The St. Joe Company

Good day, and thank you for standing by. Welcome to the St. Joe Company First Quarter 2026 Earnings Conference Call. At this time, all participants are on a listen-only mode. After this week's presentation, there will be a question-and-answer session. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time during the conference. Please see it by Saturday's conference is being recorded. I would now like to end the conference over to your speaker host for today. This is George Gonzalez, President, CEO, and the 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 Merrick 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 go.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 top right-hand corner of your screen where the words submitted question are visible. Clicking on that text will take you to the text entry 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. The 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 Watercress 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 Latitude, Market Rebuild, Watershound, 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 five 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 Watersound 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 Pulte Group for up to 2,653 home sites in our most recently approved detail-specific area plan, or DSAP. Pulte Group is the third largest home builder 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 home builders will admit that two of the most challenging aspects of their 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, Merrick and I are going to answer your questions. As a reminder, in the top right-hand corner of the screen, the words Submit a Question are visible. Clicking that text will take you to the text entry box where you can type your question and click Submit.

Merrick? Thank you, George. We have a few questions. Can you elaborate on the pace of takedown at Pigeon Creek DSAP? 1,300 home sites 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?