UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
For the quarterly period ended June 30, 20192020
or
For the transition period from to .
Commission file number: 1‑104661-10466
The St. Joe Company
(Exact name of registrant as specified in its charter)
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Florida | 59-0432511 |
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(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
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(Address of principal executive offices) | (Zip Code) |
(850) 231‑6400(850) 231-6400
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of Each Class | | Trading Symbol(s) | | Name of Exchange on Which Registered | |
Common Stock, no par value | | JOE | | New York Stock Exchange | |
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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‑212b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Accelerated filer | ☑ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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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‑212b-2 of the Exchange Act). YES ☐ NO ☑
As of July 29, 2019,27, 2020, there were 60,206,24258,882,549 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)
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| June 30, |
| December 31, | ||
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| 2019 |
| 2018 | ||
ASSETS |
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Investment in real estate, net |
| $ | 384,056 |
| $ | 350,994 |
Cash and cash equivalents |
|
| 195,587 |
|
| 195,155 |
Investments - debt securities |
|
| 2,832 |
|
| 8,958 |
Investments - equity securities |
|
| 36,270 |
|
| 36,132 |
Other assets |
|
| 61,497 |
|
| 60,308 |
Property and equipment, net of accumulated depreciation of $61,692 and $60,271 at June 30, 2019 and December 31, 2018, respectively |
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| 18,950 |
|
| 12,031 |
Investments held by special purpose entities |
|
| 207,055 |
|
| 207,384 |
Total assets |
| $ | 906,247 |
| $ | 870,962 |
LIABILITIES AND EQUITY |
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Liabilities: |
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Debt, net |
| $ | 80,244 |
| $ | 69,374 |
Other liabilities |
|
| 58,758 |
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| 47,387 |
Deferred tax liabilities, net |
|
| 48,206 |
|
| 44,315 |
Senior Notes held by special purpose entity |
|
| 176,899 |
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| 176,775 |
Total liabilities |
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| 364,107 |
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| 337,851 |
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Commitments and contingencies (Note 18) |
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Equity: |
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Common stock, no par value; 180,000,000 shares authorized; 60,672,034 issued at June 30, 2019 and December 31, 2018; and 60,200,534 and 60,672,034 outstanding at June 30, 2019 and December 31, 2018, respectively |
|
| 330,209 |
|
| 331,395 |
Retained earnings |
|
| 199,820 |
|
| 187,450 |
Accumulated other comprehensive loss |
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| (70) |
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| (674) |
Treasury stock at cost, 471,500 shares held at June 30, 2019 |
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| (7,073) |
|
| — |
Total stockholders’ equity |
|
| 522,886 |
|
| 518,171 |
Non-controlling interest |
|
| 19,254 |
|
| 14,940 |
Total equity |
|
| 542,140 |
|
| 533,111 |
Total liabilities and equity |
| $ | 906,247 |
| $ | 870,962 |
| | | | | | |
| | June 30, | | December 31, | ||
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| 2020 |
| 2019 | ||
ASSETS |
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Investment in real estate, net | | $ | 497,658 | | $ | 430,776 |
Investment in unconsolidated joint ventures | | | 29,293 | | | 5,084 |
Cash and cash equivalents | |
| 106,039 | |
| 185,716 |
Investments - debt securities | | | 49,996 | | | 53 |
Investments - equity securities | |
| 2,415 | |
| 9,746 |
Other assets | |
| 54,977 | |
| 52,069 |
Property and equipment, net of accumulated depreciation of $64,523 and $63,223 at June 30, 2020 and December 31, 2019, respectively | |
| 19,500 | |
| 19,018 |
Investments held by special purpose entities | |
| 206,438 | |
| 206,771 |
Total assets | | $ | 966,316 | | $ | 909,233 |
LIABILITIES AND EQUITY | |
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Liabilities: | |
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Debt, net | | $ | 120,522 | | $ | 92,529 |
Other liabilities | |
| 68,128 | |
| 57,200 |
Deferred tax liabilities, net | |
| 57,860 | |
| 52,808 |
Senior Notes held by special purpose entity | |
| 177,156 | |
| 177,026 |
Total liabilities | |
| 423,666 | |
| 379,563 |
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Commitments and contingencies (Note 18) | | | | | | |
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Equity: | |
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Common stock, 0 par value; 180,000,000 shares authorized; 59,414,583 issued at June 30, 2020 and December 31, 2019; and 58,882,549 and 59,414,583 outstanding at June 30, 2020 and December 31, 2019, respectively | |
| 305,676 | |
| 305,631 |
Retained earnings | |
| 231,801 | |
| 214,225 |
Accumulated other comprehensive loss | |
| (1,530) | |
| (335) |
Treasury stock at cost, 532,034 shares held at June 30, 2020 | | | (8,803) | | | — |
Total stockholders’ equity | |
| 527,144 | |
| 519,521 |
Non-controlling interest | |
| 15,506 | |
| 10,149 |
Total equity | |
| 542,650 | |
| 529,670 |
Total liabilities and equity | | $ | 966,316 | | $ | 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 June 30, 20192020 and December 31, 2018,2019, include the Pier Park North joint venture (“Pier Park North JV”), Pier Park Crossings LLC (“Pier Park Crossings JV”), Windmark JV,Origins Crossings, LLC (“WindmarkWatersound 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. As of June 30, 2019,2020, the condensed consolidated balances attributable to the Company’s consolidated variable interest entities also include Origins Crossings,the Pier Park Resort Hotel, LLC (“Origins Crossings JV”) and SJWCSL, LLC (“WatercrestPier Park Resort Hotel 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.
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| June 30, |
| December 31, | ||
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| 2019 |
| 2018 | ||
ASSETS |
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Investment in real estate |
| $ | 89,584 |
| $ | 70,124 |
Cash and cash equivalents |
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| 4,301 |
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| 2,113 |
Other assets |
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| 17,834 |
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| 16,165 |
Investments held by special purpose entities |
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| 207,055 |
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| 207,384 |
Total assets |
| $ | 318,774 |
| $ | 295,786 |
LIABILITIES |
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Debt, net |
| $ | 69,096 |
| $ | 60,262 |
Other liabilities |
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| 6,507 |
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| 5,773 |
Senior Notes held by special purpose entity |
|
| 176,899 |
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| 176,775 |
Total liabilities |
| $ | 252,502 |
| $ | 242,810 |
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| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
ASSETS |
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Investment in real estate | | $ | 129,536 | | $ | 96,001 |
Cash and cash equivalents | |
| 3,786 | |
| 3,483 |
Other assets | |
| 13,175 | |
| 12,766 |
Investments held by special purpose entities | |
| 206,438 | |
| 206,771 |
Total assets | | $ | 352,935 | | $ | 319,021 |
LIABILITIES | |
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Debt, net | | $ | 106,479 | | $ | 81,071 |
Other liabilities | |
| 14,548 | |
| 3,471 |
Senior Notes held by special purpose entity | |
| 177,156 | |
| 177,026 |
Total liabilities | | $ | 298,183 | | $ | 261,568 |
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)
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| Three Months Ended |
| Six Months Ended |
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| June 30, |
| June 30, |
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Revenue: |
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Real estate revenue |
| $ | 15,553 |
| $ | 32,159 |
| $ | 20,144 |
| $ | 39,861 |
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Hospitality revenue |
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| 15,560 |
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| 12,847 |
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| 22,991 |
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| 19,925 |
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Leasing revenue |
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| 3,674 |
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| 3,517 |
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| 7,181 |
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| 6,935 |
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Timber revenue |
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| 759 |
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| 1,911 |
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| 1,254 |
|
| 3,577 |
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Total revenue |
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| 35,546 |
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| 50,434 |
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| 51,570 |
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| 70,298 |
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Expenses: |
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Cost of real estate revenue |
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| 6,846 |
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| 2,954 |
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| 8,679 |
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| 7,122 |
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Cost of hospitality revenue |
|
| 9,002 |
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| 9,449 |
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| 16,193 |
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| 16,158 |
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Cost of leasing revenue |
|
| 1,121 |
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| 1,213 |
|
| 2,060 |
|
| 2,327 |
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Cost of timber revenue |
|
| 193 |
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| 193 |
|
| 334 |
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| 406 |
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Other operating and corporate expenses |
|
| 5,094 |
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| 5,010 |
|
| 11,062 |
|
| 10,955 |
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Depreciation, depletion and amortization |
|
| 2,422 |
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| 2,271 |
|
| 4,533 |
|
| 4,527 |
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Total expenses |
|
| 24,678 |
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| 21,090 |
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| 42,861 |
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| 41,495 |
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Operating income |
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| 10,868 |
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| 29,344 |
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| 8,709 |
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| 28,803 |
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Other income (expense): |
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Investment income, net |
|
| 2,535 |
|
| 5,981 |
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| 8,580 |
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| 9,646 |
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Interest expense |
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| (3,024) |
|
| (2,954) |
|
| (5,966) |
|
| (5,979) |
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Other income, net |
|
| 3,283 |
|
| 243 |
|
| 4,979 |
|
| 520 |
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Total other income, net |
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| 2,794 |
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| 3,270 |
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| 7,593 |
|
| 4,187 |
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Income before income taxes |
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| 13,662 |
|
| 32,614 |
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| 16,302 |
|
| 32,990 |
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Income tax expense |
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| (3,434) |
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| (6,547) |
|
| (4,095) |
|
| (6,298) |
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Net income |
|
| 10,228 |
|
| 26,067 |
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| 12,207 |
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| 26,692 |
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Net loss attributable to non-controlling interest |
|
| 145 |
|
| 128 |
|
| 163 |
|
| 260 |
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Net income attributable to the Company |
| $ | 10,373 |
| $ | 26,195 |
| $ | 12,370 |
| $ | 26,952 |
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NET INCOME PER SHARE |
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Basic and Diluted |
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Weighted average shares outstanding |
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| 60,200,534 |
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| 63,760,022 |
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| 60,260,488 |
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| 64,613,298 |
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Net income per share attributable to the Company |
| $ | 0.17 |
| $ | 0.41 |
| $ | 0.21 |
| $ | 0.42 |
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| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
| | 2020 | | 2019 |
| 2020 |
| 2019 |
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Revenue: |
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| | |
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Real estate revenue | | $ | 17,555 | | $ | 15,553 | | $ | 23,362 | | $ | 20,144 | |
Hospitality revenue | |
| 11,565 | |
| 15,560 | |
| 18,176 | |
| 22,991 | |
Leasing revenue | |
| 4,907 | |
| 3,674 | |
| 9,206 | |
| 7,181 | |
Timber revenue | |
| 2,055 | |
| 759 | |
| 3,911 | |
| 1,254 | |
Total revenue | |
| 36,082 | |
| 35,546 | |
| 54,655 | |
| 51,570 | |
Expenses: | |
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| |
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Cost of real estate revenue | |
| 7,245 | |
| 6,846 | |
| 9,044 | |
| 8,679 | |
Cost of hospitality revenue | |
| 8,240 | |
| 9,002 | |
| 15,560 | |
| 16,193 | |
Cost of leasing revenue | |
| 1,314 | |
| 1,121 | |
| 1,925 | |
| 2,060 | |
Cost of timber revenue | |
| 212 | |
| 193 | |
| 391 | |
| 334 | |
Other operating and corporate expenses | |
| 4,946 | |
| 5,094 | |
| 11,862 | |
| 11,062 | |
Depreciation, depletion and amortization | |
| 3,018 | |
| 2,422 | |
| 6,092 | |
| 4,533 | |
Total expenses | |
| 24,975 | |
| 24,678 | |
| 44,874 | |
| 42,861 | |
Operating income | |
| 11,107 | |
| 10,868 | |
| 9,781 | |
| 8,709 | |
Other income (expense): | |
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| |
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| |
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Investment income, net | |
| 2,055 | |
| 2,535 | |
| 446 | |
| 8,580 | |
Interest expense | |
| (3,390) | |
| (3,024) | |
| (6,734) | |
| (5,966) | |
Other income, net | |
| 15,477 | |
| 3,283 | |
| 20,009 | |
| 4,979 | |
Total other income, net | |
| 14,142 | |
| 2,794 | |
| 13,721 | |
| 7,593 | |
Income before equity in loss from unconsolidated affiliates and income taxes | |
| 25,249 | |
| 13,662 | |
| 23,502 | |
| 16,302 | |
Equity in loss from unconsolidated affiliates | | | (123) | | | — | | | (206) | | | — | |
Income tax expense | |
| (5,907) | |
| (3,434) | |
| (5,412) | |
| (4,095) | |
Net income | |
| 19,219 | |
| 10,228 | |
| 17,884 | |
| 12,207 | |
Net (income) loss attributable to non-controlling interest | |
| (20) | |
| 145 | |
| (218) | |
| 163 | |
Net income attributable to the Company | | $ | 19,199 | | $ | 10,373 | | $ | 17,666 | | $ | 12,370 | |
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NET INCOME PER SHARE | |
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Basic and Diluted | |
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Weighted average shares outstanding | |
| 58,901,540 | |
| 60,200,534 | |
| 59,138,579 | |
| 60,260,488 | |
Net income per share attributable to the Company | | $ | 0.33 | | $ | 0.17 | | $ | 0.30 | | $ | 0.21 | |
See accompanying notes to the condensed consolidated financial statements.
5
THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
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| Three Months Ended |
| Six Months Ended |
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| June 30, |
| June 30, |
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Net income: |
| $ | 10,228 |
| $ | 26,067 |
| $ | 12,207 |
| $ | 26,692 |
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Other comprehensive (loss) income: |
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Available-for-sale investment items: |
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Net unrealized (loss) gain on available-for-sale investments |
|
| (9) |
|
| 321 |
|
| 790 |
|
| (482) |
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Net unrealized gain (loss) on restricted investments |
|
| 7 |
|
| — |
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| 18 |
|
| (9) |
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Reclassification of net realized (gain) loss included in earnings |
|
| — |
|
| (28) |
|
| 2 |
|
| 1,050 |
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Reclassification into retained earnings (1) |
|
| — |
|
| — |
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| — |
|
| 932 |
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Reclassification of other-than-temporary impairment loss included in earnings |
|
| — |
|
| — |
|
| — |
|
| 63 |
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Total before income taxes |
|
| (2) |
|
| 293 |
|
| 810 |
|
| 1,554 |
|
Income tax expense (2) |
|
| — |
|
| (74) |
|
| (206) |
|
| (706) |
|
Total other comprehensive (loss) income, net of tax |
|
| (2) |
|
| 219 |
|
| 604 |
|
| 848 |
|
Total comprehensive income, net of tax |
| $ | 10,226 |
| $ | 26,286 |
| $ | 12,811 |
| $ | 27,540 |
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| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income: | | $ | 19,219 | | $ | 10,228 | | $ | 17,884 | | $ | 12,207 |
Other comprehensive income (loss): | |
| | |
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| |
| | |
|
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Net unrealized gain (loss) on available-for-sale investments | |
| 106 | |
| (9) | |
| 106 | |
| 790 |
Net unrealized gain on restricted investments | |
| 15 | |
| 7 | |
| 5 | |
| 18 |
Interest rate swap | | | (137) | | | — | | | (866) | | | — |
Interest rate swap - unconsolidated affiliate | | | (841) | | | — | | | (841) | | | — |
Reclassification of net realized (gain) loss included in earnings | |
| — | |
| — | |
| (4) | |
| 2 |
Total before income taxes | |
| (857) | |
| (2) | |
| (1,600) | |
| 810 |
Income tax benefit (expense) | |
| 217 | |
| — | |
| 405 | |
| (206) |
Total other comprehensive (loss) income, net of tax | |
| (640) | |
| (2) | |
| (1,195) | |
| 604 |
Total comprehensive income, net of tax | | | 18,579 | | | 10,226 | | | 16,689 | | | 12,811 |
Total comprehensive (income) loss attributable to non-controlling interest | | | (20) | | | 145 | | | (218) | | | 163 |
Total comprehensive income attributable to the Company | | $ | 18,559 | | $ | 10,371 | | $ | 16,471 | | $ | 12,974 |
| | | | | | | | | | | | |
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)
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| Accumulated |
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| Common Stock |
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| Other |
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| |||
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| Outstanding |
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| Retained |
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| Comprehensive |
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| Treasury |
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| Non-controlling |
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| Shares |
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| Amount |
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| Earnings |
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| Loss |
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| Stock |
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| Interest |
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| Total |
Balance at March 31, 2019 |
| 60,200,534 |
| $ | 331,408 |
| $ | 189,447 |
| $ | (68) |
| $ | (7,073) |
| $ | 16,606 |
| $ | 530,320 |
Allocation of ownership interest in Watercrest JV |
| — |
|
| (1,209) |
|
| — |
|
| — |
|
| — |
|
| 1,209 |
|
| — |
Capital contribution from non-controlling interest |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,784 |
|
| 1,784 |
Capital distribution to non-controlling interest |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (200) |
|
| (200) |
Stock based compensation expense |
| — |
|
| 10 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 10 |
Other comprehensive loss, net of tax |
| — |
|
| — |
|
| — |
|
| (2) |
|
| — |
|
| — |
|
| (2) |
Net income |
| — |
|
| — |
|
| 10,373 |
|
| — |
|
| — |
|
| (145) |
|
| 10,228 |
Balance at June 30, 2019 |
| 60,200,534 |
| $ | 330,209 |
| $ | 199,820 |
| $ | (70) |
| $ | (7,073) |
| $ | 19,254 |
| $ | 542,140 |
| | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| | Accumulated |
|
| |
|
| |
|
| |
| | Common Stock | | | | | | Other | | | | | | | | | | |||
| | Outstanding | | | | | | Retained | | | Comprehensive | | | Treasury | | | Non-controlling | | | |
|
| Shares |
| | Amount |
| | Earnings |
| | Loss |
| | Stock |
| | Interest |
| | Total |
Balance at March 31, 2020 |
| 59,003,470 | | $ | 305,658 | | $ | 212,602 | | $ | (890) | | $ | (6,807) | | $ | 10,347 | | $ | 520,910 |
Capital contribution from non-controlling interest |
| — | |
| — | |
| — | |
| — | |
| — | |
| 5,139 | |
| 5,139 |
Stock based compensation expense |
| — | |
| 18 | |
| — | |
| — | |
| — | |
| — | |
| 18 |
Repurchase of common shares |
| (120,921) | |
| — | |
| — | |
| — | |
| (1,996) | |
| — | |
| (1,996) |
Other comprehensive loss, net of tax |
| — | |
| — | |
| — | |
| (640) | |
| — | |
| — | |
| (640) |
Net income |
| — | |
| — | |
| 19,199 | |
| — | |
| — | |
| 20 | |
| 19,219 |
Balance at June 30, 2020 |
| 58,882,549 | | $ | 305,676 | | $ | 231,801 | | $ | (1,530) | | $ | (8,803) | | $ | 15,506 | | $ | 542,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| |||
|
| Outstanding |
|
|
|
|
| Retained |
|
| Comprehensive |
|
| Treasury |
|
| Non-controlling |
|
|
|
|
| Shares |
|
| Amount |
|
| Earnings |
|
| (Loss) Income |
|
| Stock |
|
| Interest |
|
| Total |
Balance at March 31, 2018 |
| 65,142,997 |
| $ | 425,223 |
| $ | 155,838 |
| $ | (832) |
| $ | (13,695) |
| $ | 14,662 |
| $ | 581,196 |
Allocation of ownership interest in Pier Park Crossings JV |
| — |
|
| (490) |
|
| — |
|
| — |
|
| — |
|
| 490 |
|
| — |
Capital contribution from non-controlling interest |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 823 |
|
| 823 |
Stock based compensation expense |
| — |
|
| 15 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 15 |
Issuance of common stock for officer compensation, net of tax withholding |
| — |
|
| (12) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (12) |
Repurchase of common shares |
| (3,300,335) |
|
| — |
|
| — |
|
| — |
|
| (58,768) |
|
| — |
|
| (58,768) |
Other comprehensive income, net of tax |
| — |
|
| — |
|
| — |
|
| 219 |
|
| — |
|
| — |
|
| 219 |
Net income |
| — |
|
| — |
|
| 26,195 |
|
| — |
|
| — |
|
| (128) |
|
| 26,067 |
Balance at June 30, 2018 |
| 61,842,662 |
| $ | 424,736 |
| $ | 182,033 |
| $ | (613) |
| $ | (72,463) |
| $ | 15,847 |
| $ | 549,540 |
| | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| | Accumulated |
|
| |
|
| |
|
| |
| | Common Stock | | | | | | Other | | | | | | | | | | |||
| | Outstanding | | | | | | Retained | | | Comprehensive | | | Treasury | | | Non-controlling | | | |
|
| Shares |
| | Amount |
| | Earnings |
| | Loss |
| | Stock |
| | Interest |
| | Total |
Balance at March 31, 2019 |
| 60,200,534 | | $ | 331,408 | | $ | 189,447 | | $ | (68) | | $ | (7,073) | | $ | 16,606 | | $ | 530,320 |
Allocation of ownership interest in Watercrest JV | | — | | | (1,209) | | | — | | | — | | | — | | | 1,209 | | | — |
Capital contribution from non-controlling interest |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,784 | |
| 1,784 |
Capital distribution to non-controlling interest |
| — | |
| — | |
| — | |
| — | |
| — | |
| (200) | |
| (200) |
Stock based compensation expense |
| — | |
| 10 | |
| — | |
| — | |
| — | |
| — | |
| 10 |
Other comprehensive loss, net of tax |
| — | |
| — | |
| — | |
| (2) | |
| — | |
| — | |
| (2) |
Net income |
| — | |
| — | |
| 10,373 | |
| — | |
| — | |
| (145) | |
| 10,228 |
Balance at June 30, 2019 |
| 60,200,534 | | $ | 330,209 | | $ | 199,820 | | $ | (70) | | $ | (7,073) | | $ | 19,254 | | $ | 542,140 |
See accompanying notes to the condensed consolidated financial statements.
7
| | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| | 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 |
Capital contribution from non-controlling interest |
| — | |
| — | |
| — | |
| — | |
| — | |
| 5,139 | |
| 5,139 |
Stock based compensation expense |
| — | |
| 45 | |
| — | |
| — | |
| — | |
| — | |
| 45 |
Repurchase of common shares |
| (532,034) | |
| — | |
| — | |
| — | |
| (8,803) | |
| — | |
| (8,803) |
Adoption of ASU 2016-13 Financial Instruments - Credit Losses, net of tax | | — | | | — | | | (90) | | | — | | | — | | | — | | | (90) |
Other comprehensive loss, net of tax |
| — | |
| — | |
| — | |
| (1,195) | |
| — | |
| — | |
| (1,195) |
Net income |
| — | |
| — | |
| 17,666 | |
| — | |
| — | |
| 218 | |
| 17,884 |
Balance at June 30, 2020 |
| 58,882,549 | | $ | 305,676 | | $ | 231,801 | | $ | (1,530) | | $ | (8,803) | | $ | 15,506 | | $ | 542,650 |
| | | | | | | | | | | | | | | | | | | | |
|
|
|
|
| |
|
| |
| | 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 |
Allocation of ownership interest in Watercrest JV | | — | | | (1,209) | | | — | | | — | | | — | | | 1,209 | | | — |
Capital contribution from non-controlling interest | | — | | | — | | | — | | | — | | | — | | | 3,468 | | | 3,468 |
Capital distribution to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | (200) | | | (200) |
Stock based compensation expense | | — | | | 23 | | | — | | | — | | | — | | | — | | | 23 |
Repurchase of common shares | | (471,500) | | | — | | | — | | | — | | | (7,073) | | | — | | | (7,073) |
Other comprehensive income, net of tax | | — | | | — | | | — | | | 604 | | | — | | | — | | | 604 |
Net income | | — | | | — | | | 12,370 | | | — | | | — | | | (163) | | | 12,207 |
Balance at June 30, 2019 | | 60,200,534 | | $ | 330,209 | | $ | 199,820 | | $ | (70) | | $ | (7,073) | | $ | 19,254 | | $ | 542,140 |
See accompanying notes to the condensed consolidated financial statements.
78
THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCASH FLOWS
(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 |
Allocation of ownership interest in Watercrest JV |
| — |
|
| (1,209) |
|
| — |
|
| — |
|
| — |
|
| 1,209 |
|
| — |
Capital contribution from non-controlling interest |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,468 |
|
| 3,468 |
Capital distribution to non-controlling interest |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (200) |
|
| (200) |
Stock based compensation expense |
| — |
|
| 23 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 23 |
Repurchase of common shares |
| (471,500) |
|
| — |
|
| — |
|
| — |
|
| (7,073) |
|
| — |
|
| (7,073) |
Other comprehensive income, net of tax |
| — |
|
| — |
|
| — |
|
| 604 |
|
| — |
|
| — |
|
| 604 |
Net income |
| — |
|
| — |
|
| 12,370 |
|
| — |
|
| — |
|
| (163) |
|
| 12,207 |
Balance at June 30, 2019 |
| 60,200,534 |
| $ | 330,209 |
| $ | 199,820 |
| $ | (70) |
| $ | (7,073) |
| $ | 19,254 |
| $ | 542,140 |
| | | | | | | |
| | Six Months Ended | | ||||
| | June 30, | | ||||
|
| 2020 |
| 2019 | | ||
Cash flows from operating activities: |
| |
|
| |
|
|
Net income | | $ | 17,884 | | $ | 12,207 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
| |
Depreciation, depletion and amortization | |
| 6,092 | |
| 4,533 | |
Stock based compensation | |
| 45 | |
| 23 | |
Loss on sale of investments | |
| 48 | |
| 2 | |
Unrealized loss (gain) on investments, net | | | 4,903 | | | (133) | |
Equity in loss from unconsolidated affiliates | | | 206 | | | — | |
Deferred income tax expense | |
| 5,487 | |
| 3,685 | |
Cost of real estate sold | |
| 16,515 | |
| 8,167 | |
Expenditures for and acquisition of real estate to be sold | |
| (17,395) | |
| (14,602) | |
Accretion income and other | |
| (492) | |
| (680) | |
Gain on disposal of property and equipment | | | (7) | | | — | |
Gain on land contribution to equity method investment | | | (19,616) | | | (1,472) | |
Gain on insurance for damage to property and equipment, net | | | — | | | (4,071) | |
Changes in operating assets and liabilities: | |
|
| |
| | |
Other assets | |
| (2,104) | |
| (1,816) | |
Other liabilities | |
| 584 | |
| 6,044 | |
Income taxes receivable | |
| 356 | |
| 410 | |
Net cash provided by operating activities | |
| 12,506 | |
| 12,297 | |
Cash flows from investing activities: | |
|
| |
|
| |
Expenditures for operating property | |
| (62,574) | |
| (26,599) | |
Expenditures for property and equipment | |
| (3,244) | |
| (7,409) | |
Proceeds from the disposition of assets | |
| 7 | |
| — | |
Proceeds from insurance claims | | | — | | | 10,796 | |
Purchases of investments - debt securities | | | (56,915) | | | — | |
Purchases of investments - equity securities | | | — | | | (5) | |
Purchases of restricted investments | | | (17) | | | (40) | |
Maturities of investments - debt securities | | | 7,000 | | | 7,000 | |
Sales of investments - equity securities | |
| 2,502 | |
| — | |
Sales of restricted investments | | | 1,210 | | | 1,155 | |
Maturities of assets held by special purpose entities | |
| 415 | |
| 414 | |
Net cash used in investing activities | |
| (111,616) | |
| (14,688) | |
Cash flows from financing activities: | |
|
| |
|
| |
Capital contribution from non-controlling interest | |
| 5,139 | |
| 1,784 | |
Capital distribution to non-controlling interest | |
| — | |
| (200) | |
Capital contribution to unconsolidated affiliate | | | (3,329) | | | (254) | |
Repurchase of common shares | |
| (8,803) | |
| (7,073) | |
Borrowings on debt | |
| 29,914 | |
| 10,653 | |
Principal payments for debt | |
| (1,063) | |
| (1,040) | |
Principal payments under finance lease obligation | | | (25) | | | (14) | |
Debt issuance costs | |
| (1,479) | |
| (813) | |
Net cash provided by financing activities | |
| 20,354 | |
| 3,043 | |
Net (decrease) increase in cash, cash equivalents and restricted cash | |
| (78,756) | |
| 652 | |
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 | | $ | 109,921 | | $ | 198,725 | |
See accompanying notes to the condensed consolidated financial statements.
89
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) 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 |
Stock based compensation expense |
| — |
|
| 43 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 43 |
Issuance of common stock for officer compensation, net of tax withholding |
| 9,956 |
|
| 192 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 192 |
Repurchase of common shares |
| (4,065,160) |
|
| — |
|
| — |
|
| — |
|
| (72,463) |
|
| — |
|
| (72,463) |
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 |
| — |
|
| — |
|
| — |
|
| 465 |
|
| — |
|
| — |
|
| 465 |
Net income |
| — |
|
| — |
|
| 26,952 |
|
| — |
|
| — |
|
| (260) |
|
| 26,692 |
Balance at June 30, 2018 |
| 61,842,662 |
| $ | 424,736 |
| $ | 182,033 |
| $ | (613) |
| $ | (72,463) |
| $ | 15,847 |
| $ | 549,540 |
See accompanying notes to the condensed consolidated financial statements.
9
THE ST. JOE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
| Six Months Ended | ||||
|
| June 30, | ||||
|
| 2019 |
| 2018 | ||
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
| $ | 12,207 |
| $ | 26,692 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
| 4,533 |
|
| 4,527 |
Stock based compensation |
|
| 23 |
|
| 235 |
Loss on sale of investments |
|
| 2 |
|
| 1,086 |
Unrealized gain on investments, net |
|
| (133) |
|
| (729) |
Other-than-temporary impairment loss |
|
| — |
|
| 63 |
Deferred income tax expense (benefit) |
|
| 3,685 |
|
| (54) |
Impairment loss on investment in real estate |
|
| — |
|
| 99 |
Cost of real estate sold |
|
| 8,167 |
|
| 6,545 |
Expenditures for and acquisition of real estate to be sold |
|
| (14,602) |
|
| (8,288) |
Accretion income and other |
|
| (680) |
|
| (1,038) |
Loss on disposal of property and equipment |
|
| — |
|
| 8 |
Gain on land contribution to equity method investment |
|
| (1,472) |
|
| — |
Gain on insurance proceeds for damage to property and equipment |
|
| (4,071) |
|
| — |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Other assets |
|
| (1,816) |
|
| (331) |
Other liabilities |
|
| 6,044 |
|
| 2,184 |
Income taxes receivable |
|
| 410 |
|
| 6,720 |
Net cash provided by operating activities |
|
| 12,297 |
|
| 37,719 |
Cash flows from investing activities: |
|
|
|
|
|
|
Expenditures for operating property |
|
| (26,599) |
|
| (9,659) |
Expenditures for property and equipment |
|
| (7,409) |
|
| (1,252) |
Proceeds from the disposition of assets |
|
| — |
|
| 5,000 |
Proceeds from insurance claims |
|
| 10,796 |
|
| — |
Purchases of investments - equity securities |
|
| (5) |
|
| (10,442) |
Purchases of restricted investments |
|
| (40) |
|
| (38) |
Maturities of investments - debt securities |
|
| 7,000 |
|
| — |
Sales of investments - debt securities |
|
| — |
|
| 63,548 |
Sales of investments - equity securities |
|
| — |
|
| 7,328 |
Sales of restricted investments |
|
| 1,155 |
|
| 1,082 |
Maturities of assets held by special purpose entities |
|
| 414 |
|
| 414 |
Net cash (used in) provided by investing activities |
|
| (14,688) |
|
| 55,981 |
Cash flows from financing activities: |
|
|
|
|
|
|
Capital contribution from non-controlling interest |
|
| 1,784 |
|
| 887 |
Capital distribution to non-controlling interest |
|
| (200) |
|
| — |
Capital contribution to unconsolidated affiliate |
|
| (254) |
|
| — |
Repurchase of common shares |
|
| (7,073) |
|
| (72,463) |
Borrowings on debt |
|
| 10,653 |
|
| 5,737 |
Principal payments for debt |
|
| (1,040) |
|
| (871) |
Principal payments under finance lease obligation |
|
| (14) |
|
| — |
Debt issuance costs |
|
| (813) |
|
| (1,158) |
Net cash provided by (used in) financing activities |
|
| 3,043 |
|
| (67,868) |
Net increase in cash, cash equivalents and restricted cash |
|
| 652 |
|
| 25,832 |
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 |
| $ | 198,725 |
| $ | 218,283 |
See accompanying notes to the condensed consolidated financial statements.
10
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 condensed consolidated statements of cash flows.
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2019 |
| 2018 |
| |||
Cash and cash equivalents |
| $ | 195,587 |
|
| $ | 215,095 |
|
Restricted cash included in other assets |
|
| 3,138 |
|
|
| 3,188 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows |
| $ | 198,725 |
|
| $ | 218,283 |
|
| | | | | | |
| | | | | | |
| | June 30, | | June 30, | ||
|
| 2020 |
| 2019 | ||
Cash and cash equivalents | | $ | 106,039 |
| $ | 195,587 |
Restricted cash included in other assets | |
| 3,882 | |
| 3,138 |
Total cash, cash equivalents and restricted cash shown in the accompanying condensed consolidated statements of cash flows |
| $ | 109,921 |
| $ | 198,725 |
Restricted cash includes amounts set asidereserved as a requirement of financing and development for certain of the Company’s developments.projects.
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| ||||
|
| June 30, |
| ||||
|
|
| 2019 |
| 2018 |
| |
Cash paid during the period for: |
|
|
|
|
|
|
|
Interest |
| $ | 5,985 |
| $ | 5,822 |
|
Income taxes |
| $ | — |
| $ | 2,005 |
|
|
|
|
|
|
|
|
|
Non-cash financing and investment activities: |
|
|
|
|
|
|
|
Non-cash allocation of ownership interest in JV |
| $ | 1,209 |
| $ | 490 |
|
Non-cash contribution to equity method investment |
| $ | (1,730) |
| $ | — |
|
Increase in capital contribution from non-controlling interest |
| $ | 1,683 |
| $ | — |
|
Increase (decrease) in Community Development District debt |
| $ | 1,229 |
| $ | (207) |
|
(Decrease) increase in expenditures for operating properties and property and equipment financed through accounts payable |
| $ | (2,814) |
| $ | 563 |
|
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
| | | 2020 | | 2019 | |
Cash paid during the period for: | | | | | | |
Interest, net of amounts capitalized | | $ | 6,108 | | $ | 5,614 |
Income taxes | | $ | — | | $ | — |
| | | | | | |
Non-cash financing and investment activities: | |
|
| |
|
|
Non-cash allocation of ownership interest in JV | | $ | — | | $ | 1,209 |
Non-cash contribution to equity method investment | | $ | (21,927) | | $ | (1,730) |
Increase in capital contribution from non-controlling interest | | $ | — | | $ | 1,683 |
(Decrease) increase in Community Development District debt | | $ | (377) | | $ | 1,229 |
Decrease in expenditures for operating properties and property and equipment financed through accounts payable | | $ | (2,280) | | $ | (2,814) |
See notes to the condensed consolidated financial statements.
1110
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 four3 reportable operating segments: 1) residential, real estate, 2) hospitality and 3) commercial. Prior to the first quarter of 2020, commercial leasing and sales, and 4) forestry.as well as forestry were treated as individual operating segments. Commencing in the fourthfirst quarter of 2018,2020, due to organizational changes, the Company’s previously titled “resorts“commercial leasing and leisure”sales” and “forestry” segments are now reported as 1 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 “hospitality,to “residential.” withThe changes 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.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.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, 20182019 condensed consolidated balance sheet amounts have been derived from the Company’s December 31, 20182019 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 six months ended June 30, 20192020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.2020.
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 9. 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‑K10-K for the year ended December 31, 2018.2019. The Company adheres to the same accounting policies in preparation of its unaudited interim condensed consolidated financial statements as the Company’s December 31, 20182019 annual financial statements, except for recently adopted
11
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.
12
Concentration of Risks and Uncertainties
The Company’s real estate investments are concentrated in Northwest Florida in a number of specific development projects.Florida. Uncertain economic conditions could have an adverse impact on the Company’s real estate valuesvalues.
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 economic conditions in the United States have been negatively impacted by the continued threat 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 federal, state and local government actions to address it. While the breadth and duration of the COVID-19 pandemic impact is unknown, it could causehave a material adverse impact on the Company to sell assets at depressed values in order to pay ongoing obligations.Company’s 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 June 30, 2019,2020, these balances exceeded the amount of F.D.I.C. insurance provided on such deposits. In addition, as of June 30, 20192020 the company had $2.8$49.9 million invested in two issuers of corporate debt securities that are non-investment grade, $36.3U.S. Treasury Bills, $87.0 million invested in fiveU.S. Treasury money market funds and $2.4 million invested in 3 issuers of preferred stock that are non-investment grade and one issuer of preferred stock that is investment grade, as well as investments of $154.2 million in short term commercial paper from twenty-two issuers and short term U.S. Treasury securities of $7.0 million.grade.
Earnings Per Share
Basic and diluted earnings per share are calculated by dividing net income attributable to the Company by the weighted average number of common shares outstanding for the period. For the three and six months ended June 30, 20192020 and 2018,2019, basic and diluted average shares outstanding were the same. There were no0 outstanding common stock equivalents as of June 30, 20192020 or June 30, 2018. Non-vested restricted stock is included in outstanding shares at the time of grant.2019.
Recently Adopted Accounting Pronouncements
LeasesFinancial Instruments - Credit Losses
In FebruaryJune 2016, the FASB issued ASU 2016‑02, Leases2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-02”2016-13”), that amendedrequired a financial asset measured at amortized cost to be presented at the existing accounting standardsnet amount expected to be collected and required that credit losses from available-for-sale debt securities be presented as an allowance for lease accounting, including requiring lesseescredit loss. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to recognize both finance and operating leases with termsoccur over the remaining life 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.financial asset. In JanuaryNovember 2018, the FASB issued ASU 2018‑01,2018-19, which provided an optional transition practical expedient to not evaluate under the new lease standard, existing or expired land easementsclarified that were not previouslyimpairment of receivables from operating leases should be accounted for as leases.using lease guidance. 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 MarchApril 2019, the FASB issued ASU 2019-01 that2019-04, which clarified and improved ASU 2016-13. In May 2019, the FASB issued ASU 2019-05, which provided clarifications and improvementsan option to ASU 2016-02. Duringirrevocably elect 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:fair value option for certain financial assets previously measured at amortized cost basis.
|
|
|
|
|
|
13
|
The Company adopted the new guidance, including amendments, as of January 1, 20192020, and has elected to implement Topic 842326 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 not necessaryrecorded 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 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
12
unconsolidated JV debt guaranteed by 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.less than $0.1 million. There were no0 adjustments related to the leasesoperating 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 made 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
Financial Instruments - Credit LossesIncome Taxes
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. In AprilDecember 2019, the FASB issued ASU 2019-04,2019-12, which clarifiessimplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendment also improves consistent application of and improves ASU 2016-13. In May 2019, the FASB issued ASU 2019-05, which provides an option to irrevocably elect the fair value optionsimplifies GAAP for certain financial assets previously measured at amortized cost basis.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, 2019,2020, with early adoption permittedpermitted. 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 interactionbetween 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, 2018.2020, 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.
13
3. Investment in Real Estate
Real estate by property type and segment includes the following:
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
Development property: |
|
|
|
|
|
|
Residential real estate |
| $ | 112,759 |
| $ | 105,323 |
Hospitality |
|
| 4,554 |
|
| 3,726 |
Commercial leasing and sales |
|
| 81,674 |
|
| 73,128 |
Forestry |
|
| 1,885 |
|
| 2,144 |
Corporate |
|
| 2,542 |
|
| 2,497 |
Total development property |
|
| 203,414 |
|
| 186,818 |
|
|
|
|
|
|
|
Operating property: |
|
|
|
|
|
|
Residential real estate |
|
| 7,344 |
|
| 7,344 |
Hospitality |
|
| 95,817 |
|
| 93,046 |
Commercial leasing and sales |
|
| 127,406 |
|
| 111,471 |
Forestry |
|
| 20,524 |
|
| 19,765 |
Other |
|
| 50 |
|
| 50 |
Total operating property |
|
| 251,141 |
|
| 231,676 |
Less: Accumulated depreciation |
|
| 70,499 |
|
| 67,500 |
Total operating property, net |
|
| 180,642 |
|
| 164,176 |
Investment in real estate, net |
| $ | 384,056 |
| $ | 350,994 |
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Development property: |
| |
|
| |
|
Residential | | $ | 123,067 | | $ | 115,384 |
Hospitality | |
| 27,761 | |
| 12,229 |
Commercial | |
| 117,353 | |
| 103,326 |
Other | |
| 2,510 | |
| 2,631 |
Total development property | |
| 270,691 | |
| 233,570 |
| | | | | | |
Operating property: | |
|
| |
|
|
Residential | |
| 12,001 | |
| 11,985 |
Hospitality | |
| 98,265 | |
| 94,838 |
Commercial | |
| 188,755 | |
| 164,589 |
Other | |
| 50 | |
| 50 |
Total operating property | |
| 299,071 | |
| 271,462 |
Less: Accumulated depreciation | |
| 72,104 | |
| 74,256 |
Total operating property, net | |
| 226,967 | |
| 197,206 |
Investment in real estate, net | | $ | 497,658 | | $ | 430,776 |
14
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 such as Watersound Origins, SouthWood, WindMark Beach, as well as other communities. Hospitality development property consists of land, and construction costs, related to two gulf-front vacation rental homes and development costs and improvements forprimarily related to the Pier Park Resort Hotel JV, Camp Creek Lifestyle Village amenity center and a new hotel near the Northwest Florida Beaches International Airport, as well as other property.properties. Commercial leasing and sales 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 JV, Origins CrossingsPhase II JV, land holdings near the Northwest Florida Beaches International Airport and Port of Port St. Joe.Joe as well as other properties. 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.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 leasing and sales 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. ForestryCommercial 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
14
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 andContingencies for additional information.
Consolidated Joint Ventures
Pier Park Resort Hotel JV
Pier Park Resort Hotel JV was created in April 2020, when the Company entered into a JV agreement to develop and operate an Embassy Suites hotel in Panama City Beach, Florida. The JV parties are working together to develop and construct a 255 room hotel. The hotel is located on land in the Pier Park area that was contributed to the JV by the Company. As of June 30, 2020, the Company owned a 70.0% interest in the consolidated JV. The Company’s partner is currently responsible for the construction activities of the JV, but once operational, a wholly owned subsidiary of the Company will manage the day-to-day operations of the hotel. The Company has significant involvement in the project design and development, annual budgets and financing. The Company determined Pier Park Resort Hotel JV is a VIE and that the Company is the VIE’s primary beneficiary as of June 30, 2020.
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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2020 and December 31, 2019.
15
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 June 30, 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 June 30, 2020 and December 31, 2019.
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 June 30, 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 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 June 30, 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 June 30, 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 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 June 30, 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:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Investment in unconsolidated joint ventures |
| |
|
| |
|
Latitude Margaritaville Watersound JV | | $ | 18,518 | | $ | 791 |
Pier Park TPS JV | |
| 2,235 | |
| 3,083 |
Sea Sound Apartments JV (a) | | | 7,363 | | | — |
Busy Bee JV | |
| 1,177 | |
| 1,210 |
Total investment in unconsolidated joint ventures | | $ | 29,293 | | $ | 5,084 |
| |
|
| |
|
|
Outstanding debt of unconsolidated JVs | | | | | | |
Latitude Margaritaville Watersound JV | | $ | 55 | | $ | — |
Pier Park TPS JV | | | 13,274 | | | 6,791 |
Busy Bee JV | | | 6,394 | | | 1,451 |
Total outstanding debt of unconsolidated JVs (b) | | $ | 19,723 | | $ | 8,242 |
| a) | JV was formed in January 2020. |
| b) | See Note 18. Commitments and Contingencies for additional information. |
16
The following table presents detail of the Company’s equity in loss from unconsolidated affiliates:
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
Equity in loss from unconsolidated affiliates | | | | | | |
Latitude Margaritaville Watersound JV | | $ | (93) | | $ | (167) |
Pier Park TPS JV | | | (3) | | | (6) |
Busy Bee JV | | | (27) | | | (33) |
Total equity in loss from unconsolidated affiliates | | $ | (123) | | $ | (206) |
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 was contributed to the JV by the Company in June 2020, with a contractual value of land and certain infrastructure improvements of $35.0 million. As of June 30, 2020, the Company’s investment in the unconsolidated Latitude Margaritaville Watersound JV includes $2.2 million of cash contributions and $16.6 million for the net present value of the land contribution. The initial present value of the land contribution was based on the Company’s best estimate of the prevailing market rates for the source of credit using an imputed interest rate of 5.75%. The Company continues to have a performance obligation to provide agreed upon infrastructure improvements in the vicinity of the contributed land, which will be recognized over time as improvements are completed. The transaction price was allocated based on the stand-alone selling prices of the land and agreed upon improvements. The first phase is estimated to include approximately 3,500 residential homes, which will be developed in smaller increments of discrete neighborhoods. As of June 30, 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 towards the development and construction of the main spine infrastructure and amenities. The Company’s unimproved land contribution and agreed upon infrastructure improvements will be returned at an average of $10,000 per home, as each home is sold by the JV. Per the JV agreement, the Company has provided interest-bearing financing in the form of a revolving 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. See Note 9. Other Assets for additional information related to the revolving promissory note. 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.
17
Summarized financial information for Latitude Margaritaville Watersound JV is as follows:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Investment in real estate (a) | | $ | 5,322 | | $ | 1,116 |
Cash and cash equivalents | |
| 166 | |
| 525 |
Other assets | |
| 2 | |
| — |
Total assets | | $ | 5,490 | | $ | 1,641 |
| |
|
| |
|
|
Debt | | $ | 55 | | $ | — |
Other liabilities | | | 304 | | | 58 |
Equity | | | 5,131 | | | 1,583 |
Total liabilities and equity | | $ | 5,490 | | $ | 1,641 |
| (a) | As of June 30, 2020, investment in real estate includes the land contributed to the Latitude Margaritaville Watersound JV at the Company’s historical cost basis of $1.3 million. |
| | | | | | |
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total expenses | | $ | 186 | | $ | 335 |
Net loss | | $ | (186) | | $ | (335) |
Sea Sound Apartments JV
FDSJ Eventide, LLC (“Sea Sound Apartments JV”) was created in January 2020. The Company entered into a JV agreement to develop, construct and manage a 300 unit apartment community in Panama City Beach, Florida. The community will be located near the Breakfast Point residential community on land that was contributed to the JV by the Company in January 2020, with a fair value of $5.1 million. In addition, during the six months ended June 30, 2020, the Company contributed mitigation bank credits of $0.4 million and cash of $1.9 million. During the six months ended June 30, 2020, the JV partner contributed $4.9 million of cash. The project is currently under development with 0 income or loss impacting the condensed consolidated statements of income for the three and six months ended June 30, 2020. As of June 30, 2020, the Company owned a 60.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Sea Sound Apartments 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 Sea Sound Apartments JV is accounted for using the equity method. In January 2020, the JV entered into a $40.3 million loan, maturing in January 2024 (the “Sea Sound Apartments JV Loan”). The Sea Sound Apartments JV Loan is secured by the real property, all assets of the borrower, assignment of leases and rents and the security interest in the rents and personal property. The Company’s JV partner is the sole guarantor of the Sea Sound Apartments JV Loan and will receive a fee related to the guarantee from the Company based on its ownership percentage. As of June 30, 2020, there was 0 principal balance outstanding and the JV incurred $0.5 million of loan costs related to the Sea Sound Apartments JV Loan.
