10-K 1 joe-20151231x10k.htm 10-K 10-K
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, 2015
¨
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  ¨    NO  þ
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
¨
Accelerated filer
þ
 
 
 
 
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, 2015, was approximately $574.8 million.
As of February 26, 2016, there were 92,332,565 shares of common stock, no par value, issued of which 74,349,612 were outstanding, and 17,982,953 are shares of treasury stock.




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, asset management 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 and leisure operations, 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 real estate 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.

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 and asset management, including opportunities surrounding the Northwest Florida Beaches International Airport and our other land holdings in Northwest Florida.
Specifically, in 2016, we intend to focus on the following initiatives:

Bay-Walton Sector Plan. In May of 2015, the Bay-Walton Sector Plan was officially adopted by Bay County and Walton County, found in compliance with state law, and no third party appeals were filed, therefore it became in effect in June 2015. The Bay-Walton Sector Plan is a long term master plan that includes entitlements, or legal rights, to develop over 170,000 residential units and over 22 million square feet of retail, commercial, and industrial uses on approximately 110,500 acres of the Company’s land holdings. While these entitlements are broadly defined, what will actually be developed will be a function of more detailed planning, analysis, and market conditions, which will occur over time. We intend to explore opportunities to capitalize on these entitlements, including continuing to explore opportunities in the growing retirement demographic and other strategic initiatives.

Commercial and industrial uses of our land portfolio. We intend to continue exploring new commercial and industrial uses of our land portfolio. 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.

Pier Park North. We are developing a 330,000 square foot retail 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, 2016, approximately 287,000 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, Bealls Outlet Store and Ross Dress for Less.

Port of Port St. Joe. We believe the Port of Port St. Joe can benefit from the expected long-term economic growth in the Southeastern United States and the Panama Canal. The Port of Port 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, the Port of Port St. Joe’s shipping channel must first be dredged up to the federally authorized depth. We previously announced that in December 2014, the Florida Department of Environmental Protection issued the state permits to dredge the shipping channel to the maximum authorized depth. In February of 2015, the U.S. Army Corps of Engineers issued the federal permits to dredge the shipping channel to the maximum authorized depth. Additional regulatory approvals, funding, and other infrastructure improvements are required before dredging can begin, which could span multiple years.


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VentureCrossings. VentureCrossings allows for 5.9 million square feet of industrial and commercial development adjacent to Northwest Florida Beaches International Airport.

Joint ventures 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.

Efficient operations. We expect to continue a cost and investment discipline to ensure low fixed expenses and bottom line performance in all environments.

Liquidity and balance sheet strength. We plan to continue maintenance of a high degree of liquidity while seeking opportunities to invest our cash in ways that we believe will increase shareholder value including investments in available for sale securities, share repurchases, real estate and other strategic investments.
Our Business
We currently view the company as a manager of our real estate assets. We operate our business in five reportable operating segments: (1) residential real estate, (2) commercial real estate, (3) resorts and leisure, (4) leasing operations and (5) 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 plans and develops mixed-use resort, primary and seasonal residential communities of various sizes on existing land. We own land in Northwest Florida near the Gulf of Mexico and other waterfront properties concentrated between Tallahassee and Destin, Florida.

Our real estate investment strategy focuses on projects that meet our investment return criteria. 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. An analysis is conducted for capital expenditures in each of our five segments.

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 continue to see demand for lots and homes in these established resort communities, while some of our other communities continue to have low sales volume.

Our second type of residential communities serve the primary home market. These communities are for buyers who intend to use the community primarily for their main 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 and parcels of entitled, undeveloped land in our primary home communities.

Commercial Real Estate
In our commercial real estate segment we plan, develop, manage and sell real estate, including commercial operating properties. We provide development opportunities for national, regional and local retailers and other strategic partners in Northwest Florida. We offer land for commercial and light industrial uses. We also develop commercial parcels within or near existing residential developments. Our commercial real estate also includes industrial parks and several commerce parks. We have large land holdings surrounding the Northwest Florida Beaches International Airport, the Port of Port St. Joe, 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, a commercial and industrial development. We are soliciting global office, retail and industrial users for this prime development location.
 

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Resorts and Leisure
WaterColor Inn and Vacation Rentals. Our WaterColor Inn and Resort is an award winning boutique hotel, which provides guests with access to a beach club, spa, tennis center, an award-winning restaurant, and 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.

St. Joe Club & Resorts. St. Joe Club & Resorts is our private membership club that provides exceptional amenities to our members and resort guests. The focus is on creating a world class membership experience combined with the all-inclusive aspects of a four star/four diamond resort. This allows the company to provide membership and create a competitive advantage in the lodging business. In addition, St. Joe Club & Resorts manages The Pearl Hotel, a boutique resort hotel in Northwest, Florida.

From time to time, we may explore the sale of certain resort and leisure properties.

Leasing Operations

Our leasing operations business includes our retail and commercial leasing. We own and manage 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. Our commercial leasing operations include our Pier Park North joint venture. Our Pier Park North joint venture includes a 330,000 square foot retail center in Panama City Beach, which we are developing with Casto, our joint venture partner and one of the country’s leading developers of neighborhood and community retail centers. We began to develop and construct the Pier Park North retail center in early 2013 and expect to complete construction in 2016. As of February 1, 2016, approximately 287,000 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, Bealls Outlet Store 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 the Harris Corporation under a long-term lease that commenced in 2012.
    
From time to time, we may sell certain operating properties. Typically the sales of these assets are 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. We generate revenue from our forestry segment primarily from open market sales of timber. We sell product on site without the associated delivery costs. As of December 31, 2015, we had approximately 116,000 acres in our forestry operations and expect to have the ability to consistently operate approximately 60,000 of those acres. As of December 31, 2015, we had an estimated 3.2 million tons of marketable pulpwood and 2.1 million tons of marketable sawlogs on such acreage. 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). Based on our annual harvest plan, we anticipated harvesting approximately 350,000 tons of pulpwood and sawlogs during 2016.

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.


