10-K 1 joe-20141231x10k.htm 10-K JOE-2014.12.31-10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 1-10466
 
The St. Joe Company
(Exact name of registrant as specified in its charter)
 
Florida
 
59-0432511
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
133 South WaterSound Parkway
WaterSound, Florida
 
32413
(Address of principal executive offices)
 
(Zip Code)
(850) 231-6400
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Exchange on Which Registered
Common Stock, no par value
 
New York Stock Exchange
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES  þ    NO  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  þ
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  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  þ    NO  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
þ
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  þ
The aggregate market value of the registrant’s Common Stock held by non-affiliates based on the closing price on June 30, 2014, was approximately $821.3 million.
As of February 23, 2015, there were 92,322,905 shares of common stock, no par value, issued of which 92,302,636 were outstanding, and 20,269 are shares of treasury stock.
Documents Incorporated by Reference
Portions of the Registrant’s definitive proxy statement for its 2015 annual meeting of shareholders, which proxy statement will be filed no later than 120 days after the close of the Registrant’s fiscal year ended December 31, 2014, are hereby incorporated by reference in Part III of this Annual Report on Form 10-K.



THE ST. JOE COMPANY
INDEX
 

 
Page No.
 
 
 
 



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PART I

Item 1.        Business

As used throughout this Annual Report on Form 10-K, the terms “St. Joe,” the “Company,” “we,” “our,” or “us” include The St. Joe Company and its consolidated subsidiaries unless the context indicates otherwise.
General

St. Joe was incorporated in 1936. We are a real estate development and operating company with real estate assets and operations currently concentrated primarily between Tallahassee and Destin, Florida, which we predominantly use, or intend to use, for or in connection with, our various residential or commercial real estate developments, resorts, leisure and leasing operations or our forestry operations on a limited basis.
We have significant residential and commercial land-use entitlements in hand or in process. We seek higher and better uses for our assets through a range of activities from strategic land planning and development, infrastructure improvements and promoting economic development in the regions where we operate. We may explore the sale of such assets opportunistically or when we believe they have reached their highest and best use.

AgReserves Sale

On March 5, 2014, we completed our sale to AgReserves, Inc., of approximately 380,000 acres of land located in Northwest Florida, along with certain other assets and inventory and rights under certain continuing leases and contracts (the “AgReserves Sale”). The acreage in the AgReserves Sale included a significant portion of our land previously designated for forestry operations as well as other land (i) that was not utilized in our residential or commercial real estate segments or our resorts, leisure and leasing segment or (ii) that was not part of our development plans. See Note 5, Real Estate Sales, included in the Notes to the Consolidated Financial Statements included in Item 15 of this Form 10-K for further information on the AgReserves Sale.

RiverTown Sale
On April 2, 2014, we completed our sale to an affiliate of Mattamy (Jacksonville) Partnership d/b/a Mattamy Homes of approximately 4,057 acres of real property, which constitutes the RiverTown community in St. Johns County, Florida, along with all of the Company’s related development or developer rights, founder’s rights and certain tangible and intangible personal property (the “RiverTown Sale”). See Note 5, Real Estate Sales, included in the Notes to the Consolidated Financial Statements included in Item 15 of this Form 10-K for further information on the RiverTown Sale.

Business Strategy

We intend to use our land holdings and our cash and cash equivalents and investments to create long-term value for our shareholders. We believe that our present liquidity position can provide us with numerous opportunities to create long-term value for our shareholders by allowing us to focus on our core business activity of real estate development, including opportunities in Northwest Florida in the active adult market; resorts, leisure and leasing operations; and the Port of Port St. Joe (the Port of St. Joe).
    

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Specifically, in 2015, we intend to focus on the following initiatives:

Recruit and retain future leadership. Our Board of Directors previously announced its intent to appoint a future replacement for the Chief Executive Officer (“CEO”) by the end of 2014. In August of 2014, Jeffrey C. Keil, formerly an independent director of our Board of Directors since 2011, assumed the role of President and Interim CEO of the Company.  As Mr. Keil, has been working closely with our Board of Directors to define our needs and strategy, it has become clear that the process of selecting a replacement will extend into at least 2015. In the interim, Mr. Keil and our management continue to implement the next stages of our strategy with Mr. Keil in the leadership position.  It is possible, however, that once a future CEO has been appointed some, or all, of our business strategy will change depending on the experience, vision, and attributes of our future leadership.

Explore opportunities to capitalize on the retirement demographic. We believe that there is a growing retirement demographic in Northwest Florida and that our development experience and the location, size and contiguous nature of our Florida land holdings provide us with strategic opportunities in this demographic. Consequently, we intend to continue the planning necessary to develop mixed-use and active adult communities in Northwest Florida, which we are exploring launching in the next 12 to 18 months. In 2013, we commenced the process to update and expand the previously approved West Bay Sector Plan, to establish a long-term land use master plan, to accommodate among other things, the concept of a mixed-use and active adult community or communities. Our team has been working closely with the local community and local officials through the process and we are pleased with the progress. In September and October of 2014, public hearings were held and local officials unanimously voted to transmit the long term master plan to the State of Florida for review. We are currently working with State of Florida officials in their review.

Develop new commercial and industrial uses for our land portfolio. We intend to continue exploring new commercial and industrial uses for our land portfolio that we believe will be accretive in value to our land holdings and/or shareholders. The majority of our current land holdings are located within fifteen miles of the coast of the Gulf of Mexico and adjacent to major roads or the Northwest Florida Beaches International Airport. As such, we believe we are positioned to develop, alone and in conjunction with strategic partners, our land for commercial and industrial use. As part of this strategy, we will continue to seek opportunities to develop and exploit the following projects, among others that may evolve.

Pier Park North. We are currently developing a 324,000 square foot retail lifestyle center in Panama City Beach, with Casto, our joint venture partner and one of the country’s leading developers of neighborhood and community retail centers. As of February 1, 2015, approximately 260,000 square feet of retail space was leased, which included key tenants such as Dick’s Sporting Goods, Fresh Market, World Market, Bed Bath & Beyond, Michaels, Pet Smart and Ross Dress for Less.

Port of St. Joe. We believe the Port of St. Joe can benefit from the expected long-term economic growth in the Southeastern United States and increased traffic from the widening of the Panama Canal. We believe the Port of St. Joe is well positioned for bulk cargo shipments, offering access to rail, the U.S. Gulf Intracoastal Waterway and state and U.S. highways. However, prior to being able to commence any shipping activities, the Port of St. Joe’s shipping channel must first be dredged up to the federally authorized depth. In 2013, the Port of St. Joe Port Authority received a grant of $0.8 million from The Florida Department of Transportation. In December 2014, the Florida Department of Environmental Protection issued the state permits to dredge the shipping channel. However, additional regulatory approvals, funding and other infrastructure improvements are required before dredging can begin, which could span multiple years.


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We have signed non-binding letters of intent (“LOIs”) that contemplate economic development opportunities for Florida’s Northwest region, including the potential to bolster usage of the AN Railway and make the Port of St. Joe operational. The LOIs state that the obligations of both us, which includes dredging the shipping channel, and the other party are contingent upon the Port of St. Joe receiving funding to complete the dredging of the shipping channel.

AN Railway Rail and Right-of-Way. We own the rail and right-of-way for a short line freight railroad operated by AN Railway, LLC that begins at the Port of St. Joe and connects with CSX Transportation in Chattahoochee, Florida. We are working with AN Railway and The Florida Department of Transportation to seek funding necessary to rehabilitate the rail and certain structures over the Apalachicola River to accommodate freight trains to and from Port of St. Joe. We believe that rehabilitating the rail infrastructure will benefit the Port of St. Joe and encourage new port-related industrial and commercial business.

VentureCrossings. We plan to continue to seek opportunities to increase interest for VentureCrossings, our industrial and commercial development, which can support up to 5.9 million of leasable square feet. We built and own a 105,000 square foot building with manufacturing and office space in VentureCrossings and lease the facility to Exelis Inc. under a long-term lease that commenced in 2012.

Explore partnerships with best of class operators. We believe that by entering into partnerships, joint ventures or other collaborations and alliances with best of class operators, we can efficiently utilize our land assets while reducing capital requirements.

Continue efficient operations. We expect to continue a cost and investment discipline to ensure bottom line performance in all environments.

Continue to invest in available for sale securities while we explore other opportunities. We plan to continue to invest in available for sale securities while we continue to explore other opportunities for these assets.
Our Business
We currently operate our business in four reportable operating segments: (1) residential real estate, (2) commercial real estate, (3) resorts, leisure and leasing operations and (4) forestry. For financial information about our operating segments, please see Note 20, Segment Information included in the Notes to the Consolidated Financial Statements included in Item 15 of this Form 10-K.
    
Residential Real Estate
Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land. We own land in Northwest Florida, including Gulf of Mexico beach frontage, and other waterfront properties concentrated primarily between Tallahassee and Destin, Florida.

Our real estate investment strategy focuses on projects that meet our risk-adjusted investment return criteria. We adopted a rate of return against which we evaluate our capital expenditures and investments. The time frame for these expenditures and investments will vary based on the type of project. However, we will only incur such expenditures if our analysis indicates that the project will generate a return equal to or greater than the threshold return over its life. While an analysis is conducted for capital expenditures in each of our four segments, we currently anticipate that the majority of our 2015 budgeted capital expenditures will be in our residential real estate business.


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Within our residential real estate business, we currently have two types of communities. The first, our residential resort communities, are positioned to attract primarily second home buyers. Our successful projects in this category include the WaterColor and WaterSound Beach communities, which were built in a region of Florida that has historically attracted second home buyers. We have recently seen an increased demand for homes in these established resort communities. Less developed communities continue to have low sales volume and little price appreciation.

Our second type of residential communities is our primary home communities, which are for buyers who intend to use the community for their primary residence. Our WaterSound Origins, Breakfast Point and SouthWood communities are our largest projects in this category. We have seen continued demand from builders for our developed lots in our WaterSound Origins primary home community.

As discussed above in the Business Overview section, in April 2014, we completed the sale of our RiverTown community.

Commercial Real Estate
In our commercial real estate segment we plan, develop and sell real estate, including commercial operating property, for commercial purposes. We provide development opportunities for national and super regional retailers and our strategic partners in Northwest Florida. We offer land for commercial and light industrial uses. We also develop commercial parcels within or near existing residential development projects. Our commercial real estate also includes industrial parks and several commerce parks. We have large land holdings surrounding the Northwest Florida Beaches International Airport, along roadways and near or within business districts in the region. Adjacent to the Northwest Florida Beaches International Airport, is one of our industrial parks, VentureCrossings Enterprise Centre, a commercial and industrial development. We are soliciting global office, retail and industrial users for this prime development location.
 
The operations of commercial properties are managed and reported in our resorts, leisure and operations’ segment. For example, we built a 105,000 square foot building with manufacturing and office space in VentureCrossings and now lease the facility to Exelis Inc. under a long-term lease, which is managed and reported in our resorts, leisure and operations’ segment. The sale of commercial operating property is managed and reported in our commercial real estate segment.

Resorts, Leisure and Leasing Operations
Our resorts, leisure and leasing operations segment includes recurring revenue streams from (i) our resort and leisure businesses and (ii) our leasing operations.
Resort and Leisure Business
WaterColor Inn and Vacation Rentals. Our WaterColor Inn and Resort is an award winning boutique hotel, which provides guests with a beach club, spa, tennis center, an award-winning restaurant and complementary retail and commercial space. In addition, our vacation rental business rents private homes in the WaterColor, WaterSound Beach and surrounding communities, to individuals who are vacationing in the area. Our resorts and leisure businesses are managed for us by a third party management company.
Clubs and Resorts. We own four golf courses in Northwest Florida. Three of them are in the Panama City Beach area and the fourth is located in Tallahassee. The golf courses are situated in or near our residential communities. We also own and operate two marinas. Our golf courses and marinas are managed for us by a third party management company.

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St. Joe Club & Resorts. St. Joe Club & Resorts is our private membership club that provides participating homeowners and their rental guests access to our amenities. We launched St. Joe Club & Resorts in January 2014, and as a result of this initiative, certain of our amenities are no longer available to the public. While we expect revenues generated from these facilities to decline, we expect that revenues from our vacation rental business will increase in the future as we believe that the St. Joe Club & Resorts will provide us a competitive advantage in this business. In addition, in May 2014, St. Joe Club & Resorts began managing The Pearl Hotel, a fifty-five room resort hotel in Northwest, Florida.

Leasing Operations
Our leasing operations business includes our retail and commercial leasing. Our retail leasing business principally arose in connection with the growth in our residential developments. We have several small retail shopping centers located in or very near to some of our residential projects, such as the WaterColor, WaterSound Beach, SouthWood and WindMark Beach communities that are managed by our leasing team. The success of these small retail centers is closely tied to the success of the residential developments from which they draw their customers.

Pier Park North. Our commercial leasing operations include our Pier Park North joint venture. Our Pier Park North joint venture includes a 324,000 square foot retail lifestyle center in Panama City Beach, which we developed with Casto, our joint venture partner and one of the country’s leading developers of neighborhood and community retail centers. We developed and constructed the Pier Park North retail lifestyle center beginning in late 2013 and expect to complete the majority of construction in mid-2015. As of February 1, 2015, approximately 260,000 square feet of retail space was leased, which included key tenants such as Dick’s Sporting Goods, Fresh Market, World Market, Bed Bath & Beyond, Michaels, Pet Smart and Ross Dress for Less.

VentureCrossings. We built and own a 105,000 square foot building with manufacturing and office space in VentureCrossings and lease the facility to Exelis Inc. under a long-term lease that commenced in 2012.
    
From time to time, we may sell certain resort, leisure and operating properties. The sale of these assets were managed and reported in our commercial real estate segment.

Forestry
Our forestry segment focuses on the management of our timber holdings in Northwest Florida. We grow and sell sawtimber, wood fiber and forest products and provide land management services for conservation properties. Subsequent to the AgReserves Sale, we have sold and plan to continue to sell product on site without the associated delivery costs. As of December 31, 2014, we had approximately 120,000 acres designated for forestry operations and expect to have the ability to consistently operate approximately 60,000 acres. Our ability to operate the remaining acreage is limited by geographical restrictions, (e.g. lakes and wetlands that do not yield enough timber to make it cost effective to operate in those areas, land set aside for mitigation banks and certain regulatory restrictions).

Our forestry segment may also sell our timber holdings, undeveloped land or land with limited development and easements. Some parcels include the benefits of limited development activity including improved roads, ponds and fencing. We have traditionally sold parcels of varying sizes ranging from less than one acre to thousands of acres. The pricing of these parcels varies significantly based on size, location, terrain, timber quality and other local factors.

Prior to the AgReserves Sale, a significant portion of the revenue from our forestry segment was generated pursuant to our supply agreement entered into in November 2010 with RockTenn (RockTenn Supply Agreement), under which we sold delivered wood (trees that we cut and deliver). As part of the AgReserves Sale, the RockTenn Supply Agreement was assumed by AgReserves. Subsequent to the AgReserves Sale, revenue from our forestry segment has decreased substantially and is primarily generated from open market sales of timber.    

