THE ST. JOE COMPANY The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our annual report on Form 10-K. The statements regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described in "Forward-Looking Statements" below and "Risk Factors" on page 6 of our annual report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this quarterly report on Form 10-Q, unless required
by law. Business OverviewSt. Joe is a real estate development, asset management and operating company with all of its real estate assets and operations inNorthwest Florida . We intend to use existing assets for residential, hospitality and commercial ventures. We have significant residential and commercial land-use entitlements. We actively seek higher and better uses for our real estate assets through a range of development activities. We may partner with or explore the sale of discrete assets when we and/or others can better deploy resources. We seek to enhance the value of our owned real estate assets by developing residential, commercial and hospitality projects to meet market demand. Approximately 86% of our real estate is located inFlorida's Bay ,Gulf , andWalton counties. Approximately 90% of our real estate land holdings are located within fifteen miles of theGulf of Mexico . We believe our present capital structure, liquidity and land provide us with years of opportunities to increase recurring revenue and long-term value for our shareholders. We intend to focus on our core business activity of real estate development, asset management and operations. We continue to develop a broad range of asset types that we believe will provide acceptable rates of return, grow recurring revenues and support future business. Capital commitments will be funded with cash proceeds from completed projects, existing cash, owned-land, partner capital and financing arrangements. We do not anticipate immediate benefits from investments. Timing of projects may be subject to delays caused by factors beyond our control. Our real estate investment strategy focuses on projects that meet long-term risk-adjusted return criteria. Our practice is to only incur such expenditures when our analysis indicates that a project will generate a return equal to or greater than the threshold return over its life.
Market Conditions
Throughout the nine months of 2022, we continued to generate positive financial results. While macro-economic factors such as inflation, rising interest rates, supply chain disruptions, geopolitical conflicts and the continuing recovery from the COVID-19 pandemic, among other things, have created economic headwinds and impacted buyer sentiment, demand across our segments remains strong. We believe this is primarily the result of the continued growth ofNorthwest Florida , which we attribute to the region's high quality of life, natural beauty and outstanding amenities, as well as the evolving flexibility in the workplace.
Despite the strong demand across our segments, we also continue to feel the impact from the aforementioned macro-economic factors, including supply chain disruptions and cost increases, which, for example, have extended homesite
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and home deliveries in certain residential communities and increased operating costs. However, these delays generally have not resulted in increased cancellation rates, and therefore only impact the timing of revenue recognition. In addition, given our diverse portfolio of residential holdings, the mix of sales from different communities may impact revenue and margins period over period, as discussed in more detail below.
Reportable Segments
We conduct primarily all of our business in the following three reportable segments: (1) residential, (2) hospitality and (3) commercial.
The following table sets forth the relative contribution of these reportable segments to our consolidated operating revenue:
Three Months Ended September 30 ,
Nine Months Ended
2022 2021 2022 2021
Segment Operating Revenue
Residential 26.1 % 40.1 % 37.1 % 44.6 %
Hospitality 50.5 % 40.7 % 39.2 % 34.3 %
Commercial 21.9 % 18.6 % 22.7 % 20.4 %
Other 1.5 % 0.6 % 1.0 % 0.7 %Consolidated operating revenue 100.0 % 100.0 % 100.0 % 100.0 %
For more information regarding our reportable segments see Note 18. Segment Information.
Residential Segment
Our residential segment typically plans and develops residential communities of various sizes across a wide range of price points and sells homesites to homebuilders or retail consumers. Our residential segment also evaluates opportunities to enter into JV agreements for specific communities such as Latitude Margaritaville Watersound.
The Watersound Origins, Watersound Origins West,
The SummerCamp Beach community has homesites available for sale and along with the RiverCamps community, both have additional lands for future development.
The Latitude Margaritaville Watersound community is a planned 55+ active adult residential community inBay County, Florida . The community is located near theIntracoastal Waterway with convenient access to theNorthwest Florida Beaches International Airport . The community is being developed through an unconsolidated JV with our partnerMinto Communities USA , a homebuilder and community developer, and is estimated to include approximately 3,500 residential homes, which will be developed in smaller increments of discrete neighborhoods. As ofSeptember 30, 2022 , the unconsolidated Latitude Margaritaville Watersound JV had 641 homes under contract, which are expected to result in a sales value of approximately$316.5 million at closing of the homes. See Note 4. Joint Ventures for additional information. 50
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The residential homesite pipeline by community/project is as follows:
Residential Homesite Pipeline (a)
Additional
Platted or Engineering or Entitlements with
Community/Project Location Under Development Permitting Concept Plan Total
Breakfast Point East (b) Bay County, FL 250 266 104 620
College Station Bay County, FL - 58 265 323
East Lake Creek (b) Bay County, FL - - 200 200
East Lake Powell (c) Bay County, FL - - 360 360
Lake Powell (d) Bay County, FL - - 1,352 1,352
Latitude Margaritaville
Watersound (d) (e) Bay County, FL 891 340 2,022 3,253
Mexico Beach (b) Bay County, FL 32 60 275 367
Mexico Beach Townhomes (b) Bay County, FL 42 36 82 160
Park Place Bay County, FL 96 - 191 287
RiverCamps (c) Bay County, FL - - 149 149
SouthWood (f) Leon County, FL 84 180 920 1,184
SummerCamp Beach (b) Franklin County, FL 37 - 273 310
Teachee (d) Bay County, FL - - 1,750 1,750
Titus Park Bay County, FL 265 144 560 969
Ward Creek (d) Bay County, FL 938 263 399 1,600
Watersound Camp Creek (f) Walton County, FL 104 - - 104
Watersound Origins (f) Walton County, FL 602 - - 602
Watersound Origins West (d) Walton County, FL 103 249 1,679 2,031
West Laird (d) Bay County, FL - 1,068 1,117 2,185
WindMark Beach (f) Gulf County, FL 128 549 317 994
Total Homesites 3,572 3,213 12,015 18,800
The number of homesites are preliminary and are subject to change. Includes (a) homesites platted or currently in concept planning, engineering, permitting
or development. We have significant additional entitlements for future
residential homesites on our land holdings.
