The St. Joe Company — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. St. Joe is a Florida-focused real estate development and operating company with residential and commercial real estate, resorts and leisure, leasing, and forestry businesses. Prior-year results are heavily affected by large 2014 land-sale transactions.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $27.8 million | $23.9 million | $82.8 million | $686.2 million |
| Operating income (loss) | $(2.4) million | $(1.3) million | $(2.3) million | $529.2 million |
| Net income (loss) attributable to St. Joe | $2.8 million | $(0.1) million | $0.8 million | $417.6 million |
| Diluted EPS | $0.03 | $0.00 | $0.01 | $4.52 |
| Operating cash flow | Not separately presented for the quarter | $35.6 million | $322.9 million |
Q3 revenue increased about 16% year over year, while the nine-month decline reflects the absence of 2014’s AgReserves and RiverTown sales, which generated substantial revenue and gains. Nine-month 2014 included $511.1 million of pretax income from the AgReserves sale and $26.0 million from RiverTown. Q3 2015 net income was supported by $9.1 million of investment income, including a $5.3 million realized gain on securities; operating results remained loss-making.
Q3 segment trends included resorts and leisure revenue of $18.5 million, up 9%, with gross margin of 20.5% versus 18.9%; leasing revenue of $2.5 million, up 19%, with gross margin of 72.0%; and timber revenue of $1.9 million, up 73%. For the first nine months, resorts and leisure revenue rose 13% to $45.7 million, leasing revenue rose 39% to $6.8 million, and timber revenue fell 42% to $6.0 million, reflecting the 2014 timberland sale. Residential real estate sales were $14.4 million for the nine months, excluding the prior-year RiverTown transaction.
Balance sheet, liquidity, and capital allocation
- At September 30, cash and cash equivalents were $157.9 million, including $99.0 million of commercial paper; investments were $252.0 million. Total assets were $1.012 billion.
- Reported debt was $69.7 million, including $37.6 million outstanding on the Pier Park North construction loan and $25.3 million of defeased debt later repaid in October 2015 using pledged assets. Separately, consolidated special-purpose-entity Senior Notes were $177.4 million; the filing states these are payable from the entity’s assets and are non-recourse to St. Joe.
- In October 2015, Pier Park North refinanced its construction loan with a $48.2 million loan at 4.1%, maturing in November 2025. St. Joe provided a limited guarantee and is subject to specified covenants; guarantees may become full recourse in certain circumstances.
- St. Joe repurchased 16.98 million shares during the nine months for $304.9 million, including 16.35 million shares tendered at $18 each. Shares outstanding were 75.33 million at September 30, compared with 92.30 million at December 31, 2014. The board authorized an additional $200 million of repurchases in October.
- Nine-month cash flows were $35.6 million provided by operations, $387.0 million provided by investing activities, and $299.2 million used in financing activities, principally share repurchases. Cash increased $123.4 million to $157.9 million.
Management said cash, short-term investments, and operating cash generation were expected to be sufficient for working capital, capital spending, and debt service for the next 12 months. Capital expenditures were $13.2 million in the first nine months; the remaining 2015 budget was estimated at $4.1 million, some of it discretionary.
Outlook, material developments, and risks
- No specific revenue or earnings guidance was provided. Management intends to seek higher and better uses for its real estate and liquid assets and consider further investments and share repurchases. The Bay-Walton County Sector Plan became effective in June 2015, providing entitlements for over 170,000 residential units and over 22 million square feet of commercial, retail, and industrial uses; actual development depends on planning, capital, demand, and market conditions.
- Management cautioned that homebuilder purchases can be sporadic and create volatility in residential sales. A shift toward primary-community homesites may reduce residential gross margins; the company also expects materially less timber and rural-land sale revenue following AgReserves.
- RiverTown impact-fee receipts were estimated at $20–$26 million over five years, subject to development and fee-rate conditions. St. Joe had received approximately $0.2 million through September 30 and had not recorded a receivable; amount and timing are uncertain.
- On October 27, 2015, St. Joe settled the SEC investigation concerning historical accounting, disclosure, and property valuations, without admitting or denying factual allegations. It agreed to pay approximately $3.5 million in penalties, disgorgements, and interest, including a $2.75 million civil penalty. The company had expensed $7.9 million of investigation-related costs in the first nine months and accrued $5.8 million of related fees and expenses at September 30.
- Other risks include concentrated Northwest Florida real estate exposure, cyclical property markets, entitlement and financing execution, environmental matters and litigation, and investment risk. At quarter-end, the company held $5.3 million of non-investment-grade corporate debt and $11.9 million of non-investment-grade preferred stock. A 100-basis-point rate increase was estimated to reduce available-for-sale securities’ market value by about $1.5 million.
Most important facts for investors to verify
- How sustainable operating cash generation and recurring segment margins are without large land-sale gains.
- Actual deployment of liquid assets, results and pricing of further repurchases, and the effect of the substantial share-count reduction on per-share value.
- Progress, costs, financing, and market demand for Sector Plan and other development projects.
- Final cash impact and any indemnification or insurance recovery related to the SEC settlement and investigation expenses.
- Exposure under Pier Park North’s refinanced loan guarantees, and the distinction between company debt and consolidated non-recourse Senior Notes.
- Whether RiverTown impact fees are ultimately received, and whether investment valuations or real estate conditions change materially.