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Seasonality

Some of our businesses may be affected by seasonal fluctuations. For example, revenues from our resorts, leisure and leasing operations are typically higher in the second and third quarters; however, they can vary depending on the timing of holidays and school breaks, including spring break.

In addition to the seasonality effect described above, variability in our results of operations is further heightened by the change in our customer mix in our residential real estate business from some retail sales, which have a more consistent flow of revenues, to almost exclusively sales to homebuilders, who tend to buy in sporadic, bulk purchases. Our commercial real estate projects are likewise subject to one-off sales and the development of specific projects depending on demand.

These variables have caused, and may continue to cause, our operating results to vary significantly from period to period. See “Item 1A-Risk Factors-Risks Related to Our Current Business--Our results of operations may vary significantly from period to period which could adversely impact our stock price, results of operations, cash flows and financial condition.”
Competition
    
The real estate development business is highly competitive and fragmented. We compete with other local, regional and national real estate companies, some of which may have greater financial, marketing, sales and other resources than we do.

A number of highly competitive companies participate in the vacation rental industry. Our ability to remain competitive and to attract and retain vacation rental owners and memberships depends on our success in distinguishing the quality and value of our products and services from those offered by others. We compete based on location, price and amenities.

In our forestry business, we compete with numerous public and privately held timber companies in our region. The principal method of competition is price and delivery.

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Governmental Regulation

Our operations are subject to federal, state and local environmental laws and regulations, including laws relating to water, air, solid waste and hazardous substances and the requirements of the Federal Occupational Safety and Health Act and comparable state statutes relating to the health and safety of our employees. Although we believe that we are in material compliance with these requirements, there can be no assurance that we will not incur significant costs, civil and criminal penalties, and liabilities, including those relating to claims for damages to property or natural resources, resulting from our operations. We maintain environmental and safety compliance programs and conduct regular internal and independent third-party audits of our facilities and timberlands to monitor compliance with these laws and regulations. Enactment of new environmental laws or regulations, or changes in existing laws or regulations or the interpretation of these laws or regulations, might require significant expenditures.

Employees
As of February 23, 2015, we had 61 full-time employees in our corporate office. Certain persons employed in the day-to-day operations of our resorts and leisure operations were employed by a third party management company engaged pursuant to a consulting and employment services agreement. In addition, we utilize part-time employees and independent contractors during the year based on seasonal needs.

Available Information
Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports may be viewed or downloaded electronically, free of charge, from our website:
http://www.joe.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). In addition, you may read and copy any materials we file with SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference room, you may call the SEC at 1-800-SEC-0330. Our recent press releases are also available to be viewed or downloaded electronically at http://www.joe.com.

We will also provide electronic copies of our SEC filings free of charge upon request. Any information posted on or linked from our website is not incorporated by reference into this Annual Report on Form 10-K. The SEC also maintains a website at http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

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Item 1A.    Risk Factors

You should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 10-K. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also materially and adversely affect our business. If any of these risks actually occur, our business, financial condition, results of operations, cash flows, strategies and prospects could be materially adversely affected.

Risks Related to Our Current Business Strategy

We may not be able to successfully implement our business strategy, which would adversely affect our financial condition, results of operations, cash flows and financial performance.

Following the AgReserves Sale and RiverTown Sale that were completed in 2014, our cash and available-for-sale securities comprise over fifty percent of the carrying value of our assets, while our assets related to our existing investments in real estate only comprise about one-quarter of the carrying value of our assets. Our future financial performance and success are therefore heavily dependent on our ability to implement our business strategy successfully.

Our current business strategy envisions several initiatives, including recruiting and retaining a future Chief Executive Officer, investing in new opportunities, such as the development of our mixed-use and active adult communities, developing new commercial and industrial uses for our land portfolio, entering into strategic alliances and continuing to efficiently contribute to our bottom line performance. We may not be able to successfully implement our business strategy or achieve the benefits of our business plan. In addition, it is possible that some or all of our business strategy will change depending on the experience, vision, and attributes of future leadership. If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial position could be negatively affected.

Management has discretion as to the investments we make and may not use these funds effectively.

We plan to continue to invest in available-for-sale securities until we can find what we believe to be other advantageous opportunities for these funds. Our management has discretion in the selection of both our available-for-sale securities and our real estate investments and could make investments that do not improve our results of operations, cash flows and financial condition or enhance the value of our common stock or which results in financial losses that could have a material adverse effect on our business, results of operations, cash flows and financial condition and stock price.

Our investment in new business opportunities is inherently risky, and could disrupt our ongoing businesses and adversely affect our operations.

We have invested and expect to continue to invest in new business opportunities, such as the development of our mixed-use and active adult communities and the expansion of port related opportunities at the Port of St. Joe. Such endeavors may involve significant risks and uncertainties, including distraction of management from current operations, insufficient revenues to offset liabilities assumed and expenses associated with these new investments including development costs, inadequate return of capital on our investments, and unidentified issues not discovered in our due diligence of such opportunities. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be successful and will not adversely affect our reputation, financial condition, and operating results.


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We intend to invest our assets in ways such that we will not have to register as an investment company under the Investment Company Act of 1940. As a result, we may be unable to make some potentially profitable investments.

We are not registered as an “investment company” under the Investment Company Act and we intend to invest our assets in such a manner so that we are not required to register as an investment company. This will require monitoring our portfolio so that (a) we will not have more than 40% percent of total assets (excluding U.S. government securities and cash items) in investment securities or (b) we will meet and maintain another exemption from registration. As a result, we may be (1) unable to make some potentially profitable investments, (2) unable to sell assets we would otherwise want to sell or (3) forced to sell investments in investment securities before we would otherwise want to do so.

If The Fairholme Funds or Fairholme Capital Management, L.L.C. controls us within the meaning of the Investment Company Act of 1940, we may be unable to engage in transactions with potential strategic partners, which could adversely affect our business.

The Fairholme Fund (“Fairholme”) (a series of Fairholme Funds, Inc. an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”)) has the right to vote as of December 31, 2014 approximately 25.8% of our outstanding common stock. Fairholme Capital Management, L.L.C. (“Fairholme Capital”), which controls Fairholme, is the investment adviser of accounts that in the aggregate own, as of December 31, 2014, an additional 1.3% of our common stock. Bruce R. Berkowitz, the Managing Member of Fairholme Capital Management, L.L.C., and the President of Fairholme Funds, Inc., is the Chairman of our Board of Directors. Under the Investment Company Act, “control” means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Any person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of a company is presumed to control such company. The SEC has considered factors other than ownership of voting securities in determining control, including an official position with the company when such was obtained as a result of the influence over the company. Accordingly, even if Fairholme’s beneficial ownership in us is below 25% of our outstanding voting securities, Fairholme may nevertheless be deemed to control us. The Investment Company Act generally prohibits a company controlled by an investment company from engaging in certain transactions with any affiliate of the investment company or affiliates of the affiliate, subject to limited exceptions. An affiliate of an investment company is defined in the Investment Company Act as, among other things, any company 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the investment company, a company directly or indirectly controlling, controlled by, or under common control with, the investment company or a company directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of the investment company.

We believe that Fairholme is currently affiliated with a number of entities, including American International Group Inc, Bank of America Corp., Leucadia National Corporation and Sears Holdings Corporation. Due to these affiliations, should Fairholme be deemed to control us, we may be prohibited from engaging in certain transactions with these entities and certain of their affiliates and any future affiliates of Fairholme, unless one of the limited exceptions applies. This could adversely affect our ability to enter into transactions freely and compete in the marketplace. In addition, significant penalties and other consequences may arise as a result of a violation for companies found to be in violation of the Investment Company Act.


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Returns on our investments may be limited by our investment guidelines and restrictions.

In 2013, we established investment guidelines and restrictions approved by the Investment Committee of our Board of Directors pursuant to the terms of the Investment Agreement with Fairholme Capital. The investment guidelines require that, as of the date of any investment: (i) at least 50% of the investment account be held in cash or cash equivalents, (ii) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government), (iii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10%, but not 15%, requires the consent of at least two members of the Investment Committee, and (iv) the investment account may not be invested in common stock securities. These limitations may restrict our ability to make certain investments and may negatively impact the return that we could otherwise receive from our investment account. This could adversely affect our cash flows and results of operations.

Our future growth is dependent on transactions with strategic partners. We may not be able to successfully (1) attract desirable strategic partners; (2) complete agreements with strategic partners; and/or (3) manage relationships with strategic partners going forward, any of which could adversely affect our business.

We may seek strategic partnerships to develop mixed-use and active adult communities, capitalize on the potential of our commercial and industrial opportunities and maximize the value of our assets. These strategic partnerships may bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or other competitive assets. We cannot assure, however, that we will have sufficient resources, experience and/or skills to locate desirable partners. We also may not be able to attract partners who want to conduct business in desirable geographic locations and who have the assets, reputation or other characteristics that would optimize our development opportunities.

Once a strategic partner has been identified, actually reaching an agreement on a transaction may be difficult to complete and may take a considerable amount of time considering that negotiations require careful balancing of the parties’ various objectives, assets, skills and interests. A formal partnership may also involve special risks such as:

our partner may take actions contrary to our instructions or requests, or contrary to our policies or objectives with respect to the real estate investments;
our partner could experience financial difficulties, become bankrupt or fail to fund their share of capital contributions, which may delay construction or development of property or increase our financial commitment to the strategic partnership;
we may disagree with our partner about decisions affecting the real estate investments or partnership, which could result in litigation or arbitration that increases our expenses, distracts our officers and directors and disrupts the day-to-day operations of the property, including by delaying important decisions until the dispute is resolved; and
actions by our partner may subject property owned by the partnership to liabilities or have other adverse consequences.

A key complicating factor is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that are influenced by factors unrelated to our business. These competing interests lead to the difficult challenges of successfully managing the relationship and communication between strategic partners and monitoring the execution of the partnership plan. We cannot assure that we will have sufficient resources, experience and/or skills to effectively manage our ongoing relationships with our strategic partners. We may also be subject to adverse business consequences if the market reputation of a strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, our business, results of operations, cash flows and financial position could be adversely affected.


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Losses in the fair value of our available-for-sale and held-to-maturity investments, and the concentration of our investment portfolio in any particular issuer, industry, group of related industries or geographic sector, could have an adverse impact on our results of operations, cash flows and financial condition.

As of December 31, 2014, we have an investment account of $656.9 million which is managed by Fairholme Capital. Of this amount, $20.0 million is held in cash equivalents, $509.8 million is held in U.S. Treasury securities, $100.1 million is held in corporate debt securities and $27.0 million is held in preferred stock investments. The market value of these investments is subject to change from period to period. Our available-for-sale securities, include corporate debt securities that are issued by one issuer who is a national retail chain that is non-investment grade and our preferred stock investment that is also non-investment grade and was issued by two financial services firms. Furthermore, pursuant to our Investment Agreement with Fairholme Capital, our investment advisor, we could invest up to a total of fifteen percent of the investment account in any one issuer as of the date of purchase.

We have exposure to credit risk associated with our available-for-sale and held-to-maturity investments, which include U.S. Treasury securities, corporate debt securities, preferred stock investments and retained interest investments. These instruments are also subject to price fluctuations as a result of changes in the financial market’s assessment of issuer credit quality, increases in delinquency and default rates, changes in prevailing interest rates and other economic factors. A downgrade of the U.S. government’s credit rating could also decrease the value of our available-for-sale and held-to-maturity investments.
    
Losses in the fair value of our available-for-sale and held-to-maturity investments can negatively affect earnings if management determines that such securities are other-than-temporary impaired. The evaluation of other-than-temporary impairment is based on various factors, including the financial condition, business prospects, industry and creditworthiness of the issuer, severity and length of time the securities were in a loss position, our ability and intent to hold investments until unrealized losses are recovered or until maturity and amount of the unrealized loss. If a decline in fair value is considered other-than-temporary, the carrying amount of the security is written down and the amount of the credit-related component is recognized in earnings. During 2014, we recorded an other-than-temporary impairment for credit-related losses of $1.3 million related to our corporate debt securities in Investment income, net on our Consolidated Statements of Income.

Any further losses in the fair value of our available-for-sale and held-to-maturity investments that are deemed to be other-than-temporary due to credit deterioration will result in us being required to record further credit-related losses in our Consolidated Statements of Income. Furthermore, as a result of the concentration of our corporate debt securities and preferred stock investments, the performance of our investments may be disproportionately affected by any adverse change in the financial condition of these issuers or the market value of any of the securities in our portfolio, which could have a material adverse effect on our results of operations, cash flows and financial condition.

Risks Related to our Current Business

Our results of operations may vary significantly from period to period which could adversely impact our stock price, results of operations, cash flows and financial condition.

Historically, we derived a substantial portion of our income from our forestry operations which had more of a consistent flow of revenues. However, following the AgReserves Sale, variability in our period to period results of operations and cash flows has become more apparent as income from our forestry operations has been reduced. In addition, our customer mix in our residential real estate business has changed from some retail sales, which have a more consistent flow of revenues, to almost exclusively sales to homebuilders who tend to buy in sporadic, bulk purchases. Commercial real estate projects are likewise subject to one-off sales and the development of specific projects depending on demand.

    

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Moreover, as it relates to all of our residential and commercial land-use entitlements in hand or in process, we seek higher and better uses for our assets through a range of activities from strategic land planning and development, infrastructure improvements and promoting economic development in the regions where we operate; and therefore may explore the sale of assets opportunistically or when we believe they have reached their highest and best use. As a consequence, there may be reporting periods in which we have no, or significantly less, revenues from residential or commercial real estate sales.

Furthermore, our resorts, leisure and leasing operations are affected by seasonal fluctuations. Revenues from our resorts, leisure and leasing operations businesses are typically higher in the second and third quarters; however, they can vary depending on the timing of holidays and school breaks, including spring break.
  
These variables have caused, and may continue to cause, our operating results to vary significantly from period to period which could have an adverse impact on our stock price, cash flows and financial condition.

Our business is subject to extensive regulation and growth management initiatives that may restrict, make more costly or otherwise adversely impact our ability to develop our real estate investments or otherwise conduct our operations.

A large part of our business strategy is dependent on our ability to develop real estate in Northwest Florida, including opportunities in the mixed-use and active adult communities and expanding the Port of St. Joe operations. Approval to develop real property in Florida entails an extensive entitlements process involving multiple and overlapping regulatory jurisdictions and often requiring discretionary action by local government. This process is often political, uncertain and may require significant exactions in order to secure approvals. Real estate projects in Florida must generally comply with the provisions of the Local Government Comprehensive Planning and Land Development Regulation Act (the “Growth Management Act”) and local land development regulations. In addition, development projects that exceed certain specified regulatory thresholds require approval of a comprehensive Development of Regional Impact, or DRI, application. Compliance with the Growth Management Act, local land development regulations and the DRI process is usually lengthy and costly and can be expected to materially affect our real estate development activities.

The Growth Management Act requires local governments to adopt comprehensive plans guiding and controlling future real property development in their respective jurisdictions and to evaluate, assess and keep those plans current. Included in all comprehensive plans is a future land use map which sets forth allowable land use development rights. Since a lot of our land has an “agricultural” or “silviculture” future land use designation, we are required to seek an amendment to the future land use map to develop residential, commercial and mixed-use projects. Approval of these comprehensive plan map amendments is highly discretionary.