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Seasonality

Our businesses may be affected by seasonal fluctuations. For example, revenues from our resorts and leisure 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 predominantly sales to homebuilders, who tend to buy multiple lots in sporadic transactions. 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 and leasing businesses are 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 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 26, 2016, we had 55 full-time employees. Most persons employed in the day-to-day operations of our resorts and leisure operations are 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 the 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 forty percent of the carrying value of our assets, while our assets related to our existing investments in real estate only comprise about thirty percent 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 investing in new real estate and real estate related 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, investing in businesses related to our real estate development, management, and operating activities, investing in available-for-sale securities or longer term investments in real estate investment trusts and other investments in illiquid securities 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. If we are not successful in achieving our objectives, our business, results of operations, cash flows and financial condition 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 or longer term investments in real estate investment trusts and other investments in illiquid securities until we can find what we believe to be other advantageous opportunities for these funds. Our management has discretion in the selection of these 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. Additionally, longer term investments, such as real estate investment trusts and other investments in illiquid securities are inherently riskier investments and could result in us losing some or all of our investment as well as not being able to liquidate our position when we would otherwise wish to do so.

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 Port 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 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.


8


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 of 1940 (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) has the right to vote as of December 31, 2015 approximately 30.7% 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, 2015, an additional 1.8% of our common stock. Bruce R. Berkowitz, the Managing Member of Fairholme Capital, 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 MRC Global, Inc., Imperial Metals Corp., NOW, Inc., Sears Holdings Corp., Seritage Growth Properties, Sears Canada, Inc., and Lands’ End, Inc. 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.


9


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, as amended. 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 and asset management 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, which may delay 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 condition could be adversely affected.


10


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, 2015, we have investment accounts of $384.4 million which are managed by Fairholme Capital. Of this amount, $193.2 million is held in cash equivalents, $184.7 million is held in U.S. Treasury securities, $6.3 million is held in corporate debt securities and $0.2 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, and our preferred stock that are issued by one issuer who is a national retail chain that is non-investment grade. 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. 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. Based on these factors, the unrealized losses related to the Company's debt securities of $1.1 million were determined to be temporary at December 31, 2015.

Any 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 credit-related losses in our Consolidated Statements of Operations. 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.

We face risks associated with short-term liquid investments.
 
We continue to have significant cash balances that are invested in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. From time to time, these investments may include (either directly or indirectly):

direct obligations issued by the U.S. Treasury;
obligations issued or guaranteed by the U.S. government or its agencies;
taxable municipal securities;
obligations (including certificates of deposit) of banks and thrifts;
commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corporations and banks;
repurchase agreements collateralized by corporate and asset-backed obligations;
both registered and unregistered money market funds; and
other highly rated short-term securities.

Investments in these securities and funds are not insured against loss of principal. Under certain circumstances we may be required to redeem all or part of our investment, and our right to redeem some or all of our investment may be delayed or suspended. In addition, there is no guarantee that our investments in these securities or funds will be redeemable at par value. A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverse effect on our results of operations or financial condition.



11


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 2014 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 the majority of sales to homebuilders who tend to buy multiple lots in sporadic transactions. Commercial real estate projects are likewise subject to one-off sales and the development of specific projects depending on demand.
    
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 and leisure operations are affected by seasonal fluctuations. Revenues from our resorts and leisure 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.
  
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, results of operations 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 and manage real estate in Northwest Florida, including opportunities in the mixed-use and active adult communities and expanding the Port of Port 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. Some of our land has an “agricultural” or “silviculture” future land use designation, and 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 of service 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 or resort communities or the 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 condition.

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 lots or entitled 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 Port 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 Port 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.

The success of our primary communities and planned mixed-use and active adult communities will be dependent on strong migration and 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 and leisure operations and leasing operations, such as by 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 condition.

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 we 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 condition.

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 could adversely affect our occupancy rates and our profitability, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

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 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 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 in our communities.
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 condition 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. Changes in tax laws could increase the after-tax cost of owning a home, which is likely to adversely impact the demand for homes and could reduce the prices for which we can sell homesites, particularly in higher priced communities.

Significant competition could have an adverse effect on our business.

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. 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. In 2014, 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 access. 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 have a material adverse affect on our business, results of operations, cash flows and financial condition.

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 in 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 other sellers. Any of these events could have an adverse effect on our business, results of operations, cash flows and financial condition.


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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 and management of commercial properties and assets for sale. These developments may not be as successful as expected due to the commercial leasing related risks, including the risk that we may not be able to lease new properties to an appropriate mix of tenants or lease rates that are consistent with our projections, as well as the risks generally associated with real estate development. 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 face potential adverse effects from commercial tenant bankruptcies.

A component of our business strategy is the development and leasing of commercial properties. The bankruptcy of a major tenant may adversely affect the income produced by our commercial properties. If one or more of our tenants, particularly an anchor tenant, declares bankruptcy or voluntarily vacates from the leased premises, we may be unable to re-lease such space or to re-lease it on comparable or more favorable terms. Additionally, the bankruptcy of an anchor tenant may make it more difficult to lease the remainder of the affected properties, which could have a material adverse effect on our results of operations, cash flows and financial condition. This could adversely affect our properties and growth.

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 a limited guarantee in connection with our Pier Park North joint venture, and may in the future agree to similar agreements. In October 2015, the Pier Park North joint venture refinanced its construction loan and entered into a $48.2 million loan (the “Refinanced Loan”) that matures in November 2025. Pursuant to the Refinanced Loan, we have provided a limited guarantee in favor of the lender that covers losses arising as a result of: (i) tenant security deposits; (ii) tenant rents; (iii) costs and expenses related to any environmental clean-up; (iv) liability for fraud or material breach of warranty with respect to the financing; (v) unpaid real estate taxes assessed against the property; (vi) failure to maintain required insurance; (vii) foreclosure of the security instrument; or (viii) failure of the joint venture to comply with certain covenants in the agreement. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the joint venture; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary or insolvency proceedings; and upon breach of covenants in the security instrument. If we were to become obligated to perform on the guarantee, 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 or 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 condition.

From time to time, we may be subject to periodic litigation and other regulatory proceedings which could impair our financial results of operations.
From time to time, we may be involved in lawsuits and regulatory actions relating to our business, our operations and our position as an owner and operator of real estate. An adverse outcome in any of these transactions could adversely affect our financial condition, our results of operations or impose additional restrictions or limitations on us. In addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in substantial costs and may require that we devote substantial resources to defend our Company. For example, on October 27, 2015, we fully resolved an SEC investigation regarding our policies and practices concerning impairment of investment in real estate assets principally as reflected in our financial results for 2010, 2009 and prior periods. The settlement and all allegations relate to actions taken prior to the 2011 replacement of the Board of Directors, the Chief Executive Officer and the Chief Financial Officer. None of the SEC's allegations, findings, sanctions, remedies or orders relate to any of our current directors or controlling shareholders. Without admitting or denying any factual allegations, we consented to the SEC’s issuance of an administrative order, and as a result, we became an “ineligible issuer” under Rule 405 of the Securities Act. Pursuant to the order, we agreed to pay penalties, disgorgements and interest of approximately $3.5 million. In connection with the SEC investigation we also incurred significant legal expenses and devoted substantial management resources to its resolution. If we were to become subject to other litigation or regulatory proceedings in the future, it could impair our financial results of operations.



