced and measured decisions. At this time, we cannot predict the long-term residual economic impact on our operations. But with our strong liquidity and efficient operating and corporate cost structure, we have been building this company for the long run and to weather challenging and uncertain times. Now I would like to provide a segment update. First, new projects under construction across all segments. We currently have a total of 23 projects under construction that we anticipate completing this year and in 2021. We have not experienced any major disruptions in the material supply chain or in the trade labor of any of the projects under construction. We are monitoring market conditions and phasing our projects. So far in 2020, we completed 10 new projects as follows: TownePlace Suites hotel, which opened last Wednesday; Starbucks at Beckrich Office Park, opened in February; Ascension medical facility at Origins, opened yesterday; Capital City Bank at Breakfast Point, opened May 1; First Watch Restaurant at Topsail, opened yesterday; Pier Park Crossings apartments Phase 1; flex space building at Cedar Grove Commerce Park; flex space building at Beach Commerce Park; College Station residential community Phase 1; and RiverCamp houses, 2 of them. In light of the pandemic, we are reassessing the timing and viability of some projects that had not started construction. For example, a second assisted living facility and 2 family entertainment centers. I would like to remind everyone that we post a new project update video every month on YouTube, on our website and in our social media platforms. The video consists of aerial drone footage of the projects under construction. It is a good way to keep up with the progress of these projects. Hospitality segment. We closed our hotels on March 21 when the local beaches were ordered close and the stay-at-home order was issued by state and local authorities. We lost a big part of our spring break season, which was shaping up to be one of the busiest in a long time. We reopened our hotels on May 1 after the state and local orders were lifted. Since we reopened, the occupancy across our hotels have averaged over 80%, and the average daily rates have averaged in the high $400 a night range. As we get deeper into the summer season of June, July and August, our occupancy and average daily rates typically increase, and that is what we are seeing so far based on reservations. Since we reopened our private club and resort amenities, like the WaterSound Beach Club, member demand has been higher than what we would normally expect at this time of the year. We believe part of the reason for the demand is that our region is a strong drive-to hospitality market, which appeared to be coming back quicker than fly-to hospitality markets. We also believe the distance learning protocol enacted by school districts in our primary market trade area have created flexibility for families to travel to our area. In essence, summer has started early. We are about finished with the engineering and permitting of our 2 marinas that were destroyed by Hurricane Michael, Bay Point Marina and Port St. Joe Marina, and we expect to commence the rebuilding process no later than this summer. We are in the planning and engineering stage of a new marina on the Intracoastal Waterway, immediately adjacent to the planned latitude market redeveloped community. This new marina will start to unlock the 15 miles of frontage that we own on both sides of the Intercoastal Waterway. Construction of the new Camp Creek private club amenity and Camp Creek Inn immediately adjoining the award-winning Camp Creek Golf Club are progressing well with completion anticipated in early 2021. Residential segment. We currently have a backlog of 979 homesites under contract to be developed primarily for builders. The backlog has not been affected by the pandemic. We have not seen any cancellations or received any request for cancellations. Of note, in the first quarter, we completed and immediately closed on the first set of homesites in College Station, 1 of our 3 new residential communities in east Bay County and the builder immediately started constructing homes. Also of note, this past Friday, we completed and immediately closed on the first set of homesites in the nature walk phase of WaterSound Origins, which is planned to be the largest single phase at Origins with approximately 465 homesites. The construction of the sales center, the model home pod and the first phase of homesites at Latitude Margaritaville are underway and progressing well. Latitude is an active adult 8 restricted community planned for 3,500 homes in partnership with Minto and Margaritaville Enterprises, which is in the center of our Bay-Walton Sector Plan with overall entitlements for over 170,000 homes. The construction of the new 4-lane West Bay Parkway by the Florida Department of Transportation from the airport to the entry of Latitude on State Road 79 is also underway and progressing well. The Latitude sales center and model homes are anticipated to be opened in early 2021 with sales commencing immediately thereafter. Construction of the new WaterSound and Camp Creek residential community is progressing well with sales planned to start this year or in early 2021. This community is going to be interconnected with our planned Camp Creek private club amenity and the Camp Creek Golf Club. Construction of the much anticipated final phase of WaterColor Phase 5 recently got started with sales planned to start late this year or in early 2021. Construction of a new townhouse community in WaterSound Origins is progressing well with leasing plan to start in 2021. Commercial segment. We completed our first apartment community, Pier Park Crossings, with 240 units in January of this year, and it is currently 99% leased. We have 3 additional apartment communities currently under construction, Phase 2 of Pier Park Crossings, 120 units. The first units are scheduled to be completed in the third quarter of this year. Origins Crossings, 217 units. The first units are scheduled to be completed in the third quarter of this year. Sea Sound, 300 units. The first units are scheduled to be completed in the second quarter of next year. We have 2 additional apartment communities in the planning and permitting stage. In the first quarter, we executed 5 new commercial leases, including 1 for a public supermarket at WaterSound Origins that we expect to start constructing this summer. We also have an additional 4 new commercial leases in the pipeline for the second quarter. Now I want to refer you to the 2021 unit milestone update slide and give you an update of our progress that we have made since we presented the milestones at last year's annual meeting. The first milestone is the sale of 1,000 homesites per year. In calendar year 2019, we sold 379 homesites, which is 38% of our milestone, and it was the most number of homesites that we have sold in 13 years. The second milestone is the ownership of 1,300 apartment and assisted living units. As of today, we have 984 existing or under construction, representing 76% of our milestone. Of that number, 240 are existing and 744 are under construction. All but 107 of those units are apartment units. The third milestone is 900 hotel rooms. As of today, we have 854 hotel rooms, representing 95% of the milestone. 250 of those hotel rooms are existing and 604 under construction. Commercial square feet. The milestone is 1.5 million square feet. As of today, we have 974,256, representing 65% of the milestone. All but 105,339 square feet are existing. The final milestone is 1,400 club memberships. As of today, we have 1,287 members, representing 92% of our milestone. That concludes my brief update of operations. And I think what we want to do now is go into the question-and-answer session.