18
Summarized financial information for Sea Sound Apartments JV is as follows:
| | | |
|
| June 30, | |
| | 2020 | |
BALANCE SHEET: |
| |
|
Investment in real estate | | $ | 14,705 |
Cash and cash equivalents | |
| 3 |
Other assets | |
| 509 |
Total assets | | $ | 15,217 |
| |
|
|
Other liabilities | | $ | 2,910 |
Equity | | | 12,307 |
Total liabilities and equity | | $ | 15,217 |
Pier Park TPS, LLC
Pier Park TPS, LLC (“Pier Park TPS JV”) was created in April 2018. The Company entered into a JV agreement to develop and operate a 124 room hotel in Panama City Beach, Florida. The hotel opened in May 2020 and is located on land in the Pier Park area that the Company contributed to the JV on January 14, 2019, with a fair value of $1.7 million. In addition, during the six months ended June 30, 2019, the Company contributed cash of $0.2 million and mitigation bank credits of $0.1 million. As of June 30, 2020 and December 31, 2019, the Company owned a 50.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Pier Park TPS 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 Pier Park TPS JV is accounted for using the equity method. See Note 18. Commitments and Contingencies for additional information related to debt guaranteed by the Company.
Summarized financial information for Pier Park TPS JV is as follows:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Property and equipment, net | | $ | 18,502 | | $ | 14,775 |
Cash and cash equivalents | |
| 366 | |
| 51 |
Other assets | |
| 512 | |
| 12 |
Total assets | | $ | 19,380 | | $ | 14,838 |
| |
|
| |
|
|
Debt, net | | $ | 12,969 | | $ | 6,480 |
Other liabilities | | | 1,952 | | | 2,193 |
Equity | | | 4,459 | | | 6,165 |
Total liabilities and equity | | $ | 19,380 | | $ | 14,838 |
19
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total revenue | | $ | 533 | | $ | 533 |
| | | | | | |
Cost of revenue | | | 251 | | | 251 |
Expenses | | | 260 | | | 260 |
Total expenses | | | 511 | | | 511 |
Operating income | | | 22 | | | 22 |
Interest expense | | | (34) | | | (34) |
Net loss | | $ | (12) | | $ | (12) |
SJBB, LLC
SJBB, LLC (“Busy Bee JV”) was created in July 2019, when the Company entered into a JV agreement to construct, own and manage a Busy Bee branded fuel station and convenience store in Panama City Beach, Florida. The project is located on land that the Company contributed to the JV on July 5, 2019. Construction of the fuel station and convenience store was completed on June 29, 2020. The investment in the unconsolidated JV of $1.2 million as of June 30, 2020 and December 31, 2019 includes $1.4 million for the fair value of land contributed by the Company, which was offset by a $0.2 million note receivable from the JV partner. As of June 30, 2020 and December 31, 2019, the Company owned a 50.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Busy Bee 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 Busy Bee JV is accounted for using the equity method. See Note 18. Commitments and Contingencies for additional information related to debt guaranteed by the Company.
Summarized financial information for Busy Bee JV is as follows:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Property and equipment, net | | $ | 8,301 | | $ | 3,886 |
Cash and cash equivalents | |
| 45 | |
| 36 |
Other assets | |
| 883 | |
| 28 |
Total assets | | $ | 9,229 | | $ | 3,950 |
| |
|
| |
|
|
Debt, net | | $ | 6,301 | | $ | 1,349 |
Other liabilities | | | 553 | | | 181 |
Equity | | | 2,375 | | | 2,420 |
Total liabilities and equity | | $ | 9,229 | | $ | 3,950 |
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total expenses | | $ | 54 | | $ | 65 |
Net loss | | $ | (54) | | $ | (65) |
20
5. Investments
Available-For-Sale Investments
Investments classified as available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||||||
|
|
|
|
| Gross Unrealized |
| Gross Unrealized |
|
|
| ||
|
| Amortized Cost |
| Gains |
| (Losses) |
| Fair Value | ||||
Investments - debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
| $ | 2,928 |
| $ | — |
| $ | (96) |
| $ | 2,832 |
|
|
| 2,928 |
|
| — |
|
| (96) |
|
| 2,832 |
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bond |
|
| 2,210 |
|
| 11 |
|
| — |
|
| 2,221 |
Money market fund |
|
| 113 |
|
| — |
|
| — |
|
| 113 |
|
|
| 2,323 |
|
| 11 |
|
| — |
|
| 2,334 |
|
| $ | 5,251 |
| $ | 11 |
| $ | (96) |
| $ | 5,166 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| December 31, 2018 | ||||||||||||||||||||||
|
|
|
|
| Gross Unrealized |
| Gross Unrealized |
|
|
| ||||||||||||||
|
| Amortized Cost |
| Gains |
| (Losses) |
| Fair Value | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | June 30, 2020 | ||||||||||||||||||||||
|
| | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||||||||||||||
| | Amortized Cost | | Gains | | (Losses) | | Fair Value | ||||||||||||||||
Investments - debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
U.S. Treasury securities |
| $ | 6,936 |
| $ | 1 |
| $ | — |
| $ | 6,937 | ||||||||||||
U.S. Treasury Bills | | $ | 49,962 | | $ | — | | $ | (18) | | $ | 49,944 | ||||||||||||
Corporate debt securities |
|
| 2,908 |
|
| — |
|
| (887) |
|
| 2,021 | | | 52 | | | — | | | — | | | 52 |
|
|
| 9,844 |
|
| 1 |
|
| (887) |
|
| 8,958 | ||||||||||||
| |
| 50,014 | |
| — | |
| (18) | |
| 49,996 | ||||||||||||
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Short-term bond |
|
| 3,274 |
|
| — |
|
| (9) |
|
| 3,265 | |
| 1,163 | |
| 13 | |
| — | |
| 1,176 |
Money market fund |
|
| 167 |
|
| — |
|
| — |
|
| 167 | ||||||||||||
|
|
| 3,441 |
|
| — |
|
| (9) |
|
| 3,432 | ||||||||||||
|
| $ | 13,285 |
| $ | 1 |
| $ | (896) |
| $ | 12,390 | ||||||||||||
| |
| 1,163 | |
| 13 | |
| — | |
| 1,176 | ||||||||||||
| | $ | 51,177 | | $ | 13 | | $ | (18) | | $ | 51,172 | ||||||||||||
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||
| | Amortized Cost | | Gains | | (Losses) | | Fair Value | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
Corporate debt securities | | $ | 178 | | $ | — | | $ | (125) | | $ | 53 |
| |
| 178 | |
| — | |
| (125) | |
| 53 |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 2,239 | |
| 11 | |
| — | |
| 2,250 |
Money market fund | |
| 114 | |
| — | |
| — | |
| 114 |
| |
| 2,353 | |
| 11 | |
| — | |
| 2,364 |
| | $ | 2,531 | | $ | 11 | | $ | (125) | | $ | 2,417 |
During the three months ended June 30, 2020 there were 0 realized gains or losses from the sale of available-for-sale securities. During the six months ended June 30, 2020 net realized gains from the sale of available-for-sale securities were less than $0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, maturities of available-for-sale investments were $7.0 million and purchases of available-for-sale securities were $56.9 million.
During the three months ended June 30, 2019 there were no0 realized gains or losses from the sale of available-for-sale securities. During the six months ended June 30, 2019 net realized losses from the sale of available-for-sale securities were less than $0.1 million. During six months ended June 30, 2019$0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, and purchasesmaturities of available-for-sale securitiesinvestments were less than $0.1 million.
15
During the six months ended June 30, 2018, net realized losses from the sale of available for-sale securities were $1.1 million, proceeds from the sale of available-for-sale securities were $64.6$7.0 million and purchases of available-for sale securities were less than $0.1 million.
21
The following table provides the available-for-sale investments unrealized loss position and related fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||||||
|
| Less Than 12 Months |
| 12 Months or Greater | ||||||||
|
|
|
|
| Unrealized |
|
|
|
| Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
| $ | — |
| $ | — |
| $ | 2,832 |
| $ | 96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
| Less Than 12 Months |
| 12 Months or Greater | ||||||||
|
|
|
|
| Unrealized |
|
|
|
| Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
| $ | — |
| $ | — |
| $ | 1,843 |
| $ | 887 |
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bond |
|
| — |
|
| — |
|
| 3,265 |
|
| 9 |
|
| $ | — |
| $ | — |
| $ | 5,108 |
| $ | 896 |
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
| | Less Than 12 Months | | 12 Months or Greater | ||||||||
| | | | | Unrealized | | | | | Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury Bills | | $ | 42,954 | | $ | 18 | | $ | — | | $ | — |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
| | Less Than 12 Months | | 12 Months or Greater | ||||||||
| | | | | Unrealized | | | | | Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
Corporate debt securities | | $ | — | | $ | — | | $ | 53 | | $ | 125 |
As of June 30, 2019,2020, the Company had unrealized losses of less than $0.1 million related to U.S. Treasury Bills. The Company had unrealized losses of $0.1 million as of December 31, 2019 related to corporate debt securities. The Company had unrealized losses of $0.9 million as of December 31, 2018 related to corporate debt securities and restricted investments. As of June 30, 20192020, the Company determined unrealized losses related to U.S. Treasury Bills were not due to credit impairment and did not record an allowance for credit losses related to available-for-sale debt securities. As of June 30, 2020 and December 31, 2018,2019, the Company did not intend to sell the investments with a material unrealized loss and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery, which could be maturity. During the six months ended June 30, 2018, the Company determined unrealized losses related to its corporate debt securities were other-than-temporarily impaired and recorded an impairment of $0.1 million for credit-related loss in investment income, net in the Company’s condensed consolidated statements of income.recovery.
The amortized cost and estimated fair value of investments - debt securities and restricted investments classified as available-for-sale, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities since certain borrowers have the right to call or prepay obligations.
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||
|
| Amortized Cost |
| Fair Value | ||
Due in one year or less |
| $ | 2,928 |
| $ | 2,832 |
Restricted investments |
|
| 2,323 |
|
| 2,334 |
|
| $ | 5,251 |
| $ | 5,166 |
| | | | | | |
| | June 30, 2020 | ||||
|
| Amortized Cost |
| Fair Value | ||
Due in one year or less | | $ | 50,014 | | $ | 49,996 |
Restricted investments | |
| 1,163 | |
| 1,176 |
| | $ | 51,177 | | $ | 51,172 |
Investments - Equity Securities
As of June 30, 20192020 and December 31, 20182019 investments - equity securities included $36.3$2.4 million and $36.1$9.7 million, respectively, of preferred stock investments recorded at fair value. During the three and six months ended June 30, 2020 and 2019 the Company had an unrealized loss on investments -– equity securities of $0.1 million and $1.9 million, andrespectively. During the six months ended June 30, 2020 the Company had an unrealized loss on investments – equity securities of $4.9 million, compared to an unrealized gain on investments – equity securities of $0.1 million respectively. Duringduring the three and six months ended June 30, 2018 the Company had an unrealized gain on investments – equity securities of $1.3 million and $0.7 million, respectively.2019. These amounts were included within investment income, net on the condensed consolidated statements of income.
16
Investment Management Agreement
Mr. Bruce R. Berkowitz is the Chairman of the Company’s Board of Directors (the “Board”). He is the Manager of, and controls entities that own and control, Fairholme Holdings, LLC (“Fairholme”), which wholly owns Fairholme Capital Management, L.L.C. (“FCM”, an investment advisor registered with the SEC) and the Fairholme Trust Company, L.L.C. (“FTC”, a non-depository trust company regulated by the Florida Office of Financial Regulation). Mr. Berkowitz is the Chief Investment Officer of FCM, and the Chief Executive Officer and a director of FTC. Since April 2013, FCMwhich has provided investment advisory services to the Company directly, or more recently, as the sub-advisor to FTC. Neithersince April 2013. FCM nor FTC receivesdoes not receive any compensation for services as the Company’s investment advisor. As of June 30, 2019,2020, clients of FCM, and FTCincluding Mr. Berkowitz, beneficially owned approximately 41.43% of the Company’s common stock and Fairholme, including Mr. Berkowitz and clients of FCM and FTC, collectively beneficially owned 44.03%44.99% of the Company’s common stock. FCM and its client, The Fairholme Fund, a series of the Fairholme Funds, Inc., may be deemed affiliates of the Company.
Both Mr. Cesar Alvarez and Mr. Howard Frank are members22
Pursuant to the terms of an Investment Management Agreement, as amended, with the Company (the “Investment Management Agreement”), FTCFCM agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Investment Committee of the Company’s Board.Company. The investment guidelines are set forth in the Investment Management Agreement and require that, as of the date of any investment: (i) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government), (ii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10% of the investment account, but not 15%, requires the consentapproval by a second member of at least two members of the Investment Committee,Company’s Board, (iii) 25% of the investment account must be held in cash or cash equivalents, (iv) the investment account is permitted to be invested in common equity securities; however, common stock investments shall be limited to exchange-traded common equities, shall not exceed 5% ownership of a single issuer and, cumulatively, the common stock held in the Company’s investment portfolio shall not exceed $100.0 million market value, and (v) the aggregate market value of investments in common stock, preferred stock or other equity investments cannot exceed 25% of the market value of the Company’s investment portfolio at the time of purchase.
17
5.6. Financial Instruments and Fair Value Measurements
Fair Value Measurements
The financial instruments measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
|
| | |
| | |
| | |
| Total Fair | |
| | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | 86,951 | | $ | — | | $ | — | | $ | 86,951 |
| |
| 86,951 | |
| — | |
| — | |
| 86,951 |
| | | | | | | | | | | | |
Investments - debt securities: | | | | | | | | | | | | |
U.S. Treasury Bills | | | 49,944 | | | — | | | — | | | 49,944 |
Corporate debt securities | | | — | | | 52 | | | — | | | 52 |
| | | 49,944 | | | 52 | | | — | | | 49,996 |
| | | | | | | | | | | | |
Investments - equity securities: | | | | | | | | | | | | |
Preferred stock | | | — | | | 2,415 | | | — | | | 2,415 |
| | | — | | | 2,415 | | | — | | | 2,415 |
| | | | | | | | | | | | |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 1,176 | |
| — | |
| — | |
| 1,176 |
| |
| 1,176 | |
| — | |
| — | |
| 1,176 |
| | $ | 138,071 | | $ | 2,467 | | $ | — | | $ | 140,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||||||
|
|
|
|
|
|
|
|
|
|
| Total Fair | |
|
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 1,816 |
| $ | — |
| $ | — |
| $ | 1,816 |
Commercial paper |
|
| 154,241 |
|
| — |
|
| — |
|
| 154,241 |
U.S. Treasury securities |
|
| 6,982 |
|
| — |
|
| — |
|
| 6,982 |
|
|
| 163,039 |
|
| — |
|
| — |
|
| 163,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments - debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
| — |
|
| 2,832 |
|
| — |
|
| 2,832 |
|
|
| — |
|
| 2,832 |
|
| — |
|
| 2,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments - equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
| 10,792 |
|
| 25,478 |
|
| — |
|
| 36,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bond |
|
| 2,221 |
|
| — |
|
| — |
|
| 2,221 |
Money market fund |
|
| 113 |
|
| — |
|
| — |
|
| 113 |
|
|
| 2,334 |
|
| — |
|
| — |
|
| 2,334 |
|
| $ | 176,165 |
| $ | 28,310 |
| $ | — |
| $ | 204,475 |
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
|
|
|
|
|
|
|
|
|
| Total Fair | |
|
| Level 1 |
| Level 2 |
| Level 3 |
| Value | ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 43,346 |
| $ | — |
| $ | — |
| $ | 43,346 |
Commercial paper |
|
| 107,586 |
|
| — |
|
| — |
|
| 107,586 |
U.S. Treasury securities |
|
| 29,998 |
|
| — |
|
| — |
|
| 29,998 |
|
|
| 180,930 |
|
| — |
|
| — |
|
| 180,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments - debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
| 6,937 |
|
| — |
|
| — |
|
| 6,937 |
Corporate debt securities |
|
| — |
|
| 2,021 |
|
| — |
|
| 2,021 |
|
|
| 6,937 |
|
| 2,021 |
|
| — |
|
| 8,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments - equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
| 10,470 |
|
| 25,662 |
|
| — |
|
| 36,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bond |
|
| 3,265 |
|
| — |
|
| — |
|
| 3,265 |
Money market fund |
|
| 167 |
|
| — |
|
| — |
|
| 167 |
|
|
| 3,432 |
|
| — |
|
| — |
|
| 3,432 |
|
| $ | 201,769 |
| $ | 27,683 |
| $ | — |
| $ | 229,452 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| | |
| | |
| | |
| Total Fair | |
| | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | 21,043 | | $ | — | | $ | — | | $ | 21,043 |
Commercial paper | |
| 138,220 | |
| — | |
| — | |
| 138,220 |
U.S. Treasury Bills | | | 6,990 | | | — | | | — | | | 6,990 |
| |
| 166,253 | |
| — | |
| — | |
| 166,253 |
| | | | | | | | | | | | |
Investments - debt securities: | | | | | | | | | | | | |
Corporate debt securities | | | — | | | 53 | | | — | | | 53 |
| | | — | | | 53 | | | — | | | 53 |
| | | | | | | | | | | | |
Investments - equity securities: | | | | | | | | | | | | |
Preferred stock | | | — | | | 9,746 | | | — | | | 9,746 |
| | | — | | | 9,746 | | | — | | | 9,746 |
| |
| | | | | | | | | | |
Restricted investments: | | | | | | | | | | | | |
Short-term bond | |
| 2,250 | |
| — | |
| — | |
| 2,250 |
Money market fund | |
| 114 | |
| — | |
| — | |
| 114 |
| |
| 2,364 | |
| — | |
| — | |
| 2,364 |
| | $ | 168,617 | | $ | 9,799 | | $ | — | | $ | 178,416 |
Money market funds, commercial paper, U.S. Treasury securities, certain preferred stock investmentsBills and short-term bonds are measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. Money market funds, commercial paper and short term U.S. Treasury securitiesBills with a maturity date of
18
90 days or less from the date of purchase are classified as cash equivalents in the Company’s condensed consolidated balance sheets.
The Company’s corporate debt securities and certain preferred stock investments are not traded on a nationally recognized exchange, but are traded in the U.S. over-the-counter market where there is less trading activity and the investments are measured primarily using pricing data from external pricing services that report prices observed for recently executed market transactions. For these reasons, the Company has determined that corporate debt securities and certain preferred stock investments are categorized as Level 2 financial instruments since their fair values were determined from market inputs in an inactive market.
Restricted investments are included within other assets on the condensed consolidated balance sheets and include certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) Plan in December 2014. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. As of June 30, 20192020 and December 31, 2018,2019, the assets held in the suspense account were invested in Vanguard Money Market Funds, which invest in short-term, high quality securities or short-term U.S. government securities and seek to provide current income and preserve shareholders’ principal investment and a Vanguard Short-Term Bond Fund, which invests in money market instruments and short-term high quality bonds, including asset-backed, government, and investment grade corporate securities with an expected maturity of 0‑30-3 years. As of December 31, 2019 the assets held in the suspense account were also invested in Vanguard Money Market Funds, which invest in short-term, high quality securities or short-term U.S. government securities and seek to provide current income and preserve shareholders’ principal investment. The Vanguard Money Market Funds and Vanguard Short-Term Bond Fund are measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. The Company’s Retirement Plan Investment Committee is responsible for investing decisions and allocation decisions of the suspense account. Refer to Note 8. 9. Other Assets.
24
Liabilities measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | | | |
| | | | June 30, 2020 | ||||||||||
| | Location in |
| | |
| | |
| | |
| Total Fair | |
| | Balance Sheet | | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Derivative Liabilities: | | | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | | Other liabilities | | $ | — | | $ | 1,202 | | $ | — | | $ | 1,202 |
Interest rate swap - unconsolidated affiliate | | Investment in unconsolidated joint ventures | | | — | | | 841 | | | — | | | 841 |
| | | | $ | — | | $ | 2,043 | | $ | — | | $ | 2,043 |
| | | | | | | | | | | | | | |
| | | | December 31, 2019 | ||||||||||
| | Location in |
| | |
| | |
| | |
| Total Fair | |
| | Balance Sheet | | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Derivative Liabilities: | | |
| |
|
| |
|
| |
|
| |
|
Interest rate swap | | Other liabilities | | $ | — | | $ | 336 | | $ | — | | $ | 336 |
| | | | $ | — | | $ | 336 | | $ | — | | $ | 336 |
In June 2019 the Watercrest JV entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amount of related debt of $20.0 million. As of June 30, 2020 and December 31, 2019, the interest rate swap was recorded at its estimated fair value, based on Level 2 measurements, of $1.2 million and $0.3 million, respectively, and is included within other liabilities on the condensed consolidated balance sheet. The gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive (loss) income into interest expense during the three and six months ended June 30, 2020. See Note 10. Debt for additional information.
In January 2019 the Pier Park TPS JV, which is unconsolidated and accounted for using the equity method, entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective January 14, 2021 and matures on January 14, 2026 and fixed the variable rate debt on the notional amount of related debt of $14.4 million. As of June 30, 2020, the interest rate swap was recorded at the Company’s proportionate share of its estimated fair value, based on Level 2 measurements, of $0.8 million and is included within investment in unconsolidated joint ventures on the condensed consolidated balance sheet. The gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive (loss) income into equity in loss from unconsolidated affiliates during the three and six months ended June 30, 2020. See Note 4. Real Estate Joint Ventures and Note 18. Commitments and Contingencies for additional information.
Investment in Unconsolidated Joint Ventures
The Company evaluates its investment in unconsolidated JVs for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of the Company’s investment in the unconsolidated JV has occurred. The amount of impairment recognized is the excess of the investment’s carrying value over its estimated fair value. The fair value of the Company’s investment in unconsolidated JVs is determined primarily using a discounted cash flow model to value the underlying net assets of the respective JV. The fair value of investment in unconsolidated JVs required to be assessed for impairment is determined on a nonrecurring basis using Level 3 inputs in the fair value hierarchy. NaN impairment for unconsolidated JVs was recorded during the three and six months ended June 30, 2020 and 2019. See Note 4. Real Estate Joint Ventures for additional information.
25
Fair Value of Financial Instruments
The Company uses the following methods and assumptions in estimating fair value for financial instruments:
| The fair value of the investments held by SPEs - time deposit is based on the present value of future cash flows at the current market rate. |
| The fair value of the investments held by SPEs - U.S. Treasury |
| The fair value of debt is based on discounted future expected cash flows based on current market rates forfinancial instruments with similar risks, terms and maturities. |
● | The fair value of the senior notes held by SPE is based on the present value of future cash flows at the current market rate. |
The carrying amount and estimated fair value, measured on a nonrecurring basis, of the Company’s financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 |
| December 31, 2018 | ||||||||||||
|
| Carrying |
|
|
|
|
|
| Carrying |
|
|
|
|
| ||
|
| value |
| Fair value |
| Level |
| value |
| Fair value |
| Level | ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held by SPEs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposit |
| $ | 200,000 |
| $ | 200,000 |
| 3 |
| $ | 200,000 |
| $ | 200,000 |
| 3 |
U.S. Treasury securities and cash |
| $ | 7,055 |
| $ | 6,997 |
| 1 |
| $ | 7,384 |
| $ | 7,092 |
| 1 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes held by SPE |
| $ | 176,899 |
| $ | 204,080 |
| 3 |
| $ | 176,775 |
| $ | 193,293 |
| 3 |
| | | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||||||
|
| Carrying |
| Estimated |
| |
| Carrying |
| Estimated |
| | ||||
| | value | | Fair value | | Level | | value | | Fair value | | Level | ||||
Assets |
| |
|
| |
|
|
|
| |
|
| |
|
|
|
Investments held by SPEs: | |
|
| |
|
|
|
| |
|
| |
|
|
|
|
Time deposit | | $ | 200,000 | | $ | 200,000 |
| 3 | | $ | 200,000 | | $ | 200,000 |
| 3 |
U.S. Treasury Bills and cash | | $ | 6,438 | | $ | 6,731 |
| 1 | | $ | 6,771 | | $ | 6,712 |
| 1 |
Liabilities | |
| | |
| |
|
| |
|
| |
|
|
|
|
Debt | | | | | | | | | | | | | | | | |
Fixed-rate debt | | $ | 101,123 | | $ | 109,232 | | 2 | | $ | 89,969 | | $ | 92,276 | | 2 |
Variable-rate debt | | | 21,857 | | | 21,857 | | 2 | | | 4,538 | | | 4,538 | | 2 |
Total debt | | $ | 122,980 | | $ | 131,089 | | | | $ | 94,507 | | $ | 96,814 | | |
Senior Notes held by SPE | | $ | 177,156 | | $ | 222,866 |
| 3 | | $ | 177,026 | | $ | 204,347 |
| 3 |
Investments and Senior Notes Held by Special Purpose Entities
In connection with a real estate sale in 2014, the Company received consideration including a $200.0 million fifteen-year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC. The Company contributed the Timber Note and assigned its rights as a beneficiary under a letter of credit to Northwest Florida Timber Finance, LLC. Northwest Florida Timber Finance, LLC monetized the Timber Note by issuing $180.0 million aggregate principal amount of its 4.8% Senior Secured Notes due in 2029 (the “Senior Notes”) at an issue price of 98.5% of face
19
value to third party investors. The investments held by Panama City Timber Finance Company, LLC as of June 30, 2019,2020, consist of a $200.0 million time deposit that, subsequent to April 2, 2014, pays interest at 4.0% and matures in March 2029, U.S. Treasuries of $6.7$6.0 million and cash of $0.4 million. The Senior Notes held by Northwest Florida Timber Finance, LLC as of June 30, 20192020 consist of $176.9$177.2 million, net of the $3.1$2.8 million discount and debt issuance costs. Panama City Timber Finance Company, LLC and Northwest Florida Timber Finance, LLC are VIEs, which the Company consolidates as the primary beneficiary of each entity.
6.7. Hurricane Michael
On October 10, 2018, Hurricane Michael made landfall in the Florida Panhandle, which resulted in widespread damage to the area. The majority of the Company’s properties incurred minimal or no damage; however the Company’s Bay Point Marina in Bay County and Port St. Joe Marina in Gulf County, as well as certain timber, commercial and commercialmulti-family leasing assets were impacted. The marinas suffered significant damage requiring long-term restoration and will remain closed during the reconstruction of significant portions of these assets, which is currently underway.
26
The Company maintains property and business interruption insurance, subject to certain deductibles, and is continuing to assess claims under such policies; however, the timing and amount of insurance proceeds are uncertain and may not be sufficient to cover all losses. Timing differences are likely to exist between the impairment losses, capital expenditures made to repair or restore properties and recognition and receipt of insurance proceeds reflected in the Company’s financial statements.
GAAP guidance provides that property damaged by a natural disaster be evaluated for impairment loss inDuring the periodthree months ended June 30, 2020, the loss occurs, recording an insurance receivable for the lesser of the expected net insurance recovery or the net book value of damaged assets that are planned to be replaced. Insurance recoveries forCompany did 0t receive any business interruption clean-up and demolition costs, post-event costs or property damage in excessinsurance proceeds. During the six months ended June 30, 2020, $0.7 million of net book value will be recognized in income inbusiness interruption insurance proceeds were received related to the period received or when all contingencies associated withPier Park Crossings JV, included within the recoveries are resolved andcost of leasing revenue on the insurance companies have committed to a recovery amount. condensed consolidated statements of income. During the three and six months ended June 30, 2019, $1.3 million of insurance proceeds were received related to business interruption insurance, included within the cost of hospitality revenue on the condensed consolidated statements of income. Costs incurred due to business interruption, primarily at the marinas, are continuing to be evaluated. The Company does not expect revenue at these locations until the properties have been rebuilt, but will incur costs for employee retention and property maintenance.
During the fourth quarter of 2018,three and six months ended June 30, 2020, the Company recorded a lossdid 0t recognize any gain on disposal of assets related to the net book value of the marinas and certain forestry and commercial leasing assets.insurance recovery. During the three and six months ended June 30, 2019, the Company recognized a $3.8 million and $4.1 million, respectively, ofgain on insurance proceeds,recovery, included in other income, net on the condensed consolidated statements of income.
During the three and six months ended June 30,��2020, the Company incurred loss from hurricane damage of $0.4 million and $0.5 million, respectively. During the three and six months ended June 30, 2019, the Company has incurred costsloss from hurricane damage of $0.8 million and $1.1 million, respectively forrespectively. Loss from hurricane damage includes additional hurricane expenses forexpense items such as repairs, clean-up costs, landscape repairs, demolition costs, professional fees, damaged inventory and temporary housing for employees included in other income, net on the condensed consolidated statements of income.
The Company expects that its results of operations related to the marinas and timber assets will be impacted in the near term.
20
7.8. Leases
Leasing revenue consists of rental revenue from multi-family, retail, office and commercial property, cell towers and other assets, which is recognized as earned, using the straight-line method over the life of each lease. The Company’s leases have remaining lease terms up to the year 2036, some of which include options to terminate or extend.
The components of leasing revenue are as follows:
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||
| June 30, 2019 |
| June 30, 2019 | ||
Leasing revenue |
|
|
|
|
|
Lease payments | $ | 2,724 |
| $ | 5,404 |
Variable lease payments |
| 950 |
|
| 1,777 |
Total leasing revenue | $ | 3,674 |
| $ | 7,181 |
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2020 | | 2019 | | 2020 | | 2019 | ||||
Leasing revenue | | | | | | | | | | | |
Lease payments | $ | 3,772 | | $ | 2,724 | | $ | 7,154 | | $ | 5,404 |
Variable lease payments | | 1,135 | | | 950 | | | 2,052 | | | 1,777 |
Total leasing revenue | $ | 4,907 | | $ | 3,674 | | $ | 9,206 | | $ | 7,181 |
Minimum future base rental revenue on non-cancelable leases subsequent to June 30, 2019,2020, for the next five years ending December 31 are:
| | | |
|
| |
|
2020 | | $ | 7,458 |
2021 | |
| 11,490 |
2022 | |
| 10,243 |
2023 | |
| 8,158 |
2024 | | | 6,913 |
Thereafter | | | 17,293 |
| | $ | 61,555 |
|
|
|
|
|
|
|
|
2019 |
| $ | 5,725 |
2020 |
|
| 11,016 |
2021 |
|
| 9,810 |
2022 |
|
| 8,977 |
2023 |
|
| 7,010 |
|
| $ | 42,538 |
27
As of June 30, 2019,2020, the Company leased certain office equipment under a finance lease and had operating leases for property and equipment used in corporate, hospitality and commercial operations with remaining lease terms up to the year 2024.2049. Certain leases include options to purchase, terminate or renew for one or more years, which are included in the lease term used to establish right-of-use assets and lease liabilities when it is reasonably certain that the option will be exercised. Finance lease right-of-use assets are included within property, plant and equipment and operating lease right-of-use assets are included within other assets on the condensed consolidated balance sheets, which represent the Company’s right to use an underlying asset during a lease term for leases in excess of one year. Corresponding finance lease liability and operating lease liabilities are included within other liabilities on the condensed consolidated balance sheets and are related to the Company’s obligation to make lease payments for leases in excess of one year. Prior to the adoption ASU 2016-02 on January 1, 2019 lease assets and liabilities for operating leases were not recognized. The Company uses its incremental borrowing rate to determine the present value of the lease payments since the rate implicit in each lease is not readily determinable.
21
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||
| June 30, 2019 |
| June 30, 2019 | ||
Lease cost |
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
Amortization of right-of-use assets | $ | 12 |
| $ | 16 |
Interest on lease liability |
| 3 |
|
| 4 |
Operating lease cost |
| 53 |
|
| 105 |
Short-term lease cost |
| 237 |
|
| 301 |
Total lease cost | $ | 305 |
| $ | 426 |
|
|
|
|
|
|
Other information |
|
|
|
|
|
Weighted-average remaining lease term - finance lease (in years) |
|
|
|
| 4.7 |
Weighted-average remaining lease term - operating leases (in years) |
|
|
|
| 1.7 |
Weighted-average discount rate - finance lease |
|
|
|
| 5.0% |
Weighted-average discount rate - operating leases |
|
|
|
| 5.0% |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
| 2020 | | 2019 | | 2020 | | 2019 | | ||||
Lease cost | | | | | | | | | | | | |
Finance lease cost: | | | | | | | | | | | | |
Amortization of right-of-use assets | $ | 13 | | $ | 12 | | $ | 25 | | $ | 16 | |
Interest on lease liability |
| 2 | |
| 3 | |
| 5 | |
| 4 | |
Operating lease cost |
| 72 | |
| 53 | |
| 137 | |
| 105 | |
Short-term lease cost |
| 277 | |
| 237 | |
| 351 | |
| 301 | |
Total lease cost | $ | 364 | | $ | 305 | | $ | 518 | | $ | 426 | |
| | | | | | | | | | | | |
Other information | | | | | | | | | | | | |
Weighted-average remaining lease term - finance lease (in years) | | | | | | | | 4.1 | | | 4.7 | |
Weighted-average remaining lease term - operating leases (in years) | | | | | | | | 2.6 | | | 1.7 | |
Weighted-average discount rate - finance lease | | | | | | | | 5.0 | % | | 5.0 | % |
Weighted-average discount rate - operating leases | | | | | | | | 5.0 | % | | 5.0 | % |
The aggregate payments of finance lease liability subsequent to June 30, 2019,2020, for the years ending December 31 are:
| | | |
2020 | | $ | 29 |
2021 | |
| 58 |
2022 | |
| 58 |
2023 | |
| 58 |
2024 | | | 12 |
Thereafter | | | 1 |
Total | | | 216 |
Less imputed interest | | | (19) |
Total finance lease liability | | $ | 197 |
|
|
|
|
2019 |
| $ | 27 |
2020 |
|
| 54 |
2021 |
|
| 54 |
2022 |
|
| 54 |
2023 |
|
| 54 |
Thereafter |
|
| 10 |
Total |
|
| 253 |
Less imputed interest |
|
| (27) |
Total finance lease liability |
| $ | 226 |
28
The aggregate payments of operating lease liabilities subsequent to June 30, 2019,2020, for the years ending December 31 are:
|
|
|
| |||
2019 |
| $ | 91 | |||
| | | | |||
2020 |
|
| 149 | | $ | 139 |
2021 |
|
| 82 | |
| 214 |
2022 |
|
| 5 | |
| 126 |
2023 |
|
| 2 | |
| 83 |
2024 | | | 13 | |||
Thereafter | | | 293 | |||
Total |
|
| 329 | | | 868 |
Less imputed interest |
|
| (17) | | | (196) |
Total operating lease liabilities |
| $ | 312 | | $ | 672 |
8.9. Other Assets
Other assets consist of the following:
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
Restricted investments |
| $ | 2,334 |
| $ | 3,432 |
Accounts receivable, net |
|
| 9,899 |
|
| 14,061 |
Homesite sales receivable |
|
| 3,775 |
|
| 2,977 |
Claim settlement receivable |
|
| 2,720 |
|
| 2,679 |
Notes receivable |
|
| 3,155 |
|
| 2,265 |
Income tax receivable |
|
| 3,504 |
|
| 3,914 |
Prepaid expenses |
|
| 7,905 |
|
| 6,751 |
Straight-line rent |
|
| 3,480 |
|
| 3,581 |
Operating lease right-of-use assets |
|
| 312 |
|
| — |
Investment in unconsolidated joint venture |
|
| 3,089 |
|
| 1,105 |
Other assets |
|
| 6,451 |
|
| 5,069 |
Retained interest investments |
|
| 11,935 |
|
| 11,536 |
Accrued interest receivable for Senior Notes held by SPE |
|
| 2,938 |
|
| 2,938 |
Total other assets |
| $ | 61,497 |
| $ | 60,308 |
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Restricted investments | | $ | 1,176 | | $ | 2,364 |
Accounts receivable, net | | | 8,190 | | | 6,957 |
Homesite sales receivable | | | 4,919 | | | 5,211 |
Notes receivable, net | |
| 3,084 | |
| 3,252 |
Income tax receivable | | | 2,487 | | | 2,843 |
Prepaid expenses | |
| 8,119 | |
| 6,592 |
Straight-line rent | |
| 3,261 | |
| 3,292 |
Operating lease right-of-use assets | | | 672 | | | 691 |
Other assets | |
| 7,639 | |
| 5,715 |
Retained interest investments | | | 12,492 | | | 12,214 |
Accrued interest receivable for Senior Notes held by SPE | |
| 2,938 | |
| 2,938 |
Total other assets | | $ | 54,977 | | $ | 52,069 |
Restricted Investments
RestrictedThe Company’s restricted investments include certainare related to the Company’s deferred compensation plan. As part of the surplus assets that were transferred fromPension Plan termination in 2014, the Company’sCompany directed the Pension Plan to transfer the Pension Plan’s surplus assets into a suspense account in the Company’s 401(k) Plan in December 2014.plan. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statementsbalance sheets until they are allocated to participants. The Company expenses the fair value of the assets at the time the assets are allocated tocurrent or future 401(k) plan participants which is expected to be allocated up towithin the next two years.year. During both the six months ended June 30, 20192020 and 2018,2019, the Company recorded an expense of $1.2 million and $1.1 million, respectively, for the fair value of the assets, less expenses that were allocated to participants. Any gain or loss on these assets is reflected in the Company’s condensed consolidated statements of income and was less than a $0.1 million loss for the three months ended June 30, 2020 and less than a $0.1 million gain for the six months ended June 30, 2020. Both the three and six months ended June 30, 2019 and 2018.included a $0.1 million loss related to the restricted investments. Refer to Note 5. 6. Financial Instruments and Fair Value Measurements.
Accounts Receivable, Net
The Company’s accounts receivable, net primarily include receivables related to certain homesite sales, leasing receivables, membership initiation fees, hospitality receivables and other receivables. At each reporting period accounts receivable in the scope of Topic 326 are pooled by type and judgements are made based on historical losses and expected credit losses based on economic trends to determine the allowance for credit losses primarily using the aging method. Actual losses could differ from those estimates. Write-offs are recorded when the Company concludes that all or
29
a portion of the receivable is no longer collectible and recoveries on receivables previously charged-off are credited to the allowance. As of June 30, 2020, accounts receivable were presented net of allowance for credit losses of $0.2 million and net of allowance for lease related receivables of $0.1 million. As of December 31, 2018,2019, allowance for doubtful accounts receivable net included $6.7 million of insurance proceeds receivable from the Company’s insurance carriers for property damage related to Hurricane Michael, which were received duringwas $0.3 million. During the six months ended June 30, 2019. See Note 6. Hurricane Michael2020, allowance for additional information.credit losses related to accounts receivable, net increased less than $0.1 million.
Homesite Sales ReceivablePier Park Crossings JV
Homesite sales receivable from contractsIn 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 June 30, 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 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 June 30, 2020 and December 31, 2019.
Pier Park North JV
During 2012, the Company entered into a JV agreement with customers include estimated homesite residualsa partner to develop a retail center at Pier Park North. As of June 30, 2020 and certain estimated feesDecember 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 approves all major decisions, including project development, annual budgets and financing. The Company determined the Pier Park North JV is a VIE and that are recognizedthe Company is the VIE’s primary beneficiary as revenue atof June 30, 2020 and December 31, 2019.
Unconsolidated Joint Ventures
Investment in unconsolidated joint ventures includes the time of sale to homebuilders, subject to constraints. Any change in circumstances fromCompany’s investment accounted for using the estimated amounts will be updated at each reporting period. The receivable will be collected as the homebuilders build the homes and sell to retail consumers, which can occur over multiple years. equity method. The following table presents detail of the changesCompany’s investment in homesite sales receivable:unconsolidated joint ventures and total outstanding debt of unconsolidated JVs:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Investment in unconsolidated joint ventures |
| |
|
| |
|
Latitude Margaritaville Watersound JV | | $ | 18,518 | | $ | 791 |
Pier Park TPS JV | |
| 2,235 | |
| 3,083 |
Sea Sound Apartments JV (a) | | | 7,363 | | | — |
Busy Bee JV | |
| 1,177 | |
| 1,210 |
Total investment in unconsolidated joint ventures | | $ | 29,293 | | $ | 5,084 |
| |
|
| |
|
|
Outstanding debt of unconsolidated JVs | | | | | | |
Latitude Margaritaville Watersound JV | | $ | 55 | | $ | — |
Pier Park TPS JV | | | 13,274 | | | 6,791 |
Busy Bee JV | | | 6,394 | | | 1,451 |
Total outstanding debt of unconsolidated JVs (b) | | $ | 19,723 | | $ | 8,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increases Due To |
|
| Decreases Due to |
|
|
|
|
|
| Balance |
|
| Revenue Recognized |
|
| Amounts |
|
| Balance |
|
|
| January 1, 2019 |
|
| for Homesites Sold |
|
| Received/Transferred |
|
| June 30, 2019 |
Homesite sales receivable |
| $ | 2,977 |
| $ | 2,006 |
| $ | (1,208) |
| $ | 3,775 |
| a) | JV was formed in January 2020. |
| b) | See Note 18. Commitments and Contingencies for additional information. |
2316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increases Due To |
|
| Decreases Due to |
|
|
|
|
|
| Balance |
|
| Revenue Recognized |
|
| Amounts |
|
| Balance |
|
|
| January 1, 2018 |
|
| for Homesites Sold |
|
| Received/Transferred |
|
| June 30, 2018 |
Homesite sales receivable |
| $ | 2,585 |
| $ | 1,125 |
| $ | (1,015) |
| $ | 2,695 |
Claim Settlement Receivable
The remaining settlement amount of $2.7 million related to the Deepwater Horizon oil spill is due in October 2019.
Notes Receivable
Notes receivable consistsfollowing table presents detail of the following:
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
Interest bearing homebuilder note, secured by the real estate sold — 5.5% interest rate, due June 2021 |
| $ | 1,514 |
| $ | — |
Pier Park Community Development District notes, non-interest bearing, due September 2022 |
|
| 546 |
|
| 803 |
Interest bearing note with a JV partner, secured by the partner's membership interest in the JV - 8.0% interest rate, due May 2039 |
|
| 363 |
|
| — |
Interest bearing homebuilder note, secured by the real estate sold — 5.5% interest rate, due September 2019 |
|
| 249 |
|
| 749 |
Interest bearing homebuilder note, secured by the real estate sold — 5.5% interest rate, due June 2020 |
|
| 253 |
|
| 422 |
Interest bearing homebuilder note, secured by the real estate sold — 6.3% interest rate, due March 2020 |
|
| 135 |
|
| 150 |
Various mortgage notes, secured by certain real estate, bearing interest at various rates |
|
| 95 |
|
| 141 |
Total notes receivable |
| $ | 3,155 |
| $ | 2,265 |
The Company evaluates the carrying value of the notes receivable and the need for an allowance for doubtful notes receivable at each reporting date. As of June 30, 2019 and December 31, 2018, there was no allowance for doubtful notes receivable.
Retained Interest Investments
The Company has a beneficial interestCompany’s equity in certain bankruptcy-remote qualified SPEs used in the installment sale monetization of certain sales of timberlands in 2007 and 2008. The SPEs’ assets are not available to satisfy the Company’s liabilities or obligations and the liabilities of the SPEs are not the Company’s liabilities or obligations. Therefore, the SPEs’ assets and liabilities are not consolidated in the Company’s condensed consolidated financial statements as of June 30, 2019 and December 31, 2018. The Company’s continuing involvement with the SPEs is the receipt of the net interest payments and the remaining principal of approximately $16.7 million to be received at the end of the installment notes’ fifteen year maturity period, in 2022 through 2024. The Company has a beneficial or retained interest investment related to these SPEs of $11.9 million and $11.5 million as of June 30, 2019 and December 31, 2018, respectively, recorded in other assets on the Company’s condensed consolidated balance sheets.
9. Real Estate Joint Ventures
The Company enters into real estate JVs,loss from time to time, for the purpose of developing real estate 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 of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company examines specific criteriaunconsolidated affiliates:
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
Equity in loss from unconsolidated affiliates | | | | | | |
Latitude Margaritaville Watersound JV | | $ | (93) | | $ | (167) |
Pier Park TPS JV | | | (3) | | | (6) |
Busy Bee JV | | | (27) | | | (33) |
Total equity in loss from unconsolidated affiliates | | $ | (123) | | $ | (206) |
24
and uses judgment when determining whether the Company is the primary beneficiary and must consolidate a VIE. The Company continues to assess whether it is the primary beneficiary on an ongoing basis.
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 whichand the sales center is anticipated to include 3,500 homes.currently under construction. The community will be located on land that will bewas contributed to the JV by the Company.Company in June 2020, with a contractual value of land and certain infrastructure improvements of $35.0 million. As of June 30, 2020, the Company’s investment in the unconsolidated Latitude Margaritaville Watersound JV includes $2.2 million of cash contributions and $16.6 million for the net present value of the land contribution. The initial present value of the land contribution was based on the Company’s best estimate of the prevailing market rates for the source of credit using an imputed interest rate of 5.75%. The Company continues to have a performance obligation to provide agreed upon infrastructure improvements in the vicinity of the contributed land, which will be recognized over time as improvements are completed. The transaction price was allocated based on the stand-alone selling prices of the land and agreed upon improvements. The first phase is estimated to include approximately 3,500 residential homes, which will be developed in smaller increments of discrete neighborhoods. As of June 30, 2020 and December 31, 2019, the Company owned a 50.0% voting interest in the JV. Each JV member initially contributed and will initiallycontinue to contribute an equal amount of cash towards the development and construction of the main spine infrastructure and amenities. The Company’s additionalunimproved land contribution and agreed upon infrastructure improvements will be returned at an average of $10,000 per home, as each residential unithome is sold by the JV. Per the JV untilagreement, the cumulative distributions equalCompany has provided interest-bearing financing in the land contribution value. form of a revolving 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. See Note 9. Other Assets for additional information related to the revolving promissory note. The day-to-day activities of the JV will be managed through a board of managers, with each JV partner having equal voting rights.rights. The Company has significant involvement in the design of the development and approves all major decisions, including project development, annual budgets and financing. As of June 30, 2019, determined that Latitude Margaritaville Watersound JV did not have any activity and is a VIE, but that the Company is currently evaluating whethernot 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 VIE’s primary beneficiary.equity method.