All development orders and permits must be consistent with the comprehensive plan. Each plan must address such topics as future land use and capital improvements and make adequate provision for a multitude of public services including transportation, schools, solid waste disposal, sanitation, sewerage, potable water supply, drainage, affordable housing, open space parks and others. The local governments’ comprehensive plans must also establish “levels of service” with respect to certain specified public facilities, including roads and schools, and services to residents. In many areas, infrastructure funding has not kept pace with growth, causing facilities to operate below established levels of service. Local governments are prohibited from issuing development orders or permits if the development will reduce the level of service for public facilities below the level of service established in the local government’s comprehensive plan, unless the developer either sufficiently improves the services up front to meet the required level or provides financial assurances that the additional services will be provided as the project progresses. In addition, local governments that fail to keep their plans current may be prohibited by law from amending their plans to allow for new development.


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If any one or more of these factors were to occur, we may be unable to develop our primary communities or planned mixed-use and active adult communities successfully or within the expected timeframes. Changes in the Growth Management Act or the DRI review process or the interpretation thereof, new enforcement of these laws or the enactment of new laws regarding the development of real property could lead to a decline in our ability to develop and market our communities successfully and to generate positive cash flow from these operations in a timely manner which could have a materially adverse affect our ability to service our demand and negatively impact our business, results of operations, cash flows or financial position.

Our existing real estate investments are concentrated in Northwest Florida; therefore our long-term financial results are largely dependent on the economic growth of Northwest Florida.

The economic growth of Northwest Florida, where most of our land is located, is an important factor in creating demand for our products and services. Our principal sources of revenue are (1) sales of land to homebuilders and others in connection with residential housing developments, (2) sales and leasing of commercial real estate, (3) revenues generated through our hotel and other leasing activities that are principally tourism related and (4) future revenue from the Port of St. Joe operations and our planned mixed-use and active adult communities. Consequently, demand for our products largely depends on the growth of the local economy.

We believe that the future economic growth of Northwest Florida will largely depend on the ability and willingness of state and local governments, in combination with the private sector, (1) to plan and complete significant infrastructure improvements in the region, such as new transportation hubs, roads, rail, pipeline, medical facilities and schools and (2) to attract companies offering high-quality, high salary jobs to large numbers of new employees. If new businesses and new employees in Northwest Florida do not grow as anticipated, demand for residential and commercial real estate and demand to expand the Port of St. Joe will not meet our expectations and our future growth will be adversely affected.

Changes in the demographics affecting projected population growth in Florida, particularly Northwest Florida, including a decrease in the migration of Baby Boomers, could adversely affect our business.

Florida has experienced strong population growth in the past few decades, particularly during the real estate boom in the first half of the last decade. However, a decline in the rate of migration into Florida could occur due to a number of factors affecting Florida, including weak economic conditions, restrictive credit, the occurrence of hurricanes and increased costs of living. Also, because of the recent housing collapse across the nation, people interested in moving to Florida may have delayed or canceled their plans due to difficulties selling their existing homes.

The success of our primary communities and planned mixed-use and active adult communities will be dependent on strong migration population expansion in our regions of development, primarily Northwest Florida. We also believe that Baby Boomers seeking retirement or vacation homes in Florida will remain important target customers for our real estate products in the future. Florida’s population growth could be negatively affected in the future by factors such as adverse economic conditions, the occurrence of natural or manmade disasters and the high cost of real estate, insurance and property taxes. Furthermore, those persons considering moving to Florida may not view Northwest Florida as an attractive place to live or own a second home and may choose to live in another region of the state. In addition, as an alternative to Florida, other states such as Georgia, North and South Carolina and Tennessee are increasingly becoming retirement destinations and are attracting retiring Baby Boomers and the workforce population who may have otherwise considered moving to Florida. If Florida, especially Northwest Florida, experiences an extended period of slow growth, or even net out-migration, our business, results of operations, cash flows and financial condition would suffer.


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We have significant operations and properties in Florida that could be materially and adversely affected by natural disasters, manmade disasters, severe weather conditions or other significant disruptions.

Our corporate headquarters and our properties are located in Florida, where major hurricanes have occurred. Because of its location between the Gulf of Mexico and the Atlantic Ocean, Florida is particularly susceptible to the occurrence of hurricanes. Depending on where any particular hurricane makes landfall, our developments in Florida, especially our coastal properties in Northwest Florida, could experience significant, if not catastrophic, damage. Such damage could materially delay sales or lessen demand for our residential or commercial real estate in affected communities and lessen demand for our resorts, leisure and leasing operations, such as disrupting our resort and vacation rental business if there are extensive repairs to the facilities or by lessening demand as a vacation destination. If our corporate headquarters facility is damaged or destroyed, we may have difficulty performing certain corporate and operational functions.

In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Florida, such as tornadoes, floods, fires, unusually heavy or prolonged rain, droughts and heat waves, could have a material adverse effect on our ability to develop and sell properties or realize income from our projects. The occurrence of these natural disasters could also have a material adverse effect on our forestry business, if timber inventory is destroyed. Furthermore, an increase in sea levels due to long-term global warming could have a material adverse effect on our coastal properties and forestry business. The occurrence of natural disasters and the threat of adverse climate changes could also have a long-term negative effect on the attractiveness of Florida as a location for resort, seasonal and/or primary residences and as a location for new employers that can create high-quality jobs needed to spur growth in Northwest Florida.

Additionally, we are susceptible to manmade disasters or disruptions, such as oil spills like the Deepwater Horizon oil spill, acts of terrorism, power outages and communications failures. If a hurricane, natural disaster, manmade disaster or other significant disruption occurs, we may experience disruptions to our operations and properties, which could have a material adverse effect on our business, results of operations, cash flows and financial position.

Our insurance coverage on our properties may be inadequate to cover any losses we may incur.

We maintain insurance on our property, including property, liability, fire, flood and extended coverage. However, we do not insure our timber assets and self-insure home warranty claims. Additionally, our insurance for hurricanes is capped at $50 million per named storm and is subject to deductibles. We use our discretion when determining amounts, coverage limits and deductibles for insurance. These terms are determined based on retaining an acceptable level of risk at a reasonable cost. This may result in insurance coverage that in the event of a substantial loss would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also may make it unfeasible to use insurance proceeds to replace a facility after it has been damaged or destroyed. Under such circumstances, we may not receive insurance proceeds or the insurance proceeds we receive may not fully cover business interruptions or losses and our earnings, liquidity, or capital resources could be adversely affected.

Increases in property insurance premiums and decreases in availability of homeowner property insurance in Florida could reduce customer demand for homes and homesites in our developments.

Homeowner property insurance companies doing business in Florida have reacted to previous hurricanes by increasing premiums, requiring higher deductibles, reducing limits, restricting coverage, imposing exclusions, refusing to insure certain property owners, and in some instances, ceasing insurance operations in the state. It is uncertain what effect these actions may have on property insurance availability and rates in the state.


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Furthermore, Florida’s state-owned property insurance company, Citizens Property Insurance Corp., underwrites homeowner property insurance. If there were to be a catastrophic hurricane or series of hurricanes to hit Florida, the exposure of the state government to property insurance claims could place extreme stress on state finances.

The high costs of property insurance premiums in Florida could deter potential customers from purchasing a homesite in one of our developments or make Northwest Florida less attractive to new employers that can create high quality jobs needed to spur growth in the region, either of which could have a material adverse effect on our business, results of operations, cash flows and financial position.

A decline in consumers’ discretionary spending or a change in consumer preferences could reduce our sales and harm our business.

Our real estate and resorts and leisure businesses’ sales ultimately depend on consumer discretionary spending, which is influenced by factors beyond our control, including general economic conditions, the availability of discretionary income and credit, weather, consumer confidence and unemployment levels. Any material decline in the amount of consumer discretionary spending could reduce our sales and harm our business. These economic and market conditions, combined with continuing difficulties in the credit markets and the resulting pressures on liquidity, may also place a number of our key customers under financial stress, which would could adversely affect our occupancy rates and our profitability.

Further downturns of the real estate market in Northwest Florida could adversely affect our operations.

Demand for real estate is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels, over which we have no control. In addition, the real estate market is subject to downturns; and, furthermore, our business is especially sensitive to economic conditions in Northwest Florida, where many of our developments are located, and the Southeast region of the United States, which in the past has produced a high percentage of customers for the resort and seasonal products in our Northwest Florida communities. Unemployment, lack of consumer confidence and other adverse consequences of the previous economic recession continue to affect the economies of these two regions. If market conditions do not continue to improve as anticipated or were to worsen, the demand for our real estate products could decline, negatively impacting our business, results of operations, cash flows and financial condition.

Mortgage financing issues, including lack of supply of mortgage loans, tightened lending requirements and possible future increases in interest rates, could reduce demand for our products.

Many purchasers of our real estate products obtain mortgage loans to finance a substantial portion of the purchase price, or they may need to obtain mortgage loans to finance the construction costs of homes to be built on homesites purchased from us. Also, our homebuilder customers depend on retail purchasers who rely on mortgage financing. Many mortgage lenders and investors in mortgage loans experienced severe financial difficulties arising from losses incurred on sub-prime and other loans originated before the downturn in the real estate market. As a result, the mortgage industry remains under scrutiny and continues to face the challenges of increased regulation at federal, state, and local levels. Because of these challenges, the supply of mortgage products has been constrained, and the eligibility requirements for borrowers have been tightened. Constraints on the mortgage lending industry could adversely affect potential purchasers of our products, including our homebuilder customers, thus having a negative effect on demand for our products.
While interest rates for home mortgage loans have generally remained low, mortgage interest rates could increase in the future which could adversely affect the demand for residential real estate. In addition to residential real estate, increased interest rates and restrictions in the availability of credit could also negatively impact sales of our commercial properties or other land we offer for sale. If interest rates increase and the ability or willingness of prospective buyers to finance real estate purchases is adversely affected, our sales, results of operations, cash flows and financial position may be negatively affected.

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Tax law changes could make home ownership more expensive or less attractive.

Historically, significant expenses of owning a home, including mortgage interest expense and real estate taxes, generally have been deductible expenses for the purpose of calculating an individual’s federal, and in some cases state, taxable income as itemized deductions. The Federal government has been considering eliminating some deductions, or limiting the tax benefit of deductions, with regard to people with incomes above specified levels. As part of the American Taxpayer Relief Act of 2012, enacted on January 1, 2013, beginning in 2013 certain taxpayers will have their itemized deductions limited. Changes in tax laws could increase the after-tax cost of owning a home, which is likely to impact adversely the demand for homes and could reduce the prices for which we can sell homes, particularly in higher priced communities.

Significant competition could have an adverse effect on our business.

A number of residential and commercial developers, some with greater financial and other resources, compete with us in seeking resources for development and prospective purchasers and tenants. Competition from other real estate developers may adversely affect our ability to attract purchasers and sell residential and commercial real estate and attract and retain experienced real estate development personnel.

A number of highly competitive companies participate in the vacation rental industry. Last year, we launched St. Joe Club & Resorts, a private membership club that provides access to a diverse offering of benefits and privileges at certain of our owned and operated resort facilities. In addition, certain facilities are private clubs and only members and registered guests of St. Joe Club & Resorts are eligible to play. Our ability to remain competitive and to attract and retain vacation rental owners and memberships depends on our success in distinguishing the quality and value of our products and services from those offered by others.

In addition, the forestry business is highly competitive in terms of price and quality. Wood products are subject to increasing competition from a variety of substitute products, including non-wood and engineered wood products. There can be no assurance we will be able to compete successfully against current or future competitors or that competitive pressures we face in the markets in which we operate will not materially adversely affect our business, financial condition and results of operations.

We are dependent upon homebuilders as customers, but our ability to attract homebuilder customers and their ability or willingness to satisfy their purchase commitments may be uncertain.

We are highly dependent upon our relationships with homebuilders to be the primary customers for our homesites and to provide construction services at our residential developments. The homebuilder customers that have already committed to purchase homesites from us could decide to reduce, delay or cancel their existing commitments to purchase homesites in our developments. From time to time we finance real estate sales with mortgage note receivables. If these homebuilders fail to pay their debts to us or delay paying us, it would reduce our anticipated cash flows. Homebuilders also may not view our developments as desirable locations for homebuilding operations, or they may choose to purchase land from distressed sellers. Any of these events could have an adverse effect on our business, results of operations, cash flows and financial position.


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We are exposed to risks associated with real estate development that could adversely impact our results of operations, cash flows and financial condition.

Our real estate development activities entail risks that could adversely impact our results of operations, cash flows and financial condition, including:

construction delays or cost overruns, which may increase project development costs;
claims for construction defects after property has been developed, including claims by purchasers and property owners’ associations;
an inability to obtain required governmental permits and authorizations;
an inability to secure tenants necessary to support commercial projects; and
compliance with building codes and other local regulations.

Our commercial leasing projects may not yield anticipated returns, which could harm our operating results, reduce cash flow, or the ability to sell commercial assets.

A component of our business strategy is the development of commercial properties and assets for sale. These developments may not be as successful as expected due to the commercial leasing related risks, as well as the risks associated with real estate development, generally. Additionally, development of commercial projects involves the risk associated with the significant time lag between commencement and completion of the project. This time lag subjects us to greater risks relating to fluctuations in the general economy, our ability to obtain construction or permanent financing on favorable terms, if at all, our ability to achieve projected rental rates, the pace that we will be able to lease to new tenants, higher than estimated construction costs (including labor and material costs), and delays in the completion of projects because of, among other factors, inclement weather, labor disruptions, construction delays or delays in receiving zoning or other regulatory approvals, or man-made or natural disasters. If any one of these factors negatively impacts our commercial leasing projects we may not yield anticipated returns, which could have a material adverse effect on our operating results, cash flows and ability to sell commercial assets.

We guarantee debt for our Pier Park North joint venture, and may in the future enter into similar agreements, which may have a material adverse effect on our results of operations, cash flows and financial condition.

We have agreed to provide certain guarantees in connection with our Pier Park North joint venture, and may in the future agree to similar agreements. Our Pier Park North joint venture has entered into a $41 million construction loan that matures in February 2016. Pursuant to the construction loan, we have provided the following guarantees: (i) a completion guarantee until substantial completion; (ii) a principal repayment guarantee limited to 33% of the outstanding balance of the loan; (iii) a guarantee covering, among other things, operating deficits and accrued and unpaid interest; and (iv) customary non-recourse covenants covering items like misrepresentation, misappropriation of funds and fraud. If we were to become obligated to perform on any guarantees, it could have a material adverse effect on our results of operations, cash flows and financial condition.


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Environmental and other regulations may have an adverse effect on our business.

Our properties are subject to federal, state and local environmental regulations and restrictions that may impose significant limitations on our development ability. In most cases, approval to develop requires multiple permits which involve a long, uncertain and costly regulatory process. Our land holdings contain jurisdictional wetlands, some of which may be unsuitable for development or prohibited from development by law. Development approval most often requires mitigation for impacts to wetlands that require land to be conserved at a disproportionate ratio versus the actual wetlands impacted and approved for development. Some of our property is undeveloped land located in areas where development may have to avoid, minimize or mitigate for impacts to the natural habitats of various protected wildlife or plant species. Additionally, much of our property is in coastal areas that usually have a more restrictive permitting burden and must address issues such as coastal high hazard, hurricane evacuation, floodplains and dune protection.

