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, 2020
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 |
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 27, 2020, there were 58,898,950 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)
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
ASSETS |
|
|
|
|
|
|
|
Investment in real estate, net |
|
$ |
468,896 |
|
$ |
430,776 |
|
Investment in unconsolidated joint ventures |
|
|
11,077 |
|
|
5,084 |
|
Cash and cash equivalents |
|
|
106,427 |
|
|
185,716 |
|
Investments - debt securities |
|
|
49,997 |
|
|
53 |
|
Investments - equity securities |
|
|
2,432 |
|
|
9,746 |
|
Other assets |
|
|
48,393 |
|
|
52,069 |
|
Property and equipment, net of accumulated depreciation of $63,648 and $63,223 at March 31, 2020 and December 31, 2019, respectively |
|
|
19,404 |
|
|
19,018 |
|
Investments held by special purpose entities |
|
|
206,396 |
|
|
206,771 |
|
Total assets |
|
$ |
913,022 |
|
$ |
909,233 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Debt, net |
|
$ |
98,337 |
|
$ |
92,529 |
|
Other liabilities |
|
|
63,160 |
|
|
57,200 |
|
Deferred tax liabilities, net |
|
|
53,525 |
|
|
52,808 |
|
Senior Notes held by special purpose entity |
|
|
177,090 |
|
|
177,026 |
|
Total liabilities |
|
|
392,112 |
|
|
379,563 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 18) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
Common stock, no par value; 180,000,000 shares authorized; 59,414,583 issued at March 31, 2020 and December 31, 2019; and 59,003,470 and 59,414,583 outstanding at March 31, 2020 and December 31, 2019, respectively |
|
|
305,658 |
|
|
305,631 |
|
Retained earnings |
|
|
212,602 |
|
|
214,225 |
|
Accumulated other comprehensive loss |
|
|
(890) |
|
|
(335) |
|
Treasury stock at cost, 411,113 shares held at March 31, 2020 |
|
|
(6,807) |
|
|
— |
|
Total stockholders’ equity |
|
|
510,563 |
|
|
519,521 |
|
Non-controlling interest |
|
|
10,347 |
|
|
10,149 |
|
Total equity |
|
|
520,910 |
|
|
529,670 |
|
Total liabilities and equity |
|
$ |
913,022 |
|
$ |
909,233 |
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 condensed consolidated balances attributable to the Company’s consolidated variable interest entities, which, as of March 31, 2020 and December 31, 2019, include the Pier Park North joint venture (“Pier Park North JV”), Pier Park Crossings LLC (“Pier Park Crossings JV”), Origins Crossings, LLC (“Watersound Origins Crossings JV”), SJWCSL, LLC (“Watercrest JV”), Reliant Title and Closing Services, LLC (“Reliant Title JV”), Pier Park Crossings Phase II LLC (“Pier Park Crossings Phase II 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 . 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 guarantees discussed in Note 10. Debt, Net .
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
ASSETS |
|
|
|
|
|
|
|
Investment in real estate |
|
$ |
110,211 |
|
$ |
96,001 |
|
Cash and cash equivalents |
|
|
3,572 |
|
|
3,483 |
|
Other assets |
|
|
10,503 |
|
|
12,766 |
|
Investments held by special purpose entities |
|
|
206,396 |
|
|
206,771 |
|
Total assets |
|
$ |
330,682 |
|
$ |
319,021 |
|
LIABILITIES |
|
|
|
|
|
|
|
Debt, net |
|
$ |
87,139 |
|
$ |
81,071 |
|
Other liabilities |
|
|
11,895 |
|
|
3,471 |
|
Senior Notes held by special purpose entity |
|
|
177,090 |
|
|
177,026 |
|
Total liabilities |
|
$ |
276,124 |
|
$ |
261,568 |
See accompanying notes to the condensed consolidated financial statements.
