joe_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10‑Q

 


(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

or

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     .

 

Commission file number: 1‑10466

 


 

The St. Joe Company

(Exact name of registrant as specified in its charter)

 


 

 

 

Florida

59‑0432511

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

133 South Watersound Parkway

 

Watersound, Florida

32461

(Address of principal executive offices)

(Zip Code)

 

(850) 231‑6400

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES  ☑    NO  ◻

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   YES  ☑    NO  ◻

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer

 

 

 

 

Accelerated filer

 

 

 

 

Non-accelerated filer

◻ 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).   YES  ◻    NO  ☑

 

As of October 29, 2018, there were 60,672,034 shares of common stock, no par value, outstanding.

 

 

 

 


 

Table of Contents

THE ST. JOE COMPANY

INDEX

 

 

 

Page No.

PART I 

 

Item 1. Unaudited Financial Statements 

3

Condensed Consolidated Balance Sheets - September 30, 2018 and December 31, 2017 

3

Condensed Consolidated Statements of Income - Three and Nine Months Ended September 30, 2018 and 2017 

5

Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2018 and 2017 

6

Condensed Consolidated Statement of Changes in Stockholders’ Equity - Nine Months Ended September 30, 2018 

7

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2018 and 2017 

8

Notes to the Condensed Consolidated Financial Statements 

10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

36

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

58

Item 4. Controls and Procedures 

59

PART II 

 

Item 1. Legal Proceedings 

59

Item 1A. Risk Factors 

59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

59

Item 3. Defaults Upon Senior Securities 

60

Item 4. Mine Safety Disclosures 

60

Item 5. Other Information 

60

Item 6. Exhibits 

60

SIGNATURES 

61

 

 

2


 

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.         Financial Statements

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2018

    

2017

ASSETS

 

 

  

 

 

  

Investment in real estate, net

 

$

348,896

 

$

332,624

Cash and cash equivalents

 

 

200,884

 

 

192,083

Investments - debt securities

 

 

13,177

 

 

76,245

Investments - equity securities

 

 

35,144

 

 

35,023

Restricted investments

 

 

3,429

 

 

4,469

Income tax receivable

 

 

3,395

 

 

8,371

Claim settlement receivable

 

 

5,400

 

 

5,280

Other assets

 

 

40,602

 

 

47,133

Property and equipment, net of accumulated depreciation of $60,397 and $60,697 at September 30, 2018 and December 31, 2017, respectively

 

 

12,335

 

 

11,776

Investments held by special purpose entities

 

 

207,338

 

 

207,989

Total assets

 

$

870,600

 

$

920,993

LIABILITIES AND EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Debt, net

 

$

62,326

 

$

55,630

Other liabilities

 

 

50,006

 

 

47,259

Deferred tax liabilities, net

 

 

47,451

 

 

48,983

Senior Notes held by special purpose entity

 

 

176,715

 

 

176,537

Total liabilities

 

 

336,498

 

 

328,409

Equity:

 

 

  

 

 

  

Common stock, no par value; 180,000,000 shares authorized; 60,672,034 and 65,897,866 issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

331,381

 

 

424,694

Retained earnings

 

 

187,516

 

 

154,324

Accumulated other comprehensive loss

 

 

(302)

 

 

(1,461)

Total stockholders’ equity

 

 

518,595

 

 

577,557

Non-controlling interest

 

 

15,507

 

 

15,027

Total equity

 

 

534,102

 

 

592,584

Total liabilities and equity

 

$

870,600

 

$

920,993

 

See accompanying notes to the condensed consolidated financial statements.