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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 Bay-Walton Sector Plan lands adjacent to the 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.

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 Bay-Walton Sector Plan lands adjacent to the 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 condition.

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.

We face risks associated with third-party service providers, which could negatively impact our profitability.

We enter into arrangements from time to time by which third-party service providers conduct day-to-day operations of our resorts and leisure operations. Failure of such service providers to adequately perform their contracted services could negatively impact our ability to retain customers. As a result, any such failure could negatively impact our results of operations, cash flows and financial condition.

Risks Related to Our Company or Common Stock

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; and
less volume due to reduced shares outstanding.

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.


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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, 2015, approximately 30.7% of our outstanding common stock. Fairholme Capital is the investment adviser of accounts that in the aggregate owns, as of December 31, 2015, an additional 1.8% 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. 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 condition.

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 condition.
    
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, 2015. 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 condition.

Over the past five years, we have recorded impairment charges of $384.4 million related to real estate investments. We have approximately $313.6 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 condition.


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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.

We face risks associated with security breaches or disruptions, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, persons inside our organization or persons with access to systems, and other significant disruptions of our networks and related systems. 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. Although we make efforts to maintain the security and integrity of these networks and related systems, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not be detected and, in fact, may not be detected. Accordingly, we and our service providers may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us and our service providers to entirely mitigate this risk. 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, 2015, we owned approximately 178,000 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 and leisure, and leasing segments include the following properties:

WaterColor Inn and Vacation Rentals. We own the WaterColor Inn and Resort, which includes a boutique hotel, spa, restaurant, and retail and commercial space. We completed construction for the WaterColor Inn in 2002. In addition, we own multi-family units that are used primarily in our vacation rental business in our WaterSound Beach and WindMark Beach communities. We completed construction on these multi-family units 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 golf course land, 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 include our Pier Park North joint venture. Our Pier Park North joint venture includes a 330,000 square foot retail center in Panama City Beach, which we are developing with Casto, our joint venture partner and one of the country’s leading developers of neighborhood and community retail centers. We began to develop and construct the Pier Park North retail center in early 2013 and expect to complete construction in 2016. As of February 1, 2016, approximately 287,000 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, Bealls Outlet Store 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 the Harris Corporation 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.

22




Item 3.        Legal Proceedings

We are subject to a variety of litigation, claims, other disputes and governmental proceedings that arise from time to time in the ordinary course of our business, none of which we believe will have a material adverse effect on our consolidated financial position, results of operations or liquidity.
In addition, we are subject to environmental laws and regulations, which include obligations to remove or limit the effects on the environment of the disposal or release of certain wastes or substances at various sites, including sites which have been previously sold. Refer to Note 21, Commitments and Contingencies, for further discussion. 
Securities and Exchange Commission Investigation
On January 4, 2011 we 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 and on June 24, 2011 the SEC issued to us a related order of private investigation. On January 20, 2015, we received a Wells Notice from the Staff related to historical accounting and disclosure practices and real estate asset valuations principally as reflected in our financial results for 2010, 2009 and prior periods. On February 20, 2015, we submitted to the Staff a Wells submission and subsequently engaged in discussions with the Staff concerning a settlement of its investigation, with which we cooperated.
On October 27, 2015, we fully resolved the SEC investigation and entered into a settlement with the SEC. Without admitting or denying any factual allegations, we consented to the SEC’s issuance of an administrative order pursuant to which we agreed to pay penalties, disgorgements and interest of approximately $3.5 million, including a civil penalty assessed on us of $2.75 million and other disgorgements and interest subject to indemnification by us. The settlement and all allegations relate to actions taken prior to the 2011 replacement of the Board of Directors, the Chief Executive Officer and the Chief Financial Officer. None of the SEC's allegations, findings, sanctions, remedies or orders relate to any of our current directors or controlling shareholders.

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 26, 2016 we had approximately 1,104 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
2015
 
 
 
Fourth Quarter
$
21.45

 
$
17.95

Third Quarter
$
19.13

 
$
15.70

Second Quarter
$
19.03

 
$
15.07

First Quarter
$
18.56

 
$
16.16

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


23


On February 26, 2016, the closing price of our common stock on the NYSE was $15.49. We did not pay cash dividends in 2015 or 2014 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, 2010, through December 31, 2015, assuming $100 was invested on December 31, 2010, 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.

24


 
   
12/31/2010
 
12/31/2011
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
The St. Joe Company
$
100

 
$
67.09

 
$
105.63

 
$
87.83

 
$
84.16

 
$
84.71

Russell 3000 Index
$
100

 
$
101.03

 
$
117.61

 
$
157.07

 
$
176.79

 
$
177.64

Custom Real Estate Peer Group*
$
100

 
$
80.24

 
$
120.05

 
$
182.35

 
$
187.43

 
$
161.90

     
*
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.


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, 2015. 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,
 
2015
 
2014
 
2013
 
2012
 
2011
 
In thousands, except per share amounts
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Total revenues (1)(2)
$
103,871

 
$
701,873

 
$
131,256

 
$
139,396

 
$
145,285

Total cost of revenues (3)(4)
67,094

 
136,798

 
86,913

 
91,276

 
71,472

Other operating and corporate expenses
33,426

 
26,128

 
27,855

 
30,326

 
50,037

Pension charges

 
13,529

 
1,500

 
2,999

 
5,871

Costs associated with special purpose entities (5)

 
3,746

 

 

 

Depreciation, depletion and amortization
9,486

 
8,422

 
9,131

 
10,110

 
15,840

Impairment losses

 

 
5,080

 
2,551

 
377,325

Restructuring

 

 

 

 
11,547

Total expenses
110,006

 
188,623

 
130,479

 
137,262

 
532,092

Operating (loss) income
(6,135
)
 
513,250

 
777

 
2,134

 
(386,807
)
Other income
4,972

 
8,571

 
3,668

 
4,289

 
934

(Loss) income before equity in (loss) income from unconsolidated affiliates and income taxes
(1,163
)
 
521,821

 
4,445

 
6,423

 
(385,873
)
Equity in (loss) income from unconsolidated affiliates

 
(32
)
 
112

 
(46
)
 
(93
)
Income tax (expense) benefit
(808
)
 
(115,507
)
 
409

 
(387
)
 
55,658

Net (loss) income
(1,971
)
 
406,282

 
4,966

 
5,990

 
(330,308
)
Net loss attributable to non-controlling interest
240

 
171

 
24

 
22

 
29

Net (loss) income attributable to the Company
$
(1,731
)
 
$
406,453

 
$
4,990

 
$
6,012

 
$
(330,279
)
 
 
 
 
 
 
 
 
 
 
Per Share Data:
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to the Company
$
(0.02
)
 
$
4.40

 
$
0.05

 
$
0.07

 
$
(3.58
)
 
 
 
 
 
 
 
 
 
 
 
(1)
Total revenues include revenues from real estate sales, timber sales, resorts and leisure revenues, 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, resorts and leisure revenues, and leasing revenues.
(4)
Total cost of revenues in 2014 includes $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.

