Increases in property insurance premiums and decreases in availability of homeowner property insurance in Florida may 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 future property insurance availability and rates in the state.
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 may place extreme stress on state finances.
The high costs of property insurance premiums in Florida may 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
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needed to increase growth in the region, either of which may 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 may reduce our sales and harm our business.
Our real estate and hospitality segments’ revenue ultimately depends 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 may reduce our revenue 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 may adversely affect our occupancy rates and our profitability, which, in turn, may 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 may adversely affect our operations.
Demand for real estate is sensitive to changes in economic conditions over which we have no control, including the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. In addition, the real estate market is subject to downturns, and our business is especially sensitive to economic conditions in Northwest Florida, where our developments are located, and, more broadly, the Southeast region of the U.S., which in the past has produced a high percentage of customers for the hospitality and seasonal vacation products in our Northwest Florida communities. If market conditions experience volatility or worsen, the demand for our hospitality and real estate products may decline, negatively impacting our business, results of operations, cash flows and financial condition.
Recent tax law changes may make home ownership more expensive or less attractive.
In December 2017, the Tax Act established new limits on the federal tax deductions individual taxpayers may take on mortgage loan interest payments and on state and local taxes, including real estate taxes; the new Tax Act also raised the standard deduction. These changes may reduce the perceived affordability of homeownership, and therefore the demand for homes, and/or have a moderating impact on home sales prices. These changes may increase the after-tax cost of owning a home, which is likely to adversely impact the demand for homes and may reduce the prices for which we can sell homesites, particularly in higher priced communities.
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 may 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 may have an adverse effect on our business, results of operations, cash flows and financial condition.
We are exposed to risks associated with real estate development that may adversely impact our results of operations, cash flows and financial condition.
Our real estate development activities entail risks that may adversely impact our results of operations, cash flows and financial condition, including:
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As certain approvals are subject to third party responses, it is not uncommon for delays to occur, which affect the timing of transaction closings and may also impact the terms and conditions of the transaction. Delays related to regulatory approvals may be due to the applicable governmental entity not being open due to the government being shut down or staffed sufficiently due to the government’s budgetary issues. These timing issues have caused, and may continue to cause, our operating results, particularly relating to the impact of our land sales, to vary significantly from quarter to quarter and year to year.
Our leasing projects may not yield anticipated returns, which may harm our operating results, reduce cash flow, or the ability to sell commercial assets.
Our business strategy includes the development and leasing of commercial and multi-family properties, management of commercial properties and commercial assets for sale. These commercial developments may not be as successful as expected due to leasing related risks, including the risk that we may not be able to lease new properties to an appropriate mix of tenants or obtain lease rates that are consistent with our projections, as well as the risks generally associated with real estate development. Additionally, development of leasing 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 leasing projects we may not yield anticipated returns, which may have a material adverse effect on our operating results, cash flows and ability to sell commercial assets.
We face potential adverse effects from the loss of commercial tenants.
The default, financial distress, or 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, defaults 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 loss of an anchor tenant may make it more difficult to lease the remainder of the affected properties, which may have a material adverse effect on our results of operations, cash flows and financial condition. This may adversely affect our properties and growth.
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We are exposed to operational risks with respect to our assistedsenior living communitiescommunity that may adversely affect our revenue and operations.operations.
We are exposed to various operational risks with respect to our assistedsenior living communitiescommunity that may increase our costs or adversely affect our ability to generate revenues. These risks include:
| fluctuations in occupancy, including as a result of general economic conditions and the COVID-19 pandemic, competition and willingness or ability of prospective residents to relocate to our |
| federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; |
| state regulations regarding |
| the availability and increases in cost of general and professional liability insurance coverage; |
| state regulation and rights of residents related to entrance fees; and |
| the availability and increases in the cost of labor (as a result of unionization or otherwise). |
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Any one or a combination of these factors may adversely affect our results of operations, cash flows and financial condition.
We are subject to various risks inherent to the hospitality industry beyond our control, any of which may adversely affect our business, results of operations and value of our hospitality assets.
Our business is subject to a number of business, financial and operating risks inherent to the hospitality industry and the agreements under which we operate, including, but not limited to:
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Any of the these factors may increase our costs or limit or reduce the prices we are able to charge for our hospitality products or services, or otherwise affect our ability to maintain existing properties, develop new properties or add amenities to our existing properties. As a result, any of these factors may reduce our revenues and limit opportunities for growth.
If labor costs increase or we fail to attract and retain qualified management and employees, our business, results of operations, cash flows and financial condition may be adversely affected.
Our business is dependent on our ability to attract and retain experienced and knowledgeable management and other professional staff.
The labor markets in the industries in which we operate are competitive. We must attract, train and retain a large number of qualified employees while controlling related labor costs. We face significant competition for these employees from the industries in which we operate as well as from other industries. Tighter labor markets may make it even more difficult for us to hire and retain qualified employees and control labor costs. Our ability to attract qualified employees and control labor costs is subject to numerous external factors, including prevailing wage rates, employee preferences, employment law and regulation, labor relations and immigration policy. A significant increase in competition or labor costs increasing arising from any of the aforementioned factors may have a material adverse impact on our business, results of operations, cash flows and financial condition.
In addition, our hospitality operations are highly dependent on a large seasonal workforce. We have historically relied on the H-2B visa program to bring workers to the United States to fill seasonal staffing needs and ensure that we have the appropriate workforce in place. If we are unable to obtain sufficient numbers of seasonal workers, through the H-2B program or otherwise, we may not be able to recruit and hire adequate personnel as the required, and material increases in the cost of securing our workforce may be possible in the future. Increased seasonal wages or an inadequate workforce may have a material adverse effect on our business, results of operations, cash flows and financial condition.
The profitabilityWe face risks associated with third-party service providers, which may negatively impact our profitability.
We rely on various third-parties to conduct the day-to-day operations of our hotels will depend on the performance of hotel management.
The profitabilitymulti-family properties and some of our hotels and hospitality investments will depend largely upon thecommercial properties. Failure of such third parties to adequately perform their contracted services may negatively impact our ability of management that we employ to generate revenues that exceed operating expenses. Theretain customers. As a result, any such failure of hotel management to manage the hotels effectively would adversely affect the cash flow received from hotel and hospitality operations.
We provide a guarantee of the debt for several of our JVs, and may in the future enter into similar agreements, which may have a material adverse effect onnegatively impact our results of operations, cash flows and financial condition.
Failure to maintain the integrity of internal or customer data may 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, energy blackouts, natural disasters, terrorism, war, and other significant disruptions of our networks and related systems. For a number of years, we have providedbeen increasing our reliance on computers and digital technology. While all of our business and internal employment records require the collection of digital information, our hospitality segment, in particular, requires 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, we have implemented various measures to manage the risk of a guaranteesecurity breach or disruption, and to date, have not had a significant cyber breach or attack that has had a material impact on our business, 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.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
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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 to 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 debt in connection with severaldata, which we are required to protect, including via the penetration of our JVs,network security and the misappropriation of confidential and personal information, may result in business disruption, damage to our reputation, fines, penalties, regulatory proceedings and other severe financial and business implications.
We face risks related to the future agreesale of firearms.
We face risks relating to similar agreements. In certain instances,our recently constructed Powder Room Shooting Range and Training Center in Panama City Beach, Florida, which includes a 17,000 square feet facility with a retail store as well as training and educational space and 14 shooting lanes. We may incur losses due to lawsuits relating to, among other things, our compliance with state and federal law, as well as lawsuits relating to the improper use of firearms at our facility or sold by us. Our insurance coverage may be inadequate to cover these guarantees provide for the full paymentpotential claims and performanceliabilities. The sale of the borrower. See Note 12. Debt, Netfire-arm related products may also present reputational risks and Note 22. Commitments and Contingencies included in Item 15 of this Form 10-K for additional information. If we were to become obligated to perform on any of these guaranteesnegative publicity, which could harm our results of operations cash flows and financial conditioncondition.
Risks Related to Laws and Regulations
Changes to U.S. federal and state income tax laws may materially affect us and our stockholders.
The enacted 2017 Tax Cuts and Jobs Act (the “Tax Act”) made substantial changes to the Internal Revenue Code. Among those changes are a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject to ‘‘sunset’’ provisions, the elimination or modification of various currently allowed deductions (including substantial limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes), certain additional limitations on the deduction of net operating losses, and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers. The effect of these, and the many other, changes made in the Tax Act is highly uncertain, both in terms of their direct effect on the taxation of an investment in our common equity and their indirect effect on the value of our assets or market conditions generally. Furthermore, many of the provisions of the Tax Act will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on us. There may also be technical corrections or superseding legislation proposed with respect to the Tax Act, the risk of which may be elevated due to newly elected members to the U.S. Congress and the election and inauguration of a new U.S. President following the 2020 U.S. federal elections, the effect and timing of which cannot be predicted and may be adverse to us or our stockholders.
From time to time, we may be subject to periodic litigation and other regulatory proceedings, which may impact our financial results of operations.
From time to time, we may be involved in lawsuits and regulatory actions relating to our business, our operations or our position as an owner and operator of real estate and related ventures. An adverse outcome in any of these matters may adversely affected.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 may result in substantial costs and may require that we devote substantial resources to defend our Company.
In addition, the land use approval processes we must follow to ultimately develop our projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge the proposed plans and approvals. As a result, the prospect of third-party challenges to planned real estate developments provides additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation may result in denial of the right to develop, or would, by
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their nature, adversely affect the length of time and the cost required to obtain the necessary approvals. In addition, adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of a project and may adversely affect the design, scope, plans and profitability of a project.
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 applicable 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.
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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, among other things, the following:
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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.
Additionally, in recent years, assessments of the potential impacts of climate change have begun to influence governmental authorities, consumer behavior patterns and the general business environment of the U.S., including, but not limited to, energy-efficiency measures, water use measures and land-use practices. The implementation of these polices may require us to invest additional capital in our properties or it may restrict the availability of land we are able to develop. These changes, or changes in other environmental laws or their 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 may lead to new or greater liabilities that may 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 may 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 and related ventures. An adverse outcome in any of these matters may 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 may result in substantial costs and may require that we devote substantial resources to defend our Company.
In addition, the land use approval processes we must follow to ultimately develop our projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge the proposed plans and approvals. As a result, the prospect of third-party challenges to planned real estate developments provides additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation may result in denial of the right to develop, or would, by their nature, adversely affect the length of time and the cost required to obtain the necessary approvals. In addition, adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of a project and may adversely affect the design, scope, plans and profitability of a project.