Yes. And Jorge, before we go into the Q&A, I'd like to add one point regarding capital allocation. Since July of 2015, the company has distributed over $590 million to shareholders via share repurchases. Using today's share count, that is over $10 per share. St. Joe will continue to distribute excess capital to shareholders over time by the repurchase of shares when appropriate. With that note, we'll -- Jorge, you want to read the first question?

Yes. And the first question I have is a question -- 2 questions that a shareholder sent us directly a couple of weeks ago, and I asked for their permission for me to read the question at this annual meeting and received that permission. And the 2 questions were, what are the company's thoughts on near-term CapEx, especially as it relates to potential effect from the pandemic? We don't anticipate at this moment in time that we're going to have a significant change in the CapEx that we budgeted for the year. However, as I mentioned in my brief operations update, we're monitoring the market day-by-day and phasing our projects accordingly. The second question was, are there opportunities to acquire properties or assets in the market at discounted values? And are we focused on monitoring the local market? And the answer to that question is yes, we always monitor the local market. And if there are opportunities for us to potentially acquire assets that have great value to our shareholders, we are going to pursue those.

Okay. I'll take the next question. The next question is, does the Board of Directors and management maintain and regularly update a conservative estimate of intrinsic value? I am a big fan of stock buybacks as long as done conservatively, questioner goes on, and many companies recently have gotten in a cash crunch because they got way over-leveraged and are low on cash because of excessive buybacks at too-high prices. The answer is that yes, we do maintain -- the company does maintain and report to the Board intrinsic value. It is a wide range of intrinsic values based upon the expected cash flows over a decade, including distributions to shareholders over time, either by buying back of shares or potentially by dividend. The expected cash flows are a function of land development, capital allocation, current and future entitlements. And of course, it's based upon our expectations of growth rates, residential sales and rentals and our hospitality and commercial leasing. We do not publish a range of intrinsic values for the enterprise, but we do use the range of intrinsic values to determine the pace, level and pricing of buybacks. Of course, the buybacks are based upon our value of our estimates of intrinsic value, the current price of our common stock, our estimated level of excess liquidity in the corporation and of course, comparing buybacks to other -- every other capital allocation potential for the firm. Next question?

Okay. The next question is, what is the status of the Back Back Beach Road? The first phase of the Back Back Beach Road was constructed a couple of years ago. I'm pleased to report that the second phase -- excuse me, the first phase was from State Road 79 to US 98 near where our Pier Park Crossings apartments are. I'm happy to report that the second phase of the Back Back Beach Road construction started within the last 30 days. The city of Panama City Beach started the construction. That second phase of the Back Back Beach Road is going to go from the current Phase 1 of the Back Back Beach Road to Nautilus, which is where the Busy Bee is being constructed on US 98.

Great. And Jorge, you can answer the next one. When will Busy Bee -- which one? No, it's on the hotel industry, next question. The consensus view appears to be that the hotel industry is going to have trouble filling rooms the next few years. Meanwhile, the company has a substantial backlog of hotels under development. What gives the company the confidence to go forward with these projects given the current environment?

There's certainly uncertainty in the hospitality industry at a national -- international level. In our region, we have always had a strong drive-to market component to hospitality. Drive-to markets tend to weather much better than fly-to markets during economic downtimes. And so far, we have seen that since we reopened our hotels with well over 80% occupancy in average daily rates in the high $400 a night. So the specific answer to the question, what gives us the confidence is the fact that we are a strong drive-to market. We believe that component of the hospitality market is going to remain strong.

