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.
THE ST. JOE COMPANY
2
PART I - FINANCIAL INFORMATION
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
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
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
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
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
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
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.
9
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
10
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
11
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
12
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.
13
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.
14
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 |
|