The St. Joe Company — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Florida-based landowner, real estate developer and manager with approximately 567,000 acres concentrated primarily in Northwest Florida. Amounts below are U.S. dollars; financial-statement figures are converted to millions unless noted.
Financial performance and position
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $55.9m | $26.7m | $116.8m | $125.5m |
| Operating income (loss) | $15.4m | ($4.2m) | $11.4m | ($3.4m) |
| Net income (loss) attributable to St. Joe | $15.3m | ($2.4m) | $14.6m | ($1.7m) |
| Diluted earnings (loss) per share | $0.17 | ($0.03) | $0.16 | ($0.02) |
- Operating margins were approximately 27.5% in Q3 2012 versus negative 15.7% a year earlier; for the nine-month periods, approximately 9.8% versus negative 2.7%.
- Nine-month operating cash flow was $29.7m, compared with $15.1m in 2011. Investing activities used $0.3m, financing activities used $19.4m, and cash increased $10.0m to $172.4m.
- At September 30, cash and cash equivalents were $172.4m; total assets were $652.7m and total liabilities $92.7m. Debt reported on the balance sheet was $30.4m, down from $53.5m at year-end 2011. Of reported debt, $21.7m was defeased and supported by pledged Treasury securities; the filing reports $8.7m of CDD obligations recognized as debt, while total outstanding CDD debt was $35.3m.
- Real estate investments were $372.8m, down from $387.2m at December 31, 2011. No impairment losses were recorded in the first nine months of 2012.
Material changes and drivers
- Q3 revenue more than doubled, primarily reflecting rural land sales ($18.9m versus $0.5m) and higher residential real estate sales. Nine-month revenue declined 6.9%, chiefly because 2011 included $54.5m of timber-deed revenue. Excluding that transaction, management said timber revenue increased about $4.3m year over year.
- For the first nine months, rural land sales generated $23.3m of revenue from nine sales totaling 6,221 acres. Residential real estate revenue increased to $53.4m from $40.8m; commercial real estate revenue rose to $11.2m from $2.3m.
- Operating and corporate expenses together declined $23.4m year over year for the nine-month period, reflecting lower professional and marketing fees, pension charges and stock-based compensation, among other factors. The comparison also reflects substantial 2011 restructuring charges.
- Resort and club revenue increased, with management citing higher occupancy, room-rate increases and stronger golf activity. Timber sales to RockTenn were lower in the nine-month comparison, while open-market timber sales increased.
Outlook, strategy and risks
- The company’s 2012 strategy emphasizes lower future capital outlays, shorter investment horizons and repositioning or selling assets, including bulk or lower-priced sales where appropriate. Management estimated future capital expenditures on existing projects would be reduced by approximately $190m, most of which otherwise would have occurred over the next 10 years.
- Management expected approximately $2.9m of capital expenditures during the remainder of 2012. Subject to conditions and construction-loan financing, the company expected to contribute approximately 57 acres of land valued at $6.0m and about $9.9m in cash to the Pier Park North joint venture before the end of 2013.
- Management said cash and anticipated cash flows should cover expected working-capital needs and capital expenditures. It reported prepaying approximately $19.9m of CDD obligations in September, with estimated interest savings of $6.0m over four and a half years.
- Management described residential sales as showing signs of recovery in some Northwest Florida projects, but noted that the timing of a sustained recovery remains uncertain. It cited weak real estate markets, foreclosures, restrictive credit, unsold-home inventories and economic conditions.
- Key risks include further real estate market weakness and asset impairments; execution and sale-price risks under the new investment strategy; development, entitlement and financing risks; environmental liabilities and natural disasters; and possible disruption or price effects if the RockTenn Panama City mill closes.
- Pending matters include an appeal in a securities class action dismissed with prejudice, related shareholder derivative litigation stayed pending that appeal, and an SEC private investigation concerning historical impairment practices and other matters. The company said it could not determine the probability or amount of loss for the securities litigation or SEC matter. Environmental rehabilitation costs for certain adjacent properties could not be quantified; environmental-related accruals were $1.6m.
- The company received $1.7m related to Deepwater Horizon claims and recorded the amount as a gain. A proposed class settlement had preliminary court approval, with a final approval hearing scheduled for November 8, 2012; the company said it intended to pursue additional claims not included in the settlement.
Most important facts for investors to verify
- Whether revenue and profit improvement can persist without relying on large land-sale transactions, and how the 2011 timber-deed sale affects year-over-year comparisons.
- Actual cash outlays, financing conditions and expected returns for the Pier Park North joint venture, and progress against the planned reduction in capital expenditures.
- The distinction between $30.4m of reported debt, $21.7m of defeased debt and $35.3m of outstanding CDD debt; confirm future CDD assessment exposure on unplatted properties.
- Developments and potential financial effects of the SEC investigation, securities appeal and derivative suits, environmental matters, and Deepwater Horizon claims.
- Whether regional real estate demand, land-sale pricing and the RockTenn supply relationship support management’s cash-flow and liquidity expectations.