17
Summarized financial information for Latitude Margaritaville Watersound JV is as follows:
Consolidated Real Estate Joint Ventures
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Investment in real estate (a) | | $ | 5,322 | | $ | 1,116 |
Cash and cash equivalents | |
| 166 | |
| 525 |
Other assets | |
| 2 | |
| — |
Total assets | | $ | 5,490 | | $ | 1,641 |
| |
|
| |
|
|
Debt | | $ | 55 | | $ | — |
Other liabilities | | | 304 | | | 58 |
Equity | | | 5,131 | | | 1,583 |
Total liabilities and equity | | $ | 5,490 | | $ | 1,641 |
| (a) | As of June 30, 2020, investment in real estate includes the land contributed to the Latitude Margaritaville Watersound JV at the Company’s historical cost basis of $1.3 million. |
| | | | | | |
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total expenses | | $ | 186 | | $ | 335 |
Net loss | | $ | (186) | | $ | (335) |
WatercrestSea Sound Apartments JV
Watercrest JVFDSJ Eventide, LLC (“Sea Sound Apartments JV”) was created in May 2019, when theJanuary 2020. The Company entered into a JV agreement to develop, construct and operatemanage a new assisted living and memory care300 unit apartment community in Santa RosaPanama City Beach, Florida. The JV parties are working together to develop and construct a 107 unit community. The community will be located near the Breakfast Point residential community on land that was contributed to the JV by the Company.Company in January 2020, with a fair value of $5.1 million. In addition, during the six months ended June 30, 2020, the Company contributed mitigation bank credits of $0.4 million and cash of $1.9 million. During the six months ended June 30, 2020, the JV partner contributed $4.9 million of cash. The project is currently under development with 0 income or loss impacting the condensed consolidated statements of income for the three and six months ended June 30, 2020. As of June 30, 2019,2020, the Company owned an 87.0%a 60.0% interest in the consolidated JV. The Company’s partner is responsible for the day-to-day activities of the JV. However, theThe 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 Watercrestthat Sea Sound Apartments JV is a VIE, andbut that the Company is not the VIE’s primary beneficiary assince 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 Sea Sound Apartments JV is accounted for using the equity method. In January 2020, the JV entered into a $40.3 million loan, maturing in January 2024 (the “Sea Sound Apartments JV Loan”). The Sea Sound Apartments JV Loan is secured by the real property, all assets of the borrower, assignment of leases and rents and the security interest in the rents and personal property. The Company’s JV partner is the sole guarantor of the Sea Sound Apartments JV Loan and will receive a fee related to the guarantee from the Company based on its ownership percentage. As of June 30, 2019.2020, there was 0 principal balance outstanding and the JV incurred $0.5 million of loan costs related to the Sea Sound Apartments JV Loan.
18
Summarized financial information for Sea Sound Apartments JV is as follows:
Origins Crossings JV
| | | |
|
| June 30, | |
| | 2020 | |
BALANCE SHEET: |
| |
|
Investment in real estate | | $ | 14,705 |
Cash and cash equivalents | |
| 3 |
Other assets | |
| 509 |
Total assets | | $ | 15,217 |
| |
|
|
Other liabilities | | $ | 2,910 |
Equity | | | 12,307 |
Total liabilities and equity | | $ | 15,217 |
Origins Crossings JVPier Park TPS, LLC
Pier Park TPS, LLC (“Pier Park TPS JV”) was created in January 2019, when theApril 2018. The Company entered into a JV agreement to develop manage and lease apartmentsoperate a 124 room hotel in Watersound,Panama City Beach, Florida. The JV parties are working together to develophotel opened in May 2020 and construct a 217 unit apartment community. The community will beis located on land nearin the entrance toPier Park area that the Watersound Origins community, which wasCompany contributed to the JV byon January 14, 2019, with a fair value of $1.7 million. In addition, during the Company. As ofsix months ended June 30, 2019, the Company contributed cash of $0.2 million and mitigation bank credits of $0.1 million. As of June 30, 2020 and December 31, 2019, the Company owned a 75.0%50.0% interest in the consolidated JV. The Company’s partner is responsible for the day-to-day activities of the JV. However, theThe 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 Origins Crossingsthat Pier Park TPS JV is a VIE, andbut that the Company is not the VIE’s 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 Pier Park TPS JV is accounted for using the equity method. See Note 18. Commitments and Contingencies for additional information related to debt guaranteed by the Company.
Summarized financial information for Pier Park TPS JV is as follows:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Property and equipment, net | | $ | 18,502 | | $ | 14,775 |
Cash and cash equivalents | |
| 366 | |
| 51 |
Other assets | |
| 512 | |
| 12 |
Total assets | | $ | 19,380 | | $ | 14,838 |
| |
|
| |
|
|
Debt, net | | $ | 12,969 | | $ | 6,480 |
Other liabilities | | | 1,952 | | | 2,193 |
Equity | | | 4,459 | | | 6,165 |
Total liabilities and equity | | $ | 19,380 | | $ | 14,838 |
19
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total revenue | | $ | 533 | | $ | 533 |
| | | | | | |
Cost of revenue | | | 251 | | | 251 |
Expenses | | | 260 | | | 260 |
Total expenses | | | 511 | | | 511 |
Operating income | | | 22 | | | 22 |
Interest expense | | | (34) | | | (34) |
Net loss | | $ | (12) | | $ | (12) |
SJBB, LLC
SJBB, LLC (“Busy Bee JV”) was created in July 2019, when the Company entered into a JV agreement to construct, own and manage a Busy Bee branded fuel station and convenience store in Panama City Beach, Florida. The project is located on land that the Company contributed to the JV on July 5, 2019. Construction of the fuel station and convenience store was completed on June 29, 2020. The investment in the unconsolidated JV of $1.2 million as of June 30, 2020 and December 31, 2019 includes $1.4 million for the fair value of land contributed by the Company, which was offset by a $0.2 million note receivable from the JV partner. As of June 30, 2020 and December 31, 2019, the Company owned a 50.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Busy Bee 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 Busy Bee JV is accounted for using the equity method. See Note 18. Commitments and Contingencies for additional information related to debt guaranteed by the Company.
Summarized financial information for Busy Bee JV is as follows:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Property and equipment, net | | $ | 8,301 | | $ | 3,886 |
Cash and cash equivalents | |
| 45 | |
| 36 |
Other assets | |
| 883 | |
| 28 |
Total assets | | $ | 9,229 | | $ | 3,950 |
| |
|
| |
|
|
Debt, net | | $ | 6,301 | | $ | 1,349 |
Other liabilities | | | 553 | | | 181 |
Equity | | | 2,375 | | | 2,420 |
Total liabilities and equity | | $ | 9,229 | | $ | 3,950 |
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total expenses | | $ | 54 | | $ | 65 |
Net loss | | $ | (54) | | $ | (65) |
20
5. Investments
Available-For-Sale Investments
Investments classified as available-for-sale securities were as follows:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
|
| | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||
| | Amortized Cost | | Gains | | (Losses) | | Fair Value | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury Bills | | $ | 49,962 | | $ | — | | $ | (18) | | $ | 49,944 |
Corporate debt securities | | | 52 | | | — | | | — | | | 52 |
| |
| 50,014 | |
| — | |
| (18) | |
| 49,996 |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 1,163 | |
| 13 | |
| — | |
| 1,176 |
| |
| 1,163 | |
| 13 | |
| — | |
| 1,176 |
| | $ | 51,177 | | $ | 13 | | $ | (18) | | $ | 51,172 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||
| | Amortized Cost | | Gains | | (Losses) | | Fair Value | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
Corporate debt securities | | $ | 178 | | $ | — | | $ | (125) | | $ | 53 |
| |
| 178 | |
| — | |
| (125) | |
| 53 |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 2,239 | |
| 11 | |
| — | |
| 2,250 |
Money market fund | |
| 114 | |
| — | |
| — | |
| 114 |
| |
| 2,353 | |
| 11 | |
| — | |
| 2,364 |
| | $ | 2,531 | | $ | 11 | | $ | (125) | | $ | 2,417 |
During the three months ended June 30, 2020 there were 0 realized gains or losses from the sale of available-for-sale securities. During the six months ended June 30, 2020 net realized gains from the sale of available-for-sale securities were less than $0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, maturities of available-for-sale investments were $7.0 million and purchases of available-for-sale securities were $56.9 million.
During the three months ended June 30, 2019 there were 0 realized gains or losses from the sale of available-for-sale securities. During the six months ended June 30, 2019 net realized losses from the sale of available-for-sale securities were less than $0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, maturities of available-for-sale investments were $7.0 million and purchases of available-for sale securities were less than $0.1 million.
21
The following table provides the available-for-sale investments unrealized loss position and related fair values:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
| | Less Than 12 Months | | 12 Months or Greater | ||||||||
| | | | | Unrealized | | | | | Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury Bills | | $ | 42,954 | | $ | 18 | | $ | — | | $ | — |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
| | Less Than 12 Months | | 12 Months or Greater | ||||||||
| | | | | Unrealized | | | | | Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
Corporate debt securities | | $ | — | | $ | — | | $ | 53 | | $ | 125 |
As of June 30, 2020, the Company had unrealized losses of less than $0.1 million related to U.S. Treasury Bills. The Company had unrealized losses of $0.1 million as of December 31, 2019 related to corporate debt securities. As of June 30, 2020, the Company determined unrealized losses related to U.S. Treasury Bills were not due to credit impairment and did not record an allowance for credit losses related to available-for-sale debt securities. As of June 30, 2020 and December 31, 2019, the Company did not intend to sell the investments with a material unrealized loss and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery.
The amortized cost and estimated fair value of investments - debt securities and restricted investments classified as available-for-sale, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities since certain borrowers have the right to call or prepay obligations.
| | | | | | |
| | June 30, 2020 | ||||
|
| Amortized Cost |
| Fair Value | ||
Due in one year or less | | $ | 50,014 | | $ | 49,996 |
Restricted investments | |
| 1,163 | |
| 1,176 |
| | $ | 51,177 | | $ | 51,172 |
Investments - Equity Securities
As of June 30, 2020 and December 31, 2019 investments - equity securities included $2.4 million and $9.7 million, respectively, of preferred stock investments recorded at fair value. During the three months ended June 30, 2020 and 2019 the Company had an unrealized loss on investments – equity securities of $0.1 million and $1.9 million, respectively. During the six months ended June 30, 2020 the Company had an unrealized loss on investments – equity securities of $4.9 million, compared to an unrealized gain on investments – equity securities of $0.1 million during the six months ended June 30, 2019. These amounts were included within investment income, net on the condensed consolidated statements of income.
Investment Management Agreement
Mr. Bruce R. Berkowitz is the Chairman of the Company’s Board of Directors (the “Board”). He is the Manager of, and controls entities that own and control, Fairholme Holdings, LLC (“Fairholme”), which wholly owns Fairholme Capital Management, L.L.C. (“FCM”, an investment advisor registered with the SEC). Mr. Berkowitz is the Chief Investment Officer of FCM, which has provided investment advisory services to the Company since April 2013. FCM does not receive any compensation for services as the Company’s investment advisor. As of June 30, 2020, clients of FCM, including Mr. Berkowitz, beneficially owned approximately 44.99% of the Company’s common stock. FCM and its client, The Fairholme Fund, a series of the Fairholme Funds, Inc., may be deemed affiliates of the Company.
22
Pursuant to the terms of an Investment Management Agreement, as amended, with the Company (the “Investment Management Agreement”), FCM agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Company. The investment guidelines are set forth in the Investment Management Agreement and require that, as of the date of any investment: (i) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government), (ii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10% of the investment account, but not 15%, requires approval by a second member of Company’s Board, (iii) 25% of the investment account must be held in cash or cash equivalents, (iv) the investment account is permitted to be invested in common equity securities; however, common stock investments shall be limited to exchange-traded common equities, shall not exceed 5% ownership of a single issuer and, cumulatively, the common stock held in the Company’s investment portfolio shall not exceed $100.0 million market value, and (v) the aggregate market value of investments in common stock, preferred stock or other equity investments cannot exceed 25% of the market value of the Company’s investment portfolio at the time of purchase.
6. Financial Instruments and Fair Value Measurements
Fair Value Measurements
The financial instruments measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
|
| | |
| | |
| | |
| Total Fair | |
| | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | 86,951 | | $ | — | | $ | — | | $ | 86,951 |
| |
| 86,951 | |
| — | |
| — | |
| 86,951 |
| | | | | | | | | | | | |
Investments - debt securities: | | | | | | | | | | | | |
U.S. Treasury Bills | | | 49,944 | | | — | | | — | | | 49,944 |
Corporate debt securities | | | — | | | 52 | | | — | | | 52 |
| | | 49,944 | | | 52 | | | — | | | 49,996 |
| | | | | | | | | | | | |
Investments - equity securities: | | | | | | | | | | | | |
Preferred stock | | | — | | | 2,415 | | | — | | | 2,415 |
| | | — | | | 2,415 | | | — | | | 2,415 |
| | | | | | | | | | | | |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 1,176 | |
| — | |
| — | |
| 1,176 |
| |
| 1,176 | |
| — | |
| — | |
| 1,176 |
| | $ | 138,071 | | $ | 2,467 | | $ | — | | $ | 140,538 |
23
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| | |
| | |
| | |
| Total Fair | |
| | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | 21,043 | | $ | — | | $ | — | | $ | 21,043 |
Commercial paper | |
| 138,220 | |
| — | |
| — | |
| 138,220 |
U.S. Treasury Bills | | | 6,990 | | | — | | | — | | | 6,990 |
| |
| 166,253 | |
| — | |
| — | |
| 166,253 |
| | | | | | | | | | | | |
Investments - debt securities: | | | | | | | | | | | | |
Corporate debt securities | | | — | | | 53 | | | — | | | 53 |
| | | — | | | 53 | | | — | | | 53 |
| | | | | | | | | | | | |
Investments - equity securities: | | | | | | | | | | | | |
Preferred stock | | | — | | | 9,746 | | | — | | | 9,746 |
| | | — | | | 9,746 | | | — | | | 9,746 |
| |
| | | | | | | | | | |
Restricted investments: | | | | | | | | | | | | |
Short-term bond | |
| 2,250 | |
| — | |
| — | |
| 2,250 |
Money market fund | |
| 114 | |
| — | |
| — | |
| 114 |
| |
| 2,364 | |
| — | |
| — | |
| 2,364 |
| | $ | 168,617 | | $ | 9,799 | | $ | — | | $ | 178,416 |
Money market funds, commercial paper, U.S. Treasury Bills and short-term bonds are measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. Money market funds, commercial paper and short term U.S. Treasury Bills with a maturity date of 90 days or less from the date of purchase are classified as cash equivalents in the Company’s condensed consolidated balance sheets.
The Company’s corporate debt securities and preferred stock investments are not traded on a nationally recognized exchange, but are traded in the U.S. over-the-counter market where there is less trading activity and the investments are measured primarily using pricing data from external pricing services that report prices observed for recently executed market transactions. For these reasons, the Company has determined that corporate debt securities and preferred stock investments are categorized as Level 2 financial instruments since their fair values were determined from market inputs in an inactive market.
Restricted investments are included within other assets on the condensed consolidated balance sheets and include certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) Plan in December 2014. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. As of June 30, 2020 and December 31, 2019, the assets held in the suspense account were invested in a Vanguard Short-Term Bond Fund, which invests in money market instruments and short-term high quality bonds, including asset-backed, government, and investment grade corporate securities with an expected maturity of 0-3 years. As of December 31, 2019 the assets held in the suspense account were also invested in Vanguard Money Market Funds, which invest in short-term, high quality securities or short-term U.S. government securities and seek to provide current income and preserve shareholders’ principal investment. The Vanguard Money Market Funds and Vanguard Short-Term Bond Fund are measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. The Company’s Retirement Plan Investment Committee is responsible for investing decisions and allocation decisions of the suspense account. Refer to Note 9. Other Assets.
24
Liabilities measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | | | |
| | | | June 30, 2020 | ||||||||||
| | Location in |
| | |
| | |
| | |
| Total Fair | |
| | Balance Sheet | | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Derivative Liabilities: | | | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | | Other liabilities | | $ | — | | $ | 1,202 | | $ | — | | $ | 1,202 |
Interest rate swap - unconsolidated affiliate | | Investment in unconsolidated joint ventures | | | — | | | 841 | | | — | | | 841 |
| | | | $ | — | | $ | 2,043 | | $ | — | | $ | 2,043 |
| | | | | | | | | | | | | | |
| | | | December 31, 2019 | ||||||||||
| | Location in |
| | |
| | |
| | |
| Total Fair | |
| | Balance Sheet | | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Derivative Liabilities: | | |
| |
|
| |
|
| |
|
| |
|
Interest rate swap | | Other liabilities | | $ | — | | $ | 336 | | $ | — | | $ | 336 |
| | | | $ | — | | $ | 336 | | $ | — | | $ | 336 |
In June 2019 the Watercrest JV entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amount of related debt of $20.0 million. As of June 30, 2020 and December 31, 2019, the interest rate swap was recorded at its estimated fair value, based on Level 2 measurements, of $1.2 million and $0.3 million, respectively, and is included within other liabilities on the condensed consolidated balance sheet. The gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive (loss) income into interest expense during the three and six months ended June 30, 2020. See Note 10. Debt for additional information.
In January 2019 the Pier Park TPS JV, which is unconsolidated and accounted for using the equity method, entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective January 14, 2021 and matures on January 14, 2026 and fixed the variable rate debt on the notional amount of related debt of $14.4 million. As of June 30, 2020, the interest rate swap was recorded at the Company’s proportionate share of its estimated fair value, based on Level 2 measurements, of $0.8 million and is included within investment in unconsolidated joint ventures on the condensed consolidated balance sheet. The gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive (loss) income into equity in loss from unconsolidated affiliates during the three and six months ended June 30, 2020. See Note 4. Real Estate Joint Ventures and Note 18. Commitments and Contingencies for additional information.
Investment in Unconsolidated Joint Ventures
The Company evaluates its investment in unconsolidated JVs for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of the Company’s investment in the unconsolidated JV has occurred. The amount of impairment recognized is the excess of the investment’s carrying value over its estimated fair value. The fair value of the Company’s investment in unconsolidated JVs is determined primarily using a discounted cash flow model to value the underlying net assets of the respective JV. The fair value of investment in unconsolidated JVs required to be assessed for impairment is determined on a nonrecurring basis using Level 3 inputs in the fair value hierarchy. NaN impairment for unconsolidated JVs was recorded during the three and six months ended June 30, 2020 and 2019. See Note 4. Real Estate Joint Ventures for additional information.
25
Fair Value of Financial Instruments
The Company uses the following methods and assumptions in estimating fair value for financial instruments:
| ● | The fair value of the investments held by SPEs - time deposit is based on the present value of future cash flows at the current market rate. |
| ● | The fair value of the investments held by SPEs - U.S. Treasury Bills are measured based on quoted market prices in an active market. |
| ● | The fair value of debt is based on discounted future expected cash flows based on current market rates forfinancial instruments with similar risks, terms and maturities. |
| ● | The fair value of the senior notes held by SPE is based on the present value of future cash flows at the current market rate. |
The carrying amount and estimated fair value, measured on a nonrecurring basis, of the Company’s financial instruments were as follows:
| | | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||||||
|
| Carrying |
| Estimated |
| |
| Carrying |
| Estimated |
| | ||||
| | value | | Fair value | | Level | | value | | Fair value | | Level | ||||
Assets |
| |
|
| |
|
|
|
| |
|
| |
|
|
|
Investments held by SPEs: | |
|
| |
|
|
|
| |
|
| |
|
|
|
|
Time deposit | | $ | 200,000 | | $ | 200,000 |
| 3 | | $ | 200,000 | | $ | 200,000 |
| 3 |
U.S. Treasury Bills and cash | | $ | 6,438 | | $ | 6,731 |
| 1 | | $ | 6,771 | | $ | 6,712 |
| 1 |
Liabilities | |
| | |
| |
|
| |
|
| |
|
|
|
|
Debt | | | | | | | | | | | | | | | | |
Fixed-rate debt | | $ | 101,123 | | $ | 109,232 | | 2 | | $ | 89,969 | | $ | 92,276 | | 2 |
Variable-rate debt | | | 21,857 | | | 21,857 | | 2 | | | 4,538 | | | 4,538 | | 2 |
Total debt | | $ | 122,980 | | $ | 131,089 | | | | $ | 94,507 | | $ | 96,814 | | |
Senior Notes held by SPE | | $ | 177,156 | | $ | 222,866 |
| 3 | | $ | 177,026 | | $ | 204,347 |
| 3 |
Investments and Senior Notes Held by Special Purpose Entities
In connection with a real estate sale in 2014, the Company received consideration including a $200.0 million fifteen-year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC. The Company contributed the Timber Note and assigned its rights as a beneficiary under a letter of credit to Northwest Florida Timber Finance, LLC. Northwest Florida Timber Finance, LLC monetized the Timber Note by issuing $180.0 million aggregate principal amount of its 4.8% Senior Secured Notes due in 2029 (the “Senior Notes”) at an issue price of 98.5% of face value to third party investors. The investments held by Panama City Timber Finance Company, LLC as of June 30, 2020, consist of a $200.0 million time deposit that, subsequent to April 2, 2014, pays interest at 4.0% and matures in March 2029, U.S. Treasuries of $6.0 million and cash of $0.4 million. The Senior Notes held by Northwest Florida Timber Finance, LLC as of June 30, 2020 consist of $177.2 million, net of the $2.8 million discount and debt issuance costs. Panama City Timber Finance Company, LLC and Northwest Florida Timber Finance, LLC are VIEs, which the Company consolidates as the primary beneficiary of each entity.
7. Hurricane Michael
On October 10, 2018, Hurricane Michael made landfall in the Florida Panhandle, which resulted in widespread damage to the area. The majority of the Company’s properties incurred minimal or no damage; however the Company’s Bay Point Marina in Bay County and Port St. Joe Marina in Gulf County, as well as certain timber, commercial and multi-family leasing assets were impacted. The marinas suffered significant damage requiring long-term restoration and will remain closed during the reconstruction of significant portions of these assets, which is currently underway.
26
The Company maintains property and business interruption insurance, subject to certain deductibles, and is continuing to assess claims under such policies; however, the timing and amount of insurance proceeds are uncertain and may not be sufficient to cover all losses. Timing differences are likely to exist between the impairment losses, capital expenditures made to repair or restore properties and recognition and receipt of insurance proceeds reflected in the Company’s financial statements.
During the three months ended June 30, 2020, the Company did 0t receive any business interruption insurance proceeds. During the six months ended June 30, 2020, $0.7 million of business interruption insurance proceeds were received related to the Pier Park Crossings JV, included within the cost of leasing revenue on the condensed consolidated statements of income. During the three and six months ended June 30, 2019, $1.3 million of insurance proceeds were received related to business interruption insurance, included within the cost of hospitality revenue on the condensed consolidated statements of income. Costs incurred due to business interruption, primarily at the marinas, are continuing to be evaluated. The Company does not expect revenue at these locations until the properties have been rebuilt, but will incur costs for employee retention and property maintenance.
During the three and six months ended June 30, 2020, the Company did 0t recognize any gain on insurance recovery. During the three and six months ended June 30, 2019, the Company recognized a $3.8 million and $4.1 million, respectively, gain on insurance recovery, included in other income, net on the condensed consolidated statements of income.
During the three and six months ended June 30,��2020, the Company incurred loss from hurricane damage of $0.4 million and $0.5 million, respectively. During the three and six months ended June 30, 2019, the Company incurred loss from hurricane damage of $0.8 million and $1.1 million, respectively. Loss from hurricane damage includes additional hurricane expense items such as repairs, clean-up costs, landscape repairs, demolition costs, professional fees, damaged inventory and temporary housing for employees included in other income, net on the condensed consolidated statements of income.
8. Leases
Leasing revenue consists of rental revenue from multi-family, retail, office and commercial property, cell towers and other assets, which is recognized as earned, using the straight-line method over the life of each lease. The Company’s leases have remaining lease terms up to the year 2036, some of which include options to terminate or extend.
The components of leasing revenue are as follows:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2020 | | 2019 | | 2020 | | 2019 | ||||
Leasing revenue | | | | | | | | | | | |
Lease payments | $ | 3,772 | | $ | 2,724 | | $ | 7,154 | | $ | 5,404 |
Variable lease payments | | 1,135 | | | 950 | | | 2,052 | | | 1,777 |
Total leasing revenue | $ | 4,907 | | $ | 3,674 | | $ | 9,206 | | $ | 7,181 |
Minimum future base rental revenue on non-cancelable leases subsequent to June 30, 2020, for the years ending December 31 are:
| | | |
|
| |
|
2020 | | $ | 7,458 |
2021 | |
| 11,490 |
2022 | |
| 10,243 |
2023 | |
| 8,158 |
2024 | | | 6,913 |
Thereafter | | | 17,293 |
| | $ | 61,555 |
27
As of June 30, 2020, the Company leased certain office equipment under a finance lease and had operating leases for property and equipment used in corporate, hospitality and commercial operations with remaining lease terms up to the year 2049. Certain leases include options to purchase, terminate or renew for one or more years, which are included in the lease term used to establish right-of-use assets and lease liabilities when it is reasonably certain that the option will be exercised. Finance lease right-of-use assets are included within property, plant and equipment and operating lease right-of-use assets are included within other assets on the condensed consolidated balance sheets, which represent the Company’s right to use an underlying asset during a lease term for leases in excess of one year. Corresponding finance lease liability and operating lease liabilities are included within other liabilities on the condensed consolidated balance sheets and are related to the Company’s obligation to make lease payments for leases in excess of one year. The Company uses its incremental borrowing rate to determine the present value of the lease payments since the rate implicit in each lease is not readily determinable.
The components of lease expense are as follows:
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
| 2020 | | 2019 | | 2020 | | 2019 | | ||||
Lease cost | | | | | | | | | | | | |
Finance lease cost: | | | | | | | | | | | | |
Amortization of right-of-use assets | $ | 13 | | $ | 12 | | $ | 25 | | $ | 16 | |
Interest on lease liability |
| 2 | |
| 3 | |
| 5 | |
| 4 | |
Operating lease cost |
| 72 | |
| 53 | |
| 137 | |
| 105 | |
Short-term lease cost |
| 277 | |
| 237 | |
| 351 | |
| 301 | |
Total lease cost | $ | 364 | | $ | 305 | | $ | 518 | | $ | 426 | |
| | | | | | | | | | | | |
Other information | | | | | | | | | | | | |
Weighted-average remaining lease term - finance lease (in years) | | | | | | | | 4.1 | | | 4.7 | |
Weighted-average remaining lease term - operating leases (in years) | | | | | | | | 2.6 | | | 1.7 | |
Weighted-average discount rate - finance lease | | | | | | | | 5.0 | % | | 5.0 | % |
Weighted-average discount rate - operating leases | | | | | | | | 5.0 | % | | 5.0 | % |
The aggregate payments of finance lease liability subsequent to June 30, 2020, for the years ending December 31 are:
| | | |
2020 | | $ | 29 |
2021 | |
| 58 |
2022 | |
| 58 |
2023 | |
| 58 |
2024 | | | 12 |
Thereafter | | | 1 |
Total | | | 216 |
Less imputed interest | | | (19) |
Total finance lease liability | | $ | 197 |
28
The aggregate payments of operating lease liabilities subsequent to June 30, 2020, for the years ending December 31 are:
| | | |
2020 | | $ | 139 |
2021 | |
| 214 |
2022 | |
| 126 |
2023 | |
| 83 |
2024 | | | 13 |
Thereafter | | | 293 |
Total | | | 868 |
Less imputed interest | | | (196) |
Total operating lease liabilities | | $ | 672 |
9. Other Assets
Other assets consist of the following:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Restricted investments | | $ | 1,176 | | $ | 2,364 |
Accounts receivable, net | | | 8,190 | | | 6,957 |
Homesite sales receivable | | | 4,919 | | | 5,211 |
Notes receivable, net | |
| 3,084 | |
| 3,252 |
Income tax receivable | | | 2,487 | | | 2,843 |
Prepaid expenses | |
| 8,119 | |
| 6,592 |
Straight-line rent | |
| 3,261 | |
| 3,292 |
Operating lease right-of-use assets | | | 672 | | | 691 |
Other assets | |
| 7,639 | |
| 5,715 |
Retained interest investments | | | 12,492 | | | 12,214 |
Accrued interest receivable for Senior Notes held by SPE | |
| 2,938 | |
| 2,938 |
Total other assets | | $ | 54,977 | | $ | 52,069 |
Restricted Investments
The Company’s restricted investments are related to the Company’s deferred compensation plan. As part of the Pension Plan termination in 2014, the Company directed the Pension Plan to transfer the Pension Plan’s surplus assets into a suspense account in the Company’s 401(k) plan. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated balance sheets until they are allocated to current or future 401(k) plan participants within the next year. During the six months ended June 30, 2020 and 2019, the Company recorded an expense of $1.2 million and $1.1 million, respectively, for the fair value of the assets, less expenses that were allocated to participants. Any gain or loss on these assets is reflected in the Company’s condensed consolidated statements of income and was less than a $0.1 million loss for the three months ended June 30, 2020 and less than a $0.1 million gain for the six months ended June 30, 2020. Both the three and six months ended June 30, 2019 included a $0.1 million loss related to the restricted investments. Refer to Note 6. Financial Instruments and Fair Value Measurements.
Accounts Receivable, Net
The Company’s accounts receivable, net primarily include receivables related to certain homesite sales, leasing receivables, membership initiation fees, hospitality receivables and other receivables. At each reporting period accounts receivable in the scope of Topic 326 are pooled by type and judgements are made based on historical losses and expected credit losses based on economic trends to determine the allowance for credit losses primarily using the aging method. Actual losses could differ from those estimates. Write-offs are recorded when the Company concludes that all or
29
a portion of the receivable is no longer collectible and recoveries on receivables previously charged-off are credited to the allowance. As of June 30, 2020, accounts receivable were presented net of allowance for credit losses of $0.2 million and net of allowance for lease related receivables of $0.1 million. As of December 31, 2019, allowance for doubtful accounts receivable was $0.3 million. During the six months ended June 30, 2020, allowance for credit losses related to accounts receivable, net increased less than $0.1 million.
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. The JV parties are working together to develop and construct aConstruction of the 240 unit apartment community.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 June 30, 20192020 and December 31, 2018,2019, 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 June 30, 20192020 and December 31, 2018.
25
Windmark JV
As of June 30, 2019 and December 31, 2018, the Company owned a 49.0% interest in Windmark JV. A wholly owned subsidiary of the Company is the managing member of Windmark JV and runs its day-to-day operations. Windmark JV owns and its members make major decisions related to the management and development of the Windmark Beach project. The Company determined Windmark JV is a VIE and that the Company is the VIE’s primary beneficiary as of June 30, 2019 and December 31, 2018. On July 5, 2019, the Company repurchased the 51.0% equity interests in the Windmark JV from the two other members of the Windmark JV for a total consideration of $11.6 million and, as a result, the Company now owns 100.0% of the Windmark project.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 June 30, 20192020 and December 31, 2018,2019, 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 June 30, 20192020 and December 31, 2018.2019.
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:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Investment in unconsolidated joint ventures |
| |
|
| |
|
Latitude Margaritaville Watersound JV | | $ | 18,518 | | $ | 791 |
Pier Park TPS JV | |
| 2,235 | |
| 3,083 |
Sea Sound Apartments JV (a) | | | 7,363 | | | — |
Busy Bee JV | |
| 1,177 | |
| 1,210 |
Total investment in unconsolidated joint ventures | | $ | 29,293 | | $ | 5,084 |
| |
|
| |
|
|
Outstanding debt of unconsolidated JVs | | | | | | |
Latitude Margaritaville Watersound JV | | $ | 55 | | $ | — |
Pier Park TPS JV | | | 13,274 | | | 6,791 |
Busy Bee JV | | | 6,394 | | | 1,451 |
Total outstanding debt of unconsolidated JVs (b) | | $ | 19,723 | | $ | 8,242 |
| a) | JV was formed in January 2020. |
| b) | See Note 18. Commitments and Contingencies for additional information. |
16
The following table presents detail of the Company’s equity in loss from unconsolidated affiliates:
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
Equity in loss from unconsolidated affiliates | | | | | | |
Latitude Margaritaville Watersound JV | | $ | (93) | | $ | (167) |
Pier Park TPS JV | | | (3) | | | (6) |
Busy Bee JV | | | (27) | | | (33) |
Total equity in loss from unconsolidated affiliates | | $ | (123) | | $ | (206) |
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 was contributed to the JV by the Company in June 2020, with a contractual value of land and certain infrastructure improvements of $35.0 million. As of June 30, 2020, the Company’s investment in the unconsolidated Latitude Margaritaville Watersound JV includes $2.2 million of cash contributions and $16.6 million for the net present value of the land contribution. The initial present value of the land contribution was based on the Company’s best estimate of the prevailing market rates for the source of credit using an imputed interest rate of 5.75%. The Company continues to have a performance obligation to provide agreed upon infrastructure improvements in the vicinity of the contributed land, which will be recognized over time as improvements are completed. The transaction price was allocated based on the stand-alone selling prices of the land and agreed upon improvements. The first phase is estimated to include approximately 3,500 residential homes, which will be developed in smaller increments of discrete neighborhoods. As of June 30, 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 towards the development and construction of the main spine infrastructure and amenities. The Company’s unimproved land contribution and agreed upon infrastructure improvements will be returned at an average of $10,000 per home, as each home is sold by the JV. Per the JV agreement, the Company has provided interest-bearing financing in the form of a revolving 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. See Note 9. Other Assets for additional information related to the revolving promissory note. 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.
17
Summarized financial information for Latitude Margaritaville Watersound JV is as follows:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Investment in real estate (a) | | $ | 5,322 | | $ | 1,116 |
Cash and cash equivalents | |
| 166 | |
| 525 |
Other assets | |
| 2 | |
| — |
Total assets | | $ | 5,490 | | $ | 1,641 |
| |
|
| |
|
|
Debt | | $ | 55 | | $ | — |
Other liabilities | | | 304 | | | 58 |
Equity | | | 5,131 | | | 1,583 |
Total liabilities and equity | | $ | 5,490 | | $ | 1,641 |
| (a) | As of June 30, 2020, investment in real estate includes the land contributed to the Latitude Margaritaville Watersound JV at the Company’s historical cost basis of $1.3 million. |
| | | | | | |
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total expenses | | $ | 186 | | $ | 335 |
Net loss | | $ | (186) | | $ | (335) |
Sea Sound Apartments JV
FDSJ Eventide, LLC (“Sea Sound Apartments JV”) was created in January 2020. The Company entered into a JV agreement to develop, construct and manage a 300 unit apartment community in Panama City Beach, Florida. The community will be located near the Breakfast Point residential community on land that was contributed to the JV by the Company in January 2020, with a fair value of $5.1 million. In addition, during the six months ended June 30, 2020, the Company contributed mitigation bank credits of $0.4 million and cash of $1.9 million. During the six months ended June 30, 2020, the JV partner contributed $4.9 million of cash. The project is currently under development with 0 income or loss impacting the condensed consolidated statements of income for the three and six months ended June 30, 2020. As of June 30, 2020, the Company owned a 60.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Sea Sound Apartments 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 Sea Sound Apartments JV is accounted for using the equity method. In January 2020, the JV entered into a $40.3 million loan, maturing in January 2024 (the “Sea Sound Apartments JV Loan”). The Sea Sound Apartments JV Loan is secured by the real property, all assets of the borrower, assignment of leases and rents and the security interest in the rents and personal property. The Company’s JV partner is the sole guarantor of the Sea Sound Apartments JV Loan and will receive a fee related to the guarantee from the Company based on its ownership percentage. As of June 30, 2020, there was 0 principal balance outstanding and the JV incurred $0.5 million of loan costs related to the Sea Sound Apartments JV Loan.
18
Summarized financial information for Sea Sound Apartments JV is as follows:
| | | |
|
| June 30, | |
| | 2020 | |
BALANCE SHEET: |
| |
|
Investment in real estate | | $ | 14,705 |
Cash and cash equivalents | |
| 3 |
Other assets | |
| 509 |
Total assets | | $ | 15,217 |
| |
|
|
Other liabilities | | $ | 2,910 |
Equity | | | 12,307 |
Total liabilities and equity | | $ | 15,217 |
Pier Park TPS, LLC
Pier Park TPS, LLC (“Pier Park TPS JV”) was created in April 2018, when the2018. The Company entered into a JV agreement to develop and operate a 124 room hotel in Panama City Beach, Florida. The hotel will beopened in May 2020 and is located on land in the Pier Park area that the Company contributed to the JV on January 14, 2019, with a fair value of $1.7 million. In addition, during the six months ended June 30, 2019, the Company contributed cash of $0.2 million and mitigation bank credits of $0.1 million. As of December 31, 2018, the Company had an investment in the JV project of $1.1 million that was contributed to the JV during the first quarter of 2019. As of June 30, 20192020 and December 31, 2018, the investment in the unconsolidated JV was $3.1 million and $1.1 million, respectively, which is included in other assets on the condensed consolidated balance sheets. The hotel is currently under construction and the Company did not recognize any income or loss on this investment for the three and six months ended June 30, 2019. As of June 30, 2019, and December 31, 2018, the Company owned a 50.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Pier Park TPS 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 Pier Park TPS JV is accounted for using the equity method. See Note 18. Commitments and Contingencies for additional information related to debt guaranteed by the Company.
Summarized financial information for Pier Park TPS JV is as follows:
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
BALANCE SHEETS: |
|
|
|
|
|
|
Investment in real estate |
| $ | 7,589 |
| $ | 285 |
Cash and cash equivalents |
|
| 29 |
|
| 64 |
Total assets |
| $ | 7,618 |
| $ | 349 |
|
|
|
|
|
|
|
Other liabilities |
| $ | 1,440 |
| $ | 3 |
Equity |
|
| 6,178 |
|
| 346 |
Total liabilities and equity |
| $ | 7,618 |
| $ | 349 |
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Property and equipment, net | | $ | 18,502 | | $ | 14,775 |
Cash and cash equivalents | |
| 366 | |
| 51 |
Other assets | |
| 512 | |
| 12 |
Total assets | | $ | 19,380 | | $ | 14,838 |
| |
|
| |
|
|
Debt, net | | $ | 12,969 | | $ | 6,480 |
Other liabilities | | | 1,952 | | | 2,193 |
Equity | | | 4,459 | | | 6,165 |
Total liabilities and equity | | $ | 19,380 | | $ | 14,838 |
19
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total revenue | | $ | 533 | | $ | 533 |
| | | | | | |
Cost of revenue | | | 251 | | | 251 |
Expenses | | | 260 | | | 260 |
Total expenses | | | 511 | | | 511 |
Operating income | | | 22 | | | 22 |
Interest expense | | | (34) | | | (34) |
Net loss | | $ | (12) | | $ | (12) |
SJBB, LLC
SJBB, LLC (“Busy Bee JV”) was created in July 2019, when the Company entered into a JV agreement to construct, own and manage a Busy Bee branded fuel station and convenience store in Panama City Beach, Florida. The project is located on land that the Company contributed to the JV on July 5, 2019. Construction of the fuel station and convenience store was completed on June 29, 2020. The investment in the unconsolidated JV of $1.2 million as of June 30, 2020 and December 31, 2019 includes $1.4 million for the fair value of land contributed by the Company, which was offset by a $0.2 million note receivable from the JV partner. As of June 30, 2020 and December 31, 2019, the Company owned a 50.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Busy Bee 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 Busy Bee JV is accounted for using the equity method. See Note 18. Commitments and Contingencies for additional information related to debt guaranteed by the Company.
Summarized financial information for Busy Bee JV is as follows:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
BALANCE SHEETS: |
| |
|
| |
|
Property and equipment, net | | $ | 8,301 | | $ | 3,886 |
Cash and cash equivalents | |
| 45 | |
| 36 |
Other assets | |
| 883 | |
| 28 |
Total assets | | $ | 9,229 | | $ | 3,950 |
| |
|
| |
|
|
Debt, net | | $ | 6,301 | | $ | 1,349 |
Other liabilities | | | 553 | | | 181 |
Equity | | | 2,375 | | | 2,420 |
Total liabilities and equity | | $ | 9,229 | | $ | 3,950 |
| | | | | | |
| | Three Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | ||
STATEMENTS OF OPERATIONS: | | | | | | |
Total expenses | | $ | 54 | | $ | 65 |
Net loss | | $ | (54) | | $ | (65) |
20
5. Investments
Available-For-Sale Investments
Investments classified as available-for-sale securities were as follows:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
|
| | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||
| | Amortized Cost | | Gains | | (Losses) | | Fair Value | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury Bills | | $ | 49,962 | | $ | — | | $ | (18) | | $ | 49,944 |
Corporate debt securities | | | 52 | | | — | | | — | | | 52 |
| |
| 50,014 | |
| — | |
| (18) | |
| 49,996 |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 1,163 | |
| 13 | |
| — | |
| 1,176 |
| |
| 1,163 | |
| 13 | |
| — | |
| 1,176 |
| | $ | 51,177 | | $ | 13 | | $ | (18) | | $ | 51,172 |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| | |
| Gross Unrealized |
| Gross Unrealized |
| | | ||
| | Amortized Cost | | Gains | | (Losses) | | Fair Value | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
Corporate debt securities | | $ | 178 | | $ | — | | $ | (125) | | $ | 53 |
| |
| 178 | |
| — | |
| (125) | |
| 53 |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 2,239 | |
| 11 | |
| — | |
| 2,250 |
Money market fund | |
| 114 | |
| — | |
| — | |
| 114 |
| |
| 2,353 | |
| 11 | |
| — | |
| 2,364 |
| | $ | 2,531 | | $ | 11 | | $ | (125) | | $ | 2,417 |
During the three months ended June 30, 2020 there were 0 realized gains or losses from the sale of available-for-sale securities. During the six months ended June 30, 2020 net realized gains from the sale of available-for-sale securities were less than $0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, maturities of available-for-sale investments were $7.0 million and purchases of available-for-sale securities were $56.9 million.
During the three months ended June 30, 2019 there were 0 realized gains or losses from the sale of available-for-sale securities. During the six months ended June 30, 2019 net realized losses from the sale of available-for-sale securities were less than $0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, maturities of available-for-sale investments were $7.0 million and purchases of available-for sale securities were less than $0.1 million.
21
The following table provides the available-for-sale investments unrealized loss position and related fair values:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
| | Less Than 12 Months | | 12 Months or Greater | ||||||||
| | | | | Unrealized | | | | | Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
U.S. Treasury Bills | | $ | 42,954 | | $ | 18 | | $ | — | | $ | — |
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
| | Less Than 12 Months | | 12 Months or Greater | ||||||||
| | | | | Unrealized | | | | | Unrealized | ||
|
| Fair Value |
| Losses |
| Fair Value |
| Losses | ||||
Investments - debt securities: |
| |
|
| |
|
| |
|
| |
|
Corporate debt securities | | $ | — | | $ | — | | $ | 53 | | $ | 125 |
As of June 30, 2020, the Company had unrealized losses of less than $0.1 million related to U.S. Treasury Bills. The Company had unrealized losses of $0.1 million as of December 31, 2019 related to corporate debt securities. As of June 30, 2020, the Company determined unrealized losses related to U.S. Treasury Bills were not due to credit impairment and did not record an allowance for credit losses related to available-for-sale debt securities. As of June 30, 2020 and December 31, 2019, the Company did not intend to sell the investments with a material unrealized loss and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery.
The amortized cost and estimated fair value of investments - debt securities and restricted investments classified as available-for-sale, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities since certain borrowers have the right to call or prepay obligations.
| | | | | | |
| | June 30, 2020 | ||||
|
| Amortized Cost |
| Fair Value | ||
Due in one year or less | | $ | 50,014 | | $ | 49,996 |
Restricted investments | |
| 1,163 | |
| 1,176 |
| | $ | 51,177 | | $ | 51,172 |
Investments - Equity Securities
As of June 30, 2020 and December 31, 2019 investments - equity securities included $2.4 million and $9.7 million, respectively, of preferred stock investments recorded at fair value. During the three months ended June 30, 2020 and 2019 the Company had an unrealized loss on investments – equity securities of $0.1 million and $1.9 million, respectively. During the six months ended June 30, 2020 the Company had an unrealized loss on investments – equity securities of $4.9 million, compared to an unrealized gain on investments – equity securities of $0.1 million during the six months ended June 30, 2019. These amounts were included within investment income, net on the condensed consolidated statements of income.
Investment Management Agreement
Mr. Bruce R. Berkowitz is the Chairman of the Company’s Board of Directors (the “Board”). He is the Manager of, and controls entities that own and control, Fairholme Holdings, LLC (“Fairholme”), which wholly owns Fairholme Capital Management, L.L.C. (“FCM”, an investment advisor registered with the SEC). Mr. Berkowitz is the Chief Investment Officer of FCM, which has provided investment advisory services to the Company since April 2013. FCM does not receive any compensation for services as the Company’s investment advisor. As of June 30, 2020, clients of FCM, including Mr. Berkowitz, beneficially owned approximately 44.99% of the Company’s common stock. FCM and its client, The Fairholme Fund, a series of the Fairholme Funds, Inc., may be deemed affiliates of the Company.
22
Pursuant to the terms of an Investment Management Agreement, as amended, with the Company (the “Investment Management Agreement”), FCM agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Company. The investment guidelines are set forth in the Investment Management Agreement and require that, as of the date of any investment: (i) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government), (ii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10% of the investment account, but not 15%, requires approval by a second member of Company’s Board, (iii) 25% of the investment account must be held in cash or cash equivalents, (iv) the investment account is permitted to be invested in common equity securities; however, common stock investments shall be limited to exchange-traded common equities, shall not exceed 5% ownership of a single issuer and, cumulatively, the common stock held in the Company’s investment portfolio shall not exceed $100.0 million market value, and (v) the aggregate market value of investments in common stock, preferred stock or other equity investments cannot exceed 25% of the market value of the Company’s investment portfolio at the time of purchase.