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Limitations on the access to the airport runway at the Northwest Florida Beaches International Airport may have an adverse effect on the demand for our VentureCrossings landLand adjacent to the airport.
Our land donation agreement with the Panama City-Bay County Airport and Industrial District (the “Airport Authority”) and the deed for the airport land provide access rights to the airport runway from our adjacent lands.adjacently-owned lands (the “VentureCrossings Land”). 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 “FDEP”), the U.S. Army Corps of Engineers (the “Corps of Engineers”), and Bay County.County, Florida. 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 may significantly impair or restrict access rights.
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In addition, we are required to obtain environmental permits from each of the Corps of Engineers and the FDEP 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 agency administrative 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 VentureCrossings land adjacent to the airport,Land, and the failure to maintain such access, the imposition of significant restrictions on such access, or any associated permitting delays or issues, may adversely affect the demand for such lands and our business, results of operations, cash flows and financial condition.
We face risks associated with third-party service providers,may not be able to fully realize the benefits of the federal “qualified opportunity zone” program, which may adversely affect our financial performance.
As part of the Tax Act, Congress established the Qualified Opportunity Zone program (the “QOZ Program”), which provides preferential tax treatment to taxpayers who invest eligible capital gains into qualified opportunity funds (“QOFs”). QOFs are self-certifying entities that invest their capital in economically distressed communities that have been designated as qualified opportunity zones (“QOZs”) by the Internal Revenue Service (“IRS”) and Treasury. We have positioned ourselves to take advantage of the tax benefits offered by the QOZ Program. While the IRS has recently issued final regulations which address some of the uncertainties under the QOZ Program, because the QOZ Program is relatively new, a number of open questions remain. To the extent the IRS issues additional interpretive guidance that renders ineligible certain categories of projects that are currently expected to qualify, we may be unable to fully realize the benefits of the QOZ Program as anticipated, which may impact our investment strategy.
Uncertainty about the future of the London Interbank Offer Rate ("LIBOR") may adversely affect our business and financial results.
Many of our current debt agreements have an interest rate tied to LIBOR. In July 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced its intent to phase out LIBOR by the end of 2021. The cessation date for submission and publication of rates for certain tenors of LIBOR has since been extended by the ICE Benchmark Administration until mid-2023. While this announcement extends the transition period, the United States Federal Reserve issued a statement advising banks to stop new LIBOR issuances by the end of 2021. Accordingly, the potential effect of the phase-out or replacement of LIBOR cannot yet be determined and it is not possible to predict the effect of this announcement, including whether LIBOR will continue in place, and if so what changes will be made to it, what alternative reference rates may replace LIBOR in use going forward, and how LIBOR will be determined for purposes of loans, securities and derivative instruments currently referencing it if it ceases to exist. If the method for calculation of LIBOR changes, if LIBOR is no longer available or if lenders have increased costs due to changes in LIBOR, we may suffer from potential increases in interest rates on our debt agreements. These uncertainties or their resolution also may negatively impact our profitability.
We currently rely on various third-parties to conduct the day-to-day operationsborrowing costs and other aspects of our hospitality operations, our multi-family properties and some of our commercial properties. Failure of such third parties to adequately perform their contracted services may negatively impact our ability to retain customers. As a result, any such failure may negatively impact our results of operations, cash flowsbusiness and financial condition.results.
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 (“NYSE”) has been volatile. We may continue to experience significant volatility in the market price of our common stock. Numerous factors may 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; |
| economic and/or political factors unrelated to our performance; |
| ● | impacts of the COVID-19 pandemic; |
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| changes in recommendations or earnings estimates by securities analysts; |
| less volume due to reduced shares outstanding; and |
| execution of the Stock Repurchase Program will reduce our “public float.” |
In addition, the stock market in general has experienced significant price and volume fluctuations in recent years, which have sometimes been unrelated or disproportionate to operating performance. Continued volatility in the market price of our common stock may cause shareholders to lose some or all of their investment in our common stock.
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As of December 31, 2020, we had approximately $551.7 million of real estate investments, $38.0 million of investment in unconsolidated JVs and $20.8 million of property and equipment recorded on our books that may be subject to impairment. If market conditions were to deteriorate, our estimate of undiscounted future cash flows may fall below their carrying value and we may be required to take impairments, which would have an adverse effect on our results of operations and financial condition.
Our common stock has low trading volume.
Although our common stock trades on the NYSE, it is thinly traded and our daily trading volume is low compared to the number of share of common stock we have outstanding. The low trading volume of our common stock can cause our stock price to fluctuate significantly as well as make it difficult for a stockholder to sell their common stock quickly. As a result of our stock being thinly traded, institutional investors might not be interested in owning our common stock.
Fairholme has the ability to influence major corporate decisions, including decisions that require the approval of stockholders, and its interest in our business may conflict with yours.
Mr. Bruce R. Berkowitz is the Chairman of our Board. He is the Manager of, and controls entities that own and control, Fairholme, which wholly owns FCM. Mr. Berkowitz is the Chief Investment Officer of FCM. As of December 31, 2019,2020, clients of FCM, including Mr. Berkowitz, beneficially owned approximately 44.30%44.89% of our common stock. FCM and its client, The Fairholme Fund, a series ofGiven that the Fairholme Funds, Inc., may be deemed affiliates of ours. Accordingly,ours (as previously explained), Fairholme is 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; 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. OurAdditionally, 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.
In addition, Fairholme is in the business of making or advising on investments in companies and may hold, and may, from time to time in the future, acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business. Fairholme may also pursue acquisitions that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
Furthermore, future sales of our common stock by Fairholme, or the perception in the public markets that these sales may occur, may depress our stock price.
Changes in our income tax estimates may 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, including the Tax Act. 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 may materially impact our results of operations, cash flows and financial condition.
Changes to U.S. federal and state income tax laws may materially affect us and our stockholders.
The recently enacted Tax Act made substantial changes to the Internal Revenue Code. Among those changes are a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject to ‘‘sunset’’ provisions, the elimination or modification of various currently allowed deductions (including substantial limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local
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taxes), certain additional limitations on the deduction of net operating losses, and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers. The effect of these, and the many other, changes made in the Tax Act is highly uncertain, both in terms of their direct effect on the taxation of an investment in our common equity and their indirect effect on the value of our assets or market conditions generally. Furthermore, many of the provisions of the Tax Act will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on us. There may also be technical corrections legislation proposed with respect to the Tax Act, the effect and timing of which cannot be predicted and may be adverse to us or our stockholders.
We may not be able to utilize our net state operating loss carryforwards.
We have suffered losses, for tax and financial statement purposes, which generated significant state net operating loss carryforwards. These state net operating loss carryforwards may be used against 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.periods.
We cannot assure you that we will continue to pay dividends at the current rate or at all.
In the fourth quarter of 2020, we paid a cash dividend of $0.07 per share on our common stock and we expect to continue to pay quarterly dividends. The declaration and payment of any future dividends will be at the discretion of our Board after taking into account various factors, including without limitation, our financial condition, earnings, capital requirements of our business, the terms of any credit agreements or indentures to which we may be party at the time, legal requirements, industry practice, and other factors that our Board deems relevant. By paying cash dividends rather than investing that cash in our business or repaying any outstanding debt, we risk, among other things, slowing the expansion of our business, having insufficient cash to fund our operations or make capital expenditures or limiting our ability to incur borrowings. Our Board will periodically review the cash generated from our business and the capital expenditures required to finance our growth plans and determine whether to modify the amount of quarterly dividends. Accordingly, we cannot assure you that we will continue to pay dividends at the current rate or at all.
We utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on some of our variable rate indebtedness and we will be exposed to risks related to counterparty credit worthiness or non-performance of these instruments.
We have entered into an interest rate swap instrumentinstruments and may enter into others to limit our exposure to changes in variable interest rates. While our hedging strategy is designed to minimize the impact of increases in interest rates applicable to some of our variable rate debt, there can be no guarantee that our hedging strategy will be effective, and we may experience credit-related losses in some circumstances. See Note 6. Financial Instruments and Fair Value Measurements included in Item 15 of this Form 10-K for additional information.
A declineOur financing arrangements contain restrictions and limitations that could impact our ability to operate our business.
Our financing arrangements contain customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. See Note 11. Debt, Net included in real estate values or continuing operating lossesItem 15 of this Annual Report on Form 10-K for additional information. Our ability to comply with the covenants and restrictions contained in our operating propertiesfinancing arrangements may be affected by economic, financial and industry conditions beyond our control, including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in impairments,a default that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. In any such case, we may be unable to repay the amounts due under such financing arrangements, which wouldcould have ana material adverse effect on our results of operations, and financial condition.
As of December 31, 2019, we had approximately $430.8 million of real estate investments and $5.1 million of investment in unconsolidated joint ventures recorded on our books that may be subject to impairment. If market conditions were to deteriorate, our estimate of undiscounted future cash flows may fall below their carrying value and we may be required to take impairments, which would have an adverse effect on our results of operations and financial condition.
Changes in accounting pronouncements may 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 (“FASB”) and the SEC, 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. These changes and others may have a material impact on our reported financial condition and results of operations. In some cases, we may 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 may 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, energy blackouts, natural disasters, terrorism, war, 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.
2123
While all of our business and internal employment records require the collection of digital information, our hospitality segment, in particular, requires 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, we have implemented various measures to manage the risk of a security breach or disruption, and to date, have not had a significant cyber breach or attack that has had a material impact on our business, 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.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.
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 to 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, may result in business disruption, damage to our reputation, fines, penalties, regulatory proceedings and other severe financial and business implications.
Our business may be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements, or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives at all times. Deficiencies, including any material weakness, in our internal control over financial reporting, which may occur in the future, may result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise materially adversely affect our business, reputation, results of operations, financial condition, or liquidity.
Uncertainty about the future of the London Interbank Offer Rate ("LIBOR") may adversely affect our business and financial results.
Many of our current debt agreements have an interest rate tied to LIBOR. In July 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced its intent to phase out LIBOR by the end of 2021. It is not possible to predict the effect of this announcement, including whether LIBOR will continue in place, and if so what changes will be made to it, what alternative reference rates may replace LIBOR in use going forward, and how LIBOR will be determined for purposes of loans, securities and derivative instruments currently referencing it if it ceases to exist. If the method for calculation of LIBOR changes, if LIBOR is no longer available or if lenders have increased costs due to changes in LIBOR, we may suffer from potential increases in interest rates on our debt agreements. These uncertainties or their resolution also may negatively impact our borrowing costs and other aspects of our business and financial results.
Our financing arrangements contain restrictions and limitations that could impact our ability to operate our business.