3


 

Table of Contents

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

The following presents the portion of the consolidated balances attributable to the Company’s consolidated variable interest entities, which, as of September 30, 2018 and December 31, 2017, include the Pier Park North joint venture (“Pier Park North JV”), Pier Park Crossings LLC (“Pier Park Crossings JV”), Windmark JV, LLC (“Windmark JV”), Panama City Timber Finance Company, LLC and Northwest Florida Timber Finance, LLC as discussed in Note 2. Summary of Significant Accounting Policies. Basis of Presentation and Principles of Consolidation. As of December 31, 2017, consolidated balances attributable to the Company’s consolidated variable interest entities also include Artisan Park, L.L.C., see Note 9. Real Estate Joint Ventures for additional information. The following assets may only be used to settle obligations of the consolidated variable interest entities and the following liabilities are only obligations of the variable interest entities and do not have recourse to the general credit of the Company, except for covenants and limited guarantees discussed in Note 10. Debt, Net.

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2018

 

2017

ASSETS

 

 

  

 

 

  

Investment in real estate

 

$

67,050

 

$

58,441

Cash and cash equivalents

 

 

2,984

 

 

5,084

Other assets

 

 

12,801

 

 

11,889

Investments held by special purpose entity

 

 

207,338

 

 

207,989

Total assets

 

$

290,173

 

$

283,403

LIABILITIES

 

 

  

 

 

  

Debt, net

 

$

53,371

 

$

46,783

Other liabilities

 

 

5,292

 

 

4,357

Senior Notes held by special purpose entity

 

 

176,715

 

 

176,537

Total liabilities

 

$

235,378

 

$

227,677

 

See accompanying notes to the condensed consolidated financial statements.

4


 

Table of Contents

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

 

2018

 

2017

    

2018

    

2017

 

Revenue:

    

 

  

    

 

  

 

 

  

 

 

  

 

Real estate revenue

 

$

6,200

 

$

10,707

 

$

46,061

 

$

19,383

 

Resorts and leisure revenue

 

 

12,565

 

 

18,198

 

 

33,284

 

 

45,633

 

Leasing revenue

 

 

3,138

 

 

3,033

 

 

9,279

 

 

8,431

 

Timber revenue

 

 

1,773

 

 

2,050

 

 

5,350

 

 

4,702

 

Total revenue

 

 

23,676

 

 

33,988

 

 

93,974

 

 

78,149

 

Expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Cost of real estate revenue

 

 

3,709

 

 

6,405

 

 

10,831

 

 

10,350

 

Cost of resorts and leisure revenue

 

 

9,669

 

 

14,513

 

 

26,488

 

 

38,200

 

Cost of leasing revenue

 

 

784

 

 

842

 

 

2,450

 

 

2,308

 

Cost of timber revenue

 

 

148

 

 

167

 

 

554

 

 

562

 

Other operating and corporate expenses

 

 

5,113

 

 

4,968

 

 

16,068

 

 

15,303

 

Depreciation, depletion and amortization

 

 

2,309

 

 

2,306

 

 

6,836

 

 

6,291

 

Total expenses

 

 

21,732

 

 

29,201

 

 

63,227

 

 

73,014

 

Operating income

 

 

1,944

 

 

4,787

 

 

30,747

 

 

5,135

 

Other income (expense):

 

 

  

 

 

  

 

 

  

 

 

  

 

Investment income, net

 

 

2,575

 

 

6,452

 

 

12,221

 

 

31,110

 

Interest expense

 

 

(2,926)

 

 

(3,038)

 

 

(8,905)

 

 

(9,117)

 

Other income, net

 

 

268

 

 

583

 

 

787

 

 

4,646

 

Total other (expense) income, net

 

 

(83)

 

 

3,997

 

 

4,103

 

 

26,639

 

Income before income taxes

 

 

1,861

 

 

8,784

 

 

34,850

 

 

31,774

 

Income tax benefit (expense)

 

 

3,483

 

 

(2,643)

 

 

(2,815)

 

 

(10,831)

 

Net income

 

 

5,344

 

 

6,141

 

 

32,035

 

 

20,943

 

Net loss (income) attributable to non-controlling interest

 

 

139

 

 

(198)

 

 

400

 

 

132

 