6. Financial Instruments and Fair Value Measurements
Fair Value Measurements
The financial instruments measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | |
| | June 30, 2020 | ||||||||||
|
| | |
| | |
| | |
| Total Fair | |
| | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | 86,951 | | $ | — | | $ | — | | $ | 86,951 |
| |
| 86,951 | |
| — | |
| — | |
| 86,951 |
| | | | | | | | | | | | |
Investments - debt securities: | | | | | | | | | | | | |
U.S. Treasury Bills | | | 49,944 | | | — | | | — | | | 49,944 |
Corporate debt securities | | | — | | | 52 | | | — | | | 52 |
| | | 49,944 | | | 52 | | | — | | | 49,996 |
| | | | | | | | | | | | |
Investments - equity securities: | | | | | | | | | | | | |
Preferred stock | | | — | | | 2,415 | | | — | | | 2,415 |
| | | — | | | 2,415 | | | — | | | 2,415 |
| | | | | | | | | | | | |
Restricted investments: | |
|
| |
|
| |
|
| |
|
|
Short-term bond | |
| 1,176 | |
| — | |
| — | |
| 1,176 |
| |
| 1,176 | |
| — | |
| — | |
| 1,176 |
| | $ | 138,071 | | $ | 2,467 | | $ | — | | $ | 140,538 |
23
| | | | | | | | | | | | |
| | December 31, 2019 | ||||||||||
|
| | |
| | |
| | |
| Total Fair | |
| | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Cash equivalents: |
| |
|
| |
|
| |
|
| |
|
Money market funds | | $ | 21,043 | | $ | — | | $ | — | | $ | 21,043 |
Commercial paper | |
| 138,220 | |
| — | |
| — | |
| 138,220 |
U.S. Treasury Bills | | | 6,990 | | | — | | | — | | | 6,990 |
| |
| 166,253 | |
| — | |
| — | |
| 166,253 |
| | | | | | | | | | | | |
Investments - debt securities: | | | | | | | | | | | | |
Corporate debt securities | | | — | | | 53 | | | — | | | 53 |
| | | — | | | 53 | | | — | | | 53 |
| | | | | | | | | | | | |
Investments - equity securities: | | | | | | | | | | | | |
Preferred stock | | | — | | | 9,746 | | | — | | | 9,746 |
| | | — | | | 9,746 | | | — | | | 9,746 |
| |
| | | | | | | | | | |
Restricted investments: | | | | | | | | | | | | |
Short-term bond | |
| 2,250 | |
| — | |
| — | |
| 2,250 |
Money market fund | |
| 114 | |
| — | |
| — | |
| 114 |
| |
| 2,364 | |
| — | |
| — | |
| 2,364 |
| | $ | 168,617 | | $ | 9,799 | | $ | — | | $ | 178,416 |
Money market funds, commercial paper, U.S. Treasury Bills and short-term bonds are measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. Money market funds, commercial paper and short term U.S. Treasury Bills with a maturity date of 90 days or less from the date of purchase are classified as cash equivalents in the Company’s condensed consolidated balance sheets.
The Company’s corporate debt securities and preferred stock investments are not traded on a nationally recognized exchange, but are traded in the U.S. over-the-counter market where there is less trading activity and the investments are measured primarily using pricing data from external pricing services that report prices observed for recently executed market transactions. For these reasons, the Company has determined that corporate debt securities and preferred stock investments are categorized as Level 2 financial instruments since their fair values were determined from market inputs in an inactive market.
Restricted investments are included within other assets on the condensed consolidated balance sheets and include certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) Plan in December 2014. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated financial statements until they are allocated to participants. As of June 30, 2020 and December 31, 2019, the assets held in the suspense account were invested in a Vanguard Short-Term Bond Fund, which invests in money market instruments and short-term high quality bonds, including asset-backed, government, and investment grade corporate securities with an expected maturity of 0-3 years. As of December 31, 2019 the assets held in the suspense account were also invested in Vanguard Money Market Funds, which invest in short-term, high quality securities or short-term U.S. government securities and seek to provide current income and preserve shareholders’ principal investment. The Vanguard Money Market Funds and Vanguard Short-Term Bond Fund are measured based on quoted market prices in an active market and categorized within Level 1 of the fair value hierarchy. The Company’s Retirement Plan Investment Committee is responsible for investing decisions and allocation decisions of the suspense account. Refer to Note 9. Other Assets.
24
Liabilities measured at fair value on a recurring basis are as follows:
| | | | | | | | | | | | | | |
| | | | June 30, 2020 | ||||||||||
| | Location in |
| | |
| | |
| | |
| Total Fair | |
| | Balance Sheet | | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Derivative Liabilities: | | | |
|
| |
|
| |
|
| |
|
|
Interest rate swap | | Other liabilities | | $ | — | | $ | 1,202 | | $ | — | | $ | 1,202 |
Interest rate swap - unconsolidated affiliate | | Investment in unconsolidated joint ventures | | | — | | | 841 | | | — | | | 841 |
| | | | $ | — | | $ | 2,043 | | $ | — | | $ | 2,043 |
| | | | | | | | | | | | | | |
| | | | December 31, 2019 | ||||||||||
| | Location in |
| | |
| | |
| | |
| Total Fair | |
| | Balance Sheet | | Level 1 | | Level 2 | | Level 3 | | Value | ||||
Derivative Liabilities: | | |
| |
|
| |
|
| |
|
| |
|
Interest rate swap | | Other liabilities | | $ | — | | $ | 336 | | $ | — | | $ | 336 |
| | | | $ | — | | $ | 336 | | $ | — | | $ | 336 |
In June 2019 the Watercrest JV entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amount of related debt of $20.0 million. As of June 30, 2020 and December 31, 2019, the interest rate swap was recorded at its estimated fair value, based on Level 2 measurements, of $1.2 million and $0.3 million, respectively, and is included within other liabilities on the condensed consolidated balance sheet. The gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive (loss) income into interest expense during the three and six months ended June 30, 2020. See Note 10. Debt for additional information.
In January 2019 the Pier Park TPS JV, which is unconsolidated and accounted for using the equity method, entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective January 14, 2021 and matures on January 14, 2026 and fixed the variable rate debt on the notional amount of related debt of $14.4 million. As of June 30, 2020, the interest rate swap was recorded at the Company’s proportionate share of its estimated fair value, based on Level 2 measurements, of $0.8 million and is included within investment in unconsolidated joint ventures on the condensed consolidated balance sheet. The gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive (loss) income into equity in loss from unconsolidated affiliates during the three and six months ended June 30, 2020. See Note 4. Real Estate Joint Ventures and Note 18. Commitments and Contingencies for additional information.
Investment in Unconsolidated Joint Ventures
The Company evaluates its investment in unconsolidated JVs for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of the Company’s investment in the unconsolidated JV has occurred. The amount of impairment recognized is the excess of the investment’s carrying value over its estimated fair value. The fair value of the Company’s investment in unconsolidated JVs is determined primarily using a discounted cash flow model to value the underlying net assets of the respective JV. The fair value of investment in unconsolidated JVs required to be assessed for impairment is determined on a nonrecurring basis using Level 3 inputs in the fair value hierarchy. NaN impairment for unconsolidated JVs was recorded during the three and six months ended June 30, 2020 and 2019. See Note 4. Real Estate Joint Ventures for additional information.
25
Fair Value of Financial Instruments
The Company uses the following methods and assumptions in estimating fair value for financial instruments:
| ● | The fair value of the investments held by SPEs - time deposit is based on the present value of future cash flows at the current market rate. |
| ● | The fair value of the investments held by SPEs - U.S. Treasury Bills are measured based on quoted market prices in an active market. |
| ● | The fair value of debt is based on discounted future expected cash flows based on current market rates forfinancial instruments with similar risks, terms and maturities. |
| ● | The fair value of the senior notes held by SPE is based on the present value of future cash flows at the current market rate. |
The carrying amount and estimated fair value, measured on a nonrecurring basis, of the Company’s financial instruments were as follows:
| | | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | ||||||||||||
|
| Carrying |
| Estimated |
| |
| Carrying |
| Estimated |
| | ||||
| | value | | Fair value | | Level | | value | | Fair value | | Level | ||||
Assets |
| |
|
| |
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|
|
| |
|
| |
|
|
|
Investments held by SPEs: | |
|
| |
|
|
|
| |
|
| |
|
|
|
|
Time deposit | | $ | 200,000 | | $ | 200,000 |
| 3 | | $ | 200,000 | | $ | 200,000 |
| 3 |
U.S. Treasury Bills and cash | | $ | 6,438 | | $ | 6,731 |
| 1 | | $ | 6,771 | | $ | 6,712 |
| 1 |
Liabilities | |
| | |
| |
|
| |
|
| |
|
|
|
|
Debt | | | | | | | | | | | | | | | | |
Fixed-rate debt | | $ | 101,123 | | $ | 109,232 | | 2 | | $ | 89,969 | | $ | 92,276 | | 2 |
Variable-rate debt | | | 21,857 | | | 21,857 | | 2 | | | 4,538 | | | 4,538 | | 2 |
Total debt | | $ | 122,980 | | $ | 131,089 | | | | $ | 94,507 | | $ | 96,814 | | |
Senior Notes held by SPE | | $ | 177,156 | | $ | 222,866 |
| 3 | | $ | 177,026 | | $ | 204,347 |
| 3 |
Investments and Senior Notes Held by Special Purpose Entities
In connection with a real estate sale in 2014, the Company received consideration including a $200.0 million fifteen-year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC. The Company contributed the Timber Note and assigned its rights as a beneficiary under a letter of credit to Northwest Florida Timber Finance, LLC. Northwest Florida Timber Finance, LLC monetized the Timber Note by issuing $180.0 million aggregate principal amount of its 4.8% Senior Secured Notes due in 2029 (the “Senior Notes”) at an issue price of 98.5% of face value to third party investors. The investments held by Panama City Timber Finance Company, LLC as of June 30, 2020, consist of a $200.0 million time deposit that, subsequent to April 2, 2014, pays interest at 4.0% and matures in March 2029, U.S. Treasuries of $6.0 million and cash of $0.4 million. The Senior Notes held by Northwest Florida Timber Finance, LLC as of June 30, 2020 consist of $177.2 million, net of the $2.8 million discount and debt issuance costs. Panama City Timber Finance Company, LLC and Northwest Florida Timber Finance, LLC are VIEs, which the Company consolidates as the primary beneficiary of each entity.
7. Hurricane Michael
On October 10, 2018, Hurricane Michael made landfall in the Florida Panhandle, which resulted in widespread damage to the area. The majority of the Company’s properties incurred minimal or no damage; however the Company’s Bay Point Marina in Bay County and Port St. Joe Marina in Gulf County, as well as certain timber, commercial and multi-family leasing assets were impacted. The marinas suffered significant damage requiring long-term restoration and will remain closed during the reconstruction of significant portions of these assets, which is currently underway.
26
The Company maintains property and business interruption insurance, subject to certain deductibles, and is continuing to assess claims under such policies; however, the timing and amount of insurance proceeds are uncertain and may not be sufficient to cover all losses. Timing differences are likely to exist between the impairment losses, capital expenditures made to repair or restore properties and recognition and receipt of insurance proceeds reflected in the Company’s financial statements.
During the three months ended June 30, 2020, the Company did 0t receive any business interruption insurance proceeds. During the six months ended June 30, 2020, $0.7 million of business interruption insurance proceeds were received related to the Pier Park Crossings JV, included within the cost of leasing revenue on the condensed consolidated statements of income. During the three and six months ended June 30, 2019, $1.3 million of insurance proceeds were received related to business interruption insurance, included within the cost of hospitality revenue on the condensed consolidated statements of income. Costs incurred due to business interruption, primarily at the marinas, are continuing to be evaluated. The Company does not expect revenue at these locations until the properties have been rebuilt, but will incur costs for employee retention and property maintenance.
During the three and six months ended June 30, 2020, the Company did 0t recognize any gain on insurance recovery. During the three and six months ended June 30, 2019, the Company recognized a $3.8 million and $4.1 million, respectively, gain on insurance recovery, included in other income, net on the condensed consolidated statements of income.
During the three and six months ended June 30,��2020, the Company incurred loss from hurricane damage of $0.4 million and $0.5 million, respectively. During the three and six months ended June 30, 2019, the Company incurred loss from hurricane damage of $0.8 million and $1.1 million, respectively. Loss from hurricane damage includes additional hurricane expense items such as repairs, clean-up costs, landscape repairs, demolition costs, professional fees, damaged inventory and temporary housing for employees included in other income, net on the condensed consolidated statements of income.
8. Leases
Leasing revenue consists of rental revenue from multi-family, retail, office and commercial property, cell towers and other assets, which is recognized as earned, using the straight-line method over the life of each lease. The Company’s leases have remaining lease terms up to the year 2036, some of which include options to terminate or extend.
The components of leasing revenue are as follows:
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
| 2020 | | 2019 | | 2020 | | 2019 | ||||
Leasing revenue | | | | | | | | | | | |
Lease payments | $ | 3,772 | | $ | 2,724 | | $ | 7,154 | | $ | 5,404 |
Variable lease payments | | 1,135 | | | 950 | | | 2,052 | | | 1,777 |
Total leasing revenue | $ | 4,907 | | $ | 3,674 | | $ | 9,206 | | $ | 7,181 |
Minimum future base rental revenue on non-cancelable leases subsequent to June 30, 2020, for the years ending December 31 are:
| | | |
|
| |
|
2020 | | $ | 7,458 |
2021 | |
| 11,490 |
2022 | |
| 10,243 |
2023 | |
| 8,158 |
2024 | | | 6,913 |
Thereafter | | | 17,293 |
| | $ | 61,555 |
27
As of June 30, 2020, the Company leased certain office equipment under a finance lease and had operating leases for property and equipment used in corporate, hospitality and commercial operations with remaining lease terms up to the year 2049. Certain leases include options to purchase, terminate or renew for one or more years, which are included in the lease term used to establish right-of-use assets and lease liabilities when it is reasonably certain that the option will be exercised. Finance lease right-of-use assets are included within property, plant and equipment and operating lease right-of-use assets are included within other assets on the condensed consolidated balance sheets, which represent the Company’s right to use an underlying asset during a lease term for leases in excess of one year. Corresponding finance lease liability and operating lease liabilities are included within other liabilities on the condensed consolidated balance sheets and are related to the Company’s obligation to make lease payments for leases in excess of one year. The Company uses its incremental borrowing rate to determine the present value of the lease payments since the rate implicit in each lease is not readily determinable.
The components of lease expense are as follows:
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
| 2020 | | 2019 | | 2020 | | 2019 | | ||||
Lease cost | | | | | | | | | | | | |
Finance lease cost: | | | | | | | | | | | | |
Amortization of right-of-use assets | $ | 13 | | $ | 12 | | $ | 25 | | $ | 16 | |
Interest on lease liability |
| 2 | |
| 3 | |
| 5 | |
| 4 | |
Operating lease cost |
| 72 | |
| 53 | |
| 137 | |
| 105 | |
Short-term lease cost |
| 277 | |
| 237 | |
| 351 | |
| 301 | |
Total lease cost | $ | 364 | | $ | 305 | | $ | 518 | | $ | 426 | |
| | | | | | | | | | | | |
Other information | | | | | | | | | | | | |
Weighted-average remaining lease term - finance lease (in years) | | | | | | | | 4.1 | | | 4.7 | |
Weighted-average remaining lease term - operating leases (in years) | | | | | | | | 2.6 | | | 1.7 | |
Weighted-average discount rate - finance lease | | | | | | | | 5.0 | % | | 5.0 | % |
Weighted-average discount rate - operating leases | | | | | | | | 5.0 | % | | 5.0 | % |
The aggregate payments of finance lease liability subsequent to June 30, 2020, for the years ending December 31 are:
| | | |
2020 | | $ | 29 |
2021 | |
| 58 |
2022 | |
| 58 |
2023 | |
| 58 |
2024 | | | 12 |
Thereafter | | | 1 |
Total | | | 216 |
Less imputed interest | | | (19) |
Total finance lease liability | | $ | 197 |
28
The aggregate payments of operating lease liabilities subsequent to June 30, 2020, for the years ending December 31 are:
| | | |
2020 | | $ | 139 |
2021 | |
| 214 |
2022 | |
| 126 |
2023 | |
| 83 |
2024 | | | 13 |
Thereafter | | | 293 |
Total | | | 868 |
Less imputed interest | | | (196) |
Total operating lease liabilities | | $ | 672 |
9. Other Assets
Other assets consist of the following:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Restricted investments | | $ | 1,176 | | $ | 2,364 |
Accounts receivable, net | | | 8,190 | | | 6,957 |
Homesite sales receivable | | | 4,919 | | | 5,211 |
Notes receivable, net | |
| 3,084 | |
| 3,252 |
Income tax receivable | | | 2,487 | | | 2,843 |
Prepaid expenses | |
| 8,119 | |
| 6,592 |
Straight-line rent | |
| 3,261 | |
| 3,292 |
Operating lease right-of-use assets | | | 672 | | | 691 |
Other assets | |
| 7,639 | |
| 5,715 |
Retained interest investments | | | 12,492 | | | 12,214 |
Accrued interest receivable for Senior Notes held by SPE | |
| 2,938 | |
| 2,938 |
Total other assets | | $ | 54,977 | | $ | 52,069 |
Restricted Investments
The Company’s restricted investments are related to the Company’s deferred compensation plan. As part of the Pension Plan termination in 2014, the Company directed the Pension Plan to transfer the Pension Plan’s surplus assets into a suspense account in the Company’s 401(k) plan. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s condensed consolidated balance sheets until they are allocated to current or future 401(k) plan participants within the next year. During the six months ended June 30, 2020 and 2019, the Company recorded an expense of $1.2 million and $1.1 million, respectively, for the fair value of the assets, less expenses that were allocated to participants. Any gain or loss on these assets is reflected in the Company’s condensed consolidated statements of income and was less than a $0.1 million loss for the three months ended June 30, 2020 and less than a $0.1 million gain for the six months ended June 30, 2020. Both the three and six months ended June 30, 2019 included a $0.1 million loss related to the restricted investments. Refer to Note 6. Financial Instruments and Fair Value Measurements.
Accounts Receivable, Net
The Company’s accounts receivable, net primarily include receivables related to certain homesite sales, leasing receivables, membership initiation fees, hospitality receivables and other receivables. At each reporting period accounts receivable in the scope of Topic 326 are pooled by type and judgements are made based on historical losses and expected credit losses based on economic trends to determine the allowance for credit losses primarily using the aging method. Actual losses could differ from those estimates. Write-offs are recorded when the Company concludes that all or
29
a portion of the receivable is no longer collectible and recoveries on receivables previously charged-off are credited to the allowance. As of June 30, 2020, accounts receivable were presented net of allowance for credit losses of $0.2 million and net of allowance for lease related receivables of $0.1 million. As of December 31, 2019, allowance for doubtful accounts receivable was $0.3 million. During the six months ended June 30, 2020, allowance for credit losses related to accounts receivable, net increased less than $0.1 million.
Homesite Sales Receivable
Homesite sales receivable from contracts with customers include estimated homesite residuals and certain estimated fees that are recognized as revenue at the time of sale to homebuilders, subject to constraints. Any change in circumstances from the estimated amounts will be updated at each reporting period. The receivable will be collected as the homebuilders build the homes and sell to retail consumers, which can occur over multiple years.
The following table presents the changes in homesite sales receivable:
| | | | | | | | | | | | |
| | | | | | Increases Due To | | | Decreases Due to | | | |
| | | Balance | | | Revenue Recognized | | | Amounts | | | Balance |
| | | January 1, 2020 | | | for Homesites Sold | | | Received/Transferred | | | June 30, 2020 |
Homesite sales receivable | | $ | 5,211 | | $ | 1,075 | | $ | (1,367) | | $ | 4,919 |
| | | | | | | | | | | | |
| | | | | | Increases Due To | | | Decreases Due to | | | |
| | | Balance | | | Revenue Recognized | | | Amounts | | | Balance |
| | | January 1, 2019 | | | for Homesites Sold | | | Received/Transferred | | | June 30, 2019 |
Homesite sales receivable | | $ | 2,977 | | $ | 2,006 | | $ | (1,208) | | $ | 3,775 |
Notes Receivable, Net
Notes receivable, net consists of the following:
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Interest bearing homebuilder note, secured by the real estate sold — 5.5% interest rate, due June 2021 | | $ | 1,394 | | $ | 1,514 |
Interest bearing homebuilder note, secured by the real estate sold — 5.5% interest rate, due December 2021 | | | 872 | | | 872 |
Interest bearing note with a JV partner, secured by the partner's membership interest in the JV - 8.0% interest rate, due May 2039 | | | 359 | | | 363 |
Interest bearing note with a JV partner, secured by the partner's membership interest in the JV - 8.0% interest rate, due July 2039 | | | 200 | | | 206 |
Interest bearing homebuilder note, secured by the real estate sold — 6.3% interest rate, due March 2020 | | | 128 | | | 128 |
Various mortgage notes, secured by certain real estate, bearing interest at various rates | |
| 76 | |
| 85 |
Interest bearing revolving promissory note with Latitude Margaritaville Watersound JV, secured by the JV's real property - 5.0% interest rate, due June 2025 | | | 55 | | | — |
Interest bearing homebuilder note, secured by the real estate sold — 5.5% interest rate, due June 2020 | |
| — | |
| 84 |
Total notes receivable, net | | $ | 3,084 | | $ | 3,252 |
The Company may allow homebuilders to pay for homesites during the home construction period in the form of homebuilder notes. The Company evaluates the carrying value of the notes receivable and the need for an allowance for credit losses at each reporting date. As of June 30, 2020, notes receivable were presented net of allowance for credit losses of less than $0.1 million. As of December 31, 2019, there was 0 allowance for doubtful notes receivable. As of
30
both June 30, 2020 and December 31, 2019, accrued interest receivable related to notes receivable was $0.1 million, and is included within other assets on the condensed consolidated balance sheets.
In June 2020, the Company entered into a $10.0 million secured revolving promissory note (the “Latitude Margaritaville Watersound JV Note”) with the unconsolidated Latitude Margaritaville Watersound JV. The Latitude Margaritaville Watersound JV Note was provided 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, with the aggregate unpaid principal and all accrued and unpaid interest due at maturity in June 2025. The Latitude Margaritaville Watersound JV Note is secured by a mortgage and security interest in and on the real property and improvements located on the real property of the JV. See Note 4. Real Estate Joint Ventures for additional information.
Retained Interest Investments
The Company has a beneficial interest in certain bankruptcy-remote qualified SPEs used in the installment sale monetization of certain sales of timberlands in 2007 and 2008. The SPEs’ assets are not available to satisfy the Company’s liabilities or obligations and the liabilities of the SPEs are not the Company’s liabilities or obligations. Therefore, the SPEs’ assets and liabilities are not consolidated in the Company’s condensed consolidated financial statements as of June 30, 2020 and December 31, 2019. The Company’s continuing involvement with the SPEs is the receipt of the net interest payments and the remaining principal of approximately $16.4 million to be received at the end of the installment notes’ fifteen year maturity period, in 2022 through 2024. The Company has a beneficial or retained interest investment related to these SPEs of $12.5 million and $12.2 million as of June 30, 2020 and December 31, 2019, respectively, recorded in other assets on the Company’s condensed consolidated balance sheets.
31
10. Debt, Net
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 |
|
| December 31, 2018 | ||||||||||||||
|
|
|
|
| Unamortized |
|
|
|
|
|
|
|
| Unamortized |
|
|
| ||
|
|
|
|
| Discount and |
|
|
|
|
|
|
|
| Discount and |
|
|
| ||
|
|
|
|
| Debt Issuance |
|
|
|
|
|
|
|
| Debt Issuance |
|
|
| ||
|
| Principal |
| Costs |
| Net |
|
| Principal |
| Costs |
| Net | ||||||
PPN JV Loan, due November 2025, bearing interest at 4.1% |
| $ | 45,973 |
| $ | 413 |
| $ | 45,560 |
|
| $ | 46,423 |
| $ | 446 |
| $ | 45,977 |
Pier Park Crossings JV Loan, insured by HUD, due June 2060, bearing interest at 4.0% |
|
| 24,636 |
|
| 1,101 |
|
| 23,535 |
|
|
| 15,399 |
|
| 1,114 |
|
| 14,285 |
Community Development District debt, secured by certain real estate or other collateral, due May 2023 through May 2039, bearing interest at 3.6% to 6.0% |
|
| 7,023 |
|
| — |
|
| 7,023 |
|
|
| 6,324 |
|
| — |
|
| 6,324 |
Pier Park Outparcel Construction Loan, due March 2027, bearing interest at LIBOR plus 1.7% (effective rate of 4.1% at June 30, 2019) |
|
| 1,562 |
|
| 15 |
|
| 1,547 |
|
|
| 1,585 |
|
| 16 |
|
| 1,569 |
WaterColor Crossings Construction Loan, due February 2029, bearing interest at LIBOR plus 1.7% (effective rate of 4.1% at June 30, 2019) |
|
| 1,446 |
|
| 24 |
|
| 1,422 |
|
|
| 1,245 |
|
| 26 |
|
| 1,219 |
Beach Homes Loan, due May 2029, bearing interest at LIBOR plus 1.7% (effective rate of 4.1% at June 30, 2019) |
|
| 1,178 |
|
| 21 |
|
| 1,157 |
|
|
| — |
|
| — |
|
| — |
Total debt |
| $ | 81,818 |
| $ | 1,574 |
| $ | 80,244 |
|
| $ | 70,976 |
| $ | 1,602 |
| $ | 69,374 |
| | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | | December 31, 2019 | ||||||||||||||
|
| | |
| Unamortized |
| | | |
| | |
| Unamortized |
| | | ||
| | | | | Discount and | | | | |
| | | | Discount and | | | | ||
| | | | | Debt Issuance | | | | |
| | | | Debt Issuance | | | | ||
| | Principal | | Costs | | Net | |
| Principal | | Costs | | Net | ||||||
PPN JV Loan, due November 2025, bearing interest at 4.1% | | $ | 45,046 | | $ | 347 | | $ | 44,699 | | | $ | 45,514 | | $ | 380 | | $ | 45,134 |
PPC JV Loan, insured by HUD, due June 2060, bearing interest at 4.0% | | | 35,690 | | | 1,074 | | | 34,616 | | | | 34,610 | | | 1,087 | | | 33,523 |
Watersound Origins Crossings JV Loan, due May 2024, bearing interest at 5.0% | |
| 14,292 | |
| 402 | |
| 13,890 | | | | 2,868 | |
| 454 | |
| 2,414 |
Watercrest JV Loan, due June 2047, bearing interest at LIBOR plus 2.2% (effective rate of 2.4% at June 30, 2020) | | | 8,639 | | | 289 | | | 8,350 | | | | — | | | — | | | — |
Community Development District debt, secured by certain real estate or other collateral, due May 2023 through May 2039, bearing interest at 3.6% to 6.0% | | | 6,095 | | | — | | | 6,095 | | | | 6,977 | | | — | | | 6,977 |
PPC II JV Loan, due October 2024, bearing interest at LIBOR plus 2.3% (effective rate of 2.4% at June 30, 2020) | | | 5,174 | | | 224 | | | 4,950 | | | | — | | | — | | | — |
Beckrich Building III Loan, due August 2029, bearing interest at LIBOR plus 1.7% (effective rate of 1.9% at June 30, 2020) | | | 3,596 | | | 69 | | | 3,527 | | | | — | | | — | | | — |
Beach Homes Loan, due May 2029, bearing interest at LIBOR plus 1.7% (effective rate of 1.9% at June 30, 2020) | |
| 1,571 | |
| 18 | |
| 1,553 | | | | 1,594 | | | 20 | | | 1,574 |
Pier Park Outparcel Construction Loan, due March 2027, bearing interest at LIBOR plus 1.7% (effective rate of 1.9% at June 30, 2020) | | | 1,500 | | | 13 | | | 1,487 | | | | 1,535 | | | 14 | | | 1,521 |
WaterColor Crossings Construction Loan, due February 2029, bearing interest at LIBOR plus 1.7% (effective rate of 1.9% at June 30, 2020) | | | 1,377 | | | 22 | | | 1,355 | | | | 1,409 | | | 23 | | | 1,386 |
Total debt | | $ | 122,980 | | $ | 2,458 | | $ | 120,522 | | | $ | 94,507 | | $ | 1,978 | | $ | 92,529 |
In October 2015, the Pier Park North JV entered into a $48.2 million loan (the “PPN JV Loan”), secured by a first lien on, and security interest in, a majority of the Pier Park North JV’s property.The PPN JV Loan provides for principal and interest payments with a final balloon payment at maturity. In connection with the PPN JV Loan, the Company entered into a limited guarantee in favor of the lender, based on its percentage ownership of the JV. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the Pier Park North JV; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary bankruptcy or insolvency proceedings and upon breach of covenants in the security instrument.
In May 2018, the Pier Park Crossings JV entered into a $36.6 million loan, insured by the U.S. Department of Housing and Urban Development (“HUD”), to finance the construction of apartments in Panama City Beach, Florida (the “PPC JV Loan”). The PPC JV Loan provides for interest only payments during the first twenty-four months and monthly principal and interest payments thereafter through maturity in June 2060. The PPC JV Loan may not be prepaid prior to July 1, 2020. From July 1, 2020 through June 30, 2030, a prepayment premium is due to the lender of 1.0% - 10.0% of any prepaid principal. The PPC JV Loan is secured by the Pier Park Crossings JV’s real property and the assignment of rents and leases.
32
In May 2019, the Watersound Origins Crossings JV entered into a $37.9 million loan (the “Watersound Origins Crossings JV Loan”) to finance the construction of apartments in Watersound, Florida. The Watersound Origins Crossings JV Loan provides for interest only payments for the first thirty months and principal and interest payments thereafter through maturity in May 2024. The Watersound Origins Crossings JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Watersound Origins Crossings JV Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Watersound Origins Crossings JV Loan. The Company is the sole guarantor and receives a monthly fee related to the guarantee from its JV partner based on the JV partner’s ownership percentage.
In June 2019, the Watercrest JV entered into a $22.5 million loan (the “Watercrest JV Loan”) to finance the construction of an assisted living facility in Santa Rosa Beach, Florida. The Watercrest JV Loan provides for interest only payments for the first thirty-six months and principal and interest payments thereafter through maturity in June 2047. The Watercrest JV Loan is secured by the real property, assignment of rents, leases and deposits and the security interest in the rents and personal property. In connection with the Watercrest JV Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Watercrest JV Loan. The Company is the sole guarantor and will receive a quarterly fee related to the guarantee from its JV partner based on the JV partner’s ownership percentage. The Watercrest JV entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amount of related debt of $20.0 million to a rate of 4.37%.
Community Development District (“CDD”) bonds financed the construction of infrastructure improvements at some of the Company’s communities.projects. The principal and interest payments on the bonds are paid by assessments on the properties benefited by the improvements financed by the bonds. The Company has recorded a liability for CDD debt that is associated with platted property, which is the point at which it becomes fixed or determinable. Additionally, the Company has recorded a liability for the portion of the CDD debt that is associated with unplatted property if it is probable and reasonably estimable that the Company will ultimately be responsible for repayment. The Company’s total CDD debt assigned to property it owns was $18.9$17.0 million and $19.9$17.7 million as of June 30, 20192020 and December 31, 2018,2019, respectively. The Company pays interest on this total outstanding CDD debt.
In October 2019, the Pier Park Crossings Phase II JV entered into a $17.5 million loan (the “PPC II JV Loan”) to finance the construction of apartments in Panama City Beach, Florida. The PPC II JV Loan provides for interest only payments for the first twenty-four months and principal and interest payments thereafter through maturity in October 2024. The PPC II JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the PPC II JV Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the PPC II JV Loan. The Company is the sole guarantor and will receive a monthly fee related to the guarantee from its JV partner based on the JV partner’s ownership percentage.
In August 2019, a wholly owned subsidiary of the Company entered into a $5.5 million loan (the “Beckrich Building III Loan”) to finance the construction of an office building in Panama City Beach, Florida. The Beckrich Building III Loan provides for interest only payments for the first twelve months and principal and interest payments thereafter through maturity in August 2029. The Beckrich Building III Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Beckrich Building III Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Beckrich Building III Loan.
In May 2018, a wholly owned subsidiary of the Company entered into a $1.7 million construction loan to finance the construction of 2 beach homes located in Panama City Beach, Florida (the “Beach Homes Loan”). The Beach Homes Loan provides for monthly principal and interest payments with a final balloon payment at maturity. The Beach Homes Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Beach Homes Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Beach Homes Loan.
33
In March 2017, a wholly owned subsidiary of the Company entered into a $1.6 million construction loan to finance the construction of a commercial leasing property located in Panama City Beach, Florida (the “Pier Park Outparcel
27
Construction Loan”). The Pier Park Outparcel Construction Loan provides for monthly principal and interest payments with a final balloon payment at maturity. The Pier Park Outparcel Construction Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property.
In February 2018, a wholly owned subsidiary of the Company entered into a $1.9 million construction loan to finance the construction of a commercial leasing property located in Santa Rosa Beach, Florida (the “WaterColor Crossings Construction Loan”). The WaterColor Crossings Construction Loan provides for monthly principal and interest payments with a final balloon payment at maturity. The WaterColor Crossings Construction Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the WaterColor Crossings Construction Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the WaterColor Crossings Construction Loan.
In May 2018,March 2020, a wholly owned subsidiary of the Company entered into a $1.7$15.3 million construction loan (the “Airport Hotel Loan”) to finance the construction of two beach homes locateda Hilton Garden Inn near the Northwest Florida Beaches International Airport in Panama City, Beach, Florida (the “Beach Homes Loan”).Florida. The Beach HomesAirport Hotel Loan provides for monthlyinterest only payments for the first thirty-six months and principal and interest payments with a final balloon payment at maturity.thereafter through maturity in March 2025. The Beach HomesAirport Hotel Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Beach HomesAirport Hotel Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Beach HomesAirport Hotel Loan.
In May 2019, the Origins Crossings JV entered into a $37.9 million loan the (“Origins Crossings JV Loan”) to finance the construction of apartments in Watersound, Florida. The Origins Crossings JV Loan provides for interest only payments for the first thirty months and principal and interest payments thereafter through maturity in May 2024. The Origins Crossings JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Origins Crossings JV Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Origins Crossings JV Loan. The Company is the sole guarantor and will receive a fee related to the guarantee from its JV partner based on the JV partner’s ownership percentage. As of June 30, 2019,2020, there was no0 principal balance and the JVCompany had incurred $0.5$0.2 million of loan costs related to the Origins Crossings JVAirport Hotel Loan.
In June 2019,April 2020, the WatercrestPier Park Resort Hotel JV entered into a $22.5loan with an initial amount of $52.5 million loan the (“Watercrestup to a maximum of $60.0 million through additional earn-out requests (the “Pier Park Resort Hotel JV Loan”). The Pier Park Resort Hotel JV Loan was entered into to finance the construction of a senior living facilityan Embassy Suites by Hilton hotel in Santa Rosathe Pier Park area of Panama City Beach, Florida. The WatercrestPier Park Resort Hotel JV Loan provides for interest only payments for the first thirty-six months and principal and interest payments thereafter through maturity in June 2047.March 2027. The WatercrestPier Park Resort Hotel JV Loan is secured by the real property, assignment of rents leases and depositsleases and the security interest in the rents, leases and personal property. In connection with the WatercrestPier Park Resort Hotel JV Loan, as guarantor, the Company executedand the Company’s JV partner entered into a guarantee based on each partner’s ownership interest in favor of the lender, to guarantee the payment and performance of the borrowerborrower. As guarantor, the Company’s liability under the WatercrestPier Park Resort Hotel JV Loan. The Company is the sole guarantorLoan will be released upon reaching and will receive a fee related tomaintaining certain debt service coverage for twelve months. In addition, the guarantee from its JV partner basedcan become full recourse in the case of the failure of guarantor to abide by or perform any of the covenants or warranties to be performed on the JV partner’s ownership percentage. The Company entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amountpart of related debt of $20.0 million to a rate of 4.37%.such guarantor. As of June 30, 2019,2020, there was no0 principal balance and the JVCompany had incurred $0.3$1.2 million of loan costs related to the WatercrestPier Park Resort Hotel JV Loan.
The Company’s financing agreements are subject to various customary debt covenants and as of both June 30, 2020 and December 31, 2019 the Company was in compliance with the financial debt covenants.
The aggregate maturities of debt subsequent to June 30, 2019,2020, for the years ending December 31 are:
|
|
|
| |||
|
| June 30, | ||||
|
| 2019 | ||||
2019 |
| $ | 553 | |||
| | | | |||
|
| June 30, | ||||
| | 2020 | ||||
2020 |
|
| 1,986 | | $ | 885 |
2021 |
|
| 2,194 | |
| 2,472 |
2022 |
|
| 2,208 | |
| 2,871 |
2023 |
|
| 2,232 | |
| 3,049 |
2024 | |
| 21,663 | |||
Thereafter |
|
| 72,645 | |
| 92,040 |
|
| $ | 81,818 | |||
| | $ | 122,980 | |||
2834
11. Other Liabilities
Other liabilities consist of the following:
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
Accounts payable |
| $ | 14,480 |
| $ | 10,148 |
Finance lease liability |
|
| 226 |
|
| — |
Operating lease liabilities |
|
| 312 |
|
| — |
Accrued compensation |
|
| 2,269 |
|
| 3,112 |
Other accrued liabilities |
|
| 5,807 |
|
| 2,560 |
Deferred revenue |
|
| 20,205 |
|
| 17,478 |
Club initiation fees |
|
| 6,457 |
|
| 5,676 |
Club membership deposits |
|
| 4,153 |
|
| 4,286 |
Advance deposits |
|
| 1,999 |
|
| 1,277 |
Accrued interest expense for Senior Notes held by SPE |
|
| 2,850 |
|
| 2,850 |
Total other liabilities |
| $ | 58,758 |
| $ | 47,387 |
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2020 | | 2019 | ||
Accounts payable | | $ | 24,797 | | $ | 16,207 |
Finance lease liability | | | 197 | | | 204 |
Operating lease liabilities | | | 672 | | | 691 |
Accrued compensation | |
| 2,022 | |
| 3,151 |
Other accrued liabilities | |
| 5,864 | |
| 3,277 |
Deferred revenue | |
| 17,668 | |
| 18,972 |
Club initiation fees | | | 7,429 | | | 6,917 |
Club membership deposits | |
| 3,835 | |
| 3,985 |
Advance deposits | |
| 2,794 | |
| 946 |
Accrued interest expense for Senior Notes held by SPE | |
| 2,850 | |
| 2,850 |
Total other liabilities | | $ | 68,128 | | $ | 57,200 |
Accounts payable as of June 30, 2020 and December 31, 2019 includes payables for projects under development and construction.
Other accrued liabilities include $2.3$2.4 million and $0.1 million of accrued property taxes as of June 30, 2020 and December 31, 2019, respectively, which are generally paid annually in November. As of December 31, 2018 the Company had no accrued property taxes.
Deferred revenue as of June 30, 20192020 and December 31, 20182019 includes $11.5 million and $12.5 million, respectively, related to a 2006 agreement pursuant to which the Company agreed to sell land to the Florida Department of Transportation. Revenue is recognized when title to a specific parcel is legally transferred.
Club initiation fees are recognized as revenue over the estimated average duration of membership, which is evaluated periodically. The following table presents the changes in club initiation fees related to contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance |
|
| Increases Due To |
|
| Decreases Due to |
|
| Balance |
|
|
| January 1, 2019 |
|
| Cash Received |
|
| Revenue Recognized |
|
| June 30, 2019 |
Contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Club initiation fees |
| $ | 5,676 |
| $ | 1,663 |
| $ | (882) |
| $ | 6,457 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| Balance |
|
| Increases Due To |
|
| Decreases Due to |
|
| Balance | ||||||||||||
|
|
| January 1, 2018 |
|
| Cash Received |
|
| Revenue Recognized |
|
| June 30, 2018 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | | Balance | | | Increases Due To | | | Decreases Due to | | | Balance | ||||||||||||
| | | January 1, 2020 | | | Cash Received | | | Revenue Recognized | | | June 30, 2020 | ||||||||||||
Contract liabilities |
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Club initiation fees |
| $ | 5,199 |
| $ | 695 |
| $ | (576) |
| $ | 5,318 | | $ | 6,917 | | $ | 1,686 | | $ | (1,174) | | $ | 7,429 |
| | | | | | | | | | | | |
| | | Balance | | | Increases Due To | | | Decreases Due to | | | Balance |
| | | January 1, 2019 | | | Cash Received | | | Revenue Recognized | | | June 30, 2019 |
Contract liabilities | | | | | | | | | | | | |
Club initiation fees | | $ | 5,676 | | $ | 1,663 | | $ | (882) | | $ | 6,457 |
Advance deposits consist of deposits received on hotel rooms and lodging rentals.related hospitality activities. Advance deposits are recorded as other liabilities in the condensed consolidated balance sheets without regard to whether they are refundable and are recognized as income at the time the service is provided for the related deposit.
2935
12. Income Taxes
Income tax expense benefit attributable to income from operations differed from the amount computed by applying the statutory federal income tax rate of 21% as of June 30, 20192020 and 20182019 to pre-tax income as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Tax at the federal statutory rate |
| $ | 2,869 |
| $ | 6,875 |
| $ | 3,424 |
| $ | 6,982 |
State income taxes (net of federal benefit) |
|
| 601 |
|
| 1,423 |
|
| 717 |
|
| 1,445 |
2017 qualified timber gains at the federal statutory rate of 23.8% (1) |
|
| — |
|
| — |
|
| — |
|
| (524) |
Decrease in valuation allowance |
|
| — |
|
| (1,418) |
|
| — |
|
| (1,451) |
Other |
|
| (36) |
|
| (333) |
|
| (46) |
|
| (154) |
Total income tax expense |
| $ | 3,434 |
| $ | 6,547 |
| $ | 4,095 |
| $ | 6,298 |
|
|
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | ||||
Tax at the federal statutory rate |
| $ | 5,273 |
| $ | 2,869 | | $ | 4,847 |
| $ | 3,424 |
State income taxes (net of federal benefit) | |
| 884 | |
| 601 | |
| 813 | |
| 717 |
Tax credits | | | (251) | | | — | | | (251) | | | — |
Other | |
| 1 | |
| (36) | |
| 3 | |
| (46) |
Total income tax expense |
| $ | 5,907 |
| $ | 3,434 | | $ | 5,412 |
| $ | 4,095 |
As of June 30, 2020 and December 31, 2019 the Company had an income tax receivable of $2.5 million and $2.8 million, respectively, included in other assets on the condensed consolidated balance sheets. As of both June 30, 2020 and December 31, 2019 the income tax receivable included a federal alternative minimum tax (“AMT”) credit receivable of $2.2 million.
Significant judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. The Company regularly assesses the likelihood of adverse outcomes resulting from potential examinations to determine the adequacy of its provision for income taxes and applies a “more-likely-than-not” in determining the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.return. The Company has not identified any material unrecognized tax benefits as of either June 30, 20192020 or December 31, 2018.2019.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. Based upon current facts and circumstances, the Company does not expect that these provisions would result in a material cash benefit or impact to the effective tax rate.
13. Accumulated Other Comprehensive Loss
Following is a summary of the changes in the balances of accumulated other comprehensive loss, which is presented net of tax:
| | | | | | | | | |
| | Unrealized (Loss) Gain |
| Unrealized Loss | | | |||
| | on Available-for- |
| Cash Flow | | | | ||
| | Sale Securities | | Hedge | | Total | |||
Accumulated other comprehensive loss at December 31, 2019 | | $ | (84) | | $ | (251) | | $ | (335) |
Other comprehensive loss before reclassifications | |
| 82 | | | (1,274) | | | (1,192) |
Amounts reclassified from accumulated other comprehensive loss | |
| (3) | | | — | | | (3) |
Other comprehensive loss | |
| 79 | | | (1,274) | | | (1,195) |
Accumulated other comprehensive loss at June 30, 2020 | | $ | (5) | | $ | (1,525) | | $ | (1,530) |
36 | |||
| |||
| |||
| |||
|
|
| |
|
| ||
|
| ||
|
| ||
|
|
| |
Following is a summary of the tax effects allocated to other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2019 | |||||||
|
| Before- |
| Tax Benefit or |
| Net-of- | |||
|
| Tax Amount |
| (Expense) |
| Tax Amount | |||
Unrealized (loss) gain on investments - debt securities and restricted investments: |
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale investments |
| $ | (9) |
| $ | 2 |
| $ | (7) |
Unrealized gain on restricted investments |
|
| 7 |
|
| (2) |
|
| 5 |
Net unrealized loss |
|
| (2) |
|
| — |
|
| (2) |
Other comprehensive loss |
| $ | (2) |
| $ | — |
| $ | (2) |
| | | | | | | | | |
| | Three Months Ended June 30, 2020 | |||||||
|
| Before- |
| Tax (Expense) or |
| Net-of- | |||
| | Tax Amount | | Benefit | | Tax Amount | |||
Unrealized gain on available-for-sale investments | | $ | 106 | | $ | (27) | | $ | 79 |
Unrealized gain on restricted investments | |
| 15 | |
| (4) | |
| 11 |
Interest rate swap | | | (137) | | | 35 | | | (102) |
Interest rate swap - unconsolidated affiliate | | | (841) | | | 213 | | | (628) |
Net unrealized loss | |
| (857) | |
| 217 | |
| (640) |
Other comprehensive loss | | $ | (857) | | $ | 217 | | $ | (640) |
| | | | | | | | | |
| | Three Months Ended June 30, 2019 | |||||||
|
| Before- |
| Tax Benefit or |
| Net-of- | |||
| | Tax Amount | | (Expense) | | Tax Amount | |||
Unrealized loss on available-for-sale investments | | $ | (9) | | $ | 2 | | $ | (7) |
Unrealized gain on restricted investments | |
| 7 | |
| (2) | |
| 5 |
Net unrealized loss | |
| (2) | |
| — | |
| (2) |
Other comprehensive loss | | $ | (2) | | $ | — | | $ | (2) |
30
| | | | | | | | | |
| | Six Months Ended June 30, 2020 | |||||||
|
| Before- |
| Tax (Expense) or |
| Net-of- | |||
| | Tax Amount | | Benefit | | Tax Amount | |||
Unrealized gain on available-for-sale investments | | $ | 106 | | $ | (27) | | $ | 79 |
Unrealized gain on restricted investments | | | 5 | | | (2) | | | 3 |
Interest rate swap | | | (866) | | | 220 | | | (646) |
Interest rate swap - unconsolidated affiliate | | | (841) | | | 213 | | | (628) |
Reclassification adjustment for net gain included in earnings | |
| (4) | |
| 1 | |
| (3) |
Net unrealized loss | |
| (1,600) | |
| 405 | |
| (1,195) |
Other comprehensive loss | | $ | (1,600) | | $ | 405 | | $ | (1,195) |
| | | | | | | | | |
| | Six Months Ended June 30, 2019 | |||||||
|
| Before- |
| Tax |
| Net-of- | |||
| | Tax Amount | | Expense | | Tax Amount | |||
Unrealized gain on available-for-sale investments | | $ | 790 | | $ | (201) | | $ | 589 |
Unrealized gain on restricted investments | |
| 18 | |
| (5) | |
| 13 |
Reclassification adjustment for net loss included in earnings | |
| 2 | |
| — | |
| 2 |
Net unrealized gain | |
| 810 | |
| (206) | |
| 604 |
Other comprehensive income | | $ | 810 | | $ | (206) | | $ | 604 |
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2018 | |||||||
|
| Before- |
| Tax (Expense) or |
| Net-of- | |||
|
| Tax Amount |
| Benefit |
| Tax Amount | |||
Unrealized gain on investments: |
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale investments |
| $ | 321 |
| $ | (81) |
| $ | 240 |
Reclassification adjustment for net gain included in earnings |
|
| (28) |
|
| 7 |
|
| (21) |
Net unrealized gain |
|
| 293 |
|
| (74) |
|
| 219 |
Other comprehensive income |
| $ | 293 |
| $ | (74) |
| $ | 219 |
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2019 | |||||||
|
| Before- |
| Tax |
| Net-of- | |||
|
| Tax Amount |
| Expense |
| Tax Amount | |||
Unrealized gain on investments - debt securities and restricted investments: |
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale investments |
| $ | 790 |
| $ | (201) |
| $ | 589 |
Unrealized gain on restricted investments |
|
| 18 |
|
| (5) |
|
| 13 |
Reclassification adjustment for net loss included in earnings |
|
| 2 |
|
| — |
|
| 2 |
Net unrealized gain |
|
| 810 |
|
| (206) |
|
| 604 |
Other comprehensive income |
| $ | 810 |
| $ | (206) |
| $ | 604 |
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2018 | |||||||
|
| Before- |
| Tax Benefit or |
| Net-of- | |||
|
| Tax Amount |
| (Expense) |
| Tax Amount | |||
Unrealized loss on investments - debt securities and restricted investments: |
|
|
|
|
|
|
|
|
|
Unrealized loss on available-for-sale investments |
| $ | (482) |
| $ | 123 |
| $ | (359) |
Unrealized loss on restricted investments |
|
| (9) |
|
| 2 |
|
| (7) |
Reclassification adjustment for net loss included in earnings |
|
| 1,050 |
|
| (266) |
|
| 784 |
Reclassification adjustment for other-than-temporary impairment loss included in earnings |
|
| 63 |
|
| (16) |
|
| 47 |
Reclassification into retained earnings for the adoption of ASU 2016-01 (1) |
|
| 932 |
|
| (236) |
|
| 696 |
Reclassification into retained earnings for the adoption of ASU 2018-02 (2) |
|
| — |
|
| (313) |
|
| (313) |
Net unrealized gain |
|
| 1,554 |
|
| (706) |
|
| 848 |
Other comprehensive income |
| $ | 1,554 |
| $ | (706) |
| $ | 848 |
|
|
|
|
14. Stockholders’ Equity
Stock Repurchase Program
The Company’s Board has approved a stock repurchase program (the “Stock Repurchase Program”) pursuant to which the Company is authorized to repurchase shares of its common stock. The Stock Repurchase Program has no expiration date.
