The St. Joe Company ($JOE)

Good day, and thank you for standing by. Welcome to the St. Joe Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker host for today, Mr. Jeorge Gonzalez, President, CEO, and Chairman of the St. Joe Company. Please go ahead, sir.

Thank you, and good afternoon. I'm George 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 first quarter of 2026 earnings press release, which can be found in the Investor Relations section of our corporate website at joe.com. This afternoon, 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 always encourage shareholders to visit us in person so they may assess firsthand the progress of the region and of our assets. If you want to send us questions for later in the call, you may do so by visiting the right-hand corner of your screen, where the word question is visible, to the text box where you can type in your question and then click submit for later in the call. 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 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 we are only going to mention a few key highlights of the first quarter before we move on to your questions. For the first quarter, we had a 5% increase in revenue and an 8% increase in operating income. The first quarter revenue of $99.1 million was the company's highest first quarter revenue outside of the one-time timberland sale in 2014. The increase in total revenue included a 13% increase in hospitality revenue and a 4% increase in real estate revenue when compared to the same period last year. Leasing revenue decreased by 10%, which was primarily due to the sale of the Watercrest Senior Living property in September of 2025. Net income decreased by 21%, primarily because of a decrease in equity and income from unconsolidated joint ventures. Equity and income was $3.5 million for the quarter when compared to $10.2 million in the first quarter of 2025. The decrease was primarily attributed to a lower home closing volume in the LatitudeMargaville Water Sound unconsolidated joint venture. Latitude is a large-scale, long-term project that will have ebbs and flows in quarterly and even year-to-year volume and provides benefits to us beyond its financial performance with consumers for our commercial and hospitality segments. We continue to successfully execute our strategy of growing recurring revenue as evidenced by the first quarter record of $44.7 million in hospitality revenue and $14.7 million in leasing revenue, which together accounted for 60% of the total revenue in the quarter. As a result of the successful execution of the strategy to grow recurring revenue, the company has a sustainable business model that is poised for future growth with a demonstrated ability to grow multiple revenue streams, all while simultaneously increasing the value of the underlying land assets. In addition to the growth in recurring revenue, we are also improving profitability as evidenced by the increase in gross margins in hospitality and leasing revenue. As we have previously mentioned, since opening 5 new hotels in 2023 and expanding our club membership program, we have been focused on improving our hospitality operations and increasing margins. The gross margin improved across all hospitality categories to a total of 24% for the first quarter of 2026, as compared to 18% for the first quarter of 2025. Similarly, we have been focused on improving gross margins and leasing revenue, with 61% for the first quarter of 2026 when compared to 55% for the first quarter of 2025. Leasing revenue is not as operationally intensive as hospitality revenue. So the strategy to increase profitability and gross margins is to invest in projects with higher margins and divest from projects with lower margins. We are systematically evaluating our leasing portfolio to execute this strategy. An example of investment in higher-margin projects is the Water Sound Town Center, and an example of divesting is the 2025 sale of the lower-margin Watercrest senior living property. In the first quarter, we continue to implement a measured and multifaceted capital allocation strategy with $20.7 million in capital expenditures, primarily for growth, $9.2 million in cash dividends, $5 million in share repurchases, and $10.9 million in reduction of project debt. Project debt is a real cash expense, and not all project debt is the same. The focus of our project debt reduction strategy is on the variable shorter-term, higher interest rate debt, like for our hospitality assets, as opposed to our fixed longer-term lower interest rate debt, like for our apartment assets. Outside of the financial numbers, we continue to fill the pipeline for potential future growth. In the first quarter, we were pleased to announce the execution of a contract with PulteGroup for up to 2,653 homesites in our most recently approved details-specific area plan, or DSAP. PulteGroup is the third-largest homebuilder in the country, and this is their first entry into the Northwest Florida market. In the first quarter, we were also pleased to execute a long-range utility, water, and sewer agreement with a utility provider that will service the Lake Powell and West Laird DSAPs with the potential for thousands of future residential home sites. Work on this infrastructure is planned to commence later this year. Speaking of the future, most developers and national homebuilders will admit that 2 of the most challenging aspects of future growth are acquiring and entitling land. In addition to the demonstrated ability to execute our business strategy, it is important to remember that we already own over 165,000 acres of land with many entitlements in the growing part of Florida. Our competitive advantage is clear. Now, Marek and I are going to answer your questions. [Operator Instructions]

Thank you, Jorge. We have a few questions. Can you elaborate on the pace of takedown at Pigeon Creek DSAP? 1,300 homesites is great, but obviously, whether it's over 3, 5, or 10 years makes a big difference. Also, are there protections in the takedown schedule as it relates to the value of the land?

