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 March 31, 2019

 

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)

Securities Registered Pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Exchange on Which Registered

Common Stock, no par value

 

JOE

 

New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:  NONE

 

 

 

 

 


 

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 April 29, 2019, there were 60,200,534 shares of common stock, no par value, outstanding.

 

 


 

Table of Contents

THE ST. JOE COMPANY

INDEX

 

 

 

Page No.

PART I 

 

Item 1. Financial Statements 

3

Condensed Consolidated Balance Sheets - March 31, 2019 and December 31, 2018 

3

Condensed Consolidated Statements of Income - Three Months Ended March 31, 2019 and 2018 

5

Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2019 and 2018 

6

Condensed Consolidated Statement of Changes in Stockholders’ Equity - Three Months Ended March 31, 2019 and 2018 

7

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2019 and 2018 

9

Notes to the Condensed Consolidated Financial Statements 

11

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

35

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

56

Item 4. Controls and Procedures 

56

PART II 

 

Item 1. Legal Proceedings 

57

Item 1A. Risk Factors 

57

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

57

Item 3. Defaults Upon Senior Securities 

58

Item 4. Mine Safety Disclosures 

58

Item 5. Other Information 

58

Item 6. Exhibits 

58

SIGNATURES 

59

 

 

2


 

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.         Financial Statements

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

ASSETS

 

 

  

 

 

  

Investment in real estate, net

 

$

364,715

 

$

350,994

Cash and cash equivalents

 

 

190,821

 

 

195,155

Investments - debt securities

 

 

9,817

 

 

8,958

Investments - equity securities

 

 

38,186

 

 

36,132

Other assets

 

 

52,541

 

 

60,308

Property and equipment, net of accumulated depreciation of $60,874 and $60,271 at March 31, 2019 and December 31, 2018, respectively

 

 

12,749

 

 

12,031

Investments held by special purpose entities

 

 

207,011

 

 

207,384

Total assets

 

$

875,840

 

$

870,962

LIABILITIES AND EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Debt, net

 

$

77,792

 

$

69,374

Other liabilities

 

 

46,369

 

 

47,387

Deferred tax liabilities, net

 

 

44,522

 

 

44,315

Senior Notes held by special purpose entity

 

 

176,837

 

 

176,775

Total liabilities

 

 

345,520

 

 

337,851

 

 

 

 

 

 

 

Commitments and contingencies (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

  

 

 

  

Common stock, no par value; 180,000,000 shares authorized; 60,672,034 issued at March 31, 2019 and December 31, 2018; and 60,200,534 and 60,672,034 outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

331,408

 

 

331,395

Retained earnings

 

 

189,447

 

 

187,450

Accumulated other comprehensive loss

 

 

(68)

 

 

(674)

Treasury stock at cost, 471,500 shares held at March 31, 2019

 

 

(7,073)

 

 

 —

Total stockholders’ equity

 

 

513,714

 

 

518,171

Non-controlling interest

 

 

16,606

 

 

14,940

Total equity

 

 

530,320

 

 

533,111

Total liabilities and equity

 

$

875,840

 

$

870,962

 

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 condensed consolidated balances attributable to the Company’s consolidated variable interest entities, which, as of March 31, 2019 and December 31, 2018, 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 March 31, 2019, the consolidated balances attributable to the Company’s consolidated variable interest entities also include Origins Crossings, LLC (“Origins Crossings JV”). 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.  

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

ASSETS

 

 

  

 

 

  

Investment in real estate

 

$

77,557

 

$

70,124

Cash and cash equivalents

 

 

4,763

 

 

2,113

Other assets

 

 

14,139

 

 

16,165

Investments held by special purpose entity

 

 

207,011

 

 

207,384

Total assets

 

$

303,470

 

$

295,786

LIABILITIES

 

 

  

 

 

  

Debt, net

 

$

66,360

 

$

60,262

Other liabilities

 

 

1,861

 

 

5,773

Senior Notes held by special purpose entity

 

 

176,837

 

 

176,775

Total liabilities

 

$

245,058

 

$

242,810

 

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

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Revenue:

 

 

  

 

 

  

 

Real estate revenue

 

$

4,591

 

$

7,702

 

Hospitality revenue

 

 

7,431

 

 