Net income attributable to the Company

 

$

5,483

 

$

5,943

 

$

32,435

 

$

21,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE

 

 

  

 

 

  

 

 

  

 

 

  

 

Basic and Diluted

 

 

  

 

 

  

 

 

  

 

 

  

 

Weighted average shares outstanding

 

 

61,066,731

 

 

70,202,807

 

 

63,418,118

 

 

72,037,772

 

Net income per share attributable to the Company

 

$

0.09

 

$

0.08

 

$

0.51

 

$

0.29

 

 

 

See accompanying notes to the condensed consolidated financial statements.

5


 

Table of Contents

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Net income:

 

$

5,344

 

$

6,141

 

$

32,035

 

$

20,943

 

Other comprehensive income (loss):

 

 

 

 

 

  

 

 

 

 

 

  

 

Available-for-sale investment items:

 

 

 

 

 

  

 

 

 

 

 

  

 

Net unrealized (loss) gain on available-for-sale investments

 

 

(1,244)

 

 

(683)

 

 

(1,726)

 

 

3,967

 

Net unrealized gain (loss) on restricted investments

 

 

 —

 

 

 4

 

 

(9)

 

 

 4

 

Reclassification of net realized loss (gain) included in earnings

 

 

 —

 

 

104

 

 

1,050

 

 

(10,757)

 

Reclassification into retained earnings (1)

 

 

 —

 

 

 —

 

 

932

 

 

 —

 

Reclassification of other-than-temporary impairment loss included in earnings

 

 

1,660

 

 

403

 

 

1,723

 

 

769

 

Total before income taxes

 

 

416

 

 

(172)

 

 

1,970

 

 

(6,017)

 

Income tax (expense) benefit (2)

 

 

(105)

 

 

(75)

 

 

(811)

 

 

2,319

 

Total other comprehensive income (loss), net of tax

 

 

311

 

 

(247)

 

 

1,159

 

 

(3,698)

 

Total comprehensive income, net of tax

 

$

5,655

 

$

5,894

 

$

33,194

 

$

17,245

 


(1)

The reclassification into retained earnings relates to the adoption of Accounting Standards Update (“ASU”) 2016‑01 Financial Instruments - Overall, as amended (“ASU 2016‑01”). The new guidance was effective January 1, 2018, and required equity investments to be measured at fair value with changes in fair value recognized in results of operations rather than the condensed consolidated statements of comprehensive income. See Note 2. Summary of Significant Accounting Policies.

(2)

Income tax expense for the nine months ended September 30, 2018 includes $0.3 million of income tax expense related to the adoption of ASU 2018‑02 Income Statement - Reporting Comprehensive Income (“ASU 2018‑02”). The new guidance was effective January 1, 2018, and allowed a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”). See Note 2. Summary of Significant Accounting Policies.

 

See accompanying notes to the condensed consolidated financial statements.

 

 

6


 

Table of Contents

 

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

 

Accumulated

    

    

 

    

    

 

    

    

 

 

 

Common Stock

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

 

 

 

 

 

 

Comprehensive

 

 

Treasury

 

 

Non-controlling

 

 

 

 

    

Shares

    

 

Amount

    

 

Retained Earnings

    

 

(Loss) Income

    

 

Stock

    

 

Interest

    

 

Total

Balance at December 31, 2017

 

65,897,866

 

$

424,694

 

$

154,324

 

$

(1,461)

 

$

 —

 

$

15,027

 

$

592,584

Allocation of ownership interest in Pier Park Crossings JV

 

 —

 

 

(490)

 

 

 —

 

 

 —

 

 

 —

 

 

490

 

 

 —

Additional ownership interest acquired in Artisan Park, LLC

 

 —

 

 

297

 

 

 —

 

 

 —

 

 

 —

 

 

(297)

 

 

 —

Capital contribution from non-controlling interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

887

 

 

887

Capital distribution to non-controlling interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(200)