So thank you for the question. First of all, as I mentioned in my opening remarks, we're really happy, really pleased with the execution of the agreement with PulteGroup. PulteGroup is the third-largest national homebuilder in the country. And they obviously made the decision to enter this market, and it's the first time they are in the Northwest Florida market because they see the growth potential of the market. So we're very pleased with the addition of PulteGroup to our builder group and builder relationships. The best way to answer the question is, ultimately, pace is set by the market. And PulteGroup is planning on having various product types in this community. Each product type will be a little bit different in terms of pricing the consumer that will be interested in that product. In terms of the agreement itself, we learn every time we do an agreement, particularly of this scale or a similar scale, going back to many years ago. We learn. We understand how things end up happening in the field in real life, and we adjust. And certainly, all those lessons that we've learned over the years are lessons that we've incorporated in this agreement, and we'll continue to incorporate in subsequent agreements.

And Jorge, just adding, our disclosure was intentional. We use the term significant variable revenue, and because we do have built-in protections as the question requests.

Yes. And one last thing. When you look at agreements that we executed 5, 6, 7 years ago, those agreements had a time in place in a context. Certainly, the way that we look at new agreements is based on lessons learned and based on what's happening in the market at the moment.

Next question. There was a nice uptick in the RevPAR at the hotels this quarter. Was any of that attributable to the New York City marketing campaign?

Again, thank you for the question. The majority of the uptick was organic. So far, we've been pleased with the early part of the season in our hospitality segment. We have been tracking very carefully the increase in bookings from the New York City market that may be based on the campaign that we launched in December. We are cautiously optimistic. We're pleased. We have seen an uptick, but it's still very early in the campaign. We're in the process of assessing the campaign as we've been measuring every day in making decisions about future phases of the campaign. So again, the growth that the question asked about in terms of RevPAR, we believe, is primarily organic. But based on the measurement we've been doing on the New York City market, we have seen an increase from that market in bookings so far this year.

With strong national demand for data centers driven by AI, have you considered or pursued marketing positions at Venture Crossing Enterprise Center for data center development? If so, how does that fit into your recurring revenue and land monetization strategy?

We have had discussions with those types of users, specifically about petropcessings. In terms of the business structure and specific to the question of how we would monetize it, as we do in all of those discussions, we would have conversations about a ground lease, potentially, which would be a recurring revenue and/or potentially a sale depending on facts and circumstances, time frame, and various different factors. But yes, we've had discussions with those types of users specific to that location.

Can you provide additional color on the brokerage revenue, either by county average transaction value or number of transactions?

We've been very pleased with the commencement of the real estate brokerage agency. We started in one location, the Watercooler Town Center. We quickly opened in a second location, the Water Town Center. And we have plans right now to open 3 additional locations. Those 3 additional locations will be 2 in Bay County and 1 in Walton County. So we've been pleased with the reception from the agent community. We have received a lot of interest from agents in joining the agency. We still don't have a full year's worth of data. The agency literally opened its doors right before the summer of last year. So after we finish this year, we're going to have 1 full year of data, and that's the kind of data that we'll look at and make some decisions on moving forward.

Pier Park City Center is a beautiful location. When do you expect lease payments to start on the SURF Park? Has there been any progress towards monetizing the space beyond the SURF Park?

The answer to both questions is yes. We've made significant progress with the SURF Park. In terms of when that project is going to commence, it's going to be relatively soon. We do have plans and have been in discussion with other potential users in that location. We're being very thoughtful about the users who go into that location because it's a special location. It's a special piece of property in the middle of Panama City Beach, where there's a lot of energy, a lot of activity. So we're being very thoughtful about the type of users that should go to Pier Park City Center. But yes, we have made progress on both counts of the question.

Southwood was part of the residential under contract dollar numbers last quarter. Did something change in the contract with Southwood that led you to remove it this quarter?

So the answer is no. There have been no changes to the contract. Adding the Pigeon Creek contract, which is a long-term contract in the quarter, made more sense to show it excluding the dollars related to those 2 specific contracts, but there were no changes to the actual contract itself.

Over the past several years, not only has migration seemingly accelerated, but also local migration seems to really be picking up, with more folks leaving the area south of Highway 98 to go north of it. The area on both sides of 331 below the bridge is one of the hottest in the region. And I'm curious if, given that we have over 20,000 entitlement homes in Walton County, including over 3,000 listed in the pipeline, if we are looking to accelerate our offerings from current pace, given local demand and price points being paid for lots, it does not seem unrealistic for St. Joe to be selling at 250 to 300 homesites per year in Walton County at prices of at least $250,000 per lot should we open things up to more than just the current small group of builders. It seems really evident that there is not only demand, but also willingness for folks to pay premiums to current pricing if we open things up a bit. Is this something we're able to do in the next few years?