4
THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
|
|
|
Three Months Ended |
|
||||
|
|
|
March 31, |
|
||||
|
|
|
2020 |
|
2019 |
|
||
|
Revenue: |
|
|
|
|
|
|
|
|
Real estate revenue |
|
$ |
5,808 |
|
$ |
4,591 |
|
|
Hospitality revenue |
|
|
6,610 |
|
|
7,431 |
|
|
Leasing revenue |
|
|
4,300 |
|
|
3,506 |
|
|
Timber revenue |
|
|
1,856 |
|
|
495 |
|
|
Total revenue |
|
|
18,574 |
|
|
16,023 |
|
|
Expenses: |
|
|
|
|
|
|
|
|
Cost of real estate revenue |
|
|
1,799 |
|
|
1,833 |
|
|
Cost of hospitality revenue |
|
|
7,320 |
|
|
7,065 |
|
|
Cost of leasing revenue |
|
|
612 |
|
|
1,066 |
|
|
Cost of timber revenue |
|
|
179 |
|
|
141 |
|
|
Other operating and corporate expenses |
|
|
6,916 |
|
|
5,968 |
|
|
Depreciation, depletion and amortization |
|
|
3,073 |
|
|
2,111 |
|
|
Total expenses |
|
|
19,899 |
|
|
18,184 |
|
|
Operating loss |
|
|
(1,325) |
|
|
(2,161) |
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Investment (loss) income, net |
|
|
(1,609) |
|
|
6,046 |
|
|
Interest expense |
|
|
(3,345) |
|
|
(2,942) |
|
|
Other income, net |
|
|
4,532 |
|
|
1,698 |
|
|
Total other (expense) income, net |
|
|
(422) |
|
|
4,802 |
|
|
(Loss) income before equity in loss from unconsolidated affiliates and income taxes |
|
|
(1,747) |
|
|
2,641 |
|
|
Equity in loss from unconsolidated affiliates |
|
|
(83) |
|
|
— |
|
|
Income tax benefit (expense) |
|
|
495 |
|
|
(661) |
|
|
Net (loss) income |
|
|
(1,335) |
|
|
1,980 |
|
|
Net (income) loss attributable to non-controlling interest |
|
|
(198) |
|
|
17 |
|
|
Net (loss) income attributable to the Company |
|
$ |
(1,533) |
|
$ |
1,997 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER SHARE |
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
59,375,618 |
|
|
60,321,028 |
|
|
Net (loss) income per share attributable to the Company |
|
$ |
(0.03) |
|
$ |
0.03 |
|
See accompanying notes to the condensed consolidated financial statements.
5
THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in thousands)
(Unaudited)
|
|
|
Three Months Ended |
||||
|
|
|
March 31, |
||||
|
|
|
2020 |
|
2019 |
||
|
Net (loss) income: |
|
$ |
(1,335) |
|
$ |
1,980 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
Net unrealized gain on available-for-sale investments |
|
|
— |
|
|
799 |
|
Net unrealized (loss) gain on restricted investments |
|
|
(10) |
|
|
11 |
|
Interest rate swap |
|
|
(729) |
|
|
— |
|
Reclassification of net realized (gain) loss included in earnings |
|
|
(4) |
|
|
2 |
|
Total before income taxes |
|
|
(743) |
|
|
812 |
|
Income tax benefit (expense) |
|
|
188 |
|
|
(206) |
|
Total other comprehensive (loss) income, net of tax |
|
|
(555) |
|
|
606 |
|
Total comprehensive (loss) income, net of tax |
|
$ |
(1,890) |
|
$ |
2,586 |
See accompanying notes to the condensed consolidated financial statements.