 

 

(200)

Issuance of common stock for director’s fees

 

2,778

 

 

57

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

57

Issuance of common stock for officer compensation

 

9,956

 

 

192

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

192

Repurchase of common shares

 

(5,238,566)

 

 

 —

 

 

 —

 

 

 —

 

 

(93,369)

 

 

 —

 

 

(93,369)

Retirement of treasury stock

 

 —

 

 

(93,369)

 

 

 —

 

 

 —

 

 

93,369

 

 

 —

 

 

 —

Adoption of ASU 2014-09 Revenue From Contracts with Customers, as amended

 

 —

 

 

 —

 

 

1,140

 

 

 —

 

 

 —

 

 

 —

 

 

1,140

Adoption of ASU 2016-01 Financial Instruments - Overall, as amended

 

 —

 

 

 —

 

 

(696)

 

 

696

 

 

 —

 

 

 —

 

 

 —

Adoption of ASU 2018-02 Income Statement - Reporting Comprehensive Income

 

 —

 

 

 —

 

 

313

 

 

(313)

 

 

 —

 

 

 —

 

 

 —

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

776

 

 

 —

 

 

 —

 

 

776

Net income

 

 —

 

 

 —

 

 

32,435

 

 

 —

 

 

 —

 

 

(400)

 

 

32,035

Balance at September 30, 2018

 

60,672,034

 

$

331,381

 

$

187,516

 

$

(302)

 

$

 —

 

$

15,507

 

$

534,102

 

See accompanying notes to the condensed consolidated financial statements.

 

 

7


 

Table of Contents

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2018

    

2017

 

Cash flows from operating activities:

    

 

  

    

 

  

 

Net income

 

$

32,035

 

$

20,943

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

  

 

Depreciation, depletion and amortization

 

 

6,836

 

 

6,291

 

Stock based compensation

 

 

249

 

 

47

 

Loss (gain) on sale of investments

 

 

961

 

 

(10,757)

 

Unrealized gain on investments, net

 

 

(641)

 

 

 —

 

Other-than-temporary impairment loss

 

 

1,723

 

 

769

 

Deferred income tax (benefit) expense

 

 

(1,795)

 

 

4,312

 

Impairment loss on investment in real estate

 

 

99

 

 

52

 

Cost of real estate sold

 

 

9,839

 

 

9,043

 

Expenditures for and acquisition of real estate to be sold

 

 

(13,580)

 

 

(6,137)

 

Accretion income and other

 

 

(1,571)

 

 

(2,574)

 

Loss on disposal of property and equipment

 

 

13

 

 

81

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Notes receivable

 

 

559

 

 

(1,548)

 

Other assets

 

 

5,160

 

 

(1,835)

 

Other liabilities

 

 

1,096

 

 

4,077

 

Income taxes receivable

 

 

4,976

 

 

26,671

 

Net cash provided by operating activities

 

 

45,959

 

 

49,435

 

Cash flows from investing activities:

 

 

  

 

 

  

 

Expenditures for operating property

 

 

(18,042)

 

 

(25,872)

 

Expenditures for property and equipment

 

 

(1,692)

 

 

(2,520)

 

Proceeds from the disposition of assets

 

 

5,000

 

 

 —

 

Purchases of investments - debt securities

 

 

(62)

 

 

(84,927)

 

Purchases of investments - equity securities

 

 

(10,442)

 

 

(19,081)

 

Sales of investments - debt securities

 

 

64,631

 

 

122,734

 

Sales of investments - equity securities

 

 

11,051

 

 

21,522

 

Maturities of assets held by special purpose entities

 

 

785

 

 

787

 

Net cash provided by investing activities

 

 

51,229

 

 

12,643

 

Cash flows from financing activities:

 

 

  

 

 

  

 

Capital contribution from non-controlling interest

 

 

887

 

 

188

 

Capital distribution to non-controlling interest

 

 

(200)

 