25



 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
In thousands
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Investment in real estate, net
$
313,599

 
$
321,812

 
$
385,009

 
$
370,647

 
$
387,202

Cash and cash equivalents
$
212,773

 
$
34,515

 
$
21,894

 
$
165,980

 
$
162,391

Investments
$
191,240

 
$
636,878

 
$
146,972

 
$

 
$

Property and equipment, net
$
10,145

 
$
10,203

 
$
11,410

 
$
12,149

 
$
14,946

Total assets
$
984,813

 
$
1,303,135

 
$
669,472

 
$
645,521

 
$
661,291

Long-term debt (1)
$
48,132

 
$
31,618

 
$
6,445

 
$

 
$

Senior Notes held by special purpose entity (2)
$
177,445

 
$
177,341

 
$

 
$

 
$

Total debt
$
232,639

 
$
241,145

 
$
44,217

 
$
36,062

 
$
53,458

Total equity
$
673,447

 
$
979,701

 
$
563,525

 
$
552,334

 
$
543,892

 
(1)
Long-term debt includes the Pier Park North Refinanced 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.



26



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

Business Overview

We are a real estate development, asset management 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 and leisure operations, 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 real estate 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 that we can better deploy those resources.
We received significant liquid assets as a result of the AgReserves Sale and RiverTown Sale in 2014. During the year ended December 31, 2015, we repurchased a total of approximately 17.0 million shares of our common stock outstanding for a total price of $305.0 million, including costs, pursuant to a tender offer and open market purchases. In October 2015, the Board of Directors authorized an additional $200.0 million for share repurchases, for a total of $205.7 million available as of December 31, 2015. We may repurchase our outstanding common stock in open market purchases from time to time pursuant to Rule 10b-18, in privately negotiated transactions or otherwise. We will continue to seek additional opportunities to invest the remaining funds that could increase our returns. These investments may include longer term commercial or residential real estate or real estate related investments (in which we may play an active or passive role), investments in real estate investments trusts, and other investments in illiquid securities where we believe we can increase our returns.

Segments
As of December 31, 2015, we have the following five operating segments: 1) residential real estate, 2) commercial real estate, 3) resorts and leisure 4) leasing operations and 5) forestry. Commencing in the first quarter of 2015, our leasing operations segment met the quantitative and qualitative factors as a reportable operating segment; therefore, we changed our segment presentation to include leasing operations as an operating segment. Prior to the first quarter of 2015, leasing operations were historically included with our resorts, leisure and leasing operating segment. All prior year segment information has been reclassified to conform to the 2015 presentation. The change in reporting segments had no effect on the Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive (Loss) Income or Statements of Cash Flows for the periods presented.
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: 
 
2015
 
2014
 
2013
Segment Operating Revenues
 
 
 
 
 
Residential real estate
20.4
%
 
20.4
%
 
25.7
%
Commercial real estate
6.9
%
 
3.7
%
 
8.3
%
Resorts and leisure
52.5
%
 
55.4
%
 
35.4
%
Leasing operations
8.6
%
 
8.0
%
 
3.3
%
Forestry
11.6
%
 
12.1
%
 
27.0
%
Other
%
 
0.4
%
 
0.3
%
Consolidated operating revenues
100.0
%
 
100.0
%
 
100.0
%

27




Residential Real Estate
Our residential real estate segment typically plans and develops mixed-use resort, primary residential and seasonal residential communities of various sizes, primarily on our existing land. The following is a description of some of our major residential development communities in Florida that we are currently in the process of planning or developing:

The Watersound Origins community is a residential community in South Walton County, Florida with direct access to Lake Powell. The project has received government approval for approximately 1,074 single family units with an additional multi-family component, however, the actual amount of units that we ultimately approve for development will depend on our development strategy, the extent to which the anticipated returns of the project meets our investment return criteria, and the availability of capital resources to fund such development. The Watersound Origins community includes a six-hole golf course that is operated by our Resorts and Leisure segment.

The Breakfast Point community is a residential community in Panama City Beach, Florida near the Pier Park retail center. The project has received government approval for 368 single family units, however, the actual amount of units that we ultimately approve for development will depend on our development strategy, the extent to which the anticipated returns of the project meets our investment return criteria, and the availability of capital resources to fund such development. 

The SouthWood community is a large scale, mixed use development community located in the southeastern section of Tallahassee. The project has received government approval for 4,770 residential units, including 2,074 single family residences and 2,696 multi-family units, however, the actual amount of units that we ultimately approve for development will depend on our development strategy, the extent to which the anticipated returns of the project meets our investment return criteria, and the availability of capital resources to fund such development. SouthWood also includes an 18-hole golf course and club and a town center with restaurants, retail shops and offices. The SouthWood Golf Club is operated by our Resorts and Leisure segment and a portion of the towncenter is leased and operated by our Leasing segment.

We have other residential communities, such as the WaterColor, WaterSound Beach, WaterSound West Beach and other communities that are substantially developed. The remaining developed and available homesites in those other communities are available for sale.

In addition, the Bay-Walton Sector Plan was officially adopted by Bay County and Walton County in May 2015 and was found in compliance with state law and is therefore in effect as of June 2015. The Bay-Walton Sector Plan is a long term master plan that includes entitlements, or legal rights, to develop over 170,000 residential units and over 22 million square feet of retail, commercial, and industrial uses on approximately 110,500 acres of our land holdings.  We anticipate a wide range of residential and commercial uses on these land holdings, including some portion of these entitlements serving the active adult retirement market.  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. As is true with all of our projects, what will actually be developed will be a function of more detailed planning, analysis, and market conditions, which will occur over time.

