The St. Joe Company — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. St. Joe is a Florida real estate development, asset management and operating company, with most real estate holdings in Northwest Florida. Its four segments are residential real estate, resorts and leisure, commercial leasing and sales, and forestry.
Financial highlights
Amounts below are in millions of dollars except per-share data.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $19.9 | $13.5 |
| Operating loss | $(0.5) | $(4.6) |
| Income before taxes | $0.4 | $6.5 |
| Net income attributable to St. Joe | $0.8 | $4.4 |
| Diluted earnings per share | $0.01 | $0.06 |
| Cash provided by operating activities | $1.9 | $7.1 |
| Cash provided by investing activities | $22.4 | $2.6 |
| Cash used in financing activities | $(13.8) | $(33.9) |
- Revenue increased about 47%, led by residential real estate revenue, which rose to $7.7 million from $1.5 million. The company sold 106 homesites versus 2 a year earlier; mix of locations and lot types materially affected revenue and margins.
- Operating loss narrowed, but pretax and attributable net income fell sharply. The comparison reflects lower investment income, including a $1.1 million realized investment loss in Q1 2018 versus a $3.1 million realized gain in Q1 2017, and the prior-year $3.5 million insurance settlement. Q1 2018 also included a $0.5 million unrealized investment loss and a $0.1 million credit impairment loss.
- Segment gross margins: residential real estate 45.5% versus 80.0%; resorts and leisure 6.7% versus negative 8.6%; leasing 73.3% versus 73.1%; timber approximately 88% versus approximately 85%.
- Cash, cash equivalents and restricted cash ended the quarter at $202.9 million, up from $192.4 million at year-end. Balance-sheet cash and equivalents were $202.6 million, including $179.2 million of commercial paper. The company also held $46.3 million of debt securities and $44.9 million of preferred-stock investments.
- Reported debt was $55.5 million, compared with $55.6 million at December 31, 2017. Separately, $176.6 million of senior notes are obligations of a consolidated special-purpose entity, supported by related special-purpose-entity investments; those obligations generally do not have recourse to the company, subject to disclosed guarantees and covenants. Total assets were $905.6 million and total equity was $581.2 million.
Changes, outlook and risks
- Resorts and leisure revenue declined 7.4% to $7.5 million, mainly following the December 2017 sale of the third-party vacation-rental management business. Club revenue improved with membership growth. Leasing revenue rose 15.4%, partly due to a manufacturing facility lease that began in December 2017. Timber revenue grew with higher volume, despite a lower average price per ton.
- Management reported no formal earnings guidance. It said cash, investments and expected operating cash flows should cover anticipated working capital, capital spending, debt service and authorized repurchases over the next 12 months. Estimated remaining capital expenditures were $122.5 million; some spending is discretionary and some may occur in 2019. The company incurred $7.5 million of capital expenditures in Q1.
- Management’s stated strategy emphasizes disciplined investment, development and leasing to increase recurring revenue and long-term value. Results are subject to seasonality and volatility in sporadic homebuilder lot sales, project timing and property mix.
- RiverTown impact-fee receipts were estimated at $20–$26 million over five years after the 2014 sale, with most expected near April 2019. The company had received about $1.8 million through March 31, 2018; actual amounts depend on development and county fee schedules. St. Johns County adopted updated schedules on April 3, 2018, which could increase receipts.
- Key exposures include concentration in Northwest Florida real estate, real estate and investment-market conditions, permitting and development risks, weather and natural disasters, and litigation and environmental matters. Accrued liabilities for litigation and related matters were $1.3 million; management could not estimate future environmental rehabilitation costs beyond recorded accruals. The company also had $8.6 million of surety bonds, less than $0.1 million of standby letters of credit, and $24.8 million of contractual obligations.
- The company repurchased 764,825 shares for $13.7 million in Q1 at an average $17.90 per share; $122.6 million of repurchase authority remained at quarter-end. It bought a further 506,226 shares for $8.9 million through April 30.
- Accounting changes effective January 1, 2018 included revenue-recognition timing for estimated lot residuals, marketing fees and tap and impact fees, and fair-value changes on equity investments recognized in earnings. Revenue-standard adoption increased opening retained earnings by a net $1.1 million.
Investor facts to verify
- Whether homesite sales, their mix and margins remain sustainable, and how much of revenue becomes recurring leasing or operating income.
- Investment portfolio quality, valuation sensitivity and earnings volatility, including the company’s exposure to non-investment-grade securities.
- Timing, returns and funding for the $122.5 million of estimated remaining capital expenditures, alongside planned share repurchases and debt service.
- Actual RiverTown impact-fee receipts and the effect of updated county fee schedules.
- Performance of resorts and clubs after the vacation-rental management sale, and any developments in litigation or environmental matters.