(b)
(c) Development Agreement ("DA").
(d) Detailed Specific Area Plan ("DSAP").
(e) The unconsolidated Latitude Margaritaville Watersound JV builds and sells
homes in this community.
(f) Development of Regional Impact ("DRI").
In addition to the communities listed above, we have a number of other residential project concepts in various stages of planning and evaluation.
As ofSeptember 30, 2022 , we had 18 different homebuilders within our residential communities. As ofSeptember 30, 2022 , we had 2,376 residential homesites under contract, which are expected to result in revenue of approximately$186.3 million , plus residuals, at closing of the homesites over the next several years. By comparison, as ofSeptember 30, 2021 , we had 1,661 residential homesites under contract, with an expected revenue of approximately$160.7 million , plus residuals. The increase in homesites under contract is due to the development of additional homesites and increased homebuilder contracts for residential homesites. The number of homesites under contract are subject to change based on homesite closings and homebuilder interest in each community. As ofSeptember 30, 2022 , in addition to the 2,376 homesites under contract in other residential communities, our unconsolidated Latitude Margaritaville Watersound JV had 641 homes under contract, which together with the 2,376 homesites are expected to result in a sales value of approximately$502.8 million at closing of the homesites and homes.
Hospitality Segment
Our hospitality segment features a private membership club, (the "Watersound Club "), hotel operations, food and beverage operations, golf courses, beach clubs, retail outlets, gulf-front vacation rentals, management services, marinas and other entertainment assets. The hospitality segment generates revenue and incurs costs from membership sales, membership reservations, golf courses, lodging, short-term vacation rentals, management ofThe Pearl Hotel , food and 51 Table of Contents
beverage operations, merchandise sales, marina operations, charter flights, other resort and entertainment activities and beach clubs, which includes operation of theWaterColor Beach Club . Hospitality revenue is generally recognized at the point in time services are provided and represent a single performance obligation with a fixed transaction price. Hospitality revenue recognized over time includes non-refundable club membership initiation fees, club membership dues, management fees and other membership fees. From time to time, we may explore the sale of certain hospitality properties, the development of new hospitality properties, as well as new entertainment and management opportunities. Some of our JV assets and other assets incur interest and financing expenses related to the loans as described in Note 10. Debt, Net.Watersound Club provides club members and guests of some of our hotels access to our member facilities, which include theCamp Creek golf course, Shark's Tooth golf course,Watersound Beach Club and a Pilatus PC-12 NG aircraft ("N850J").Watersound Club offers different types of club memberships, each with different access rights and associated fee structures.Watersound Club is focused on creating an outstanding membership experience combined with the luxurious aspects of a destination resort. Club operations include our golf courses, beach club and facilities that generate revenue from membership sales, membership reservations, daily play at the golf courses, merchandise sales, charter flights and food and beverage sales and incur expenses from the services provided, maintenance of the golf courses, aircraft, beach club and facilities and personnel costs. Watersound Origins includes an executive golf course, resort-style pool, fitness center, two tennis courts and a private dock located in the community. Access to amenities is reserved to Watersound Origins members consisting of the community residents. The golf course is available for public play.Watersound Club has a private beach club located onScenic Highway 30A, which includes over one mile ofGulf of Mexico frontage, two resort-style pools, two restaurants, three bars, kid's room and a recreation area. Shark's Tooth includes an 18-hole golf course, a full club house, a pro shop, as well as two food and beverage operations. In addition to the golf course,Watersound Club's tennis center is located in the Wild Heron community near the Shark's Tooth golf course.Camp Creek is an 18-hole golf course located near the newWatersound Camp Creek residential community and near the Watersound Origins residential community. We have commenced construction on new club amenities adjacent to theCamp Creek golf course. Amenities are planned to include a health and wellness center, restaurants, a tennis and pickle ball center, a resort-style pool complex with separate adult pool, a golf teaching academy, pro shop and multi-sport fields. Once complete, these amenities will be available toWatersound Club members and guests of some of our hotels. We own and operate the award-winningWaterColor Inn (which includes the Fish Out of Water restaurant), theHilton Garden Inn Panama City Airport , the Homewood Suites byHilton Panama City Beach , theWaterSound Inn and two gulf-front vacation rental houses. We own and operate retail and commercial outlets near our hospitality facilities. We also operate the award-winningThe Pearl Hotel andHavana Beach Bar & Grill restaurant and theWaterColor Beach Club , which includes food and beverage operations and other hospitality related activities, such as beach chair rentals. Revenue is generated from (i) lodging, (ii) operation of theWaterColor Beach Club , (iii) management ofThe Pearl Hotel , (iv) short-term vacation rentals, (v) food and beverage operations and (vi) merchandise sales. Lodging and operation of theWaterColor Beach Club generate revenue from service and/or daily rental fees and incur expenses from the cost of services and goods provided, maintenance of the facilities and personnel costs. Revenue generated from our management services include management fees and expenses consist primarily of internal administrative costs. Lodging and short-term vacation rentals generate revenue from rental fees and incur expenses from the holding cost of assets we own and standard lodging personnel, such as front desk, reservations and marketing personnel. Our food and beverage operations generate revenue from food and beverage sales and incur expenses from the cost of services and goods provided and standard personnel costs. Our retail outlets generate revenue from merchandise sales and incur expenses from the cost of goods provided, personnel costs and facility costs. We are in the process of constructing anEmbassy Suites by Hilton hotel, with our JV partner, in thePier Park area ofPanama City Beach, Florida ; the waterfrontHotel Indigo inPanama City, Florida's downtown waterfront district; a Home2 Suites by Hilton hotel inSanta Rosa Beach, Florida ; The Lodge 30A, with our JV partner, a boutique hotel onScenic Highway 30A in Seagrove Beach,Florida ; and an upscale boutique inn located adjacent to theCamp Creek golf course near the highly desirableScenic Highway 30A corridor. Once complete, we intend to manage the day-to-day operations of these hotels. We are also in the process of constructing aResidence Inn by Marriott, with our JV partner, inPanama City Beach, Florida . Once complete, the hotel will be operated by our JV partner. 52 Table of Contents
