UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Commission file number 1-10466

The St. Joe Company

(Exact name of registrant as specified in its charter)

(904) 301-4200

(Registrant’s telephone number, including area code)

None.

(Former name, former address and former fiscal year, if changed since last report)

      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 þ          NO o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     YES þ          NO o

APPLICABLE ONLY TO CORPORATE ISSUERS:

      As of May 2, 2005, there were 103,504,636 shares of common stock, no par value, issued and 75,978,166 outstanding, with 27,526,470 shares of treasury stock.

THE ST. JOE COMPANY

INDEX

PART I. FINANCIAL INFORMATION

THE ST. JOE COMPANY

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF INCOME

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

See notes to consolidated financial statements.

THE ST. JOE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOW

See notes to consolidated financial statements.

THE ST. JOE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

      The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of March 31, 2005 and December 31, 2004 and the results of operations and cash flows for the three month periods ended March 31, 2005 and 2004. The results of operations and cash flows for the three month periods ended March 31, 2005 and 2004 are not necessarily indicative of the results that may be expected for the full year.

      In May 2003, the FASB issued Statement of Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“FAS 150”). FAS 150 requires companies having consolidated entities with specified termination dates to treat minority owner’s interests in such entities as liabilities in an amount based on the fair value of the entities. Although FAS 150 was originally effective July 1, 2003, the FASB has indefinitely deferred certain provisions related to classification and measurement requirements for mandatorily redeemable financial instruments that become subject to FAS 150 solely as a result of consolidation. As a result, FAS 150 has no impact on the Company’s Consolidated Statements of Income for the three months ended March 31, 2005 or 2004. The Company has one consolidated entity with a specified termination date: Artisan Park, L.L.C. (“Artisan Park”). At March 31, 2005, the carrying amount of the minority interest in Artisan Park was $11.8 million and its fair value was $20.1 million. The Company has no other material financial instruments that are affected currently by FAS 150.

      In April 2005, the Securities and Exchange Commission (“SEC”) adopted a final rule regarding the compliance date for FASB Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“FAS 123(R)”), for public companies. Prior to the new SEC rule, calendar year-end companies that are not small business issuers, like the Company, would have been required to implement FAS 123(R) in the first interim period beginning after June 15, 2005. The new rule changes the required date of implementation for such companies to the beginning of the first full fiscal year beginning after June 15, 2005. As a result, the Company plans to adopt FAS 123(R) as of January 1, 2006. FAS 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required previously and currently used by the Company to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. Upon implementation of FAS 123(R), the Company will recognize as compensation cost in its financial statements the unvested portion of existing options granted prior to the compliance date and the cost of stock options granted to employees after the compliance date based on the fair value of the stock options at grant date.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      For periods prior to January 1, 2006, as permitted by existing accounting standards, the Company has elected to not recognize compensation cost for its stock options in the consolidated financial statements and instead to provide pro forma disclosure of stock-based compensation. Had the Company determined compensation costs based on the fair value at the grant date for its stock options, the Company’s net income would have been reduced to the pro forma amounts indicated below (in thousands except per share amounts):

      Earnings per share (“EPS”) is based on the weighted average number of common shares outstanding during the period. Diluted EPS assumes weighted average options have been exercised to purchase 1,015,372 and 1,791,475 shares of common stock in the three months ended March 31, 2005 and 2004, respectively, and that 527,620 shares of unvested restricted stock were issued as of March 31, 2005, each net of assumed repurchases using the treasury stock method.

      From August 1998 through March 31, 2005, the Board of Directors authorized a total of $800.0 million for the repurchase of the Company’s outstanding common stock from shareholders from time to time (the “Stock Repurchase Program”), of which a total of approximately $688.8 million had been expended through March 31, 2005. From the inception of the Stock Repurchase Program to March 31, 2005, the Company repurchased from shareholders 25,463,611 shares. During the three month periods ended March 31, 2005 and 2004, the Company repurchased from shareholders 171,200 and 585,955 shares, respectively.

      Executives have surrendered a total of 2,097,697 shares of our stock since 1998 in payment of strike prices and taxes due on exercised stock options and taxes due on vested restricted stock, including 61,203 and 91,205 shares surrendered by executives in the three month periods ended March 31, 2005 and 2004, respectively.