And Jorge, we have another question about Busy Bee. And when will Busy Bee have their grand opening? And how many Busy Bees do we expect to see in the Panama City Beach area?

The existing Busy Bee store is scheduled to be completed and have its opening in late June, early July. We also want to see more Busy Bees in the general area, and we hope to potentially in the future discuss several more.

Yes. Jorge, for those shareholders who may not know Busy Bee, can you spend a couple of sentences on what is a Busy Bee? Who is Busy Bee?

Busy Bee is a pretty unique convenience store model. It has a strong brand name, and they're large stores with a lot of merchandising. So for example, the Busy Bee that we're constructing in Panama City Beach is about 15,000 square feet in size. The average convenience store in this market is 3,000 square feet. So it's a unique product, large stores, a lot of private labeling of merchandise, very popular with families, which we think will be a really good fit in our market area.

Some people think Busy Bee is a go-to destination.

We believe so. We believe that once the Busy Bee opens, it's going to be a ritual for a lot of visitors to the market, whether they stay in hotels or vacation rentals or second homes, they're going to make it a point to go by Busy Bee before they lead back going home.

All right. Well, that ends up plug for Busy Bee, which is a fine establishment, and we're looking forward to their grand opening. Next question is about Margaritaville. Does or will Margaritaville take early sales of lots before the grand opening? Who decides? Or how does it work as far as reporting sales at Margaritaville? That is how the news release is handled? And who, will Joe or our partner, decide on how information is released?

The -- everything we do, whether it's reporting sales, news releases, we do it jointly with our partner. We have a really great relationship with our partner, Minto Homes. So everything we're going to be doing, we're going to be doing jointly. As I mentioned in my operational update, we are anticipating that the sales center and the model homes will be open early in 2021. Sales will commence immediately when those open. We don't anticipate having presales at this moment in time.

Great. Before we get to the next question, I just want to let everyone know that within 24 hours of this call, the replay will be posted, and we will have a transcript edited for clarity. Yes, excuse me, it will be audio only, and it will be available for 7 days within 24 hours of the call. So just in case, for those who are unable to take the call. Next question, metrics. No, we did that. Metrics. What metrics is the company shooting for, such as average return on capital plus revenue growth? Does the company plan on providing a scorecard in the future? How does the milestone slide just released fit in those metrics? That is what the metric target is for those milestones. You want to go ahead, just reiterate about our milestone chart?

Yes. One of the things that we're -- we've been talking about and contemplating doing is providing that milestone slide every quarter and update the progress because right now, as Bruce mentioned earlier on, that is a significant part of our metric on growing the company, growing revenue and growing profitability. So in all likelihood, we are going to provide a progress slide every quarter of how we're doing in meeting our milestones.

Yes. And I believe that we've spent the last few years building the proper foundation for sustainable long-term growth. And I also believe you will see -- you'll be able to measure that progress by reviewing the quarterly reports to the SEC on Form 10-Q and 10-K and with Jorge's quarterly letters. I mean you can see from those reports that we've had a run-up -- a buildup of cost in order to establish these projects. You have now -- you're beginning to see the revenues that are building up from those projects being completed. You will now begin to see the gross margins from those projects and then the cash flows that will fall down to the bottom line. And I'm hoping that you will also see, over time, our increasing ability to allocate excess cash flows and liquidity.

The next question is how our hotel bookings going? As I mentioned in my operational update, since we reopened our hotels, our occupancy have averaged over 80% in average daily rates over $400 a night. Based on the reservations that we're seeing in the coming deep part of our summer season, June, July and August, we're anticipating both of those numbers increasing. So so far, so good.

All right. Next question is about the SouthWood and Tallahassee. I know a key focus of the company is on recurring revenue, and there's a 1.5 million square foot target for commercial leasing, but you've sold the SouthWood town center, the golf course or the commercial land in SouthWood. So we have a shareholder wanting to ask if the company is focused on maintaining a significant presence in SouthWood going forward or rather we should expect to be monetizing the SouthWood, Tallahassee land over time and the proceeds recycled into projects in and around Panama City Beach.

The -- we have -- the individual who asked the question is correct. We have sold several assets in SouthWood over the last couple of years, the golf course, the Ed Ball house, the SouthWood Town Center. It's a project and a community that is of large scale. There's still a lot of entitlements left there. If there are opportunities for us to monetize those entitlements and create reasonable return for our shareholders, we're going to continue to do that. In terms of focus on priorities, we -- Bay-Walton and Gulf are certainly a priority for us.