Our hotel portfolio by property is as follows:
Rooms (a)
Location Completed Planned Total
Operational
WaterColor Inn (b) Walton County, FL 67 - 67
WaterSound Inn Walton County, FL 11 - 11Hilton Garden Inn Panama City Airport (c) Bay County, FL 143 - 143 Homewood Suites by Hilton Panama City Beach (d) Bay County, FL 131 - 131 TownePlace Suites by Marriott Panama City Beach Pier Park (e) Bay County, FL 124 - 124 Total operational rooms 476 - 476 Managed The Pearl Hotel (f) Walton County, FL 55 - 55 Total managed rooms 55 - 55Under Development /Construction Embassy Suites by Hilton Panama City Beach (g) Bay County, FL - 255 255 Hotel Indigo Bay County, FL - 124 124
- 121 121
Home2 Suites by Hilton Santa Rosa Beach Walton County, FL - 107 107
The Lodge 30A (g) Walton County, FL - 85 85
Camp Creek Inn Walton County, FL - 75 75Total rooms under development/construction
- 767 767
Total rooms 531 767 1,298
Includes hotels currently in operation, under management or under development (a) and construction. We have significant additional entitlements for future
hotel projects on our land holdings.
(b) Seven additional rooms were completed in
(c) The hotel opened in
(d) The hotel opened on
The hotel is operated by our JV partner. The Pier Park TPS JV is (e) unconsolidated and is accounted for under the equity method of accounting,
which is included within our commercial segment.
(f) The hotel is owned by a third party but is operated by us.
(g) Under development with JV partners.
The hotel is under development with our JV partner. Once complete, the hotel (h) will be operated by our JV partner. The Pier Park RI JV is unconsolidated and
is accounted for under the equity method of accounting, which is included
within our commercial segment.
We own and operate two marinas consisting of thePoint South Marina Bay Point inBay County, Florida andPoint South Marina Port St. Joe inGulf County, Florida . We are planning new marinas along theIntracoastal Waterway . Our marinas generate revenue from boat slip rentals, boat storage fees and fuel sales, and incur expenses from cost of services provided, maintenance of the marina facilities and personnel costs. At present, we are reconstructing thePoint South Marina Port St. Joe and expect a portion to be open in 2022.The Point South Marina Bay Point fully reopened in the third quarter of 2022. See Note 7. Hurricane Michael for additional information. We own and operate the WaterColor and WaterColor Kids retail stores that generate revenue from merchandise sales, which are recognized at the point of sale, and incur expenses from the cost of goods provided, personnel costs and facility costs. We own and operateThe Powder Room Shooting Range and Training Center ("The Powder Room ") inPanama City Beach, Florida . The approximately 17,000 square feet facility includes a retail store with firearms and ammunition, as well as training and educational space and 14 shooting lanes.The Powder Room generates revenue from service fees and merchandise sales, which are recognized at the point of sale, and incurs expenses from the cost of services and goods provided, personnel costs and facility costs. We own and operateHarrison's Kitchen & Bar , a standalone restaurant, inPanama City, Florida's downtown waterfront district and Bruno's Pizza, a standalone restaurant, in WindMark Beach. These standalone restaurants generate revenue from food and beverage sales and incur expenses from the cost of services and goods provided and standard personnel costs.
In addition to the properties listed above, we have a number of hospitality projects in various stages of planning.
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Commercial Segment
Our commercial segment includes leasing of commercial property, multi-family,
senior living, self-storage and other assets. The commercial segment also
oversees the planning, development, entitlement, management and sale of our
commercial and rural land holdings for a variety of uses, including a broad
range of retail, office, hotel, senior living, multi-family, self-storage and
industrial properties. We provide development opportunities for national,
regional and local retailers and other strategic partners in Northwest Florida .
We own and manage retail shopping centers and develop commercial parcels. We
have large land holdings near the Pier Park retail center, adjacent to the
Northwest Florida Beaches International Airport , near or within business
districts in the region and along major roadways. We also lease land for
hunting, rock quarrying and other uses. The commercial segment also manages our
timber holdings in Northwest Florida which includes growing and selling
pulpwood, sawtimber and other products, such as fill dirt.
The commercial segment generates leasing revenue and incurs leasing expenses
primarily from maintenance and management of our properties, personnel costs and
asset holding costs. Our commercial segment also generates revenue from the sale
of developed and undeveloped land, timber holdings or land with limited
development and/or entitlements and the sale of commercial operating properties.
Real estate sales in our commercial segment incur costs of revenue directly
associated with the land, development, construction, timber and selling costs.
Our commercial segment generates timber revenue primarily from open market sales
of timber on site without the associated delivery costs. Some of our JV assets
and other assets incur interest and financing expenses related to the loans as
described in Note 10. Debt, Net.
The commercial segment's portfolio of leasable properties continues to expand and diversify. Through wholly-owned subsidiaries and consolidated and unconsolidated joint ventures we are in the process of constructing 428 multi-family units and 148 senior living units, in addition to the 1,000 multi-family units and 107 senior living units that have been completed.