 

(1,530)

 

Capital contribution to unconsolidated affiliate

 

 

(159)

 

 

 —

 

Repurchase of common shares

 

 

(93,369)

 

 

(135,995)

 

Borrowings on debt

 

 

9,304

 

 

1,624

 

Principal payments for debt

 

 

(1,103)

 

 

(1,050)

 

Debt issuance costs

 

 

(1,159)

 

 

(20)

 

Net cash used in financing activities

 

 

(85,799)

 

 

(136,783)

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

11,389

 

 

(74,705)

 

Cash, cash equivalents and restricted cash at beginning of the period

 

 

192,365

 

 

243,087

 

Cash, cash equivalents and restricted cash at end of the period

 

$

203,754

 

$

168,382

 

 

See accompanying notes to the condensed consolidated financial statements.

8


 

Table of Contents

THE ST. JOE COMPANY

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

(Dollars in thousands)

(Unaudited)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows.

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2018

    

2017

 

Cash and cash equivalents

 

$

200,884

 

$

166,773

 

Restricted cash included in other assets

 

 

2,870

 

 

1,609

 

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 

$

203,754

 

$

168,382

 

 

Restricted cash includes amounts set aside as letters of credit collateral and as a requirement of financing for certain of the Company’s developments.

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

 

 

2018

 

2017

 

Cash paid during the period for:

    

 

  

    

 

  

 

Interest

 

$

10,884

 

$

10,879

 

Income taxes

 

$

2,005

 

$

5,403

 

 

 

 

 

 

 

 

 

Non-cash financing and investment activities:

 

 

  

 

 

  

 

(Decrease) increase in Community Development District debt

 

$

(409)

 

$

59

 

(Decrease) increase in expenditures for operating properties and property and equipment financed through accounts payable

 

$

(655)

 

$

4,125

 

 

See notes to the condensed consolidated financial statements.

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THE ST. JOE COMPANY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, unless otherwise stated)

(Unaudited)

1. Nature of Operations

The St. Joe Company together with its consolidated subsidiaries (“St. Joe” or the “Company”) is a Florida real estate development, asset management and operating company with real estate assets and operations currently concentrated primarily in Northwest Florida. Approximately 90% of the Company’s real estate land holdings are located within fifteen miles of the Gulf of Mexico.

The Company conducts primarily all of its business in the following four reportable operating segments: 1) residential real estate, 2) resorts and leisure, 3) commercial leasing and sales and 4) forestry.

In prior periods, the Company’s reportable operating segments were 1) residential real estate, 2) commercial real estate, 3) resorts and leisure, 4) leasing operations and 5) forestry. Commencing in the fourth quarter of 2017, the Company’s commercial real estate segment and leasing operations segment were combined into a new segment titled “commercial leasing and sales”. This change is consistent with the Company’s belief that the decision making and management of the assets in these segments are being made as one group. Prior to the fourth quarter of 2017, commercial real estate and leasing operations were treated as individual operating segments. All prior year segment information has been reclassified to conform to the 2018 presentation. The change in reporting segments had no effect on the condensed consolidated balance sheets, statements of income, statements of comprehensive income or statements of cash flows for the periods presented. See Note 17. Segment Information.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10‑Q. Accordingly, certain information and footnotes required by United States generally accepted accounting principles (“GAAP”) for complete financial statements are not included herein. The unaudited interim condensed consolidated financial statements include the accounts of the Company and all of its majority-owned and controlled subsidiaries and variable interest entities where the Company is the primary beneficiary. Investments in joint ventures and limited partnerships in which the Company is not the primary beneficiary are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation. The December 31, 2017 condensed consolidated balance sheet amounts have been derived from the Company’s December 31, 2017 audited consolidated financial statements. Certain prior period amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the Company’s previously reported total assets and liabilities, stockholders’ equity or net income. Operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018.