      Shares of Company stock issued upon the exercise of stock options for the three months ended March 31, 2005 and 2004 were 344,590 shares and 330,863 shares, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Weighted average basic and diluted shares, taking into consideration shares issued, weighted average unvested restricted shares, weighted average options used in calculating EPS and treasury shares repurchased, for each of the periods presented are as follows:

      Certain prior year amounts have been reclassified to conform with the current year’s presentation.

      The Company paid $8.2 million and $8.3 million for interest in the first three months of 2005 and 2004, respectively. The Company paid state income taxes, net of refunds, of $4.0 million and $1.3 million in the first three months of 2005 and 2004, respectively. The Company capitalized interest expense of $3.2 million and $1.9 million during the first three months of 2005 and 2004, respectively.

      The Company’s non-cash activities included the surrender of shares of Company stock by executives of the Company as payment for the exercise of stock options, the tax benefit on exercises of stock options, and the execution of a debt agreement in payment for an interest in an unconsolidated affiliate. During the three months ended March 31, 2005 and 2004, executives surrendered Company stock worth $2.4 million and $1.9 million, respectively, as payment for strike prices of stock options. In addition, during the first three months of 2004, the Company executed a debt agreement in the amount of $11.4 million as payment for its interest in an unconsolidated affiliate.

      Cash flows related to Towns & Resorts development and related amenities, sales of undeveloped and developed land by the land sales segment, the Company’s timberlands, and land and buildings developed by the Company and used for commercial rental purposes are included in operating activities on the statements of cash flows. Cash flows related to the Company’s assets purchased with tax-deferred proceeds are included in investment activities on the statements of cash flows.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Real estate investments by segment include the following (in thousands):

      Included in operating property are Company-owned amenities related to Towns & Resorts, the Company’s timberlands and land and buildings developed by the Company and used for commercial rental purposes. Development property consists of Towns & Resorts land and inventory currently under development to be sold. Investment property includes the Company’s commercial buildings and land purchased with tax-deferred proceeds and land held for future use.

      Depreciation expense reported on real estate was $4.8 million and $4.0 million in the three months ended March 31, 2005 and 2004, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Debt consists of the following (in thousands):

      The aggregate maturities of debt subsequent to March 31, 2005 are as follows (in millions):

      The medium-term notes and the senior revolving credit agreement contain financial covenants, including a net worth requirement of $425.0 million, maximum debt ratios, and fixed charge coverage requirements, plus some restrictions on prepayment. At March 31, 2005, the Company was in compliance with the covenants.

      A summary of the net periodic pension credit follows (in thousands):

      The Company conducts primarily all of its business in four reportable operating segments: Towns & Resorts development, commercial real estate development and services, land sales, and forestry. The Towns & Resorts development segment develops and sells housing units and home sites and manages residential communities. The commercial real estate development and services segment owns, leases, and manages commercial, retail, office and industrial properties throughout the Southeast and sells developed and undeveloped land and buildings. The land sales segment sells parcels of land included in the Company’s holdings of timberlands. The forestry segment produces and sells pine pulpwood and timber and cypress products.

      The Company uses income from continuing operations before equity in income of unconsolidated affiliates, income taxes and minority interest for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which we believe accurately represents current performance measures. We have presented prior period segments consistent with the current performance

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

measure. The Company no longer uses earnings before interest, taxes, depreciation and amortization as a performance measure.

      The accounting policies of the segments are the same as those described above in the summary of significant accounting policies. Total revenues represent sales to unaffiliated customers, as reported in the Company’s consolidated income statements. All intercompany transactions have been eliminated. The caption entitled “Other” consists of general and administrative expenses, net of investment income, and operations of the Company’s former transportation segment.

      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.

      Information by business segment follows:

      The Company and its affiliates are involved in litigation on a number of matters and are subject to various claims which arise in the normal course of business, none of which, in the opinion of management, is expected

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. However, the aggregate amount being sought by the claimants in these matters is presently estimated to be several million dollars.

