The St. Joe Company — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparisons are with the three months ended March 31, 2016. The company is a Northwest Florida real estate development, asset management and operating company with residential and commercial real estate, resorts and leisure, leasing, and forestry businesses. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Total revenue | $13.2 | $20.3 |
| Operating loss | $(4.9) | $(0.9) |
| Income before tax | $6.5 | $11.8 |
| Net income attributable to the Company | $4.4; $0.06 per share | $8.7; $0.12 per share |
| Operating cash flow | $7.1 | $4.4 |
| Cash and cash equivalents | $217.0 | $241.1 at December 31, 2016 |
| Investments and restricted investments | $180.1 | $181.4 at December 31, 2016 |
| Debt, excluding senior notes held by a consolidated special-purpose entity | $55.5 | $55.0 at December 31, 2016 |
| Senior notes held by special-purpose entity | $176.4 | $176.3 at December 31, 2016 |
| Total assets | $1,007.4 | $1,027.9 at December 31, 2016 |
Cash and cash equivalents plus investments and restricted investments totaled approximately $397.0 million at quarter-end. The company reported $349.9 million of total liabilities. The $176.4 million of senior notes is held by a consolidated special-purpose entity; the filing describes the entities’ assets and liabilities as generally non-recourse to the Company, subject to specified guarantees and covenants.
Net cash used in financing was $33.9 million, principally reflecting $34.2 million of share repurchases. Investing activities provided $2.6 million, including $57.1 million of investment sales and $49.5 million of purchases. Cash declined $24.1 million during the quarter. The company reported $7.5 million of capital expenditures and estimated a further $55.8 million of 2017 capital expenditures.
Changes versus the prior comparable period
- Revenue fell $7.1 million. Real estate revenue declined to $1.5 million from $7.1 million; residential sales included two lots versus 22 in Q1 2016. The prior period included a $3.4 million unimproved land sale.
- Resorts and leisure revenue decreased 6.9% to $8.1 million, with a gross deficit of $0.7 million versus $0.6 million. Management cited the timing of holidays and school breaks and related seasonal fixed costs.
- Timber revenue decreased 42.9% to $1.2 million; volumes fell to 75,000 tons from 106,000 and average price per ton to $15.54 from $19.40. Management cited market supply fluctuations and regional mill outages.
- Leasing revenue was essentially flat at $2.4 million; the portfolio was 86% leased at quarter-end, compared with 87% at December 31, 2016.
- Operating loss widened to $4.9 million from $0.9 million. Higher investment income and other income partly offset weaker operations, but income before tax and net income were below the prior-year period.
Outlook, commentary and risks
- Management said current cash, expected investment proceeds and operating cash flows should be sufficient for anticipated working capital, capital spending, debt service and authorized repurchases over the next 12 months. A portion of planned capital spending is discretionary.
- The company stated it expected limited commercial real estate sales activity during the remainder of 2017. It noted that resort revenue is typically higher in the second and third quarters and that residential sales can be uneven because builders buy lots in sporadic transactions.
- Q1 other income included a $3.5 million insurance settlement reimbursing attorney fees and related costs from shareholder litigation and an SEC investigation resolved in October 2015. Investment income included $3.1 million of realized investment gains and a $0.4 million credit-related impairment. Q1 2016 included a $12.5 million Deepwater Horizon claim settlement, which did not recur in Q1 2017.
- The investment portfolio included $132.8 million in corporate debt securities and $41.0 million in preferred stock; the filing identifies these holdings as non-investment grade. A hypothetical 100-basis-point increase in interest rates would reduce the market value of available-for-sale securities by approximately $5.3 million, according to the company.
- Clients of investment adviser affiliates beneficially owned approximately 33.75% of the Company’s common stock. The filing also discloses holdings in Sears Holdings securities by entities or affiliates connected with directors and the investment adviser, creating a relationship investors may wish to review.
- Risks include concentrated Northwest Florida real estate exposure; property-market and demand volatility; development, entitlement and construction risks; weather and natural disasters; investment-value and credit risks; and litigation and environmental matters. Accrued liabilities for litigation and related matters were $1.2 million. The company said it could not quantify future rehabilitation costs for certain neighboring properties near its former paper mill site.
- The company repurchased 2.0 million shares for $34.2 million in Q1, with $156.8 million of program authorization remaining at March 31. It purchased an additional 327,963 shares for $5.6 million through May 1, 2017.
Important facts for investors to verify
- Whether subsequent residential lot closings, development progress and pricing support a recovery in real estate revenue after the unusually low Q1 volume.
- The quality, concentration, valuation and liquidity of the investment portfolio, including non-investment-grade securities and disclosed director/adviser-related holdings.
- Actual 2017 capital expenditures versus the $55.8 million remaining budget, and whether management’s liquidity expectations remain appropriate as repurchases and project spending continue.
- Leasing occupancy and execution of planned development, including the proposed GKN Aerospace lease referenced in the filing.
- Developments in environmental matters, litigation, guarantees and contingent obligations, including the Pier Park North loan guarantee and infrastructure surety commitments.