7,079

 

Leasing revenue

 

 

3,506

 

 

3,418

 

Timber revenue

 

 

495

 

 

1,666

 

Total revenue

 

 

16,023

 

 

19,865

 

Expenses:

 

 

  

 

 

  

 

Cost of real estate revenue

 

 

1,833

 

 

4,169

 

Cost of hospitality revenue

 

 

7,065

 

 

6,710

 

Cost of leasing revenue

 

 

1,066

 

 

1,113

 

Cost of timber revenue

 

 

141

 

 

213

 

Other operating and corporate expenses

 

 

5,968

 

 

5,946

 

Depreciation, depletion and amortization

 

 

2,111

 

 

2,255

 

Total expenses

 

 

18,184

 

 

20,406

 

Operating loss

 

 

(2,161)

 

 

(541)

 

Other income (expense):

 

 

  

 

 

  

 

Investment income, net

 

 

6,046

 

 

3,665

 

Interest expense

 

 

(2,942)

 

 

(3,025)

 

Other income, net

 

 

1,698

 

 

277

 

Total other income, net

 

 

4,802

 

 

917

 

Income before income taxes

 

 

2,641

 

 

376

 

Income tax (expense) benefit

 

 

(661)

 

 

249

 

Net income

 

 

1,980

 

 

625

 

Net loss attributable to non-controlling interest

 

 

17

 

 

132

 

Net income attributable to the Company

 

$

1,997

 

$

757

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE

 

 

  

 

 

  

 

Basic and Diluted

 

 

  

 

 

  

 

Weighted average shares outstanding

 

 

60,321,028

 

 

65,476,054

 

Net income per share attributable to the Company

 

$

0.03

 

$

0.01

 

 

 

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

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Net income:

 

$

1,980

 

$

625

 

Other comprehensive income (loss):

 

 

 

 

 

  

 

Available-for-sale investment items:

 

 

 

 

 

  

 

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

 

 

799

 

 

(803)

 

Net unrealized gain (loss) on restricted investments

 

 

11

 

 

(9)

 

Reclassification of net realized loss included in earnings

 

 

 2

 

 

1,078

 

Reclassification into retained earnings (1)

 

 

 —

 

 

932

 

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

 

 

 —

 

 

63

 

Total before income taxes

 

 

812

 

 

1,261

 

Income tax expense (2)

 

 

(206)

 

 

(632)

 

Total other comprehensive income, net of tax

 

 

606

 

 

629

 

Total comprehensive income, net of tax

 

$

2,586

 

$

1,254

 


(1)

The reclassification into retained earnings for the three months ended March 31, 2018 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. 

(2)

Income tax expense for the three months ended March 31, 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 loss to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”).

 

See accompanying notes to the condensed consolidated financial statements.

 

 

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Table of Contents

 

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

 

Accumulated

    

    

 

    

    

 

    

    

 

 

 

Common Stock

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

 

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Non-controlling

 

 

 

 

    

Shares

    

 

Amount

    

 

Earnings

    

 

(Loss) Income

    

 

Stock

    

 

Interest

    

 

Total

Balance at December 31, 2018

 

60,672,034

 

$

331,395

 

$

187,450

 

$

(674)

 

$

 —

 

$

14,940

 

$

533,111

Capital contribution from non-controlling interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,683

 

 

1,683

Stock based compensation expense

 

 —

 

 

13

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

13

Repurchase of common shares

 

(471,500)

 

 

 —

 

 

 —

 

 

 —

 

 

(7,073)

 

 

 —

 

 

(7,073)

Other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

606

 

 

 —

 

 

 —

 

 

606

Net income

 

 —

 

 

 —

 

 

1,997

 

 

 —

 

 

 —

 

 

(17)

 

 

1,980

Balance at March 31, 2019

 

60,200,534

 

$

331,408

 

$

189,447

 

$

(68)

 

$

(7,073)

 

$

16,606

 

$

530,320

 

 

See accompanying notes to the condensed consolidated financial statements.