      The Company has retained certain self-insurance risks with respect to losses for third party liability, worker’s compensation, property damage, group health insurance provided to employees and other types of insurance.

      At March 31, 2005, the Company was party to surety bonds and standby letters of credit in the amounts of $42.6 million and $7.8 million, respectively, which may potentially result in liability to the Company if certain obligations of the Company are not met.

      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 an amount can be reasonably estimated. As assessments and cleanups proceed, these accruals will be reviewed and adjusted, if necessary, as additional information becomes available.

      Pursuant to the terms of various agreements by which the Company disposed of its sugar assets in 1999, the Company is obligated to complete certain defined environmental remediation. Approximately $5.0 million of the sales proceeds remain in escrow pending the completion of the remediation. The Company has separately funded the costs of remediation. In addition, approximately $1.7 million is being held in escrow representing the value of the land subject to remediation. Remediation was substantially completed in 2003. The Company expects remaining remediation to be complete and the amounts held in escrow to be released to the Company in 2005.

      The Company is currently a party to, or involved in, legal proceedings directed at the cleanup of Superfund sites. The Company is also involved in regulatory proceedings related to its former mill site in Gulf County, Florida. The Company has accrued an allocated share of the total estimated cleanup costs for these sites. Based upon management’s evaluation of the other potentially responsible parties, the Company does not expect to incur additional amounts even though the Company has joint and several liability. Other proceedings involving environmental matters such as alleged discharge of oil or waste material into water or soil are pending or threatened against the Company. It is not possible to quantify future environmental costs because many issues relate to actions by third parties or changes in environmental regulation. However, based on information presently available, management believes that the ultimate disposition of currently known matters will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity. Environmental liabilities are paid over an extended period and the timing of such payments cannot be predicted with any confidence. Aggregate environmental-related accruals were $4.1 million as of both March 31, 2005 and December 31, 2004.

Overview

      The St. Joe Company is one of Florida’s largest real estate operating companies. We believe we have one of the largest inventories of private land suitable for development in the State of Florida, with a very low cost basis. The majority of our land is located in Northwest Florida. In order to optimize the value of our core real estate assets in Northwest Florida, our strategic plan calls for us to reposition our substantial timberland holdings for higher and better uses. We increase the value of our raw land assets, most of which are currently managed as timberland, through the development and subsequent sale of parcels, home sites, and homes, or through the direct sale of unimproved land. In addition, we reinvest the proceeds of qualifying asset sales into like-kind properties under our tax deferral strategy which has enabled us to create a significant portfolio of commercial rental properties. We also provide commercial real estate services, including brokerage, property management and construction management for Company-owned assets as well as for third parties.

      We have four operating segments: Towns & Resorts development, commercial real estate development and services, land sales, and forestry.

      Our Towns & Resorts development segment generates revenues from:

      Our commercial real estate development and services segment generates revenues from:

      Our land sales segment generates revenues from:

      Our forestry segment generates revenues from:

      Our ability to generate revenues, cash flows and profitability is directly related to the real estate market, primarily in Florida, and the economy in general. Considerable economic and political uncertainties exist that could have adverse effects on consumer buying behavior, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general. Additionally, increases in interest rates could reduce the demand for homes we build and home sites we develop, particularly primary housing and

home sites and commercial properties we develop or sell. However, we believe our secondary resort housing markets are less sensitive to changes in interest rates. We have the ability to mitigate these risks by building to contract as well as building in phases.

      Management periodically conducts market research in the early stages of a project’s development to ensure our product meets expected customer demand. We also continuously and actively monitor competitors’ product offerings to evaluate the competitive position of our products. We are disciplined about the release of new product in Northwest Florida. Our goal is to ensure that as much of our land as possible benefits from the appreciation that we are building with the region’s increased visibility, infrastructure development and place-making.

      Real estate market conditions in our regions of development, particularly for residential and resort property in Northwest Florida, have been exceptionally strong. These current market conditions place us in an unusually favorable position which may not continue in the future. However, we believe that long-term prospects of job growth, coupled with strong in-migration population expansion in Florida, indicate that demand levels may remain favorable over at least the near term horizon.