Our financing arrangements contain customary representations and warranties and customary affirmative and negative covenants that restrict some of our activities. See Note 12. Debt, Net included in Item 15 of this Annual Report on Form 10-K for additional information. Our ability to comply with the covenants and restrictions contained in our
22
financing arrangements may be affected by economic, financial and industry conditions beyond our control, including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in a default that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. In any such case, we may be unable to repay the amounts due under such financing arrangements, which could have a material adverse effect on our results of operations, cash flows and financial condition.
The obligations associated with being a public company require significant resources and management attention.
As a public company, we are subject to laws, regulations and requirements, including the requirements of the Exchange Act, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), related regulations of the SEC and requirements of the NYSE. The Exchange Act requires, among other things, that we file annual, quarterly and current reports and proxy statements with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Section 404 of the Sarbanes-Oxley Act requires our management and independent registered public accounting firm to attest annually on the effectiveness of our internal control over financial reporting. These reporting and other obligations place significant demands on our management, administrative, operational and accounting resources and may cause us to incur significant expenses. We may need to upgrade our systems or create new systems, implement additional financial and management controls, reporting systems and procedures, create or outsource an internal audit function and hire additional legal, accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies may be impaired. Any failure to operate successfully as a public company may have a material adverse effect on our financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
We own our principal executive offices located in Watersound, Florida. As of December 31, 2019, we owned approximately 175,000St. Joe owns 171,000 acres located in Northwest Florida. Our raw land assets are managed by us as timberlands until designated for development. The Bay-Walton Sector Plan is a long term master plan that originally included 110,500 acres of our land with entitlements,entitles, or gives legal rights, for us to develop over 170,000 residential dwelling units, over 22 million square feet of retail, commercial and industrial space and over 3,000 hotel rooms.rooms on lands within Florida’s Bay and Walton counties. We also have additional entitlements, or legal rights, to develop acreage outside of the Sector Plan. Approximately 86% of our real estate is located in Florida’s Bay, Gulf, and Walton counties. Approximately 90% of our real estate is located within 15 miles of the Gulf of Mexico. Undeveloped land is managed as timberlands until designated for development. We anticipate a wide range of residential, commercial and hospitality uses on these land holdings. AsWe have operating assets and projects under development in our residential, hospitality, and commercial segments.For more information on our real estate assets, see “Item 1. Business” and “Schedule III (Consolidated) - Real Estate and Accumulated Depreciation” included in Item 15 of this Form 10-K for further described herein,information.
In our residential segment, we own and develop land in multiple residential communities. We currently have projectscommunities into homesites for sale to homebuilders and retail customers. As of December 31, 2020, we had completed homesites, homesites under development, engineering or construction in our residential, commercial leasingconceptual planning in 18 separate communities. These include Watersound Origins, Breakfast Point, Watersound Camp Creek, Watercolor, WindMark Beach, SouthWood, Titus Park, Ward Creek and sales and hospitality segments.other Northwest Florida locations. In addition, our hospitality and commercial leasing and sales segments include the following properties:
Clubs. Wesegment, we own three golf courses and a beach club in Northwest Floridaand three golf courses that are situated in or near our residential communities. Our golf course property primarily includes the golf course land, clubhouses, other buildings and equipment.
WaterColor Inn, WaterSound Inn and Other Properties. We own the WaterColor Inn a boutique hotel, and the WaterSound Inn, along with nearby retail and commercial space. We own properties under construction for an Embassy Suites hotel (the “Pier Park Resort Hotel JV”), Hilton Garden Inn hotel, Homewood Suites hotel, Camp Creek Inn and The Lodge 30A hotel (“The Lodge 30A JV”). We own additional properties in Panama City Beach, Florida that we operate as rental property.
Marinas. We own and operate two marinasmarinas. We have leased land for development in Northwest Florida. Our marina properties primarily include land and improvements, marina slips and equipment. Subsequent to the landfall of Hurricane Michael on October 10, 2018, the marinas remain closed due to significant damage requiring long-term restoration, which is currently underway. We maintain property and business interruption insurance on the impacted marina assets. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information.
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Leasing. Wedowntown Panama City. In our commercial segment, we own the property includedproperties used in our commercial leasing and sales segment,operations, which includesinclude multi-family, retail, office and commercial property such as ourlocated in Beckrich Office Park, property located in our consolidatedwhere we are headquartered; Pier Park North JV (the “Pier Park North JV”) and, Pier Park Crossings apartment JV (the “Pier Park Crossings JV”), Pier Park Crossings II (the “Pier Park Crossings II JV”), Watersound Origins Crossings (the “Watersound Origins Crossings JV”), Watercrest Senior Living (the “Watercrest JV”), WindMark Beach, VentureCrossings industrial park, commerce park buildings, retail shopping centers and other properties, as well as properties under development or construction.Northwest Florida locations.
For more information on our real estate assets, see “Item 1. Business” and “Schedule III (Consolidated) - Real Estate and Accumulated Depreciation” included in Item 15 of this Form 10‑K for further information.
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. See Note 22. 21. Commitments and Contingencies included in Item 15 of this Form 10‑K10-K for further discussion.
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2425
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
On February 24, 202022, 2021 we had approximately 891862 registered holders of record of our common stock. Our common stock is listed on the NYSE under the symbol “JOE.”
In the fourth quarter of 2020, we paid a cash dividend of $0.07 per share on our common stock and we expect to continue to pay quarterly dividends. We did not pay cash dividends in 2019 or 2018.2019. The declaration and payment of any future dividends will be at the discretion of our Board after taking into account various factors, including without limitation, our financial condition, earnings, capital requirements of our business, the terms of any credit agreements or indentures to which we may be party at the time, legal requirements, industry practice, and other factors that our Board deems relevant. See Item 1A. Risk Factors – Risks Related to our Common Stock – We cannot assure you that we will continue to pay dividends at the current rate or at all.
The following performance graph compares our cumulative shareholder returns for the period December 31, 2014,2015, through December 31, 2019,2020, assuming $100 was invested on December 31, 2014,2015, in our common stock, in the S&P SmallCap 600 Index, and a custom real estate peer group (the “Custom Real Estate Peer Group”), which is composed of the following companies:
Alexander & Baldwin Inc. (ALEX)
Consolidated-Tomoka Land Co., CTO Realty Growth, Inc. (CTO)
, Five Point Holdings, LLC (FPH)
, The Howard Hughes Corporation (HHC)
, Maui Land & Pineapple Company, Inc. (MLP)
, Stratus Properties Inc. (STRS)
and Tejon Ranch Co. (TRC)
25
The total. Total returns shown assume that dividends are reinvested. Total return for the Custom Real Estate Peer Group use an equal weighting for each of the stocks within the peer group. The stock price performance shown below is not necessarily indicative of future price performance.
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| 12/31/2015 |
| 12/31/2016 |
| 12/31/2017 |
| 12/31/2018 |
| 12/31/2019 |
| 12/31/2020 | ||||||
The St. Joe Company | | $ | 100 | | $ | 102.65 | | $ | 97.51 | | $ | 71.15 | | $ | 107.13 | | $ | 229.86 |
S&P SmallCap 600 Index | | $ | 100 | | $ | 126.56 | | $ | 143.30 | | $ | 131.15 | | $ | 161.03 | | $ | 179.20 |
Custom Real Estate Peer Group | | $ | 100 | | $ | 110.97 | | $ | 119.46 | | $ | 84.86 | | $ | 103.97 | | $ | 73.05 |
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| 12/31/2014 |
| 12/31/2015 |
| 12/31/2016 |
| 12/31/2017 |
| 12/31/2018 |
| 12/31/2019 | ||||||
The St. Joe Company |
| $ | 100 |
| $ | 100.65 |
| $ | 103.32 |
| $ | 98.15 |
| $ | 71.62 |
| $ | 107.83 |
S&P SmallCap 600 Index |
| $ | 100 |
| $ | 98.03 |
| $ | 124.06 |
| $ | 140.48 |
| $ | 128.56 |
| $ | 157.85 |
Custom Real Estate Peer Group* |
| $ | 100 |
| $ | 87.19 |
| $ | 96.76 |
| $ | 104.16 |
| $ | 73.99 |
| $ | 90.65 |
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Stock Repurchase Program
Our Board has approved the Stock Repurchase Program pursuant to which we are authorized to repurchase shares of our common stock. The Stock Repurchase Program has no expiration date.
As of December 31, 2019,2020, we had a total authority of $86.2$77.4 million available for purchase of shares of our common stock pursuant to the Stock Repurchase Program. We may repurchase our common stock in open market purchases from time to time, in privately negotiated transactions or otherwise, pursuant to Rule 10b-18 under the Securities Exchange Act.Act of 1934, as amended (the “Exchange Act”). The timing and amount of any additional shares to be repurchased will depend upon a variety of factors, including market and business conditions and is subject to the Company maintaining $100.0 million of cash and cash equivalents.factors. Repurchases may be commenced or suspended at any time or from time to time without prior notice. The Stock Repurchase Program will continue until otherwise modified or terminated by our Board at any time in its sole discretion.
Execution of the Stock Repurchase Program will reduce our “public float”, and the beneficial ownership of common stock by our directors, executive officers and affiliates will proportionately increase as a percentage of our outstanding common stock. However, we do not believe that the execution of the Stock Repurchase Program will cause our common
26
stock to be delisted from NYSE or cause us to stop being subject to the periodic reporting requirements of the Exchange Act.
The following table provides information on our There were no stock repurchases of common stock during the three months ended December 31, 2019:
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| Total Number of Shares |
| Maximum Dollar Value of | |
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| Purchased as Part of |
| Shares that May Yet Be | |
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| Total Number of |
| Average Price |
| Publicly Announced |
| Purchased Under the | ||
Period |
| Shares Purchased |
| Paid per Share |
| Plans or Programs |
| Plans or Programs | ||
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| In Millions | |
October 1-31, 2019 |
| 121,630 |
| $ | 16.85 |
| 121,630 |
| $ | 86.2 |
November 1-30, 2019 |
| — |
|
| — |
| — |
|
| — |
December 1-31, 2019 |
| — |
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| — |
| — |
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| — |
Total |
| 121,630 |
| $ | 16.85 |
| 121,630 |
| $ | 86.2 |
fourth quarter of 2020.
Item 6. Selected Financial DataReserved
The following table sets forth our selected consolidated financial data on a historical basis for the five years ended December 31, 2019. 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.