7


 

Table of Contents

 

 

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

    

 

    

 

Accumulated

    

    

 

    

    

 

    

    

 

 

 

Common Stock

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

 

 

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Non-controlling

 

 

 

 

    

Shares

    

 

Amount

    

 

Earnings

    

 

(Loss) Income

    

 

Stock

    

 

Interest

    

 

Total

Balance at December 31, 2017

 

65,897,866

 

$

424,694

 

$

154,324

 

$

(1,461)

 

$

 —

 

$

15,027

 

$

592,584

Additional ownership interest acquired in Artisan Park, LLC

 

 —

 

 

297

 

 

 —

 

 

 —

 

 

 —

 

 

(297)

 

 

 —

Capital contribution from non-controlling interest

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

64

 

 

64

Stock based compensation expense

 

 —

 

 

28

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

28

Issuance of common stock for officer compensation, net of tax withholding

 

9,956

 

 

204

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

204

Repurchase of common shares

 

(764,825)

 

 

 —

 

 

 —

 

 

 —

 

 

(13,695)

 

 

 —

 

 

(13,695)

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

 

 —

 

 

 —

 

 

1,140

 

 

 —

 

 

 —

 

 

 —

 

 

1,140

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

 

 —

 

 

 —

 

 

(696)

 

 

696

 

 

 —

 

 

 —

 

 

 —

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

 

 —

 

 

 —

 

 

313

 

 

(313)

 

 

 —

 

 

 —

 

 

 —

Other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

246

 

 

 —

 

 

 —

 

 

246

Net income

 

 —

 

 

 —

 

 

757

 

 

 —

 

 

 —

 

 

(132)

 

 

625

Balance at March 31, 2018

 

65,142,997

 

$

425,223

 

$

155,838

 

$

(832)

 

$

(13,695)

 

$

14,662

 

$

581,196

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

8


 

Table of Contents

THE ST. JOE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Cash flows from operating activities:

    

 

  

    

 

  

 

Net income

 

$

1,980

 

$

625

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

  

 

Depreciation, depletion and amortization

 

 

2,111

 

 

2,255

 

Stock based compensation

 

 

13

 

 

232

 

Loss on sale of investments

 

 

 2

 

 

1,078

 

Unrealized (gain) loss on investments, net

 

 

(2,049)

 

 

538

 

Other-than-temporary impairment loss

 

 

 —

 

 

63

 

Deferred income tax benefit

 

 

 —

 

 

(550)

 

Cost of real estate sold

 

 

1,613

 

 

3,943

 

Expenditures for and acquisition of real estate to be sold

 

 

(7,085)

 

 

(3,045)

 

Accretion income and other

 

 

(361)

 

 

(524)

 

Loss on disposal of property and equipment

 

 

 —

 

 

 7

 

Gain on land contribution

 

 

(1,472)

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Other assets

 

 

4,645

 

 

596

 

Other liabilities

 

 

(1,284)

 

 

(2,999)

 

Income taxes receivable

 

 

661

 

 

 —

 

Net cash (used in) provided by operating activities

 

 

(1,226)

 

 

2,219

 

Cash flows from investing activities:

 

 

  

 

 

  

 

Expenditures for operating property

 

 

(8,834)

 

 

(3,914)

 

Expenditures for property and equipment

 

 

(1,182)

 

 

(590)

 

Proceeds from the disposition of assets

 

 

 —

 

 

5,000

 

Proceeds from the settlement of insurance claims

 

 

5,798

 

 

 —

 

Purchases of investments - equity securities

 

 

(5)

 

 

(10,442)

 

Purchases of restricted investments

 

 

(23)

 

 

(20)

 

Sales of investments - debt securities

 

 

 —

 

 

30,871

 

Sales of restricted investments

 

 

1,138

 

 

1,087

 

Maturities of assets held by special purpose entities

 

 

414

 

 

415

 

Net cash (used in) provided by investing activities

 

 

(2,694)

 

 

22,407

 

Cash flows from financing activities:

 

 

  

 

 

  

 

Capital contribution from non-controlling interest

 

 

 —

 

 

64

 

Capital contribution to unconsolidated affiliate

 

 

(254)

 

 

 —

 

Repurchase of common shares

 

 

(7,073)

 

 

(13,695)

 

Borrowings on debt

 

 

7,279

 

 

33

 

Principal payments for debt

 

 

(236)

 

 

(215)

 

Principal payments under finance lease obligation

 

 

(4)

 

 

 —

 

Debt issuance costs

 

 

(21)

 

 

(27)

 

Net cash used in financing activities

 

 

(309)

 

 

(13,840)

 

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

 

 

(4,229)

 

 

10,786

 

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

 

 

198,073

 

 

192,451

 

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

 

$

193,844

 

$

203,237

 

 

See accompanying notes to the condensed consolidated financial statements.