Forward-Looking Statements

      This report includes forward-looking statements, particularly in the Management’s Discussion and Analysis Section. The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ, possibly materially, from those in the forward-looking information. Any statements in this report that are not historical facts are forward-looking statements. You can find many of these forward-looking statements by looking for words such as “intend”, “anticipate”, “believe”, “estimate”, “expect”, “plan”, “should”, forecast”, or similar expressions. In particular, forward-looking statements include, among others, statements about the following:

      Forward-looking statements are not guarantees of future performance. You are cautioned not to place undue reliance on any of these forward-looking statements. These statements are made as of the date hereof based on current expectations, and we undertake no obligation to update the information contained in this Form 10-Q.

      Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that could cause actual results to differ materially from those contemplated by a forward-looking statement include the risk factors described in our annual report on Form 10-K for the year ended December 31, 2004, as well as, among others, the following:

Critical Accounting Estimates

      The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience 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.

      The critical accounting policies that we believe reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements are set forth in Item 7 of our annual report on Form 10-K for the year ended December 31, 2004. There have been no significant changes in these policies during the first three months of 2005.

Recently Issued Accounting Standards

      In April 2005, the Securities and Exchange Commission (“SEC”) adopted a final rule regarding the compliance date for FASB Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (“FAS 123(R)”), for public companies. Prior to the new SEC rule, calendar year-end companies that are not small business issuers, like the Company, would have been required to implement FAS 123(R) in the first interim period beginning after June 15, 2005. The new rule changes the required date of compliance to the beginning of the first full fiscal year beginning after June 15, 2005. As a result, the Company plans to adopt FAS 123(R) as of January 1, 2006. FAS 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions), eliminating the alternative previously allowed to use the intrinsic value method of accounting. The grant date fair value will be estimated using option-pricing models adjusted for the unique characteristics of the instruments using methods similar to those required previously and currently used by the Company to calculate pro forma net income and earnings per share disclosures. The cost will be recognized ratably over the period during which the employee is required to provide services in exchange for the award. Upon implementation of FAS 123(R), the Company will recognize as compensation cost in its consolidated financial statements the unvested portion of existing options granted prior to the compliance date and the cost of stock options granted to employees after the compliance date based on the fair value of the stock options at grant date.

Results of Operations

      Net income for the first quarter of 2005 was $15.4 million, or $0.20 per diluted share, compared with $13.0 million, or $0.17 per diluted share, for the first quarter of 2004.

      We report revenues from our four operating segments: Towns & Resorts development, commercial real estate development and services, land sales, and forestry. Real estate sales are generated from sales of housing units and developed home sites in our Towns & Resorts development segment, developed and undeveloped land and in-service buildings in our commercial real estate development and services segment that are not reported as discontinued operations, parcels of undeveloped land and developed home sites in rural settings in our land sales segment and occasionally sales of bulk land from our forestry segment. Realty revenues, consisting of property and asset management fees, construction revenues, and lease and sales commissions, are generated from the commercial real estate development and services segment. Timber sales are generated from the forestry segment. Rental revenue is generated primarily from lease income related to our portfolio of investment and development properties as a component of the commercial real estate development and services segment. Other revenues are primarily club operations and management fees from the Towns & Resorts development segment.

      Revenues generated during the first quarter of each year by our largest segment, Towns & Resorts development, are typically lower than other quarters of the year, particularly in Northwest Florida, where visitation levels and, consequently, sales are lowest during this period.

Consolidated Results

      Revenues and expenses. The following table sets forth a comparison of the revenues and expenses for the three month periods ended March 31, 2005 and 2004.

      The increases in revenues from real estate sales and cost of real estate sales for the three month period ended March 31, 2005 compared to 2004 were in each case primarily due to increased revenues in the Towns & Resorts development segment and land sales in the commercial real estate development and services segment, partially offset by the sale of a commercial building in the first quarter of 2004. The increases in realty revenues and cost of realty revenues were in each case due to an increase in construction activity, partially offset by a decrease in brokerage activity. The increases in rental revenues and cost of rental revenues were in each case primarily due to the purchases of commercial buildings and improved leased percentages of rental property in the commercial real estate development and services segment. Timber revenue decreased primarily due to a reduction in volume harvested from Company-owned lands. Cost of timber revenues decreased due to increased efficiencies in the cypress mill operation, partially offset by an increase in transportation costs for timber. Other revenues and cost of other revenues increased primarily due an increase in volume for WaterColor vacation rentals. For further discussion of revenues and expenses, see Segment Results below.