Yes. I mean the objective of the company, Jorge, I think you would agree, is that we want to maximize the highest and best use of every asset that we have. In the case of the Tallahassee area in the SouthWood estate, we want to see that area develop in the best possible way for the communities. Now if someone comes to us and has a better idea on how to develop those lands and improve the communities of Tallahassee, well, we're all for that, and we'll be happy to see others do a better job than we are attempting to do. In case of the -- where we're focused right now is, I mean, we have a huge task at hand, Jorge. We have a -- as you mentioned, we have entitlements to build 170,000 homes. We have tens of millions of commercial square footage. We're seeing an acceleration in growth, and we're going to focus on -- we want to focus. We're getting to what I would call it an inflection point where we're seeing very good growth, and we want to stay focused in the Walton, Bay County, Gulf area.

That's correct. And from an operational perspective, the focus we have at SouthWood now are development of homesites. That is our focus. And we have several small phases under construction, and we do have some pretty good demand from local builders, not at a great scale, but that is the focus that we have right now, homesites.

Right. Next question is about the impact of COVID-19 and the impact that the pandemic has had on the clubs by Joe, monthly membership dues or rents or commercial leasing properties.

So we've been surprised. We have had a net increase in sales of club memberships since the pandemic started. We actually had a spike this past week with inquiries in sales. So it's been surprising, but it's been a good positive surprise. We have a couple of reasons why we think that's the case, but it's been a positive surprise. So the short answer to the question is we've had a net increase in club membership sales since the pandemic started. The second part of the question is rent collected on commercial leasing property. Our commercial leasing portfolio of nearly 900,000 square feet, 2/3 of that is owned solely by St. Joe. So on that part of the portfolio, 2/3 the rent collections, considering the pandemic have gone relatively well, we've been working with tenants on a case-by-case basis. And as of, I believe, last week, we were in the 75% to 80% range of rent collected for 2/3 of our portfolio. 1/3 of our portfolio is Pier Park North, which we jointly own with Casto. Pier Park North has more national tenants. For example, DICK'S Sporting Goods, Fresh Market. The rent collection for Pier Park North has not gone as well as 2/3 of the portfolio. But our partner, Casto, is working diligently with the tenants. And we expect to conclude those negotiations tenant by tenant later this summer.

Great. So now we're going to the general question about the short-term rental business in Florida, current status and any news.

Yes. So the Governor DeSantis announced last week that he was going to let each county in the State of Florida submit a plan for reopening short-term rentals in their counties with a focus on health, safety, sanitation. They started -- the plans are to be submitted to the Florida Department of Business and Professional Regulation. Bay County and Walton County have submitted those plans to the state. The state is reviewing those plans. And as soon as they approve the plans, they can literally reopen the counties for short-term vacation rentals. So essentially, the governor is -- his plan is to let each county come up with their own plan.

All right. All right. Now that we've mentioned the marina at -- adjacent to Latitude Margaritaville on the Intracoastal Waterway, the question is, how significant of a project in terms of capital do you expect this project to be?

We don't know yet. We are still in the planning and engineering stage of that marina. However, we do know this. Based on market studies that we have done and our own local knowledge with discussions with the boating industry. We believe that there's a significant demand for marina in that part of the intercoastal. It's near the mouth of the West Bay. There are no marinas anywhere near there. So if that demand -- as we continue the planning and engineering of the marina, that demand continues to be what we believe it is, the marina could be of a pretty good scale. But it's too early right now for us to predict the capital that we're going to need since we're still in the planning and engineering stage.

And I would expect, as usual, we will take a phased approach?

Yes. We believe that the greatest demand is for dry boat storage. So the planning and engineering that we're currently performing has a phase in component where we would meet the immediate market demand. And then as that demand grows over time, we would phase in other components.

Great. So it will be a part of a larger commercial village idea.

Yes. Yes, we're planning it as a marina village right on the intercoastal. So it won't just technically be a marina. There could be other components that are complementary to the marina right on the intercoastal.

So with the -- how many acres do we have in the area, in the entitled area?

Over 100,000 acres.

So with over 100,000 acres, we can have many, many phases depending upon the natural demand in which we see.

And then we own approximately 15 miles of frontage on the Intercoastal Waterway, both sides of the Intercoastal Waterway. This marina that we're currently planning and engineering at Latitude will really be the first time that we unlock the value of the Intercoastal Waterway on our landholdings.

Excellent. Well, we have finished the -- answering all shareholder questions. We thank you all of us at St. Joe. Thank you for your time. Thank you for your ownership and for your patience. And we look forward to talking with you again next year. So we wish you all a very happy and healthy 2020 as we come out of this COVID-19 pandemic. Thank you, all.

This does conclude today's conference. You may now disconnect.