Our residential real estate segment generates revenues primarily from the sale of developed homesites; the sale of parcels of entitled, undeveloped land; 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; marketing fees 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 evaluates opportunities to maximize value by selling some of our resorts, leisure or operating properties.


28


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.

Resorts and Leisure
Our resorts and leisure segment generates revenues primarily from the WaterColor Inn and vacation rental programs, four golf courses, marina operations and other related resort activities.

WaterColor Inn, Vacation Rentals and Other Management Services - Our WaterColor Inn and vacation rentals generate revenue from (1) the WaterColor Inn and Resort, (2) our management of The Pearl Hotel, (3) our vacation rental businesses and (4) our restaurants. The WaterColor Inn incurs expenses from the cost of services and goods provided, personnel costs and third party management fees. 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. 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 portion. A percentage of the fee is remitted to the homeowner and presented in the cost of resorts and leisure revenues. The vacation rental business also incurs expenses from standard lodging personnel, such as front desk, reservations and marketing.

Clubs and Resorts - Our clubs and resorts operations 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 members, participating homeowners and their rental guests access to our clubs. The focus is on creating a world class membership experience combined with the all-inclusive aspects of a four star/four diamond resort. This allows the company to provide membership and create a competitive advantage in the lodging business.

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
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, VentureCrossings, and incur expenses primarily from maintenance and management of these properties and personnel costs. Our Pier Park North joint venture also incurred interest and financing expenses related to its loan. In October 2015, our Pier Park North joint venture refinanced its construction loan and entered into a $48.2 million loan and will incur interest and financing expenses related to the loan as described in Note 9, Real Estate Joint Ventures.

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. We generate revenue from our forestry segment primarily from open market sales of timber. We 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.

29


Factors Affecting Comparability

AgReserves Sale

On March 5, 2014, we completed the 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 and corporate 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 a buyer-sponsored special purpose entity (the “Buyer SPE”) and (3) an Irrevocable Standby Letter of Credit (the “Letter of Credit”) at the request of the Buyer SPE, in favor of us.
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 upon maturity of the Timber Note in 2029 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 Operations.
RiverTown Sale

On April 2, 2014, we completed a 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 $43.6 million, the assumption of $11.0 million of associated community development district assessments and the obligation to purchase certain RiverTown community related impact fee credits from us as the RiverTown community is developed. 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 of the 2014 sale to Mattamy (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. We received $0.1 million for these impact fees during 2015 and 2014.
We recorded net earnings of $26.0 million before income taxes for the RiverTown Sale during the second quarter of 2014.

30




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, 2015
 
2015
 
2014
 
2013
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
33.7

 
$
635.0

 
$
45.1

Resorts and leisure revenues
54.5


48.4


46.4

Leasing revenues
9.0


7.0


4.3

Timber sales
6.7

 
11.5


35.5

Total
103.9

 
701.9

 
131.3

Expenses:
 
 
 
 
 
Cost of real estate sales
16.4


87.1


24.7

Cost of resorts and leisure revenues
47.1


42.9


39.0

Cost of leasing revenues
2.8


2.3


1.7

Cost of timber sales
0.8

 
4.5

 
21.5

Other operating and corporate expenses
33.4

 
26.2

 
27.8

Pension charges

 
13.5

 
1.5

Administrative costs associated with special purpose entities

 
3.7

 

Depreciation, depletion and amortization
9.5

 
8.4

 
9.1

Impairment losses

 

 
5.1

Total
110.0

 
188.6

 
130.4

Operating (loss) income
(6.1
)
 
513.3

 
0.9

Other income (expense):
 
 
 
 
 
Investment income, net
22.7

 
12.7

 
1.5

Interest expense
(11.4
)
 
(8.6
)
 
(2.0
)
Other, net
(6.3
)
 
4.4

 
4.2

Total other income
5.0

 
8.5

 
3.7

(Loss) income before equity in income from unconsolidated affiliates and income taxes
(1.1
)
 
521.8

 
4.6

Equity in income from unconsolidated affiliates

 

 
0.1

Income tax (expense) benefit
(0.8
)
 
(115.5
)
 
0.4

Net (loss) income
$
(1.9
)
 
$
406.3

 
$
5.1



31


Real Estate Sales and Gross Margin.
 
2015
 
% (1)
 
2014
 
% (1)
 
2013
 
% (1)
 
Dollars in millions
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate sales
$
21.2

 
62.9
%
 
$
17.9

 
2.8
%
 
$
33.8

 
74.9
%
RiverTown Sale

 
%
 
43.6

 
6.9
%
 

 
%
Commercial real estate sales
7.2

 
21.4
%
 
3.3

 
0.5
%
 
10.9

 
24.2
%
AgReserves and other rural land sales
5.3

 
15.7
%
 
570.2

 
89.8
%
 
0.4

 
0.9
%
Real estate sales
$
33.7

 
100.0
%
 
$
635.0

 
100.0
%
 
$
45.1

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
Residential real estate sales
$
10.3

 
48.6
%
 
$
8.0

 
44.7
%
 
$
14.4

 
42.6
%
RiverTown Sale

 
%
 
26.0

 
59.6
%
 

 
%
Commercial real estate sales
2.2

 
30.6
%
 
2.3

 
69.7
%
 
5.6

 
51.4
%
AgReserves and other rural land sales
4.8

 
90.6
%
 
511.6

 
89.7
%
 
0.4

 
100.0
%
Gross profit
$
17.3

 
51.3
%
 
$
547.9

 
86.3
%
 
$
20.4

 
45.2
%
(1
)
Calculated percentage of total real estate sales and the respective gross profit percentage.

Real Estate Sales. Residential real estate sales revenue increased $3.3 million, or 18%, to $21.2 million during 2015, as compared to $17.9 million during 2014. This increase is primarily due to increased volume in our primary home communities and a sale of one resort home offset by a reduction in sales in our resort home communities due to lower homesite availability. Commercial real estate sales increased $3.9 million, or 118%, to $7.2 million during 2015, as compared to $3.3 million during 2014, primarily due to three commercial real estate transactions in 2015 totaling 13.6 acres.

Our customer base for residential real estate sales is shifting from being primarily retail based to being more weighted towards homebuilders. Homebuilders generally buy more homesites in a single transaction but tend to buy on a more sporadic basis, and we believe we will continue to experience greater volatility in the consistency and pace of our residential real estate sales. 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.

During 2015, we sold approximately 3,330 acres of rural and timber land for $5.3 million. Revenues from rural land and commercial real estate can vary drastically from period to period. 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.