In addition, our current or past ownership, operation and leasing of real property, and our current or past transportation and other operations, are subject to extensive and evolving federal, state and local environmental laws and other regulations. The provisions and enforcement of these environmental laws and regulations may become more stringent in the future. Violations of these laws and regulations can result in:

civil penalties;
remediation expenses;
natural resource damages;
personal injury damages;
potential injunctions;
cease and desist orders; and
criminal penalties.

In addition, some of these environmental laws impose strict liability, which means that we may be held liable for any environmental damage on our property regardless of fault.

Some of our past and present real property, particularly properties used in connection with our previous transportation and papermill operations, were involved in the storage, use or disposal of hazardous substances that have contaminated and may in the future contaminate the environment. We may bear liability for this contamination and for the costs of cleaning up a site at which we have disposed of, or to which we have transported, hazardous substances. The presence of hazardous substances on a property may also adversely affect our ability to sell or develop the property or to borrow funds using the property as collateral.

Changes in laws or the interpretation thereof, new enforcement of laws, the identification of new facts or the failure of other parties to perform remediation at our current or former facilities could lead to new or greater liabilities that could materially adversely affect our business, results of operations, cash flows or financial position.

Limitations on the access to the airport runway at the new Northwest Florida Beaches International Airport may have an adverse effect on the demand for our West Bay Sector lands adjacent to the new airport.

Our land donation agreement with the airport authority and the deed for the airport land provide access rights to the airport runway from our adjacent lands. We subsequently entered into an access agreement with the airport authority that provides access to the airport runway. Under the terms of the access agreement, we are subject to certain requirements of the airport authority, including but not limited to the laws administered by the Federal Aviation Administration (the “FAA”), the Florida Department of Environmental Protection, the U.S. Army Corps of Engineers, and Bay County. Should security measures at airports become more restrictive in the future due to circumstances beyond our control, FAA regulations governing these access rights may impose additional limitations that could significantly impair or restrict access rights.


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In addition, we are required to obtain environmental permits from the U.S. Army Corps of Engineers and Florida’s Department of Environmental Protection in order to develop the land necessary for access from our planned areas of commercial development to the airport runway. Such permits are often subject to a lengthy approval process, and there can be no assurance that such permits will be issued, or that they will be issued in a timely manner.

We believe that runway access is a valuable attribute of some of our West Bay Sector lands adjacent to the new airport, and the failure to maintain such access, or the imposition of significant restrictions on such access, could adversely affect the demand for such lands and our business, results of operations, cash flows and financial position.

Weather and other natural conditions and regulatory requirements may limit our ability to sell timber, which could adversely affect our operations.

Weather conditions, timber growth cycles, access limitations (for example, restrictions on access to timberlands due to prolonged wet conditions) and regulatory requirements associated with the protection of wildlife and water resources may restrict our ability to sell timber. In addition, our timber is subject to damage by fire, insect infestation, disease, prolonged drought, flooding and other natural disasters. Changes in global climate conditions could intensify one or more of these factors. Although damage from such natural causes usually is localized and affects only a limited percentage of the timber, there can be no assurance that any damage affecting our timberlands will in fact be so limited. As is common in the forestry industry, we do not maintain insurance coverage with respect to damage to our timberlands. Our results of operations and cash flows may therefore be materially adversely affected if we are unable to sell our timber at adequate levels or if demand decreases due to an increase in our prices as a result of any of these factors.

Risks Related to Our Company or Common Stock

An adverse outcome of the investigation being conducted by the SEC could have an adverse effect on our business and stock price.

In January 2011, the SEC commenced an informal inquiry into our accounting practices for impairment of investment in real estate assets and then notified us in June of 2011 that it had issued a related order of private investigation. On January 20, 2015, we received a written “Wells Notice” from the Staff of the SEC (the “Staff”) indicating the Staff’s preliminary determination to recommend that the SEC file an action against the Company for violations of certain federal securities laws. The Staff has informed us that the Wells Notice relates to historical accounting and disclosure practices and real estate asset valuations principally as reflected in our financial results for 2010, 2009 and prior periods. We are fully cooperating with the SEC’s investigation. However, we are unable to predict the outcome of the SEC’s investigation. An adverse outcome of the investigation by the SEC could have an adverse effect on our business and stock price.

The market price of our common stock has been, and may continue to be, highly volatile.

The market price of our common stock on the New York Stock Exchange has been volatile in recent years. We may continue to experience significant volatility in the market price of our common stock. Numerous factors could have a significant effect on the price of our common stock, including:

announcements of fluctuations in our operating results;
other announcements concerning our Company or business, including acquisitions or litigation announcements;
changes in market conditions in Northwest Florida or the real estate or real estate development industry in general;
changes in recommendations or earnings estimates by securities analysts.


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In addition, the stock market has experienced significant price and volume fluctuations in recent years, which have sometimes been unrelated or disproportionate to operating performance. Volatility in the market price of our common stock could cause shareholders to lose some or all of their investment in our common stock.

The Fairholme Funds or Fairholme Capital has the ability to influence major corporate decisions.

Bruce R. Berkowitz, the Chairman of our Board of Directors, is the Managing Member of Fairholme Capital, and the President of Fairholme Funds, Inc. Fairholme Funds has the right to vote, as of December 31, 2014, approximately 25.8% of our outstanding common stock. Fairholme Capital is the investment adviser of accounts that in the aggregate own, as of December 31, 2014, an additional 1.3% of our common stock. Accordingly, Fairholme Funds and Fairholme Capital are in a position to influence:

the vote of most matters submitted to our shareholders, including any merger, consolidation or sale of all or substantially all of our assets;
the nomination of individuals to our Board of Directors; and
a change in our control.

These factors may discourage, delay or prevent a takeover attempt that shareholders might consider in their best interests or that might result in shareholders receiving a premium for their common stock. Our articles of incorporation and certain provisions of Florida law contain anti-takeover provisions that may make it more difficult to effect a change in our control.

The loss of the services of our key management, personnel or our ability to recruit staff could adversely affect our business.

Our ability to successfully implement our business strategy will depend on our ability to attract and retain experienced and knowledgeable management and other professional staff. In addition, we are in the process of selecting future leadership to replace our CEO after his retirement in August of 2014. We cannot assure you that we will be successful in attracting and retaining key management personnel.

Changes in our income tax estimates could materially impact our results of operations, cash flows and financial position.

In preparing our Consolidated Financial Statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws and rates. To the extent adjustments are required in any given period, we include the adjustments in the deferred tax assets and liabilities in our Consolidated Financial Statements. These adjustments could materially impact our results of operations, cash flows and financial position.
    

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We may not be able to utilize our net state operating loss carryforwards.
    
In prior years, we have suffered losses, for tax and financial statement purposes, which generated significant state net operating loss carryforwards. While we utilized a portion of our state net operating loss carryforwards as a result of the AgReserves Sale in 2014, we still have a significant amount of state net operating loss carryforwards. These may be used against future taxable income in future periods; however, we will not receive any tax benefits with regard to tax losses incurred except to the extent we have taxable income in the remaining net operating loss carryforward period. Based on the timing of reversals of our existing taxable temporary differences and our history of losses, management does not believe that the requirements to realize the benefits of certain of our deferred tax assets have been met; therefore, we have maintained a valuation allowance against a portion of our deferred tax assets in our Consolidated Financial Statements as of December 31, 2014. Therefore, unless we generate more income in the future than presently estimated, we will not be able to utilize all of our net state operating loss carryforwards.

We have had to take significant impairments of the carrying value of our investments in real estate and a decline in real estate values or continuing operating losses in our operating properties could result in additional impairments, which would have an adverse effect on our results of operations and financial position.

Over the past five years, we have recorded impairment charges of $393.1 million related to real estate investments. We have approximately $321.8 million of real estate investments recorded on our books that may be subject to impairment. If market conditions were to deteriorate, our estimate of undiscounted future cash flows could fall below their carrying value and we could be required to take further impairments, which would have an adverse effect on our results of operations and financial position.

Changes in accounting pronouncements could adversely affect our reported operating results, in addition to the reported financial performance of our tenants.

Accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Uncertainties posed by various initiatives of accounting standard-setting by the Financial Accounting Standards Board and the Securities and Exchange Commission, which create and interpret applicable accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. Proposed changes include, but are not limited to, changes in lease accounting and the adoption of accounting standards that establish the principles used to recognize revenue for all entities. These changes and others could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements.

Failure to maintain the integrity of internal or customer data could result in faulty business decisions, damage of reputation and/or subject us to costs, fines or lawsuits.

For a number of years, we have been increasing our reliance on computers and digital technology. While all of our businesses and our internal employment records require the collection of digital information, our resorts and leisure businesses, in particular, require the collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our customers as such information is entered into, processed, summarized, and reported by the various information systems we use. All of these activities give rise to material cyber risks and potential costs and consequences that cannot be estimated or predicted with any certainty. The integrity and protection of our customer, employee and other company data, is critical to us. Our failure to maintain the security of the data which we are required to protect, including via the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, fines, penalties, regulatory proceedings, and other severe financial and business implications.

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Item 1B.    Unresolved Staff Comments

None.

Item 2.        Properties
We own our principal executive offices located in WaterSound, Florida. As of December 31, 2014, we owned approximately 180,000 acres, the majority of which were located in Northwest Florida. Our raw land assets are managed by us as timberlands until designated for development. In addition, our resorts, leisure and leasing segment includes the following properties:
WaterColor Inn and Vacation Rentals. We own the WaterColor Inn and Resort, which includes a 60 room hotel, beach club, spa, tennis center, restaurant and complementary retail and commercial space. We completed construction for the WaterColor Inn in 2002. In addition, we own condominiums that are used primarily in our vacation rental business in our WaterSound Beach and WindMark Beach communities. We completed construction on these condominiums during 2008 and 2009. We generally do not own the homes included in our vacation rental program and instead enter into a rental agreement with the homeowner.
Clubs and Resorts. We own four golf courses in Northwest Florida. Three of them are in the Panama City Beach, Florida, area and the fourth is located in Tallahassee. The golf courses are situated in or near our residential communities. Our golf course property, primarily includes the greens, clubhouses, other buildings and equipment. We also own and operate two marinas. Our marina property, primarily includes land and improvements, marina slips and equipment.
Leasing. We own the property included in our leasing operations business, which includes our retail and commercial leasing. Our retail leasing business principally arose in connection with the growth in our residential developments. We have several small retail shopping centers located in or very near to some of our residential projects, such as the WaterColor, WaterSound Beach, SouthWood and WindMark Beach communities. The success of these small retail centers is closely tied to the success of the residential developments from which they draw their customers.
Pier Park North. In addition, our commercial leasing operations includes our Pier Park North joint venture. Our Pier Park North joint venture includes a 324,000 square foot retail lifestyle center in Panama City Beach, which we developed with Casto, our joint venture partner and one of the country’s leading developers of neighborhood and community retail centers. We developed and constructed the Pier Park North retail lifestyle center beginning in late 2013 and expect to complete the majority of construction in mid-2015. As of February 1, 2015, approximately 260,000 square feet of retail space was leased, which included key tenants such as Dick’s Sporting Goods, Fresh Market, World Market, Bed Bath & Beyond, Michaels, Pet Smart and Ross Dress for Less.
Our Pier Park North joint venture has a $41.0 million construction loan agreement that matures in February 2016 at which time there is an option for a two year extension and is secured by the property in the joint venture. As of December 31, 2014, $31.6 million was outstanding on the construction loan.
VentureCrossings. We built and own a 105,000 square foot building with manufacturing and office space in VentureCrossings and lease the facility to Exelis Inc. under a long-term lease that commenced in 2012.
For more information on our real estate assets, see “Item 1. Business” and “Schedule III (Consolidated) - Real Estate and Accumulated Depreciation” included in the Schedules to the Consolidated Financial Statements included in Item 15 of this Form 10-K for further information.

24



Item 3.        Legal Proceedings

Securities and Exchange Commission Investigation
On January 4, 2011 the Company received notice from the Staff of the SEC of the initiation of an inquiry into our policies and practices concerning impairment of investment in real estate assets. On June 24, 2011, we received notice from the SEC that it has issued a related order of private investigation. On January 20, 2015, we received a written “Wells Notice” from the Staff indicating the Staff’s preliminary determination to recommend that the SEC file an action against us for violations of certain federal securities laws. The Staff has informed us that the Wells Notice relates to historical accounting and disclosure practices and real estate asset valuations principally as reflected in our financial results for 2010, 2009 and prior periods.
A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any violations of law have occurred. Rather, it provides us with an opportunity to respond to issues raised by the Staff and offer its perspective prior to any SEC decision to institute proceedings. If the Staff makes a recommendation to the SEC, the recommendations may involve a civil injunctive action, public administrative proceeding, and/or cease-and-desist proceeding, and may seek remedies that include an injunction and/or cease and desist order, disgorgement, pre-judgment interest, and civil money penalties.
We are fully cooperating with the investigation. However, we are unable to predict the outcome of the investigation, any potential enforcement actions or any other impact on the Company that may arise as a result of such investigation. We believe that the probability of loss related to this matter and an estimate of the amount of loss, if any, are not determinable at this time.

Item 4.        Mine Safety Disclosures

Not applicable.


PART II
 
Item 5.
Market for the Registrant’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
On February 23, 2015 we had approximately 1,162 registered holders of record of our common stock. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “JOE.”
The ranges of high and low prices for our common stock as reported on the NYSE are set forth below: 
 
Common Stock Price
 
High
 
Low
2014
 
 
 
Fourth Quarter
$
20.10

 
$
17.55

Third Quarter
$
26.21

 
$
19.93

Second Quarter
$
26.20

 
$
17.85

First Quarter
$
19.61

 
$
17.78

2013
 
 
 
Fourth Quarter
$
20.99

 
$
17.46

Third Quarter
$
23.24

 
$
19.31

Second Quarter
$
21.41

 
$
18.98

First Quarter
$
24.38

 
$
20.17


25


On February 23, 2015, the closing price of our common stock on the NYSE was $17.46. We did not pay cash dividends in 2014 or 2013 and retained future earnings to fund the development and growth of our business or other uses.
The following performance graph compares our cumulative shareholder returns for the period December 31, 2009, through December 31, 2014, assuming $100 was invested on December 31, 2009, in our common stock, in the Russell 3000 Index, and the below custom peer group of real estate related companies, which is composed of the following companies:
Alexander & Baldwin Inc (ALEX)
Consolidated Tomoka-Land Co. (CTO)
First Hartford Corp (FHRT)
Tejon Ranch Co. (TRC)
AV Homes Inc (AVHI)
Homefed Corp (HOFD)
The Howard Hughes Corp (HHC)
Maui Land & Pineapple Co Inc. (MLP)
Stratus Properties Inc (STRS).
The total returns shown assume that dividends are reinvested. The stock price performance shown below is not necessarily indicative of future price performance.