During the six months ended June 30, 20192020 and 2018,2019, the Company repurchased 471,500532,034 and 4,065,160471,500 shares, respectively, of its common stock at an average purchase price of $15.00$16.54 and $17.82,$15.00, per share, respectively, for an aggregate purchase price of $7.1$8.8 million and $72.5$7.1 million, respectively, pursuant to its Stock Repurchase Program. No
31
shares were repurchased during the three months ended June 30, 2019. As of June 30, 2019,2020, the Company had a total authority of $35.8$77.4 million available for purchase of shares of its common stock
37
pursuant to its Stock Repurchase Program. The Company may repurchase its common stock in open market purchases from time to time, in privately negotiated transactions or otherwise, pursuant to Rule 10b‑1810b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The timing and amount of any additional shares to be repurchased will depend upon a variety of factors, including market and business conditions.conditions and is subject to the Company maintaining $100.0 million in cash, cash equivalents and/or investments. Repurchases may be commenced or suspended at any time or from time to time without prior notice. The Stock Repurchase Program will continue until otherwise modified or terminated by the Company’s Board at any time in its sole discretion.
Issuance of Common Stock for Director’s Fees
On May 20, 2019, the Company’s Board approved granting to each non-employee director an equity grant with an aggregate fair market value of $50,000 or, at the director’s election, its cash equivalent. On July 1, 2019, 5,708 shares of restricted stock were granted to two2 of the Company’s directors pursuant to the Board’s May 20, 2019 approval and the Company’s 2015 Performance and Equity Incentive Plan (the “2015 Plan”). This restricted stock will vestvested on May 19, 2020, the date of the Company’s 2020 Annual Meeting of Shareholders. TwoNaN non-employee directors elected to receive cash in lieu of the stock, which was paid in July 2019.
On May 23, 2018, the Company’s Board approved granting to each non-employee director an equity grant with an aggregate fair market value of $50,000 or, at the director’s election, its cash equivalent. On July 2, 2018, 2,778 shares of restricted stock were granted to one1 of the Company’s directors pursuant to the Board’s May 23, 2018 approval and the Company’s 2015 Plan. This restricted stock vested on May 20, 2019, the date of the Company’s 2019 Annual Meeting of Shareholders. Three non-employee directors elected to receive cash in lieu of the stock.
On May 25, 2017, the Company’s Board approved granting to each non-employee director an equity grant with an aggregate fair market value of $50,000 or, at the director’s election, its cash equivalent. On July 3, 2017, 5,334 shares of restricted stock were granted to two of the Company’s directors pursuant to the Board’s May 25, 2017 approval and the Company’s 2015 Plan. This restricted stock vested on May 23, 2018, the date of the Company’s 2018 Annual Meeting of Shareholders. FourNaN non-employee directors elected to receive cash in lieu of the stock.
For each of the three and six months ended June 30, 20192020 and 2018,2019, the Company recorded expense of less than $0.1 million, related to restricted stock awards to the Company’s directors.
Issuance of Common Stock for Officer Compensation
Pursuant to the Company’s 2015 Plan, the Company’s named executive officers (“NEOs”) were provided with the opportunity to elect to receive up to 50% of their discretionary cash incentive award for 2017 performance in shares of Company stock and four of the Company’s NEOs elected to do so. On March 15, 2018, 9,956 shares, net of shares withheld for taxes, of restricted stock were granted to four of the Company’s NEOs. The restricted stock vested immediately. For the six months ended June 30, 2018, the Company recorded expense of $0.2 million related to restricted stock awards to the Company’s NEOs.
32
15. Revenue Recognition
Revenue consists primarily of real estate sales, hospitality 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. The following represents revenue disaggregated by segment, good or service and timing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2019 | ||||||||||||||||
|
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
|
|
|
| Leasing |
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
|
| Hospitality |
|
| and Sales |
|
| Forestry |
|
| Other |
|
| Total |
Revenue by Major Good/Service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate revenue |
| $ | 13,825 |
| $ | — |
| $ | 103 |
| $ | 1,185 |
| $ | 440 |
| $ | 15,553 |
Hospitality revenue |
|
| — |
|
| 15,560 |
|
| — |
|
| — |
|
| — |
|
| 15,560 |
Leasing revenue |
|
| — |
|
| 38 |
|
| 3,438 |
|
| 198 |
|
| — |
|
| 3,674 |
Timber revenue |
|
| — |
|
| — |
|
| — |
|
| 759 |
|
| — |
|
| 759 |
Total revenue |
| $ | 13,825 |
| $ | 15,598 |
| $ | 3,541 |
| $ | 2,142 |
| $ | 440 |
| $ | 35,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized at a point in time |
| $ | 13,825 |
| $ | 14,780 |
| $ | 103 |
| $ | 1,944 |
| $ | 440 |
| $ | 31,092 |
Recognized over time |
|
| — |
|
| 780 |
|
| — |
|
| — |
|
| — |
|
| 780 |
Over lease term |
|
| — |
|
| 38 |
|
| 3,438 |
|
| 198 |
|
| — |
|
| 3,674 |
Total revenue |
| $ | 13,825 |
| $ | 15,598 |
| $ | 3,541 |
| $ | 2,142 |
| $ | 440 |
| $ | 35,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2018 | ||||||||||||||||
|
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
|
|
|
| Leasing |
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
|
| Hospitality |
|
| and Sales |
|
| Forestry |
|
| Other |
|
| Total |
Revenue by Major Good/Service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate revenue (a) |
| $ | 28,724 |
| $ | — |
| $ | 454 |
| $ | 726 |
| $ | 2,255 |
| $ | 32,159 |
Hospitality revenue |
|
| — |
|
| 12,847 |
|
| — |
|
| — |
|
| — |
|
| 12,847 |
Leasing revenue |
|
| — |
|
| 423 |
|
| 2,891 |
|
| 203 |
|
| — |
|
| 3,517 |
Timber revenue |
|
| 31 |
|
| — |
|
| — |
|
| 1,880 |
|
| — |
|
| 1,911 |
Total revenue |
| $ | 28,755 |
| $ | 13,270 |
| $ | 3,345 |
| $ | 2,809 |
| $ | 2,255 |
| $ | 50,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized at a point in time |
| $ | 28,755 |
| $ | 12,349 |
| $ | 454 |
| $ | 2,606 |
| $ | 2,255 |
| $ | 46,419 |
Recognized over time |
|
| — |
|
| 498 |
|
| — |
|
| — |
|
| — |
|
| 498 |
Over lease term |
|
| — |
|
| 423 |
|
| 2,891 |
|
| 203 |
|
| — |
|
| 3,517 |
Total revenue |
| $ | 28,755 |
| $ | 13,270 |
| $ | 3,345 |
| $ | 2,809 |
| $ | 2,255 |
| $ | 50,434 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | |||||||||||||
| | Residential | | Hospitality | | Commercial | | Other | | Total | |||||
Revenue by Major Good/Service: | | | | | | | | | | | | | | | |
Real estate revenue | | $ | 14,002 | | $ | — | | $ | 2,322 | | $ | 1,231 | | $ | 17,555 |
Hospitality revenue | | | 70 | | | 11,495 | | | — | | | — | | | 11,565 |
Leasing revenue | | | 55 | | | 3 | | | 4,849 | | | — | | | 4,907 |
Timber revenue | | | — | | | — | | | 2,055 | | | — | | | 2,055 |
Total revenue | | $ | 14,127 | | $ | 11,498 | | $ | 9,226 | | $ | 1,231 | | $ | 36,082 |
| | | | | | | | | | | | | | | |
Timing of Revenue Recognition: | | | | | | | | | | | | | | | |
Recognized at a point in time | | $ | 14,072 | | $ | 10,744 | | $ | 4,377 | | $ | 1,231 | | $ | 30,424 |
Recognized over time | | | — | | | 751 | | | — | | | — | | | 751 |
Over lease term | | | 55 | | | 3 | | | 4,849 | | | — | | | 4,907 |
Total revenue | | $ | 14,127 | | $ | 11,498 | | $ | 9,226 | | $ | 1,231 | | $ | 36,082 |
3338
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | |||||||||||||
| | Residential | | Hospitality | | Commercial | | Other | | Total | |||||
Revenue by Major Good/Service: | | | | | | | | | | | | | | | |
Real estate revenue | | $ | 13,825 | | $ | — | | $ | 1,288 | | $ | 440 | | $ | 15,553 |
Hospitality revenue | | | 183 | | | 15,377 | | | — | | | — | | | 15,560 |
Leasing revenue | | | 11 | | | 27 | | | 3,636 | | | — | | | 3,674 |
Timber revenue | | | — | | | — | | | 759 | | | — | | | 759 |
Total revenue | | $ | 14,019 | | $ | 15,404 | | $ | 5,683 | | $ | 440 | | $ | 35,546 |
| | | | | | | | | | | | | | | |
Timing of Revenue Recognition: | | | | | | | | | | | | | | | |
Recognized at a point in time | | $ | 14,008 | | $ | 14,597 | | $ | 2,047 | | $ | 440 | | $ | 31,092 |
Recognized over time | | | — | | | 780 | | | — | | | — | | | 780 |
Over lease term | | | 11 | | | 27 | | | 3,636 | | | — | | | 3,674 |
Total revenue | | $ | 14,019 | | $ | 15,404 | | $ | 5,683 | | $ | 440 | | $ | 35,546 |
| | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | |||||||||||||
| | Residential | | Hospitality | | Commercial | | Other | | Total | |||||
Revenue by Major Good/Service: | | | | | | | | | | | | | | | |
Real estate revenue | | $ | 16,956 | | $ | — | | $ | 5,087 | | $ | 1,319 | | $ | 23,362 |
Hospitality revenue | | | 132 | | | 18,044 | | | — | | | — | | | 18,176 |
Leasing revenue | | | 78 | | | 5 | | | 9,123 | | | — | | | 9,206 |
Timber revenue | | | — | | | — | | | 3,911 | | | — | | | 3,911 |
Total revenue | | $ | 17,166 | | $ | 18,049 | | $ | 18,121 | | $ | 1,319 | | $ | 54,655 |
| | | | | | | | | | | | | | | |
Timing of Revenue Recognition: | | | | | | | | | | | | | | | |
Recognized at a point in time | | $ | 17,088 | | $ | 16,671 | | $ | 8,998 | | $ | 1,319 | | $ | 44,076 |
Recognized over time | | | — | | | 1,373 | | | — | | | — | | | 1,373 |
Over lease term | | | 78 | | | 5 | | | 9,123 | | | — | | | 9,206 |
Total revenue | | $ | 17,166 | | $ | 18,049 | | $ | 18,121 | | $ | 1,319 | | $ | 54,655 |
| | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2019 | |||||||||||||
| | Residential | | Hospitality | | Commercial | | Other | | Total | |||||
Revenue by Major Good/Service: | | | | | | | | | | | | | | | |
Real estate revenue | | $ | 17,187 | | $ | — | | $ | 2,399 | | $ | 558 | | $ | 20,144 |
Hospitality revenue | | | 335 | | | 22,656 | | | — | | | — | | | 22,991 |
Leasing revenue | | | 22 | | | 52 | | | 7,107 | | | — | | | 7,181 |
Timber revenue | | | — | | | — | | | 1,254 | | | — | | | 1,254 |
Total revenue | | $ | 17,544 | | $ | 22,708 | | $ | 10,760 | | $ | 558 | | $ | 51,570 |
| | | | | | | | | | | | | | | |
Timing of Revenue Recognition: | | | | | | | | | | | | | | | |
Recognized at a point in time | | $ | 17,522 | | $ | 21,365 | | $ | 3,653 | | $ | 558 | | $ | 43,098 |
Recognized over time | | | — | | | 1,291 | | | — | | | — | | | 1,291 |
Over lease term | | | 22 | | | 52 | | | 7,107 | | | — | | | 7,181 |
Total revenue | | $ | 17,544 | | $ | 22,708 | | $ | 10,760 | | $ | 558 | | $ | 51,570 |
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2019 | ||||||||||||||||
|
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
|
|
|
| Leasing |
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
|
| Hospitality |
|
| and Sales |
|
| Forestry |
|
| Other |
|
| Total |
Revenue by Major Good/Service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate revenue |
| $ | 17,187 |
| $ | — |
| $ | 1,026 |
| $ | 1,373 |
| $ | 558 |
| $ | 20,144 |
Hospitality revenue |
|
| — |
|
| 22,991 |
|
| — |
|
| — |
|
| — |
|
| 22,991 |
Leasing revenue |
|
| — |
|
| 74 |
|
| 6,726 |
|
| 381 |
|
| — |
|
| 7,181 |
Timber revenue |
|
| — |
|
| — |
|
| — |
|
| 1,254 |
|
| — |
|
| 1,254 |
Total revenue |
| $ | 17,187 |
| $ | 23,065 |
| $ | 7,752 |
| $ | 3,008 |
| $ | 558 |
| $ | 51,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized at a point in time |
| $ | 17,187 |
| $ | 21,700 |
| $ | 1,026 |
| $ | 2,627 |
| $ | 558 |
| $ | 43,098 |
Recognized over time |
|
| — |
|
| 1,291 |
|
| — |
|
| — |
|
| — |
|
| 1,291 |
Over lease term |
|
| — |
|
| 74 |
|
| 6,726 |
|
| 381 |
|
| — |
|
| 7,181 |
Total revenue |
| $ | 17,187 |
| $ | 23,065 |
| $ | 7,752 |
| $ | 3,008 |
| $ | 558 |
| $ | 51,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2018 | ||||||||||||||||
|
|
|
|
|
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
|
|
|
| Leasing |
|
|
|
|
|
|
|
|
|
|
|
| Real Estate |
|
| Hospitality |
|
| and Sales |
|
| Forestry |
|
| Other |
|
| Total |
Revenue by Major Good/Service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate revenue (a) |
| $ | 35,682 |
| $ | — |
| $ | 764 |
| $ | 910 |
| $ | 2,505 |
| $ | 39,861 |
Hospitality revenue |
|
| — |
|
| 19,925 |
|
| — |
|
| — |
|
| — |
|
| 19,925 |
Leasing revenue |
|
| — |
|
| 794 |
|
| 5,731 |
|
| 410 |
|
| — |
|
| 6,935 |
Timber revenue |
|
| 108 |
|
| — |
|
| — |
|
| 3,469 |
|
| — |
|
| 3,577 |
Total revenue |
| $ | 35,790 |
| $ | 20,719 |
| $ | 6,495 |
| $ | 4,789 |
| $ | 2,505 |
| $ | 70,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized at a point in time |
| $ | 35,790 |
| $ | 19,102 |
| $ | 764 |
| $ | 4,379 |
| $ | 2,505 |
| $ | 62,540 |
Recognized over time |
|
| — |
|
| 823 |
|
| — |
|
| — |
|
| — |
|
| 823 |
Over lease term |
|
| — |
|
| 794 |
|
| 5,731 |
|
| 410 |
|
| — |
|
| 6,935 |
Total revenue |
| $ | 35,790 |
| $ | 20,719 |
| $ | 6,495 | �� | $ | 4,789 |
| $ | 2,505 |
| $ | 70,298 |
|
|
34
16. Other Income, (Expense)Net
Other income, (expense)net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Investment income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income |
| $ | 2,302 |
| $ | 2,342 |
| $ | 4,115 |
| $ | 5,222 |
|
Accretion income |
|
| 23 |
|
| 202 |
|
| 84 |
|
| 423 |
|
Net realized loss on the sale of investments |
|
| — |
|
| (8) |
|
| (2) |
|
| (1,086) |
|
Other-than-temporary impairment loss |
|
| — |
|
| — |
|
| — |
|
| (63) |
|
Unrealized (loss) gain on investments, net |
|
| (1,915) |
|
| 1,267 |
|
| 133 |
|
| 729 |
|
Interest income from investments in SPEs |
|
| 2,048 |
|
| 2,049 |
|
| 4,096 |
|
| 4,099 |
|
Interest accrued on notes receivable and other interest |
|
| 77 |
|
| 129 |
|
| 154 |
|
| 322 |
|
Total investment income, net |
|
| 2,535 |
|
| 5,981 |
|
| 8,580 |
|
| 9,646 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and amortization of discount and issuance costs for Senior Notes issued by SPE |
|
| (2,200) |
|
| (2,197) |
|
| (4,399) |
|
| (4,393) |
|
Other interest expense |
|
| (824) |
|
| (757) |
|
| (1,567) |
|
| (1,586) |
|
Total interest expense |
|
| (3,024) |
|
| (2,954) |
|
| (5,966) |
|
| (5,979) |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on land contribution to equity method investment |
|
| — |
|
| — |
|
| 1,472 |
|
| — |
|
Accretion income from retained interest investments |
|
| 327 |
|
| 303 |
|
| 647 |
|
| 593 |
|
Insurance proceeds |
|
| 3,792 |
|
| — |
|
| 4,071 |
|
| — |
|
Hurricane expense |
|
| (805) |
|
| — |
|
| (1,127) |
|
| — |
|
Miscellaneous expense, net |
|
| (31) |
|
| (60) |
|
| (84) |
|
| (73) |
|
Other income, net |
|
| 3,283 |
|
| 243 |
|
| 4,979 |
|
| 520 |
|
Total other income, net |
| $ | 2,794 |
| $ | 3,270 |
| $ | 7,593 |
| $ | 4,187 |
|
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
Investment income, net |
| |
|
| |
|
| |
|
| |
|
|
Interest and dividend income | | $ | 67 | | $ | 2,302 | | $ | 1,111 | | $ | 4,115 | |
Accretion income | |
| 30 | |
| 23 | |
| 47 | |
| 84 | |
Net realized loss on the sale of investments | |
| — | |
| — | |
| (48) | |
| (2) | |
Unrealized (loss) gain on investments, net | | | (142) | | | (1,915) | | | (4,903) | | | 133 | |
Interest income from investments in SPEs | |
| 2,045 | |
| 2,048 | |
| 4,091 | |
| 4,096 | |
Interest accrued on notes receivable and other interest | |
| 55 | |
| 77 | |
| 148 | |
| 154 | |
Total investment income, net | |
| 2,055 | |
| 2,535 | |
| 446 | |
| 8,580 | |
Interest expense | |
|
| |
|
| |
|
| |
|
| |
Interest expense and amortization of discount and issuance costs for Senior Notes issued by SPE | |
| (2,203) | |
| (2,200) | |
| (4,405) | |
| (4,399) | |
Other interest expense | |
| (1,187) | |
| (824) | |
| (2,329) | |
| (1,567) | |
Total interest expense | |
| (3,390) | |
| (3,024) | |
| (6,734) | |
| (5,966) | |
Other income (expense), net | |
|
| |
|
| |
|
| |
|
| |
Gain on land contribution to equity method investment | | | 15,338 | | | — | | | 19,616 | | | 1,472 | |
Accretion income from retained interest investments | |
| 340 | |
| 327 | |
| 685 | |
| 647 | |
Gain on insurance recovery | | | — | | | 3,792 | | | — | | | 4,071 | |
Loss from hurricane damage | | | (447) | | | (805) | | | (502) | | | (1,127) | |
Miscellaneous income (expense), net | |
| 246 | |
| (31) | |
| 210 | |
| (84) | |
Other income, net | |
| 15,477 | |
| 3,283 | |
| 20,009 | |
| 4,979 | |
Total other income, net | | $ | 14,142 | | $ | 2,794 | | $ | 13,721 | | $ | 7,593 | |
Investment Income, Net
Interest and dividend income includes interest income accrued or received on the Company’s U. S. Treasury Bills, corporate debt securities, commercial paper and money market funds, and dividend income received from the Company’s investmentinvestments in preferred stock. Accretion income includes the amortization of the premium or accretion of discount related to the Company’s available-for-sale securities, which is amortized based on an effective interest rate method over the term of the available-for-saleavailable-for-sale securities. Net realized loss on the sale of investments include the gains or losses recognized on the sale of available-for-sale and equity securities prior to maturity. Other-than-temporary impairment loss includes impairments related to the Company’s corporate debt securities for the six months ended June 30, 2018. Unrealized (loss) gain on investments, net includes unrealized gains or losses on investments - equity securities.
Interest income from investments in SPEs primarily includes interest earned on the investments held by Panama City Timber Finance Company, LLC, which is used to pay the interest expense for Senior Notes held by Northwest Florida Timber Finance, LLC.
Interest Expense
Interest expense includes interest incurred related to the Company’s CDD debt, Senior Notes issued by Northwest Florida Timber Finance, LLC, project financing and finance leases. Borrowing costs, including the discount and issuance costs for the Senior Notes issued by Northwest Florida Timber Finance, LLC, are amortized based on the effective interest method at an effective rate of 4.9%.
During each of the three months ended June 30, 2020 and 2019 the Company capitalized $0.2 million in interest related to projects under development. During the six months ended June 30, 2020 and 2019 the Company capitalized $0.3 million and $0.4 million, respectively, in interest related to projects under development. These amounts are included within investment in real estate, net on the Company’s condensed consolidated balance sheets.
3540
Other Income, Net
Other income, net primarily includes gain on land contribution,contributions, income from the Company’s retained interest investments, gain on insurance proceeds,recovery, loss from hurricane expensesdamage and other income and expense items.
Other income, net for the three and six months ended June 30, 2020 includes a gain of $15.3 million on land contributed to the Company’s unconsolidated Latitude Margaritaville Watersound JV. The $15.3 million gain on land contributed to the Latitude Margaritaville Watersound JV includes $16.6 million for the net present value of the land contribution, net of $1.3 million cost basis. The present value of the land contribution was based on the Company’s best estimate of the prevailing market rates for the source of credit using an imputed interest rate of 5.75% and an additional performance obligation to provide for infrastructure improvements in the vicinity of the contributed land. The six months ended June 30, 2020 also include a gain of $4.3 million on land and mitigation credits contributed to the Company’s unconsolidated Sea Sound Apartments JV. The six months ended June 30, 2019, include a gain of $1.5 million on land contributed to ourthe Company’s unconsolidated Pier Park TPS JV. See Note 9, 4. Real Estate Joint Ventures for additional information. During the three and six months ended June 30, 2019, the Company received $3.8 million and $4.1 million, respectively, of insurance proceeds and incurred $0.8 million and $1.1 million, respectively, of hurricane expenses related to Hurricane Michael. See Note 6. Hurricane Michael for additional information. These amounts were included in other income, net in the condensed consolidated statements of income.
The Company records the accretion of investment income from its retained interest investment over the life of the retained interest using the effective yield method with rates ranging from 3.7% to 11.7%11.2%.
During the three and six months ended June 30, 2020, the Company did 0t have any gain on insurance recovery and incurred $0.4 million and $0.5 million, respectively, of loss from hurricane damage related to Hurricane Michael. During the three and six months ended June 30, 2019, the Company had a gain on insurance recovery of $3.8 million and $4.1 million, respectively, and incurred $0.8 million and $1.1 million, respectively, of loss from hurricane damage related to Hurricane Michael. See Note 7. Hurricane Michael for additional information.
17. Segment Information
The Company currently conducts primarily all of its business in the following four3 operating segments: (1) residential, real estate, (2) hospitality and (3) commercial. Prior to the first quarter of 2020, commercial leasing and sales, and (4) forestry.as well as forestry were treated as individual operating segments. See Note 1. Nature of Operations for additional information.
The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately and decisions about allocations of resources are determined by management based on these strategic business units.
The Company uses income before equity in loss from unconsolidated affiliates, income taxes and non-controlling interest, cash flows and other measures for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which the Company believes represents current performance measures.
The accounting policies of the segments are set forth in Note 2 to the Company’s consolidated financial statements contained in Item 15 of the Company’s Annual Report on Form 10‑K10-K for the year ended December 31, 2018.2019. Total revenue represents sales to unaffiliated customers, as reported in the Company’s condensed consolidated statements of income. All significant intercompany transactions have been eliminated in consolidation. The caption entitled “Other” under operating revenue consists of mitigation credit andrevenue, title fee revenue. The caption entitled “Other” under income (loss) before income taxes consists ofrevenue and corporate operating and general and administrative expenses, net of corporate otherinvestment income.
3641
Information by business segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Operating revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate (a) |
| $ | 13,825 |
| $ | 28,755 |
| $ | 17,187 |
| $ | 35,790 |
Hospitality |
|
| 15,598 |
|
| 13,270 |
|
| 23,065 |
|
| 20,719 |
Commercial leasing and sales |
|
| 3,541 |
|
| 3,345 |
|
| 7,752 |
|
| 6,495 |
Forestry revenue |
|
| 2,142 |
|
| 2,809 |
|
| 3,008 |
|
| 4,789 |
Other (b) |
|
| 440 |
|
| 2,255 |
|
| 558 |
|
| 2,505 |
Consolidated operating revenue |
| $ | 35,546 |
| $ | 50,434 |
| $ | 51,570 |
| $ | 70,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate (a) |
| $ | 5,553 |
| $ | 24,957 |
| $ | 5,808 |
| $ | 26,417 |
Hospitality |
|
| 5,312 |
|
| 2,403 |
|
| 4,505 |
|
| 1,868 |
Commercial leasing and sales |
|
| (171) |
|
| (190) |
|
| 2,319 |
|
| (280) |
Forestry |
|
| 1,725 |
|
| 2,226 |
|
| 2,305 |
|
| 3,757 |
Other |
|
| 1,243 |
|
| 3,218 |
|
| 1,365 |
|
| 1,228 |
Consolidated income before income taxes |
| $ | 13,662 |
| $ | 32,614 |
| $ | 16,302 |
| $ | 32,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Operating revenue: |
| |
|
| |
|
| |
|
| |
|
Residential | | $ | 14,127 | | $ | 14,019 | | $ | 17,166 | | $ | 17,544 |
Hospitality | |
| 11,498 | |
| 15,404 | |
| 18,049 | |
| 22,708 |
Commercial | |
| 9,226 | |
| 5,683 | |
| 18,121 | |
| 10,760 |
Other | |
| 1,231 | |
| 440 | |
| 1,319 | |
| 558 |
Consolidated operating revenue | | $ | 36,082 | | $ | 35,546 | | $ | 54,655 | | $ | 51,570 |
| | | | | | | | | | | | |
Income (loss) before equity in loss from unconsolidated affiliates and income taxes: | |
|
| |
|
| |
|
| |
|
|
Residential (a) | | $ | 21,602 | | $ | 5,578 | | $ | 22,006 | | $ | 5,849 |
Hospitality | |
| 2,411 | |
| 5,287 | |
| 153 | |
| 4,464 |
Commercial (b) | |
| 3,446 | |
| 1,554 | |
| 11,400 | |
| 4,624 |
Other | |
| (2,210) | |
| 1,243 | |
| (10,057) | |
| 1,365 |
Consolidated income before equity in loss from unconsolidated affiliates and income taxes | | $ | 25,249 | | $ | 13,662 | | $ | 23,502 | | $ | 16,302 |
| | | | | | | | | | | | |
(a) |
|
(b) |
|
|
|
|
|
|
|
| ||||||
|
| June 30, |
| December 31, | ||||||||
|
| 2019 |
| 2018 | ||||||||
| | | | | | | ||||||
|
| June 30, |
| December 31, | ||||||||
| | 2020 | | 2019 | ||||||||
Total assets: |
|
|
|
|
|
|
| |
|
| |
|
Residential real estate |
| $ | 137,530 |
| $ | 125,642 | ||||||
Residential | | $ | 167,841 | | $ | 139,349 | ||||||
Hospitality |
|
| 84,103 |
|
| 70,746 | |
| 115,084 | |
| 89,570 |
Commercial leasing and sales |
|
| 205,238 |
|
| 182,658 | ||||||
Forestry |
|
| 20,737 |
|
| 20,189 | ||||||
Commercial | |
| 301,273 | |
| 253,936 | ||||||
Other |
|
| 458,639 |
|
| 471,727 | |
| 382,118 | |
| 426,378 |
Total assets |
| $ | 906,247 |
| $ | 870,962 | | $ | 966,316 | | $ | 909,233 |
18. Commitments and Contingencies
The Company establishes an accrued liability when it believes it is both probable that a material loss has been incurred and the amount of the loss can be reasonably estimated. The Company will evaluate the range of reasonably estimated losses and record an accrued liability based on what it believes to be the minimum amount in the range, unless it believes an amount within the range is a better estimate than any other amount. In such cases, there may be an exposure to loss in excess of the amounts accrued. The Company evaluates quarterly whether further developments could affect the amount of the accrued liability previously established or would make a loss contingency both probable and reasonably estimable.
The Company also provides disclosure when it believes it is reasonably possible that a material loss will be incurred or when it believes it is reasonably possible that the amount of a loss will exceed the recorded liability. The Company reviews loss contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. This estimated range of possible losses is based upon currently available information and is subject to significant judgment and a variety of assumptions, as well as known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.
37
The Company is subject to a variety of litigation, claims, other disputes and governmental proceedings that arise from time to time in the ordinary course of its business, including litigation related to its prior homebuilding and development activities. The Company cannot make assurances that it will be successful in defending these matters.
42
Based on current knowledge, the Company does not believe that loss contingencies arising from pending litigation, claims, other disputes and governmental proceedings, including those described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.
The Company is subject to costs arising out of environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred and a range of loss can be reasonably estimated. As assessments and cleanups proceed, these accruals are reviewed and adjusted, if necessary, as additional information becomes available. The Company is in the process of assessing certain properties in regard to the effects, if any, on the environment from the disposal or release of wastes or substances. Management is unable to quantify future rehabilitation costs above present accruals at this time or provide a reasonably estimated range of loss.
Other litigation, claims, disputes and governmental proceedings, including environmental matters, are pending against the Company. Accrued aggregate liabilities related to the matters described above and other litigation matters were $1.2$0.8 million and $1.5 million as of each June 30, 20192020 and December 31, 2018,2019, respectively. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. Due to uncertainties related to these matters, accruals are based only on the information available at the time. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations for any particular reporting period.
The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage, including its timber assets.
At bothIn June 2020, the Company, as lender, entered into a $10.0 million secured revolving promissory note with the unconsolidated Latitude Margaritaville Watersound JV, as borrower. As of June 30, 20192020, $0.1 million was outstanding on theLatitude Margaritaville Watersound JV Note. The Latitude Margaritaville Watersound JV Note was provided by the Company 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, with the aggregate unpaid principal and all accrued and unpaid interest due at maturity in June 2025. The Latitude Margaritaville Watersound JV Note is secured by a mortgage and security interest in and on the real property and improvements located on the real property of the JV. See Note 4. Real Estate Joint Ventures and Note 9. Other Assets for additional information.
As of June 30, 2020 and December 31, 2018,2019, the Company was required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and mitigation banks of $9.4$19.7 million and $10.7 million, respectively, as well as a standby letter of credit in the amount of $1.9 million as of June 30, 2020, which may potentially result in liability to the Company if certain obligations of the Company are not met.
As of June 30, 2019,2020, the Company had a total of $96.9$134.9 million in construction and development related contractual obligations, of which a significant portion will be funded through committed financing arrangements.
In January 2019, the Company’s unconsolidated Pier Park TPS JV, entered into a $14.4 million loan, maturing in January 2026 (the “Pier Park TPS JV Loan”). The Pier Park TPS JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Pier Park TPS JV Loan, as guarantor the Company, and a wholly owned subsidiary of the Company (the “Guarantor”)and the Company’s JV partner entered into a joint and several guarantee in favor of the lender, to guarantee the payment and performance of the borrower. The Guarantors’As guarantor the Company’s liability under the Pier Park TPS JV Loan will be automatically reduced to 50.0%, or a further 25.0% of the outstanding principal balance upon reaching and maintaining certain debt service coverage. In addition, the guarantee can become full recourse in the case of the failure of Guarantorguarantor to abide by or perform any of the covenants or warranties to be performed on the part of such Guarantor;guarantor; any sale, conveyance or transfer of the property; upon the filing or commencement of voluntary bankruptcy or insolvency proceedings; the entry of monetary judgement or assessment or
43
the filing of any tax lien against either the borrower or Guarantor;guarantor; and the dissolution of the borrower or Guarantor.guarantor. The Pier Park TPS JV entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap is effective January 14, 2021 and matures on January 14, 2026 and fixed the variable rate debt on the notional amount of related debt of $14.4 million to a rate of 5.21%. As of June 30, 2020 and December 31, 2019, there$13.3 million and $6.8 million, respectively, was no principal balance outstanding related toon the Pier Park TPS JV Loan.
38
rents and leases and a security interest in the construction contract and management agreement. In connection with the Busy Bee JV Construction Loan and the Busy Bee JV Equipment Loan, as guarantor the Company, a wholly owned subsidiary of the Company and the Company’s JV partner entered into a joint and several guarantee in favor of the lender, to guarantee the payment and performance of the borrower through substantial completion, which occurred on June 29, 2020. As guarantor, the Company’s liability under the loans upon substantial completion was reduced to 50.0% for a twelve month period. Subsequent to that time, the Company’s guarantee will be released upon request. Upon release of the Company’s guarantee, the JV partner will be the sole guarantor and will receive a fee related to the guarantee from the Company based on the Company’s ownership percentage. As of June 30, 2020 and December 31, 2019, $5.4 million and $1.4 million, respectively, was outstanding on the Busy Bee JV Construction Loan. As of June 30, 2020 and December 31, 2019, $1.0 million and $0.1 million, respectively, was outstanding on the Busy Bee JV Equipment Loan.
The Company has assessed the need to record a liability for the guarantees related to the Company’s unconsolidated JVs and did not record an obligation as of both June 30, 2020 and December 31, 2019. As of June 30, 2020, allowance for credit losses related to the contingent aspect of these guarantees, based on historical experience and economic trends, was $0.1 million and is included within other liabilities on the condensed consolidated balance sheets.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes in Item 1 and with the audited consolidated financial statements and the related notes included in our annual report on Form 10‑K.10-K. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described in “Forward-Looking Statements” below and “Risk Factors” on page 96 of our annual report on Form 10‑K.10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this quarterly report on Form 10-Q, unless required by law.
Business Overview
St. Joe is a real estate development, asset management and operating company with real estate assets and operations concentrated in Northwest Florida, which we predominantly use, or intend to use, for or in connection with, our various residential, real estate developments, hospitality, operations, commercial, developmentsleasing and leasing operations and our forestry operations.
We have significant residential and commercial land-use entitlements in hand or in process.entitlements. We actively seek higher and better uses for our real estate assets through a range of activities from strategic land planning and development infrastructure improvements and promoting economic development in Northwest Florida.activities. We may explore the sale of suchsome of our assets opportunistically or when we believe that we or others can better deploy those resources.
As a real estate development company, we seek to enhance the value of our real estate assets by undertaking targeted types of residential and commercial real estate development opportunities. These targeted opportunities are intended to meet market demand where historically we sold land for other developers to meet that market demand. As an operating company, we operate some of the finest hospitality assets that Northwest Florida has to offer. As an asset management company, we actively manage leasing operations and forestry operations to capture and enhance the value of our real estate assets. projects. Approximately 90% of our real estate land holdings are located within fifteen miles of the Gulf of Mexico.
We expect to use our land holdings, our cash and cash equivalents and investments to increase recurring revenue, while creating long-term value for our shareholders. 44
We believe that our present liquidity position and our land holdings provide us with numerous opportunities to increase recurring revenue and create long-term value for our shareholders by allowing us to focus on our core business activity of real estate development, asset management and asset management.operations.
We seek opportunities to invest our funds in ways that could increase our returns. TheseOur strategic plan includes making investments may include longer term commercial or residential real estate or real estate related investments (in which we may play an active or passive role), investments in real estate investment trusts and other investments in liquid or illiquid securities where we believe we can increasewill contribute towards increasing our returns.future profitability. We anticipate that future capital commitments will be funded through new financing arrangements, cash on hand, cash equivalents and cash generated from operations.
Our real estate investment strategy focuses on projects that meet our long-term investment return criteria. The time frame for these expenditures and investments will vary based on the type of project. However, ourOur practice is to only incur such expenditures when our analysis indicates that a project will generate a return equal to or greater than the threshold return over its life.
COVID-19 Update
The economic conditions in the United States have been and continue to be negatively impacted by the ongoing COVID-19 pandemic, which has resulted in among other things, quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to close or significantly reduce normal operations, and we expect these negative impacts to continue. Beginning in mid-March 2020, in response to federal, state and local orders and guidelines, we took a number of protective measures, including temporarily closing the WaterColor Inn, WaterSound Inn and The Pearl Hotel for overnight guests, closing retail outlets and beach clubs, closing or limiting restaurant activities at our food and beverage operations to pick up only (and in certain locations, local delivery), implementing cost reduction measures and implementing “work from home” policies. Our hospitality assets gradually reopened in May 2020, but continue to be impacted by reduced or altered operations and could be ordered to close again.
While the breadth and duration of the COVID-19 pandemic impact is still unknown, we could experience material declines within each of our reporting segments in one or more periods in 2020 compared to the historical norms. We will continue to monitor the potential impacts and evaluate each new project day by day and phase by phase and take prudent measures and respond as needed based on market conditions. Further discussion of the potential impacts on our business from the COVID-19 pandemic are discussed in Part II. Item 1A. Risk Factors.
Segments
We conduct primarily all of our business in the following fourthree reportable operating segments: (1) residential, real estate, (2) hospitality and (3) commercial. Prior to the first quarter of 2020, commercial leasing and sales, and (4) forestry. Commencing in the fourth quarteras well as forestry were treated as individual operating segments. See Note 1. Nature of 2018, our previously titled “resorts and leisure” segment was retitled “hospitality,” with no effect on the condensed consolidated
39
balance sheets, statements of income, statements of comprehensive income or statements of cash flowsOperations for the periods presented.additional information.
The following table sets forth the relative contribution of these operating segments to our consolidated operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
|
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
|
Segment Operating Revenue |
|
|
|
|
|
|
|
|
|
|
Residential real estate (a) |
| 38.9 | % | 57.0 | % | 33.3 | % | 50.9 | % |
|
Hospitality |
| 43.9 | % | 26.3 | % | 44.7 | % | 29.5 | % |
|
Commercial leasing and sales |
| 10.0 | % | 6.6 | % | 15.0 | % | 9.2 | % |
|
Forestry |
| 6.0 | % | 5.6 | % | 5.9 | % | 6.8 | % |
|
Other (b) |
| 1.2 | % | 4.5 | % | 1.1 | % | 3.6 | % |
|
Consolidated operating revenue |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
|
|
|
|
|
| | | | | | | | | | |
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | | ||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |
Segment Operating Revenue |
|
|
|
|
|
|
|
|
| |
Residential |
| 39.1 | % | 39.4 | % | 31.4 | % | 34.0 | % | |
Hospitality |
| 31.9 | % | 43.3 | % | 33.0 | % | 44.0 | % | |
Commercial |
| 25.6 | % | 16.0 | % | 33.2 | % | 20.9 | % | |
Other |
| 3.4 | % | 1.3 | % | 2.4 | % | 1.1 | % | |
Consolidated operating revenue |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |
For more information regarding our operating segments, see Note 17. Segment Information of our condensed consolidated financial statements included in this quarterly report.
45
Residential Real Estate
Our residential real estate segment typicallyprimarily plans and develops residential communities of various sizes across a wide range of price points and sells homesites to builders or retail consumers. From time to time, ourOur residential real estate segment also evaluates opportunities to sell some of our hospitality properties.enter into JV agreements for specific communities such as Latitude Margaritaville Watersound.
Below is a description of some of our major residential development communities in Northwest Florida that we are in the process of planning or developing. As is true with all of our projects, the parcels of residential real estate which will actually be developed, including the number of homesites that will ultimately be approved for development in any residential development community, will depend on our development strategy, the extent to which the anticipated returns of the project meet our investment return criteria and the availability of capital resources to fund the development.Florida.
The Watersound Origins community is a large scale, mixed use community in South Walton County, Florida with direct access to Lake Powell. As of June 30, 2019, 562 homesites are fully developed, of which 412 have sold. Currently 580 homesites are under site development, which will be completed in phases. As of June 30, 2019, we had 624 homesites under contract.
The Breakfast Point community is a residential community in Panama City Beach, Florida. The community has received government approval for 369 single family homesites. As of June 30, 2019, 369 homesites are fully developed, of which 330 have sold. As of June 30, 2019, we had 39 homesites under contract with builders. Planning is currently in process to expand the Breakfast Point community to include an additional future phase.
The Breakfast Point East community is a proposed residential community in Bay County, Florida adjacent to and east of the Breakfast Point community. The community has received government approval for 1,760 single family homesites and 440 multi-family units. Engineering is currently in process for Phase 1 of Breakfast Point East.
The SouthWood community is a large scale, mixed use community located in Tallahassee, Florida. The community has received government approval for 4,770 residential homesites, which includes 2,074 single family and 2,696 multi-family. To date, 2,746 homesites are sold. Engineering is currently in process for 70 homesites. As of June 30, 2019, we had 70 homesites under contract with two builders.
40
The WindMark Beach community is a residential community in Port St. Joe, Florida. The community has received governmental approval for 1,516 residential homesites. To date, 224 homesites are fully developed and sold. Currently, 94 homesites are under site development, all of which are under contract with a builder.
The Latitude Margaritaville Watersound community is a planned 55+ active adult residential community under development in Bay County, FloridaFlorida. The community is located near the Gulf Intracoastal Waterway with convenient access to the Gulf Intracoastal Waterway.Northwest Florida Beaches International Airport. The community will beis being developed as a JV with our JV partner Minto Communities USA, a homebuilder and community developer. Planning, engineering, and permitting approvals are in process for the sales center and first phase, whichPhase one is estimated to include approximately 3,500 residential homesites.
The Titus Park community is a new residential community located in east Bay County, Florida. The residential community is proposed tohomes which will be developed in multiple phases. Currently clearingsmaller increments of discrete neighborhoods. The sales center is in processcurrently under construction. In addition, infrastructure and lots for 154 homesites. Asthe model home center and the initial neighborhood are under development.
Our residential communities of July 11, 2019, the 154 homesites were under contract with a builder.
TheWatersound Origins, Breakfast Point, Titus Park, College Station, community isPark Place, WindMark Beach and SouthWood are large scale, multi-phase communities with current sales activity and future phases. Homesites in these communities are developed based on market demand and sold primarily to homebuilders and retail customers on a newlimited basis.
Our residential communities of Watersound Camp Creek and the final phase at WaterColor are under site development.
Our planned mixed-use residential community located in east Bay County, Florida. The residential community is proposed to be developed in multiple phases. Currently clearing is in process for 126 homesites. As of June 30, 2019, we had 33 homesites under contract with a builder.
The Park Place community is a proposed residential community located in the City of Callaway in east Bay County, Florida. This residential community is proposed to be developed in multiple phases. Planning and design are currently in process for Phase 1 of the Park Place community. As of June 30, 2019, we had 51 homesites under contract with a builder.
The Mexico Beach Village residential community is a proposed mixed use community located in the City of Mexico Beach in east Bay County, Florida. The residential component of this community is proposed to be developed in multiple phases. Planning and design are currently in process for this community.
The WaterColor community is a residential community located in South Walton County, Florida. Engineering is currently in process for a new residentialthe planning and engineering stages of development. Site development on phase of this community.
The Camp Creek community1 is a proposed residential community locatedplanned to commence in South Walton County, Florida. The community is adjacent to the Camp Creek Golf Club and is proposed to be developed in multiple phases. Engineering and permitting approvals are currently in process for Phase 1 of the Camp Creek residential community.2020.