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.


32




Residential real estate sales decreased $15.9 million, or 47%, to $17.9 million in 2014, as compared to $33.8 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.
 
Real Estate Sales Gross Profit.     During 2015, we recorded gross profit of $17.3 million, or 51.3%, as compared to $547.9 million, or 86.3%, during 2014. 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 $10.7 million, or 50.5%, during 2014, as compared to $20.4 million, or 45.2%, during 2013. Residential real estate gross margins increased due to price increases and the mix of sales from different communities.
Resorts and Leisure Revenues and Gross Profit.
 
2015
 
2014
 
2013
 
Dollars in millions
Resorts and leisure revenues
$
54.5

 
$
48.4

 
$
46.4

Gross profit
$
7.4

 
$
5.5

 
$
7.4

Gross profit margin
13.6
%
 
11.4
%
 
15.9
%
 
 
 
 
 
 
Resorts and leisure revenues increased $6.1 million, or 13%, during 2015, as compared to 2014. The increase in our resorts and leisure revenues and gross profit margin was primarily due to: (i) an increase of $2.0 million within the club operations due to membership growth and increase golf rounds, (ii) a $1.8 million increase in our vacation rental department due to shift in higher revenue producing homes, (iii) $0.4 increase in The Pearl Hotel management fees due to a full year of the management agreement and (iv) increases in ancillary spend including food and beverage, recreation, spa, marina and resort service fees.
Resorts and leisure revenues increased $2.0 million, or 4%, during 2014, as compared to 2013. 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 LakeHouse, 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.
Leasing Revenues and Gross Profit.
 
2015
 
2014
 
2013
 
Dollars in millions
Leasing revenues
$
9.0

 
$
7.0

 
$
4.3

Gross profit
$
6.2

 
$
4.7

 
$
2.6

Gross profit margin
68.9
%
 
67.1
%
 
60.5
%
 
 
 
 
 
 
Leasing revenues increased $2.0 million, or approximately 29%, during 2015, as compared to 2014, and gross profit margin increased in 2015 as compared to 2014 primarily due to the commencement of revenues from new store openings in 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. In 2015, we continued to open new stores and increase leasing revenue from our Pier Park North joint venture as retail space became occupied by tenants. As a result, we recognized $4.6 million of leasing revenues from Pier Park North during 2015.

33


Leasing revenues increased $2.7 million, or 63%, during 2014, as compared to 2013, and gross profit margin increased in 2014 to 67.1%, from 60.5% in 2013. The increase in revenues and gross profit is primarily due to a full year of rent from our property in our VentureCrossings industrial park and 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 space became occupied by tenants. As a result, we recognized $2.4 million of leasing revenues from Pier Park North during 2014.
Timber Sales and Gross Profit.
 
2015
 
2014
 
2013
 
Dollars in millions
Timber sales
$
6.7

 
$
11.5

 
$
35.5

Gross profit
$
5.9

 
$
7.0

 
$
14.0

Gross profit margin
88.1
%
 
60.9
%
 
39.4
%
 
 
 
 
 
 
Timber sales decreased $4.8 million, or 42%, during 2015, as compared to 2014, 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. 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 $24.0 million, or 68%, during 2014, as compared to 2013, primarily due to the AgReserves Sale, which closed on March 5, 2014. As expected our timber sales and related costs substantially decreased 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.
Other operating and corporate expenses. Other operating and corporate expenses increased by $7.2 million or 27%, during 2015, as compared to 2014, primarily due to increased planning costs related to our mixed-use and active adult community, including non-recurring expenses related to the approval of the Bay-Walton Sector Plan and costs related to personnel changes.
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.
Pension charges. In 2014 the pension plan was terminated. 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 were 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 2015, we recorded an expense of $1.0 million for the fair value of the assets that were allocated to participants. Any gains and losses on these assets are reflected in the Company’s Consolidated Statements of Operations and were a $0.1 million gain for 2015. Refer to Note 8, Financial Instruments and Fair Value Measurements. In addition, we expect to record additional expenses of approximately $7.1 million as the assets in our 401(k) Plan are allocated to participants over the next six 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 for further information.
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 for further information.
Depreciation, depletion and amortization. The increase of $1.1 million in depreciation, depletion and amortization expenses in 2015, as compared to 2014, was primarily due to an increase in building and land improvements completed during 2015 related to Pier Park North and other operating properties.
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.

34


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. 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, net. Investment income, net primarily includes (i) interest and dividends earned, accretion of the net discount, and realized gains and losses from our available-for-sale investments, (ii) interest income earned on the time deposit held by the Buyer SPE and (iii) interest earned on mortgage notes receivable.
 
 
2015
 
2014
 
2013
 
 
In millions
Net investment income from available-for-sale securities
 
 
 
 
 
 
Interest and dividend income
 
$
5.9

 
$
6.3

 
$
1.2

Accretion income
 
2.6

 
1.4

 

Realized gains (losses) on the sale of investments
 
5.3

 
(0.8
)
 
0.1

Other-than-temporary impairment losses
 

 
(1.3
)
 

Total net investment income from available-for-sale securities
 
13.8

 
5.6

 
1.3

Interest income from investments in special purpose entities
 
8.2

 
6.1

 

Interest accrued on notes receivable and other
 
0.7

 
1.0

 
0.2

Total investment income, net
 
$
22.7

 
$
12.7

 
$
1.5

        
Investment income increased $10.0 million during 2015, as compared to 2014, due to (i) an increase of $8.2 million from our available-for-sale securities, primarily due to an increase in accretion income and the sale of certain corporate debt securities at a realized gain of $5.3 million, compared to $0.8 million in losses from such sales in 2014, (ii) no other-than-temporary impairment losses in 2015 compared to $1.3 million in 2014 and (iii) $2.1 million increase from a full year of interest earned on the time deposit held by the Buyer SPE.

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 and Refinanced Loan in our consolidated Pier Park North joint venture.
    
 
 
2015
 
2014
 
2013
 
 
In millions
Interest expense and amortization of discount and issuance costs for Senior Notes issued by special purpose entity
 
$
8.8

 
$
6.6

 
$

Interest expense
 
2.6

 
2.0

 
2.0

Total interest expense
 
$
11.4

 
$
8.6

 
$
2.0

        
Interest expense increased $2.8 million during 2015, as compared to 2014, primarily due an increase of $2.2 million for a full year of interest expense for the Senior Notes issued by NFTF and interest expense of $1.5 million on the Pier Park North joint venture construction loan and Refinanced Loan, partially offset by a decrease in interest expense on our CDD assessments due to the RiverTown Sale.