      Corporate expense. Corporate expense, representing corporate general and administrative expenses, increased $2.7 million, or 29%, to $11.9 million in the first quarter of 2005, from $9.2 million in the first quarter of 2004. The increase was primarily due to increases of $1.3 million in salaries and employee benefits, $0.5 million in professional fees, and $0.9 million in miscellaneous corporate expenses.

      Depreciation and amortization. Depreciation and amortization increased $2.0 million, or 24%, to $10.4 million in the first quarter of 2005, from $8.4 million in the first quarter of 2004. The increase was primarily due to increases in the commercial real estate development and services segment consisting of $1.0 million in depreciation resulting primarily from additional investments in commercial investment property and property, plant and equipment and a $0.9 million increase in amortization resulting from an increase in intangible assets associated with our commercial operating properties.

      Other income (expense). Other income (expense) consists of investment income, interest expense, gains on sales and dispositions of assets and other income. Other income (expense) was $(1.8) million in the first quarter of 2005 and $(2.1) million in the first quarter of 2004.

      Equity in income (loss) of unconsolidated affiliates. We have investments in affiliates that are accounted for by the equity method of accounting. Equity in income of unconsolidated affiliates totaled $1.9 million in the first quarter of 2005 and $0.7 million in the first quarter of 2004.

      The Towns & Resorts development segment recorded equity in the income of unconsolidated affiliates of $1.9 million for the first quarter of 2005, compared to $1.1 million for the first quarter of 2004. The increase was primarily due to an increase in closings at Rivercrest and increased pricing at Rivercrest and Paseos, two 50% owned unconsolidated affiliates.

      The commercial real estate development and services segment recorded equity in the income (loss) of unconsolidated affiliates of less than $0.1 million in the first quarter of 2005, compared to $(0.4) million in the first quarter of 2004. In the first quarter of 2004, $(0.3) million of the loss was related to our 50% interest in the Codina Group, Inc. (“Codina”), a commercial services company in Coral Gables, Florida. Codina’s results of operations were substantially break-even for the first quarter of 2005.

      Income tax expense. Income tax expense totaled $9.5 million in the first quarter of 2005 and $8.1 million in the first quarter of 2004. Our effective tax rate was 38% in the first quarter of 2005 and 39% in the first quarter of 2004. The decrease in the effective tax rate was primarily due to a large number of shares of restricted stock which vested in the first quarter of 2005, creating a larger tax deduction, and a change in the tax law which allows a new deduction for domestic manufacturing costs, including construction, beginning in 2005.

Segment Results

      Our Towns & Resorts development segment develops large-scale, mixed-use communities primarily on land we have owned for a long period of time. We own large tracts of land in Northwest Florida, including large tracts near Tallahassee, the state capital, and significant Gulf of Mexico beach frontage and waterfront properties, which we believe are suited for primary housing, resort and second-home communities. Our residential homebuilding in North Carolina and South Carolina is conducted through Saussy Burbank, Inc. (“Saussy Burbank”), a wholly owned subsidiary. The table below sets forth the results of operations of our Towns & Resorts development segment for the three month periods ended March 31, 2005 and 2004.

      WaterColor is situated on approximately 499 acres on the beaches of the Gulf of Mexico in south Walton County. We are building single-family and multi-family residences and selling developed home sites in WaterColor. The community is planned to include approximately 1,140 units, including a private residence club (“PRC”) with fractional ownership. Amenities include a beach club, tennis center, boat house, restaurant on an inland freshwater lake, a 60-room inn and restaurant and commercial space and parks. From WaterColor’s inception through March 31, 2005, total contracts accepted or closed totaled 810 homes and home sites and 88 PRC shares. Each PRC interest is treated as one-eighth of a unit.