26


 
   
12/31/2009
 
12/31/2010
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
The St. Joe Company
$
100

 
$
75.63

 
$
50.74

 
$
79.89

 
$
66.43

 
$
63.66

Russell 3000 Index
$
100

 
$
116.93

 
$
118.13

 
$
137.52

 
$
183.66

 
$
206.72

Custom Real Estate Peer Group*
$
100

 
$
94.76

 
$
76.03

 
$
113.76

 
$
172.79

 
$
177.60

     
*
The total return for the Custom Real Estate Peer Group was calculated using an equal weighting for each of the stocks within the peer group.

Equity Compensation Plan Information
The following table includes information as of December 31, 2014 about shares of our common stock that may be issued pursuant to awards under our 2009 Equity Incentive Plan.
Plan Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
 
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
 
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (Excluding Securities
Reflected in column (a))
Equity compensation plans approved by security holders
99,775

  
$
54.15

  
1,454,194

Equity compensation plans not approved by security holders

 

 

Total
99,775

  
$
54.15

  
1,454,194

 
 
 
 
 
 
For additional information regarding our equity compensation plans, see Note 17, Stock-Based Compensation.
 

27




Item 6.         Selected Financial Data
The following table sets forth our Selected Consolidated Financial Data on a historical basis for the five years ended December 31, 2014. This information should be read in conjunction with our consolidated financial statements (including the related notes thereto) and Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included elsewhere in this Form 10-K. This historical Selected Consolidated Financial Data has been derived from our audited consolidated financial statements.
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
In thousands, except per share amounts
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Total revenues (1)(2)
$
701,873

 
$
131,256

 
$
139,396

 
$
145,285

 
$
99,540

Total cost of revenues (3)(4)
136,798

 
86,913

 
91,276

 
71,472

 
62,288

Other operating expenses
13,459

 
12,323

 
15,321

 
22,252

 
34,783

Corporate expense, net
12,669

 
15,532

 
15,005

 
27,785

 
26,178

Pension charges
13,529

 
1,500

 
2,999

 
5,871

 
4,138

Costs associated with special purpose entities (5)
3,746

 

 

 

 

Depreciation, depletion and amortization
8,422

 
9,131

 
10,110

 
15,840

 
13,657

Impairment losses

 
5,080

 
2,551

 
377,325

 
4,799

Restructuring

 

 

 
11,547

 
5,251

Total expenses
188,623

 
130,479

 
137,262

 
532,092

 
151,094

Operating income (loss)
513,250

 
777

 
2,134

 
(386,807
)
 
(51,554
)
Other income (expense)
8,571

 
3,668

 
4,289

 
934

 
(3,892
)
Income (loss) before equity in (loss) income from unconsolidated affiliates and income taxes
521,821

 
4,445

 
6,423

 
(385,873
)
 
(55,446
)
Equity in (loss) income from unconsolidated affiliates
(32
)
 
112

 
(46
)
 
(93
)
 
(4,308
)
Income tax (expense) benefit
(115,507
)
 
409

 
(387
)
 
55,658

 
23,849

Net income (loss)
406,282

 
4,966

 
5,990

 
(330,308
)
 
(35,905
)
Net loss attributable to non-controlling interest
171

 
24

 
22

 
29

 
41

Net income (loss) attributable to the Company
$
406,453

 
$
4,990

 
$
6,012

 
$
(330,279
)
 
$
(35,864
)
 
 
 
 
 
 
 
 
 
 
Per Share Data:
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to the Company
$
4.40

 
$
0.05

 
$
0.07

 
$
(3.58
)
 
$
(0.39
)
 
 
 
 
 
 
 
 
 
 
 

28


(1)
Total revenues include revenues from real estate sales, timber sales and resort, leisure and leasing revenues.
(2)
Total revenues in 2014 include $570.9 million from the AgReserves Sale and $43.6 million from the RiverTown Sale. Refer to Note 5, Real Estate Sales included in the Notes to the Consolidated Financial Statements included in Item 15 of this Form 10-K for further discussion.
(3)
Total cost of revenues includes cost of revenues from real estate sales, timber sales and resort, leisure and leasing revenues.
(4)
Total cost of revenues in 2014 include $58.4 million from the AgReserves Sale and $17.6 million from the RiverTown Sale. Refer to Note 5, Real Estate Sales included in the Notes to the Consolidated Financial Statements included in Item 15 of this Form 10-K for further discussion.
(5)
Refer to Note 5, Real Estate Sales included in the Notes to the Consolidated Financial Statements included in Item 15 of this Form 10-K for further discussion on our special purpose entities.
 
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
In thousands
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Investment in real estate
$
321,812

 
$
385,009

 
$
370,647

 
$
387,202

 
$
755,392

Cash and cash equivalents
$
34,515

 
$
21,894

 
$
165,980

 
$
162,391

 
$
183,827

Investments
$
636,878

 
$
146,972

 
$

 
$

 
$

Property and equipment, net
$
10,203

 
$
11,410

 
$
12,149

 
$
14,946

 
$
13,014

Total assets
$
1,303,135

 
$
669,472

 
$
645,521

 
$
661,291

 
$
1,051,695

Long-term debt (1)
$
31,618

 
$
6,445

 
$

 
$

 
$

Senior Notes held by special purpose entity (2)
$
177,341

 
$

 
$

 
$

 
$

Total debt
$
241,145

 
$
44,217

 
$
36,062

 
$
53,458

 
$
54,651

Total equity
$
979,701

 
$
563,525

 
$
552,334

 
$
543,892

 
$
872,437

 
(1)
Long-term debt includes the Pier Park North construction loan held by our Pier Park North joint venture.
(2)
Refer to Note 5, Real Estate Sales included in the Notes to the Consolidated Financial Statements included in Item 15 of this Form 10-K.
 for further discussion on our special purpose entities.



29



Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

We are a real estate development and operating company with real estate assets and operations currently concentrated primarily between Tallahassee and Destin, Florida, which we predominantly use, or intend to use, for or in connection with, our various residential or commercial real estate developments, resorts, leisure and leasing operations or our forestry operations on a limited basis.
We have significant residential and commercial land-use entitlements in hand or in process. We seek higher and better uses for our assets through a range of activities from strategic land planning and development, infrastructure improvements and promoting economic development in the regions where we operate. We may explore the sale of such assets opportunistically or when we believe they have reached their highest and best use.
    
AgReserves Sale

On March 5, 2014, we completed our previously announced sale to AgReserves, Inc. of approximately 380,000 acres of land located in Northwest Florida along with certain other assets, inventory and rights under certain continuing leases and contracts (the “AgReserves Sale”) for $562 million and recorded pre-tax income of $511.1 million for the AgReserves Sale, which includes $1.2 million of severance costs recorded in Other operating expenses during 2014. As a result of certain adjustments to the purchase price, consideration received for the AgReserves Sale was (1) $358.5 million in cash, (2) a $200 million fifteen year installment note (the “Timber Note”) issued by Panama City Timber Finance Company, LLC, a buyer-sponsored special purpose entity (the “Buyer SPE”) and (3) an Irrevocable Standby Letter of Credit issued by JPMorgan Chase Bank, N.A. (the “Letter of Credit”) at the request of the Buyer SPE, in favor of us. The Buyer SPE was created by AgReserves with financial instruments with an aggregate principal balance of $203.5 million that secure the Letter of Credit.
In April 2014, we contributed the Timber Note and assigned our rights as a beneficiary under the Letter of Credit to Northwest Florida Timber Finance, LLC, a bankruptcy-remote, qualified special purpose entity wholly owned by us (“NFTF”). NFTF monetized the Timber Note by issuing $180 million aggregate principal amount of its 4.750% Senior Secured Notes due 2029 (the “Senior Notes”) at an issue price of 98.483% of the face value to third party investors. The Senior Notes are payable only from the property of NFTF, which consists solely of (i) the Timber Note, (ii) the Letter of Credit, (iii) any cash, securities and other property in certain NFTF accounts, (iv) the rights of NFTF under the contribution agreement with us (which was solely to contribute the Timber Note and the Letter of Credit) and (v) any proceeds relating to the property listed in (i) through (iv) above. The investors holding the Senior Notes of NFTF have no recourse against us for payment of the Senior Notes or the related interest expense.
We received $165.0 million in cash, net of $15.0 million in costs, from the monetization and expect to receive the remaining $20.0 million in fifteen years upon maturity of the Timber Note and after payment of the Senior Notes and any other liabilities of NFTF. The $15.0 million of costs from the monetization include (1) a total of $4.3 million for the discount and issuance costs for the Senior Notes, which will be amortized over the term of the Senior Notes, (2) $7.0 million for U.S. Treasury securities and cash that we contributed to NFTF to be used for interest and operating expenses over the fifteen year period and which are recorded in Investments held by special purpose entities on our Consolidated Balance Sheets and (3) $3.7 million of costs related to the monetization that were expensed during 2014 and are recorded in Administrative costs associated with special purpose entities on our Consolidated Statements of Income.

30


We own the equity interest in NFTF, but no equity interest in the Buyer SPE. Both the Buyer SPE and NFTF are distinct legal entities and the assets of the Buyer SPE and NFTF are not available to satisfy our liabilities or obligations and the liabilities of the Buyer SPE and NFTF are not our liabilities or obligations. In the event that proceeds from the financial instruments are insufficient to settle all of the liabilities of the Buyer SPE or NFTF, we are not obligated to contribute any funds to either the Buyer SPE or NFTF.
We have determined that we are the primary beneficiary of the Buyer SPE and NFTF, and therefore, the Buyer SPE’s and NFTF’s assets and liabilities are consolidated in our financial statements as of December 31, 2014. The carrying amounts of the Buyer SPE’s and NFTF’s assets and non-recourse liabilities were $214.2 million and $180.2 million, respectively, as of December 31, 2014. The consolidated assets of the Buyer SPE and NFTF consist of a $200 million time deposit that subsequent to April 2, 2014 pays interest at 4.006% and matures in March 2029, accrued interest of $2.9 million on the time deposit, U.S. Treasuries of $9.4 million, cash of $0.4 million and deferred issuance costs of $1.5 million for the Senior Notes. The consolidated liabilities include the Senior Notes issued by NFTF of $177.3 million net of the $2.7 million discount and $2.9 million accrued interest expense on the Senior Notes.
Our consolidated Statements of Income for the year ended December 31, 2014 includes $6.1 million of interest income on the time deposit and amortization of the discounts on the U.S. Treasuries and $6.6 million of interest expense for the Senior Notes, amortization of the discount and issuance costs related to the Buyer SPE and NFTF.
RiverTown Sale
On April 2, 2014, we completed our previously announced sale to an affiliate of Mattamy (Jacksonville) Partnership d/b/a Mattamy Homes (Mattamy) of approximately 4,057 acres of real property, which constitutes the RiverTown community in St. Johns County, Florida, along with all of the Company’s related development or developer rights, founder’s rights and certain tangible and intangible personal property in exchange for (1) $24.0 million in cash, (2) $19.6 million in the form of a purchase money note (the “RiverTown Note”), (3) the assumption of our Rivers Edge Community Development District (“Rivers Edge CDD”) assessments and (4) the obligation to purchase certain RiverTown community related impact fee credits from us as the RiverTown community is developed (the “RiverTown Sale”).
The RiverTown Note bears interest at 5.25% per annum, matures on June 30, 2015 and is payable as follows: (i) accrued interest was paid on September 30, 2014, (ii) accrued interest plus $1.0 million of principal is due on March 30, 2015 and (iii) all accrued interest and remaining principal is due on June 30, 2015. The RiverTown Note is secured by a mortgage imposing a first priority security lien on the real property included the RiverTown Sale.
Based on Mattamy’s current development plans and St. Johns County’s current costs for impact fees, we may receive approximately $20 million to $26 million for the impact fees over the five-year period following the closing (most of which, we expect to receive at the end of that five-year period). However, the actual additional consideration received for the impact fees, will be based on Mattamy’s actual development of the RiverTown community, the timing of Mattamy’s development of the RiverTown community and the impact fee rates at the time of such development (as determined by St. Johns County’s then current impact fee rate schedule), which are all factors beyond our control. We cannot provide any assurance as to the amount or timing of any payments it may receive for the impact fees. During 2014, we received $0.1 million for these impact fees.

We recorded net earnings of $26.0 million before income taxes for the RiverTown Sale during the second quarter of 2014. Mattamy also assumed our total outstanding Rivers Edge CDD assessments, which were $11.0 million, of which $5.4 million was recorded on our Consolidated Balance Sheets as of March 31, 2014.


31


Segments
As of December 31, 2014, we have the following four operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts, leisure and leasing operations and 4) forestry. The table below sets forth the relative contribution of these operating segments to our consolidated operating revenues, excluding revenues of $570.9 million related to the AgReserves Sale and revenues of $43.6 million related to the RiverTown Sale during 2014: 
 
2014
 
2013
 
2012
Segment Operating Revenues
 
 
 
 
 
Residential real estate
20.4
%
 
25.7
%
 
15.9
%
Commercial real estate
3.7
%
 
8.3
%
 
7.5
%
Resorts, leisure and leasing operations
63.6
%
 
38.7
%
 
31.8
%
Forestry
11.9
%
 
27.0
%
 
44.8
%
Other
0.4
%
 
0.3
%
 
%
Consolidated operating revenues
100.0
%
 
100.0
%
 
100.0
%



Residential Real Estate
Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land.
Our residential real estate segment generates revenues primarily from:
the sale of developed homesites;
the sale of parcels of entitled, undeveloped lots;
a lot residual on homebuilder sales that provides us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold;
the sale of impact fee credits; and
other fees on certain transactions.
Our residential real estate segment incurs cost of revenues primarily from costs directly associated with the land, development and construction of real estate sold and indirect costs such as development overhead, capitalized interest, marketing, project administration, and selling costs.


Commercial Real Estate
In our commercial real estate segment we plan, develop and entitle our land holdings for a variety of uses including a broad range of retail, office, hotel and industrial uses. We sell land for commercial and light industrial uses. From time to time, our commercial real estate segment also sells certain resorts, leisure and operating properties.

Our commercial real estate segment generates revenues from the sale of developed and undeveloped land for retail, office, hotel and industrial uses, from the sale of undeveloped land or land with limited development and easements and the sale of commercial operating properties. Our commercial real estate segment incurs costs of revenues from costs directly associated with the land, development, construction and selling costs.

32



Resorts, Leisure and Leasing Operations
Our resorts, leisure and leasing operations segment generates revenues from our recurring revenue streams, which primarily include the WaterColor Inn and vacation rentals, golf courses, marinas and leasing operations.
Resort and Leisure Business
WaterColor Inn and Vacation Rentals – Our resorts and leisure operations generate revenues from the WaterColor Inn and Resort, the WaterSound Beach club, our restaurants and our vacation rental businesses. The WaterColor Inn incurs expenses from the cost of services and goods provided, personnel costs and third party management fees. Our vacation rental business generates revenues from the rental of private homes and other services, which includes the entire rental fee collected from the customer, including the homeowner’s potion. A percentage of the fee is remitted to the homeowner and presented in cost of resorts, leisure and leasing operations. The vacation rental business also incurs expenses from marketing, personnel and general maintenance for the homeowner.