Interest expense increased by $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.

35


 
Other, net. Other (expense) income primarily includes legal and regulatory costs related to the recently resolved SEC investigation, income from our retained interest investments, hunting lease income and other income and expense items.
 
 
2015
 
2014
 
2013
 
 
In millions
Fees and expenses for the SEC investigation
 
$
(8.2
)
 
$

 
$

Accretion income from retained interest investments
 
0.9

 
0.9

 
0.8

Hunting lease income
 
0.7

 
0.9

 
1.8

Litigation and insurance proceeds received
 

 
1.8

 
0.6

Other income, net
 
0.3

 
0.8

 
1.0

Other, net
 
$
(6.3
)
 
$
4.4

 
$
4.2


Other, net was $6.3 million of expense during 2015, as compared to income of $4.4 million during 2014, primarily due to a total of $8.2 million of expenses recorded related to the recently resolved SEC investigation. The $8.2 million of fees and expenses for the SEC investigation consisted of (i) penalties, disgorgements and interest of approximately $3.5 million, including a civil penalty assessed on us of $2.75 million and other disgorgements and interest subject to indemnification by us and (ii) legal expenses associated with the SEC investigation. On October 27, 2015, we fully resolved the SEC investigation and entered into a settlement with the SEC. During 2015, we received correspondence from an insurance carrier related to non-coverage of certain fees and expenses incurred in the SEC investigation and, as a result of this correspondence, we recorded $4.7 million, in legal costs during 2015. As of December 31, 2015, we did not possess necessary data to determine any insurance receivables.

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.
Income tax expense/benefit. Our income tax expense in 2015 was $0.8 million as compared to an income tax expense of $115.5 million in 2014 and income tax benefit of $0.4 million in 2013. Our effective tax rate was 87.5%, 22.1% and 9.0% in 2015, 2014, and 2013, respectively. During 2015, we reversed $0.2 million of the valuation allowances established on our net deferred tax liability of $34.8 million as of December 31, 2014. Our effective rate for 2015, reflected our expectation that approximately $2.8 million of the settlements costs related to the SEC investigation may not be deductible for income tax purposes, which increased our effective rate in 2015. During 2014, we reversed $86.9 million of the valuation allowances established on our net deferred tax assets 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.


36


Segment Results
Residential Real Estate
Our residential real estate segment typically plans and develops mixed-use resort, primary residential 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, 2015
 
2015
 
2014
 
2013
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
19.4

 
$
17.0

 
$
33.0

RiverTown Sale

 
43.6

 

Other
1.8

 
0.9

 
0.8

Total revenues
21.2

 
61.5

 
33.8

Expenses:
 
 
 
 
 
Cost of real estate sales and other revenues
10.9

 
10.0

 
19.4

Cost of real estate sales - RiverTown Sale

 
17.6

 

Other operating expenses
10.2

 
8.3

 
7.6

Depreciation and amortization
0.5

 
0.6

 
0.8

Impairment losses

 

 
0.2

Total expenses
21.6

 
36.5

 
28.0

Operating (loss) income
(0.4
)
 
25.0

 
5.8

Other expense, net
(0.4
)
 
(0.1
)
 
(1.6
)
(Loss) income
$
(0.8
)
 
$
24.9

 
$
4.2

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 operating expenses include non-recurring expenses related to planning of the Bay-Walton Sector Plan. Other revenues include brokerage fees, marketing fees, and impact fee credits sold.
 
In April 2014, we completed the RiverTown Sale and as a result recognized revenue of $43.6 million during 2014.


37


Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014
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, 2015
 
Year Ended December 31, 2014
 
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
23

 
$
8.8

 
$
3.3

 
$
5.5

 
62.5
%
 
31

 
$
10.3

 
$
5.3

 
$
5.0

 
48.5
%
Resort home
1

 
0.8

 
0.8

 

 
%
 

 

 

 

 
%
Primary homesites
138

 
9.8

 
5.5

 
4.3

 
43.9
%
 
69

 
6.3

 
3.9

 
2.4

 
38.1
%
RiverTown Community

 

 

 

 
%
 
7

 
0.4

 
0.2

 
0.2

 
50.0
%
Total
162

 
$
19.4

 
$
9.6

 
$
9.8

 
50.5
%
 
107

 
$
17.0

 
$
9.4

 
$
7.6

 
44.7
%

Northwest Florida resort homesites and resort home. Revenues from resort homesite sales decreased $1.5 million, or 15%, during 2015, as compared to 2014, due to a decrease of available homesites. Gross profit margins increased to 62.5% during 2015, as compared to 48.5% during 2014, primarily due to price increases and the mix of homesites sold during each respective period and the receipt of lot residuals that have no related costs at the time of recognition. Revenues from the resort home are related to a completed home that was sold within the WaterSound Beach community.

Northwest Florida primary homesites. Revenues from real estate sales increased $3.5 million, or 56%, during 2015, as compared to 2014, due to the timing of sales in our Watersound Origins, Breakfast Point, and Southwood communities. Gross profit margin increased to 43.9% during 2015, as compared to 38.1% during 2014, primarily due to price increases and the mix of homesites sold during each respective period and the receipt of lot residuals that have no related costs at the time of recognition.
        
RiverTown Community primary homesites. 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 $1.9 million during 2015, as compared to 2014, primarily due to increased spending related to our mixed-use and active adult communities, including non-recurring expenses related to the approval of the Bay-Walton Sector Plan. During 2015 and 2014, 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 increased $0.3 million during 2015, as compared to 2014, primarily due to a decrease in interest earned on the RiverTown Note that was paid in June 2015.


38


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

 

 

 

 
%
 

 
1.8

 
0.6

 
1.2

 
66.7
%
RiverTown Community:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Primary homesites
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. 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.