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| Year Ended December 31, | |||||||||||||
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| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
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| In thousands, except per share amounts | |||||||||||||
Statement of Operations Data: |
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Total revenue (1) (2) |
| $ | 127,085 |
| $ | 110,276 |
| $ | 100,038 |
| $ | 96,862 |
| $ | 104,901 |
Total cost of revenue (3) |
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| 64,086 |
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| 51,317 |
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| 67,194 |
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| 62,194 |
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| 67,094 |
Other operating and corporate expenses |
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| 21,389 |
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| 20,557 |
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| 20,382 |
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| 23,019 |
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| 33,426 |
Depreciation, depletion and amortization |
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| 10,287 |
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| 8,998 |
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| 8,885 |
|
| 8,571 |
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| 9,486 |
Total expenses |
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| 95,762 |
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| 80,872 |
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| 96,461 |
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| 93,784 |
|
| 110,006 |
Operating income (loss) |
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| 31,323 |
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| 29,404 |
|
| 3,577 |
|
| 3,078 |
|
| (5,105) |
Other income, net (4) (5) (6) (7) |
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| 4,862 |
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| 1,462 |
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| 37,778 |
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| 19,533 |
|
| 3,942 |
Income (loss) before equity in loss from unconsolidated affiliates and income taxes |
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| 36,185 |
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| 30,866 |
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| 41,355 |
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| 22,611 |
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| (1,163) |
Equity in loss from unconsolidated affiliates |
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| (77) |
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| — |
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| — |
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| — |
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| — |
Income tax (expense) benefit (8) (9) |
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| (9,447) |
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| 736 |
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| 17,881 |
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| (7,147) |
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| (808) |
Net income (loss) |
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| 26,661 |
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| 31,602 |
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| 59,236 |
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| 15,464 |
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| (1,971) |
Net loss attributable to non-controlling interest |
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| 114 |
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| 767 |
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| 342 |
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| 431 |
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| 240 |
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Net income (loss) attributable to the Company |
| $ | 26,775 |
| $ | 32,369 |
| $ | 59,578 |
| $ | 15,895 |
| $ | (1,731) |
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Per Share Data: |
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Basic and Diluted |
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Net income (loss) per share attributable to the Company |
| $ | 0.45 |
| $ | 0.52 |
| $ | 0.84 |
| $ | 0.21 |
| $ | (0.02) |
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| As of December 31, | |||||||||||||
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| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
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| In thousands | |||||||||||||
Balance Sheet Data: |
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Investment in real estate, net |
| $ | 430,776 |
| $ | 350,994 |
| $ | 332,624 |
| $ | 314,620 |
| $ | 313,599 |
Cash and cash equivalents |
| $ | 185,716 |
| $ | 195,155 |
| $ | 192,083 |
| $ | 241,111 |
| $ | 212,773 |
Investments |
| $ | 9,799 |
| $ | 45,090 |
| $ | 111,268 |
| $ | 175,725 |
| $ | 191,240 |
Property and equipment, net |
| $ | 19,018 |
| $ | 12,031 |
| $ | 11,776 |
| $ | 8,992 |
| $ | 10,145 |
Total assets |
| $ | 909,233 |
| $ | 870,962 |
| $ | 920,993 |
| $ | 1,027,945 |
| $ | 982,742 |
Debt, net (1) |
| $ | 92,529 |
| $ | 69,374 |
| $ | 55,630 |
| $ | 55,040 |
| $ | 54,474 |
Senior notes held by special purpose entity (2) |
| $ | 177,026 |
| $ | 176,775 |
| $ | 176,537 |
| $ | 176,310 |
| $ | 176,094 |
Total debt, net |
| $ | 269,555 |
| $ | 246,149 |
| $ | 232,167 |
| $ | 231,350 |
| $ | 230,568 |
Total equity |
| $ | 529,670 |
| $ | 533,111 |
| $ | 592,584 |
| $ | 686,799 |
| $ | 673,447 |
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying audited consolidated financial statements and the related notes included in this annual report on Form 10-K. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described in “Forward-Looking Statements” and “Risk Factors” in this annual report on Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this annual report on Form 10-K, unless required by law.
Business Overview
St. Joe is a real estate development, asset management and operating company with real estate assets and operations in Northwest Florida, which we predominantly use, orFlorida. We intend to use existing assets for or in connection with, our various residential, hospitality and commercial leasing and forestry operations.
ventures. We have significant residential and commercial land-use entitlements. We actively seek higher and better uses for our real estate assets through a range of development activities. We may partner with or explore the sale of some of ourdiscrete assets opportunistically or when we believe that we and/or others can better deploy those resources.
As a real estate development company, we We seek to enhance the value of our owned real estate assets by undertaking targeted typesdeveloping residential, commercial and hospitality projects to meet market demand. Approximately 86% of residential and commercialour real estate projects.is located in Florida’s Bay, Gulf, and Walton counties. Approximately 90% of our real estate land holdings are located within fifteen miles of the Gulf of Mexico.
We believe our present capital structure, liquidity position and our land holdings provide us with numerousyears of opportunities to increase recurring revenue and create long-term value for our shareholders by allowing usshareholders. We intend to focus on our core business activity of real estate development, asset management and operations.
Our strategic plan includes making investments We are developing a broad range of asset types that we believe will contribute towards increasing ourprovide acceptable rates of return, grow recurring revenues and support future profitability. Our 2020 capital expenditure budget exceeds our actual 2019 expenditures due to initiated projects moving into construction and the expected initiation of new projects. We anticipate that future capitalbusiness. Capital commitments will be funded through newwith cash proceeds from completed projects, existing cash, owned-land, partner capital and financing arrangements, cash on hand, cash equivalents and cash generated from operations.arrangements. We do not anticipate that we will see the full benefitimmediate benefits from investments. Timing of these investments during 2020.projects may be subject to delays caused by factors beyond our control.
Our real estate investment strategy focuses on projects that meet our long-term investmentrisk-adjusted return criteria. Our practice is to only incur such expenditures when our analysis indicates that a project will generate a return equal to or greater than the threshold return over its life.
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COVID-19 Pandemic Update
The economic conditions in the United States have been and continue to be negatively impacted by the ongoing COVID-19 pandemic, which has resulted in among other things, quarantines, “stay-at-home” orders and similar mandates for many individuals to substantially restrict daily activities and for many businesses to close or significantly reduce normal operations, and we expect these negative impacts to continue. Beginning in mid-March 2020, in response to federal, state and local orders and guidelines, we took a number of protective measures, including temporarily closing the WaterColor Inn, WaterSound Inn and The Pearl Hotel for overnight guests, closing retail outlets and beach clubs, closing or limiting restaurant activities at our food and beverage operations to pick up only (and in certain locations, local delivery), implementing cost reduction measures and “work from home” policies. Our hospitality assets gradually reopened in May 2020, but could be ordered to close again.
While the breadth and duration of the COVID-19 pandemic impact is still unknown, we could experience material declines within each of our reportable segments in one or more periods in 2021 and beyond compared to the historical norms. We will continue to monitor the potential impacts and evaluate each new project day by day and phase by phase and take prudent measures and respond as needed based on market conditions. Further discussion of the potential impacts on our business from the COVID-19 pandemic are discussed in Part I. Item 1A. Risk Factors.
Reportable Segments
As of December 31, 2019, weWe have the following four operatingthree reportable segments: 1) residential, real estate, 2) hospitality and 3) commercial. Prior to the first quarter of 2020, commercial leasing and sales, and 4) forestry.as well as forestry were treated as individual reportable segments. Commencing in the fourthfirst quarter of 2018,2020, due to organizational changes, our previously titled “resorts“commercial leasing and leisure”sales” and “forestry” segments are reported as one segment and retitled to “commercial.” This change is consistent with our belief that the decision making and management of the assets in these segments are being made as one group. All prior year segment information has been reclassified to conform to the 2020 presentation. Also commencing in the first quarter of 2020, our previously titled “residential real estate” segment was retitled “hospitality,to “residential.” withThe change had no effect on the consolidated balance sheets, statements of income, statements of comprehensive income or statements of cash flows for the periods presented.
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The following table sets forth the relative contribution of these operatingreportable segments to our consolidated operating revenue:
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| | Year Ended December 31, |
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| | | 2020 |
| 2019 |
| 2018 | |
Segment Operating Revenue |
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Residential (a) |
| | 46.6 | % | 32.7 | % | 39.2 | % |
Hospitality |
| | 29.5 | % | 36.0 | % | 35.9 | % |
Commercial |
| | 22.8 | % | 30.6 | % | 22.3 | % |
Other (b) |
| | 1.1 | % | 0.7 | % | 2.6 | % |
Consolidated operating revenue |
| | 100.0 | % | 100.0 | % | 100.0 | % |
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| Year Ended December 31, |
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| 2019 |
| 2018 |
| 2017 |
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Segment Operating Revenue |
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Residential real estate (a) |
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| 32.7 | % | 39.2 | % | 22.2 | % |
Hospitality |
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| 36.0 | % | 35.9 | % | 54.3 | % |
Commercial leasing and sales |
|
| 17.7 | % | 14.9 | % | 14.5 | % |
Forestry |
|
| 12.9 | % | 7.4 | % | 8.5 | % |
Other (b) |
|
| 0.7 | % | 2.6 | % | 0.5 | % |
Consolidated operating revenue |
|
| 100.0 | % | 100.0 | % | 100.0 | % |
| (a) |
| Includes revenue of $23.1 million in 2018 for a one-time receipt of RiverTown impact fees related to the 2014 RiverTown transaction. See Note |
| (b) |
| Other includes mitigation bank credit sales and title fee revenue. For 2018, other includes revenue of $2.2 million related to a specific sale of mitigation bank credits. |
For more information regarding our operatingreportable segments, see Note 21. 20. Segment Information included in Item 15 of this Form 10‑K.10-K.
Residential Real EstateSegment
Our residential real estate segment typically plans and develops residential communities of various sizes across a wide range of price points and sells homesites to buildershomebuilders or retail consumers. Our residential real estate segment
28
also evaluates opportunities to enter into JV agreements for specific communities such as Latitude Margaritaville Watersound. Below is
Watersound Origins, Watersound Camp Creek, Breakfast Point, Titus Park, College Station, Park Place, WindMark Beach and SouthWood are large scale, multi-phase communities with current sales activity and future phases. Homesites in these communities are developed based on market demand and sold primarily to homebuilders and retail customers on a descriptionlimited basis.
Other residential communities of someSummerCamp Beach and RiverCamps have homesites available for sale or lands for future development. In addition, the residential communities of our major residential developmentWaterSound Beach, WaterSound West Beach, WaterColor and Wild Heron that are substantially developed, with homesites in these communities in Northwest Florida that we are in the process of planning or developing.available for sale.