Clubs and Resorts – Our clubs and resorts include our golf courses and resort facilities that generate revenues from memberships, daily play at those golf courses that are not part of our St. Joe Club & Resorts, merchandise sales and food and beverage sales and incur expenses from the services provided, maintenance of the golf course facilities, personnel costs and third party management fees.

St. Joe Club & Resorts is our private membership club that provides participating homeowners and their rental guests access to our clubs. We launched St. Joe Club & Resorts in January 2014, and as a result of this initiative, certain of our clubs are no longer available to the public. While we expect revenues generated from these facilities to decline, we expect that revenues from our vacation rental business will increase in the future as we believe that the St. Joe Club & Resorts will provide us a competitive advantage in this business.

In addition, in May 2014, St. Joe Club & Resorts began managing The Pearl Hotel, a fifty-five room resort hotel in Northwest, Florida. Revenues generated for our management services of The Pearl Hotel include a management fee, fifty percent of certain resort fees and a percentage of The Pearl Hotel’s gross operating profit. Expenses include primarily internal administrative costs.

Marinas – Our marinas generate revenues from boat slip rentals and fuel sales, and incur expenses from cost of services provided, maintenance of the marina facilities, personnel costs and third party management fees.

Leasing Operations

Leasing Operations – Our leasing operations generate revenues from leasing retail and commercial property, including properties located in our consolidated joint venture at Pier Park North and our industrial park, Venture Crossings, and incur expenses primarily from maintenance of these properties and personnel costs. Our Pier Park North joint venture also incurs interest and financing expenses related to its construction loan.

33



Forestry
Our forestry segment focuses on the management of our timber holdings in Northwest Florida. We grow and sell sawtimber, wood fiber and forest products and provide land management services for conservation properties. Subsequent to the AgReserves Sale, we have sold and plan to continue to sell product on site without the associated delivery costs. Our forestry segment generates revenues from the sale of wood fiber, sawtimber, standing timber and forest products and conservation land management services. Our forestry segment incurs costs of revenues from internal costs of forestry management and property taxes.
Our forestry segment may also generate revenues from the sale of our timber holdings, undeveloped land or land with limited development and easements. Costs incurred as part of a sale of these lands may include the cost of timber, land, minimal development costs and selling costs.
Prior to the AgReserves Sale, a significant portion of the revenue from our forestry segment was generated pursuant to our RockTenn Supply Agreement, under which we sold delivered wood (trees that we cut and deliver). As part of the AgReserves Sale, the RockTenn Supply Agreement was assumed by AgReserves. Subsequent to the AgReserves Sale, revenue from our forestry segment has decreased substantially and is primarily generated from open market sales of timber.

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 U.S. generally accepted accounting principles. 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, available current market information 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, and our accounting estimates are subject to change.
Investment in Real Estate and Cost of Real Estate Sales. Costs associated with a specific real estate project are capitalized during the development period. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as project administration, may also be capitalized. We capitalize interest (up to total interest expense) based on the amount of underlying expenditures and real estate taxes on real estate projects under development.
Real estate development costs also include land and common development costs (such as roads, sewers and amenities), capitalized property taxes, capitalized interest and certain indirect costs. A portion of real estate development costs and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project. These estimates are reevaluated at least annually and more frequently if warranted by market conditions, changes in the project’s scope or other factors, with any adjustments being allocated prospectively to the remaining property or units available-for-sale.

34


The capitalization period relating to direct and indirect project costs is the period in which activities necessary to ready a property for its intended use are in progress. The period begins when such activities commence, typically when we begin the entitlement processes for land already owned, and ends when the asset is substantially complete and ready for its intended use. Determination of when construction of a project is substantially complete and ready for its intended use requires judgment. We determine when the capitalization period begins and ends through communication with project and other managers responsible for the tracking and oversight of individual projects. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. If we determine not to complete a project, any previously capitalized costs are expensed in the period in which the determination is made and recovery is not deemed reasonable.
Our investments in real estate are carried at cost, net of depreciation and timber depletion, unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset’s carrying value, an impairment charge is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.
Long-Lived Assets. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets include our investments in operating and development property and property and equipment, net. Some of the events or changes in circumstances that we consider as indicators of potential impairment include:

a prolonged decrease in the fair value or demand for the properties;
a change in the expected use or development plans for the properties;
continuing operating or cash flow losses for an operating property; and
an accumulation of costs in a development property to be held long-term above the amount originally expected.

We use varying methods to determine if impairment exists, such as (i) considering indicators of potential impairment, (ii) analyzing expected future cash flows and comparing the expected future undiscounted cash flows of the property to the carrying value, or (iii) determining market resale values.
The accounting estimate related to real estate impairment evaluation is susceptible to change due to the use of assumptions about future sales proceeds and future expenditures. For projects under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management’s best estimates about future sales prices and planned holding periods. Based on our risk-adjusted investment return criteria for evaluating our projects under development or undeveloped, management’s assumptions used in the projection of undiscounted cash flows include:
the projected pace of sales of homesites based on estimated market conditions and our development plans;
estimated pricing and projected price appreciation over time;
the amount and trajectory of price appreciation over the estimate selling period;
the length of the estimated development and selling periods, which can differ depending on the size of the development and the number of phases to be developed;


35


the amount of remaining development costs, including the extent of infrastructure or amenities included in such development costs;
holding costs to be incurred over the selling period;
for bulk land sales of undeveloped and developed parcels future pricing is based upon estimated developed lot pricing less estimated development costs and estimated developer profit;
for commercial development property, future pricing is based on sales of comparable property in similar markets; and
whether liquidity is available to fund continued development.
For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties. Some of the significant assumptions that are used to develop the undiscounted cash flows include:
for investments in inns and rental condominium units, average occupancy and room rates, revenues from food and beverage and other amenity operations, operating expenses and capital expenditures, and eventual disposition of such properties as private residence vacation units or condominiums, based on current prices for similar units appreciated to the expected sale date;
for investments in commercial or retail property, future occupancy and rental rates and the amount of proceeds to be realized upon eventual disposition of such property at a terminal capitalization rate; and
for investments in golf courses, future memberships, rounds and greens fees, operating expenses and capital expenditures, and the amount of proceeds to be realized upon eventual disposition of such properties at a multiple of terminal year cash flows.

Other properties that management does not intend to sell in the near term under current market conditions and has the ability to hold are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property. The results of impairment analysis for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group.
If a property is considered impaired, the impairment charge is determined by the amount the property’s carrying value exceeds its fair value. We use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values by market, (iii) applying a capitalization rate to net operating income using prevailing rates in a given market or (iv) applying a multiple to revenues using prevailing rates in a given market. The fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate, through appraisals of the underlying property, or a combination thereof.
We classify the assets and liabilities of a long-lived asset as held-for-sale when management approves and commits to a formal plan of sale and it is probable that a sale will be completed. The carrying value of the assets held-for-sale are then recorded at the lower of their carrying value or fair value less costs to sell.

36


Investments. We evaluate investments classified as available-for-sale with unrealized losses to determine if they are other-than-temporary impaired. This evaluation is based on various factors, including the financial condition, business prospects, industry and creditworthiness of the issuer, severity and length of time the securities were in a loss position, our ability and intent to hold investments until unrealized losses are recovered or until maturity and amount of the unrealized loss. If a decline in fair value is considered other-than-temporary, the decline is then bifurcated into its credit and non-credit related components. The amount of the credit-related component is recognized in earnings, and the amount of the non-credit related component is recognized in other comprehensive loss, unless we intend to sell the security or it is more likely than not that we will be required to sell the security prior to its anticipated recovery. During 2014, we recorded an other-than-temporary impairment for credit-related losses of $1.3 million related to our corporate debt securities in Investment income, net on our Consolidated Statements of Income.
Retained interest investments. We have recorded retained interest investments with respect to the monetization of certain installment notes through the use of qualified special purpose entities, which are recorded in Other assets in our Consolidated Balance Sheets. At the time of monetization the initial retained interest recorded was an estimate based on the present value of future excess cash flows expected to be received over the life of the notes, using management’s best estimate of underlying assumptions, including credit risk and discount rates. We recognize investment income over the life of the retained interest using the effective yield method with rates ranging from 3.7%-11.8% based on expected future cash flows. We continue to update the expectation of cash flows to be collected over the life of the retained interest. Changes to the previously projected cash flows are accounted for prospectively, unless based on management’s assessment of current information and events, it is determined that there is an other-than-temporary impairment. We have not recorded an other-than-temporary impairment related to our retained interest investments during the three years ended December 31, 2014.

Pension plan. In November 2012, the Board of Directors approved the termination of our Pension Plan, which was frozen in March 2013 pending regulatory approvals which were received in August 2014. As of December 31, 2014, the Pension Plan assets have been distributed to Pension Plan participants and $7.9 million was distributed to our 401(k) Plan to pay additional future benefits. Subsequent to these distributions, the remaining Pension Plan assets of $23.8 million were reverted to us in December 2014. During 2014, we recorded a total of $13.5 million in Pension charges on our Consolidated Statements of Income, which included $8.7 million for net periodic pension costs, including settlements related to the termination of the Pension Plan and $4.8 million of excise tax. In addition, we expect to record additional expenses of approximately $7.9 million as the assets in our 401(k) Plan are allocated to participants over the next seven years.
Income Taxes. In preparing our Consolidated Financial Statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period we will include the adjustments in the deferred tax assets and liabilities in our Consolidated Financial Statements.We recorded a valuation allowance against our deferred tax assets based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income.
A valuation allowance is recorded if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of our deferred tax assets is dependent upon us generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from net operating loss carryforwards.

37


We had a federal net operating loss carryforwards of approximately $76.8 million at December 31, 2013, which we utilized in 2014 and had no federal net operating loss carryforwards at December 31, 2014. We had a state net operating loss carryforward of $323.9 million and $593.1 million, respectively, at December 31, 2014, and 2013. The state net operating losses are available to offset future taxable income through 2031. As of December 31, 2014, based on the timing of reversal of future taxable amounts and our history of losses, we do not believe that we have met the requirements to realize the benefits of certain of our deferred tax assets for our state net operating loss carryforwards; therefore, we have maintained a valuation allowance of $6.2 million for these deferred tax assets at December 31, 2014.

Recently Adopted Accounting Pronouncements
Income Taxes
In July 2013, the Financial Accounting Standard Board (the “FASB”) determined that an unrecognized tax benefit should be presented as a reduction of a deferred tax asset for a net operating loss carryforward or other tax credit carryforward when settlement in this manner is available under applicable tax law. We adopted this guidance effective January 1, 2014, which reduced our Deferred tax asset and Accrued liabilities and deferred credits by $1.7 million. The adoption of this guidance had no impact on our Consolidated Statements of Income, Consolidated Statements of Comprehensive Income or Statements of Cash Flows.
Recently Issued Accounting Pronouncements
Discontinued operations
In April 2014, FASB issued an accounting standards update (“ASU”) that changes the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations and have a major effect on the organization’s operations and financial results should be presented as discontinued operations. In addition, this ASU expands disclosures about the discontinued operation and requires disclosures about disposals that do not qualify as discontinued operations. This guidance is to be applied prospectively and is effective for us beginning January 1, 2015. Early adoption is permitted, but only for disposals or classification as held for sale that have not already been reported in previously issued financial statements. We have not adopted this ASU as of December 31, 2014.
Revenue Recognition
In May 2014, the FASB issued an ASU that establishes the principles used to recognize revenue for all entities. The new guidance is effective for annual and interim periods beginning after December 15, 2016, with no early adoption permitted. We are currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations and cash flows.

38



Results of Operations
Consolidated Results
Revenues and expenses. The following table sets forth a comparison of the results of our operations for the three years ended December 31, 2014
 
2014
 
2013
 
2012
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
634.9

 
$
45.0

 
$
56.0

Resorts, leisure and leasing revenues
55.5

 
50.8

 
44.4

Timber sales
11.5

 
35.5

 
39.0

Total
701.9

 
131.3

 
139.4

Expenses:
 
 
 
 
 
Cost of real estate sales
86.6

 
24.3

 
28.2

Cost of resorts, leisure and leasing revenues
45.7

 
41.1

 
39.1

Cost of timber sales
4.5

 
21.5

 
24.0

Other operating expenses
13.5

 
12.3

 
15.3

Corporate expenses
12.7

 
15.5

 
15.0

Pension charges
13.5

 
1.5

 
3.0

Administrative costs associated with special purpose entities
3.7





Depreciation, depletion and amortization
8.4

 
9.1

 
10.1

Impairment losses

 
5.1

 
2.6

Total
188.6

 
130.4

 
137.3

Operating income
513.3

 
0.9

 
2.1

Other income (expense):
 
 
 
 
 
Investment income, net
12.7

 
1.5

 
0.7

Interest expense
(8.6
)
 
(2.0
)
 
(2.8
)
Other, net
4.4

 
4.2

 
6.4

Total other income
8.5

 
3.7

 
4.3

Income before equity in income from unconsolidated affiliates and income taxes
521.8

 
4.6

 
6.4

Equity in income from unconsolidated affiliates

 
0.1

 

Income tax (expense) benefit
(115.5
)
 
0.4

 
(0.4
)
Net income
$
406.3

 
$
5.1

 
$
6.0



39


Real Estate Sales and Gross Margin.
 
2014
 
% (1)
 
2013
 
% (1)
 
2012
 
% (1)
 
Dollars in millions
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate sales
$
17.8

 
2.8
%
 
$
33.7

 
74.9
%
 
$
22.1

 
39.4
%
Commercial real estate sales
3.3

 
0.5
%
 
10.9

 
24.2
%
 
10.4

 
18.6
%
RiverTown Sale
43.6

 
6.9
%
 

 
%
 

 
%
AgReserves and other rural land sales
570.2

 
89.8
%
 
0.4

 
0.9
%
 
23.5

 
42.0
%
Real estate sales
$
634.9

 
100.0
%
 
$
45.0

 
100.0
%
 
$
56.0

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate sales
$
8.4

 
47.2
%
 
$
14.7

 
43.6
%
 
$
7.1

 
32.1
%
Commercial real estate sales
2.3

 
69.7
%
 
5.6

 
51.4
%
 
3.5

 
33.7
%
RiverTown Sale
26.0

 
59.6
%
 

 
%
 

 
%
AgReserves and other rural land sales
511.6

 
89.7
%
 
0.4

 
100.0
%
 
17.2

 
73.2
%
Gross profit
$
548.3

 
86.4
%
 
$
20.7

 
46.0
%
 
$
27.8

 
49.6
%
(1
)
Calculated percentage of total real estate sales and the respective gross profit percentage.

Real Estate Sales. Residential real estate sales decreased $15.9 million, or 47%, to $17.8 million during 2014, as compared to $33.7 million during 2013. This decrease is primarily due to a decrease in available homesites for sale in our resort communities during 2014, as compared to 2013. Commercial real estate sales decreased $7.6 million, or 70%, to $3.3 million during 2014, as compared to $10.9 million during 2013, primarily due to the sale of two commercial real estate sales in 2013 totaling $6.0 million for built-to-suit commercial operating properties that we constructed and were leasing under long-term leases.