9


 

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 statements of cash flows.

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Cash and cash equivalents

 

$

190,821

 

 

$

202,585

 

Restricted cash included in other assets

 

 

3,023

 

 

 

652

 

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

 

$

193,844

 

 

$

203,237

 

 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

 

2019

 

2018

 

Cash paid during the period for:

    

 

  

    

 

  

    

Interest

 

$

5,135

 

$

5,128

 

Income taxes

 

$

 —

 

$

2,005

 

 

 

 

 

 

 

 

 

Non-cash financing and investment activities:

 

 

  

 

 

  

 

Non-cash contribution to equity method investment

 

$

(1,730)

 

$

 —

 

Increase in capital contribution from non-controlling interest

 

$

1,683

 

$

 —

 

Increase in Community Development District debt

 

$

1,371

 

$

15

 

Increase in expenditures for operating properties and property and equipment financed through accounts payable

 

$

336

 

$

818

 

 

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 concentrated 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) hospitality, 3) commercial leasing and sales and 4) forestry. Commencing in the fourth quarter of 2018, the Company’s previously titled “resorts and leisure” segment was retitled “hospitality,” with no effect on the condensed consolidated balance sheets, statements of income, statements of comprehensive income or statements of cash flows for the periods presented.

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 deems itself the primary beneficiary. Investments in joint ventures (“JV”) 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, 2018 condensed consolidated balance sheet amounts have been derived from the Company’s December 31, 2018 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 three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.

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 JVs 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 included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018. The Company adheres to the same accounting policies in preparation of its unaudited interim condensed consolidated financial statements as the Company’s December 31, 2018 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.

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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 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 March 31, 2019, these balances exceeded the amount of F.D.I.C. insurance provided on such deposits. In addition, as of March 31, 2019 the company had $7.0 million invested in U.S. Treasury securities, $2.8 million invested in two issuers of corporate debt securities that are non-investment grade, $38.2 million invested in five issuers of preferred stock that are non-investment grade and one issuer of preferred stock that is investment grade, as well as investments of $168.1 million in short term commercial paper from twenty issuers.

Earnings Per Share

Basic and diluted earnings per share are calculated by dividing net income attributable to the Company by the average number of common shares outstanding for the period. For the three months ended March 31, 2019 and 2018, basic and diluted average shares outstanding were the same. There were no outstanding common stock equivalents as of March 31, 2019 or March 31, 2018. Non-vested restricted stock is included in outstanding shares at the time of grant.

Recently Adopted Accounting Pronouncements

Leases

In February 2016, the FASB issued ASU 2016‑02, Leases (“ASU 2016-02”) that amended 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 by this amendment. This amendment also required certain quantitative and qualitative disclosures about leasing arrangements. In January 2018, the FASB issued ASU 2018‑01, which provided 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 provided clarifications and improvements to ASU 2016-02. In July 2018, the FASB issued ASU 2018-11 that provided 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 beginning balance of retained earnings in the period of adoption. In December 2018, the FASB issued ASU 2018-20 that provided an accounting policy election for certain narrow-scope improvements for lessors. In March 2019, the FASB issued ASU 2019-01 that provided clarifications and improvements to ASU 2016-02. During the Company’s evaluation of ASU 2016-02, as amended, (“Topic 842”) the following practical expedients and accounting policies with respect to Topic 842 have been elected and/or adopted effective January 1, 2019:

·

The Company, as lessee and as lessor, will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases or (iii) initial direct costs for any expired or existing leases.

·

The Company, as lessee, will not apply the recognition requirements of Topic 842 to short-term (twelve months or less) leases. Instead, the Company, as lessee, will recognize the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

·

The Company, as lessor, will not separate nonlease components from lease components and, instead, will account for each separate lease component and the nonlease components associated with that lease as a single component if the nonlease components otherwise would be accounted for under Accounting Standards

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Codification Topic 606, Revenue from Contracts with Customers. The primary reason for this election is related to instances where common area maintenance is, or may be, a component of base rent within a lease agreement.