The Latitude Margaritaville Watersound community is a planned 55+ active adult residential community under development in Bay County, Florida. The community is located near the Gulf Intracoastal Waterway with convenient access to the Northwest Florida Beaches International Airport. The community is being developed as aan unconsolidated JV with our partner Minto Communities USA, a homebuilder and community developer. This JV is unconsolidateddeveloper, and is accounted for under the equity method of accounting. Phase one is estimated to include approximately 3,500 residential homes, which will be developed in smaller increments of discrete neighborhoods. The sales center isand 13 model homes are currently under construction. In addition, homesite infrastructure for the initial neighborhoods including models is underway, with site development of 629 homesites.
The WaterColor community is aPlanned residential community located in South Walton County, Florida. Weprojects of East Lake Powell, Mexico Beach, Ward Creek and other Watersound communities are currently in the planning and engineering process for the finalstages of development.
The residential phasehomesite pipeline by community/project are as follows:
| | | | | | | | | | | |
| | | | | Residential Homesite Pipeline (a) | ||||||
| | | | | | | | | Additional | | |
| | | | | Platted or | | Engineering or | | Entitlements with | | |
Community/Project | | Location | | | Under Development | | Permitting | | Concept Plan | | Total |
Breakfast Point (b) | | Bay County, FL | | | 20 | | 235 | | 1,445 | | 1,700 |
College Station | | Bay County, FL | | | 33 | | 139 | | 235 | | 407 |
East Lake Powell (c) | | Bay County, FL | | | — | | — | | 360 | | 360 |
Latitude Margaritaville Watersound (d) (e) | | Bay County, FL | | | 629 | | — | | 2,871 | | 3,500 |
Mexico Beach (b) | | Bay County, FL | | | — | | — | | 485 | | 485 |
Park Place | | Bay County, FL | | | 86 | | 106 | | 208 | | 400 |
RiverCamps (c) | | Bay County, FL | | | 90 | | — | | 149 | | 239 |
SouthWood (f) | | Leon County, FL | | | 56 | | 255 | | 994 | | 1,305 |
SummerCamp Beach (b) | | Franklin County, FL | | | 91 | | — | | 271 | | 362 |
Titus Park | | Bay County, FL | | | 69 | | 357 | | 728 | | 1,154 |
Watersound (d) | | Walton County, FL | | | — | | 115 | | 5,781 | | 5,896 |
Watersound Camp Creek (f) | | Walton County, FL | | | 6 | | 82 | | 157 | | 245 |
Watersound Origins (f) | | Walton County, FL | | | 183 | | 137 | | 212 | | 532 |
Ward Creek (d) | | Bay County, FL | | | — | | 593 | | 1,007 | | 1,600 |
WaterColor Park District | | Walton County, FL | | | 15 | | — | | — | | 15 |
WaterSound Beach | | Walton County, FL | | | 2 | | — | | — | | 2 |
WaterSound West Beach | | Walton County, FL | | | 1 | | — | | — | | 1 |
Wild Heron | | Bay County, FL | | | 36 | | — | | — | | 36 |
WindMark Beach (f) | | Gulf County, FL | | | 105 | | 210 | | 966 | | 1,281 |
Total Homesites | | | | | 1,422 | | 2,229 | | 15,869 | | 19,520 |
| (a) | The number of homesites are preliminary and are subject to change. |
| (b) | Planned Unit Development (“PUD”). |
| (c) | Development Agreement (“DA”). |
| (d) | Detailed Specific Area Plan (“DSAP”). |
| (e) | The unconsolidated Latitude Margaritaville Watersound JV (the “Latitude Margaritaville Watersound JV”), plans to build and sell homes in this community. |
| (f) | Development of Regional Impact (“DRI”). |
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The Camp Creek community is a proposed residential community located in Watersound, Florida. The community is adjacent to the Camp Creek Golf Club and is proposed to be developed in multiple phases. We are currently in the planning and engineering process for Phase one of this community.
The Watersound Origins community is a large scale, mixed use community in Watersound, Florida with direct access to Lake Powell. As of December 31, 2019, 6762020, we had 1,269 residential homesites were fully developed,under contract with ten different local, regional, and national homebuilders, which are expected to result in revenue of which 500 have sold. Currently 465 homesites are under site development, which will be completed in phases. As of December 31, 2019, 539 homesites were under contract.
The Breakfast Point community is a residential community in Panama City Beach, Florida, and the Breakfast Point East community is a proposed residential community in Bay County, Florida, adjacent to and eastapproximately $115.0 million at closing of the Breakfast Point community. Combined, Breakfast Point has received governmental approvals for 2,129 single family homesites, and 440 multi-family units. As of December 31, 2019, 369 homesites were fully developed and sold. Engineering is currently in process on a new phase of 80 homesites.
30
The Titus Park community is a new residential community located in north Bay County, Florida. The residential community is proposed to be developed in multiple phases. Currently site development is in process for 154 homesites. As of December 31, 2019, the 154 homesites were under contract.
The College Station community is a new residential community located in Bay County, Florida. The residential community is proposed to be developed in multiple phases. Currently site development is in process for 92 homesites. As of December 31, 2019, 41 homesites were under contract.
The Park Place community is a new residential community located in the City of Callaway in Bay County, Florida. This residential community is proposed to be developed in multiple phases. Currently site development is in process for 103 homesites in Phase one of the Park Place community. As of December 31, 2019, 51 homesites were under contract.
The Mexico Beach Village residential community is a proposed mixed use community located in the City of Mexico Beach in east Bay County, Florida. The residential component of this community is proposed to be developed in multiple phases. Planning and design are currently in process for this community.
The WindMark Beach community is a residential community in Port St. Joe, Florida. The community has received governmental approvals for 1,516 residential homesites. To date, 262 homesites were fully developed and sold. Currently, 56 homesites are under site development, all of which are under contract. Planning and engineering is in process for a new phase of homesites.
The SouthWood community is a large scale, mixed use community located in Tallahassee, Florida. The community has received governmental approvals for 4,770 residential homesites, which includes 2,074 single family and 2,696 multi-family. To date, 2,766 homesites have sold. Currently engineering is in process for 55 homesites and 20 homesites are under site development. As of December 31, 2019, 87 homesites were under contract.
We have other residential communities, such as SummerCamp Beach and RiverCamps that have homesites available for sale or lands for future development. In addition, we have residential communities, such as WaterSound Beach, WaterSound West Beach and Wild Heron that are substantially developed, with homesites in these communities available for sale.
The Bay-Walton Sector Plan is a long term master plan that originally included 110,500 acres of our land with entitlements, or legal rights, to developexpected over 170,000 residential dwelling units, over 22 million square feet of retail, commercial, and industrial space and over 3,000 hotel rooms. We anticipate a wide range of residential, commercial and hospitality uses on these land holdings. We are utilizing some of the entitlements from the Bay-Walton Sector Plan with the commencement of construction of the sales center for the Latitude Margaritaville Watersound community, engineering of the Camp Creek residential community and ongoing development of the Watersound Origins community.
next several years. As of December 31, 2019, we had 930 residential homesites under contract, which are expected to result in revenue of approximately $84.3 million at closing of the homesites, which are expected over the next several years. As of December 31, 2018 we had 684 residential homesites under contract, which are expected to result in revenue of approximately $67.9 million ($9.020.3 million has been realized through December 31, 2019)2020). The increase in homesites under contract is due to the development of additional homesites and increased builderhomebuilder contracts for residential homesites. The number of homesites under contract are subject to change based on final platting ofhomesite closings and homebuilder interest in each community.
Hospitality Segment
Our hospitality segment features a private membership club (“The Clubs by JOE”), hotel operations, food and beverage operations, golf courses, beach clubs, retail outlets, gulf-front vacation rentals, management services, marinas and other entertainment assets. The hospitality segment generates revenue and incurs costs from membership sales, membership reservations, golf courses, the WaterColor Inn and WaterSound Inn, short-term vacation rentals, management of The Pearl Hotel, food and beverage operations, merchandise sales, marina operations, charter flights, other resort and entertainment activities and beach clubs, which includes operation of the WaterColor Beach Club. Hospitality revenue is generally recognized at the point in time services are provided and represent a single performance obligation with a fixed
31
transaction price. Hospitality revenue recognized over time includes non-refundable club membership initiation fees, club membership dues, management fees and other membership fees. From time to time, we may explore the sale of certain hospitality properties, the development of new hospitality properties, as well as new entertainment and management fees.
The Clubs by JOEopportunities. Some of our JV assets and other assets incur interest and financing expenses related to the loans as described in Note 11. Debt, Net included in Item 15 of this Form 10-K.
The Clubs by JOE provides club members and guests in some of our hotels access to our member facilities, which include the Camp Creek Golf Club, Shark’s Tooth Golf Club, and the WaterSound Beach Club.Club and our Pilatus PC-12 NG aircraft (“N850J”). The Clubs by JOE offers different types of club memberships, each with different access rights and associated fee structures. The Clubs by JOE is focused on creating a world class membership experience combined with the luxurious aspects of a destination resort. Club operations include our golf courses, beach club and facilities that generate revenue from membership sales, membership reservations, daily play at the golf courses, merchandise sales, charter flights and food and beverage sales and incur expenses from the services provided, maintenance of the golf courses, aircraft, beach club and facilities and personnel costs. Below isWatersound Origins includes a description of some of our club properties, which aresix-hole golf course, resort-style pool, fitness center, two tennis courts and private lake dock located in Northwest Florida.the community. Access to amenities are reserved to Watersound Origins members consisting of the community residents. The golf course is available for public play.
WaterSound Beach Club. The WaterSound Beach Club is The Clubs by JOE’s private beach club located in Watersound, Florida, which includes over one mile of Gulf of Mexico frontage, two resort-style pools, two restaurants, three bars, kid’s room and a recreation area.
Shark’s Tooth Golf Club. Shark’s ToothClub includes an 18-hole golf course, a full club house, a pro shop, as well as two food and beverage operations. In addition to the golf course, a The Clubs by JOE tennis center is located in the Wild Heron community.
community near the Shark’s Tooth golf course. Camp Creek Golf Club. Camp Creek includesClub is an 18-hole championship golf course and a pro shop with a snack bar. This championship course is located in Watersound, Florida. In the fourth quarter of 2019, we commenced construction on a new hotel and club amenities adjacent to the Camp Creek golf course. Plans include an upscale, 75-room boutique inn near the highly desirable Scenic Highway 30-A corridor that we will operate. Amenities willare planned to include a health and wellness center, two restaurants, a tennis center, pickle ball courts, a resort-style pool complex with separate adult pool, a golf teaching academy, pro shop and multi-sportsmulti-sport fields. Once complete, these amenities will be available to The Clubs by JOE members and guests at some of our hotels.