Thank you for the question. It's a great question. And we agree, by the way, with the majority of the observations made in the question. So a couple of different answers to that question. Number one, pace is ultimately determined by the market. One of the things that we always try to be very careful with we try to have product and inventory available to meet market demand, but we also don't want to get too far ahead of market demand, where we have inventory sitting in the ground for too many years, where we could be using that capital for other purposes, like buying shares back, for example. So it's a delicate balance of making sure that we have inventory to meet the demand and not overextend ourselves in a way where we risk capital being in the ground for too many years, where we could be using that capital for share repurchase. We have opened it up quite a bit. An example is Camp Creek. Just about every custom homebuilder has participated in Camp Creek and they're building homes and have built homes in Camp Creek. In origins, I wouldn't say we have a small group of builders. We have 5 or 6 builders right now, and we're always talking to 3 or 4 new ones, and we're currently doing that right now. But we do agree with the sentiment of the question. We do agree with the great things that are happening in Walton County and the demand, and we feel very bullish about how the company is positioned to meet that demand at the highest prices and highest margins possible. The regional growth story remains very strong. Yet St. Joe's current commercial development activity seems modest compared to the broader market pace.

As a dominant landowner, how are you thinking about this? Should we expect St. Joe to take a larger percentage of the area development activity at some point? How are you thinking about the pros and cons of becoming a more active commercial developer?

So, commercial development, great question. Commercial development, similar to residential, there's a market component to that. So in terms of how proactive we're going to be, obviously, it's going to be dependent on market demand. I will say this, and I've mentioned it before, we have mentioned it before in earnings releases and in earnings calls. We are getting a lot more calls from prospective commercial tenants, particularly national tenants, than we ever have. Many years ago, when we started this journey and started really almost from scratch in terms of building our commercial leasing portfolio, we weren't getting a lot of those phone calls. We were the ones making phone calls. But now we are getting a lot more phone calls, particularly from national retailers, which is very encouraging. And if that trend continues, we're certainly going to make decisions to meet that demand and accelerate our commercial development.

Yes. And just adding to that, again, I think the market demand and our goal is always to have a high lease percentage as well out there. So it's building for market demand is important. Latitude available lots is declining. When would you expect to add more lots to that partnership? And do you expect it would be contiguous to the existing project?

We've been in discussion with our partner about the next phase, and we've made some really good progress in those discussions. And yes, it would be to the immediate west of the existing joint venture.

Do you see a point at which the Waterstone Club membership will be full until more facilities are built, for example, a golf course, tennis, gym amenities, et cetera? If so, what is the approximate number?

Well, we've made some significant investments in facilities for the club to expand capacity in the last few years. Obviously, Camp Creek is a very sizable facility that accommodates a lot of different activities for our club members. That was a very significant expansion of capacity for our club membership program. The other one, of course, is the opening of a brand-new golf course, the third, which opened last year. So we have been expanding facilities. We are constantly having discussions about where we are going to do the next new facilities, what's going to be the programming that's going to be involved in those facilities, constantly monitoring capacity, usage, and also trying to create more experiences for our members. At this moment, we feel our existing facilities have a good balance of usage. We don't think we're at capacity, but we're constantly planning and looking at where the new facilities are going to be.

There was a $5 million change within the other expense line item in the Latitude joint venture this quarter. Could you give us more color on what drove this? And if it will continue into the future quarters?

So, looking at the disclosures, the costs are very consistent. There are no operating cost changes. The income was driven by volume, the number of closings that were delivered in the quarter compared to the first quarter of 2025. There were no real changes in costs. The actual margins on the per unit were actually above the margins a year ago quarter.

Any updates or information on the custom home sites near the future Arc Park, anticipated number of lots?

We have been planning another custom residential homesite product in Origins West to the west of the Arc Park that's in the planning process right now. We don't have the specifics yet in terms of the number of homesites, the time frame, but it is a real project that we're planning. We've done some preliminary development work in that phase. So look for us to share more information about that project in the subsequent weeks and months.

Is there any color you can give us on recent migration, population, or even tourism growth and trends in the Bay Walton area? If you don't have any quantitative figures, then even anecdotal examples would be greatly appreciated.