A variable interest entity (“VIE”) is an entity in which a controlling financial interest may be achieved through arrangements that do not involve voting interests. A VIE is required to be consolidated by its primary beneficiary, which is the entity that possesses the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to the entity. The Company consolidates VIEs when it is the primary beneficiary of the VIE, including real estate joint ventures determined to be VIEs. See Note 9. Real Estate Joint Ventures.

The interim condensed consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary for fair presentation of the information contained herein. The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes

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included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2017. The Company adheres to the same accounting policies in preparation of its unaudited interim condensed consolidated financial statements as the Company’s December 31, 2017 annual financial statements, except for recently adopted accounting pronouncements detailed below. As required under GAAP, interim accounting for certain expenses, including income taxes, are based on full year assumptions. For interim financial reporting purposes, income taxes are recorded based upon estimated annual income tax rates.

Concentration of Risks and Uncertainties

The Company’s real estate investments are concentrated in Northwest Florida in a number of specific development projects. Uncertain economic or other conditions could have an adverse impact on the Company’s real estate values and could cause the Company to sell assets at depressed values in order to pay ongoing obligations.

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments, other receivables, investments held by special purpose entity or entities (“SPE”), and investments in retained interests. The Company deposits and invests cash with local and regional financial institutions, and as of September 30, 2018, these balances exceeded the amount of F.D.I.C. insurance provided on such deposits. In addition, as of September 30, 2018 the company had $10.0 million invested in U.S. Treasury securities, $3.2 million invested in two issuers of corporate debt securities that are non-investment grade, $35.1 million invested in four issuers of preferred stock that are non-investment grade and one issuer of preferred stock that is investment grade, as well as investments of $175.2 million in short term commercial paper from thirteen issuers.

Earnings Per Share

Basic and diluted earnings per share are calculated by dividing net income by the average number of common shares outstanding for the period. For the three and nine months ended September 30, 2018 and 2017, basic and diluted average shares outstanding were the same. There were no outstanding common stock equivalents as of September 30, 2018 or September 30, 2017. Non-vested restricted stock is included in outstanding shares at the time of grant.

Revenue and Revenue Recognition

Revenue consists primarily of real estate sales and related fees, resorts and leisure operations, leasing operations, and timber sales. Taxes collected from customers and remitted to governmental authorities (e.g. sales tax) are excluded from revenue, costs and expenses.

Effective January 1, 2018, with the adoption of ASU 2014-09 Revenue from Contracts with Customers, as amended (“Topic 606”), estimated lot residuals (a percentage of the sales price of a completed home received when the home price or gross profit of the home exceeds a negotiated threshold) and certain estimated fees are recognized as revenue at the time of sale to homebuilders, subject to constraints, and any change in circumstances from the estimated amounts will be updated at each reporting period. For the three and nine months ended September 30, 2018, real estate revenue includes less than $0.1 million and $0.6 million, respectively, of estimated lot residuals and less than $0.1 million and $0.6 million, respectively, of certain estimated fees related to homebuilder homesite sales. Prior to 2018, these lot residuals and fees were recognized in revenue when consideration was received by the Company in periods subsequent to the initial recognition of revenue for the sale of the homesite.

Recently Adopted Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 that established the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016‑08 that further clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016‑10 that clarified guidance on identifying performance obligations and to improve the operability and understandability of licensing implementation guidance. In May 2016, the FASB issued ASU 2016‑11 that rescinded SEC guidance pursuant

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to announcements at the March 3, 2016 Emerging Issues Task Force Meeting. In May 2016, the FASB issued ASU 2016‑12 that provided narrow-scope improvements and practical expedients to Revenue from Contracts with Customers. In December 2016, the FASB issued ASU 2016‑20 that included technical corrections and improvements to Topic 606. The Company adopted the new guidance as of January 1, 2018 and elected to implement Topic 606 using the modified retrospective application, with the cumulative effect recorded as an adjustment to opening retained earnings. The impact of adopting this guidance resulted in an adjustment to increase retained earnings by $1.5 million, offset by a decrease of $0.4 million related to tax effects, for a net effect of $1.1 million, an increase to accounts receivable, net by $2.1 million and a decrease to investment in real estate, net by $0.6 million as of January 1, 2018, related to the recognition of estimated lot residuals and certain fees for homesites sold to homebuilders, where the homes had not yet been sold to customers as of December 31, 2017.

