The St. Joe Company — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless stated otherwise. St. Joe is a Northwest Florida real estate development, asset management and operating company, with residential real estate, hospitality, commercial leasing and sales, and forestry segments. Approximately 90% of its land holdings are within 15 miles of the Gulf of Mexico. Dollar amounts below are in millions unless noted.
Key financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $16.0 | $19.9 |
| Operating loss | $(2.2) | $(0.5) |
| Income before taxes | $2.6 | $0.4 |
| Net income attributable to St. Joe | $2.0 | $0.8 |
| Diluted earnings per share | $0.03 | $0.01 |
| Net cash from operating activities | $(1.2) | $2.2 |
- Revenue fell about 19%. Real estate revenue decreased to $4.6 from $7.7, and timber revenue to $0.5 from $1.7; hospitality rose to $7.4 from $7.1 and leasing to $3.5 from $3.4.
- Despite a larger operating loss, net income increased, principally reflecting higher investment income—including a $2.0 unrealized gain on preferred stock—and a $1.5 gain on land contributed to an unconsolidated hotel joint venture. These items are important when assessing earnings quality.
- Hospitality gross margin was 4.1% versus 5.6%; leasing gross margin was 68.6% versus 67.6%; timber gross margin was 80.0% versus 88.2%. Residential real estate gross margin improved to 47.1% from 41.4%.
- Cash, cash equivalents and restricted cash were $193.8 at quarter-end, including $190.8 of cash and cash equivalents. The company also held $9.8 of debt securities and $38.2 of preferred-stock investments. Management said available liquidity and anticipated cash flows should cover expected needs for the next 12 months.
- Reported debt, net was $77.8, up from $69.4 at year-end; separately, consolidated senior notes held by a special-purpose entity were $176.8. Total liabilities were $345.5 and total equity was $530.3.
- Capital expenditures reported by management were $17.1. The company repurchased 471,500 shares for $7.1 at an average $15 per share; $35.8 remained authorized under the repurchase program.
Material changes and management commentary
- Residential homesite sales were 31 versus 106 in Q1 2018, primarily reflecting timing of builder closings and completed-site availability. At March 31, 773 homesites were under contract, expected to generate approximately $74.5 of revenue at closings over several years; closings and timing are not assured.
- Hurricane Michael continued to affect marina and timber operations. The marinas remained closed for restoration, and management expected near-term effects on marina and timber results. Timber volume sold declined to 30,000 tons from 102,000 tons, while average price per ton fell to $12.74 from $15.22.
- Hospitality revenue benefited from the reopened FOOW restaurant, a new store and increased club membership, but was offset by lower WaterColor Inn occupancy, beach-club renovations, the SouthWood Golf Club sale and closed marinas. Membership increased to 1,146 from 1,009.
- Commercial leasing revenue increased, with approximately 93% of 811,096 net rentable square feet leased at quarter-end. Management said it expects limited commercial property sales as it focuses more on recurring leasing revenue.
- Management described results as potentially volatile because homebuilder purchases are sporadic, hospitality is seasonal, and property sales depend on project timing and demand. It provided no specific full-year earnings or revenue guidance in the supplied filing text.
Risks, contingencies and unusual items
- Insurance recovery for Hurricane Michael remains subject to uncertainty. The company recognized $0.3 of insurance proceeds and $0.3 of hurricane expenses in Q1; it reported $0.9 of probable insurance receivable at quarter-end and said it received that amount after quarter-end. The company cautioned that insurance may not cover all losses and that marina rebuilding will take time.
- The company guaranteed debt for an unconsolidated hotel joint venture. Its new $14.4 loan had no principal balance at March 31, 2019, but St. Joe and a subsidiary provided a joint and several guarantee, subject to stated reduction conditions and potential full-recourse triggers. Other limited guarantees and construction-loan guarantees are also disclosed.
- Accrued liabilities for litigation and other matters were $1.2. Management did not expect pending matters to materially harm consolidated financial position or liquidity, but noted an adverse outcome could materially affect results or cash flows in a particular period. Environmental remediation exposure above existing accruals could not be quantified.
- Surety bonds totaled $9.4, and contractual obligations were reported at $33.0. The company noted that cash balances exceeded FDIC-insured limits and that some preferred-stock and corporate-debt holdings were non-investment grade.
- Fairholme-related clients and entities beneficially owned a substantial portion of company shares; the filing identifies Fairholme’s potential influence over major corporate decisions as a risk. St. Joe’s chairman also has roles with Fairholme-related entities, and the investment-advisory relationship is disclosed.
- The company adopted the new lease standard in January 2019, recognizing $0.4 of operating lease assets and liabilities; management said adoption did not materially affect operations or cash flows. Disclosure controls were reported effective, with no material internal-control changes during the quarter.
Important facts for investors to verify
- Whether homesite contracts convert to closings on the expected timetable and at estimated prices, particularly the 773 contracted homesites.
- The pace, cost and insurance funding of Hurricane Michael repairs, marina reopening prospects, and the effect of post-storm timber-market conditions.
- How much reported earnings depends on non-operating investment gains and the land-contribution gain, versus recurring operating performance and operating cash generation.
- Liquidity quality and concentration, including commercial-paper holdings, uninsured bank deposits, non-investment-grade investments, and cash needs for development and repurchases.
- The scope and potential exposure of joint-venture and construction-loan guarantees, litigation and environmental matters.