Total units and percentage leased/occupied for multi-family and senior living communities by location are as follows:
September 30, 2022 December 31, 2021
Percentage Percentage
Leased Leased
Units Units Units of Units Units Units of Units
Location Planned Completed Leased Completed Completed Leased Completed
Multi-family
Pier Park
Crossings Bay County, FL 240 240 231 96% 240 234 98%
Pier Park
Crossings Phase
II Bay County, FL 120 120 114 95% 120 113 94%
Watersound
Origins
Crossings (a) Walton County, FL 217 217 207 95% 217 207 95%
Sea Sound (b) Bay County, FL 300 300 280 93% 214 203 95%
North Bay
Landing (c) Bay County, FL 240 48 37 77% - - N/A
Mexico Beach
Crossings (d) Bay County, FL 216 - - N/A - - N/A
Origins
Crossings
Townhomes (e) Walton County, FL 64 44 27 61% - - N/A
WindMark Beach
(f) Gulf County, FL 31 31 30 97% 31 31 100%
Total multi-family units 1,428 1,000 926 93% 822 788 96%
Senior living communities
Watercrest Walton County, FL 107 107 72 67% 107 47 44%
Watersound
Fountains (g) Walton County, FL 148 - - N/A - - N/A
Total senior living units 255 107 72 67% 107 47 44%
Total units 1,683 1,107 998 90% 929 835 90%
(a) Construction was completed in the fourth quarter of 2021.
(b) Construction was completed in the first quarter of 2022. The Sea Sound JV is
unconsolidated and is accounted for under the equity method of accounting.
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(c) Construction began in the fourth quarter of 2020 and is ongoing.
(d) Construction began in the first quarter of 2022 and is ongoing.
(e) Vertical construction began in the third quarter of 2021 and is ongoing.
(f) Includes 19 units for short-term lease in a vacation rental program. We are
in the process of converting these 19 units to long-term rental units.
Construction began in the second quarter of 2021 and is ongoing. The (g) Watersound Fountains Independent Living JV is unconsolidated and is accounted
for under the equity method of accounting.
Pier Park Crossings, which was developed in two phases, includes 360 completed apartment units inPanama City Beach, Florida . Watersound Origins Crossings includes 217 completed apartment units adjacent to theWatersound Town Center . Sea Sound, an unconsolidated JV, includes 300 completed apartment units inPanama City Beach, Florida near the Breakfast Point residential community. WindMark Beach includes 31 completed long-term and short-term rental units inPort St. Joe, Florida . Watercrest includes 107 completed senior living units inSanta Rosa Beach, Florida . In addition, we have three multi-family communities and one senior living community under construction.North Bay Landing , planned for 240 apartment units, with 48 units completed as ofSeptember 30, 2022 , is located inPanama City, Florida . Mexico Beach Crossings, planned for 216 apartment units, is located inMexico Beach, Florida . Origins Crossings Townhomes, planned for 64 units, with 44 units completed as ofSeptember 30, 2022 , is located near theWatersound Town Center . Watersound Fountains, an unconsolidated JV, planned for 148 independent living units, is located near the Watersound Origins residential community. Our leasing portfolio consists of approximately 1,043,000 square feet of leasable space for mixed-use, retail, industrial, office, self-storage and medical uses. This includes our consolidated Pier Park North JV. Through separate unconsolidated JVs, other commercial properties include a 124-room TownePlace Suites by Marriott operated by our JV partner and aBusy Bee branded fuel station and convenience store operated by our JV partner, both located inPanama City Beach, Florida .
The total net rentable square feet and percentage leased of leasing properties by location are as follows:
September 30, 2022 December 31, 2021
Net Net
Rentable Rentable
Square Percentage Square Percentage
Location Feet* Leased Feet* Leased
Pier Park North Bay County, FL 320,310 97 % 320,310 95 %
VentureCrossings Bay County, FL 303,605 92 % 303,605 88 %
Watersound Town Center (a) Walton County, FL 86,316 96 % 24,764 100 %
Beckrich Office Park (b) (c) Bay County, FL 77,613 100 % 81,065 85 %
Watersound Self-Storage (d) Walton County, FL 67,694 89 % 67,694 50 %
WindMark Beach Town Center (b) (e) Gulf County, FL 44,748
71 % 44,748 67 %
WaterColor Town Center (b) Walton County, FL 22,199 100 % 22,199 100 %
Cedar Grove Commerce Park Bay County, FL 19,389 100 % 19,389 100 %
Port St. Joe Commercial Gulf County, FL 16,964 100 % 16,964 100 %
Beach Commerce Park (b) Bay County, FL 14,800 100 % 14,800 100 %
SummerCamp Commercial Franklin County, FL 13,000 0 % 13,000 0 %South Walton Commerce Park (f) Walton County, FL 11,570
100 % 11,570 88 %
WaterSound Gatehouse (b) Walton County, FL 10,271 100 % 10,271 100 %
WaterColor Crossings Walton County, FL 7,135 100 % 7,135 100 %
395 Office building Walton County, FL 6,700 100 % 6,700 100 %
Pier Park outparcel Bay County, FL 5,565 100 % 5,565 100 %
Topsail West Commercial Walton County, FL 3,500 100 % 3,500 100 %
Bank building Bay County, FL 3,346 100 % 3,346 100 %
Bank building Gulf County, FL 3,346 100 % 3,346 100 %
WaterColor HOA Office Walton County, FL 2,520 100 % 2,520 100 %
RiverCamps Bay County, FL 2,112 100 % 2,112 100 %
1,042,703 93 % 984,603 87 %
Net Rentable Square Feet is designated as the current square feet available for * lease as specified in the applicable lease agreements plus management's
estimate of space available for lease based on construction drawings.
