The St. Joe Company (NYSE: JOE) — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report; unaudited Q4 results are included below. St. Joe is a real estate development, asset management and operating company concentrated in Northwest Florida, with residential and commercial real estate, resorts and leisure, leasing, and forestry businesses.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $103.9 million | $701.9 million |
| Operating income (loss) | $(6.1) million | $513.3 million |
| Net income (loss) attributable to St. Joe | $(1.7) million; $(0.02) per share | $406.5 million; $4.40 per share |
| Cash from operating activities | $22.4 million | $331.0 million |
| Cash and cash equivalents | $212.8 million | $34.5 million |
| Investments | $191.2 million | $636.9 million |
| Total assets | $984.8 million | $1,303.1 million |
| Total equity | $673.4 million | $979.7 million |
2015 revenue included $33.7 million in real estate sales, $54.5 million in resorts and leisure, $9.0 million in leasing, and $6.7 million in timber sales. Real estate sales gross profit was $17.3 million, a 51.3% margin; this comparison is affected by the unusually large 2014 land-sale gains.
At year-end, available-for-sale investments included $184.7 million in U.S. Treasury securities and $6.5 million in corporate debt and preferred securities. Cash and cash equivalents included $175.0 million in commercial paper. Reported debt was $55.2 million, plus $177.4 million of Senior Notes issued by a consolidated special-purpose entity; the notes are nonrecourse to St. Joe. The Pier Park North joint venture had $48.2 million outstanding on a 4.1% loan due in 2025. The filing states that cash, anticipated cash flows and investments were expected to cover working capital, capital spending, debt service and authorized repurchases for the next 12 months.
Operating cash flow was $22.4 million; investing activities provided $445.4 million, largely reflecting investment maturities and sales; financing activities used $289.6 million, principally due to share repurchases. The company repurchased about 17.0 million shares for $305.0 million in 2015. No cash dividends were paid in 2015 or 2014.
Fourth-quarter results and year-over-year changes
For Q4 2015, revenue was $21.1 million, operating loss was $3.9 million, and net loss attributable to the company was $2.5 million, or $0.03 per share. Q4 2014 revenue was $15.7 million, operating loss was $15.9 million, and attributable net loss was $11.1 million, or $0.12 per share.
- Annual revenue fell sharply from 2014, which included $570.9 million from the AgReserves land sale and $43.6 million from the RiverTown sale. Neither comparable sale recurred in 2015.
- Excluding those 2014 transactions, 2015 residential and commercial sales increased in some areas, while timber revenue continued to decline following the 2014 sale of approximately 380,000 acres to AgReserves.
- Resorts and leisure revenue rose 13% to $54.5 million, with gross margin improving to 13.6% from 11.4%, supported by membership, golf, vacation-rental and ancillary spending growth.
- Leasing revenue increased 29% to $9.0 million as Pier Park North tenants opened. Approximately 287,000 of the center’s 330,000 square feet was leased as of February 1, 2016.
- Investment income increased to $22.7 million from $12.7 million, while other expense included $8.2 million of SEC-investigation penalties, disgorgements, interest and legal costs.
Outlook, risks and unusual items
- Management’s 2016 capital expenditure budget was $23.1 million, with a portion discretionary and dependent on expected returns. The company anticipated harvesting approximately 350,000 tons of timber in 2016.
- The Bay-Walton Sector Plan took effect in June 2015 and provides broad entitlements for more than 170,000 residential units and 22 million square feet of commercial, retail and industrial uses across approximately 110,500 acres. Actual development depends on further planning, approvals, infrastructure, capital and market conditions.
- Port of Port St. Joe dredging requires additional regulatory approvals, funding and infrastructure work; timing may span multiple years. Management also highlighted commercial and industrial opportunities near the airport, including VentureCrossings.
- Key risks include concentration in Northwest Florida, cyclical and irregular property sales, dependence on homebuilders and strategic partners, development and permitting uncertainty, severe weather and hurricane exposure, environmental obligations, and possible real-estate impairments. The company reported $313.6 million of real estate investments potentially subject to impairment.
- The SEC investigation into historical accounting and disclosures was settled in October 2015 without the company admitting or denying factual allegations. St. Joe agreed to approximately $3.5 million in penalties, disgorgements and interest and recorded $8.2 million of related total costs, including legal fees. The order made the company an “ineligible issuer” under Securities Act Rule 405.
- Investment risks include exposure to a non-investment-grade issuer through corporate debt and preferred securities, and potential losses from investment-value declines. A 100-basis-point interest-rate increase was estimated to reduce available-for-sale securities’ market value by approximately $0.6 million.
- Fairholme-affiliated funds held approximately 32.5% of the company’s common stock at year-end and managed its investment accounts. The company’s investment guidelines require at least 50% of the account in cash or cash equivalents and prohibit common-stock investments.
Important facts for investors to verify
- Separate recurring operating performance from the 2014 AgReserves and RiverTown sale proceeds and gains.
- Review the composition, liquidity, credit quality and restrictions on the investment portfolio, including the commercial-paper and Sears-related exposures.
- Assess the economics and leasing progress of Pier Park North, including its debt, guarantees and remaining construction obligations.
- Track actual sales, funding requirements and permitting progress for Bay-Walton Sector Plan, active-adult development and Port of Port St. Joe projects.
- Monitor remaining share-repurchase authorization, subsequent repurchases, and the effect of the 2015 buyback on liquidity and shares outstanding.
- Review environmental and other contingencies, deferred tax liabilities, and the timing and collectability of RiverTown impact-fee payments.
KPMG issued an unqualified opinion on the consolidated financial statements and stated that internal control over financial reporting was effective as of December 31, 2015.