Watersound Origins. Watersound Origins includes a six-hole golf course, resort-style pool, fitness center, two tennis courts, The Clubs by JOE also offers members private lake dock and a café located in the community. Access to amenities are reserved to Watersound Origins members consisting of the community residents. The golf course is available for public play.
SouthWood Golf Club. During 2018, we sold the SouthWood Golf Club, as well as the SouthWood House and cottages.
Hotel Operations, Food and Beverage Operations, Short-Term Vacation Rentals and Other Management Servicesair charter flights through our N850J aircraft.
We own and operate the award-winning WaterColor Inn, which includes the Fish Out of Water (“FOOW”)FOOW restaurant, the WaterSound Inn and two gulf-front vacation rental houses. We own and operate retail and commercial outlets near our hospitality facilities. We also operate the award-winning The Pearl Hotel and Havana Beach Bar & Grill restaurant and the WaterColor Beach Club, which includes food and beverage operations and other hospitality related activities, such as beach chair rentals.
Revenue is generated from (1)(i) the WaterColor Inn, WaterSound Inn and operation of the WaterColor Beach Club, (2)(ii) management of The Pearl Hotel, (3)(iii) short-term vacation rentals, and (4)(iv) food and beverage operations.operations and (v) merchandise sales. The WaterColor Inn, WaterSound Inn and operation of the WaterColor Beach Club generate
30
revenue from service and/or daily rental fees and incur expenses from the cost of services and goods provided, maintenance of the facilities and personnel costs. Revenue generated from our management services include management fees. Management services expenses consist primarily of internal administrative costs. In December 2017, we sold our vacation rental management business. Following the December 2017 sale, we no longer manage third party vacation rentals, but continue to manage rental properties we own. Hotel operations and short-term vacation rentals generate revenue from rental fees and incurexpenses from the holding cost of assets we own and standard lodging personnel, such as front desk, reservations and marketing personnel. Our food and beverage operations generate revenue from food and beverage sales and incur expenses from the cost of services and goods provided and standard personnel costs.
32
Embassy Suites hotel. In the third quarter of 2019 we, along with Key International, Inc., commenced construction of an Embassy Suites hotel in the Pier Park area of Panama City Beach, Florida. The hotel is planned to feature 255 guest suites, a pool, meeting space, a fitness center, an on-site restaurant and an upper-level, gulf-view social and event space with catering. Once complete, we will manage the day-to-day operations of this hotel.
Hilton Garden Inn. In the fourth quarter of 2019, we commenced construction of a Hilton Garden Inn brand hotel near the Northwest Florida Beaches International Airport. This hotel is planned to feature 143 guest rooms, meeting space and a full-service restaurant.
Sky Zone. In November 2019, we entered into a franchise agreement to own, construct and operate an approximately 25,000 square feet Sky Zone trampoline park near the Pier Park lifestyle center in Panama City Beach, Florida. Planning is in process for this project.
The Powder Room. In the fourth quarter of 2019, we commenced construction of The Powder Room Shooting Range and Training Center (“The Powder Room”) in Panama City Beach, Florida. The facility is planned to be approximately 17,000 square feet and include 14 shooting lanes and a retail store, as well as training and educational space. Once complete, we will manage the day-to-day operations.
Retail Outlets
We own and operate retail outlets near our hospitality facilities that include the WaterColor store and four additional retail outlets. Our retail outlets generate revenue from merchandise sales, which are recognized at the point of sale and incur expenses from the cost of goods provided, personnel costs and facility costs.
MarinasWe are in the process of constructing an Embassy Suites hotel, with our JV partner, planned for 255 guest suites in the Pier Park area of Panama City Beach, Florida; an upscale 75 room boutique hotel located adjacent to the Camp Creek Golf Club near the highly desirable Scenic Highway 30A corridor; a Hilton Garden Inn near Northwest Florida Beaches International Airport (“ECP”), which is planned to feature 143 guest rooms; a Homewood Suites by Hilton adjacent to the new Panama City Beach Sports Complex in Panama City Beach, Florida, which is planned to feature 131 one and two-bedroom guest suites; and The Lodge 30A, with our JV partner, an 85 room boutique hotel on Scenic Highway 30A in Seagrove Beach, Florida. In the third quarter of 2020 we executed a long-term land lease to develop, construct and operate a new waterfront Hotel Indigo and standalone restaurant in Panama City, Florida’s downtown waterfront district. Construction is expected to begin in the second quarter of 2021. Once complete, we will manage the day-to-day operations of all planned hotels and restaurants.
We own and operate two marinas in Northwest Florida consisting of the Bay Point Marina and Port St. Joe Marina. Our marinas generate revenue from boat slip rentals and fuel sales, and incur expenses from cost of services provided, maintenance of the marina facilities and personnel costs. Subsequent toAt present, we are redeveloping the landfall of Hurricane Michael on October 10, 2018, the marinas remain closed due to significant damage requiring long-term restoration, which is currently underway. We maintain property and business interruption insurance on the impacted marina assets.marinas. See Note 7. Hurricane Michaelincluded in Item 15 of this Form 10-K for additional information.
From time to time, we may exploreWe own and operate the WaterColor retail store that generates revenue from merchandise sales, which are recognized at the point of sale, and incur expenses from the cost of certain hospitality properties,goods provided, personnel costs and facility costs. We own and operate the development of new hospitality properties,Powder Room Shooting Range and Training Center (“The Powder Room”) in Panama City Beach, Florida. The approximately 17,000 square feet facility was completed in December 2020 and includes a retail store with firearms and ammunition, as well as new entertainmenttraining and management opportunities.educational space and 14 shooting lanes. The Powder Room generates revenue from service fees and merchandise sales, which are recognized at the point of sale, and incurs expenses from the cost of services and goods provided, personnel costs and facility costs.
Commercial Leasing and SalesSegment
Our commercial leasing and sales segment includes construction and leasing of multi-family, retail, office and commercial property, cell towersmulti-family, a senior living community and other assets, an assisted living community, as well asassets. The commercial segment also oversees the planning, development, entitlement, management and sale of our commercial and rural land holdings for a variety of uses. These uses, includeincluding a broad range of retail, office, hotel, assisted-living,senior living, multi-family, self-storage and industrial properties. The commercial leasing and sales segment’s portfolio of leasable properties continues to expand and diversify. We are in the process of constructing 361 apartment units, in addition to the 216 that have recently been completed, and 107 assisted living/memory care units. We provide development opportunities for national, regional and local retailers and other strategic partners in Northwest Florida. We own and manage retail shopping centers and develop commercial parcels. We have large land holdings near the Pier Park retail center, adjacent to the Northwest Florida Beaches International Airport, near or within business districts in the region and along major roadways. We also lease land for hunting, rock quarrying and other uses.
OurThe commercial leasingsegment also manages our timber holdings in Northwest Florida which includes growing and salesselling pulpwood, sawtimber and other products, such as fill dirt. As of December 31, 2020, we had an estimated 2.3 million tons of marketable pulpwood and 3.2 million tons of marketable sawlogs on approximately 64,000 acres. Based on our annual harvest plan, we anticipate harvesting approximately 260,000 tons of pulpwood and sawlogs during 2021.
The commercial segment generates leasing revenue and incurs leasing expenses primarily from maintenance and management of our properties, personnel costs and asset holding costs. Our commercial leasing and sales segment also generates revenue from the sale of developed and undeveloped land, timber holdings or land with limited development andand/or entitlements and the sale of commercial operating properties. Real estate sales in our commercial leasing and sales segment incur costs of revenue directly associated with the land, development, construction, timber and selling costs. Some ofOur commercial segment
3331
generates timber revenue primarily from open market sales of timber on site without the associated delivery costs. Some of our JV assets and other assets incur interest and financing expenses related to the loans as described in Note 12. 11. Debt,Netincluded in Item 15 of this Form 10-K.
Below is a listingThe commercial segment’s portfolio of someleasable properties continues to expand and diversify. Through wholly-owned subsidiaries and consolidated and unconsolidated joint ventures we are in the process of our commercial leasingconstructing 739 apartment units, in addition to the 378 apartment units and sales properties.107 senior living units that have recently been completed.
Pier Park North. Our Pier Park North JV owns a retail center of approximately 330,000 square feet in Panama City Beach, Florida, of which approximately 10,000 square feet remains to be constructed. As of December 31, 2019, Pier Park North JV had 320,310 leasable square feet, of which 95.4% were under lease.
Pier Park Crossings. Pier Park Crossings, is beingwhich was developed in two phases, with a total ofincludes 360 completed apartment units in Panama City Beach, Florida. In April 2017, we formed theaddition to Pier Park Crossings, JV to develop, manage and lease the initial 240-unit phasewe have three apartment communities under development or construction. Watersound Origins Crossings, consisting of apartments, which is nearing completion. As217 units, with 18 units completed as of December 31, 2019, we had completed 2162020, is adjacent to the Watersound Town Center in Watersound, Florida. Sea Sound apartments, an unconsolidated JV consisting of 300 units, allis located in Panama City Beach, Florida near the Breakfast Point residential community. Star Avenue apartments, consisting of which were under lease. In October 2019, we formed240 units, is located in Panama City, Florida.
Our leasing portfolio consists of approximately 908,000 square feet of leasable space for mixed-use, retail, industrial, office and medical uses. Within the leasing portfolio, our mixed-use lease space totals approximately 134,000 square feet. It consists primarily of WaterColor Town Center, WindMark Beach Town Center, WaterSound Gatehouse, WaterColor Crossings and various flex-space buildings. Our retail lease space totals approximately 352,000 square feet. It consists primarily of Pier Park Crossings Phase II apartmentsNorth JV (“Pier Park Crossings Phase II JV”) to develop, manage and other leasable properties. Our industrial lease an additional 120-unit phase, which is currently under construction.
Pier Park Northwest. Pier Park Northwest is entitled for hospitality and commercial uses. In the fallspace totals approximately 304,000 square feet, primarily located at VentureCrossings. Our office lease space consists of 2017, we entered into a JV (the “Pier Park TPS JV”) with InterMountain Management, LLC, to construct and manage a TownePlace Suites by Marriott. Construction beganapproximately 96,000 square feet, primarily located in the fourth quarter of 2018 on the 124 room TownePlace Suites and is now nearing completion. The Pier Park TPS JV is unconsolidated and is accounted for under the equity method of accounting. Additionally, we are designing a new multi-tenant commercial building to be constructed, owned and operated by us on a separate portion of this site.