As our customer base for residential real estate sales has shifted from being primarily retail based to being more weighted towards homebuilders, who generally buy more homesites in a single transaction but tend to buy on a more sporadic basis, we believe we will continue to experience greater volatility in the consistency and pace of our residential real estate sales for at least the near future. In addition, as the mix of homesites that we sell has shifted to homesites in our primary communities, which typically have a lower price and gross profit margin than homesites in our resort communities, we may experience a decrease in our gross profit margin from residential real estate sales.

Included in revenues from real estate sales for 2014 is revenue of $569.7 million for the AgReserves Sale and revenue of $43.6 million for the RiverTown Sale. The AgReserves Sale included the recognition of $11.0 million of revenue which had been previously recorded as deferred revenue in connection with a 2006 agreement with the Florida Department of Transportation (the “FDOT”) pursuant to which we agreed to sell approximately 3,900 acres of rural land to the FDOT. As part of the AgReserves Sale, we transferred approximately 800 acres that are subject to the 2006 agreement to AgReserves who has agreed to transfer title to the FDOT.
    

40


The decrease in real estate sales of $11.0 million, or 20%, during 2013, as compared to 2012, was primarily due to a decrease of $23.1 million in rural land sales and other, partially offset by an increase of $11.6 million in residential real estate sales and an increase of $0.5 million in commercial real estate sales. There were no significant rural land sales during 2013, as compared to nine rural land sales in 2012, for a total of $23.4 million (including two rural land sales which together generated $18.3 million in revenues).

Residential real estate sales increased $11.6 million, or 52%, in 2013, as compared to 2012, primarily due to increased demand and pricing from homebuilders for homesites in both our resort and primary communities. Commercial real estate sales were $10.9 million in 2013, as compared to $10.4 million in 2012. In 2013, there were eight commercial real estate sales, including $6.0 million for two built-to-suit operating properties that we constructed. In 2012, there were a total of six commercial real estate sales for a total of $10.4 million, which included one commercial real estate sale for $5.4 million. Revenues from rural land and commercial real estate can vary drastically from period to period.

Real Estate Sales Gross Profit.     During 2014, we recorded gross profit of $511.2 million, or 89.7%, for the AgReserves Sale and $26.0 million, or 59.6%, for the RiverTown Sale. Excluding the AgReserves Sale and the RiverTown Sale, gross profit was $11.1 million, or 51.4%, during 2014, as compared to $20.7 million, or 46.0%, during 2013. Real estate sales gross profit decreased $7.1 million, or 26%, in 2013 to 46.0%, as compared to 49.6% in 2012, primarily due to the mix of real estate products sold.

As a result of the AgReserves Sale, we do not expect to have substantial revenues from sales of our timber or rural lands in the future, which typically yield higher gross profit margins than residential and commercial real estate sales. Thus our gross profit margins may decrease in the future.
    
Resorts, Leisure and Leasing Revenues and Gross Profit.
 
2014
 
2013
 
2012
 
Dollars in millions
Resorts, leisure and leasing revenues
$
55.5

 
$
50.8

 
$
44.4

Gross profit
$
9.8

 
$
9.7

 
$
5.3

Gross profit margin
17.7
%
 
19.1
%
 
11.9
%
 
 
 
 
 
 
Resorts, leisure and leasing revenues increased $4.7 million, or 9%, during 2014, as compared to 2013, primarily due to an increase of $1.8 million of resorts and leisure revenues and $2.9 million of leasing revenues. The increase in our resorts and leisure revenues was primarily due to: (i) an increase of $0.8 million in food and beverage sales primarily from the Lake House, which opened in late 2013, (ii) a $0.9 million increase in our vacation rental business primarily due to more homes being included our program and (iii) $0.4 million of resort fees from The Pearl Hotel pursuant to a management agreement, which began in May 2014. Our gross profit margins decreased in our resorts and leisure businesses in 2014 as compared to 2013 primarily due to the adjustments in the costs associated with our business model and the costs associated with the launch of St. Joe Club & Resorts.
The increase of $2.9 million in our leasing revenues is primarily due to the commencement of revenues from our Pier Park North joint venture combined with increased percentage rent from retail operating properties in or near our WaterColor and WaterSound Beach resort operations. Beginning in early 2014, we commenced recognizing leasing revenue from our Pier Park North joint venture as retail stores became occupied by tenants. As a result, we recognized $2.4 million of leasing revenues from Pier Park North during 2014.

41


Resorts, leisure and leasing revenues increased $6.4 million, or 14%, during 2013, as compared to 2012, and gross profit margin increased in 2013 to 19.1%, from 11.9% in 2012. The increase in revenues and gross profit is primarily due to a 15% increase in the number and an increase in the size of homes in our vacation rental program, higher average room and occupancy rates, a full year of rent from our property in our VentureCrossing industrial park and increased memberships, rounds played in our golf courses and boat slip rentals, which add minimal costs to the operations.
Timber Sales and Gross Profit.
 
2014
 
2013
 
2012
 
Dollars in millions
Timber sales
$
11.5

 
$
35.5

 
$
39.0

Gross profit
$
7.0

 
$
14.0

 
$
15.0

Gross profit margin
60.8
%
 
39.4
%
 
38.5
%
 
 
 
 
 
 
Timber sales decreased $24.0 million, or 68%, during 2014, as compared to 2013, primarily due to the AgReserves Sale, which closed on March 5, 2014. In addition, timber sales for 2014, included $1.1 million of deferred revenue related to an imputed land lease that was to be recognized over the life of the timber deeds sold in March 2011. We sold substantially all the land included in the imputed lease as part of the AgReserves Sale and recognized the remaining deferred revenue during 2014. We expect our timber sales and related costs to substantially decrease following the AgReserves Sale. In addition, subsequent to the AgReserves Sale, we have primarily sold product on site without the associated delivery costs, which has increased our timber sales gross profit margin.
Timber sales decreased $3.6 million, or 9%, during 2013, as compared to 2012, primarily due to a 17% decrease in tons sold, partially offset by increased prices of 9% in pine pulpwood and 14% in pine sawtimber. The decrease in the volume of tons sold was primarily due to harvest limits included in the AgReserves Sale Agreement combined with temporary plant shutdowns or slowdowns at some of our customers’ facilities. The slight increase in the gross margin in 2013 was primarily due to the increase in prices.
Other operating and corporate expenses. Other operating and corporate expenses decreased by $1.6 million, or 6%, during 2014, as compared to 2013, primarily due to a decrease in employee costs of $1.1 million and a $0.5 million termination fee paid in 2013 to our third party manager for certain of our resorts and leisure businesses.
Other operating and corporate expenses decreased by $2.5 million, or 8%, during 2013, as compared to 2012, primarily due to decreases in employee costs, including stock-based compensation totaling $1.1 million and $1.4 million in lower real estate carrying costs, repairs and maintenance and professional fees.
Pension charges. In November 2012, the Board of Directors approved the termination of our Pension Plan. Our Pension Plan was frozen in March 2013 pending regulatory approvals, which were received in August 2014. As of December 31, 2014, the Pension Plan assets have been distributed to Pension Plan participants and $7.9 million was distributed to our 401(k) Plan to pay additional future benefits to 401(k) Plan participants. Subsequent to these distributions, the remaining Pension Plan assets of $23.8 million in cash was reverted to us in December 2014. During 2014, we recorded a total of $13.5 million in Pension charges on our Consolidated Statements of Income, which included $8.7 million for net periodic pension costs, including settlements related to the termination of the Pension Plan and $4.8 million of excise tax. In addition, we expect to record additional expenses of approximately $7.9 million as the assets in our 401(k) Plan are allocated to participants over the next seven years. See Note 18, Employee Benefit Plans in the Notes to the Consolidated Financial Statements included in Item 15 to this annual report on Form 10-K.

42


Administrative costs associated with special purpose entities. Administrative costs associated with special purpose entities of $3.7 million during 2014, include one-time administrative costs associated with the monetization of the Timber Note received in the AgReserves Sale. See Note 5, Real Estate Sales in the Notes to the Consolidated Financial Statements included in Item 15 to this annual report on Form 10-K.
Depreciation, depletion and amortization. The decrease of $0.7 million in depreciation, depletion and amortization expenses in 2014, as compared to 2013, was primarily due to a decrease in depletion expense related to the AgReserves Sale. The decrease of $1.0 million in depreciation, depletion and amortization expenses in 2013, as compared to 2012, was primarily due to a decrease in depletion expense related to the decrease in volume of timber tons delivered combined with operating assets being fully depreciated.
Impairment losses. In 2013, we recorded impairment charges of $5.1 million primarily for a golf course that we operate, which incurred negative operating cash flows and the future estimated undiscounted cash flows were less than its carrying value. In 2012, we incurred impairment charges of $2.6 million related to a parking facility, which we agreed to cease operating as a parking facility for a period of time. In return we were released from a twenty-eight year land lease that will save us a total of approximately $4.2 million in lease payments and agreed to assume certain costs associated with the land. For further discussion of these impairments, see Note 4, Impairments of Long-lived Assets, in the Notes to the Consolidated Financial Statements included in Item 15 to this annual report on Form 10-K.

Investment income. Investment income primarily includes (i) interest and dividends earned, realized gains and losses and accretion of the net discount from our available-for-sale investments, (ii) interest earned on mortgage notes receivable and (iii) interest income earned on the time deposit held by the Buyer SPE. See “AgReserves Sale” in the Business Overview section for additional information.
 
 
2014
 
2013
 
2012
 
 
In millions
Net investment income from available-for-sale securities
 
 
 
 
 
 
Interest and dividend income
 
$
6.3

 
$
1.2

 
$

Accretion income
 
1.4

 

 

Realized (losses) gains on the sale of investments
 
(0.8
)
 
0.1

 

Other-than-temporary impairment losses
 
(1.3
)
 

 

Total net investment income from available-for-sale securities
 
5.6

 
1.3

 

Interest income from investments in special purpose entities
 
6.1

 

 

Interest accrued on notes receivable and other
 
1.0

 
0.2

 
0.7

Total investment income, net
 
$
12.7

 
$
1.5

 
$
0.7

    
Investment income increased primarily due to the increase in our investments from the proceeds received from the AgReserves Sale and subsequent monetization and RiverTown Sale during 2014. During 2014, we purchased an additional $94.8 million (face value) of corporate debt securities with a stated interest rate of 6.625%, paid semi-annually. In addition, during 2014, we have received $0.6 million in dividends from our preferred stock investments that were purchased in early 2014.

43


Investment income increased $11.2 million during 2014, as compared to 2013, due to (i) an increase of $4.3 million from our available-for-sale securities, which includes an increase of $6.5 million for interest, dividends and accretion, partially offset by other-than-temporary impairment losses related to the credit-related component recognized in earnings of $1.3 million and realized losses on the sale of investments, (ii) $0.8 million from interest earned on mortgage notes receivables (primarily related to the RiverTown Note) and (iii) $6.1 million from interest earned on the time deposit held by the Buyer SPE.
    
Interest expense. Interest expense primarily includes interest expense on our CDD assessments, the Senior Notes issued by NFTF in April 2014 in connection with the AgReserves Sale and the construction loan in our consolidated Pier Park North joint venture. See “AgReserves Sale” in the Business Overview section for additional information.
    
 
 
2014
 
2013
 
2012
 
 
In millions
Interest expense and amortization of discount and issuance costs for Senior Notes issued by special purpose entity
 
$
6.6

 
$

 
$

Interest expense
 
2.0

 
2.0

 
2.8

Total interest expense
 
$
8.6

 
$
2.0

 
$
2.8

        
Interest expense increased $6.6 million during 2014, as compared to 2013, primarily due to interest expense of $6.6 million for the Senior Notes issued by NFTF and construction loan interest expense of $0.6 million on the Pier Park North joint venture construction loan, partially offset by a decrease in interest expense on our CDD assessments due to the RiverTown Sale.

Interest expense decreased by $0.8 million during, 2013 as compared to 2012, primarily due to the prepayment of CDD bonds in the third quarter of 2012.
Other, net. Other income primarily includes income from our retained interest investments, hunting lease income and other income and expense items.
 
 
2014
 
2013
 
2012
 
 
In millions
Accretion income (loss) from retained interest investments
 
0.9

 
0.8

 
(0.6
)
Hunting lease income
 
0.9

 
1.8

 
2.2

Litigation and insurance proceeds received
 
1.8

 
0.6

 
1.7

Southwest guarantee
 

 

 
0.8

Other income, net
 
0.8

 
1.0

 
2.3

Other, net
 
$
4.4

 
$
4.2

 
$
6.4


Other, net increased by $0.2 million during 2014, as compared to 2013, primarily due to the sale of hunting leases that were included in the AgReserves Sale, partially offset by the cash receipt of $1.8 million for a real estate litigation settlement and a $0.6 million gain related to the sale of our fifty percent ownership in our East San Marco joint venture during 2014, as compared to 2013, which included a cash receipt of $0.6 million for insurance proceeds in 2013.

Other income, net decreased by $1.7 million during 2013, as compared to 2012, primarily due to the cash receipt of $1.7 million for the DeepWater Horizon claim in 2012.

44


Equity in income from unconsolidated affiliates. As of December 31, 2013, we were partners in two joint ventures that were accounted for by the equity method of accounting. During 2014, we sold our fifty percent ownership in our East San Marco joint venture. See Note 9, Real Estate Joint Ventures, in the Notes to the Consolidated Financial Statements included in Item 15 to this annual report on Form 10-K.
Income tax expense/benefit. Our income tax expense in 2014 was $115.5 million as compared to an income tax benefit of $0.4 million in 2013 and income tax expense of $0.4 million in 2012. Our effective tax rate was 22.1%, 9.0% and 6.0% in 2014, 2013, and 2012, respectively. During 2014, we reversed $86.9 million of the valuation allowances established on our net deferred tax assets of $12.9 million as of December 31, 2013, which reduced our effective rate in 2014. In the future, we expect that our effective rate will be closer to the statutory rate.


45




Segment Results
Residential Real Estate
Our residential real estate segment typically plans and develops mixed-use resort, primary and seasonal residential communities of various sizes, primarily on our existing land. We own land in Northwest Florida, including Gulf of Mexico beach frontage and waterfront properties, concentrated primarily between Tallahassee and Destin, Florida.
The table below sets forth the results of operations of our residential real estate segment for the three years ended December 31, 2014
 
2014
 
2013
 
2012
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
17.0

 
$
33.0

 
$
21.6

Real estate sales - RiverTown Sale
43.6

 

 

Other
0.8

 
0.7

 
0.5

Total revenues
61.4

 
33.7

 
22.1

Expenses:
 
 
 
 
 
Cost of real estate sales
9.4

 
19.0

 
15.0

Cost of real estate sales - RiverTown Sale
17.6

 

 

Other operating expenses
8.3

 
7.6

 
9.5

Depreciation and amortization
0.6

 
0.8

 
1.8

Impairment losses

 
0.2

 

Total expenses
35.9

 
27.6

 
26.3

Operating income (loss)
25.5

 
6.1

 
(4.2
)
Other expense, net
(0.1
)
 
(1.6
)
 
(2.6
)
Income (loss)
$
25.4

 
$
4.5

 
$
(6.8
)
Real estate sales include sales of homesites, other residential land and certain lot residuals from homebuilder sales that provide us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold. Cost of real estate sales includes direct costs (e.g., development and construction costs), selling costs and other indirect costs (e.g., development overhead, capitalized interest and project administration costs). Other revenues include brokerage fees and impact fee credits sold.
 
