ST JOE CO

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. Based upon current facts and circumstances, the Company does not expect that these provisions would result in a material cash benefit.

We conduct primarily all of our business in the following three reportable operating segments: (1) residential, (2) hospitality and (3) commercial. Prior to the first quarter of 2020, commercial leasing and sales, as well as forestry were treated as individual operating segments. Commencing in the first quarter of 2020, due to organizational changes, our previously titled “commercial leasing and sales” and “forestry” segments are now reported as one segment and retitled to “commercial.” This change is consistent with our belief that the decision making and management of the assets in these segments are being made as one group. All prior year segment information has been reclassified to conform to the 2020 presentation. Also commencing in the first quarter of 2020, our previously titled “residential real estate” segment was retitled to “residential.” The changes had no effect on the condensed consolidated balance sheets, statements of operations, statements of comprehensive (loss) income or statements of cash flows for the periods presented.

Hospitality revenue decreased $0.8 million, or 10.8%, to $6.6 million during the three months ended March 31, 2020, as compared to $7.4 million in the same period in 2019. During the three months ended March 31, 2020 the decrease in hospitality revenue is primarily due to the impact of the COVID-19 pandemic on hospitality operations, which resulted in travel restrictions and business slowdowns or shutdowns. In addition the Camp Creek Golf Club was closed in March 2020 for renovations. The decrease was partially offset by an increase in the number of members and membership revenue. As of March 31, 2020, the Clubs by JOE had 1,284 members, compared with 1,012 members as of March 31, 2019. Hospitality had a negative gross margin during the three months ended March 31, 2020 of (10.6%) compared to a gross margin of 4.1% during the same period in 2019. The decrease is primarily related to the impacts of the COVID-19 pandemic on hospitality operations, partially offset by an increase in the number of members and membership revenue. The extent to which the COVID-19 pandemic may further impact our future hospitality operations will depend on future developments, which are highly uncertain. See Part II. Item 1A. Risk Factors.

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and several states and municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including quarantines, and “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

Our hospitality operations have already been, and may continue to be, disrupted by the impacts of COVID-19 and the governmental response to address it. In mid-March 2020 we were forced to temporarily close or alter the operations of several hospitality assets we own or operate, including the WaterColor Inn, WaterSound Inn, The Pearl Hotel, retail outlets, food and beverage operations and beach clubs due to implementation of social distancing. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Further, after our hospitality assets are eventually allowed to reopen, some guests may choose for a period of time not to travel or visit our properties for health concerns, which could lead to lower occupancy and lower room rates at our hotels or additional disruptions in our hospitality operations.