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The St. Joe Company – a real estate investment trust (REIT) – reported its second-quarter 2013 earnings of 3 cents per share, beating the Zacks Consensus Estimate by a penny and above the break-even reported in the prior-year quarter.

For the second quarter of 2013, total revenue at St. Joe was $33.8 million, increasing 11.2% from the prior-year quarter. However, it came slightly below the Zacks Consensus Estimate of $35 million.

The results were driven by decent revenue from real-estate sales, resorts, leisure and leasing operations and timber business as well as lower expenses. However, a sluggish rate of commercial activity and lower timber volume slightly marred the positives.
 
Quarter in Detail

By segment, real estate sales revenues escalated 37.3% year over year to $7.0 million. An increase in the number of residential lots sold led to a 27.9% rise in residential revenues.

On the other hand, with St. Joe continuing to experience a tepid and intermittent pace of commercial activity, its commercial development revenue fell to $0.1 million from $0.6 million reported a year ago.  Moreover, with the company not pursuing rural land sales in the recent quarters, the revenue from it was essentially flat and immaterial.  

Revenues from resorts, leisure and leasing operations increased 9.0% year over year to $17.0 million. Higher average room rates, significant number of homes in its vacation rental business as well as the full-year effect of commercial leases that began during 2012 led to an uptick in the segment’s revenue.

Moreover, revenue from the timber business climbed 1.0% year over year to $9.8 million. While the company benefited from higher prices, a decline in the tons of timber delivered mostly dwarfed the positives. Notably, plant shutdowns or slowdown at a number of its customers' facilities on a temporary basis, led to a decline in the timber volume.

On the other hand, expenses registered a 1.5% decline from the prior-year quarter to $32.2 million. Lower pension expense and reduced real estate carrying costs primarily contributed to the decline.

Liquidity

St. Joe exited the quarter with $54.1 million of cash and cash equivalents (down from $168.7 million as of the prior-quarter end) and $26.5 million of pledged securities (slightly below from $26.7 million). Also, total debt outstanding was $38.2 million, up from $35.8 million as of the prior-quarter end.

Our Viewpoint

We are encouraged with the better-than-expected results at St. Joe. The company intends to make better use of its substantial land bank as it experiences rising demand for ready-to-build residential lots and timber products. It has been in a defensive mode and aims to reduce its expenses.

Yet, a persistent reduction in revenues from the rural land sales segment somewhat reduces the growth in its profitability. However, given the company’s current efforts to enhance its financial and market position, we expect it to mitigate the negatives going forward.

St. Joe currently has a Zacks Rank #3 (Hold). However, other REITs that are performing better and are worth a look include CBRE Group Inc. , Highwoods Properties Inc. and UDR Inc. , all of which carry a Zacks Rank #2 (Buy).
 

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