The St. Joe Company — 2013 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2013; fourth-quarter figures are also provided. St. Joe is a Florida real estate development and operating company with five segments: residential real estate, commercial real estate, rural land, resorts, leisure and leasing, and forestry. It owned approximately 567,000 acres, primarily in Northwest Florida, at year-end.
Financial performance
Amounts below are in millions of dollars except per-share data and where noted.
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $131.3 | $139.4 | Down 5.8% |
| Operating income | $0.8 | $2.1 | Down $1.4 |
| Net income attributable to St. Joe | $5.0 | $6.0 | Down $1.0 |
| Diluted earnings per share | $0.05 | $0.07 | Down $0.02 |
| Cash from operating activities | $16.3 | $23.0 | Down $6.7 |
| Capital expenditures | $42.1 | $23.4 | Up $18.7 |
- Revenue mix: Real estate sales were $45.0 million, down from $56.0 million, principally because rural land sales fell to $0.1 million from $23.4 million. Residential sales rose 52% to $33.7 million. Resorts, leisure and leasing revenue increased 14% to $50.8 million; timber revenue declined 9% to $35.4 million.
- Margins: Real estate gross margin declined to 46.0% from 49.6%, mainly due to the lower share of high-margin rural land sales. Resorts, leisure and leasing gross margin improved to 19.1% from 11.9%; timber gross margin was 39.3% versus 38.5%.
- Fourth quarter: Revenue was $33.9 million versus $22.6 million in Q4 2012. Operating loss was $2.0 million versus $9.3 million; net income attributable to the Company was $0.6 million versus a loss of $8.6 million.
- Cash, investments and liquidity: Year-end cash and cash equivalents were $21.9 million, down from $166.0 million. The Company held $147.0 million of available-for-sale investments, mostly U.S. Treasuries, including $22.0 million of non-investment-grade corporate debt securities. Operating cash flow was positive, but investing activities used $171.4 million, largely reflecting investment purchases and Pier Park North spending. Management stated that available liquidity and expected cash flows should cover anticipated needs for the next 12 months.
- Debt and equity: Total debt was $44.2 million versus $36.1 million; total equity was $563.5 million versus $552.3 million. Debt included $26.3 million of in-substance defeased debt, $11.5 million of recorded Community Development District debt, and $6.4 million of Pier Park North construction borrowing. Total outstanding CDD assessments were $34.1 million. The Pier Park North loan carries guarantees and minimum liquidity and net-worth covenants.
Material changes and transactions
- Revenue decreased 5.8%, while attributable net income fell to $5.0 million from $6.0 million. The 2012 comparison benefited from substantial rural land sales; 2013 results also included a $5.1 million impairment charge, primarily for a golf course. The $377.3 million of impairments in 2011 were associated with a reassessment of real estate values and strategy.
- Cash declined sharply as $150.0 million was transferred into an investment account managed by Fairholme Capital. At December 31, 2013, that account included $124.9 million in Treasuries and $22.0 million in non-investment-grade corporate securities. The investment guidelines were amended in February 2014.
- In November 2013, St. Joe agreed to sell approximately 382,834 acres and related assets to AgReserves for $565 million, subject to adjustments and closing conditions. The estimated carrying value of assets and liabilities included was $56.4 million and $12.6 million, respectively. A $37.5 million deposit had been paid. The transaction remained subject to shareholder and regulatory approvals when the filing was issued.
- In December 2013, St. Joe agreed to sell the approximately 4,057-acre RiverTown community to Mattamy for $43.6 million, subject to adjustments and conditions. The agreement also provides for Mattamy to assume CDD obligations and buy certain impact-fee credits; estimated potential credit proceeds of $20 million to $26 million over five years are uncertain and depend on development and fee levels.
Outlook, commentary and risks
- Following the proposed sales, management expected to retain approximately 180,000 acres and focus on Northwest Florida real estate development, active-adult and mixed-use communities, resort and vacation-rental expansion, commercial and industrial development, and opportunities at the Port of St. Joe.
- Management estimated 2014 capital expenditures of $61.8 million, including $35.1 million for Pier Park North, expected to be funded by the joint venture’s construction loan. If the proposed sales closed, planned residential-development spending was expected to be approximately $18.7 million rather than $26.7 million.
- The pension plan was being terminated, subject to regulatory approval. The Company expected $18 million to $21 million of cash from plan termination in 2014 or 2015, but also estimated future pre-tax losses of $20 million to $23 million.
- Key uncertainties include completion and proceeds from the proposed sales, the cyclical Florida real estate market, dependence on Northwest Florida growth, development approvals and infrastructure needs, hurricanes and other disasters, environmental obligations, insurance availability and costs, timber-market exposure, and the execution of new development plans. The Port of St. Joe requires permits and funding for channel dredging before shipping can begin.
- The SEC’s private investigation concerning, among other matters, real estate impairment accounting, internal controls, books and records, and financial reporting remained ongoing. The Company was cooperating; it said the likelihood and amount of any loss could not be determined.
- St. Joe reported no cash dividends in 2013 or 2012. KPMG issued an unqualified opinion on the financial statements and an unqualified opinion on internal control over financial reporting.
Investor verification priorities
- Confirm whether and on what final terms the AgReserves and RiverTown sales closed, including net proceeds, adjustments, assumed liabilities, and any contingent impact-fee payments.
- Review the use and risk profile of sale proceeds and the Fairholme-managed investment account, including the non-investment-grade securities and related governance arrangements.
- Track cash generation, capital spending, the Pier Park North loan guarantees and liquidity covenant, and CDD obligations.
- Assess the ongoing SEC investigation, environmental matters, and any related developments or potential losses.
- Test the assumptions behind real estate demand, planned active-adult development, resort growth, port activation, and the expected pension-plan distribution and settlement charges.