The St. Joe Company — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. St. Joe is a Florida-based landowner and real estate, resort, leasing, and forestry operator, with approximately 567,000 acres concentrated primarily in Northwest Florida.
Financial results and liquidity
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $26.8 million | $30.5 million |
| Operating loss | $2.2 million | $1.6 million |
| Net loss attributable to St. Joe | $2.5 million | $0.9 million |
| Loss per share | $0.03 | $0.01 |
| Operating cash flow | $2.3 million | $3.6 million |
- Cash and cash equivalents were $168.7 million at March 31, up from $166.0 million at year-end 2012. Cash increased $2.7 million during the quarter.
- Debt was $35.8 million, down from $36.1 million. This includes $26.7 million of in-substance defeased debt backed by pledged Treasury securities; those securities are not freely available cash. Outstanding Community Development District assessments totaled $34.6 million, of which $9.1 million was recorded as debt.
- Total assets were $651.3 million and total equity was $550.6 million at quarter-end. The filing does not present a conventional current ratio or a clearly defined unrestricted-liquidity total.
- Residential homesite gross margin improved to 36.8% from 33.3%; forestry gross margin rose to 38.1% from 33.7%.
Changes versus the prior-year quarter
- Revenue fell 12%, while the operating loss widened. Real estate sales declined $6.0 million, as there were no significant rural land sales or commercial land transactions, compared with $4.3 million and $6.0 million, respectively, in Q1 2012.
- Residential real estate sales increased 111% to $7.6 million; homesite units sold rose to 80 from 31. The segment moved from a $2.2 million loss to $0.3 million income.
- Resort, leisure, and leasing revenue increased 30% to $9.0 million, supported by higher WaterColor Inn room rates and food and beverage sales, more vacation-rental homes, earlier spring break, and new lease revenue. Management cautioned that some spring-break revenue shifted into Q1 from Q2.
- Timber revenue increased 2% to $9.7 million. Higher prices and lower harvest volumes and costs improved forestry results.
- Net loss increased partly because other income was $0.3 million versus $1.7 million in Q1 2012; income tax expense was zero versus $0.6 million. Operating cash flow declined by $1.3 million, with working-capital movements contributing to the period’s cash flows.
Outlook, material developments, and risks
- Management expected approximately $25.8 million of 2013 capital expenditures for residential real estate development, excluding $8.5 million of expected additional cash contributions to the Pier Park North joint venture and that venture’s own capital expenditures. Management said existing cash and anticipated cash flows should cover working capital and planned capital spending. No earnings or revenue guidance is provided.
- The Pier Park North joint venture secured a $40.5 million construction loan in February; none was drawn at March 31. St. Joe’s guarantees include completion, repayment up to 33% of the loan balance, and certain operating deficits and interest. The loan also imposes minimum liquidity of $25 million and net worth of $350 million. St. Joe expected to contribute about $8.5 million more in cash.
- The pension plan was frozen in March pending regulatory approvals. St. Joe expected $15–$19 million of cash from termination in 2014 or early 2015, but estimated a future loss of $22–$26 million upon settlement.
- After quarter-end, St. Joe transferred $100 million to an investment account managed without compensation by Fairholme Capital Management, which owns approximately 27.7% of St. Joe; Fairholme’s managing member is St. Joe’s board chairman. The guidelines prohibit equity investments, require at least 50% in cash or investment-grade cash equivalents, cap fixed-income holdings at 50%, and limit exposure to any one issuer to 10% (excluding the U.S. Government).
- Risk factors include continued weakness in Florida real estate, land-value declines or impairments, execution and entitlement risks, and dependence on the RockTenn mill as a major local pulpwood customer. The company also described environmental obligations and an SEC investigation into historical matters, including real estate impairment accounting. The securities class-action dismissal was affirmed, and rehearing was denied April 30, 2013; related shareholder derivative suits remained pending. Management said it could not determine the likelihood or amount of loss for the SEC matter or derivative litigation.
- Management recorded no long-lived asset impairment in the quarter. The company’s $93.4 million tax valuation allowance reflects uncertainty about realizing deferred tax assets; federal and state net operating loss carryforwards were $89.5 million and $602.9 million, respectively.
Important facts for investors to verify
- Whether the stronger homesite sales trend continues, and how deferred profit on the 19 WaterSound West Beach lots is recognized as the related $2.4 million note is collected.
- Actual 2013 development spending and Pier Park North funding needs, loan draws, guarantees, and covenant compliance.
- The timing, cash proceeds, and final settlement loss from the pension-plan termination.
- How the Fairholme-managed account is invested and governed, given the related-party connection and the company’s post-quarter transfer of $100 million.
- Developments in the SEC investigation, derivative litigation, environmental matters, and any resulting financial exposure.
- Whether the RockTenn mill remains operational and whether timber pricing, volumes, and margins are sustainable.