(a) Construction of additional leasing space was completed in the third quarter
of 2022.
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(b) In addition to net rentable square feet there is also space that we occupy or
that serves as common area.
(c) Included in net rentable square feet as of
31, 2021, is 1,500 square feet leased to a consolidated JV.
(d) Construction was completed in the third quarter of 2021.
(e) Included in net rentable square feet as of
(f) Included in net rentable square feet as of
31, 2021, is 1,364 square feet leased to a consolidated JV.
We have other commercial projects under development and construction. This includes approximately 54,000 square feet of leasable space atWatersound Town Center . We have commenced development of Watersound West Bay Center, a lifestyle shopping center adjacent to Latitude Margaritaville Watersound residential community inPanama City Beach, Florida . Watersound West Bay Center has potential to include approximately 350,000 square feet of leasable space at build out, featuring a mix of retail, restaurant, office and medical space. In addition to the properties listed above, we have a number of projects in various stages of planning, including additional commercial buildings and apartment communities.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management's estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and our accounting estimates are subject to change. Critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements are set forth in Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no significant changes in these policies during the first nine months of 2022, however we cannot assure you that these policies will not change in the future.
Recently Adopted and Issued Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies to our condensed consolidated financial statements included in this report for recently issued or adopted accounting standards, including the date of adoption and effect on our condensed consolidated financial statements.
Seasonality and Market Variability
Our operations may be affected by seasonal fluctuations. Hospitality revenues
have historically been lower in the first and fourth quarters and are normally
higher in the second and third quarters, but may vary period-to-period with the
timing of holidays and extraordinary events such as the COVID-19 pandemic.
Homesites sell in sporadic transactions in various communities that may impact
quarterly results. Commercial sales may vary from period-to-period.
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Results of Operations
Consolidated Results
The following table sets forth a comparison of the results of our operations:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
In millions
Revenue:
Real estate revenue $ 17.3 $ 23.5 $ 82.1 $ 85.6
Hospitality revenue 29.0 22.3 74.9 58.0
Leasing revenue 10.1 7.1 28.2 19.1
Timber revenue 1.2 1.0 5.5 4.8
Total revenue 57.6 53.9 190.7 167.5
Expenses:
Cost of real estate revenue 7.2 8.5 35.3 33.1
Cost of hospitality revenue 22.0 16.5 58.2 43.5
Cost of leasing revenue 4.9 3.1 12.6 8.3
Cost of timber revenue 0.2 0.1 0.6 0.5
Corporate and other operating
expenses 5.3 5.0 16.5 17.1
Depreciation, depletion and
amortization 5.8 4.6 16.3 12.6
Total expenses 45.4 37.8 139.5 115.1
Operating income 12.2 16.1 51.2 52.4
Other income (expense):
Investment income, net 2.7 2.3 7.5 4.8
Interest expense (4.7) (4.1) (13.0) (11.6)
Gain on contributions tounconsolidated joint ventures 1.4 -
2.0 3.3 Other income, net 2.1 7.4 6.1 9.6 Total other income, net 1.5 5.6 2.6 6.1 Income before equity in income (loss) from unconsolidated joint ventures and income taxes 13.7 21.7 53.8 58.5 Equity in income (loss) from unconsolidated joint ventures 2.5 (0.5)
3.4 (1.6) Income tax expense (4.1) (6.4) (14.6) (15.2) Net income$ 12.1 $ 14.8 $ 42.6 $ 41.7 57 Table of Contents
Real Estate Revenue and Gross Profit
The following table sets forth a comparison of our total consolidated real estate revenue and gross profit:
Three Months Ended September 30 ,
Nine Months Ended
2022 % (a) 2021 % (a) 2022 % (a) 2021 % (a)
Dollars in millions
Revenue:
Residential real
estate revenue $ 15.0 86.7 % $ 21.6 91.9 % $ 70.7 86.1 % $ 74.7 87.3 %
Commercial and
rural real estate
revenue 1.5 8.7 % 1.6 6.8 % 9.6 11.7 % 9.8 11.4 %
Other revenue 0.8 4.6 % 0.3 1.3 % 1.8 2.2 % 1.1 1.3 %
Real estate
revenue $ 17.3 100.0 % $ 23.5 100.0 % $ 82.1 100.0 % $ 85.6 100.0 %
Gross profit:
Residential real
estate $ 9.1 60.7 % $ 13.5 62.5 % $ 39.1 55.3 % $ 44.2 59.2 %
Commercial and
rural real estate 0.7 46.7 % 1.4 87.5 % 7.2 75.0 % 8.0 81.6 %
Other 0.3 37.5 % 0.1 33.3 % 0.5 27.8 % 0.3 27.3 %
Gross profit $ 10.1 58.4 % $ 15.0 63.8 % $ 46.8 57.0 % $ 52.5 61.3 %
(a) Calculated percentage of total real estate revenue and the respective gross
margin percentage.