Financial Instruments

In January 2016, the FASB issued ASU 2016‑01 that amended existing guidance to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in results of operations. Additionally, certain disclosure requirements and other aspects of accounting for financial instruments changed as a result of the new guidance. In February 2018, the FASB issued ASU 2018‑03 that included technical corrections and improvements to ASU 2016‑01. The Company adopted ASU 2016‑01 and ASU 2018‑03 simultaneously, effective January 1, 2018, and implemented it using a cumulative-effect adjustment between accumulated other comprehensive loss and retained earnings of $0.9 million, offset by an adjustment of $0.2 million related to tax effects, for a net effect of $0.7 million as of the date of adoption. As a result of the adoption of this guidance the change in the fair value of the Company’s equity investments is recognized in the condensed consolidated statements of income rather than the condensed consolidated statements of comprehensive income.

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016‑15, which amended the classification of certain cash receipts and cash payments, to reduce the diversity in how these cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted the new guidance as of January 1, 2018. As this guidance only affects the classification within the statement of cash flows, it did not have any impact on the Company’s cash flows.

Statement of Cash Flows - Restricted Cash

In November 2016, the FASB issued ASU 2016‑18, which required that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted the new guidance as of January 1, 2018, using a retrospective transition method to each period presented. The adoption of this guidance did not have a material impact on the Company’s cash flows.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU 2018‑02, which allowed a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The ASU also required additional disclosures that include a description of the accounting policy for releasing income tax effects from accumulated other comprehensive income, whether the Company elected to reclassify the effects from the Tax Act and information about other tax effects related to the Tax Act that are reclassified from accumulated other comprehensive income to retained earnings, if any. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period in which the effect of the Tax Act is recognized. Early adoption is permitted, including adoption in an interim period. The Company elected to early adopt the new guidance as of January 1, 2018, and implemented it using a

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cumulative-effect adjustment to retained earnings from accumulated other comprehensive loss of $0.3 million related to unrealized gains and losses on available-for-sale securities as of the date of adoption. The new guidance also required the Company to disclose its policy on accounting for income tax effects in accumulated other comprehensive income (loss). In general, the Company applies the aggregate portfolio method with respect to available-for-sale debt securities.

Recently Issued Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016‑02 that amends the existing accounting standards for lease accounting, including requiring lessees to recognize both finance and operating leases with terms of more than 12 months on the balance sheet. The accounting applied by a lessor is largely unchanged from existing guidance. This amendment also requires certain quantitative and qualitative disclosures about leasing arrangements. In January 2018, the FASB issued ASU 2018‑01 which provides an optional transition practical expedient to not evaluate under the new lease standard, existing or expired land easements that were not previously accounted for as leases. In July 2018, the FASB issued ASU 2018-10 that provides clarifications and improvements to ASU 2016-02. In July 2018, the FASB issued ASU 2018-11 that provides entities with an additional and optional transition method to apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The new guidance will be effective for annual and interim periods beginning after December 15, 2018. Accordingly, the standard will be effective for the Company beginning January 1, 2019. The Company intends to elect certain available practical expedients upon adoption, including ASU 2018-01 and ASU 2018-11. The Company is completing its analysis of the information necessary to fully adopt and remains on schedule. The Company is still evaluating if this standard will have a material impact on its consolidated balance sheets, but does not expect adoption will have a material impact on its consolidated income statements. The Company is continuing to assess potential impacts of the standard. It currently expects the most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases.