6
THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|||
|
|
|
Outstanding |
|
|
|
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Non-controlling |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
Interest |
|
|
Total |
|
Balance at December 31, 2019 |
|
59,414,583 |
|
$ |
305,631 |
|
$ |
214,225 |
|
$ |
(335) |
|
$ |
— |
|
$ |
10,149 |
|
$ |
529,670 |
|
Stock based compensation expense |
|
— |
|
|
27 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
27 |
|
Repurchase of common shares |
|
(411,113) |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,807) |
|
|
— |
|
|
(6,807) |
|
Adoption of ASU 2016-13 Financial Instruments - Credit Losses, net of tax |
|
— |
|
|
— |
|
|
(90) |
|
|
— |
|
|
— |
|
|
— |
|
|
(90) |
|
Other comprehensive loss, net of tax |
|
— |
|
|
— |
|
|
— |
|
|
(555) |
|
|
— |
|
|
— |
|
|
(555) |
|
Net loss |
|
— |
|
|
— |
|
|
(1,533) |
|
|
— |
|
|
— |
|
|
198 |
|
|
(1,335) |
|
Balance at March 31, 2020 |
|
59,003,470 |
|
$ |
305,658 |
|
$ |
212,602 |
|
$ |
(890) |
|
$ |
(6,807) |
|
$ |
10,347 |
|
$ |
520,910 |
|
|
|
|
|
|
|
|
|
|
|
|
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
THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
|
Three Months Ended |
||||
|
|
|
March 31, |
||||
|
|
|
2020 |
|
2019 |
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,335) |
|
$ |
1,980 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
3,073 |
|
|
2,111 |
|
Stock based compensation |
|
|
27 |
|
|
13 |
|
Loss on sale of investments |
|
|
48 |
|
|
2 |
|
Unrealized loss (gain) on investments, net |
|
|
4,761 |
|
|
(2,049) |
|
Equity in loss from unconsolidated affiliates |
|
|
83 |
|
|
— |
|
Deferred income tax expense |
|
|
935 |
|
|
— |
|
Cost of real estate sold |
|
|
1,593 |
|
|
1,613 |
|
Expenditures for and acquisition of real estate to be sold |
|
|
(6,323) |
|
|
(7,085) |
|
Accretion income and other |
|
|
(268) |
|
|
(361) |
|
Gain on land contribution to equity method investment |
|
|
(4,277) |
|
|
(1,472) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Other assets |
|
|
4,390 |
|
|
4,645 |
|
Other liabilities |
|
|
1,408 |
|
|
(1,284) |
|
Income taxes receivable |
|
|
(998) |
|
|
661 |
|
Net cash provided by (used in) operating activities |
|
|
3,117 |
|
|
(1,226) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Expenditures for operating property |
|
|
(32,974) |
|
|
(8,834) |
|
Expenditures for property and equipment |
|
|
(1,476) |
|
|
(1,182) |
|
Proceeds from insurance claims |
|
|
— |
|
|
5,798 |
|
Purchases of investments - debt securities |
|
|
(49,927) |
|
|
— |
|
Purchases of investments - equity securities |
|
|
— |
|
|
(5) |
|
Purchases of restricted investments |
|
|
(12) |
|
|
(23) |
|
Sales of investments - equity securities |
|
|
2,502 |
|
|
— |
|
Sales of restricted investments |
|
|
1,208 |
|
|
1,138 |
|
Maturities of assets held by special purpose entities |
|
|
415 |
|
|
414 |
|
Net cash used in investing activities |
|
|
(80,264) |
|
|
(2,694) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Capital contribution to unconsolidated affiliate |
|
|
(600) |
|
|
(254) |
|
Repurchase of common shares |
|
|
(6,807) |
|
|
(7,073) |
|
Borrowings on debt |
|
|
6,545 |
|
|
7,279 |
|
Principal payments for debt |
|
|
(272) |
|
|
(236) |
|
Principal payments under finance lease obligation |
|
|
(11) |
|
|
(4) |
|
Debt issuance costs |
|
|
(193) |
|
|
(21) |
|
Net cash used in financing activities |
|
|
(1,338) |
|
|
(309) |
|
Net decrease in cash, cash equivalents and restricted cash |
|
|
(78,485) |
|
|
(4,229) |
|
Cash, cash equivalents and restricted cash at beginning of the period |
|
|
188,677 |
|
|
198,073 |
|
Cash, cash equivalents and restricted cash at end of the period |
|
$ |
110,192 |
|
$ |
193,844 |
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 statements of cash flows.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
March 31, |
||
|
|
|
2020 |
|
2019 |
||
|
Cash and cash equivalents |
|
$ |
106,427 |
|
$ |
190,821 |
|
Restricted cash included in other assets |
|
|
3,765 |
|
|
3,023 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
|
$ |
110,192 |
|
$ |
193,844 |
Restricted cash includes amounts set aside as a requirement of financing and development for certain of the Company’s projects.