Residential Real Estate Revenue and Gross Profit. During the three months endedSeptember 30, 2022 , residential real estate revenue decreased$6.6 million , or 30.6%, to$15.0 million , as compared to$21.6 million during the same period in 2021. During the three months endedSeptember 30, 2022 , residential real estate gross profit decreased$4.4 million to$9.1 million (or gross margin of 60.7%), as compared to$13.5 million (or gross margin of 62.5%) during the same period in 2021. During the three months endedSeptember 30, 2022 , we sold 78 homesites and had an unimproved residential land sale of$0.9 million , compared to 119 homesites and no unimproved residential land sales during the same period in 2021. During the three months endedSeptember 30, 2022 and 2021, the average revenue, excluding homesite residuals, per homesite sold was approximately$141,000 and$159,000 , respectively. The difference in average revenue per homesite was due to the mix of sales from different communities, primarily from sales in the WaterColor community during the prior period. During the nine months endedSeptember 30, 2022 , residential real estate revenue decreased$4.0 million , or 5.4%, to$70.7 million , as compared to$74.7 million during the same period in 2021. During the nine months endedSeptember 30, 2022 , residential real estate gross profit decreased$5.1 million to$39.1 million (or gross margin of 55.3%), as compared to$44.2 million (or gross margin of 59.2%) during the same period in 2021. During the nine months endedSeptember 30, 2022 , we sold 490 homesites and had unimproved residential land sales of$1.1 million , compared to 494 homesites, two homes and had unimproved residential land sales of$0.1 million during the same period in 2021. During the nine months endedSeptember 30, 2022 and 2021, the average revenue, excluding homesite residuals, per homesite sold was approximately$117,000 and$125,000 , respectively, due to the mix of sales from different communities. The revenue, gross profit and margin for each period was impacted by the volume of sales within each of the communities, the difference in pricing among the communities and the difference in the cost of the homesite development. The number of homesites sold varied each period due to the timing of homebuilder contractual closing obligations and the timing of development of completed homesites in our residential communities. Commercial and Rural Real Estate Revenue and Gross Profit. During the three months endedSeptember 30, 2022 , we had nine commercial and rural real estate sales totaling approximately 18 acres for$1.4 million and land improvement services of$0.1 million , together resulting in a gross profit of$0.7 million (or gross margin of 46.7%). During the three months endedSeptember 30, 2021 , we had five commercial and rural real estate sales totaling approximately 423 acres for$1.6 million , resulting in a gross profit of$1.4 million (or gross margin of 87.5%). 58 Table of Contents During the nine months endedSeptember 30, 2022 , we had twenty-one commercial and rural real estate sales totaling approximately 194 acres for$8.7 million and land improvement services of$0.9 million , together resulting in a gross profit of$7.2 million (or gross margin of 75.0%). During the nine months endedSeptember 30, 2021 , we had thirteen commercial and rural real estate sales totaling approximately 536 acres for$9.8 million , resulting in a gross profit of$8.0 million (or gross margin of 81.6%). Revenue from commercial and rural real estate can vary significantly from period-to-period depending on the proximity to developed areas and mix of real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses. Our gross margin can vary significantly from period-to-period depending on the characteristics of property sold. Sales of rural and timber land typically have a lower cost basis than residential and commercial real estate sales. In addition, our cost basis in residential and commercial real estate can vary depending on the amount of development or other costs incurred on the property.
Other Revenue. Other revenue primarily consists of mitigation bank credit sales and title business revenue.
Hospitality Revenue and Gross Profit
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
In millions
Hospitality revenue $ 29.0 $ 22.3 $ 74.9 $ 58.0
Gross profit $ 7.0 $ 5.8 $ 16.7 $ 14.5
Gross margin 24.1 % 26.0 % 22.3 % 25.0 %
Hospitality revenue increased $6.7 million , or 30.0%, to $29.0 million during
the three months ended September 30, 2022 , as compared to $22.3 million in the
same period in 2021. The increase in hospitality revenue was primarily related
to the continued increase of club members from new markets, as well as an
increase in lodging revenue from the Homewood Suites by Hilton Panama City
Beach , which opened in March 2022 and new WaterColor Inn suites, which opened in
June 2022 . The increase in hospitality revenue was also due to the opening of a
new retail store, standalone restaurants and a marina. Hospitality had a gross
margin of 24.1% during the three months ended September 30, 2022 , compared to
26.0% during the same period in 2021. The decrease in gross margin was due to
pre-opening expenses and onboarding of staff associated with these new assets,
and an increase in cost of labor and products in the current period.
Hospitality revenue increased $16.9 million , or 29.1%, to $74.9 million during
the nine months ended September 30, 2022 , as compared to $58.0 million in the
same period in 2021. The increase in hospitality revenue was primarily related
to the continued increase of club members from new markets, as well as an
increase in lodging revenue from the Hilton Garden Inn Panama City Airport ,
which opened in July 2021 , the Homewood Suites by Hilton Panama City Beach ,
which opened in March 2022 and new WaterColor Inn suites, which opened in June
2022 . The increase in hospitality revenue was also due to the opening of a new
retail store, standalone restaurants and a marina. As of September 30, 2022 ,
Watersound Club had 2,573 members, compared with 2,158 members as of
September 30, 2021 , an increase of 415 members. Hospitality had a gross margin
of 22.3% during the nine months ended September 30, 2022 , compared to 25.0%
during the same period in 2021. The decrease in gross margin was due to
pre-opening expenses and onboarding of staff associated with these new assets,
and an increase in cost of labor and products in the current period.
Leasing Revenue and Gross Profit
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
In millions
Leasing revenue $ 10.1 $ 7.1 $ 28.2 $ 19.1
Gross profit $ 5.2 $ 4.0 $ 15.6 $ 10.8
Gross margin 51.5 % 56.3 % 55.3 % 56.5 %
Leasing revenue increased $3.0 million , or 42.3%, to $10.1 million during the
three months ended September 30, 2022 , as compared to $7.1 million in the same
period in 2021. Leasing revenue increased $9.1 million , or
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47.6%, to$28.2 million during the nine months endedSeptember 30, 2022 , as compared to$19.1 million in the same period in 2021. The increase was primarily due to new multi-family and senior living leases, as well as other new leases. Leasing gross margin decreased during the three months endedSeptember 30, 2022 to 51.5%, as compared to 56.3% during the same period in 2021, primarily due to start-up and lease-up expenses for new assets in the current period. Leasing gross margin was 55.3% during the nine months endedSeptember 30, 2022 , as compared to 56.5% during the same period in 2021.