We have other residential communities, such as the SummerCamp Beach and RiverCamps communities that have homesites available for sale or lands for future development. In addition, we have residential communities, such as WaterSound Beach, WaterSound West Beach and Wild Heron that are substantially developed, with homesites in these communities available for sale.
The revenue resulting from our residential real estate operations may vary from period to period depending on the communities where homesites are sold, as prices vary significantly by community. In addition, the majority of our sales are to homebuilders, who generally buy more homesites in a single transaction but tend to buy on a more sporadic basis. As a result, we may experience volatility in the consistency and pace of our residential real estate sales.
The Bay-Walton Sector Plan is a long term master plan that includesoriginally included 110,500 acres of our land with entitlements, or legal rights, to develop over 170,000 residential homesites anddwelling units, over 22 million square feet of retail, commercial, and industrial space on approximately 110,500 acres of our land holdings.and over 3,000 hotel rooms. We anticipate a wide range of residential, commercial and commercialhospitality uses on these land holdings. DevelopmentWe are utilizing some of the entitlements from the Bay-Walton Sector Plan is underway with the commencement of engineering forconstruction of the Latitude Margaritaville Watersound community, engineeringdevelopment of the Watersound Camp Creek residential community and ongoing development of the Watersound Origins community.
WeAs of June 30, 2020, we had 914869 residential homesites under contract as of June 30, 2019,with eight different local, regional, and national homebuilders, which are expected to result in revenue of approximately $89.5$83.2 million at closing of the homesites, which are expected over the next several years. As of June 30, 20182019, we had 644914 residential homesites under contract, which are expected to result in revenue of approximately
41
$65.5 $89.5 million ($5.623.5 million has been realized through June 30, 2019)2020). The increasedecrease in homesites under contract is due to the development of additional homesites and increased builder contracts for residential homesites.increase in closings by builders on existing sales contracts. The number of homesites under contract are subject to change based on final platting ofhomesite closings and builder interest in each community.
Hospitality
Our hospitality segment features a private membership club (“The Clubs by JOE”), hotel operations, lodging, restaurants,food and beverage operations, golf courses, beach clubs, retail outlets, gulf-front vacation rentals, management services, marinas and other resortentertainment assets. OurThe hospitality segment operations are managed for us by a third party management company.
Resorts, Lodginggenerates revenue and Other Management Services - We own and operateincurs costs from membership sales, membership reservations, golf courses, the award-winning WaterColor Inn which includes the Fish Outand WaterSound Inn, short-term vacation rentals, management of Water (“FOOW”) restaurant and the WaterSound Inn. We own and operate retail and commercial outlets near our hospitality facilities, including the WaterColor Store. We also operate the award-winning The Pearl Hotel, food and Havanabeverage operations, merchandise sales, marina operations, charter flights,
46
other resort and entertainment activities and beach clubs, which includes operation of the WaterColor Beach Bar & Grille restaurant.Club. Hospitality revenue is generally recognized at the point in time services are provided and represent a single performance obligation with a fixed transaction price. Hospitality revenue recognized over time includes non-refundable membership initiation fees and management fees. Some of our JV assets and other assets incur interest and financing expenses related to the loans as described in Note 10. Debt, Net.
Clubs – Our private membershipBelow is a description of some of our club (“properties:
The Clubs by Joe”)JOE
The Clubs by JOE provides club members and guests in some of our hotels access to our resortmember facilities, which include the Camp Creek Golf Club, Shark’s Tooth Golf Club, and the WaterSound Beach Club.Club and our Pilatus PC-12 NG aircraft (“N850J”). The Clubs by JoeJOE offers different types of club memberships, each with different access rights and associated fee structures. The Clubs by JOE is focused on creating a world class membership experience combined with the luxurious aspects of a four star/four diamonddestination resort. Below is a description of some ofClub operations include our golf courses, beach club properties, which are located in Northwest Florida. As is true with all of our projects,and facilities that generate revenue from membership sales, membership reservations, daily play at the parcels of real estate which will actually be developed will depend on our development strategy,golf courses, merchandise sales, charter flights and food and beverage sales and incur expenses from the extent to which the anticipated returnsservices provided, maintenance of the project meet our investment return criteria,golf courses, beach club and the availability of capital resources to fund the development.facilities and personnel costs.
We own and operate theThe WaterSound Beach Club is The Clubs by JOE’s private beach club located in Watersound, Florida, which includes over one mile of Gulf of Mexico frontage, two resort-style pools, private beach access, two restaurants, three bars, a kid’s room and a recreation area.
We currently own and operate three golf courses. The Shark’s Tooth Golf Club includes an 18-hole golf course, a full club house, featuring men’s and women’s locker rooms, a pro shop, as well as two restaurantsfood and beverage operations. In addition to the golf course, a The Clubs by JOE tennis center is located in the Wild Heron community. Thecommunity near the Shark’s Tooth golf course. Camp Creek Golf Club includesis an 18-hole championship golf course located in Watersound, Florida. In the fourth quarter of 2019, we commenced construction on new club amenities adjacent to the Camp Creek golf course. Amenities are planned to include a health and wellness center, restaurants, a tennis center, pickle ball courts, a resort-style pool complex with separate adult pool, a golf teaching academy, pro shop and a snack bar.multi-sport fields. Once complete, these amenities will be available to The Clubs by JOE members and guests at our hotels. The Clubs by JOE also offers members private air charter flights through our N850J aircraft.
Watersound Origins Golf Club includes a six-hole golf course, resort-style pool, fitness center, two tennis courts and a caféprivate lake dock located in the community. Access to amenities are reserved to Watersound Origins community.members consisting of the community residents. The golf course is available for public play.
During 2018, we sold the SouthWood Golf Club, as well as the SouthWood HouseHotel Operations, Food and cottages. Prior to the sale these assets were ownedBeverage Operations, Short-Term Vacation Rentals and operated by our hospitality segment.Other Management Services
The Camp Creek Lifestyle Village is a proposed club membership amenity center that is planned to feature a health and wellness facility, adult pool and spa, leisure family pool, casual restaurant, tennis and pickle ball center, teen room, kid’s playground and sport fields. The Camp Creek Lifestyle Village is also planned to feature a 75 room boutique inn, restaurant and bar, men’s and women’s locker room and outfitter shop.
Marinas - We own and operate the award-winning WaterColor Inn, which includes the FOOW restaurant, the WaterSound Inn and two gulf-front vacation rental houses. We own and operate retail and commercial outlets near our hospitality facilities. We also operate the award-winning The Pearl Hotel and Havana Beach Bar & Grill restaurant and the WaterColor Beach Club, which includes food and beverage operations and other hospitality related activities, such as beach chair rentals.
Revenue is generated from (1) the WaterColor Inn, WaterSound Inn and operation of the WaterColor Beach Club, (2) management of The Pearl Hotel, (3) short-term vacation rentals and (4) food and beverage operations. The WaterColor Inn, WaterSound Inn and operation of the WaterColor Beach Club generate revenue from service and/or daily rental fees and incur expenses from the cost of services and goods provided, maintenance of the facilities and personnel costs. Revenue generated from our management services include management fees. Management services expenses consist primarily of internal administrative costs. Hotel operations and short-term vacation rentals incur expenses from the holding cost of assets we own and standard lodging personnel, such as front desk, reservations and marketing personnel. Our food and beverage operations generate revenue from food and beverage sales and incur expenses from the cost of services and goods provided and standard personnel costs.
47
We are in the process of constructing four additional hotel properties. These include:
| (1) | An Embassy Suites hotel, with our JV partner, planned for 255 guest suites in the Pier Park area of Panama City Beach, Florida; |
| (2) | An upscale 75 room boutique hotel located adjacent to the Camp Creek Golf Club near the highly desirable Scenic Highway 30A corridor; |
| (3) | A Hilton Garden Inn near Northwest Florida Beaches International Airport (“ECP”), which is planned to feature 143 guest rooms. |
| (4) | A Homewood Suites by Hilton adjacent to the new Panama City Beach Sports Complex in Panama City Beach, Florida which is planned to feature 131 one and two-bedroom guest suites. |
Once complete, we will manage the day-to-day operations of all four additional hotels.
Retail Outlets, Marinas and Other Hospitality operations
We own and operate retail outlets near our hospitality facilities that include the WaterColor store and four additional retail outlets. Our retail outlets generate revenue from merchandise sales, which are recognized at the point of sale and incur expenses from the cost of goods provided, personnel costs and facility costs.
We own and have operated two marinas in Northwest Florida consisting of the Bay Point Marina and Port St. Joe Marina. Subsequent toOur marinas generate revenue from boat slip rentals and fuel sales, and incur expenses from cost of services provided, maintenance of the landfall of Hurricane Michael on October 10, 2018,marina facilities and personnel costs. At present, the marinas remain closed due to significant damage requiring long-term restoration, whichfrom Hurricane Michael on October 10, 2018. Restoration of both marinas is currently underway. We maintain property and business interruption insurance on the impactedthese marina assets. See Note 6. 7. Hurricane Michael for additional information.
We are constructing the Powder Room Shooting Range and Training Center (“The Powder Room”) in Panama City Beach, Florida. The facility is planned to be approximately 17,000 square feet and include 14 shooting lanes and a retail store, as well as training and educational space. Once complete, we will manage the day-to-day operations of this facility.
From time to time, we may explore the sale of certain hospitality properties, as well as the development of new hospitality properties.properties, as well as new entertainment and management opportunities.
Commercial Leasing and Sales
Our commercial leasing and sales segment includes construction and leasing of multi-family, retail, office and commercial property, cell towers and other assets, an assisted living community, as well as planning, development, entitlement, management and sale of our commercial and rural land holdings for a variety of uses. These uses, includeincluding a broad range of retail, office, hotel, assisted-living, multi-family and industrial properties. From time to time, ourOur commercial leasing and sales segment also evaluatesmanages our timber holdings in Northwest Florida which includes growing and selling pulpwood, sawtimber and other forest products.
The commercial segment’s portfolio of leasable properties continues to expand and diversify. We are in the process of constructing, through our JVs, 637 apartment units, in addition to the 240 that have recently been completed and 107 assisted living/memory care units. We provide development opportunities to sell some of our hospitality properties.
42
Below is a listing of some of ourfor national, regional and local retailers and other strategic partners in Northwest Florida. We own and manage retail shopping centers and develop commercial leasing and sales properties. As is true with all of our projects,parcels. We have large land holdings near the parcels of real estate which will actually be developed will depend on our development strategy, the extent to which the anticipated returns of the project meet our investment return criteria, and the availability of capital resources to fund the development.
Pier Park North. Our Pier Park North JV owns a retail center, of approximately 330,000 square feet in Panama City Beach, Florida, of which approximately 10,000 square feet remains to be constructed. As of June 30, 2019, Pier Park North JV had 320,310 net leasable square feet, of which 96.3% were under lease.
VentureCrossings. VentureCrossings is a commercial and industrial development adjacent to the Northwest Florida Beaches International Airport. We are soliciting global office, retail and industrial users for this prime development location. We built and own 243,605 square feet of manufacturing and office space, which are currently under long-term leases. Additionally, we are constructing an approximately 60,000 square foot flex space building that we plan to complete during the third quarter of 2019.
Beckrich Office Park. Beckrich Office Park includes two office buildings located in Panama City Beach, Florida, with over 67,000 net leasable square feet, of which 91.2% were under lease as of June 30, 2019. Additionally, we are constructing a third office building and a new Starbucks building at Beckrich Office Park.
Pier Park Crossings. In April 2017, we formed the Pier Park Crossings JV to develop, manage and lease apartments in Panama City Beach, Florida. The 240 unit apartment community is currently under construction. As of June 30, 2019, we had completed 96 units, of which 87 were under lease.
Origins Town Center. The Origins Town Center is entitled for approximately 330,000 square feet of retail and entertainment space, as well as approximately 127,000 square feet of office space. In August 2018, we entered into a lease with Sacred Heart Health Systems to construct an approximately 6,500 square foot healthcare facilityAirport, near or within business districts in the Origins Town Center. The facility is currently under construction. Additionally, we are designing a new multi-tenant commercial building.
Origins Crossings. In May 2019, we formed the Origins Crossings JV to develop, manageregion and lease apartments in Watersound, Florida, which will be located adjacent to the Origins Town Center. The parties are working together to develop a 217 unit apartment community, which is currently under construction.
Pier Park Northwest. Pier Park Northwest is entitled for hospitality and commercial uses. In the fall of 2017, we announced a JV with InterMountain Management, LLC, to construct and manage a TownePlace Suites by Marriott. Construction began in the fourth quarter of 2018 on the 124 room TownePlace Suites. This JV is unconsolidated and is accounted for under the equity method of accounting. Additionally, we are designing a new multi-tenant commercial building to be constructed on a portion of this site.
Topsail West. Topsail West is entitled for approximately 61,000 square feet of retail and entertainment space in Santa Rosa Beach, Florida. In April 2019, we entered into a lease on a build-to-suit restaurant for First Watch: The Daytime Café. The restaurant is currently under construction.
Watercrest. In May 2019, we formed the Watercrest JV to develop and operate a new assisted living and memory care community in Santa Rosa Beach, Florida, which will be located near Topsail West. The JV parties are working together to develop the 107 unit community, which is currently under construction.
North Glades/Breakfast Point Bank Building. In April 2019, we entered into a lease with Capital City Bank to construct a full-service banking location in Panama City Beach, Florida. The bank building is currently under construction.
In addition to the properties listed above, a flex space building of approximately 20,000 square feet is under construction at Cedar Grove Commerce Park in Panama City, Florida and in July 2019 we formed a JV to develop and operate a Busy Bee branded fuel station and convenience store in Panama City Beach, Florida that is currently under
43
construction.along major roadways. We also have a number of projects in various stages of planning, including additional industrial flex space buildings, apartmentslease land for hunting, sand, rock quarrying and assisted living/ memory care facilities.
Forestryother uses.
Our forestrycommercial segment focuses on thegenerates leasing revenue and incurs leasing expenses primarily from maintenance and management of our properties, personnel costs and asset holding costs. Our commercial segment also generates revenue from the sale of developed and undeveloped land, timber holdings or land with limited development and entitlements and the sale of commercial operating properties. Real estate sales in Northwest Floridaour commercial segment incur costs of revenue directly associated with the land, development, construction, timber and selling costs. Our commercial segment
48
generates timber revenue primarily from open market sales of timber on site without the associated delivery costs. We grow and sell pulpwood, sawtimberSome of our JV assets and other forest products.assets incur interest and financing expenses related to the loans as described in Note 10. Debt, Net.
We may sell our timber holdings, undeveloped land or landOur three apartment communities are being developed through JV’s. Pier Park Crossings, Watersound Origins Crossings and Sea Sound will consist of 877 apartment units upon completion. Pier Park Crossings is being developed in two phases with limited developmenta total of 360 apartment units in Panama City Beach, Florida, with 240 units already completed. Watersound Origins Crossings, consisting of 217 units, is adjacent to the Watersound Origins Town Center in Watersound, Florida. Sea Sound apartments, consisting of 300 units, will be located in Panama City Beach, Florida near the Breakfast Point community.
Our leasing portfolio consists of approximately 898,000 square feet of leasable space for mixed-use, retail, industrial, office and easements. Some parcels include the benefitsmedical office uses. Our mixed-use lease space totals approximately 131,000 square feet. It consists primarily of limited development activity including improved roads, pondsWaterColor Town Center, WindMark Beach Town Center, WaterSound Gatehouse, and fencing. We have traditionally sold parcelsvarious flex-space buildings.
Our retail lease space totals approximately 348,000 square feet. It consists primarily of varying sizes ranging from less than one acre to thousands of acres. The pricing of these parcels varies significantly based on size, location, terrain, timber qualityPier Park North JV, WaterColor Crossings, and other local factors. Costs incurred as partleasable properties.
Our industrial lease space totals approximately 304,000 square feet, primarily located at VentureCrossings Enterprise Centre.
Our office lease space consists of approximately 93,000 square feet, primarily located in the Beckrich Office Park in Panama City Beach, Florida.
Our medical office leased space consists of approximately 22,000 square feet. It consists of a salemedical clinic at Watersound Origins and medical office space at Beckrich Office Park.
Our other commercial properties include:
| (1) | A 124 room TownePlace Suites by Marriott operated by our JV partner in Panama City Beach, Florida. |
| (2) | A Busy Bee branded fuel station and convenience store operated by our JV partner in Panama City Beach, Florida. |
In addition to the existing operations, we have other commercial projects in the planning, engineering or construction stages. This includes a Publix Super Markets totaling approximately 50,000 square feet as well as a new multi-tenant commercial building in the Watersound Origins Town Center. In addition to the properties listed above, we have a number of these lands may include the costprojects in various stages of timber, land, minimal development costsplanning, including additional commercial buildings, apartments, an independent living community and selling costs. We also lease land within the forestry segment for hunting and other uses.a self-storage facility.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and our accounting estimates are subject to change.
Critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements are set forth in Item 7 of our Annual Report on
49
Form 10‑K10-K for the year ended December 31, 2018.2019. There have been no significant changes in these policies during the first six months of 2019,2020, however we cannot assure you that these policies will not change in the future.
Recently Adopted and Issued Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies to our condensed consolidated financial statements included in this report for recently issued or adopted accounting standards, including the date of adoption and effect on our condensed consolidated financial statements.
Seasonality and Market Variability
Our business may be affected by seasonal fluctuations. For example, revenueRevenue from our hospitality operations are typically higher in the second and third quarters, but can vary depending on the timing of holidays and school breaks, including spring break.
In addition tobreak and may also be impacted by extraordinary events such as the seasonality effect of our hospitality operations, ourCOVID-19 pandemic. Our residential real estate business is predominantly composed of sales to homebuilders, who tend to buy multiple homesites in sporadic transactions, which impacts the variability in our results of operations. In addition, theThe revenue resulting from our residential real estate operations may vary from period to period depending on the communities where homesites are sold, as prices vary significantly by community. Our commercial real estate projects are likewise subject to one-off sales and the development of specific projects depending oncurrent demand. These variables have caused, and may continue to cause our operating results to vary significantly from period to period.
4450
Results of Operations
Consolidated Results
The following table sets forth a comparison of the results of our operations:
| | | | | | | | | | | | | | |||||||||||||
| | Three Months Ended | | Six Months Ended | | |||||||||||||||||||||
| | June 30, | | June 30, | | |||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
|
| June 30, |
| June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Real estate revenue |
| $ | 15.5 |
| $ | 32.1 |
| $ | 20.1 |
| $ | 39.9 |
| | $ | 17.6 | | $ | 15.5 | | $ | 23.4 | | $ | 20.1 | |
Hospitality revenue |
|
| 15.6 |
|
| 12.9 |
|
| 23.0 |
|
| 19.9 |
| |
| 11.6 | |
| 15.6 | |
| 18.2 | |
| 23.0 | |
Leasing revenue |
|
| 3.7 |
|
| 3.5 |
|
| 7.2 |
|
| 6.9 |
| |
| 4.9 | |
| 3.7 | |
| 9.2 | |
| 7.2 | |
Timber revenue |
|
| 0.7 |
|
| 1.9 |
|
| 1.3 |
|
| 3.6 |
| |
| 2.0 | |
| 0.7 | |
| 3.9 | |
| 1.3 | |
Total revenue |
|
| 35.5 |
|
| 50.4 |
|
| 51.6 |
|
| 70.3 |
| |
| 36.1 | |
| 35.5 | |
| 54.7 | |
| 51.6 | |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| | |
|
| |
|
| |
Cost of real estate revenue |
|
| 6.8 |
|
| 3.0 |
|
| 8.7 |
|
| 7.1 |
| |
| 7.3 | |
| 6.8 | |
| 9.0 | |
| 8.7 | |
Cost of hospitality revenue |
|
| 9.0 |
|
| 9.4 |
|
| 16.2 |
|
| 16.2 |
| |
| 8.2 | |
| 9.0 | |
| 15.6 | |
| 16.2 | |
Cost of leasing revenue |
|
| 1.1 |
|
| 1.2 |
|
| 2.1 |
|
| 2.3 |
| |
| 1.3 | |
| 1.1 | |
| 1.9 | |
| 2.1 | |
Cost of timber revenue |
|
| 0.2 |
|
| 0.2 |
|
| 0.3 |
|
| 0.4 |
| |
| 0.2 | |
| 0.2 | |
| 0.4 | |
| 0.3 | |
Other operating and corporate expenses |
|
| 5.1 |
|
| 5.0 |
|
| 11.1 |
|
| 11.0 |
| |
| 5.0 | |
| 5.1 | |
| 11.9 | |
| 11.1 | |
Depreciation, depletion and amortization |
|
| 2.4 |
|
| 2.3 |
|
| 4.5 |
|
| 4.5 |
| |
| 3.0 | |
| 2.4 | |
| 6.1 | |
| 4.5 | |
Total expenses |
|
| 24.6 |
|
| 21.1 |
|
| 42.9 |
|
| 41.5 |
| |
| 25.0 | |
| 24.6 | |
| 44.9 | |
| 42.9 | |
Operating income |
|
| 10.9 |
|
| 29.3 |
|
| 8.7 |
|
| 28.8 |
| |
| 11.1 | |
| 10.9 | |
| 9.8 | |
| 8.7 | |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
| | |
|
| |
|
| |
Investment income, net |
|
| 2.5 |
|
| 6.0 |
|
| 8.6 |
|
| 9.6 |
| |
| 2.0 | |
| 2.5 | |
| 0.4 | |
| 8.6 | |
Interest expense |
|
| (3.0) |
|
| (2.9) |
|
| (6.0) |
|
| (5.9) |
| |
| (3.4) | |
| (3.0) | |
| (6.7) | |
| (6.0) | |
Other income, net |
|
| 3.3 |
|
| 0.2 |
|
| 5.0 |
|
| 0.5 |
| |
| 15.5 | |
| 3.3 | |
| 20.0 | |
| 5.0 | |
Total other income, net |
|
| 2.8 |
|
| 3.3 |
|
| 7.6 |
|
| 4.2 |
| |
| 14.1 | |
| 2.8 | |
| 13.7 | |
| 7.6 | |
Income before income taxes |
|
| 13.7 |
|
| 32.6 |
|
| 16.3 |
|
| 33.0 |
| |||||||||||||
Income before equity in loss from unconsolidated affiliates and income taxes | |
| 25.2 | |
| 13.7 | |
| 23.5 | |
| 16.3 | | |||||||||||||
Equity in loss from unconsolidated affiliates | | | (0.1) | | | — | | | (0.2) | | | — | | |||||||||||||
Income tax expense |
|
| (3.4) |
|
| (6.5) |
|
| (4.1) |
|
| (6.3) |
| |
| (5.9) | |
| (3.4) | |
| (5.4) | |
| (4.1) | |
Net income |
| $ | 10.3 |
| $ | 26.1 |
| $ | 12.2 |
| $ | 26.7 |
| | $ | 19.2 | | $ | 10.3 | | $ | 17.9 | | $ | 12.2 | |
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Real Estate Revenue and Gross Profit
The following table sets forth a comparison of our total real estate revenue and gross profit:
| | | | | | | | | | | | | | | | | | | | | | | |
|
| Three Months Ended June 30, | | | Six Months Ended June 30, |
|
| ||||||||||||||||
| | 2020 |
| % (1) |
| 2019 |
| % (1) |
|
| 2020 |
| % (1) |
| 2019 |
| % (1) | | | ||||
| | Dollars in millions | | | |||||||||||||||||||
Revenue: |
| |
|
|
|
| |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
|
Residential real estate revenue | | $ | 14.0 |
| 79.5 | % | $ | 13.8 |
| 89.0 | % | | $ | 17.0 |
| 72.6 | % | $ | 17.2 |
| 85.4 | % | |
Commercial and rural real estate revenue | |
| 2.3 |
| 13.1 | % |
| 1.3 |
| 8.4 | % | |
| 5.1 |
| 21.8 | % |
| 2.4 |
| 12.0 | % | |
Other revenue | |
| 1.3 |
| 7.4 | % |
| 0.4 |
| 2.6 | % | |
| 1.3 |
| 5.6 | % |
| 0.5 |
| 2.6 | % | |
Real estate revenue | | $ | 17.6 |
| 100.0 | % | $ | 15.5 |
| 100.0 | % | | $ | 23.4 |
| 100.0 | % | $ | 20.1 |
| 100.0 | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
Gross profit: | |
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|
|
| |
|
|
|
| | |
|
|
|
| |
|
|
|
| | |
Residential real estate | | $ | 7.7 |
| 55.0 | % | $ | 7.1 |
| 51.4 | % | | $ | 9.5 |
| 55.9 | % | $ | 8.7 |
| 50.6 | % | |
Commercial and rural real estate | |
| 1.5 |
| 65.2 | % |
| 1.2 |
| 92.3 | % | |
| 3.7 |
| 72.5 | % |
| 2.3 |
| 95.8 | % | |
Other | |
| 1.1 |
| 84.6 | % |
| 0.4 |
| 100.0 | % | |
| 1.2 |
| 92.3 | % |
| 0.4 |
| 80.0 | % | |
Gross profit | | $ | 10.3 |
| 58.5 | % | $ | 8.7 |
| 56.1 | % | | $ | 14.4 |
| 61.5 | % | $ | 11.4 |
| 56.7 | % | |
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|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| ||||||||||||||||
|
| 2019 |
| % (1) |
| 2018 |
| % (1) |
|
| 2019 |
| % (1) |
| 2018 |
| % (1) |
|
| ||||
|
| Dollars in millions |
| ||||||||||||||||||||
Revenue: |
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Residential real estate revenue |
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|
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|
|
|
Real estate revenue |
| $ | 13.8 |
| 89.0 | % | $ | 5.6 |
| 17.4 | % |
| $ | 17.2 |
| 85.6 | % | $ | 12.6 |
| 31.6 | % |
|
RiverTown impact fees |
|
| — |
| — | % |
| 23.1 |
| 72.0 | % |
|
| — |
| — | % |
| 23.1 |
| 57.9 | % |
|
Total residential real estate revenue |
|
| 13.8 |
| 89.0 | % |
| 28.7 |
| 89.4 | % |
|
| 17.2 |
| 85.6 | % |
| 35.7 |
| 89.5 | % |
|
Commercial real estate revenue |
|
| 0.1 |
| 0.7 | % |
| 0.4 |
| 1.2 | % |
|
| 1.0 |
| 5.0 | % |
| 0.8 |
| 2.0 | % |
|
Rural land and other revenue |
|
| 1.6 |
| 10.3 | % |
| 3.0 |
| 9.4 | % |
|
| 1.9 |
| 9.4 | % |
| 3.4 |
| 8.5 | % |
|
Real estate revenue |
| $ | 15.5 |
| 100.0 | % | $ | 32.1 |
| 100.0 | % |
| $ | 20.1 |
| 100.0 | % | $ | 39.9 |
| 100.0 | % |
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Gross profit: |
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Residential real estate |
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|
|
|
Real estate |
| $ | 7.1 |
| 51.4 | % | $ | 3.2 |
| 57.1 | % |
| $ | 8.7 |
| 50.6 | % | $ | 6.1 |
| 48.4 | % |
|
RiverTown impact fees |
|
| — |
| — | % |
| 23.1 |
| 100.0 | % |
|
| — |
| — | % |
| 23.1 |
| 100.0 | % |
|
Total residential real estate |
|
| 7.1 |
| 51.4 | % |
| 26.3 |
| 91.6 | % |
|
| 8.7 |
| 50.6 | % |
| 29.2 |
| 81.8 | % |
|
Commercial real estate |
|
| 0.1 |
| 100.0 | % |
| 0.2 |
| 50.0 | % |
|
| 1.0 |
| 100.0 | % |
| 0.5 |
| 62.5 | % |
|
Rural land and other |
|
| 1.5 |
| 93.8 | % |
| 2.6 |
| 86.7 | % |
|
| 1.7 |
| 89.5 | % |
| 3.1 |
| 91.2 | % |
|
Gross profit |
| $ | 8.7 |
| 56.1 | % | $ | 29.1 |
| 90.7 | % |
| $ | 11.4 |
| 56.7 | % | $ | 32.8 |
| 82.2 | % |
|
| (1) |
| Calculated percentage of total real estate revenue and the respective gross margin percentage. |
Residential Real Estate Revenue and Gross Profit. During the three months ended June 30, 2019,2020, total residential real estate revenue decreased $14.9increased $0.2 million, or 51.9%1.4%, to $13.8$14.0 million, as compared to $28.7$13.8 million during the same period in 2018, and total2019. Total residential real estate gross profit decreased $19.2increased $0.6 million to $7.7 million (or gross margin of 55.0%), as compared to $7.1 million (or gross margin of 51.4%), as compared to $26.3 million, (or gross margin of 91.6%) during the same period in 2018. Included in total residential real estate revenue for the three months ended June 30, 2018 is $23.1 million for a one-time receipt of RiverTown impact fees related to the 2014 RiverTown transaction, resulting in a gross profit margin of 100.0%.2019. During the three months ended June 30, 2019, excluding the one-time receipt2020, we had an unimproved residential land sale of the RiverTown impact fees, residential real estate revenue increased $8.2$1.3 million or 146.4% to $13.8 million, asand sold 122 homesites compared to $5.6 million151 homesites during the same period in 2018, and residential real estate gross profit increased $3.9 million, or 121.9%, to $7.1 million, (or gross margin of 51.4%), as compared to $3.2 million, (or gross margin of 57.1%), during the same period in 2018. 2019. During the three months ended June 30, 2020 and 2019, wethe average revenue, excluding homesite residuals, per homesite sold 151 homesites compared to 37 homesites during the same period in 2018.was approximately $86,000 and $73,000, respectively.
During the six months ended June 30, 2019,2020, total residential real estate revenue decreased $18.5$0.2 million, or 51.8%1.2%, to $17.2$17.0 million, as compared to $35.7$17.2 million during the same period in 2018 and total2019. Total residential real estate gross profit decreased $20.5increased $0.8 million to $9.5 million (or gross margin of 55.9%), as compared to $8.7 million (or gross margin of 50.6%), as compared to $29.2 million, (or gross margin of 81.8%) during the same period in 2018. Included in total residential real estate revenue for the six months ended June 30, 2018 is $23.1 million for a one-time receipt of RiverTown impact fees related to the 2014 RiverTown transaction, resulting in a gross profit margin of 100.0%.2019. During the six months ended June 30, 2019, excluding the one-time receipt2020, we had an unimproved residential land sale of the RiverTown impact fees, residential real estate revenue increased $4.6$1.3 million or 36.5% to $17.2 million, asand sold 141 homesites compared to $12.6 million182 homesites during the same period in 2018, and residential real estate gross profit increased $2.6 million, or 42.6%, to $8.7 million, (or gross margin of 50.6%), as compared to $6.1 million, (or gross margin of 48.4%), during the same period in 2018. 2019. During the six months ended June 30, 2020 and 2019, wethe average revenue, excluding homesite residuals, per homesite sold 182 homesites compared to 143 homesites during the same period in 2018.was approximately $89,000 and $75,000, respectively.
The number of homesites sold varied each period due to the timing of builder contractual closing obligations and the timing of development of completed homesites in our residential communities. The revenue and gross profit for each
46
period was impacted by the volume of sales within each of the communities, the difference in pricing among the communities and the difference in the cost of the homesite development.
Commercial and Rural Real Estate Revenue and Gross Profit. During the three months ended June 30, 2020, we had seven commercial and rural real estate sales totaling approximately 120 acres for $2.3 million, resulting in a gross profit margin of approximately 65.2%. During the three months ended June 30, 2019, there were no commercial land real estate sales. During the three months ended June 30, 2018, we had threefour commercial and rural real estate sales totaling approximately 234 acres for $0.4$1.3 million, resulting in a gross profit margin of approximately 50.0%92.3%.
During the six months ended June 30, 2020, we had twelve commercial and rural real estate sales totaling approximately 201 acres for $5.1 million, resulting in a gross profit margin of approximately 72.5%. During the six months ended June 30, 2019, we had twonine commercial and rural real estate sales totaling approximately 51106 acres for $1.0 million, with de minimis cost
52
$2.4 million, resulting in a gross profit margin of approximately 62.5%95.8%. Revenue from commercial and rural real estate can vary significantly from period to period depending on the proximity to developed areas and mix of commercial real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses.
Rural Land and Other Revenue and Gross Profit. During the three months ended June 30, 2019, we sold approximately 34 acres of rural and timber land for $1.2 million and mitigation bank credits for $0.4 million, resulting in a gross profit margin of approximately 93.8%. During the three months ended June 30, 2018, we sold approximately 77 acres of rural and timber land for $0.7 million and mitigation bank credits for $2.3 million, resulting in a gross profit margin of approximately 86.7%. During the six months ended June 30, 2019, we sold approximately 54 acres of rural and timber land for $1.3 million and mitigation bank credits for $0.6 million, resulting in a gross profit margin of approximately 89.5%. During the six months ended June 30, 2018, we sold approximately 94 acres of rural and timber land for $0.9 million and mitigation bank credits for $2.5 million, resulting in a gross profit margin of approximately 91.2%. Revenue from rural land can vary significantly from period to period.
Our gross margin can vary significantly from period to period depending on the characteristics of property sold. Sales of rural and timber land typically have a lower cost basis than residential and commercial real estate sales. In addition, our cost basis in residential and commercial real estate can vary depending on the amount of development or other costs spent on the property.
Other Revenue. Other revenue primarily consists of mitigation bank credit sales and title fee revenue.
For additional information see the Segment Results sections for Residential Real Estate,and Commercial Leasing and Sales and Forestry.
Hospitality Revenue and Gross Profit
| | | | | | | | | | | | | | | | ||||||||||||||
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| Three Months Ended June 30, | |
| Six Months Ended June 30, | |
| ||||||||||||||||||||||
| | 2020 |
| 2019 | |
| 2020 |
| 2019 | | | ||||||||||||||||||
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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|
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
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|
| In millions |
| ||||||||||||||||||||||||||
| | In millions | | ||||||||||||||||||||||||||
Hospitality revenue |
| $ | 15.6 |
| $ | 12.9 |
|
| $ | 23.0 |
| $ | 19.9 |
| | $ | 11.6 | | $ | 15.6 | | | $ | 18.2 | | $ | 23.0 | | |
Gross profit |
| $ | 6.6 |
| $ | 3.5 |
|
| $ | 6.8 |
| $ | 3.7 |
| | $ | 3.4 | | $ | 6.6 | | | $ | 2.6 | | $ | 6.8 | | |
Gross margin |
|
| 42.3 | % |
| 27.1 | % |
|
| 29.6 | % |
| 18.6 | % | |
| 29.3 | % |
| 42.3 | % | |
| 14.3 | % |
| 29.6 | % | |
Hospitality revenue increased $2.7decreased $4.0 million, or 20.9%25.6%, to $11.6 million during the three months ended June 30, 2019,2020, as compared to $15.6 million in the same period in 2018. 2019. During the three months ended June 30, 20192020 the increasedecrease in hospitality revenue was due to the re-openingimpact of the FOOW restaurantCOVID-19 pandemic, which resulted in late June 2018,shut downs and reduced revenue in the openingfirst half of the WaterColor Storequarter, but was partially offset by a recovery in January 2019 andthe second half of the quarter that exceeded the prior period. The decrease in revenue was also related to the receipt of one-time membership reservations fee in the prior period, partially offset by an increase in clubthe number of members and membership revenue. These increases were partially offset by decreases related to the WaterColor Beach Club being closed duringrevenue in the current periodperiod. In addition, the Camp Creek Golf Club was closed for renovations golf revenue primarily related to the sale of the SouthWood Golf Club in the third quarter of 2018 and the impact of Hurricane Michael on the marinas. Hospitality had a gross margin during the three months ended June 30, 20192020. Our hospitality gross margin decreased to 29.3% during the three months ended June 30, 2020, compared to a gross margin of 42.3% compared to 27.1% during the same period in 2018.2019, due to the impacts of the COVID-19 pandemic. The increase is primarilydecrease in gross margin was also related to the increase in membership revenue and business interruption insurance proceeds received in 2019 for the marinas related to Hurricane Michael. Excluding the business interruption proceeds received for the marinas during the currentprior period, our hospitality gross margin was 34.0% during the three months ended June 30, 2019, as compared to 27.1% during the same period in 2018. The increase is primarily related to the increase in membership revenue.2019.
Hospitality revenue increased $3.1decreased $4.8 million, or 15.6%20.9%, to $18.2 million during the six months ended June 30, 2019,2020, as compared to $23.0 million in the same period in 2018. 2019. During the six months ended June 30, 20192020 the increasedecrease in hospitality revenue was due to the
47
re-opening impact of the FOOW restaurantCOVID-19 pandemic, which resulted in lateshut downs and reduced revenue from mid-March to mid-May, but was partially offset by a recovery in June 2018,2020 that exceeded the openingprior period. The decrease in revenue was also related to the receipt of one-time membership reservations fee in the WaterColor Store in January 2019 andprior period, partially offset by an increase in clubthe number of members and membership revenue. These increases were partially offset by decreasesrevenue in room revenue for the WaterColor Inn from lower occupancy related to the WaterColor Beach Club being closed during the current period for renovations, golf revenue primarily related toperiod. In addition, the sale of the SouthWoodCamp Creek Golf Club was closed beginning in the third quarter of 2018 and the impact of Hurricane Michael on the marinas.March 2020 for renovations. As of June 30, 2019 The2020 the Clubs by JoeJOE had 1,1981,351 members, compared with 1,0781,049 members as of June 30, 2018. Hospitality had a2019. Our hospitality gross margin decreased to 14.3% during the six months ended June 30, 20192020, compared to a gross margin of 29.6% compared to 18.6% during the same period in 2018.2019, due to the impacts of the COVID-19 pandemic. The increase is primarilydecrease in gross margin was also related to the increase in membership revenue and business interruption insurance proceeds received in 2019 for the marinas related to Hurricane Michael. Excluding the business interruption proceeds received for the marinas during the currentprior period, our hospitality gross margin was 23.9% during the six months ended June 30, 2019, as compared to 18.6% during the same period in 2018. The increase is primarily related to the increase in membership revenue.2019.
53
Leasing Revenue and Gross Profit
| | | | | | | | | | | | | | | | |||||||||||||||
|
| Three Months Ended June 30, | |
| Six Months Ended June 30, | | | |||||||||||||||||||||||
| | 2020 |
| 2019 |
| | 2020 |
| 2019 |
| | |||||||||||||||||||
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
|
| |||||||||||||||||||
|
| In millions |
|
| ||||||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||||||
Leasing revenue |
| $ | 3.7 |
| $ | 3.5 |
| $ | 7.2 |
| $ | 6.9 |
|
| | $ | 4.9 | | $ | 3.7 | | | $ | 9.2 | | $ | 7.2 | | | |
Gross profit |
| $ | 2.6 |
| $ | 2.3 |
| $ | 5.1 |
| $ | 4.6 |
|
| | $ | 3.6 | | $ | 2.6 | | | $ | 7.3 | | $ | 5.1 | | | |
Gross margin |
|
| 70.3 | % |
| 65.7 | % |
|
| 70.8 | % |
| 66.7 | % |
| |
| 73.5 | % |
| 70.3 | % | |
| 79.3 | % |
| 70.8 | % | |
Leasing revenue increased $0.2$1.2 million, or 5.7%32.4%, to $4.9 million during the three months ended June 30, 2019,2020, as compared to $3.7 million in the same period in 2018.2019. Leasing revenue increased $0.3$2.0 million, or 4.3%27.8%, to $9.2 million during the six months ended June 30, 2019,2020, as compared to $7.2 million in the same period in 2018. This2019. The increase is primarily due to new leases at properties such as Beckrich Office Park, Pier Park Crossings and WaterColor Crossings. The increase is partially offset by a decreaseapartments, which began leasing in leasing revenue related to the marinas which, subsequent tosecond quarter of 2019, as well as higher rental rates. Gross profit during the landfall of Hurricane Michael on October 10, 2018, remain closed. Cost of leasing revenue remained essentially flat for each of the three and six months ended June 30, 2019 and 2018, which resulted in an increase2020 includes $0.7 million of business interruption insurance proceeds received for Pier Park Crossings apartments related to Hurricane Michael. Leasing gross margin forincreased during the period.three months ended June 30, 2020 to 73.5%, as compared to 70.3% during the same period in 2019. Leasing gross margin increased during the six months ended June 30, 2020 to 79.3%, as compared to 70.8% during the same period in 2019, primarily due to the business interruption proceeds received. Excluding the business interruption proceeds received during the six months ended June 30, 2020, our leasing gross margin was 71.7% during the six months ended June 30, 2020, as compared to 70.8% during the same period in 2019.
Timber Revenue and Gross Profit
| | | | | | | | | | | | | | | | |||||||||||||||
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| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||||||
| | 2020 |
| 2019 |
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| 2020 |
| 2019 |
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
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|
| 2019 |
| 2018 |
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| 2019 |
| 2018 |
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|
| In millions |
|
| ||||||||||||||||||||||||||
| | In millions | ||||||||||||||||||||||||||||
Timber revenue |
| $ | 0.7 |
| $ | 1.9 |
| $ | 1.3 |
| $ | 3.6 |
|
| | $ | 2.0 | | $ | 0.7 | | | $ | 3.9 | | $ | 1.3 | | | |
Gross profit |
| $ | 0.5 |
| $ | 1.7 |
| $ | 1.0 |
| $ | 3.2 |
|
| | $ | 1.8 | | $ | 0.5 | | | $ | 3.5 | | $ | 1.0 | | | |
Gross margin |
|
| 71.4 | % |
| 89.5 | % |
|
| 76.9 | % |
| 88.9 | % |
| |
| 90.0 | % |
| 71.4 | % | |
| 89.7 | % |
| 76.9 | % | |
Timber revenue decreased $1.2increased $1.3 million, or 63.2%,to $2.0 million during the three months ended June 30, 2019,2020, as compared to $0.7 million in the same period in 2018,2019. The increase is primarily due to a decreasean increase in the amount of tons sold and product mix changes causedchanges. The revenue for the three months ended June 30, 2019 was affected by Hurricane Michael’s significant market impact sinceafter landfall in October 2018. There were 31,000105,000 tons sold during the three months ended June 30, 2019,2020, as compared to 112,00031,000 tons sold during the same period in 2018.2019. Gross margin decreasedincreased during the three months ended June 30, 20192020 to 71.4%90.0%, as compared to 89.5%71.4% during the same period in 2018,2019, primarily due to decreases inincreased volume and changes in product mix. The cost of timber revenue is primarily fixed, which also resulted in an increase to gross margin for the period.
Timber revenue decreased $2.3increased $2.6 million, or 63.9%,to $3.9 million during the six months ended June 30, 2019,2020, as compared to $1.3 million in the same period in 2018,2019. The increase is primarily due to a decreasean increase in the amount of tons sold, along with price decreasesincreases and product mix changes causedchanges. The revenue for the six months ended June 30, 2019 was affected by Hurricane Michael’s significant market impact sinceafter landfall in October 2018. There were 61,000191,000 tons sold during the six months ended June 30, 2019,2020, as compared to 214,00061,000 tons sold during the same period in 2018.2019. Gross margin decreasedincreased during the six months ended June 30, 20192020 to 76.9%89.7%, as compared to 88.9%76.9% during the same period in 2018,2019, primarily due to decreasesincreased volume and changes in sales price and volume.
product mix. The cost of timber revenue is primarily fixed, which also resulted in an increase to gross margin for the period.
4854
Other Operating and Corporate Expenses
| | | | | | | | | | | | | | |||||||||||||
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | |||||||||||||||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||
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| |||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||
Employee costs |
| $ | 2.0 |
| $ | 1.7 |
| $ | 3.8 |
| $ | 3.5 |
| | $ | 2.0 | | $ | 2.0 | | $ | 4.4 | | $ | 3.8 | |
401(k) contribution |
|
| — |
|
| — |
|
| 1.1 |
|
| 1.1 |
| |
| — | |
| — | |
| 1.2 | |
| 1.1 | |
Property taxes and insurance |
|
| 1.2 |
|
| 1.2 |
|
| 2.4 |
|
| 2.5 |
| |
| 1.2 | |
| 1.2 | |
| 2.4 | |
| 2.4 | |
Professional fees |
|
| 1.0 |
|
| 0.8 |
|
| 2.0 |
|
| 1.7 |
| |
| 0.9 | |
| 1.0 | |
| 2.1 | |
| 2.0 | |
Marketing and owner association costs |
|
| 0.4 |
|
| 0.3 |
|
| 0.7 |
|
| 0.6 |
| |
| 0.2 | |
| 0.4 | |
| 0.5 | |
| 0.7 | |
Occupancy, repairs and maintenance |
|
| 0.2 |
|
| 0.4 |
|
| 0.5 |
|
| 0.5 |
| |
| 0.3 | |
| 0.2 | |
| 0.5 | |
| 0.5 | |
Other miscellaneous |
|
| 0.3 |
|
| 0.6 |
|
| 0.6 |
|
| 1.1 |
| |
| 0.4 | |
| 0.3 | |
| 0.8 | |
| 0.6 | |
Total other operating and corporate expenses |
| $ | 5.1 |
| $ | 5.0 |
| $ | 11.1 |
| $ | 11.0 |
| | $ | 5.0 | | $ | 5.1 | | $ | 11.9 | | $ | 11.1 | |
Other operating and corporate expenses for the three months ended June 30, 2020 and 2019 were comparable. Other operating and corporate expenses increased $0.8 million, or 7.2%, during the six months ended June 30, 20192020, as compared to the same period in 2019. The increase is primarily due to the March 2020 payment of performance incentives and 2018 were comparable.other employee related costs.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense forincreased $0.6 million and $1.6 million during the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2019, and 2018 were comparable.primarily due to new assets placed in service.