Yes. I think beyond the tables and charts and data, which certainly show that the migration and the tourism in our region is growing. Maybe a good way I can answer that is how does it feel to us since we're in the market every day. And it still feels really positive. It feels like the migration is continuing, not only in terms of numbers, but also in terms of the broadening of the geography where the migration is coming from. The migration is not just coming from historical locations. They're coming from places that haven't been historical in terms of where people have moved from to our area in the past. Similar to our hospitality segment in terms of tourists and guests in our hotels, we continue to feel that we're seeing more and more guests in our hotels from a broader range of locations, and we're seeing a good uptick in our occupancy and rates, as one of the earlier questions noted. And obviously, our first quarter results for hospitality show a pretty good uptick in revenue, which is really a byproduct of what we feel, which we feel the migration is continuing, and we feel the awareness about our region from a broader range of locations in the country is continuing.

Any notable update on the Intercoastal Waterway Marina?

We started work on that marina. We still have a couple more permits that we have to obtain. We're in the process of obtaining those permits. And once we do, we're going to accelerate the work that has been done on that marina. We still feel really good, really positive about the market demand for that marina. We don't see any major regulatory challenges in terms of obtaining those permits. It's just a process. So as soon as we get the final permits, we're going to move forward and finalize the marina.

Based on lot sales and lots under development, it seems like there has been an increase in activity demand growth at WindMark. Can you give us some color on what's going on there? What future plans and opportunities could occur there and in the area?

We feel the residential component of WindMark has been one of our success stories. We've been very pleased with the results of Windmark ever since we made the decision to partner with that one builder. The pace has been pretty good. We see the traffic and the demand in the pipeline continuing to be very positive. We're meeting the demand that the builder is experiencing in their home sales. In terms of the future, we're always assessing what other areas we can look at in that market. So again, we feel very positive about WindMark. We think it's a success story in terms of the residential component and constantly assessing future opportunities.

Clubs seem to be doing very well. Given the timelines for development and also perhaps a little bit of growing pains related to the size and success of what has become, do you think it makes sense to accelerate the Lake Powell amenity or anything north of 98? The truth of development is that it can take a long time. The Marina has been at various stages of progress for over half a decade. I'd imagine that the club amenities are at least 3 years out at best. And my concern is that because of this, future growth or even the quality of the club may be limited until more opens up. Can you share your thoughts on this and elaborate, perhaps on the timelines?

Yes, great question. And part of the answer is what I mentioned earlier. In terms of the capacity of our club, the experiences our members are having in adding future capacity, that's something that we look at and evaluate constantly. Right now, we feel we're in a really good place. You don't want to be on either extreme, where there's more demand than capacity or way more capacity than demand. So we feel we're in a good place right now. We're balanced in terms of the demand and capacity that's available. We do have several new amenities that we have been planning. We have mentioned before that one of them is in Lake Powell. We're actively in the planning and design process for that amenity. In terms of when we would start construction, we don't have an exact time frame yet. We're also looking at other locations for future club amenities. But again, we don't want to be too far ahead where we have too much capacity for the usage. But at the same time, we don't want to be behind either. And right now, we feel we're in a sweet spot where we feel we are pretty balanced.

What is the expected timeline for starting to realize revenue from homesites at Pigeon Creek and also Southwood?

Pigeon Creek, in terms of closings, it's probably going to be the early part of 2027. We are actively working on the engineering and permitting of the first phase of Pigeon Creek, working very closely with PulteGroup. So, in terms of closing transactions and realizing revenue, probably the first part of 2027. In terms of Southwood, we don't have a home site development strategy. In Southwood, we sell tracks with master infrastructure to homebuilders. We've got several contracts that we're working on, and we're always in discussion with homebuilders in that market who want to purchase those tracks.

How can we interpret the increase in the advanced deposits figure as a year-over-year increase in bookings demand when it comes to hotels?

Like I said before, so far, we feel pretty good about the start that we've had to the season. Our revenue numbers for the first quarter show that, even looking beyond the first quarter and looking at what we have in terms of bookings and just how does it feel, how does the demand feel, we feel pretty good. So we are cautiously optimistic that our hospitality segment is going to have a good year and a good season this year.

There are no more questions.

So let's give it a couple more minutes in case there are any last-minute questions. These have all been great questions. We always greatly appreciate the quality of the questions, the depth of knowledge that the individuals asking the questions have about our business, about our region. Those types of questions only make us better. So we really greatly appreciate the quality of the questions. Okay. We don't see any more questions. So again, thank you for joining us today. We appreciate your interest in us, in our company, and we look forward to speaking with you again next quarter. And as a quick reminder, we are holding our Annual Meeting of Shareholders on May 12 at 9:00 a.m. Central Time at Camp Creek Inn. We hope to see many of you then. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.