Timber Revenue and Gross Profit
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
In millions
Timber revenue $ 1.2 $ 1.0 $ 5.5 $ 4.8
Gross profit $ 1.0 $ 0.9 $ 4.9 $ 4.3
Gross margin 83.3 % 90.0 % 89.1 % 89.6 %
Timber revenue increased$0.2 million , or 20.0%, to$1.2 million during the three months endedSeptember 30, 2022 , as compared to$1.0 million in the same period in 2021. The increase was primarily due to an increase in the tons of wood products sold and the sales mix of different wood products. There were 60,000 tons of wood products sold during the three months endedSeptember 30, 2022 , as compared to 50,000 tons of wood products sold during the same period in 2021. Timber gross margin decreased during the three months endedSeptember 30, 2022 to 83.3%, as compared to 90.0% during the same period in 2021, primarily due to additional maintenance expenses in the current period. Timber revenue increased$0.7 million , or 14.6%, to$5.5 million during the nine months endedSeptember 30, 2022 , as compared to$4.8 million in the same period in 2021. The increase was primarily due to an increase in prices and the sales mix of different wood products, partially offset by a decrease in the tons of wood products sold in the current period. There were 213,000 tons of wood products sold during the nine months endedSeptember 30, 2022 , as compared to 223,000 tons of wood products sold during the same period in 2021. Timber gross margin was 89.1% during the nine months endedSeptember 30, 2022 , as compared to 89.6% during the same period in 2021.
Corporate and Other Operating Expenses
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
In millions
Employee costs $ 2.3 $ 2.0 $ 7.1 $ 7.8
Property taxes and insurance 1.6 1.4 4.2 4.1
Professional fees 0.8 0.7 2.7 2.3Marketing and owner association costs 0.2 0.3 0.7 1.3 Occupancy, repairs and maintenance 0.1 0.3 0.6 0.5 Other miscellaneous 0.3 0.3 1.2 1.1 Total corporate and other operating expenses $ 5.3 $
5.0 $ 16.5 $ 17.1
Corporate and other operating expenses increased$0.3 million to$5.3 million for the three months endedSeptember 30, 2022 , as compared to$5.0 million in the same period in 2021. Corporate and other operating expenses decreased$0.6 million during the nine months endedSeptember 30, 2022 , as compared to the same period in 2021. The decrease is primarily due to$1.2 million of expense during the three months endedJune 30, 2021 to 401(k) plan participants related to the final allocation of surplus assets from the pension plan termination in 2014. 60 Table of Contents
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased$1.2 million and$3.7 million during the three and nine months endedSeptember 30, 2022 , respectively, as compared to the same periods in 2021, primarily due to new hospitality and commercial assets placed in service.
Investment Income, Net
Investment income, net primarily includes (i) interest and dividends earned and
accretion of the net discount (ii) net unrealized gain or loss related to
investments - equity securities, (iii) interest income earned on the time
deposit held by SPE and (iv) interest earned on mortgage notes receivable and
other receivables as detailed in the table below:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
In millions
Interest, dividend and accretion
income $ 0.4 $ - $ 0.7 $ 0.1
Unrealized gain (loss) on
investments, net - 0.1 0.1 (1.9)
Interest income from investments in
special purpose entities 2.0 2.0 6.0 6.1
Interest earned on notes receivable
and other interest 0.3 0.2 0.7 0.5
Total investment income, net $ 2.7 $ 2.3 $ 7.5 $ 4.8
Investment income, net increased$0.4 million to$2.7 million for the three months endedSeptember 30, 2022 , as compared to$2.3 million in the same period in 2021. Investment income, net increased$2.7 million to$7.5 million for the nine months endedSeptember 30, 2022 , as compared to$4.8 million in the same period in 2021. The nine months endedSeptember 30, 2022 includes unrealized gains related to preferred stock of$0.1 million , compared to unrealized losses related to preferred stock of$1.9 million during the prior period.
Interest Expense
Interest expense primarily includes interest incurred on the Senior Notes issued byNorthwest Florida Timber Finance, LLC , project financing, CDD debt and finance leases, as well as amortization of debt discount and premium and debt issuance costs as detailed in the table below: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 In millions Interest expense and amortization of discount and issuance costs for Senior Notes issued by special purpose entity $ 2.2 $ 2.2 $ 6.6 $ 6.6 Other interest expense 2.5 1.9 6.4 5.0 Total interest expense $ 4.7 $ 4.1 $ 13.0 $ 11.6 Interest expense increased$0.6 million , or 14.6%, to$4.7 million during the three months endedSeptember 30, 2022 , as compared to$4.1 million in the same period in 2021. Interest expense increased$1.4 million , or 12.1%, to$13.0 million during the nine months endedSeptember 30, 2022 , as compared to$11.6 million in the same period in 2021. The increase in interest expense is primarily related to the increase in project financing and higher interest rates. See Note 10. Debt, Net for additional information regarding project financing.
Gain on Contributions to
Gain on contributions to unconsolidated joint ventures during the three and nine months endedSeptember 30, 2022 , were$1.4 million and$2.0 million , respectively. Gain on contributions to unconsolidated joint ventures for the three and nine months endedSeptember 30, 2022 , include a gain of$1.4 million on land and impact fees contributed to our 61
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unconsolidated Pier Park RI JV. The nine months ended
During the three months endedSeptember 30, 2021 , we did not have any gain on contributions to unconsolidated joint ventures. Gain on contributions to unconsolidated joint ventures during the nine months endedSeptember 30, 2021 , were$3.3 million . The nine months endedSeptember 30, 2021 , includes a gain of$3.1 million on land contributed to our unconsolidated Watersound Fountains Independent Living JV. The nine months endedSeptember 30, 2021 , also includes a gain of$0.2 million on additional infrastructure improvements contributed to our unconsolidated Latitude Margaritaville Watersound JV. See Note 4. Joint Ventures for additional information.