|
|
|
Three Months Ended |
||||
|
|
|
March 31, |
||||
|
|
|
|
2020 |
|
2019 |
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
|
$ |
5,110 |
|
$ |
4,948 |
|
Income taxes |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
Non-cash financing and investment activities: |
|
|
|
|
|
|
|
Non-cash contribution to equity method investment |
$ |
(5,476) |
$ |
(1,730) |
||
|
Increase in capital contribution from non-controlling interest |
|
$ |
— |
|
$ |
1,683 |
|
(Decrease) increase in Community Development District debt |
|
$ |
(225) |
|
$ |
1,371 |
|
(Decrease) increase in expenditures for operating properties and property and equipment financed through accounts payable |
|
$ |
(1,556) |
|
$ |
336 |
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 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 three reportable operating segments: 1) residential, 2) hospitality and 3) commercial. Prior to the first quarter of 2020, commercial leasing and sales, as well as forestry were treated as individual operating segments. Commencing in the first quarter of 2020, due to organizational changes, the Company’s previously titled “commercial leasing and sales” and “forestry” segments are now reported as one segment and retitled to “commercial.” 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. All prior year segment information has been reclassified to conform to the 2020 presentation. Also commencing in the first quarter of 2020, the Company’s previously titled “residential real estate” segment was retitled to “residential.” The changes had no effect on the condensed consolidated balance sheets, statements of operations, statements of comprehensive (loss) 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 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, 2019 condensed consolidated balance sheet amounts have been derived from the Company’s December 31, 2019 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 (loss) income. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020.
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 4. Real Estate Joint Ventures .
The unaudited 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 unaudited 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, 2019. The Company adheres to the same accounting policies in preparation of its unaudited interim condensed consolidated financial statements as the Company’s December 31, 2019 annual financial statements, except for recently adopted
10
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. Uncertain economic conditions could have an adverse impact on the Company’s real estate values.
On March 11, 2020, the World Health Organization characterized the outbreak of the novel coronavirus (“COVID-19”), as a global pandemic and recommended containment and mitigation measures. The overall economic conditions in the United States have been negatively impacted by the emerging threat posed by COVID-19. The Company’s hospitality operations have already been, and may continue to be, disrupted by the impacts of the COVID-19 pandemic and the governmental response to address it. While the breadth and duration of the COVID-19 pandemic impact is unknown, it could have a material adverse impact on the Company’s business, results of operations, cash flows and financial condition. See Part II. Item 1A. Risk Factors .
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, 2020, these balances exceeded the amount of F.D.I.C. insurance provided on such deposits. In addition, as of March 31, 2020 the company had $49.9 million invested in U.S. Treasury Bills and $2.4 million invested in three issuers of preferred stock that are non-investment grade, as well as investments of $37.5 million in short term commercial paper from s even issuers.
Earnings Per Share
Basic and diluted earnings per share are calculated by dividing net (loss) income attributable to the Company by the weighted average number of common shares outstanding for the period. For the three months ended March 31, 2020 and March 31, 2019, basic and diluted average shares outstanding were the same. There were no outstanding common stock equivalents as of March 31, 2020 or March 31, 2019. Non-vested restricted stock is included in outstanding shares at the time of grant.
Recently Adopted 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. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. 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. In April 2019, the FASB issued ASU 2019-04, which clarifies and improves ASU 2016-13. In May 2019, the FASB issued ASU 2019-05, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.
The Company adopted the new guidance, including amendments, as of January 1, 2020, and has elected to implement Topic 326 retrospectively using the cumulative-effect adjustment transition method as of the date of adoption. As a result, prior periods have not been restated. The Company elected the practical expedient to not measure an allowance for credit losses for accrued interest receivables and will write off uncollectible balances in a timely manner, which is 90 days from when it is determined uncollectible. As of the date of adoption, a cumulative-effect adjustment was recorded to beginning retained earnings. The impact of adopting this guidance resulted in an adjustment to decrease retained earnings by $0.1 million, net of the related tax effects, a decrease in accounts receivable, net and
11
notes receivable, net for allowance for credit losses of $0.1 million and an increase to other liabilities related to allowance for credit losses for unconsolidated JV debt guaranteed by the Company of less than $0.1 million. There were no adjustments related to operating lease receivables for which the Company is the lessor. The adoption of this guidance did not materially impact results of operations or cash flows.