Investment Income, Net
Investment income, net primarily includes (i) interest and dividends earned, (ii) accretion of the net discount, (iii) net realized gain or loss from the sale of our available for-sale-investments less other-than-temporary impairment loss,and equity securities, (iv) net unrealized gain or loss related to investments - equity securities, (v) interest income earned on the time deposit held by SPE and (vi) interest earned on mortgage notes receivable and other receivables as detailed in the table below:
| | | | | | | | | | | | | | |||||||||||||
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | |||||||||||||||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
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|
|
|
| |||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||
Interest and dividend income |
| $ | 2.3 |
| $ | 2.3 |
| $ | 4.1 |
| $ | 5.2 |
| | $ | 0.1 | | $ | 2.3 | | $ | 1.1 | | $ | 4.1 | |
Accretion income |
|
| — |
|
| 0.2 |
|
| 0.1 |
|
| 0.4 |
| |
| — | |
| — | |
| — | |
| 0.1 | |
Net realized loss on the sale of investments |
|
| — |
|
| — |
|
| — |
|
| (1.1) |
| |||||||||||||
Other-than-temporary impairment loss |
|
| — |
|
| — |
|
| — |
|
| (0.1) |
| |||||||||||||
Unrealized (loss) gain on investments, net |
|
| (1.9) |
|
| 1.3 |
|
| 0.1 |
|
| 0.7 |
| | | (0.1) | | | (1.9) | | | (4.9) | | | 0.1 | |
Interest income from investments in SPEs |
|
| 2.0 |
|
| 2.0 |
|
| 4.1 |
|
| 4.1 |
| |
| 2.0 | |
| 2.0 | |
| 4.1 | |
| 4.1 | |
Interest accrued on notes receivable and other interest |
|
| 0.1 |
|
| 0.2 |
|
| 0.2 |
|
| 0.4 |
| |
| — | |
| 0.1 | |
| 0.1 | |
| 0.2 | |
Total investment income, net |
| $ | 2.5 |
| $ | 6.0 |
| $ | 8.6 |
| $ | 9.6 |
| | $ | 2.0 | | $ | 2.5 | | $ | 0.4 | | $ | 8.6 | |
Investment income, net decreased $3.5$0.5 million to $2.0 million for the three months ended June 30, 2020, as compared to $2.5 million for the three months ended June 30, 2019, as compared2019. Investment income, net decreased $8.2 million to $6.0$0.4 million for the threesix months ended June 30, 2018. Investment income, net decreased $1.0 million2020, as compared to $8.6 million for the six months ended June 30, 2019, as compared to $9.6 million for the six months ended June 30, 2018. Investment income, net for the2019. The three months ended June 30, 20192020 includes unrealized losses related to preferred stock of $0.1 million, compared to $1.9 million. Investment income, net formillion during the three months ended June 30, 2018 includes unrealized gains related to preferred stock of $1.3 million.2019. The six months ended June 30, 20192020 includes unrealized losses related to preferred stock of $4.9 million, compared to unrealized gains related to preferred stock of $0.1 million. The during the six months ended June 30, 2018 includes unrealized gains related to preferred stock of $0.7 million, offset by a realized loss on the sale of certain corporate debt securities and preferred stock of $1.1 million and an other-than-temporary impairment loss of $0.1 million related to corporate debt securities.2019.
The decrease in interest and dividend income and accretion income for the three and six months ended June 30, 2019,2020, as compared to the same period in 2018,2019, is primarily due to a reduction in investments held during the period.period and lower interest rates. The decrease in investments during the period is primarily related to the repurchase of common stock during 2018 under the Stock Repurchase Programa transition to a more liquid investment strategy and increased capital expenditures.
4955
increased capital expenditures. See Note 14. Stockholders’ Equity and Part II – Other Information of this quarterly report for additional information regarding common stock repurchases related to the Stock Repurchase Program.
Interest Expense
Interest expense primarily includes interest incurred on CDD debt, the Senior Notes issued by Northwest Florida Timber Finance, LLC, project financing and finance leases as detailed in the table below:
| | | | | | | | | | | | | | |||||||||||||
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | |||||||||||||||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
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|
|
|
| |||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||
Interest expense and amortization of discount and issuance costs for Senior Notes issued by SPE |
| $ | 2.2 |
| $ | 2.2 |
| $ | 4.4 |
| $ | 4.4 |
| | $ | 2.2 | | $ | 2.2 | | $ | 4.4 | | $ | 4.4 | |
Other interest expense |
|
| 0.8 |
|
| 0.7 |
|
| 1.6 |
|
| 1.5 |
| |
| 1.2 | |
| 0.8 | |
| 2.3 | |
| 1.6 | |
Total interest expense |
| $ | 3.0 |
| $ | 2.9 |
| $ | 6.0 |
| $ | 5.9 |
| | $ | 3.4 | | $ | 3.0 | | $ | 6.7 | | $ | 6.0 | |
Interest expense increased $0.4 million, or 13.3%, to $3.4 million during the three months ended June 30, 2020, as compared to $3.0 million in the same period in 2019. Interest expense increased $0.7 million, or 11.7%, to $6.7 million during the six months ended June 30, 2020, as compared to $6.0 million in the same period in 2019. The increase in interest expense is primarily related to the increase in project financing. See Note 10. Debt, Net for additional information regarding project financing.
Other Income, Net
Other income, net primarily includes gain on land contribution, income from our retained interest investments, gain on insurance proceeds,recovery, loss from hurricane expensesdamage and other income and expense items as detailed in the table below:
| | | | | | | | | | | | | | |||||||||||||
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | |||||||||||||||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||
|
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|
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|
|
| |||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||
Gain on land contribution |
| $ | — |
| $ | — |
| $ | 1.5 |
| $ | — |
| | $ | 15.3 | | $ | — | | $ | 19.6 | | $ | 1.5 | |
Accretion income from retained interest investments |
|
| 0.3 |
|
| 0.3 |
|
| 0.6 |
|
| 0.6 |
| | | 0.3 | | | 0.3 | | | 0.7 | | | 0.6 | |
Insurance proceeds |
|
| 3.8 |
|
| — |
|
| 4.1 |
|
| — |
| |||||||||||||
Hurricane expense |
|
| (0.8) |
|
| — |
|
| (1.1) |
|
| — |
| |||||||||||||
Miscellaneous expense, net |
|
| — |
|
| (0.1) |
|
| (0.1) |
|
| (0.1) |
| |||||||||||||
Gain on insurance recovery | | | — | | | 3.8 | | | — | | | 4.1 | | |||||||||||||
Loss from hurricane damage | | | (0.4) | | | (0.8) | | | (0.5) | | | (1.1) | | |||||||||||||
Miscellaneous income (expense), net | |
| 0.3 | |
| — | |
| 0.2 | |
| (0.1) | | |||||||||||||
Other income, net |
| $ | 3.3 |
| $ | 0.2 |
| $ | 5.0 |
| $ | 0.5 |
| | $ | 15.5 | | $ | 3.3 | | $ | 20.0 | | $ | 5.0 | |
Other income, net increased $3.1$12.2 million and $4.5to $15.5 million during the three months ended June 30, 2020, as compared to $3.3 million in the same period in 2019. Other income, net increased $15.0 million to $20.0 million during the six months ended June 30, 2020, as compared to $5.0 million in the same period in 2019. The three and six months ended June 30, 2019, respectively, as compared2020 includes a gain of $15.3 million on land contributed to our unconsolidated Latitude Margaritaville Watersound JV. The $15.3 million gain on land contributed to the same periodsLatitude Margaritaville Watersound JV includes $16.6 million for the net present value of the land contribution, net of $1.3 million cost basis. The present value of the land contribution was based on our best estimate of the prevailing market rates for the source of credit using an imputed interest rate of 5.75% and an additional performance obligation to provide for infrastructure improvements in 2018.the vicinity of the contributed land. The increase is primarily due to $3.8 million and $4.1 million of insurance proceeds received related to Hurricane Michael during the three and six months ended June 30, 2019, respectively. The insurance proceeds were partially offset by hurricane expenses2020 also includes a gain of $0.8$4.3 million and $1.1 million during the three and six months ended June 30, 2019, respectively. See Note 6. Hurricane Michael for additional information.on land contributed to our unconsolidated Sea Sound Apartments JV. The six months ended June 30, 2019, also includes a gain of $1.5 million on land and mitigation credits contributed to our unconsolidated Pier Park TPS JV. See Note 9, 4. Real Estate Joint Ventures for additional information. The three and six months ended June 30, 2020, includes $0.4 million and $0.5 million, respectively, of loss from hurricane damage related to Hurricane Michael. The three and six months ended June 30, 2019, includes $3.8 million and $4.1 million, respectively, of gain on insurance recovery and $0.8 million and $1.1 million, respectively, of loss from hurricane damage related to Hurricane Michael See Note 7. Hurricane Michael for additional information.
56
Income Tax Expense
We recorded income tax expense of $3.4$5.9 million during the three months ended June 30, 2019,2020, as compared to $6.5$3.4 million during the same period in 2018.2019. Our effective tax rate was 24.9%23.5% for the three months ended June 30, 2019,2020, as compared to 20.0%24.9% during the same period in 2018.2019.
We recorded income tax expense of $4.1$5.4 million during the six months ended June 30, 2019,2020, as compared to $6.3$4.1 million during the same period in 2018.2019. Our effective tax rate was 25.0%23.4% for the six months ended June 30, 2019,2020, as compared to 18.9%25.0% during the same period in 2018.2019.
Our effective rate for 2020 differed from the federal statutory rate of 21.0% primarily due to state income taxes, income tax credits and other permanent differences. The effective tax rate for 2019 differed from the federal statutory rate of 21.0% primarily due to the impact of state taxes and other permanent differences. The effective tax rate for 2018 differed from the federal statutory rate of 21.0% primarily due to the 2018 renewal of the Qualified Timber Gain preferential rate retroactively applied to our tax year 2017, the impact of state taxes and changes in the valuation allowance. In future periods, we expect that our effective rate will be closer to the statutory rate adjusted for state taxes and other permanent differences.
50
Segment Results
Residential Real Estate
The table below sets forth the results of operations of our residential real estate segment:
| | | | | | | | | | | | | | |||||||||||||
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | |||||||||||||||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Real estate revenue |
| $ | 12.6 |
| $ | 5.1 |
| $ | 15.7 |
| $ | 11.5 |
| | $ | 13.0 | | $ | 12.6 | | $ | 15.3 | | $ | 15.7 | |
Hospitality revenue | | | 0.1 | | | 0.2 | | | 0.1 | | | 0.3 | | |||||||||||||
Leasing revenue | | | — | | | — | | | 0.1 | | | — | | |||||||||||||
Other revenue |
|
| 1.2 |
|
| 23.6 |
|
| 1.5 |
|
| 24.3 |
| |
| 1.0 | |
| 1.2 | |
| 1.7 | |
| 1.5 | |
Total revenue |
|
| 13.8 |
|
| 28.7 |
|
| 17.2 |
|
| 35.8 |
| |
| 14.1 | |
| 14.0 | |
| 17.2 | |
| 17.5 | |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Cost of real estate and other revenue |
|
| 6.7 |
|
| 2.4 |
|
| 8.5 |
|
| 6.5 |
| |
| 6.3 | |
| 6.7 | |
| 7.5 | |
| 8.5 | |
Cost of hospitality revenue | | | 0.1 | | | 0.1 | | | 0.3 | | | 0.3 | | |||||||||||||
Other operating expenses |
|
| 1.4 |
|
| 1.2 |
|
| 2.5 |
|
| 2.4 |
| |
| 1.3 | |
| 1.4 | |
| 2.5 | |
| 2.5 | |
Depreciation and amortization |
|
| — |
|
| — |
|
| 0.1 |
|
| 0.1 |
| |
| 0.1 | |
| 0.1 | |
| 0.1 | |
| 0.1 | |
Total expenses |
|
| 8.1 |
|
| 3.6 |
|
| 11.1 |
|
| 9.0 |
| |
| 7.8 | |
| 8.3 | |
| 10.4 | |
| 11.4 | |
Operating income |
|
| 5.7 |
|
| 25.1 |
|
| 6.1 |
|
| 26.8 |
| |
| 6.3 | |
| 5.7 | |
| 6.8 | |
| 6.2 | |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Investment income, net |
|
| — |
|
| 0.1 |
|
| — |
|
| 0.1 |
| | | — | | | — | | | 0.1 | | | 0.1 | |
Interest expense |
|
| (0.2) |
|
| (0.2) |
|
| (0.4) |
|
| (0.5) |
| |
| (0.1) | |
| (0.2) | |
| (0.4) | |
| (0.4) | |
Other income, net |
|
| — |
|
| — |
|
| 0.1 |
|
| 0.1 |
| |
| 15.4 | |
| — | |
| 15.5 | |
| — | |
Total other expense, net |
|
| (0.2) |
|
| (0.1) |
|
| (0.3) |
|
| (0.3) |
| |||||||||||||
Income before income taxes |
| $ | 5.5 |
| $ | 25.0 |
| $ | 5.8 |
| $ | 26.5 |
| |||||||||||||
Total other income (expense), net | |
| 15.3 | |
| (0.2) | |
| 15.2 | |
| (0.3) | | |||||||||||||
Income before equity in loss from unconsolidated affiliates and income taxes | | $ | 21.6 | | $ | 5.5 | | $ | 22.0 | | $ | 5.9 | | |||||||||||||
Real estate revenue includes sales of homesites, homes and other residential land and certain homesite residuals from homebuilder sales that provide us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold. Hospitality revenue includes some of our short-term vacation rentals. Other revenue includes tap and impact fee credits sold and marketing fees. Certain homesite residuals and other revenue related to homebuilder homesite sales are recognized in revenue at the point in time of the closing of the sale. Other revenue forFor each of the three and six months ended June 30, 20182020, real estate revenue includes $23.1estimated homesite residuals of $0.4 million for a one-time receipt of RiverTown impactand other revenue includes certain estimated fees related to the 2014 RiverTown transaction.homebuilder homesite sales of $0.7 million. For the three months ended June 30, 2019, and 2018, real estate revenue includes estimated homesite residuals of $1.0 million and $0.2 million, respectively. For the three months ended June 30, 2019 and 2018, other revenue includes certain estimated fees related to homebuilder homesite sales of $0.9 million and $0.2 million, respectively.million. For the six months ended June 30, 2019, and 2018, real estate revenue includes estimated homesite residuals of $1.1 million and $0.6 million, respectively. For the six months ended June 30, 2019 and 2018, other revenue includes certain estimated fees related to homebuilder homesite sales of $0.9 million and $0.5 million, respectively.million. Cost of real estate revenue includes direct costs (e.g.,
57
development and construction costs), selling costs and other indirect costs (e.g., development overhead, capitalized interest and project administration costs).
Three months ended June 30, 2019 Compared2020 compared to the Threethree months ended June 30, 20182019
The following table sets forth our residential real estate revenue and cost of revenue activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2019 |
|
| Three Months Ended June 30, 2018 |
| ||||||||||||||||||||||
|
| Unit |
|
|
|
| Cost of |
| Gross |
| Gross |
|
| Units |
|
|
|
| Cost of |
| Gross |
| Gross |
| ||||
|
| Sold |
| Revenue |
| Revenue |
| Profit |
| Margin |
|
| Sold |
| Revenue |
| Revenue |
| Profit |
| Margin |
| ||||||
|
| Dollars in millions |
| |||||||||||||||||||||||||
Homesites |
| 151 |
| $ | 12.6 |
| $ | 6.3 |
| $ | 6.3 |
| 50.0 | % |
| 37 |
| $ | 5.1 |
| $ | 2.1 |
| $ | 3.0 |
| 58.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | | | Three Months Ended June 30, 2019 |
| ||||||||||||||||||||||
|
| Unit |
| | |
| Cost of |
| Gross |
| Gross | |
| Units |
| | |
| Cost of |
| Gross |
| Gross |
| ||||
| | Sold | | Revenue | | Revenue | | Profit | | Margin | | | Sold | | Revenue | | Revenue | | Profit | | Margin |
| ||||||
| | Dollars in millions |
| |||||||||||||||||||||||||
Homesites |
| 122 | | $ | 11.7 | | $ | 5.9 | | $ | 5.8 |
| 49.6 | % | | 151 | | $ | 12.6 | | $ | 6.3 | | $ | 6.3 | | 50.0 | % |
Land sale |
| N/A | |
| 1.3 | |
| 0.1 | |
| 1.2 |
| 92.3 | % | | N/A | | | — | | | — | | | — | | — | % |
Total |
| 122 | | $ | 13.0 | | $ | 6.0 | | $ | 7.0 |
| 53.8 | % | | 151 | | $ | 12.6 | | $ | 6.3 | | $ | 6.3 |
| 50.0 | % |
Homesites. Revenue from homesite sales increased $7.5decreased $0.9 million, or 147.1%7.1%, during the three months ended June 30, 2019,2020, as compared to the same period in 2018,2019, primarily due to the mix and number of homesites sold per community, the timing of builder contractual closing obligations and the timing of development of completed homesites in our residential communities such as Watersound Origins, Breakfast Point and SouthWood.communities. During the three months
51
ended June 30, 20192020 and 2018,2019, the average revenue, excluding homesite residuals, per homesite sold was approximately $73,000$86,000 and $125,000,$73,000, respectively, due to the mix of sales from different communities, which included the sale of 49 undeveloped homesites within the SouthWood community duringcommunities.
Land sale. During the three months ended June 30, 2019, with no comparable undeveloped homesite sales during the same period2020, we had an unimproved residential land sale for $1.3 million, resulting in 2018. Grossa gross margin decreased to 50.0% during the three months ended June 30, 2019, as compared to 58.8% during the same period in 2018, primarily due to the mix and number of homesites sold during each respective period.$1.2 million.
Other operating expenses include salaries and benefits, property taxes, marketing, professional fees, project administration, support personnel, owner association and CDD assessments and other administrative expenses.
Investment income, net primarily consists of interest earned on our mortgage notes receivable. Interest expense consists of interest incurred on our portion of the total outstanding CDD debt.
Other income, net for the three months ended June 30, 2020 includes a gain of $15.3 million on land contributed to our unconsolidated Latitude Margaritaville Watersound JV. The $15.3 million gain on land contributed to the Latitude Margaritaville Watersound JV includes $16.6 million for the net present value of the land contribution, net of $1.3 million cost basis. The present value of the land contribution was based on our best estimate of the prevailing market rates for the source of credit using an imputed interest rate of 5.75%and an additional performance obligation to provide for infrastructure improvements in the vicinity of the contributed land. See Note 4. Real Estate Joint Ventures for additional information.
Six months ended June 30, 2019 Compared2020 compared to the Sixsix months ended June 30, 20182019
The following table sets forth our residential real estate revenue and cost of revenue activity:
|
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|
|
| Six Months Ended June 30, 2019 |
|
| Six Months Ended June 30, 2018 |
| ||||||||||||||||||||||
|
| Units |
|
|
|
| Cost of |
| Gross |
| Gross |
|
| Units |
|
|
|
| Cost of |
| Gross |
| Gross |
| ||||
|
| Sold |
| Revenue |
| Revenue |
| Profit |
| Margin |
|
| Sold |
| Revenue |
| Revenue |
| Profit |
| Margin |
| ||||||
|
| Dollars in millions |
| |||||||||||||||||||||||||
Homesites |
| 182 |
| $ | 15.7 |
| $ | 7.9 |
| $ | 7.8 |
| 49.7 | % |
| 143 |
| $ | 11.5 |
| $ | 6.1 |
| $ | 5.4 |
| 47.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | | | Six Months Ended June 30, 2019 |
| ||||||||||||||||||||||
|
| Units |
| | |
| Cost of |
| Gross |
| Gross | |
| Units |
| | |
| Cost of |
| Gross |
| Gross |
| ||||
| | Sold | | Revenue | | Revenue | | Profit | | Margin | | | Sold | | Revenue | | Revenue | | Profit | | Margin |
| ||||||
| | Dollars in millions | | |||||||||||||||||||||||||
Homesites | | 141 | | $ | 14.0 | | $ | 6.9 | | $ | 7.1 | | 50.7 | % | | 182 | | $ | 15.7 | | $ | 7.9 | | $ | 7.8 | | 49.7 | % |
Land sale |
| N/A | | | 1.3 | | | 0.1 | | | 1.2 | | 92.3 | % | | N/A | | | — | | | — | | | — | | — | % |
Total |
| 141 | | $ | 15.3 | | $ | 7.0 | | $ | 8.3 |
| 54.2 | % | | 182 | | $ | 15.7 | | $ | 7.9 | | $ | 7.8 |
| 49.7 | % |
Homesites. Revenue from homesite sales increased $4.2decreased $1.7 million, or 36.5%10.8%, during the six months ended June 30, 2019,2020, as compared to the same period in 2018,2019, primarily due to the mix and number of homesites sold per community, the timing of builder contractual closing obligations and the timing of development of completed homesites in our residential communities such as Watersound Origins, Breakfast Point and SouthWood.communities. During the six months ended June 30, 20192020 and 2018,2019, the average revenue, excluding
58
homesite residuals, per homesite sold was approximately $89,000 and $75,000, and $74,000, respectively. Gross margin increasedrespectively, due to 49.7% duringthe mix of sales from different communities.
Land sale. During the six months ended June 30, 2019, as compared to 47.0% during the same period2020, we had an unimproved residential land sale for $1.3 million, resulting in 2018, primarily due to the mix and numbera gross margin of homesites sold during each respective period.$1.2 million.
Other operating expenses include salaries and benefits, property taxes, marketing, professional fees, project administration, support personnel, owner association and CDD assessments and other administrative expenses.
Investment income, net primarily consists of interest earned on our mortgage notes receivable. Interest expense consists of interest incurred on our portion of the total outstanding CDD debt.
52
$15.3 million on land contributed to our unconsolidated Latitude Margaritaville Watersound JV. See Note 4. Real Estate Joint Ventures for additional information.
Hospitality
The table below sets forth the results of operations of our hospitality segment:
| | | | | | | | | | | | | |
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| ||||
| | In millions | | ||||||||||
Revenue: |
| |
|
| |
|
| |
|
| |
|
|
Hospitality revenue | | $ | 11.5 | | $ | 15.4 | | $ | 18.0 | | $ | 22.6 | |
Leasing revenue | | | — | | | — | | | — | | | 0.1 | |
Total revenue | | | 11.5 | | | 15.4 | | | 18.0 | | | 22.7 | |
Expenses: | |
|
| |
|
| |
|
| |
|
| |
Cost of hospitality revenue | |
| 8.1 | |
| 8.9 | |
| 15.3 | |
| 15.9 | |
Other operating expenses | |
| 0.2 | |
| 0.2 | |
| 0.4 | |
| 0.4 | |
Depreciation | |
| 0.9 | |
| 1.0 | |
| 2.3 | |
| 1.9 | |
Total expenses | |
| 9.2 | |
| 10.1 | |
| 18.0 | |
| 18.2 | |
Operating income | |
| 2.3 | |
| 5.3 | |
| — | |
| 4.5 | |
Other income: | |
|
| |
|
| |
|
| |
|
| |
Interest expense | | | (0.1) | | | — | | | (0.1) | | | — | |
Other income, net | |
| 0.2 | |
| — | |
| 0.2 | |
| — | |
Other income, net | |
| 0.1 | |
| — | |
| 0.1 | |
| — | |
Income before equity in loss from unconsolidated affiliates and income taxes | | $ | 2.4 | | $ | 5.3 | | $ | 0.1 | | $ | 4.5 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| In millions |
| ||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality revenue |
| $ | 15.6 |
| $ | 12.9 |
| $ | 23.0 |
| $ | 19.9 |
|
Leasing revenue |
|
| — |
|
| 0.4 |
|
| 0.1 |
|
| 0.8 |
|
Total revenue |
|
| 15.6 |
|
| 13.3 |
|
| 23.1 |
|
| 20.7 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of hospitality revenue |
|
| 9.0 |
|
| 9.4 |
|
| 16.2 |
|
| 16.2 |
|
Cost of leasing revenue |
|
| — |
|
| 0.4 |
|
| — |
|
| 0.6 |
|
Other operating expenses |
|
| 0.2 |
|
| 0.1 |
|
| 0.4 |
|
| 0.3 |
|
Depreciation |
|
| 1.1 |
|
| 0.9 |
|
| 2.0 |
|
| 1.8 |
|
Total expenses |
|
| 10.3 |
|
| 10.8 |
|
| 18.6 |
|
| 18.9 |
|
Operating income |
|
| 5.3 |
|
| 2.5 |
|
| 4.5 |
|
| 1.8 |
|
Other income, net |
|
| — |
|
| — |
|
| — |
|
| 0.1 |
|
Income before income taxes |
| $ | 5.3 |
| $ | 2.5 |
| $ | 4.5 |
| $ | 1.9 |
|
59
Three months ended June 30, 2019 Compared2020 compared to the Threethree months ended June 30, 20182019
The following table sets forth details of our hospitality segment revenue and cost of revenue:
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Three Months Ended June 30, 2020 | | | Three Months Ended June 30, 2019 |
| ||||||||||||||||||||||||||||||
|
| | |
| Gross |
| Gross | |
| |
| Gross |
| Gross |
| |||||||||||||||||||||
| | Revenue | | Profit (Deficit) | | Margin | | | Revenue | | Profit | | Margin |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Three Months Ended June 30, 2019 |
|
| Three Months Ended June 30, 2018 |
| ||||||||||||||||||||||||||||||
|
|
|
|
| Gross |
| Gross |
|
|
|
| Gross |
| Gross |
| |||||||||||||||||||||
|
| Revenue |
| Profit |
| Margin |
|
| Revenue |
| Profit |
| Margin |
| ||||||||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||||||||||||
Resorts, lodging and other management services |
| $ | 8.8 |
| $ | 2.4 |
| 27.3 | % |
| $ | 7.2 |
| $ | 2.1 |
| 29.2 | % | ||||||||||||||||||
| | In millions |
| |||||||||||||||||||||||||||||||||
Clubs |
|
| 6.8 |
|
| 3.0 |
| 44.1 | % |
|
| 5.2 |
|
| 1.2 |
| 23.1 | % | | $ | 5.4 | | $ | 2.3 |
| 42.6 | % | | $ | 6.8 | | $ | 3.0 |
| 44.1 | % |
Hotel operations, food and beverage operations, short-term vacation rentals and other management services | | | 5.5 | | | 1.0 | | 18.2 | % | | | 8.1 | | | 2.2 | | 27.2 | % | ||||||||||||||||||
Retail | |
| 0.6 | |
| 0.2 |
| 33.3 | % | |
| 0.5 | |
| 0.1 |
| 20.0 | % | ||||||||||||||||||
Marinas |
|
| — |
|
| 1.2 |
| — | % |
|
| 0.9 |
|
| 0.2 |
| 22.2 | % | |
| — | |
| (0.1) |
| — | % | |
| — | |
| 1.2 |
| — | % |
Total |
| $ | 15.6 |
| $ | 6.6 |
| 42.3 | % |
| $ | 13.3 |
| $ | 3.5 |
| 26.3 | % | | $ | 11.5 | | $ | 3.4 |
| 29.6 | % | | $ | 15.4 | | $ | 6.5 |
| 42.2 | % |
Revenue from resorts, lodging and other management services increased $1.6our clubs decreased $1.4 million, or 22.2%20.6%, during the three months ended June 30, 2019, as2020 compared to the same period in 2018. The increase in revenue is primarily2019, due to the re-openingimpact of the FOOW restaurant in late June 2018 and the opening of the WaterColor Store in January 2019.COVID-19 pandemic, as previously discussed. The increasedecrease in revenue was partially offset by a decreasealso related to the WaterColor Beach Club being closed during the three months ended June 30, 2019. Our gross margin decreased by 1.9% to 27.3% during the three months ended June 30, 2019, as compared to 29.2% during the same period in 2018. The decrease in gross margin was primarily due to a decreasereceipt of one-time membership reservations fee in the average daily rate and lower occupancy at the WaterColor Inn in the current period.
Revenue from our clubs increased $1.6 million or 30.8%, during the three months ended June 30, 2019 as compared to the sameprior period, in 2018, which included an increase related topartially offset by an increase in the number of members and membership revenue partially offset by a decrease in golf revenue primarily related to the sale ofcurrent period. In addition, the SouthWoodCamp Creek Golf Club in the third quarter of 2018.Our gross margin also increased to 44.1%was closed during the three months ended June 30, 2019 compared to 23.1% during the same period in 2018. The increase in2020 for renovations. Our clubs gross margin was primarily duealso decreased to the increase in membership revenue.
Revenue from our marinas decreased $0.9 million, or 100.0%42.6% during the three months ended June 30, 2020 compared to 44.1% during the same period in 2019, due to the impacts of the COVID-19 pandemic and closure of Camp Creek Golf Club.
Revenue from our hotel operations, food and beverage operations, short-term vacation rentals and other management services decreased $2.6 million, or 32.1%, during the three months ended June 30, 2020, as compared to the same period in 2018,2019. The decrease is due to the impact of the COVID-19 pandemic, which resulted in shut downs and reduced revenue in the first half of the quarter, but was partially offset by a recovery in the second half of the quarter that exceeded the prior period. The decrease was also partially offset by an increase for WaterColor Beach Club food and beverage operations, which were closed for renovations during the three months ended June 30, 2019. Gross margin also decreased to 18.2% during the three months ended June 30, 2020, compared to 27.2% during the same period in 2019, due to the impacts of the COVID-19 pandemic.
Revenue from our retail outlets increased $0.1 million during the three months ended June 30, 2020, as compared to the same period in 2019. The increase was due to new retail outlets that were opened throughout 2019, partially offset by a decrease due to the impact of the COVID-19 pandemic, as previously discussed.
We did not have revenue from our marinas during the three months ended June 30, 2020 and 2019, due to the impact of Hurricane Michael on the marinas. Gross profit during the three months ended June 30, 2019 includes $1.3 million related to business interruption insurance proceeds received during the period. Subsequent to the landfall of Hurricane Michael on October 10, 2018, the marinas remain closed. We
53
maintain property and business interruption insurance on the impacted marina assets. See Note 6. 7. Hurricane Michael for additional information.
Our hospitality segment had a gross margin was 42.3%of 29.6% during the three months ended June 30, 2019,2020, as compared to 26.3%a gross margin of 42.2% during the same period in 2018.2019. The increase is primarilydecrease in gross margin was related to the increase in membership revenue and business interruption insurance proceeds received in 2019 for the marinas related to Hurricane Michael. Excluding the $1.3 million of business interruption proceeds received for the marinas during the currentprior period, our hospitality segment gross margin was 34.0%29.6% during the three months ended June 30, 2019,2020, as compared to 26.3%33.8% during the same period in 2018. The increase is primarily related2019, due to the increase in membership revenue.impacts of the COVID-19 pandemic.
The extent to which the COVID-19 pandemic may further impact our future hospitality operations will depend on future developments, which are highly uncertain. See Part II. Item 1A. Risk Factors.
60
Other operating expenses include salaries and benefits, occupancy fees, professional fees, property taxes, CDD assessments and other administrative expenses.
Six Months Endedmonths ended June 30, 2019 Compared2020 compared to the Six Months Endedsix months ended June 30, 20182019
The following table sets forth details of our hospitality segment revenue and cost of revenue:
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Six Months Ended June 30, 2020 | | | Six Months Ended June 30, 2019 |
| ||||||||||||||||||||||||||||||
| | | | | Gross | | | | | | | | | | | | | |||||||||||||||||||
| | | | | Profit | | Gross | | | | | | Gross | | Gross | | ||||||||||||||||||||
| | Revenue | | (Deficit) | | Margin | | | Revenue | | Profit | | Margin |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Six Months Ended June 30, 2019 |
|
| Six Months Ended June 30, 2018 |
| ||||||||||||||||||||||||||||||
|
|
|
|
| Gross |
| Gross |
|
|
|
|
| Gross |
| Gross |
| ||||||||||||||||||||
|
| Revenue |
| Profit |
| Margin |
|
| Revenue |
| Profit |
| Margin |
| ||||||||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||||||||||||
Resorts, lodging and other management services |
| $ | 12.6 |
| $ | 1.9 |
| 15.1 | % |
| $ | 10.6 |
| $ | 1.7 |
| 16.0 | % | ||||||||||||||||||
| | In millions | ||||||||||||||||||||||||||||||||||
Clubs |
|
| 10.5 |
|
| 4.0 |
| 38.1 | % |
|
| 8.7 |
|
| 1.9 |
| 21.8 | % | | $ | 9.2 | | $ | 3.4 |
| 37.0 | % | | $ | 10.5 | | $ | 4.0 |
| 38.1 | % |
Hotel operations, food and beverage operations, short-term vacation rentals and other management services | | | 8.0 | | | (0.7) |
| (8.8) | % | | | 11.6 | | | 1.6 |
| 13.8 | % | ||||||||||||||||||
Retail | | | 0.8 | | | 0.2 | | 25.0 | % | | | 0.6 | | | 0.2 | | 33.3 | % | ||||||||||||||||||
Marinas |
|
| — |
|
| 1.0 |
| — | % |
|
| 1.4 |
|
| 0.3 |
| 21.4 | % | |
| — | |
| (0.2) |
| — | % | |
| — | |
| 1.0 |
| — | % |
Total |
| $ | 23.1 |
| $ | 6.9 |
| 29.9 | % |
| $ | 20.7 |
| $ | 3.9 |
| 18.8 | % | | $ | 18.0 | | $ | 2.7 |
| 15.0 | % | | $ | 22.7 | | $ | 6.8 |
| 30.0 | % |
Revenue from resorts, lodging and other management services increased $2.0our clubs decreased $1.3 million, or 18.9%12.4%, during the six months ended June 30, 2019, as2020 compared to the same period in 2018. The increase in revenue is primarily2019, due to the re-openingimpact of the FOOW restaurant in late June 2018 and the opening of the WaterColor Store in January 2019.COVID-19 pandemic, as previously discussed. The increasedecrease in revenue was partially offset by a decrease in room revenue for the WaterColor Inn from lower occupancyalso related to the WaterColor Beach Club being closed duringreceipt of one-time membership reservations fee in the period. Our gross margin decreasedprior period, partially offset by 0.9% to 15.1% during the six months ended June 30, 2019, as compared to 16.0% during the same period in 2018. The decrease in gross margin was primarily due to lower occupancy at the WaterColor Inn and the WaterColor Beach Club being closed during the six months ended June 30, 2019 for renovations.
Revenue from our clubs increased $1.8 million, or 20.7%, during the six months ended June 30, 2019 compared to the same period in 2018, which included an increase related to an increase in the number of members and membership revenue partially offset by a decrease in golf revenue primarily related to the sale ofcurrent period. In addition, the SouthWoodCamp Creek Golf Club was closed beginning in the third quarter of 2018. March 2020 for renovations. As of June 30, 2019 we2020 the Clubs by JOE had 1,1981,351 members, compared with 1,0781,049 members as of June 30, 2018. 2019. Our clubs gross margin also increaseddecreased to 38.1%37.0% during the six months ended June 30, 20192020 compared to 21.8%38.1% during the same period in 2018.2019. The increasedecrease in gross margin was primarily due to the impacts of the COVID-19 pandemic and closure of Camp Creek Golf Club, partially offset by the increase in the number of members and membership revenue.
Revenue from our marinashotel operations, food and beverage operations, short-term vacation rentals and other management services decreased $1.4$3.6 million, or 100.0%31.0%, during the six months ended June 30, 2019,2020, as compared to the same period in 2018,2019. The decrease is due to the impact of the COVID-19 pandemic, which resulted in shut downs and reduced revenue from mid-March to mid-May, but was partially offset by a recovery in June 2020 that exceeded the prior period. The decrease was partially offset by an increase for WaterColor Beach Club food and beverage operations, which were closed for renovations during the six months ended June 30, 2019. The six months ended June 30, 2020 had a negative gross margin of (8.8%) compared to a gross margin 13.8% during the same period in 2019. The decrease is related to the impacts of the COVID-19 pandemic.
Revenue from our retail outlets increased $0.2 million during the six months ended June 30, 2020, as compared to the same period in 2019. The increase was due to new retail outlets that were opened throughout 2019, partially offset by a decrease due to the impact of the COVID-19 pandemic, as previously discussed.
We did not have revenue from our marinas during the six months ended June 30, 2020 and 2019, due to the impact of Hurricane Michael on the marinas. Gross profit during the six months ended June 30, 2019 includes $1.3 million related to business interruption insurance proceeds received during the period. Subsequent to the landfall of Hurricane Michael on October 10, 2018, the marinas remain closed. We maintain property and business interruption insurance on the impacted marina assets. See Note 6. 7. Hurricane Michael for additional information.
Our hospitality segment had a gross margin was 29.9%of 15.0% during the six months ended June 30, 2019,2020, as compared to 18.8%30.0% during the same period in 2018.2019. The increase is primarilydecrease in gross margin was related to the increase in membership revenue and business interruption insurance proceeds received in 2019 for the marinas related to Hurricane Michael. Excluding the $1.3 million of business interruption proceeds received for the marinas during the currentprior period, our hospitality segment gross margin was
54
24.2% 15.0% during the six months ended June 30, 2019, 2020,
61
as compared to 18.8%24.2% during the same period in 2018.2019. The increasedecrease is primarily related to the impacts of the COVID-19 pandemic, partially offset by an increase in the number of members and membership revenue.
The extent to which the COVID-19 pandemic may further impact our future hospitality operations will depend on future developments, which are highly uncertain. See Part II. Item 1A. Risk Factors.
Other operating expenses include salaries and benefits, occupancy fees, professional fees, property taxes, CDD assessments and other administrative expenses.
Commercial LeasingDepreciation expense increased $0.4 million during the six months ended June 30, 2020, as compared to the same period in 2019. The increase was primarily due to $0.2 million for new assets placed in service and Sales$0.2 million for accelerated depreciation for Camp Creek Golf Club property due to renovation.
Commercial
The table below sets forth the results of operations of our commercial leasing and sales segment:
| | | | | | | | | | | | | | |||||||||||||
|
| Three Months Ended June 30, | | Six Months Ended June 30, | | |||||||||||||||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
|
| In millions |
| |||||||||||||||||||||||
| | In millions | | |||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Leasing revenue |
| $ | 3.4 |
| $ | 2.9 |
| $ | 6.7 |
| $ | 5.7 |
| | | | | | | | | | | | | |
Commercial real estate revenue |
|
| 0.1 |
|
| 0.4 |
|
| 1.0 |
|
| 0.8 |
| |||||||||||||
Commercial leasing revenue | | $ | 3.9 | | $ | 3.4 | | $ | 7.2 | | $ | 6.9 | | |||||||||||||
Apartment leasing revenue | | | 1.0 | | | 0.2 | | | 1.9 | | | 0.2 | | |||||||||||||
Total leasing revenue | | | 4.9 | | | 3.6 | | | 9.1 | | | 7.1 | | |||||||||||||
Commercial and rural real estate revenue | |
| 2.3 | |
| 1.3 | |
| 5.1 | |
| 2.4 | | |||||||||||||
Timber revenue | | | 2.0 | | | 0.7 | | | 3.9 | | | 1.3 | | |||||||||||||
Total revenue |
|
| 3.5 |
|
| 3.3 |
|
| 7.7 |
|
| 6.5 |
| |
| 9.2 | |
| 5.6 | |
| 18.1 | |
| 10.8 | |
Expenses: | Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| Expenses: |
|
| |
|
| |
|
| |
|
| |
Cost of leasing revenue |
|
| 1.1 |
|
| 0.8 |
|
| 2.1 |
|
| 1.7 |
| |
| 1.3 | |
| 1.1 | |
| 1.9 | |
| 2.1 | |
Cost of commercial real estate revenue |
|
| — |
|
| 0.2 |
|
| — |
|
| 0.2 |
| |||||||||||||
Cost of commercial and rural real estate revenue | |
| 0.8 | |
| 0.1 | |
| 1.4 | |
| 0.1 | | |||||||||||||
Cost of timber revenue | | | 0.2 | | | 0.2 | | | 0.4 | | | 0.3 | | |||||||||||||
Other operating expenses |
|
| 0.8 |
|
| 0.9 |
|
| 1.5 |
|
| 1.6 |
| |
| 0.9 | |
| 0.9 | |
| 1.8 | |
| 1.7 | |
Depreciation and amortization |
|
| 1.2 |
|
| 1.1 |
|
| 2.3 |
|
| 2.2 |
| |||||||||||||
Depreciation, amortization and depletion | |
| 1.7 | |
| 1.2 | |
| 3.3 | |
| 2.4 | | |||||||||||||
Total expenses |
|
| 3.1 |
|
| 3.0 |
|
| 5.9 |
|
| 5.7 |
| |
| 4.9 | |
| 3.5 | |
| 8.8 | |
| 6.6 | |
Operating income |
|
| 0.4 |
|
| 0.3 |
|
| 1.8 |
|
| 0.8 |
| |
| 4.3 | |
| 2.1 | |
| 9.3 | |
| 4.2 | |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | |
Interest expense |
|
| (0.6) |
|
| (0.5) |
|
| (1.2) |
|
| (1.1) |
| |
| (0.9) | |
| (0.6) | |
| (1.9) | |
| (1.2) | |
Other income, net |
|
| — |
|
| — |
|
| 1.7 |
|
| — |
| |
| — | |
| — | |
| 4.0 | |
| 1.7 | |
Total other (expense) income, net |
|
| (0.6) |
|
| (0.5) |
|
| 0.5 |
|
| (1.1) |
| |
| (0.9) | |
| (0.6) | |
| 2.1 | |
| 0.5 | |
(Loss) income before income taxes |
| $ | (0.2) |
| $ | (0.2) |
| $ | 2.3 |
| $ | (0.3) |
| |||||||||||||
Income before equity in loss from unconsolidated affiliates and income taxes | | $ | 3.4 | | $ | 1.5 | | $ | 11.4 | | $ | 4.7 | | |||||||||||||
Three and Six Months Endedmonths ended June 30, 2020 compared to the three months ended June 30, 2019 Compared to the Three and Six Months Ended June 30, 2018
LeasingTotal leasing revenue increased $0.5$1.3 million, or 17.2%36.1%, during the three months ended June 30, 2019,2020, as compared to the same period in 2018.2019. This increase is primarily due to new leases at Pier Park Crossings apartments, which began leasing in the second quarter of 2019, as well as higher rental rates. Leasing gross margin increased during the three months ended June 30, 2020 to 73.5%, as compared to 69.4% during the same period in 2019. During the three months ended June 30, 2020 we provided tenant rent abatements totaling $0.1 million, along with lease deferrals of $0.3 million due to the impact of the COVID-19 pandemic.
During the three months ended June 30, 2020, we had seven commercial and rural real estate sales totaling approximately 120 acres for $2.3 million, resulting in a gross profit margin of approximately 65.2%. During the three
62
months ended June 30, 2019, we had four commercial and rural real estate sales totaling approximately 34 acres for $1.3 million, resulting in a gross profit margin of approximately 92.3%.
Timber revenue increased $1.0by $1.3 million during the three months ended June 30, 2020, as compared to the same period in 2019. The increase is primarily due to an increase in the amount of tons sold and product mix changes. The revenue for the three months ended June 30, 2019, was affected by Hurricane Michael’s significant market impact after landfall in October 2018. There were 105,000 tons sold during the three months ended June 30, 2020, as compared to 31,000 tons sold during the same period in 2019. The average price per ton sold decreased to $14.50 during the three months ended June 30, 2020, as compared to $16.06 during the same period in 2019. Timber gross margin increased during the three months ended June 30, 2020, to 90.0% as compared to 71.4% during the same period in 2019, primarily due to increased volume and changes in product mix. The cost of timber revenue is primarily fixed, which also resulted in an increase to gross margin for the period.
Other operating expenses include salaries and benefits, property taxes, CDD assessments, professional fees, marketing, project administration and other administrative expenses.
The increase of $0.5 million in depreciation, amortization and depletion expense during the three months ended June 30, 2020, as compared to the same period in 2019, was primarily due to new properties placed in service.
Interest expense primarily includes interest incurred from our commercial leasing project financing and CDD debt.
Six months ended June 30, 2020 compared to the six months ended June 30, 2019
Total leasing revenue increased $2.0 million, or 17.5%28.2%, during the six months ended June 30, 2019,2020, as compared to the same period in 2018.2019. This increase is primarily due to new leases at properties such as Pier Park North, Beckrich Office Park, Pier Park Crossings and WaterColor Crossings. Leasing gross margin decreased duringapartments, which began leasing in the three months ended June 30,second quarter of 2019, to 67.6%, as compared to 72.4% during the same period in 2018. Leasing gross margin decreasedwell as higher rental rates. Cost of leasing revenue during the six months ended June 30, 20192020 includes $0.7 million of business interruption insurance proceeds received for Pier Park Crossings apartments related to 68.7%Hurricane Michael. Leasing gross margin increased during the six months ended June 30, 2020 to 79.1%, as compared to 70.2%70.4% during the same period in 2018. The decrease in gross margin was primarily due to an increase in cost of leasing revenue for new leases2019. Excluding the business interruption proceeds received during the three and six months ended June 30, 2020, our leasing gross margin was 71.4% during the six months ended June 30, 2020, as compared to 70.4% during the same period in 2019. As of June 30, 2020, we had net rentable square feet of approximately 898,000, of which approximately 758,000 square feet was under lease. As of June 30, 2019, we had net rentable square feet of approximately 823,000, of which approximately 758,000 square feet was under lease. As ofDuring the six months ended June 30, 2018,2020 we had net rentable square feetprovided tenant rent abatements totaling $0.1 million, along with lease deferrals of approximately 809,000,$0.3 million due to the impact of which approximately 719,000 square feet was under lease.the COVID-19 pandemic.
The diversity of our commercial segment complements the growth of our communities and our residential and hospitality segments. Commercial and rural real estate revenue can vary depending on the proximity to developed areas and the mix and characteristics of commercial and rural real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses. During the threesix months ended June 30, 2019 there were no commercial land real estate sales. During the three months ended June 30, 2018,2020, we had threetwelve commercial and rural real estate sales totaling approximately 2201 acres for $0.4$5.1 million, resulting in a gross profit margin of approximately 50.0%72.5%. Commercial and rural real estate revenue for the six months ended June 30, 2020 included $1.8 million related to the sale of the SouthWood Town Center. During the six months ended June 30, 2019, we had twonine commercial and rural real estate sales totaling approximately 51106 acres for $1.0 million, with di minimis cost of revenue resulting in a gross profit margin of approximately 100.0%. During the six months ended June 30, 2018, we had four commercial real estate sale totaling approximately 5 acres for $0.8$2.4 million, resulting in a gross profit margin of approximately 62.5%95.8%. As our focus continues to evolve more towards recurring revenue from leasing operations, we expect to have limited commercial and rural real estate sales. Further, we may transform and operate leasing properties for higher and better use. This may result in certain assets moving from the commercial segment to the hospitality segment.
Timber revenue increased by $2.6 million during the six months ended June 30, 2020, as compared to the same period in 2019. The increase is primarily due to an increase in the amount of tons sold, along with price increases and product mix changes. The revenue for the six months ended June 30, 2019, was affected by Hurricane Michael’s significant market impact after landfall in October 2018. There were 191,000 tons sold during the six months ended June 30, 2020, as compared to 61,000 tons sold during the same period in 2019. The average price per ton sold increased
5563
to $15.50 during the six months ended June 30, 2020, as compared to $14.42 during the same period in 2019. Timber gross margin increased during the six months ended June 30, 2020, to 89.7% as compared to 76.9% during the same period in 2019, primarily due to increased volume and changes in product mix. The cost of timber revenue is primarily fixed, which also resulted in an increase to gross margin for the period.
Other operating expenses include salaries and benefits, property taxes, CDD assessments, professional fees, marketing, project administration and other administrative expenses.
The increase of $0.9 million in depreciation, amortization and depletion expense during the six months ended June 30, 2020, as compared to the same period in 2019, was primarily due to new properties placed in service.
