The St. Joe Company — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. St. Joe is a Florida real estate development and operating company, with residential and commercial real estate, resorts and leisure, leasing, and forestry businesses concentrated in Northwest Florida. Financial amounts below are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $17.1 | $594.1 |
| Operating income (loss) | $(5.7) | $509.5 |
| Net income (loss) attributable to St. Joe | $(1.7) | $403.0 |
| Diluted earnings (loss) per share | $(0.02) | $4.37 |
| Net cash from operating activities | $1.1 | $352.1 |
- Q1 2014 included the AgReserves land sale, which generated $569.7 million of real estate revenue and approximately $511.1 million of pretax income. The sharp year-over-year decline therefore largely reflects this nonrecurring sale; reported periods are not directly comparable.
- Q1 2015 total revenue excluding the prior-year land sale was still lower: residential real estate sales were $5.4 million versus $5.7 million, commercial real estate sales were nil versus $2.4 million, resorts and leisure revenue rose 11% to $7.8 million, leasing revenue rose 75% to $2.0 million, and timber sales fell 78% to $1.8 million.
- Real estate gross profit was $2.3 million, a 42.6% margin, versus 55.6% in Q1 2014 excluding AgReserves. Resorts and leisure recorded a $1.0 million gross loss, compared with a $0.6 million loss; management cited higher marketing and reservation costs. Leasing gross profit was $1.4 million at a 66.7% margin.
- Investment income increased to $5.2 million from $0.3 million, including $2.0 million of income from the AgReserves-related special-purpose entity and higher income on securities. Interest expense rose to $2.9 million from $0.6 million.
- Cash and cash equivalents were $289.7 million at March 31, 2015, up from $34.5 million at year-end; cash includes $248.4 million of commercial paper. Available-for-sale investments were $385.4 million on the balance sheet. Operating cash flow was modest; investing cash flow was $251.9 million, primarily reflecting $253.3 million of investment sales and maturities.
- Total assets were $1.305 billion and total equity was $978.8 million. Reported debt was $66.5 million, including $33.8 million outstanding on the Pier Park North construction loan. The $177.4 million of Senior Notes is held in a consolidated special-purpose entity and is described as non-recourse to St. Joe. The company reported $7.2 million of CDD debt; total outstanding CDD assessments were $22.6 million.
- Management said cash, short-term investments, expected operating cash flow, and available construction-loan borrowings or refinancing should cover anticipated working capital, capital expenditures, and debt service for the next 12 months. Remaining budgeted 2015 capital expenditures were estimated at $23.4 million, partly discretionary.
Material changes, outlook, and risks
- The 2014 AgReserves sale of approximately 380,000 acres materially reduced the company’s land and timber base and drove the unusually high prior-year revenue and profit. Management expects timber sales and associated costs to remain substantially lower following the sale.
- Management reported more volatile residential sales as the customer mix shifts toward homebuilders, which tend to purchase in sporadic bulk transactions. It also cautioned that a greater share of lower-priced primary-community homesites may pressure real estate margins. Resort and leisure revenue is seasonal and typically higher in the second and third quarters.
- The company had no formal earnings guidance in the filing. It described plans to pursue new real estate and related investment opportunities, including mixed-use and active adult communities, while noting that investment deployment and business strategy may depend on future leadership. Jeffrey C. Keil was President and Interim CEO.
- Investment risk is notable: at quarter-end the company held $101.2 million of corporate debt securities and $24.3 million of preferred stock from single non-investment-grade issuers. Management disclosed that a hypothetical 100-basis-point rise in rates would reduce available-for-sale securities’ market value by about $3.7 million. The company also cited risks from real estate market weakness, investment losses, and potentially illiquid investments.
- The Pier Park North loan matures in February 2016, with a possible two-year extension. St. Joe guarantees completion and certain operating obligations and up to 33% of principal repayment; it must maintain at least $25 million of defined liquidity and $350 million of defined net worth.
- The company received an SEC Wells Notice in January 2015 concerning historical accounting, disclosures, and real estate valuations, principally for 2010, 2009, and earlier periods. It submitted a response in February, could not predict the outcome, and recorded no liability. A Wells Notice is not a formal finding of wrongdoing.
- Other litigation and environmental matters were described; accrued liabilities for the matters discussed were $1.4 million. Management said pending matters were not expected to materially affect financial position or liquidity, while acknowledging an adverse outcome could materially affect a particular period’s results or cash flows.
Important facts for investors to verify
- How much of future earnings and cash generation can come from recurring operations rather than investment income or asset sales.
- Progress, occupancy, economics, and financing for Pier Park North, including the loan extension or refinancing and the company’s guarantees and covenants.
- Credit quality, concentration, liquidity, and valuation of the investment portfolio, especially the non-investment-grade corporate debt and preferred stock holdings.
- Developments in the SEC investigation and any resulting enforcement action, financial exposure, or disclosure changes.
- Timing and amount of RiverTown impact-fee receipts: management estimated $20–$26 million over five years based on development and fee-rate assumptions, but had not recorded a receivable and gave no assurance of amount or timing.
- Whether the company can execute its investment and development strategy, manage leadership transition, and fund planned capital expenditures while maintaining required liquidity.