The Company adopted the new guidance, including amendments, as of January 1, 2019 and has elected to implement Topic 842 retrospectively using the cumulative-effect adjustment transition method as of the date of adoption. As a result, prior periods have not been restated. As of the date of adoption a cumulative-effect adjustment was not necessary and the Company recognized an operating lease right-of use assets of $0.4 million and corresponding operating lease liabilities of $0.4 million based on the present value of minimum rental payments related to leases for which the Company is the lessee. The operating lease right-of-use assets and corresponding operating lease liabilities are included within other assets and other liabilities, respectively, on the condensed consolidated balance sheets. There were no adjustments related to the leases for which the Company is the lessor. The adoption of this guidance did not materially impact results of operations or cash flows.

Recently Issued Accounting Pronouncements

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments – Credit Losses (Topic 326) (“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. In November 2018, the FASB issued ASU 2018-19, which clarifies that impairment of receivables from operating leases should be accounted for using lease guidance. 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.

 

 

 

3. Investment in Real Estate

Real estate by property type and segment includes the following:

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

Development property:

 

 

  

 

 

  

Residential real estate

 

$

110,819

 

$

105,323

Hospitality

 

 

5,429

 

 

3,726

Commercial leasing and sales

 

 

78,949

 

 

73,128

Forestry

 

 

2,144

 

 

2,144

Corporate

 

 

2,557

 

 

2,497

Total development property

 

 

199,898

 

 

186,818

 

 

 

 

 

 

 

Operating property:

 

 

  

 

 

  

Residential real estate

 

 

7,344

 

 

7,344

Hospitality

 

 

93,046

 

 

93,046

Commercial leasing and sales

 

 

113,189

 

 

111,471

Forestry

 

 

20,141

 

 

19,765

Other

 

 

50

 

 

50

Total operating property

 

 

233,770

 

 

231,676

Less: Accumulated depreciation

 

 

68,953

 

 

67,500

Total operating property, net

 

 

164,817

 

 

164,176

Investment in real estate, net

 

$

364,715

 

$

350,994

 

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.

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Residential real estate includes residential communities. Hospitality development property consists of the improvement and expansion of existing beach club property, land and construction costs related to two gulf-front vacation rental homes and development costs and improvements for 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 hospitality 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 hospitality operating property includes the WaterColor Inn, WaterSound Inn, golf courses, a beach club, marinas and certain vacation rental properties. 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.

4. Investments

Available-For-Sale Investments

Investments classified as available-for-sale securities were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

    

 

 

    

Gross Unrealized

    

Gross Unrealized

    

 

 

 

 

Amortized Cost

 

Gains

 

(Losses)

 

Fair Value

Investments - debt securities:

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Treasury securities

 

$

6,978

 

$

 1

 

$

 —

 

$

6,979

Corporate debt securities

 

 

2,927

 

 

 —

 

 

(89)

 

 

2,838

 

 

 

9,905

 

 

 1

 

 

(89)

 

 

9,817

Restricted investments:

 

 

  

 

 

  

 

 

  

 

 

  

Short-term bond

 

 

2,210

 

 

 5

 

 

 —

 

 

2,215

Money market fund

 

 

113

 

 

 —

 

 

 —

 

 

113

 

 

 

2,323

 

 

 5

 

 

 —

 

 

2,328

 

 

$

12,228

 

$

 6

 

$

(89)

 

$

12,145

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

    

 

 

    

Gross Unrealized

    

Gross Unrealized

    

 

 

 

 

Amortized Cost

 

Gains

 

(Losses)

 

Fair Value

Investments - debt securities:

 

 

  

 

 

  

 

 

  

 

 

  

U.S. Treasury securities

 

$

6,936

 

$

 1

 

$

 —

 

$

6,937

Corporate debt securities

 

 

2,908

 

 

 —

 

 

(887)

 

 

2,021

 

 

 

9,844

 

 

 1

 

 

(887)

 

 

8,958

Restricted investments:

 

 

  

 

 

  

 

 

  

 

 

  

Short-term bond

 

 

3,274

 

 

 —

 

 

(9)

 

 

3,265

Money market fund