Codification Improvements to Financial Instruments
In March 2020, the FASB issued ASU 2020-03 , Codification Improvements to Financial Instruments , which makes narrow-scope improvements to various aspects of financial instruments guidance. The standard is effective immediately for certain amendments and for fiscal years beginning after December 15, 2019. The implementation of this guidance did not have a material impact on the Company’s financial condition, results of operations and cash flows.
Recently Issued Accounting Pronouncements
Income Taxes
In December 2019, the FASB issued ASU 2019-12, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendment also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This new guidance will be effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its financial condition, results of operations and cash flows.
Investments – Equity Securities, Investments-Equity Method and Joint Ventures and Derivatives and Hedging
In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force ) which clarifies the interaction between the accounting standard on recognition and measurement of financial instruments in Topic 321, Investments—Equity Securities and Topic 323, Investments—Equity Method and Joint Ventures . The new guidance will be effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. 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.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting that provides temporary optional guidance to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The new guidance provides expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. This new guidance is effective prospectively beginning on March 12, 2020 through December 31, 2022. 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.
12
3. Investment in Real Estate
Real estate by property type and segment includes the following:
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
Development property: |
|
|
|
|
|
|
|
Residential |
|
$ |
123,767 |
|
$ |
115,384 |
|
Hospitality |
|
|
21,297 |
|
|
12,229 |
|
Commercial |
|
|
109,054 |
|
|
103,326 |
|
Corporate |
|
|
2,635 |
|
|
2,631 |
|
Total development property |
|
|
256,753 |
|
|
233,570 |
|
|
|
|
|
|
|
|
|
Operating property: |
|
|
|
|
|
|
|
Residential |
|
|
11,988 |
|
|
11,985 |
|
Hospitality |
|
|
95,070 |
|
|
94,838 |
|
Commercial |
|
|
175,205 |
|
|
164,589 |
|
Other |
|
|
50 |
|
|
50 |
|
Total operating property |
|
|
282,313 |
|
|
271,462 |
|
Less: Accumulated depreciation |
|
|
70,170 |
|
|
74,256 |
|
Total operating property, net |
|
|
212,143 |
|
|
197,206 |
|
Investment in real estate, net |
|
$ |
468,896 |
|
$ |
430,776 |
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 includes residential communities such as Watersound Origins, SouthWood, WindMark Beach, as well as other communities. Hospitality development property consists of land, construction costs, development costs and improvements primarily related to the Camp Creek Lifestyle Village amenity center, a new hotel in the Pier Park area and a new hotel near the Northwest Florida Beaches International Airport, as well as other properties. Commercial development property primarily consists of land, construction costs and development costs for commercial, multi-family, assisted living and industrial uses, including the Watercrest JV, Watersound Origins Crossings JV, Pier Park Crossings Phase II JV, Beckrich Office Park, land holdings near the Northwest Florida Beaches International Airport and Port of Port St. Joe as well as other properties. Development property in the hospitality and commercial 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 operating property consists primarily of residential utility assets and certain rental properties. The hospitality operating property includes the WaterColor Inn, WaterSound Inn, golf courses, a beach club, marinas and certain vacation rental properties. Commercial operating property includes property developed or purchased by the Company and used for retail, multi-family and commercial rental purposes, including property in the Pier Park North JV, VentureCrossings, Pier Park Crossings JV and Beckrich Office Park as well as other properties. Commercial operating property also includes the Company’s timberlands. Operating property may be sold in the future as part of the Company’s principal real estate business.