      WaterSound Beach is located approximately five miles east of WaterColor. Situated on approximately 256 acres, WaterSound Beach includes over one mile of beachfront on the Gulf of Mexico. This community is currently entitled to include approximately 511 units. From WaterSound Beach’s inception through March 31, 2005, contracts for 372 units were accepted or closed.

      WaterSound West Beach, located over one half mile west of WaterSound Beach on the beach side of County Road 30A, is being designed as a gated, high-end community with 199 units on approximately 62 acres. Beach access is through the adjacent Deer Lake State Park. Sales are expected to begin in the third quarter of 2005.

      Infrastructure development continued during the first quarter at WaterSound, a resort community located approximately three miles from WaterSound Beach. WaterSound is set between U.S. Highway 98 and the Intracoastal Waterway in Walton County. Sales are expected to begin in 2006.

      Palmetto Trace is a primary home community in Panama City Beach planned for 480 units on 138 acres. As of March 31, 2005, 349 units were sold or under contract and 131 units remained to be released and sold.

      Hawks Landing is an 88-acre primary home community in Lynn Haven, in Bay County, Florida. We plan to develop and sell 167 home sites at Hawks Landing to local and national home builders. Development is expected to start later in the second quarter of 2005.

      At WindMark Beach, a proposed mixed-use development on approximately 2,080 acres in Gulf County, all challenge periods for state environmental permits expired on March 31, 2005. Upon receipt of remaining permits, infrastructure development is expected to begin in the summer of 2005, including the WindMark Beach town center, the initial portion of a 3.5-mile public beachfront trail system, and the relocation of U.S. Highway 98. From WindMark Beach’s inception through March 31, 2005, contracts for 104 home sites in the first 80-acre phase were accepted or closed. The remaining five retail lots and one home in the first phase have not yet been offered for sale.

      Bridgeport is a new primary neighborhood in Port St. Joe designed to provide this market with additional housing choices at moderate prices for local working families. A local builder will deliver finished homes to customers. Bridgeport consists of 36 units on 13 acres with home prices expected to start under $100,000. Contracts for 10 home sites have been accepted or closed as of March 31, 2005.

      Plans for SouthWood, situated on approximately 3,770 acres in southeast Tallahassee, include approximately 4,770 residential units and a traditional town center with restaurants, retail shops, and offices. From SouthWood’s inception through March 31, 2005, contracts for 922 units were accepted or closed. Certain regulatory approvals are required prior to commencing development on future phases of construction that are scheduled to begin in the 2006-2007 timeframe.

      SummerCamp is a 499-unit development on 782 acres located approximately 45 miles south of Tallahassee on the Gulf of Mexico. Current plans include a beach club, community dock, and nature trails. Sales of 52 home sites are expected to close in late 2005, pending the receipt of environmental permits and the successful resolution of a legal challenge to one of them.

      Environmental permitting and predevelopment planning continue at RiverTown, which is planned for 4,500 units on 4,170 acres located in St. Johns County, south of Jacksonville, with more than 3.5 miles of frontage on the St. Johns River. Infrastructure development is expected to begin in 2005, with sales beginning in 2006.

      St. Johns Golf & Country Club is a primary residential community located on approximately 820 acres we acquired in St. Johns County. The community is planned to include a total of approximately 799 housing units and an 18-hole golf course. From its inception through March 31, 2005, contracts for 680 units were accepted or closed at St. Johns Golf & Country Club.

      Victoria Park is situated on 1,859 acres we acquired in Deland between Daytona Beach and Orlando. Plans include approximately 4,000 single and multi-family residences built among parks, lakes and conservation areas with a traditional town center and an 18-hole golf course. From Victoria Park’s inception through March 31, 2005, contracts for 791 units were accepted or closed.

      Artisan Park, located in Celebration, near Orlando, is being developed through a joint venture in which we own 74%. Artisan Park is situated on approximately 160 acres which we acquired. Current plans include approximately 616 units comprised of single-family residences, townhomes, and condominiums, as well as parks, trails, and a community clubhouse with a pool and educational and recreational programming. From Artisan Park’s inception through March 31, 2005, contracts for 367 units were accepted or closed.