Interest expense primarily includes interest incurred from our commercial leasing project financing and CDD debt.
Other income, net for the six months ended June 30, 2020 includes a gain of $3.9 million on land contributed to our unconsolidated Sea Sound Apartments JV. Other income, net for the six months ended June 30, 2019 includes a gain of $1.5 million on land contributed to our unconsolidated Pier Park TPS JV. See Note 9, 4. Real Estate Joint Ventures for additional information. The six months ended June 30, 2019, included a $0.3 million gain on insurance recovery for the Pier Park Crossings JV related to Hurricane Michael. See Note 7. Hurricane Michael for additional information.
The total net rentable square feet and percentage leased of leasing properties by location are as follows:
| | | | | | | | | | | | |
| | | | June 30, 2020 | | | December 31, 2019 | | ||||
|
| |
| Net |
| |
| | Net |
| | |
| | | | Rentable | | | | | Rentable | | | |
| | | | Square | | Percentage | | | Square | | Percentage | |
| | Location | | Feet | | Leased | | | Feet | | Leased | |
Pier Park North JV |
| Bay County, FL |
| 320,310 |
| 95 | % | | 320,310 |
| 95 | % |
VentureCrossings |
| Bay County, FL |
| 303,605 |
| 80 | % | | 303,605 |
| 80 | % |
Beckrich Office Park (1) |
| Bay County, FL |
| 86,296 |
| 76 | % | | 68,398 |
| 100 | % |
WindMark Beach Commercial (1) (2) |
| Gulf County, FL |
| 44,748 |
| 67 | % | | 48,960 |
| 48 | % |
SouthWood Town Center (1) (3) |
| Leon County, FL |
| N/A | | N/A | % | | 34,230 |
| 80 | % |
WaterColor Town Center (1) |
| Walton County, FL |
| 19,596 |
| 100 | % | | 20,033 |
| 96 | % |
Cedar Grove Commerce Park (4) | | Bay County, FL | | 19,329 | | 80 | % | | N/A | | N/A | % |
Port St. Joe Commercial |
| Gulf County, FL |
| 15,524 |
| 100 | % | | 15,524 |
| 100 | % |
Beach Commerce Park (1) |
| Bay County, FL |
| 18,113 |
| 51 | % | | 14,700 |
| 100 | % |
SummerCamp Commercial |
| Franklin County, FL |
| 13,000 |
| - | % | | 13,000 |
| 0 | % |
South Walton Commerce Park | | Walton County, FL | | 11,570 | | 79 | % | | 11,534 | | 82 | % |
WaterSound Gatehouse (1) |
| Walton County, FL |
| 10,271 |
| 100 | % | | 11,515 |
| 89 | % |
WaterColor Crossings | | Walton County, FL | | 7,135 | | 100 | % | | 7,135 | | 100 | % |
395 Office building |
| Walton County, FL |
| 6,700 |
| 100 | % | | 6,700 |
| 100 | % |
Watersound Origins Commercial (5) | | Walton County, FL | | 6,496 | | 100 | % | | N/A | | N/A | % |
Pier Park outparcel |
| Bay County, FL |
| 5,565 |
| 100 | % | | 5,565 |
| 100 | % |
Topsail West (6) | | Walton County, FL | | 3,500 | | 100 | % | | N/A | | N/A | % |
Capital City Bank building (7) | | Bay County, FL | | 3,346 | | 100 | % | | N/A | | N/A | % |
WaterColor HOA Office |
| Walton County, FL |
| 2,520 |
| 100 | % | | 1,244 |
| 100 | % |
|
|
|
| 897,624 |
| 85 | % | | 882,453 |
| 86 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||||
|
|
|
| Net |
|
|
|
| Net |
|
|
|
|
|
|
| Rentable |
|
|
|
| Rentable |
|
|
|
|
|
|
| Square |
| Percentage |
|
| Square |
| Percentage |
|
|
| Location |
| Feet |
| Leased |
|
| Feet |
| Leased |
|
Pier Park North JV |
| Bay County, FL |
| 320,310 |
| 96 | % |
| 320,310 |
| 96 | % |
VentureCrossings |
| Bay County, FL |
| 243,605 |
| 100 | % |
| 243,605 |
| 100 | % |
Beckrich Office Park |
| Bay County, FL |
| 67,108 |
| 91 | % |
| 67,108 |
| 96 | % |
WindMark Beach Commercial (1) |
| Gulf County, FL |
| 49,260 |
| 56 | % |
| 49,260 |
| 56 | % |
SouthWood Town Center (2) |
| Leon County, FL |
| 34,230 |
| 85 | % |
| 34,230 |
| 85 | % |
WaterColor Town Center (2) (3) |
| Walton County, FL |
| 21,200 |
| 100 | % |
| 21,200 |
| 100 | % |
Port St. Joe Commercial |
| Gulf County, FL |
| 15,524 |
| 100 | % |
| 15,524 |
| 100 | % |
Beach Commerce Park |
| Bay County, FL |
| 14,700 |
| 100 | % |
| 14,700 |
| 100 | % |
SummerCamp Commercial |
| Franklin County, FL |
| 13,000 |
| 0 | % |
| 13,000 |
| 0 | % |
South Walton Commerce Park |
| Walton County, FL |
| 11,570 |
| 53 | % |
| — |
| — | % |
WaterSound Gatehouse (2) (4) |
| Walton County, FL |
| 11,515 |
| 88 | % |
| 13,049 |
| 100 | % |
WaterColor Crossings |
| Walton County, FL |
| 7,135 |
| 100 | % |
| 7,135 |
| 100 | % |
395 Office building |
| Walton County, FL |
| 6,700 |
| 100 | % |
| 6,700 |
| 100 | % |
Pier Park outparcel |
| Bay County, FL |
| 5,565 |
| 100 | % |
| 5,565 |
| 100 | % |
WaterColor HOA Office (5) |
| Walton County, FL |
| 1,244 |
| 100 | % |
| 1,244 |
| 100 | % |
|
|
|
| 822,666 |
| 92 | % |
| 812,630 |
| 93 | % |
| (1) |
|
|
| In addition to net rentable square feet there is also space that we occupy or that serves as common area. |
| (2) |
|
|
| (3) | In January 2020, we sold the |
| (4) | In 2020 we completed construction of a flex space building. |
| (5) | In 2020 we completed construction of a healthcare facility, for which we have a long term lease. |
| (6) | In 2020 we completed construction of a First Watch: The Daytime Café restaurant building, for which we have a long term lease. |
| (7) | In the first quarter of |
|
|
64
|
|
Total units and percentage leased for apartments and assisted living communities by location are as follows:
| | | | | | | | | | | | | | | | |
| | | | | | June 30, 2020 | | December 31, 2019 | ||||||||
| | | | | | | | | | Percentage | | | | | | Percentage |
| | | | | | | | | | Leased | | | | | | Leased |
|
| |
| Units |
| Units | | Units | | of Units | | Units | | Units | | of Units |
| | Location | | Planned | | Completed | | Leased | | Completed | | Completed | | Leased | | Completed |
Apartments | | | | | | | | | | | | | | | | |
Pier Park Crossings (1) | | Bay County, FL | | 240 | | 240 | | 240 | | 100% | | 216 | | 216 | | 100% |
Pier Park Crossings Phase II (2) | | Bay County, FL | | 120 | | — | | — | | N/A | | — | | — | | N/A |
Watersound Origins Crossings (3) | | Walton County, FL | | 217 | | — | | — | | N/A | | — | | — | | N/A |
Sea Sound (4) | | Bay County, FL | | 300 | | — | | — | | N/A | | N/A | | N/A | | N/A |
Total apartment units | | | | 877 | | 240 | | 240 | | 100% | | 216 | | 216 | | 100% |
Assisted living communities | | | | | | | | | | | | | | | | |
Watercrest Santa Rosa Beach Assisted Living and Memory Care (5) | | Walton County, FL | | 107 | | — | | — | | N/A | | — | | — | | N/A |
Total assisted living community units | | | | 107 | | — | | — | | N/A | | — | | — | | N/A |
Total units | | | | 984 | | 240 | | 240 | | 100% | | 216 | | 216 | | 100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | ||||||
|
|
|
|
|
|
|
|
|
| Percentage |
|
|
|
|
|
|
|
|
|
| Leased |
|
|
|
| Units |
| Units |
| Units |
| of Units |
|
| Location |
| Planned |
| Completed |
| Leased |
| Completed |
Pier Park Crossings (1) |
| Bay County, FL |
| 240 |
| 96 |
| 87 |
| 91% |
Origins Crossings (2) |
| Walton County, FL |
| 217 |
| — |
| — |
| N/A |
|
|
|
| 457 |
| 96 |
| 87 |
| 91% |
| (1) |
|
| (2) | Construction began in the |
| (3) |
| Construction began in the second quarter of 2019. |
| (4) | Construction began in the first quarter of 2020. The Sea Sound Apartments JV is unconsolidated and is accounted for under the equity method of accounting. |
| (5) | Construction began in the second quarter of 2019. |
56
Forestry
The table below sets forth the results of operations of our forestry segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
|
| In millions |
| ||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Timber revenue |
| $ | 0.7 |
| $ | 1.9 |
| $ | 1.3 |
| $ | 3.5 |
|
Real estate revenue - other rural land revenue |
|
| 1.2 |
|
| 0.7 |
|
| 1.3 |
|
| 0.9 |
|
Leasing revenue |
|
| 0.2 |
|
| 0.2 |
|
| 0.4 |
|
| 0.4 |
|
Total revenue |
|
| 2.1 |
|
| 2.8 |
|
| 3.0 |
|
| 4.8 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of timber revenue |
|
| 0.2 |
|
| 0.2 |
|
| 0.3 |
|
| 0.4 |
|
Cost of real estate revenue - other rural land revenue |
|
| 0.1 |
|
| 0.1 |
|
| 0.1 |
|
| 0.2 |
|
Other operating expenses |
|
| 0.1 |
|
| 0.1 |
|
| 0.2 |
|
| 0.2 |
|
Depreciation and depletion |
|
| — |
|
| 0.2 |
|
| 0.1 |
|
| 0.3 |
|
Total expenses |
|
| 0.4 |
|
| 0.6 |
|
| 0.7 |
|
| 1.1 |
|
Income before income taxes |
| $ | 1.7 |
| $ | 2.2 |
| $ | 2.3 |
| $ | 3.7 |
|
The total tons sold and relative percentage of total tons sold by major type of timber revenue are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
|
| ||||||||||||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
|
| Three Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||||||||||||||
| | 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| | |||||||||||||||||||||||||||
Pine pulpwood |
| 6,000 |
| 19.4 | % | 65,000 |
| 58.0 | % |
| 12,000 |
| 19.7 | % | 135,000 |
| 63.1 | % |
|
| 62,000 |
| 59.0 | % | 6,000 |
| 19.4 | % |
| 104,000 |
| 54.5 | % | 12,000 |
| 19.7 | % |
|
Pine sawtimber |
| 4,000 |
| 12.9 | % | 38,000 |
| 33.9 | % |
| 6,000 |
| 9.8 | % | 63,000 |
| 29.4 | % |
|
| 27,000 |
| 25.7 | % | 4,000 |
| 12.9 | % |
| 53,000 |
| 27.7 | % | 6,000 |
| 9.8 | % |
|
Pine grade logs |
| 8,000 |
| 25.8 | % | 9,000 |
| 8.1 | % |
| 13,000 |
| 21.3 | % | 15,000 |
| 7.0 | % |
|
| 9,000 |
| 8.6 | % | 8,000 |
| 25.8 | % |
| 21,000 |
| 11.0 | % | 13,000 |
| 21.3 | % |
|
Other |
| 13,000 |
| 41.9 | % | — |
| — | % |
| 30,000 |
| 49.2 | % | 1,000 |
| 0.5 | % |
|
| 7,000 |
| 6.7 | % | 13,000 |
| 41.9 | % |
| 13,000 |
| 6.8 | % | 30,000 |
| 49.2 | % |
|
Total |
| 31,000 |
| 100.0 | % | 112,000 |
| 100.0 | % |
| 61,000 |
| 100.0 | % | 214,000 |
| 100.0 | % |
|
| 105,000 |
| 100.0 | % | 31,000 |
| 100.0 | % |
| 191,000 |
| 100.0 | % | 61,000 |
| 100.0 | % |
|
Three months ended June 30, 2019 Compared to the Three months ended June 30, 2018
Timber revenue decreased by $1.2 million, or 63.2%, during the three months ended June 30, 2019, as compared to the same period in 2018. The decrease is primarily due to a decrease in the amount of tons sold and product mix changes caused by Hurricane Michael’s significant market impact since landfall in October 2018. There were 31,000 tons sold during the three months ended June 30, 2019, as compared to 112,000 tons sold during the same period in 2018. The average price per ton sold increased to $16.06 during the three months ended June 30, 2019, as compared to $15.64 during the same period in 2018. Gross margin decreased during the three months ended June 30, 2019, to 71.4%, as compared to 89.5% during the same period in 2018, primarily due to decreases in volume and changes in product mix.
During the three months ended June 30, 2019, we sold approximately 34 acres of rural and timber land for $1.2 million, resulting in a gross profit margin of approximately 91.7%. During the three months ended June 30, 2018, we sold approximately 77 acres of rural and timber land for $0.7 million, resulting in a gross profit margin of approximately 85.7%.
Leasing revenue consists primarily of hunting leases, which is recognized as income over the term of each lease.
Other operating expenses include salaries and benefits, property taxes, professional fees and other administrative expenses.
Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018
Timber revenue decreased by $2.2 million, or 62.9%, during the six months ended June 30, 2019, as compared to the same period in 2018. The decrease is primarily due to a decrease in the amount of tons sold, along with price decreases and product mix changes caused by Hurricane Michael’s significant market impact since landfall in October
57
2018. There were 61,000 tons sold during the six months ended June 30, 2019, as compared to 214,000 tons sold during the same period in 2018. The average price per ton sold decreased to $14.42 during the six months ended June 30, 2019, as compared to $15.44 during the same period in 2018. Gross margin decreased during the six months ended June 30, 2019, to 76.9%, as compared to 88.6% during the same period in 2018, primarily due to decreases in sales price and volume.
During the six months ended June 30, 2019, we sold approximately 54 acres of rural and timber land for $1.3 million, resulting in a gross profit margin of approximately 92.3%. During the six months ended June 30, 2018, we sold approximately 94 acres of rural and timber land for $0.9 million, resulting in a gross profit margin of approximately 77.8%.
Leasing revenue consists primarily of hunting leases, which is recognized as income over the term of each lease.
Other operating expenses include salaries and benefits, property taxes, professional fees and other administrative expenses.
Liquidity and Capital Resources
As of June 30, 2019,2020, we had cash and cash equivalents of $195.6$106.0 million, compared to $195.2$185.7 million as of December 31, 2018.2019. During the first quarter of 2020, we purchased $49.9 million of U.S. Treasury Bills, in lieu of commercial paper. Our cash and cash equivalents atas of June 30, 20192020 includes commercial paper$87.0 million of $154.2 million, short term U.S.U. S. Treasury securities of $7.0 million and $1.8 million of money market funds. In addition to cash and cash equivalents, we consider our investments classified as available-for-sale securities and equity securities (“Securities”), as being generally available to meet our liquidity needs. Securities are not as liquid as cash and cash equivalents, but they are generally convertible into cash within a relatively short period of time. As of June 30, 2019,2020, we had investments - debt securities in U. S. Treasury Bills of $49.9 million and corporate debt securities of $2.8less than $0.1 million and investments - equity securities in preferred stock investments of $36.3 million. As of December 31, 2018, we had investments - debt securities in U.S. Treasury securities of $6.9 million and corporate debt securities of $2.0 million and investments - equity securities in preferred stock investments of $36.1$2.4 million. See Note 4. 5. Investments, for additional information regarding our investments.
We believe that our current cash position, and our anticipated cash flows from cash equivalents, short term investmentsfinancing arrangements and cash generated from operations will provide us with sufficient liquidity to satisfy our anticipated working capital needs, expected capital expenditures, principal and interest payments on our long term debt, capital contributions to JVs, Latitude Margaritaville Watersound JV Note commitment and authorized stock repurchases for the next twelve months.
65
However, we are continuing to monitor the COVID-19 pandemic and its impact on our business, customers, tenants, and industry as a whole. See Part II. Item 1A. Risk Factors.
During the six months ended June 30, 2019,2020, we incurred a total of $48.6$83.2 million for capital expenditures, which includes $12.9$14.6 million related to the acquisition and development in our residential real estate communities, $23.7$48.8 million for our commercial leasing and sales segment, $10.8$19.4 million related to our hospitality segment and $1.2$0.4 million related primarily to our forestry segment and corporate expenditures. As of June 30, 2019,2020, we had a total of $96.9$134.9 million in construction and development related contractual obligations, of which a portion will be funded through committed financing arrangements.
In October 2015, the Pier Park North JV entered into a $48.2 million loan. As of June 30, 20192020 and December 31, 2018, $46.02019, $45.0 million and $46.4$45.5 million, respectively, was outstanding on the PPN JV Loan. The PPN JV Loan accrues interest at a rate of 4.1% per annum and matures in November 2025. In connection with the PPN JV Loan, we entered into a limited guarantee in favor of the lender, based on our percentage ownership of the JV. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the Pier Park North JV; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary bankruptcy or insolvency proceedings and upon breach of covenants in the security instrument. See Note 10. Debt, Net for additional information.
In May 2018, the Pier Park Crossings JV entered into a $36.6 million loan, insured by HUD, to finance the construction of apartments in Panama City Beach, Florida. As of June 30, 20192020 and December 31, 2018, $24.62019, $35.7 million and $15.4$34.6 million, respectively, was outstanding on the PPC JV Loan. The PPC JV Loan accrues interest at a rate of 4.0% per annum and matures in June 2060. The PPC JV Loan may not be prepaid prior toFrom July 1, 2020. From July 1,
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2020 through June 30, 2030, a prepayment premium is due to the lender of 1.0% - 10.0% of any principal prepaid. The PPC JV Loan is secured by the Pier Park Crossings JV’s real property and the assignment of rents and leases. See Note 10. Debt, Net for additional information.
In May 2019, the Watersound Origins Crossings JV entered into a $37.9 million loan. As of June 30, 2020 and December 31, 2019, there$14.3 million and $2.9 million, respectively, was no principal balance outstanding on the Watersound Origins Crossings JV Loan. The Watersound Origins Crossings JV Loan bears interest at a rate of 5.0% and matures in May 2024. The Watersound Origins Crossings JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Watersound Origins Crossings JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Watersound Origins Crossings JV Loan. We are the sole guarantor and will receive a monthly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. See Note 10. Debt, Net for additional information.
In June 2019, the Watercrest JV entered into a $22.5 million loan. As of June 30, 2020, $8.6 million was outstanding on the Watercrest JV Loan. As of December 31, 2019, there was no principal balance outstanding on the Watercrest JV Loan. The Watercrest JV Loan bears interest at a rate of LIBOR plus 2.2% and matures in June 2047. The Watercrest JV Loan is secured by the real property, assignment of rents, leases and deposits and the security interest in the rents and personal property. In connection with the Watercrest JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Watercrest JV Loan. We are the sole guarantor and will receive a quarterly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. WeThe Watercrest JV entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amount of related debt of $20.0 million to a rate of 4.37%. See Item 3. Quantitative and Qualitative Disclosures about Market Risk for additional information regarding LIBOR related risks. Also see Note 10. Debt, Net for additional information.
In August 2019, a wholly owned subsidiary of ours entered into a $5.5 million loan. As of June 30, 2020, $3.6 million was outstanding on the Beckrich Building III Loan. As of December 31, 2019, there was no principal balance outstanding on the Beckrich Building III Loan. The Beckrich Building III Loan bears interest at a rate of LIBOR plus 1.7% and matures in August 2029. The Beckrich Building III Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Beckrich Building III Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Beckrich Building III Loan. See Note 10. Debt, Net for additional information.
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In October 2019, the Pier Park Crossings Phase II JV entered into a $17.5 million loan. As of June 30, 2020, $5.2 million was outstanding on the PPC II JV Loan. As of December 31, 2019, there was no principal balance outstanding on the PPC II JV Loan. The PPC II JV Loan matures in October 2024 and bears interest at a rate of LIBOR plus 2.25% during construction and LIBOR plus 2.10% after completion of construction and final draw. The PPC II JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the PPC II JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the PPC II JV Loan. We are the sole guarantor and will receive a monthly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. See Note 10. Debt, Net for additional information.
In March 2020, a wholly owned subsidiary of ours entered into a $15.3 million loan. As of June 30, 2020, there was no principal balance outstanding on the Airport Hotel Loan. The Airport Hotel Loan bears interest at LIBOR plus 2.0% and matures in March 2025. The Airport Hotel Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Airport Hotel Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Airport Hotel Loan. See Note 10. Debt, Net for additional information.
In April 2020, the Pier Park Resort Hotel JV entered into a loan with an initial amount of $52.5 million up to a maximum of $60.0 million through additional earn-out requests. As of June 30, 2020, there was no principal balance outstanding on the Pier Park Resort Hotel JV Loan. The Pier Park Resort Hotel JV Loan matures in March 2027 and bears interest at a rate of LIBOR plus 2.15% during construction and LIBOR plus 1.95% upon hotel opening. The Pier Park Resort Hotel JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the Pier Park Resort Hotel JV Loan, as guarantor, we and our JV partner entered into a guarantee based on each partner’s ownership interest in favor of the lender, to guarantee the payment and performance of the borrower. As guarantor, our liability under the Pier Park Resort Hotel JV Loan will be released upon reaching and maintaining certain debt service coverage for twelve months. In addition, the guarantee can become full recourse in the case of the failure of guarantor to abide by or perform any of the covenants or warranties to be performed on the part of such guarantor. See Note 10. Debt, Net for additional information.
CDD bonds financed the construction of infrastructure improvements in some of our communities. The principal and interest payments on the bonds are paid by assessments on the properties benefited by the improvements financed by the bonds. We have recorded a liability for CDD debt that is associated with platted property, which is the point at which it becomes fixed or determinable. Additionally, we have recorded a liability for the balance of the CDD debt that is associated with unplatted property if it is probable and reasonably estimable that we will ultimately be responsible for repayment. We have recorded CDD related debt of $7.0$6.1 million as of June 30, 2019.2020. Total outstanding CDD debt related to our land holdings was $18.9$17.0 million at June 30, 2019,2020, which was comprised of $15.8$14.1 million at SouthWood, $2.6$2.5 million at the existing Pier Park retail center and $0.5$0.4 million at Wild Heron. We pay interest on this total outstanding CDD debt.
During the six months ended June 30, 20192020 and 2018,2019, we repurchased a total of 471,500532,034 and 4,065,160471,500 shares, respectively, of our common stock outstanding for an aggregate purchase price of $7.1$8.8 million and $72.5$7.1 million, respectively, including costs. See Note 14. Stockholders’ Equity and Part II – Other Information – Item 2 of this quarterly report for additional information regarding common stock repurchases related to the Stock Repurchase Program.
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Summary of Cash Flows
A summary of our cash flows from operating, investing and financing activities are as follows:
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| 2019 |
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| Six Months Ended June 30, |
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| In millions |
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Net cash provided by operating activities |
| $ | 12.3 |
| $ | 37.7 |
| | $ | 12.5 | | $ | 12.3 | |
Net cash (used in) provided by investing activities |
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| (14.7) |
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| 56.0 |
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Net cash provided by (used in) financing activities |
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| 3.0 |
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| (67.9) |
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Net increase in cash, cash equivalents and restricted cash |
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| 0.6 |
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| 25.8 |
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Net cash used in investing activities | |
| (111.6) | |
| (14.7) | | |||||||
Net cash provided by financing activities | |
| 20.3 | |
| 3.0 | | |||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | |
| (78.8) | |
| 0.6 | | |||||||
Cash, cash equivalents and restricted cash at beginning of the period |
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| 198.1 |
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| 192.5 |
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| 188.7 | |
| 198.1 | |
Cash, cash equivalents and restricted cash at end of the period |
| $ | 198.7 |
| $ | 218.3 |
| | $ | 109.9 | | $ | 198.7 | |
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Cash Flows from Operating Activities
Cash flows provided by operating activities include costs related to assets ultimately planned to be sold, including residential real estate development and related amenities, sales of timberlands or undeveloped and developed land and land developed by the commercial leasing and sales segment. Net cash provided by operations was $12.3$12.5 million during the six months ended June 30, 2019,2020, as compared to net cash provided by operations of $37.7$12.3 million during the same period in 2018. Net cash provided by operations included $23.1 million of RiverTown impact fees received during the six months ended June 30, 2018.2019.
Cash Flows from Investing Activities
Cash flows (used in) provided byused in investing activities primarily includes capital expenditures for operating property and property and equipment used in our operations and purchases of investments, partially offset by maturities and sales of investments, maturities of assets held by SPEs and proceeds from insurance claims, proceeds fromclaims. During the dispositionsix months ended June 30, 2020, net cash used in investing activities was $111.6 million, which included capital expenditures for operating property and equipment, purchases of assets,investments $56.9 million, partially offset by maturities of investments of $7.0 million, sales of investments of $3.7 million and maturities of assets held by SPEs.SPEs of $0.4 million. During the six months ended June 30, 2019, net cash used in investing activities was $14.7 million, which included capital expenditures for operating property and equipment, and purchases of investments of less than $0.1 million, partially offset by proceeds from insurance claims of $10.8 million, maturities of investments – debt securities of $7.0 million, sales of restricted investments of $1.2 million and maturities of assets held by SPEs of $0.4 million. During the six months ended June 30, 2018, net cash provided by investing activities was $56.0 million, which included sales of investments - debt securities of $63.5 million, sales of investments – equity securities of $7.3 million, proceeds from the disposition of assets of $5.0 million, sales of restricted investments of $1.1 million and maturities of assets held by SPEs of $0.4 million, partially offset by purchases of investments - equity securities of $10.4 million and capital expenditures for operating property and equipment.million.
Capital expenditures for operating property and property and equipment were $34.0$65.8 million and $10.9$34.0 million, during the six months ended June 30, 20192020 and 2018,2019, respectively, which were primarily for our commercial leasing and sales and hospitality segments.
Cash Flows from Financing Activities
Net cash provided by financing activities during the six months ended June 30, 20192020 was $3.0$20.3 million compared to net$3.0 million during the same period in 2019. Net cash used inprovided by financing activities during the six months ended June 30, 20182020 included borrowings on debt of $67.9$29.9 million and capital contribution from non-controlling interest of $5.1 million, partially offset by the repurchase of common stock of $8.8 million, capital contribution to unconsolidated affiliate of $3.3 million, debt issuance costs of $1.5 million and principal payments on debt of $1.1 million. Net cash provided by financing activities during the six months ended June 30, 2019 included borrowings on debt of $10.6 million and capital contribution from non-controlling interest of $1.8 million, partially offset by the repurchase of our common stock of $7.1 million, principal payments on debt of $1.0 million, debt issuance costs of $0.8 million, capital contribution to unconsolidated affiliate of $0.3 million and capital distribution to non-controlling interest of $0.2 million. Net cash used in financing activities during the six months ended June 30, 2018 included the repurchase of our common stock of $72.5 million, debt issuance costs of $1.1 million and principal payments on debt of $0.9 million, partially offset by borrowings on debt of $5.7 million and capital contribution from non-controlling interest of $0.9 million.
Off-Balance Sheet Arrangements
As of June 30, 20192020 and December 31, 2018,2019, we had various loans outstanding for which we have entered into guarantees and are required to comply with financial covenants. See Note 10. Debt, Net. for additional information.
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In January 2020, our unconsolidated Sea Sound Apartments JV, entered into a $40.3 million loan. The Sea Sound Apartments JV Loan bears interest at LIBOR plus 2.15% and matures in January 2024. As of June 30, 2020, there was no principal balance outstanding on the Sea Sound Apartments JV Loan. The Sea Sound Apartments JV Loan is secured by the real property, all assets of the borrower, assignment of leases and rents and the security interest in the rents and personal property. In connection with the Sea Sound Apartments JV Loan, as guarantor, our JV partner entered into a guarantee in favor of the lender, to guarantee the payment and performance of the borrower. Our JV partner is the sole guarantor and will receive a fee related to the guarantee from us based on our ownership percentage.
In January 2019, our unconsolidated Pier Park TPS JV, entered into a $14.4 million loan, maturingloan. As of June 30, 2020 and December 31, 2019, $13.3 million and $6.8 million, respectively, was outstanding on the Pier Park TPS JV Loan. The Pier Park TPS JV Loan bears interest at LIBOR plus 2.5% and matures in January 2026. The Pier Park TPS JV entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap is effective January 14, 2021 and matures on January 14, 2026 and fixed the variable rate debt on the notional amount of related debt of $14.4 million to a rate of 5.21%. The Pier Park TPS JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Pier Park TPS JV Loan, as guarantor we, and a wholly owned subsidiary of ours and our JV partner entered into a joint and several guarantee in favor of the lender, to guarantee the payment and performance of the borrower. As guarantor, our liability under the Pier Park TPS JV Loan will be automatically reduced to 50.0%, or a further 25.0% of the outstanding principal balance upon reaching and maintaining certain debt service coverage. See Note 18. Commitments and Contingencies for additional information.
In November 2019, our unconsolidated Busy Bee JV, entered into a $5.4 million construction loan maturing in November 2035 and a $1.2 million equipment loan maturing in November 2027. As of June 30, 2020 and December 31, 2019, $5.4 million and $1.4 million, respectively, was outstanding on the Busy Bee JV Construction Loan. As of June 30, 2020 and December 31, 2019, $1.0 million and less than $0.1 million, respectively, was outstanding on the Busy Bee JV Equipment Loan. The loans bear interest at LIBOR plus 1.5%. The loans are secured by the real and personal property, assignment of rents and leases and a security interest in the construction contract and management agreement. In connection with the Busy Bee JV Construction Loan and the Busy Bee JV Equipment Loan, as guarantor we, a wholly owned subsidiary of ours and our JV partner entered into a joint and several guarantee in favor of the lender, to guarantee the payment and performance of the borrower through substantial completion, which occurred on June 29, 2020. As guarantor, our liability under the loans upon substantial completion was reduced to 50.0% for a twelve month period. Subsequent to that time, our guarantee will be released upon request. Upon release of our guarantee, our JV partner will be the sole guarantor and will receive a fee related to the guarantee from us based on our ownership percentage. See Note 18. Commitments and Contingencies for additional information.
We have assessed the need to record a liability for the guarantees related to our unconsolidated JVs and did not record an obligation as of June 30, 2020 and December 31, 2019. As of June 30, 2020, allowance for credit losses related to the contingent aspect of these guarantees, based on historical experience and economic trends, was $0.1 million and is included within other liabilities on the condensed consolidated balance sheets.
As part of a timberland sale in 2007 and 2008, we have recorded a retained interest with respect to notes contributed to bankruptcy-remote qualified SPEs of $11.9$12.5 million for allthe installment notes monetized through June 30, 2019.2020. This balance represents the present value of future cash flows to be received over the life of the installment notes, using
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management’s best estimates of underlying assumptions, including credit risk and interest rates as of the date of the monetization, plus the accretion of investment income based on an effective yield, which is recognized over the term of the notes, less actual cash receipts.
At bothAs of June 30, 20192020 and December 31, 2018,2019, we were required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and mitigation banks of $9.4$19.7 million and $10.7 million, respectively, as well as a standby letter of credit in the amount of $1.9 million as of June 30, 2020, which may potentially result in a liability to us if certain obligations are not met.
In conducting our operations, we routinely hold customers’ assets in escrow pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. These amounts are maintained in segregated bank accounts and have not been included in the accompanying condensed consolidated
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balance sheets, consistent with GAAP and industry practice. The cash deposit accounts and offsetting liability balances for escrow deposits in connection with our title agency real estate transactions were $2.2$4.6 million and $1.6$4.3 million as of June 30, 20192020 and December 31, 2018,2019, respectively, these escrow funds are not available for regular operations.
Contractual Obligations
There were no material changes outside the ordinary course of our business in our contractual obligations during the second quarter of 2019.2020.
Forward-Looking Statements
This quarterly report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements include, among other things, information about possible or assumed future results of the business and our financial condition, liquidity, results of operations, plans, strategies, prospects and objectives. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue" or other similar expressions concerning matters that are not historical facts. Specifically, this quarterly report contains forward-looking statements regarding:
| the potential impacts of the ongoing COVID-19 pandemic; |
● | our expectations concerning our future business strategy, including |
| ● | our expectations concerning the |
| ● | our ability to develop and sell homesites in a typical manner or |
| our intention to use our land holdings, our cash and cash equivalents and our investments to increase recurring revenue while creating long-term value for our shareholders; |
| our expectations regarding investments that we believe will contribute towards increasing our future growth, particularly in real estate projects that provide recurring revenue; |
| our |
| our assessment and expectations regarding the demographics and corresponding market demand and growth of Northwest Florida; |
| our assessment and expectations regarding the impact of Hurricane Michael, including the amount and timing of insurance proceeds and ability to recover |
| our expectations regarding the amount and timing of revenue we expect to realize upon closing over the life of the residential homesites under contract; |
| our expectations regarding homesite sales and timing of sales |
| our beliefs regarding opportunities to develop, improve or acquire a broad range of asset types that will generate recurring revenue; |
| our plan to focus on investing in residential communities that have the potential for long term, scalable and repeatable revenue; |
| our expectation to continue to be a developer of completed residential homesites for sale to builders and retail homesites for sale to consumers in our communities; |
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| our intention to form additional JVs with third parties for the development of commercial |
| our plan to expand the scope and scale of our hospitality assets and services in order to enhance the value and contribution those assets provide; |
| ● | our expectations regarding our assisted or independent living communities; |
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| our intention to continue to work collaboratively with public and private partners on strategic infrastructure and economic development initiatives that will help to attract quality job creators and help to diversify the Northwest Florida economy; |
| our expectations regarding opportunities near the Northwest Florida Beaches International Airport and our other land holdings in Northwest Florida; |
| our belief that by entering into partnerships, JVs or other collaborations and alliances with best of class operators, we can efficiently utilize our land assets while reducing our capital requirements; |
| our expectation to continue a cost and investment discipline to ensure low fixed expenses and bottom line performance; |
| our plan to continue to maintain a high degree of liquidity while seeking opportunities to invest our cash in ways that we believe will increase shareholder value, including investments in Securities, share repurchases, real estate and other strategic investments; |
| our expectation regarding our liquidity or ability to satisfy our working capital needs, expected capital expenditures and principal and interest payments on our long term debt; |
| our estimates and assumptions regarding the installment notes and the Timber Note; |
| our estimated impact of new accounting pronouncements; and |
| our expectation regarding the impact of pending litigation, claims, other disputes or governmental proceedings, on our cash flows, financial condition or results of operations. |
These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, those risk factors and disclosures set forth in our Form 10‑K10-K for the year ended December 31, 2018,2019, subsequent Form 10‑Qs,10-Qs, other current reports, and the following:
| disruptions by an epidemic or pandemic (such as the ongoing COVID-19 pandemic), or similar public threat, or fear of such an event, and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities have implemented and may continue to implement, as well as additional measures to address it; |
● | any changes in our strategic objectives or our ability to successfully implement such strategic |
| any potential negative impact of our longer-term property development strategy, including losses and negative cash flows for an extended period of time if we continue with the self-development of our entitlements; |
| our ability and the ability of our investment advisor to identify and acquire suitable investments for our investment portfolio that meet our risk and return criteria; |
| significant decreases in the market value of our investments in Securities or any other investments; |
| our ability to capitalize on strategic opportunities presented by a |
| our ability to accurately predict market demand for the range of potential residential and commercial uses of our real estate |
| volatility in the consistency and pace of our residential real estate revenue; |
| economic or other conditions that affect the future prospects for the Southeastern region of the U.S. and the demand for our products, including a slowing of the population growth in Florida, inflation, or unemployment rates or declines in consumer confidence or the demand for, or the prices of, housing; |
| any downturns in real estate markets in Florida or across the nation; |
| any reduction in the supply of mortgage loans or tightening of credit markets; |
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| our dependence on the real estate industry and the cyclical nature of our real estate operations; |
| the impact of natural or man-made disasters or weather conditions, including hurricanes, fires and other severe weather conditions, on our business, including the |
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| our ability to fully recover under claims for losses related to Hurricane Michael; |
| our ability to successfully and timely obtain land use entitlements and construction financing, maintain compliance with state law requirements and address issues that arise in connection with the use and development of our land, including the permits required; |
| changes in laws, regulations or the regulatory environment affecting the development of real estate; |
| our ability to effectively deploy and invest our assets, including our Securities; |
| our ability to effectively manage our real estate assets, as well as the ability of our JV partners to effectively manage the day-to-day activities of our JV projects; |
| our ability to close and realize the expected revenue of the residential homesites currently under contract; |
| our ability to successfully and timely complete homesite construction in our new |
| ● | our ability to |
| our ability to attract and work effectively with strategic partners; |
| our ability to successfully enter into previously announced potential JVs; |
| our ability to realize the anticipated benefits of our acquisitions, JVs, investments in leasable spaces and operations and share repurchases; |
| our ability to carry out the Stock Repurchase Program in accordance with applicable securities laws; |
| our ability to fully realize benefits of the federal QOZ Program; |
● | the impact of the Tax Act and other changes in federal or state tax laws on our business and financial condition; |
| increases in operating costs, including costs related to real estate taxes, owner association fees, construction materials, labor and insurance and our ability to manage our cost structure; |
| the sufficiency of our current cash position, anticipated cash flows from cash equivalents and short term investments and cash generated from operations to satisfy our anticipated working capital needs, capital expenditures and principal and interest payments; |
| our ability to anticipate the impact of pending environmental litigation matters or governmental proceedings on our financial condition or results of operations; |
| the expense, management distraction and possible liability associated with litigation, claims, other disputes or governmental proceedings; |
| Fairholme’s ability to influence major corporate decisions affecting the Company; |
| potential liability under environmental or construction laws, or other laws or regulations; |
| the impact if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting; |
| the impact if the SEC were to disagree with our Investment Company Act determinations; |
| our ability to retain key personnel and recruit staff effectively; and |
|
|
| our ability to successfully estimate the impact of certain accounting and tax matters that arise from the installment notes and the Timber |
| ● | our ability to satisfy our current debt obligations and to obtain additional financing in the future; |
| ● | uncertainty about the future of LIBOR may adversely affect our business and financial results; and |
| ● | the obligations associated with being a public company require significant resources and management attention. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks primarily from interest rate risk fluctuations. We have investments in U.S. Treasury Bills and corporate debt securities that have fixed interest rates for which changes in interest rates generally affect the fair value of the investment, but not the earnings or cash flows. A hypothetical 100 basis point increase in interest rates
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would result in a decrease of less than $0.1$0.3 million in the market value of these investments as of June 30, 2019.2020. Any realized gain or loss resulting from such interest rate changes would only occur if we sold the investments prior to maturity or if a decline in their value is determined to be other-than-temporary.related to credit loss. In addition, our investments in corporate debt securities are non-investment grade, which could affect their fair value.
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We also have investments in certain preferred stock that have fixed interest rates for which changes in interest rates generally affect the fair value of the investment and are recorded in the condensed consolidated statements of income. A hypothetical 100 basis point increase in interest rates would result in a decrease of approximately $0.9$0.1 million in the market value of these investments as of June 30, 2019.2020. In addition, our investments in certain preferred stock are non-investment grade, which could affect their fair value.
We have exposure to credit risk associated with our Securities and these instruments are subject to price fluctuations as a result of changes in the financial market’s assessment of issuer credit quality, increases in delinquency and default rates, changes in prevailing interest rates and other economic factors. A downgrade of the U.S. government’s credit rating may also decrease the value of our Securities. As of June 30, 2020, approximately 95% of our total Securities are rated AA or better.
Our cash and cash equivalents are invested in commercial paper and money market instruments. Changes in interest rates related to these investments would not significantly impact our results of operations. The amount of interest earned on one of our retained interest investments is based on LIBOR. A 100 basis point change in the interest rate may result in an insignificant change in interest earned on the investment.
The amount of interest expense on some of our construction loans are based on LIBOR. A 100 basis point change in the interest rate may result in an insignificant change in interest expense.
LIBOR is setexpected to be phased out atdiscontinued after 2021. Many of our current debt agreements have an interest rate tied to LIBOR. Most of these agreements provide for an alternative base rate in the end of 2021. Ifevent that LIBOR ceasesis discontinued, but not all do so. There can be no assurances as to exist, we may need to renegotiate our loan documents and we cannot predict what alternative index wouldbase rates may be negotiatedand whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to continue monitoring the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders. As a result,lenders to ensure any transition away from LIBOR will have minimal impact on our interest expense could increase.financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
Increases in interest rates, reductions in mortgage availability or the tax benefits of mortgage financing or residential ownership couldmay negatively impact our real estate business and would also increase the costs of our development projects. Similarly, a downturn in economic conditions in Northwest Florida would reduce discretionary income and decrease demand for our hospitality segment operations.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a‑15(e)13a-15(e) and 15d‑15(e)15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting. During the quarter ended June 30, 2019,2020, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
We are subject to a variety of litigation, claims, other disputes and governmental proceedings that arise from time to time in the ordinary course of our business, none of which we believe will have a material adverse effect on our consolidated financial position, results of operations or liquidity.
In addition, we are subject to environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. Refer to Note 18. Commitments and Contingencies, for further discussion.
A description of the risk factors associated with our business is contained in the “Risk Factors” section of our annual report on Form 10‑K10-K for the fiscal year ended December 31, 2018. There2019. Except as set forth below, as of the date of this report, there have been no material changes to our Risk Factors as previously reported.
Our business could be materially and adversely disrupted by an epidemic or pandemic (such as the ongoing COVID-19 pandemic), or similar public threat, or fear of such an event, and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities implement to address it.
An epidemic, pandemic or similar serious public health issue, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse impact on our results of operations, cash flows and financial condition.
On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and several states and municipalities have declared public health emergencies. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including quarantines, and “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.
Our hospitality operations have been, and may continue to be, disrupted by the impacts of COVID-19 and the federal, state and local government actions to address it. Beginning in mid-March 2020 we were forced to temporarily close, reduce capacity or alter the operations of several hospitality assets we own or operate, including the WaterColor Inn, WaterSound Inn, The Pearl Hotel, retail outlets, food and beverage operations and beach clubs due to implementation of social distancing. Our hospitality assets gradually reopened in May 2020, but continue to be impacted by reduced or altered operations, and could be ordered to close again. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Further, some guests may choose for a period of time not to travel or visit our properties for health concerns, which could lead to lower occupancy and lower room rates at our hotels or additional disruptions in our hospitality operations.
Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 result in, among other things, any of the following:
| ● | decrease consumer confidence generally or with respect to purchasing a home; |
| ● | continued decrease in business and leisure travel; |
| ● | significant decreases in the value of residential and/or commercial real estate; |
| ● | civil unrest; |
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| ● | prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products; |
| ● | impaired ability for us to develop and sell homesites in a typical manner or at all; |
| ● | labor shortages, particularly if an outbreak were to occur within one of our hotel or food and beverage operations; |
| ● | increased costs or decreased supply of building materials or the availability of subcontractors and other talent, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates to direct production activities to support public health efforts; |
| ● | increased operational costs related to work place safety and hygiene protocols; |
| ● | the inability of our third-party managers and franchisors to perform; |
| ● | the inability of our tenants to pay their rent when due; and |
| ● | reduced revenue and cash flows and/or access to the capital or lending markets (or significantly increased costs of doing so), which could lead to insufficient liquidity and inability to satisfy our anticipated working capital needs, expected capital expenditures and/or principal and interest payments on our long term debt. |
The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and difficult to forecast. Should any of the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we would expect to experience, among other things, material adverse impacts on our results of operations, cash flows and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’sOur Board has approved the Stock Repurchase Program pursuant to which we are authorized to repurchase shares of itsour common stock. The Stock Repurchase Program has no expiration date.
As of June 30, 2019,2020, we had a total authority of $35.8$77.4 million available for purchase of shares of our common stock pursuant to the Stock Repurchase Program. We may repurchase our common stock in open market purchases from time to time, in privately negotiated transactions or otherwise, pursuant to Rule 10b-18 under the Exchange Act. The timing and amount of any additional shares to be repurchased will depend upon a variety of factors, including market and business conditions.conditions and is subject to the Company maintaining $100.0 million in cash, cash equivalents and/or investments. Repurchases may be commenced or suspended at any time or from time to time without prior notice. The Stock Repurchase Program will continue until otherwise modified or terminated by our Board at any time in its sole discretion.
Execution of the Stock Repurchase Program will reduce our “public float”, and the beneficial ownership of common stock by its directors, executive officers and affiliates will proportionately increase as a percentage of our outstanding common stock as a result of the execution of the Stock Repurchase Program. However, we do not believe that the execution of the Stock Repurchase Program will cause our common stock to be delisted from NYSE or cause us to stop being subject to the periodic reporting requirements of the Exchange Act.
There were noThe following table provides information regarding repurchases of our common stock repurchases during each of the secondthree months in the quarter ended June 30, 2020:
| | | | | | | | | | |
|
| |
| | |
| Total Number of Shares |
| Maximum Dollar Value of | |
| | | | | | | Purchased as Part of | | Shares that May Yet Be | |
| | Total Number of | | Average Price | | Publicly Announced | | Purchased Under the | ||
Period | | Shares Purchased | | Paid per Share | | Plans or Programs | | Plans or Programs | ||
| | | | | | | | | In Millions | |
April 1-30, 2020 |
| 105,521 | | $ | 16.49 |
| 105,521 | | $ | 77.7 |
May 1-31, 2020 |
| 15,400 | |
| 16.62 |
| 15,400 | |
| 77.4 |
June 1-30, 2020 |
| — | |
| — |
| — | |
| — |
Total |
| 120,921 | | $ | 16.51 |
| 120,921 | | $ | 77.4 |
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Index to Exhibits
| | |
Exhibit | | |
Number |
| |
| ||
| Description | |
3.1 | | |
3.2 | | |
| ||
*31.1 | | Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
*31.2 | | Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
**32.1 | | |
**32.2 | | |
*101.INS | | Inline XBRL Instance Document. |
*101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
*101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
*101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
*101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
*101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan arrangement.
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* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | |
| | THE ST. JOE COMPANY |
| | (Registrant) |
| | |
| | |
Date: | July | /s/ Jorge Gonzalez |
| | Jorge Gonzalez |
| | President, Chief Executive Officer and Director |
| | (Principal Executive Officer) |
| | |
| | |
Date: | July | /s/ Marek Bakun |
| | Marek Bakun |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting Officer) |
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