4. Real Estate Joint Ventures
The Company enters into real estate JVs, from time to time, for the purpose of developing real estate and other business activities in which the Company may or may not have a controlling financial interest. GAAP requires consolidation of VIEs in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: (a) the power to direct the VIE activities that most significantly impact economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company examines specific criteria and uses judgment when determining whether the Company is the primary beneficiary and must consolidate a VIE. The Company continues
13
to assess whether it is the primary beneficiary on an ongoing basis. Investments in JVs and limited partnerships in which the Company is not the primary beneficiary are accounted for by the equity method.
The timing of cash flows for additional required capital contributions related to the Company’s JVs varies by agreement. Some of the Company’s consolidated and unconsolidated JVs have entered into financing agreements, where the Company or its JV partners have provided guarantees. See Note 10. Debt, Net and Note 18. Commitments and Contingencies for additional information.
Consolidated Joint Ventures
Pier Park Crossings Phase II JV
Pier Park Crossings Phase II JV was created in October 2019, when the Company entered into a JV agreement to develop, manage and lease apartments in Panama City Beach, Florida. The JV parties are working together to develop and construct a 120 unit apartment community. The community is located on land in the Pier Park area that was contributed to the JV by the Company. As of March 31, 2020 and December 31, 2019, the Company owned a 75.0% interest in the consolidated JV. The Company’s partner is responsible for the day-to-day activities of the JV. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined Pier Park Crossings Phase II JV is a VIE and that the Company is the VIE’s primary beneficiary as of March 31, 2020 and December 31, 2019.
Reliant Title JV
Reliant Title JV was created in October 2019, when the Company entered into a JV agreement to own, operate and manage a real estate title insurance agency business. As of March 31, 2020 and December 31, 2019, the Company owned a 66.0% interest in the consolidated JV. A wholly owned subsidiary of the Company is the managing member of Reliant Title JV and is responsible for the day-to-day activities of the JV. As the manager of the JV, as well as the majority member, the Company has the power to direct all of the activities of the JV that most significantly impact economic performance. The Company determined Reliant Title JV is a VIE and that the Company is the VIE’s primary beneficiary as of March 31, 2020 and December 31, 2019.
Watercrest JV
Watercrest JV was created in May 2019, when the Company entered into a JV agreement to develop and operate a new assisted living and memory care community in Santa Rosa Beach, Florida. The JV parties are working together to develop and construct a 107 unit community. The community will be located on land that was contributed to the JV by the Company. As of March 31, 2020 and December 31, 2019, the Company owned an 87.0% interest in the consolidated JV. The Company’s partner is responsible for the day-to-day activities of the JV. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined Watercrest JV is a VIE and that the Company is the VIE’s primary beneficiary as of March 31, 2020 and December 31, 2019.
Watersound Origins Crossings JV
Watersound Origins Crossings JV was created in January 2019, when the Company entered into a JV agreement to develop, manage and lease apartments in Watersound, Florida. The JV parties are working together to develop and construct a 217 unit apartment community. The community will be located on land near the entrance to the Watersound Origins community, which was contributed to the JV by the Company. As of March 31, 2020 and December 31, 2019 the Company owned a 75.0% interest in the consolidated JV. The Company’s partner is responsible for the day-to-day activities of the JV. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined Watersound Origins Crossings JV is a VIE and that the Company is the VIE’s primary beneficiary as of March 31, 2020 and December 31, 2019.
14
Pier Park Crossings JV
In April 2017, the Company entered into a JV agreement to develop, manage and lease apartments in Panama City Beach, Florida. Construction of the 240 unit apartment community was completed in the first quarter of 2020. The community is located on land in the Pier Park area that was contributed to the JV by the Company. As of March 31, 2020 and December 31, 2019, the Company owned a 75.0% interest in the consolidated JV. The Company’s partner is responsible for the day-to-day activities of the JV. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined Pier Park Crossings JV is a VIE and that the Company is the VIE’s primary beneficiary as of March 31, 2020 and December 31, 2019.