      The Company manages and owns 50% of the joint ventures developing Rivercrest and Paseos, two primary residential communities. Rivercrest is a 1,382-unit primary residential community located on 413 acres near Tampa. At March 31, 2005, there were 102 units remaining to be released for sale at Rivercrest. Paseos is a 325-unit primary residential community situated on 175 acres in Jupiter. At March 31, 2005, two units remained for sale at Paseos.

      Perico Island is situated in the City of Bradenton in Manatee County with views of the Gulf of Mexico and Tampa Bay. Planned as an upscale 686-unit condominium community on 352 acres, it is being designed as an environmentally sensitive community. Sales activity at Perico Island is expected to begin in late 2006.

      Real estate sales include sales of homes and home sites and sales of land. Cost of real estate sales for homes and home sites includes direct costs, selling costs and other indirect costs. In the first quarter of 2005, the components of cost of real estate sales for homes and home sites were $79.4 million in direct costs, $6.1 million in selling costs, and $7.7 million in other indirect costs. In the first quarter of 2004, the components of cost of real estate sales were $64.1 million in direct costs, $5.1 million in selling costs, and $7.2 million in other indirect costs. The overall increases in real estate sales and cost of real estate sales were primarily due to increases in revenues and cost of sales recorded on multi-family residences using the percentage-of-completion method of accounting and increased prices on home sites in our resort communities, partially offset by a decrease in the number of home sites sold at WaterColor as the current phase winds down. We are carefully managing releases at our resort communities in order to capture increasing values at these communities.

      Sales of homes in the first quarter of 2005 totaled $105.1 million, with related cost of sales of $87.4 million, resulting in a gross profit percentage of 17%, compared to sales of homes in the first quarter of 2004 of $74.6 million, with cost of sales of $67.1 million, resulting in a gross profit percentage of 10%. The increase in gross profit percentage was primarily due to increased revenues recorded on multi-family residences using the percentage of completion method of accounting, which have produced higher margins than single-family homes.

      Cost of real estate sales for homes in the first quarter of 2005 consisted of $74.8 million in direct costs, $5.4 million in selling costs, and $7.2 million in indirect costs. Cost of real estate sales for homes in the first quarter of 2004 consisted of $56.9 million in direct costs, $4.0 million in selling costs, and $6.2 million in indirect costs.

      Sales of home sites in the first quarter of 2005 totaled $23.8 million, with related cost of sales of $5.8 million, resulting in a gross profit percentage of 76%, compared to sales of home sites in the first quarter of 2004 of $23.7 million, with related cost of sales of $9.3 million, resulting in a gross profit percentage of 61%. The increase in gross profit percentage was primarily due to increased prices at WaterColor and WaterSound Beach.

      Cost of real estate sales for home sites in the first quarter of 2005 consisted of $4.6 million in direct costs, $0.7 million in selling costs, and $0.5 million in indirect costs. Cost of real estate sales for home sites in the first quarter of 2004 consisted of $7.2 million in direct costs, $1.1 million in selling costs, and $1.0 million in indirect costs.

      The following table sets forth home and home site sales activity by individual developments, excluding Rivercrest and Paseos, two 50% owned affiliates accounted for using the equity method of accounting:

      Revenue and cost of sales associated with multi-family units and PRC units under construction are recognized using the percentage of completion method of accounting. Revenue is recognized in proportion to the percentage of total costs incurred in relation to estimated total costs. If a deposit is received for less than 10% for a multi-family unit or a PRC unit, percentage of completion accounting is not utilized. Instead, full accrual accounting criteria is used, which generally recognizes revenue when sales contracts are closed and adequate investment from the buyer is received. In the WaterSound Beach community, deposits of 10% are required upon executing the contract and another 10% is required 180 days later. For PRC units, a 10% deposit is required. Additional deposits may be collected at other locations depending on the specifics of the contract. All deposits are non-refundable (subject to a 10-day waiting period as required by law) except for non-delivery of the unit. In the event a contract does not close for reasons other than non-delivery, we are entitled to retain the deposit. However, the revenue and margin related to the previously recorded contract would be reversed. Revenues and cost of sales associated with multi-family units where construction has been completed before contracts are signed and deposits made are recognized on the full accrual method of accounting, as contracts are closed.