Other Income, Net
Other income, net primarily includes income from our retained interest investments, gain on insurance recovery, loss from hurricane damage and other income and expense items as detailed in the table below:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
In millions
Accretion income from retained
interest investments $ 0.4 $ 0.4 $ 1.3 $ 1.1
Gain on insurance recovery 0.9 2.5 4.2 3.9
Loss from hurricane damage - - (0.1) -
Miscellaneous income, net 0.8 4.5 0.7 4.6
Other income, net $ 2.1 $ 7.4 $ 6.1 $ 9.6
Other income, net decreased $5.3 million to $2.1 million during the three months
ended September 30, 2022 , as compared to $7.4 million in the same period in
2021. Other income, net decreased $3.5 million to $6.1 million during the nine
months ended September 30, 2022 , as compared to $9.6 million in the same period
in 2021. The three months ended September 30, 2022 and 2021, includes a gain on
insurance recovery of $0.9 million and $2.5 million , respectively, and loss from
hurricane damage of less than $0.1 million during each period related to
Hurricane Michael. The nine months ended September 30, 2022 and 2021, includes a
gain on insurance recovery of $4.2 million and $3.9 million , respectively, and
loss from hurricane damage of less than $0.1 million during each period related
to Hurricane Michael. See Note 7. Hurricane Michael for additional information.
Miscellaneous income, net during the three and nine months ended September 30,
2022 , includes income of $0.3 million and $1.0 million , respectively, related to
a gain on retained interest investment. Miscellaneous income, net includes $0.8
million and $0.9 million during the three months ended September 30, 2022 and
2021, respectively, and $1.8 million and $0.9 million during the nine months
ended September 30, 2022 and 2021, respectively, received from the Pier Park CDD
for repayment of subordinated notes. Miscellaneous income, net during the nine
months ended September 30, 2022 , also includes expenses of $1.1 million for
design costs no longer pursued and $0.6 million for a homeowner's association
special assessment. Miscellaneous income, net during the three and nine months
ended September 30, 2021 , includes $3.6 million received from the Florida
Division of Emergency Management's TRBG program for recovery of lost income
related to timber crop that was destroyed as a result of Hurricane Michael. See
Note 7. Hurricane Michael and Note 17. Other Income, Net for additional
information.
Income Tax Expense
Income tax expense was$4.1 million during the three months endedSeptember 30, 2022 , as compared to$6.4 million during the same period in 2021. Our effective tax rate was 25.2% for the three months endedSeptember 30, 2022 , as compared to 29.7% during the same period in 2021. 62
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Income tax expense was$14.6 million during the nine months endedSeptember 30, 2022 , as compared to$15.2 million during the same period in 2021. Our effective tax rate was 25.5% for the nine months endedSeptember 30, 2022 , as compared to 26.3% during the same period in 2021. Our effective rate for the three and nine months endedSeptember 30, 2022 , differed from the federal statutory rate of 21.0% primarily due to state income taxes and other permanent items. Our effective rate for the three and nine months endedSeptember 30, 2021 , differed from the federal statutory rate of 21.0% primarily due to state income taxes, the change in the 2021 Florida income tax rate from 4.5% to 3.5%, tax credits and other permanent differences. See Note 13. Income Taxes for additional information.
Segment Results
Residential
The table below sets forth the consolidated results of operations of our residential segment:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
In millions
Revenue:
Real estate revenue $ 13.8 $ 20.6 $ 65.0 $ 70.3
Leasing revenue - - 0.1 0.1
Other revenue 1.2 1.0 5.7 4.4
Total revenue 15.0 21.6 70.8 74.8
Expenses:Cost of real estate and other revenue 6.0
8.0 31.6 30.5 Other operating expenses 0.9 1.1 3.0 3.9 Depreciation, depletion and amortization - - 0.1 0.1 Total expenses 6.9 9.1 34.7 34.5 Operating income 8.1 12.5 36.1 40.3 Other income (expense): Investment income, net 0.3 0.2 0.7 0.5 Interest expense (0.1) (0.1) (0.4) (0.4) Gain on contributions to
unconsolidated joint ventures 0.1
- 0.2 0.2
Other income (expense), net - 0.2 (0.5) 0.4
Total other income, net 0.3 0.3 - 0.7
Income before equity in income (loss)
from unconsolidated joint ventures and
income taxes $ 8.4 $ 12.8 $ 36.1 $ 41.0
Real estate revenue includes sales of homesites, homes and other residential
land and certain homesite residuals from homebuilder sales that provide us
a percentage of the sale price of the completed home if the home price exceeds a
negotiated threshold. Leasing revenue includes long-term leases of residential
assets. Other revenue includes tap and impact fee credits sold and marketing
fees. Certain homesite residuals and other revenue related to homebuilder
homesite sales are recognized in revenue at the point in time of the closing of
the sale. For the three months ended September 30, 2022 , real estate revenue
includes estimated homesite residuals of $1.0 million . For the three months
ended September 30, 2021 , real estate revenue did not include any estimated
homesite residuals. For the three months ended September 30, 2022 and 2021,
other revenue includes estimated fees related to homebuilder homesite sales of
$0.3 million and $0.2 million , respectively. For the nine months ended September
30, 2022 and 2021, real estate revenue includes estimated homesite residuals of
$3.6 million and $2.2 million , respectively, and other revenue includes
estimated fees related to homebuilder homesite sales of $1.1 million and $1.5
million , respectively. Cost of real estate revenue includes direct costs (e.g.,
development and construction costs), selling costs and other indirect costs.
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Three months ended
The following table sets forth our consolidated residential real estate revenue and cost of revenue activity:
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