Pier Park North JV
During 2012, the Company entered into a JV agreement with a partner to develop a retail center at Pier Park North. As of March 31, 2020 and December 31, 2019, the Company owned a 60.0% interest in the consolidated JV. The Company’s partner is responsible for the day-to-day activities of the JV. However, the Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. The Company determined the Pier Park North JV is a VIE and that the Company is the VIE’s primary beneficiary as of March 31, 2020 and December 31, 2019.
Unconsolidated Joint Ventures
Investment in unconsolidated joint ventures includes the Company’s investment accounted for using the equity method. The following table presents detail of the Company’s investment in unconsolidated joint ventures and total outstanding debt of unconsolidated JVs:
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
Investment in unconsolidated joint ventures |
|
|
|
|
|
|
|
Latitude Margaritaville Watersound JV |
|
$ |
1,317 |
|
$ |
791 |
|
Pier Park TPS JV |
|
|
3,080 |
|
|
3,083 |
|
Sea Sound Apartments JV (a) |
|
|
5,476 |
|
|
— |
|
Busy Bee JV |
|
|
1,204 |
|
|
1,210 |
|
Total investment in unconsolidated joint ventures |
|
$ |
11,077 |
|
$ |
5,084 |
|
|
|
|
|
|
|
|
|
Outstanding debt of unconsolidated JVs |
|
|
|
|
|
|
|
Pier Park TPS JV |
|
$ |
11,068 |
|
$ |
6,791 |
|
Busy Bee JV |
|
|
4,486 |
|
|
1,451 |
|
Total outstanding debt of unconsolidated JVs (b) |
|
$ |
15,554 |
|
$ |
8,242 |
|
|
a) |
|
JV was formed in January 2020. |
|
|
b) |
|
See Note 18. Commitments and Contingencies for additional information. |
The following table presents detail of the Company’s equity in loss from unconsolidated affiliates:
|
|
|
Three Months Ended March 31, 2020 |
|
|
Equity in loss from unconsolidated affiliates |
|
|
|
|
Latitude Margaritaville Watersound JV |
|
$ |
74 |
|
Pier Park TPS JV |
|
|
3 |
|
Busy Bee JV |
|
|
6 |
|
Total equity in loss from unconsolidated affiliates |
|
$ |
83 |
15
Latitude Margaritaville Watersound JV
LMWS, LLC (“Latitude Margaritaville Watersound JV”) was created in June 2019, when the Company entered into a JV agreement to develop a 55+ active adult residential community in Bay County, Florida. The JV parties are working together to develop the first phase of the community and the sales center is currently under construction. The community will be located on land that will be contributed to the JV by the Company. The first phase is estimated to include approximately 3,500 residential homes which will be developed in smaller increments of discrete neighborhoods. As of March 31, 2020 and December 31, 2019, the Company owned a 50.0% voting interest in the JV. Each JV member initially contributed and will continue to contribute an equal amount of cash t owards the development and construction of the main spine infrastructure and amenities. The Company’s unimproved land contribution will be returned at an average of $10,000 as each home is sold by the JV. Per the JV agreement, the Company will provide interest-bearing financing in the form of a promissory note to the Latitude Margaritaville Watersound JV to finance the development of the pod-level, non-spine infrastructure, which will be repaid by the JV as each home is sold by the JV. The day-to-day activities of the JV will be managed through a board of managers, with each JV partner having equal voting rights. The Company has determined that Latitude Margaritaville Watersound JV is a VIE, but that the Company is not the primary beneficiary since it does not have the power to direct the activities that most significantly impact the economic performance of the JV. The Company’s investment in the Latitude Margaritaville Watersound JV is accounted for using the equity method .
Summarized financial information for Latitude Margaritaville Watersound JV is as follows:
|
|
|
March 31, |
|
December 31, |
||
|
|
|
2020 |
|
2019 |
||
|
BALANCE SHEETS: |
|
|
|
|
|
|
|
Investment in real estate |
|
$ |
2,106 |
|
$ |
1,116 |
|
Cash and cash equivalents |
|
|
568 |
|
|
525 |
|
Other assets |
|
|
25 |
|
|
— |
|
Total assets |
|
$ |
2,699 |
|
$ |
1,641 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
$ |
66 |
|
$ |
58 |
|
Equity |
||||||