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016‑13 that requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected and requires that credit losses from available-for-sale debt securities be presented as an allowance for credit loss. This new guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial condition, results of operations and cash flows.

 

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3. Investment in Real Estate

Real estate by property type and segment includes the following:

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2018

 

2017

Development property:

 

 

  

 

 

  

Residential real estate

 

$

103,384

 

$

100,279

Resorts and leisure

 

 

2,427

 

 

4,131

Commercial leasing and sales

 

 

69,086

 

 

53,896

Forestry

 

 

2,146

 

 

2,488

Corporate

 

 

2,464

 

 

2,571

Total development property

 

 

179,507

 

 

163,365

 

 

 

 

 

 

 

Operating property:

 

 

  

 

 

  

Residential real estate

 

 

7,344

 

 

7,344

Resorts and leisure

 

 

100,948

 

 

103,616

Commercial leasing and sales

 

 

111,296

 

 

110,491

Forestry

 

 

19,874

 

 

19,510

Other

 

 

50

 

 

50

Total operating property

 

 

239,512

 

 

241,011

Less: Accumulated depreciation

 

 

70,123

 

 

71,752

Total operating property, net

 

 

169,389

 

 

169,259

Investment in real estate, net

 

$

348,896

 

$

332,624

 

Development property consists of land the Company is developing or intends to develop for sale or future operations and includes direct costs associated with the land, development and construction costs and indirect costs. Residential real estate includes residential communities. Resorts and leisure development property consists of the improvement and expansion of the existing beach club property, land and development costs and improvements to other property. Commercial leasing and sales development property primarily consists of land and development costs for commercial and industrial uses, including the Pier Park Crossings JV, land holdings near the Northwest Florida Beaches International Airport and Port of Port St. Joe. Development property in the resorts and leisure and commercial leasing and sales segments will be reclassified as operating property as it is placed into service.

Operating property includes property that the Company uses for operations and activities. Residential real estate operating property consists primarily of residential utility assets. The resorts and leisure operating property includes the WaterColor Inn, WaterSound Inn, certain vacation rental properties, golf courses, a beach club and marinas. Commercial leasing and sales operating property includes property developed or purchased by the Company and used for retail and commercial rental purposes, including property in the Pier Park North JV, VentureCrossings and Beckrich Office Park, as well as other properties. Forestry operating property includes the Company’s timberlands. Operating property may be sold in the future as part of the Company’s principal real estate business.

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4. Investments

Available-For-Sale Investments

At September 30, 2018, investments - debt securities and restricted investments classified as available-for-sale securities were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross Unrealized

    

Gross Unrealized

    

 

 

 

 

Amortized Cost

 

Gains

 

Losses

 

Fair Value

Investments - debt securities:

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Treasury securities

 

$

9,996

 

$

 —

 

$

 2

 

$

9,994

Corporate debt securities

 

 

3,566

 

 

 4

 

 

387

 

 

3,183

 

 

 

13,562

 

 

 4

 

 

389

 

 

13,177

Restricted investments:

 

 

  

 

 

  

 

 

  

 

 

  

Short-term bond

 

 

3,275

 

 

 —

 

 

13

 

 

3,262

Money market fund

 

 

167

 

 

 —

 

 

 —

 

 

167

 

 

 

3,442

 

 

 —

 

 

13

 

 

3,429

 

 

$

17,004

 

$

 4

 

$

402

 

$

16,606

 

At December 31, 2017, investments - debt securities, investments - equity securities and restricted investments classified as available-for-sale securities were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross Unrealized

    

Gross Unrealized

    

 

 

 

 

Amortized Cost

 

Gains

 

Losses

 

Fair Value

Investments - debt securities:

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Treasury securities

 

$

9,892

 

$

 —

 

$

22

 

$

9,870

Corporate debt securities

 

 

67,781

 

 

411

 

 

1,817

 

 

66,375

 

 

 

77,673

 

 

411

 

 

1,839