Beckrich Office Park. Beckrich Office Park in Panama City Beach, Florida is being expanded toFlorida. Our medical lease space consists of approximately 22,000 square feet. It consists of a medical clinic at the Watersound Town Center and medical space at Beckrich Office Park. Through separate unconsolidated JVs other commercial properties include a third office building that, combined with the two original office buildings, will offer over 100,000 square feet of leasable Class A office space. The two existing office buildings include over 67,000 leasable square feet, of which 100.0% were under lease as of December 31, 2019. In December 2019, we also completed construction of a building for a Starbucks at the Beckrich Office Park, for which we have a long term lease. A portion of the third office building will be occupied as our corporate headquarters.
VentureCrossings. VentureCrossings is a commercial and industrial development adjacent to the Northwest Florida Beaches International Airport. We are soliciting global office, retail and industrial users for this prime development location where we own over 300,000 square feet of manufacturing and office space. Approximately 244,000 square feet of manufacturing and office space are currently under long-term leases. We completed construction of a new 60,000 square foot flex space building in December of 2019, which is available for lease.
Watersound Origins Crossings. In May 2019, we formed the Watersound Origins Crossings JV to develop, manage and lease apartments in Watersound, Florida, which is adjacent to the Watersound Origins Town Center. We are working together, with124 room TownePlace Suites by Marriott operated by our JV partner to develop a 217 unit apartment community, which is currently under construction.
Watersound Origins Town Center. The Watersound Origins Town Center is entitled for approximately 330,000 square feet of retail and entertainment space, as well as approximately 127,000 square feet of office space. In August 2018, we entered into an agreement with Sacred Heart Health Systems to construct and lease an approximately 6,500 square foot healthcare facility. The facility is currently under construction. Additionally, we have begun construction on a new multi-tenant commercial building and are in the early planning phases of other commercial buildings.
Topsail West. Topsail West is entitled for approximately 61,000 square feet of retail and entertainment space in Santa Rosa Beach, Florida. In April 2019, we entered into an agreement to construct and lease a build-to-suit restaurant building for First Watch: The Daytime Café. The building is currently under construction.
Watercrest Santa Rosa Beach Assisted Living and Memory Care. In May 2019, we formed a JV (the “Watercrest JV”) to develop and operate a new assisted living and memory care community in Santa Rosa Beach, Florida, which will
34
be located near Topsail West. The JV parties are working together to develop the 107-unit community, which is currently under construction.
Nautilus North. Nautilus North, located in Panama City Beach, Florida is a commercial development which was platted into seven commercial parcels. In July 2019, we formed a JV (the “Busy Bee JV”) to develop and operate a Busy Bee branded fuel station and convenience store that is currently under construction on two parcels at Nautilus North. The Busy Beeoperated by our JV is unconsolidated and is accounted for under the equity method of accounting.
North Glades/Breakfast Point Bank Building. In April 2019, we entered into an agreement with Capital City Bank to construct and lease a full-service banking locationpartner in Panama City Beach, Florida. The bank
We have other commercial projects in the planning, engineering or construction stages. This includes a Publix supermarket totaling approximately 50,000 square feet, a self-storage facility totaling approximately 71,000 square feet and a new multi-tenant commercial building is currently under construction.
Port St. Joe Bank Building. In December 2019, we entered into an agreement with Capital City Bank to construct and lease a full-service banking location in Port St. Joe, Florida. The bank building is currently under construction.
the Watersound Town Center totaling approximately 20,000 square feet. In addition to the properties listed above, a flex space building of approximately 19,000 square feet is under construction at Cedar Grove Commerce Park in Panama City, Florida and a flex space building of approximately 10,000 square feet is under construction at Beach Commerce Park in Panama City Beach, Florida. We alsowe have a number of projects in various stages of planning, including additional commercial buildings, apartments, assisted living/memory careapartment communities a grocery store and a self-storage facility.
Forestry
Our forestry segment focuses on the management of our timber holdings in Northwest Florida and generates revenue primarily from open market sales of timber on site without the associated delivery costs. We grow and sell pulpwood, sawtimber and other forest products. As of December 31, 2019, we had approximately 113,000 acres in our forestry segment and expect to have the ability to consistently operate approximately 64,000 of those acres.
As of December 31, 2019, we had an estimated 2.6 million tons of marketable pulpwood and 3.3 million tons of marketable sawlogs on approximately 64,000 acres. Our ability to operate the remaining acreage is limited by geographic 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 anticipate harvesting approximately 305,000 tons of pulpwood and sawlogs during 2020.
We may 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. Costs incurred as part of a sale of these lands may include the cost of timber, land, minimal development costs and selling costs. We also lease land within the forestry segment for hunting and other uses.
additional senior living community.
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Results of Operations
Consolidated Results
Revenue and expenses. The following table sets forth a comparison of the results of our operations:
| | | | | | | | | | |||||||||
| | | | | | | | | | |||||||||
| | Year Ended December 31, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Year Ended December 31, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| In millions | ||||||||||||||||
| | In millions | ||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
Real estate revenue |
| $ | 61.5 |
| $ | 52.2 |
| $ | 27.7 | | $ | 87.6 | | $ | 61.5 | | $ | 52.2 |
Hospitality revenue |
|
| 46.1 |
|
| 38.8 |
|
| 53.2 | |
| 47.8 | |
| 46.1 | |
| 38.8 |
Leasing revenue |
|
| 15.6 |
|
| 13.7 |
|
| 12.9 | |
| 18.8 | |
| 15.6 | |
| 13.7 |
Timber revenue |
|
| 3.9 |
|
| 5.6 |
|
| 6.2 | |
| 6.3 | |
| 3.9 | |
| 5.6 |
Total revenue |
|
| 127.1 |
|
| 110.3 |
|
| 100.0 | |
| 160.5 | |
| 127.1 | |
| 110.3 |
Expenses: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Cost of real estate revenue |
|
| 24.3 |
|
| 13.4 |
|
| 15.4 | |
| 35.8 | |
| 24.3 | |
| 13.4 |
Cost of hospitality revenue |
|
| 34.5 |
|
| 32.5 |
|
| 46.5 | |
| 35.2 | |
| 34.5 | |
| 32.5 |
Cost of leasing revenue |
|
| 4.7 |
|
| 4.7 |
|
| 4.5 | |
| 5.9 | |
| 4.7 | |
| 4.7 |
Cost of timber revenue |
|
| 0.6 |
|
| 0.7 |
|
| 0.8 | |
| 0.8 | |
| 0.6 | |
| 0.7 |
Other operating and corporate expenses |
|
| 21.4 |
|
| 20.6 |
|
| 20.4 | |
| 22.9 | |
| 21.4 | |
| 20.6 |
Depreciation, depletion and amortization |
|
| 10.3 |
|
| 9.0 |
|
| 8.9 | |
| 12.8 | |
| 10.3 | |
| 9.0 |
Total expenses |
|
| 95.8 |
|
| 80.9 |
|
| 96.5 | |
| 113.4 | |
| 95.8 | |
| 80.9 |
Operating income |
|
| 31.3 |
|
| 29.4 |
|
| 3.5 | |
| 47.1 | |
| 31.3 | |
| 29.4 |
Other income (expense): |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Investment income, net |
|
| 10.7 |
|
| 12.2 |
|
| 35.4 | |
| 5.0 | |
| 10.7 | |
| 12.2 |
Interest expense |
|
| (12.3) |
|
| (11.8) |
|
| (12.2) | |
| (13.6) | |
| (12.3) | |
| (11.8) |
Sale of vacation rental management, net |
|
| — |
|
| — |
|
| 9.8 | |||||||||
Gain on land contribution to equity method investment | |
| 20.0 | |
| 2.3 | |
| — | |||||||||
Other income, net |
|
| 6.5 |
|
| 1.1 |
|
| 4.8 | |
| 1.3 | |
| 4.2 | |
| 1.1 |
Total other income, net |
|
| 4.9 |
|
| 1.5 |
|
| 37.8 | |
| 12.7 | |
| 4.9 | |
| 1.5 |
Income before equity in loss from unconsolidated affiliates and income taxes |
|
| 36.2 |
|
| 30.9 |
|
| 41.3 | |
| 59.8 | |
| 36.2 | |
| 30.9 |
Equity in loss from unconsolidated affiliates |
|
| (0.1) |
|
| — |
|
| — | | | (0.6) | | | (0.1) | | | — |
Income tax (expense) benefit |
|
| (9.4) |
|
| 0.7 |
|
| 17.9 | |
| (13.7) | |
| (9.4) | |
| 0.7 |
Net income |
| $ | 26.7 |
| $ | 31.6 |
| $ | 59.2 | | $ | 45.5 | | $ | 26.7 | | $ | 31.6 |
Results of operations in this Form 10-K generally discusses 20192020 and 20182019 items and comparisons. For a detailed discussion of results of operations and comparisons for 20182019 and 2017, please2018, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’sour Annual Report on Form 10‑K for the year ended December 31, 20182019 filed with the SEC on February 27, 2019.
26, 2020.
