The St. Joe Company — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. St. Joe is a Florida real estate development, asset management and operating company, with most assets concentrated in Northwest Florida. Its five segments are residential real estate, commercial real estate, resorts and leisure, leasing, and forestry.
Financial performance
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $95.7 million | $103.9 million |
| Operating income (loss) | $2.0 million | ($6.1 million) |
| Net income (loss) attributable to St. Joe | $15.9 million; $0.21 per share | ($1.7 million); ($0.02) per share |
| Operating cash flow | $12.9 million | $22.4 million |
| Capital expenditures | $12.9 million | $17.5 million |
| Cash and cash equivalents, year-end | $241.1 million | $212.8 million |
| Available-for-sale investments, year-end | $175.7 million | $191.2 million |
Revenue declined 7.8%. Operating results improved from a loss to modest operating income, while net income included a $12.5 million BP oil-spill claim settlement recognized as other income. The filing reports total expenses of $93.8 million, down from $110.0 million, and income tax expense of $7.1 million, compared with $0.8 million in 2015.
Segment gross margins were 65.8% for real estate overall, 12.4% for resorts and leisure, 68.4% for leasing, and 84.6% for timber. Real estate margins benefited in part from a $3.4 million unimproved-land sale with a $3.3 million gross profit. Resorts and leisure revenue rose 5.1%, but its gross margin fell from 13.6%, reflecting higher vacation-rental costs, labor costs and a one-time $0.7 million homeowners association payment. Leasing revenue increased 8.9%; timber revenue declined 22.4% as volumes sold fell.
Balance sheet, liquidity and capital allocation
Year-end investment in real estate, net, was $314.6 million; total assets were $1.028 billion and total equity was $686.8 million. The balance sheet reported $55.0 million of debt, excluding $176.3 million of Senior Notes held by a consolidated special-purpose entity (SPE). Those SPE notes are payable only from SPE assets and are non-recourse to St. Joe. The Pier Park North joint venture had $48.1 million outstanding under a 4.1% loan due in 2025; St. Joe provided a limited guarantee that may become full recourse in specified circumstances. CDD debt recorded as debt was $7.5 million; total outstanding CDD assessments were $22.6 million.
Cash, cash equivalents and available-for-sale investments totaled approximately $416.8 million at year-end, before restricted investments. The investment portfolio included $139.1 million of corporate debt securities and $36.6 million of preferred stock; the company disclosed that these holdings were non-investment grade. Operating cash flow was positive but lower year over year, partly because 2015 included a $19.6 million RiverTown note payment. The company repurchased approximately 996,000 shares for $14.8 million in 2016 and had $190.9 million of remaining repurchase authority at year-end. It paid no cash dividends in 2016 or 2015.
Material changes and unusual items
- 2016 revenue fell from 2015, principally as real estate revenue dropped to $23.4 million from $33.7 million; 2014 comparisons are distorted by the large AgReserves and RiverTown land sales.
- Residential real estate revenue decreased to $19.5 million from $21.2 million, and lots sold fell to 106 from 162. Commercial real estate revenue declined to $2.1 million from $7.2 million. Timber revenue fell to $5.2 million from $6.7 million.
- Other operating and corporate expenses decreased 30.8% to $23.1 million, which management attributed mainly to lower personnel costs, professional fees and continued expense discipline.
- The $13.2 million BP settlement was recorded at a discounted initial value of $12.5 million; $5.0 million was received in 2016, with $7.8 million remaining receivable at year-end. The settlement resolved claims related to the Deepwater Horizon oil spill.
- A 2016 Windmark Beach transaction created a tax loss carried back for an expected $24.6 million federal tax refund. The balance sheet showed an income tax receivable of $27.1 million. The transaction also generated a $13.5 million federal AMT credit carryforward.
- In December 2016, St. Joe transferred its Windmark Beach project to a consolidated joint venture with non-controlling members. The transaction generated a net $10.3 million cash contribution from non-controlling interests and no reported operating-results impact.
Outlook, management commentary and risks
Management’s 2017 plan emphasizes recurring revenue through commercial leasing, primary residential communities, resort and club expansion, and strategic infrastructure and economic-development initiatives. The 2017 capital expenditure budget is $62.8 million: $29.1 million for residential and commercial projects, $25.7 million for leasing, $6.4 million for resorts and leisure, and $1.6 million for forestry and other activities. Management said the full benefits are not expected during 2017 and that some spending is discretionary. The company expects liquidity and anticipated cash flows to fund working capital, capital spending, debt service and authorized share repurchases for the next 12 months.
St. Joe planned to build a roughly 137,000-square-foot manufacturing facility for GKN Aerospace at VentureCrossings for lease to the company; the filing cautions that the lease may not be completed on favorable terms or at all. Other principal risks include concentration in Northwest Florida, cyclical and uneven land-sale activity, dependence on homebuilders and local economic growth, land-use and environmental permitting, hurricanes and other disasters, and insurance availability and cost. Investment risks include non-investment-grade holdings, issuer concentration and potential fair-value losses. Fairholme funds had voting rights over approximately 32.9% of St. Joe’s shares and served as investment adviser; the filing describes potential Investment Company Act and affiliate-transaction constraints. Other exposures include the Pier Park North guarantee, environmental contingencies, and the possibility that delayed or lower RiverTown impact-fee payments reduce expected proceeds.
The company reported $1.3 million of aggregate accrued liabilities for litigation and related matters at year-end; it said pending matters were not believed to pose a material adverse effect on consolidated financial condition or liquidity, while acknowledging uncertain outcomes. Environmental rehabilitation costs for certain neighboring former paper-mill properties could not be quantified above existing accruals. The 2015 SEC investigation was resolved for approximately $3.5 million in penalties, disgorgement and interest; related expenses were significant in 2015. Management and KPMG reported effective internal control over financial reporting, and KPMG issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether the planned GKN Aerospace lease and 2017 capital investments proceed on schedule, within budget and at expected returns.
- The composition, credit quality, issuer exposure and liquidity of the investment portfolio, including the non-investment-grade debt and preferred holdings.
- Receipt and timing of the $7.8 million remaining BP settlement payments and the expected federal tax refund; confirm whether the refund is received as anticipated.
- Actual RiverTown impact-fee proceeds versus the estimated $20–$26 million, which depend on Mattamy’s development and future fee rates.
- Potential guarantee exposure on the Pier Park North loan, CDD obligations, and environmental or other contingencies beyond recorded accruals.
- Progress in leasing, occupancy, residential lot sales and entitlement approvals, given the company’s geographic concentration and uneven sales patterns.