      Our townhomes are attached housing units sold individually along with a parcel of land. Revenues and cost of sales for our townhomes are accounted for using the full accrual method. These units differ from multi-family and PRC units, in which buyers hold title to a unit or fractional share of a unit, respectively, within a building and an interest in the underlying land held in common with other building association members.

      At WaterColor, the gross profit percentage from home site sales increased to 77% in the first quarter of 2005 from 60% in the first quarter of 2004 due to an increase in average price and the mix of locations of the closed home sites. The average price of a home site sold in the first quarter of 2005 was approximately $1,075,000 compared to approximately $273,000 in the first quarter of 2004.

      At WaterSound Beach, in the first quarter of 2004, we incurred $2.0 million in construction costs for contract adjustments related to multi-family residences which were completed and sold in 2003. The gross profit percentage on home sites increased to 84% in the first quarter of 2005 from 71% in the first quarter of 2004, primarily due to pricing increases and the mix of size and locations of the home sites closed in each period. The average price for a home site sold in the first quarter of 2005 was approximately $942,000, compared to approximately $375,000 in the first quarter of 2004.

      At SouthWood, the gross profit percentage on homes decreased to 12% in the first quarter of 2005 from 17% in the first quarter of 2004, and the gross profit percentage on home sites decreased to 57% in the first quarter of 2005 from 63% in the first quarter of 2004. Both decreases were due to increased development costs on a per unit basis.

      At St. Johns Golf & Country Club, the gross profit percentage on homes increased to 20% in the first quarter of 2005 from 15% in the first quarter of 2004, primarily due to an increase in prices. The average price of a home sold in the first quarter of 2005 was approximately $372,000, compared to approximately $321,000 in the first quarter of 2004. The gross profit percentage on home sites increased to 60% in the first quarter of 2005 from 56% in the first quarter of 2004, primarily due to the mix of sizes and locations of the home sites sold during each period.

      At Artisan Park, the gross profit percentage on single-family homes decreased to 9% in the first quarter of 2005 from 27% in the first quarter of 2004, due primarily to increased construction materials and labor costs resulting from 2004’s hurricane season for homes closed in the first quarter of 2005. The gross profit percentage on home site sales increased to 56% in the first quarter of 2005 from 44% in the first quarter of 2004, primarily due to increased prices. The average price of a home site sold in the first quarter of 2005 was approximately $290,000 compared to approximately $150,000 in the first quarter of 2004.

      At Victoria Park, the gross profit percentage on home sales decreased to 10% in the first quarter of 2005 from 14% in the first quarter of 2004, primarily due to the mix of sizes and locations of the homes sold in each period.

      At Saussy Burbank, the gross profit percentage on homes increased to 10% in the first quarter of 2005 compared to 7% in the first quarter of 2004, primarily due to the mix of relative size and location of homes sold and a decrease in construction costs as a percentage of sales price.

      Other revenues, which include revenues from the WaterColor Inn, other resort operations, and management fees, were $8.0 million in the first quarter of 2005 with $7.7 million in related costs, compared to revenues totaling $7.0 million in the first quarter of 2004 with $6.4 million in related costs. The increases in other revenues and cost of other revenues were primarily due to increased leisure and resort activity. The decrease in the gross profit percentage was primarily due to an increase in realty costs.

      During the quarter ended March 31, 2005, Rivercrest and Paseos, two 50% owned affiliates accounted for using the equity method of accounting, recorded revenues of $16.1 million and $11.3 million and cost of sales of $13.2 million and $9.1 million on sales of 96 and 26 homes, respectively. During the quarter ended March 31, 2004, Rivercrest and Paseos recorded revenues of $8.1 million and $12.1 million and cost of sales of $6.8 million and $9.8 million on sales of 55 and 32 homes, respectively.

      Our commercial real estate development and services segment develops and sells real estate for commercial purposes. We also own and manage office, industrial and retail properties throughout the southeastern United States. Through the Advantis business unit, we provide commercial real estate services, including brokerage, property management and construction management. The table below sets forth the results of operations of our commercial real estate development and services segment for the three month periods ended March 31, 2005 and 2004.