As discussed above in the Business Overview section, in April 2014, we completed the RiverTown Sale and as a result recognized revenue of $43.6 million during 2014.


46


Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013
The following table sets forth our residential real estate sales and cost of sales activity by geographic region and property type: 
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
(Dollars in millions)
Northwest Florida:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Resort homesites
31

 
$
10.3

 
$
5.3

 
$
5.0

 
48.5
%
 
92

 
$
17.5

 
$
9.4

 
$
8.1

 
46.3
%
Primary homesites
69

 
6.3

 
3.9

 
2.4

 
38.1
%
 
166

 
11.0

 
7.0

 
4.0

 
36.4
%
Single family homes

 

 

 

 
%
 
3

 
0.8

 
0.7

 
0.1

 
12.5
%
Land sale

 

 

 

 
%
 
N/A

 
1.8

 
0.6

 
1.2

 
66.7
%
RiverTown Community
7

 
0.4

 
0.2

 
0.2

 
50.0
%
 
54

 
1.9

 
1.3

 
0.6

 
31.6
%
Total
107

 
$
17.0

 
$
9.4

 
$
7.6

 
44.7
%
 
315

 
$
33.0

 
$
19.0

 
$
14.0

 
42.4
%

Northwest Florida resort homesites. Revenues from real estate sales decreased $7.2 million, or 41%, during 2014, as compared to 2013, due to a decrease in homesite sales in our WaterColor and WaterSound West Beach communities, slightly offset by an increase in homesite sales in our WaterSound Beach and SummerCamp Beach communities. Gross profit margins increased to 48.5% during 2014, as compared to 46.3% during 2013, primarily due to an increase in pricing in our WaterColor, WaterSound Beach and WaterSound West Beach communities, an increase in the lot residual received and the recognition of deferred profit in our WaterSound West Beach and WaterSound Beach communities, given that both the lot residual and the recognition of deferred profit have no related costs.

Northwest Florida primary homesites. Revenues from real estate sales decreased $4.7 million, or 43%, during 2014, as compared to 2013, primarily due to a sale of sixty-two homesites to a homebuilder in WaterSound Origins in 2013. Gross profit margin increased to 38.1% during 2014, as compared to 36.4% during 2013, primarily due to increased prices.
    
Northwest Florida land sales. In 2013, we had a sale of residential land that included 28 units of developed and 37 acres of undeveloped residential land.
    
RiverTown Community primary homesites. As discussed above in the Business Overview section, in April 2014, we completed the sale of our RiverTown community.

Other operating expenses include salaries and benefits, property taxes, marketing, project administration, support personnel and other administrative expenses. Other operating expenses increased $0.7 million during 2014, as compared to 2013, primarily due to increases in professional fees and marketing. During 2014 and 2013, we capitalized less than $0.1 million of indirect development costs related to our residential development projects.
Other expense primarily includes interest earned on our mortgage notes receivables and interest expense on our CDD assessments. Other expense, net decreased $1.5 million during 2014, as compared to 2013, primarily due to interest earned on the RiverTown Note and lower interest expense related to the Rivers Edge CDD assessments.


47


Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012
The following table sets forth our residential real estate sales and cost of sales activity by geographic region and property type: 
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
Units Sold
 
Revenues
 
Cost of
Sales
 
Gross
Profit
 
Gross
Profit Margin
 
(Dollars in millions)
Northwest Florida:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Resort homesites
92

 
$
17.5

 
$
9.4

 
$
8.1

 
46.3
%
 
73

 
$
15.8

 
$
10.3

 
$
5.5

 
34.8
%
Primary homesites
166

 
11.0

 
7.0

 
4.0

 
36.4
%
 
47

 
2.5

 
1.9

 
0.6

 
24.0
%
Single-family homes
3

 
0.8

 
0.7

 
0.1

 
12.5
%
 
1

 
0.5

 
0.5

 

 
%
Land sale
N/A

 
1.8

 
0.6

 
1.2

 
66.7
%
 

 

 

 

 

RiverTown Community:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Primary homesites
54

 
1.9

 
1.3

 
0.6

 
31.6
%
 
36

 
1.6

 
1.0

 
0.6

 
37.5
%
Single-family homes

 

 

 

 
%
 
1

 
1.2

 
1.2

 

 
%
Total
315

 
$
33.0

 
$
19.0

 
$
14.0

 
42.4
%
 
158

 
$
21.6

 
$
14.9

 
$
6.7

 
31.0
%

Northwest Florida resort homesites. Real estate sales increased $1.7 million, or 11%, and gross profit margins increased to 46.3% during 2013, as compared to 34.8% in 2012, primarily due to an increase in volume and pricing in our WaterColor, WaterSound Beach and WaterSound West Beach communities. This increase in volume includes a sale of 19 lots to a homebuilder in our WaterSound West Beach resort community, of which we recognized profit of $0.8 million during 2013.
Northwest Florida primary homesites. Real estate sales increased $8.5 million, or 340%, and gross profit margin increased to 36.4% during 2013, as compared to 24.0% in 2012, primarily due to: (i) a sale of 62 homesites to a homebuilder in our WaterSound community that was financed by us with a note receivable, (ii) increases in volume and prices of homesites sold in our Breakfast Point community, including one sale to a homebuilder for 39 units and (iii) an increase in the lot residual received, which has no related costs, in our SouthWood community.

Northwest Florida land sales. In 2013, we had a sale of residential land that included 28 units of developed and 37 acres of undeveloped residential land.

RiverTown Community primary homesites. Real estate sales increased $0.3 million, or 19%, due to an increase in volume of homesites sold during 2013, as compared to 2012. The decrease in the gross profit margin is primarily driven by the product mix of homesites sold, combined with an increase in the lot residual received, which has no related costs during 2013, as compared to 2012. As discussed above in the Business Overview section, in April 2014, we completed the sale of our RiverTown community during 2014.

Other operating expenses include salaries and benefits, marketing, project administration, support personnel, other administrative expenses and litigation reserves. Other operating expenses decreased $1.9 million to $7.6 million during 2013, as compared to $9.5 million during 2012, primarily due to reductions in employee costs, property taxes and owner association fees. During 2013 and 2012, we capitalized less than $0.1 million of indirect development costs related to our residential development projects.
Other expense includes interest expense on our CDD assessments, which decreased $1.0 million during 2013, as compared to the same period in 2012, as a result of the prepayment of CDD debt in the third quarter of 2012. Interest expense related to the Rivers Edge CDD assessments in the RiverTown Community were $0.8 million in 2013.

48



Commercial Real Estate
Our commercial real estate segment plans, develops, entitles and sells our land holdings, often in conjunction with strategic partners, for a broad range of retail, office, hotel and industrial uses. From time to time, our commercial real estate segment may sell our resort, leisure and operating properties. The timing of commercial real estate revenues can vary depending on the demand, size and location of the property.

The table below sets forth the results of operations of our commercial real estate segment for the three years ended December 31, 2014
 
2014
 
2013
 
2012
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
3.3

 
$
10.9

 
$
10.4

Expenses:
 
 
 
 
 
Cost of real estate sales
1.0

 
5.3

 
6.9

Other operating expenses
2.3

 
2.5

 
3.5

Depreciation and amortization

 

 
0.2

Total expenses
3.3

 
7.8

 
10.6

Operating income (loss)

 
3.1

 
(0.2
)
Other (expense) income
(0.1
)
 
0.2

 

Income (loss)
$
(0.1
)
 
$
3.3

 
$
(0.2
)
Real Estate Sales. Commercial real estate sales for the three years ended December 31, 2014 include the following:
 
    Period    
 
Number of
Sales
 
Acres Sold        
 
Average Price Per Acre         
 
    Revenue    
 
Gross Profit on Sales         
 
 
 
 
 
 
 
 
In millions
2014
 
4

 
5

 
$
609,938

 
$
3.3

 
$
2.3

2013
 
8

 
18

 
$
605,556

 
$
10.9

 
$
5.6

2012
 
6

 
67

 
$
153,919

 
$
10.4

 
$
3.5

 

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Commercial real estate sales were $3.3 million during 2014, as compared to $10.9 million during 2013. Commercial real estate sales can vary depending on the mix of commercial real estate sold in each period, with varying compositions of retail, office, light industrial and other commercial uses.
Other operating expenses include salaries and benefits, property taxes, professional fees and other administrative expenses. Other operating expenses decreased $0.2 million during 2014, as compared to 2013, primarily due to reduced employee costs and property taxes.

49


Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
During 2013, there were eight commercial real estate sales for a total of $10.9 million as compared to six commercial real estate sales for a total of $10.4 million during 2012, which included one sale for $5.4 million. Two of the commercial real estate sales in 2013 totaling $6.0 million were for built-to-suit commercial operating properties that we constructed and were leasing under long-term leases totaling $0.4 million in annual rental income. The leasing operations, including the related operating revenues and costs, of these properties and were reported in our resorts, leisure and operations segment.
Other operating expenses include salaries and benefits, professional fees and other administrative expenses. Other operating expenses decreased $1.0 million during 2013, as compared to 2012, primarily due to reduced employee costs and property taxes.

Resorts, Leisure and Leasing Operations
Our resorts, leisure and leasing operations segment includes recurring revenues from our resort and leisure activities. Resort, leisure and leasing revenues and cost of resort, leisure and leasing revenues include results of operations from the WaterColor Inn and vacation rental programs, four golf courses, marina operations, management of The Pearl Hotel and other related resort activities. In addition, this segment also includes our retail and commercial leasing operations, including our consolidated joint venture at Pier Park North, which commenced operations in 2014.
The table below sets forth the results of operations of our resorts, leisure and leasing operations segment for the three years ended December 31, 2014
 
2014
 
2013
 
2012
 
In millions
Revenues:
 
 
 
 
 
Resorts and leisure operations
$
48.2

 
$
46.4

 
$
40.8

Leasing operations
7.3

 
4.4

 
3.6

Total revenues
55.5

 
50.8

 
44.4

Expenses:
 
 
 
 
 
Cost of resorts and leisure operations
42.7

 
39.1

 
36.5

Cost of leasing operations
3.0

 
2.1

 
2.6

Operating expenses
1.0

 
1.2

 
0.2

Depreciation
6.9

 
6.4

 
5.7

Impairment losses

 
4.9

 
2.6

Total expenses
53.6

 
53.7

 
47.6

Operating income (loss)
1.9

 
(2.9
)
 
(3.2
)
Other income

 
0.9

 
1.8

Net income (loss)
$
1.9

 
$
(2.0
)
 
$
(1.4
)

50


The following table sets forth the detail of our resorts and leisure operations revenues and cost of revenues: 
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Dollars in millions
Resorts and vacation rentals
$
35.1

 
$
4.6

 
13.1
%
 
$
32.3

 
$
5.0

 
15.5
%
Clubs
10.3

 
0.1

 
1.0
%
 
11.3

 
1.6

 
14.2
%
Marinas
2.9

 
0.7

 
24.1
%
 
2.8

 
0.8

 
28.6
%
Leasing
7.2

 
4.3

 
59.7
%
 
4.4

 
2.3

 
52.3
%
Total
$
55.5

 
$
9.7

 
17.5
%
 
$
50.8

 
$
9.7

 
19.1
%
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues from our Resorts and vacation rentals increased $2.8 million, or 9%, during 2014, as compared to 2013, primarily due to: (i) an increase of $0.8 million in food and beverage sales primarily from the Lake House, which opened in late 2013, (ii) a $0.9 million increase in our vacation rental business primarily due to more homes being included our program and (iii) $0.4 million of resort fees from The Pearl Hotel pursuant to a management agreement, which began in May 2014.
Revenues from our clubs decreased $1.0 million, or 9%, and gross profit margin decreased 12.3% due to the launch of St Joe Club & Resorts on January 1, 2014. In connection with the launch of St. Joe Club & Resorts in January 2014, we limited the use of our golf courses and resort facilities to the public; therefore, the loss of revenues from the public access to the golf courses and resort facilities have contributed to the decrease in revenues and gross profit margin during 2014, as compared to 2013.
Revenues from our leasing operations increased $2.8 million and gross profit increased $2.0 million primarily due to the commencement of recognition of leasing revenue in our Pier Park North joint venture as retail stores became occupied by tenants commencing in early 2014. In connection with our Pier Park North joint venture, we recognized $2.4 million of leasing revenues during 2014.
During 2014 and 2013, we capitalized $0.6 million and $0.7 million, respectively, of indirect development costs related to Pier Park North, for which construction began in early 2013.
In 2013, we recorded an impairment charge of $4.9 million for a golf course that we operate, which incurred negative operating cash flows and the future estimated undiscounted cash flows were less than the carrying value of its assets.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
(Dollars in millions)
Resorts and vacation rentals
$
32.3

 
$
5.0

 
15.5
%
 
$
28.0

 
$
3.4

 
12.1
%
Clubs
11.3

 
1.6

 
14.2
%
 
10.2

 
0.4

 
3.9
%
Marinas
2.8

 
0.8

 
28.6
%
 
2.6

 
0.5

 
19.2
%
Leasing
4.4

 
2.3

 
52.3
%
 
3.6

 
1.0

 
27.8
%
Total
$
50.8

 
$
9.7

 
19.1
%
 
$
44.4

 
$
5.3

 
11.9
%

51


Revenues from our Resorts and vacation rentals increased $4.3 million, or 15%, during 2013 as compared to 2012, primarily due to a 15% increase in the number and an increase in the size of homes in our vacation rental programs, higher average room rates and occupancy at the WaterColor Inn.
The increase in the gross profit margin in 2013, as compared to 2012, is primarily due to higher average rate increases, and increases in memberships, rounds played in our golf courses and boat slip revenue, which add minimal costs to the operations.
Revenues and gross profit from our leasing operations increased in 2013 as compared to 2012 due to rent commencing from built-to-suit leases during the second half of 2012 combined with increased percentage rent from retail operating properties in or near our WaterColor and WaterSound Beach resort operations.
In 2013, we recorded an impairment charge of $4.9 million for a golf course that we operate, which incurred negative operating cash flows and the future estimated undiscounted cash flows were less than the carrying value of its assets.

Forestry

Our forestry segment focuses on the management of our timber holdings. We grow and sell timber and wood fiber and provide land management services for conservation properties. Our forestry segment may also sell our timber holdings, undeveloped land or land with limited development and easements.
The table below sets forth the results of operations of our forestry segment, including revenues and expenses associated with the AgReserves Sale and rural land sales that were previously reported in our former rural land segment for the three years ended December 31, 2014
 
 
2014
 
2013
 
2012
 
In millions
Revenues:
 
 
 
 
 
Timber sales
$
11.5

 
$
35.4

 
$
39.0

Real estate sales
569.9

 

 
23.4

Total revenues
581.4

 
35.4

 
62.4

Expenses:
 
 
 
 
 
Cost of timber sales
4.5

 
21.5

 
24.0

Cost of real estate sales
58.4

 

 
6.2

Other operating expenses
1.9

 
1.0

 
1.6

Depreciation and depletion
0.7

 
1.8

 
2.1

Total expenses
65.5

 
24.3

 
33.9

Operating income
515.9