39



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, 2015
 
2015
 
2014
 
2013
 
In millions
Revenues:
 
 
 
 
 
Real estate sales
$
7.2

 
$
3.3

 
$
10.9

Expenses:
 
 
 
 
 
Cost of real estate sales
5.0

 
1.0

 
5.3

Other operating expenses
2.1

 
2.3

 
2.5

Total expenses
7.1

 
3.3

 
7.8

Operating income
0.1

 

 
3.1

Other (expense) income

 
(0.1
)
 
0.2

Income (loss)
$
0.1

 
$
(0.1
)
 
$
3.3

Real Estate Sales. Commercial real estate sales for the three years ended December 31, 2015 include the following:
 
    Period    
 
Number of
Sales
 
Acres Sold        
 
Average Price Per Acre         
 
    Revenue    
 
Gross Profit on Sales         
 
 
 
 
 
 
 
 
In millions
2015
 
3

 
14

 
$
514,285

 
$
7.2

 
$
2.2

2014
 
4

 
5

 
$
609,938

 
$
3.3

 
$
2.3

2013
 
8

 
18

 
$
605,556

 
$
10.9

 
$
5.6

 

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Commercial real estate sales were $7.2 million during 2015, as compared to $3.3 million during 2014. 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 2015, as compared to 2014, primarily due to reduced employee costs and property taxes.

40


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.

Resorts and Leisure
Our resorts and leisure segment includes recurring revenues from our resorts and leisure activities. Resorts and leisure revenues and cost of resorts and leisure 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.
The table below sets forth the results of operations of our resorts and leisure segment for the three years ended December 31, 2015
 
2015
 
2014
 
2013
 
In millions
Revenues:
 
 
 
 
 
Resorts and leisure revenues
$
54.5

 
$
48.4

 
$
46.4

Expenses:
 
 
 
 
 
Cost of resorts and leisure revenues
47.1

 
42.9

 
39.0

Operating expenses
0.4

 
0.5

 
0.8

Depreciation
5.1

 
4.1

 
4.2

Impairment losses

 

 
4.9

Total expenses
52.6

 
47.5

 
48.9

Operating income (loss)
1.9


0.9


(2.5
)
Other (expense) income
(0.1
)
 
0.6

 
0.9

Net income (loss)
$
1.8

 
$
1.5

 
$
(1.6
)

41


The following table sets forth the detail of our resorts and leisure revenues and cost of revenues: 
 
Year Ended December 31, 2015
 
Year Ended December 31, 2014
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Revenues
 
Gross
Profit
 
Gross
Profit Margin
 
Dollars in millions
Resorts, vacation rentals and other management services
$
39.1

 
$
5.6

 
14.3
%
 
$
35.1

 
$
4.6

 
13.1
%
Clubs
12.4

 
1.0

 
8.1
%
 
10.4

 
0.2

 
1.9
%
Marinas
3.0

 
0.8

 
26.7
%
 
2.9

 
0.7

 
24.1
%
Total
$
54.5


$
7.4

 
13.6
%
 
$
48.4


$
5.5

 
11.4
%
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenues from our Resorts, vacation rentals and other management services increased $4.0 million, or 11%, during 2015, as compared to 2014, primarily due to: (i) an increase of $1.7 million in resort ancillary spend including food and beverage, recreation, spa and resort service fees, (ii) a $1.8 million increase in our vacation rental department due to shift in higher revenue producing homes and (iii) $0.4 increase in The Pearl Hotel management fees due to a full year of the management agreement.
Revenues from our clubs increased $2.0 million, or 19%, and gross profit margin increased 6.2% due to a continued increase in total members, the growth in resort rounds at the golf courses and continued focus with weddings and special events.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
 
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, vacation rentals and other management services
$
35.1

 
$
4.6

 
13.1
%
 
$
32.3

 
$
5.0

 
15.5
%
Clubs
10.4

 
0.2

 
1.9
%
 
11.3

 
1.6

 
14.2
%
Marinas
2.9

 
0.7

 
24.1
%
 
2.8

 
0.8

 
28.6
%
Total
$
48.4


$
5.5

 
11.4
%
 
$
46.4

 
$
7.4

 
15.9
%
Revenues from our Resorts, vacation rentals and other management services 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 LakeHouse, 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 $0.9 million, or 8%, 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 public use of our golf courses and resort facilities; 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.
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.

42


Leasing Operations
Our leasing operations segment includes recurring revenues from our retail and commercial leasing operations, including our consolidated joint venture at Pier Park North.
The table below sets forth the results of operations of our leasing operations segment for the three years ended December 31, 2015
 
2015
 
2014
 
2013
 
In millions
Revenues:
 
 
 
 
 
Leasing operations
$
9.0

 
$
7.0

 
$
4.3

Expenses:
 
 
 
 
 
Cost of leasing operations
2.8

 
2.3

 
1.7

Operating expenses
0.9

 
0.6

 
0.4

Depreciation
3.1

 
2.7

 
2.1

Total expenses
6.8

 
5.6

 
4.2

Operating income
2.2


1.4


0.1

Other (expense) income
(1.5
)
 
(0.3
)
 
0.2

Net income
$
0.7

 
$
1.1

 
$
0.3

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenues from our leasing operations increased $2.0 million and gross profit increased $1.5 million primarily attributable to an increase in revenues from leases in our Pier Park North joint venture that began to open in 2014. In connection with our Pier Park North joint venture, we recognized $4.6 million of leasing revenues during 2015.
Other (expense) income increased $1.2 million during 2015, as compared to 2014, primarily due to interest expense from the Pier Park North joint venture Refinanced Loan.
During 2015 and 2014, we capitalized $0.2 million and $0.6 million, respectively, of indirect development costs related to Pier Park North, for which construction began in early 2013.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenues and gross profit from our leasing operations increased in 2014 as compared to 2013 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.

43




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, 2015
 
 
2015
 
2014
 
2013
 
In millions
Revenues:
 
 
 
 
 
Timber sales
$
6.7

 
$
11.5

 
$
35.5

Real estate sales - AgReserves and other rural land sales
5.3

 
569.9

 

Total revenues
12.0

 
581.4

 
35.5

Expenses:
 
 
 
 
 
Cost of timber sales
0.8

 
4.5

 
21.5

Cost of real estate sales - AgReserves and other rural land sales
0.5

 
58.4

 

Other operating expenses
0.9

 
1.9

 
1.0

Depreciation and depletion
0.6

 
0.7

 
1.8

Total expenses
2.8

 
65.5

 
24.3

Operating income
9.2

 
515.9

 
11.2

Other income
1.1

 
1.2

 
2.2

Net income
$
10.3

 
$
517.1

 
$
13.4

The total tons sold and relative percentage of total tons sold by major item for the three years ended December 31, 2015 is as follows: 
 
2015
 
2014
 
2013
Pine pulpwood
66
%
 
249,000

 
70
%
 
303,000

 
71
%
 
854,000

Pine sawtimber
27
%
 
100,000

 
20
%
 
87,000

 
23
%
 
283,000

Pine grade logs
6
%
 
24,000

 
6
%
 
25,000

 
5
%
 
64,000

Other
1