The St. Joe Company — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also reports unaudited fourth-quarter results. St. Joe is a Florida real estate development and operating company concentrated in Northwest Florida, with residential and commercial real estate, resorts/leisure/leasing, and forestry operations.
Financial performance
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $701.9 million | $131.3 million |
| Operating income | $513.3 million | $0.8 million |
| Net income attributable to St. Joe | $406.5 million | $5.0 million |
| Net income per share, basic and diluted | $4.40 | $0.05 |
| Cash from operating activities | $331.0 million | $16.3 million |
| Cash and cash equivalents at year-end | $34.5 million | $21.9 million |
| Total assets | $1,303.1 million | $669.5 million |
- The sharp increase in annual revenue and earnings was primarily transaction-driven, not a comparable increase in recurring operations. The AgReserves land sale contributed $570.9 million of revenue and $511.1 million of pretax income; the RiverTown sale contributed $43.6 million of revenue and $26.0 million of pretax earnings.
- Excluding those two sales, real estate sales gross profit was $11.1 million, versus $20.7 million in 2013. Total real estate sales gross profit was $548.3 million, or 86.4% of sales, largely reflecting the AgReserves transaction.
- Recurring resorts, leisure and leasing revenue rose 9% to $55.5 million; gross profit was $9.8 million, with a 17.7% margin versus 19.1% in 2013. Timber revenue fell 68% to $11.5 million after the sale of most forestry acreage.
- Fourth-quarter 2014 revenue was $15.7 million, operating loss was $15.9 million, net loss attributable to St. Joe was $11.1 million, and loss per share was $0.13. Fourth-quarter 2013 revenue was $33.9 million and net income attributable to St. Joe was $0.6 million. The filing’s quarterly table does not separately explain the principal drivers of the fourth-quarter loss.
Liquidity, debt and capital
- At year-end, cash and cash equivalents were $34.5 million and investments were $636.9 million, principally $509.8 million in U.S. Treasury securities. A further $209.9 million of investments was held by consolidated special-purpose entities and is restricted to those entities’ obligations.
- Reported debt was $63.8 million, including $31.6 million outstanding on the Pier Park North construction loan. Separately, the consolidated balance sheet included $177.3 million of special-purpose-entity Senior Notes; repayment is limited to the special-purpose entity’s assets and has no recourse to St. Joe. The filing’s selected data reports total debt of $241.1 million including those notes.
- The Pier Park North loan matures in February 2016, with a possible two-year extension. St. Joe provided completion and other guarantees, including repayment support capped at 33% of the loan balance, and agreed to maintain at least $25 million of qualifying liquidity and $350 million of net worth.
- Operating cash flow increased substantially, principally due to the land sales. Investing activities used $518.7 million, including net purchases of available-for-sale investments; financing activities provided $200.3 million. FY 2014 capital expenditures were $32.4 million. Management budgeted $30.6 million for 2015, including $19.6 million primarily for residential and commercial development and $8.9 million for Pier Park North.
- St. Joe paid no cash dividends in 2014 or 2013. It reported $22.7 million of total outstanding community development district assessments at year-end, of which $6.5 million was recorded as debt.
Material changes and outlook
- In March 2014, St. Joe sold approximately 380,000 acres to AgReserves for $562 million of stated consideration. Consideration included cash, a 15-year installment note and a letter-of-credit structure. The company monetized the note through $180 million of Senior Notes issued by a special-purpose entity and received $165 million net cash from that monetization; the notes are non-recourse to St. Joe.
- In April 2014, St. Joe sold the approximately 4,057-acre RiverTown community to Mattamy. The consideration included $24.0 million cash, a $19.6 million note due June 2015, assumption of specified district assessments, and potential impact-fee payments. St. Joe estimated potential impact-fee receipts of $20–$26 million over five years, but timing and amount depend on development and fee rates; $0.1 million was received in 2014.
- After the AgReserves sale, St. Joe reported approximately 180,000 acres owned, including about 120,000 acres designated for forestry, and said it expected to be able to operate approximately 60,000 forestry acres. Management expects timber and rural-land sales to be substantially lower.
- Management’s 2015 priorities include planning mixed-use and active-adult communities, developing commercial and industrial uses, pursuing partnerships, and advancing Port of St. Joe and rail opportunities. A West Bay Sector Plan was transmitted to the State for review; port dredging requires additional approvals, funding and infrastructure, and could take multiple years.
- Pier Park North was under development as a 324,000-square-foot retail center. About 260,000 square feet was leased as of February 1, 2015; most construction was expected to be completed in mid-2015.
- Jeffrey C. Keil became President and Interim CEO in August 2014. The CEO succession process extended into 2015, and management noted that a future CEO could change some or all of the strategy.
Unusual items, risks and contingencies
- St. Joe recorded $13.5 million of pension charges in 2014, including $4.8 million of excise tax, following termination of its pension plan. It expects approximately $7.9 million of further expense as assets are allocated to 401(k) participants over the next seven years.
- Income tax expense was $115.5 million. St. Joe reversed $86.9 million of valuation allowance during 2014, but reported a $34.8 million net deferred tax liability at year-end and a $6.2 million valuation allowance against deferred tax assets.
- On January 20, 2015, the SEC staff issued a Wells Notice concerning historical accounting, disclosures and real estate valuations principally for 2010, 2009 and earlier periods. The notice is not a formal allegation or finding; the company is cooperating, has not accrued a loss, and said the outcome and any loss estimate were not determinable.
- Investment risks include concentration in a single non-investment-grade corporate debt issuer and non-investment-grade preferred securities. St. Joe recorded a $1.3 million credit-related impairment on corporate debt securities in 2014. Management estimated a 100-basis-point interest-rate increase would reduce the market value of available-for-sale securities by about $8.0 million.
- Other material exposures include real-estate entitlement and environmental risks, Northwest Florida market concentration, weather and hurricane exposure, and potential volatility from sporadic bulk land sales. Hurricane insurance coverage is capped at $50 million per named storm and timber assets are uninsured.
Investor verification priorities
- Confirm how much of FY 2014 earnings and operating cash flow came from the AgReserves and RiverTown transactions versus ongoing operations, and review the fourth-quarter loss drivers.
- Track collection of the $19.6 million RiverTown note and the amount and timing of contingent impact-fee receipts.
- Review liquidity available for development, investment portfolio concentration and credit quality, and compliance with Pier Park North loan covenants and guarantees.
- Monitor SEC investigation developments, potential outcomes and any subsequent change in the company’s assessment of loss or disclosure.
- Assess progress and costs for active-adult community approvals, Pier Park North leasing and completion, and Port of St. Joe dredging and rail funding.
- Verify the effects of pension-plan termination, future 401(k) allocations, deferred taxes and remaining state net operating loss carryforwards.