3633
Real Estate Revenue and Gross Profit
The following table sets forth a comparison of our total real estate revenue and gross profit for the three years ended December 31, 2019:2020:
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
|
| | 2020 |
| % (a) |
| 2019 |
| % (a) |
| 2018 |
| % (a) | | |||
| | Dollars in millions |
| |||||||||||||
Revenue: |
| |
|
|
|
| |
|
|
|
| |
|
|
| |
Residential real estate revenue | | | | | | | | | | | | | | | | |
Residential real estate revenue | | $ | 74.1 |
| 84.6 | % | $ | 41.1 |
| 66.8 | % | $ | 19.7 |
| 37.7 | % |
RiverTown impact fees | | | — | | — | % | | — | | — | % | | 23.1 | | 44.3 | % |
Total residential real estate revenue | | | 74.1 | | 84.6 | % | | 41.1 | | 66.8 | % | | 42.8 | | 82.0 | % |
Commercial and rural real estate revenue | |
| 11.7 |
| 13.4 | % |
| 19.5 |
| 31.7 | % |
| 6.6 |
| 12.6 | % |
Other revenue | |
| 1.8 |
| 2.0 | % |
| 0.9 |
| 1.5 | % |
| 2.8 |
| 5.4 | % |
Real estate revenue | | $ | 87.6 |
| 100.0 | % | $ | 61.5 |
| 100.0 | % | $ | 52.2 |
| 100.0 | % |
| | | | | | | | | | | | | | | | |
Gross profit: | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Residential real estate | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 44.4 |
| 59.9 | % | $ | 21.1 |
| 51.3 | % | $ | 9.9 |
| 50.3 | % |
RiverTown impact fees | | | — | | — | % | | — | | — | % | | 23.1 | | 100.0 | % |
Total residential real estate | | | 44.4 | | 59.9 | % | | 21.1 | | 51.3 | % | | 33.0 | | 77.1 | % |
Commercial and rural real estate | |
| 6.2 |
| 53.0 | % |
| 15.2 |
| 77.9 | % |
| 3.2 |
| 48.5 | % |
Other | |
| 1.2 |
| 66.7 | % |
| 0.9 |
| 100.0 | % |
| 2.6 |
| 92.9 | % |
Gross profit | | $ | 51.8 |
| 59.1 | % | $ | 37.2 |
| 60.5 | % | $ | 38.8 |
| 74.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2019 |
| % (1) |
| 2018 |
| % (1) |
| 2017 |
| % (1) |
| |||
|
| Dollars in millions |
| |||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate revenue |
| $ | 41.1 |
| 66.8 | % | $ | 19.7 |
| 37.7 | % | $ | 21.6 |
| 78.0 | % |
RiverTown impact fees |
|
| — |
| — | % |
| 23.1 |
| 44.3 | % |
| — |
| — | % |
Total residential real estate revenue |
|
| 41.1 |
| 66.8 | % |
| 42.8 |
| 82.0 | % |
| 21.6 |
| 78.0 | % |
Commercial real estate revenue |
|
| 7.8 |
| 12.7 | % |
| 4.8 |
| 9.2 | % |
| 3.9 |
| 14.1 | % |
Rural land and other revenue |
|
| 12.6 |
| 20.5 | % |
| 4.6 |
| 8.8 | % |
| 2.2 |
| 7.9 | % |
Real estate revenue |
| $ | 61.5 |
| 100.0 | % | $ | 52.2 |
| 100.0 | % | $ | 27.7 |
| 100.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate |
| $ | 21.1 |
| 51.3 | % | $ | 9.9 |
| 50.3 | % | $ | 9.1 |
| 42.1 | % |
RiverTown impact fees |
|
| — |
| — | % |
| 23.1 |
| 100.0 | % |
| — |
| — | % |
Total residential real estate |
|
| 21.1 |
| 51.3 | % |
| 33.0 |
| 77.1 | % |
| 9.1 |
| 42.1 | % |
Commercial real estate |
|
| 3.9 |
| 50.0 | % |
| 1.7 |
| 35.4 | % |
| 1.1 |
| 28.2 | % |
Rural land and other |
|
| 12.2 |
| 96.8 | % |
| 4.1 |
| 89.1 | % |
| 2.1 |
| 95.5 | % |
Gross profit |
| $ | 37.2 |
| 60.5 | % | $ | 38.8 |
| 74.3 | % | $ | 12.3 |
| 44.4 | % |
| (a) |
| Calculated percentage of total real estate revenue and the respective gross margin percentage. |
Residential Real Estate Revenue and Gross Profit. During 2019,2020, total residential real estate revenue decreased $1.7increased $33.0 million, or 4.0%80.3% to $41.1$74.1 million, as compared to $42.8$41.1 million during 2018 and total2019. Total residential real estate gross profit decreased $11.9increased $23.3 million, to $44.4 million (or gross margin of 59.9%), as compared to $21.1 million, (or gross margin of 51.3%), as compared to $33.0 million, (or gross margin of 77.1%) during 2018. 2019. Included in residential real estate revenue for 2018 is $23.1 million for a one-time receipt of RiverTown impact fees related to the 2014 RiverTown transaction, resulting in a gross profit margin of 100.0%. See Note 19. 18. RiverTown Impact Fees included in Item 15 of this Form 10‑K10-K for further discussion. Excluding the one-time receiptDuring 2020, we sold 509 homesites and had unimproved residential land sales of the RiverTown impact fees, 2019 residential real estate revenue would have increased $21.4$1.7 million, or 108.6%, to $41.1 million, as compared to $19.7 million during 2018, and residential real estate gross profit would have increased $11.2 million, or 113.1%, to $21.1 million, (or gross margin of 51.3%), as compared to $9.9 million, (or gross margin of 50.3%), during 2018. During 2019, we sold 379 homesites compared to 202 homesitessold during 2018.
The number of homesites2019. During 2020 and 2019, the average revenue, excluding homesite residuals, per homesite sold varied each period due to the timing of builder contractual closing obligationswas approximately $124,000 and the timing of development of completed homesites in our residential communities.$87,000, respectively. The revenue and gross profit for each period was impacted by the volume of sales within each of the communities, the difference in pricing among the communities and the difference in the cost of the homesite development. The number of homesites sold varied each period due to the timing of homebuilder contractual closing obligations and the timing of development of completed homesites in our residential communities.
Commercial and Rural Real Estate Revenue and Gross Profit. During 2019,2020, we had eleventwenty-three commercial and rural real estate sales totaling approximately 107473 acres for $7.8$11.7 million resulting in a gross profit margin of 50.0%,53.0%. Commercial and rural real estate revenue for 2020 included $1.8 million related to the sale of this amountthe SouthWood Town Center. During 2019, we had twenty-five commercial and rural real estate sales totaling approximately 1,605 acres for $19.5 million resulting in a gross profit margin of 77.9%. Commercial and rural real estate sales in 2019 included approximately 28 acres totaling $4.3 million in revenue were sold in the SouthWood community. During 2018, we had fourteen commercialcommunity. Commercial and rural real estate sales totaling approximately 330 acres for $4.8 million resulting in 2019 also included a gross profit margin of 35.4%. Commercial real estate revenue for 2018 included $2.6 million related to the sale of two hospitality properties located in the SouthWood community, including the golf course. Revenue from commercial real estate can vary significantly from period to period depending on the proximity to developed areas and mix of commercial real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses.
37
Rural Land and Other Revenue and Gross Profit. During 2019, we sold approximately 1,498 acres of rural and timber land for $11.7 million and mitigation bank credits for $0.9 million, resulting in a gross profit margin of approximately 96.8%. Rural land sales for 2019 includedtotaling $9.9 million in revenue related to non-strategic land located in Leon County, Florida, with a gross profit of $9.7 million due to a low historical basis. During 2018, we sold approximately 181 acres of rural and timber land for $1.8 million and mitigation bank credits for $2.8 million, resulting in a gross profit margin of approximately 89.1%. Revenue from commercial and rural landreal estate can vary significantly from period to period.period depending on the proximity to developed areas and mix of real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses.
34
Our gross margin can vary significantly from period to period depending on the characteristics of property sold. Sales of rural and timber land typically have a lower cost basis than residential and commercial real estate sales. In addition, our cost basis in residential and commercial real estate can vary depending on the amount of development or other costs spent on the property.
For additional information see the Segment Results sections for Residential Real Estate, Commercial LeasingOther Revenue. Other revenue primarily consists of mitigation bank credit sales and Sales and Forestry.title fee revenue.
Hospitality Revenue and Gross Profit
| | | | | | | | | | | ||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||
| | 2020 |
| 2019 |
| 2018 | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||||||||||||
|
| In millions | ||||||||||||||||||
| | In millions | ||||||||||||||||||
Hospitality revenue |
| $ | 46.1 |
| $ | 38.8 |
| $ | 53.2 |
| | $ | 47.8 | | $ | 46.1 | | $ | 38.8 | |
Gross profit |
| $ | 11.6 |
| $ | 6.3 |
| $ | 6.7 |
| | $ | 12.6 | | $ | 11.6 | | $ | 6.3 | |
Gross margin |
|
| 25.2 | % |
| 16.2 | % |
| 12.6 | % | |
| 26.4 | % |
| 25.2 | % |
| 16.2 | % |
Hospitality revenue increased $7.3$1.7 million, or 18.8%3.7%, during 2019,2020, as compared to 2018. During 2019 the2019. The increase in hospitality revenue isthe current period was primarily due to an in increase in club membership revenue from WaterColor Inn lodging,the re-opening of the FOOW restaurant in June 2018, the opening of WaterSound Beach Club, charter flights, the WaterColor retail store and The Powder Room, which opened in January 2019 as well as other new retail outlets during 2019, the opening of the Camp WaterColor food and beverage operationDecember 2020. The increase in March 2019 and the opening of an additional dining option at the Watersound Beach Club in May 2019. The increases were partially offset by decreases in room revenue for the WaterColor Inn from lower occupancywas also related to the WaterColor Beach Club being closed during a portion of 2019 for renovations, golf revenue primarily related to the sale of the SouthWood Golf Club in the third quarter of 2018 and the impact of Hurricane Michael on the marinas. We offer different types of club memberships, each with different access rights and associated fee structures. As of December 31, 2019, the Clubs by JOE had 1,274 members, compared with 988 members as of December 31, 2018. Hospitality had a gross margin during 2019 of 25.2% compared to 16.2% during 2018. The increase is primarily related to thean increase in the number of members and membership revenue in the current period, partially offset by a decrease related to the receipt of one-time membership reservations fee in the prior period. The increases in the current period were partially offset by a decrease in hospitality revenue due to the impact of the COVID-19 pandemic, which resulted in shut downs and reduced revenue from mid-March to mid-May, but was partially offset by a recovery from June to December that exceeded revenue as compared to the same periods in 2019. As of December 31, 2020, The Clubs by JOE had 1,563 members, compared with 1,274 members as of December 31, 2019. Gross profit during each 2020 and 2019 includes $1.3 million of business interruption insurance proceeds received for the marinas related to Hurricane MichaelMichael. Hospitality had a gross margin during 2020 of 26.4%, compared to 25.2% during 2019. The increase in gross margin is related to an extended vacation season in the current period consistent with delayed school openings, increases in homeschooling and changesa rise in business strategy, suchremote work arrangements, as new retail opportunities, additional foodwell as management of expenses and beverage operations, concept changes to existing food and beverage operations andlabor, which was partially offset by the saleimpacts of the SouthWood Gulf Club.COVID-19 pandemic from mid-March to mid-May 2020.
Leasing Revenue and Gross Profit
| | | | | | | | | | |
| | Year Ended December 31, |
| |||||||
| | 2020 |
| 2019 |
| 2018 | | |||
| | In millions | | |||||||
Leasing revenue | | $ | 18.8 | | $ | 15.6 | | $ | 13.7 | |
Gross profit | | $ | 12.9 | | $ | 10.9 | | $ | 9.0 | |
Gross margin | |
| 68.6 | % |
| 69.9 | % |
| 65.7 | % |
Leasing revenue increased $3.2 million, or 20.5%, during 2020, as compared to 2019. The increase is primarily due to new leases at Pier Park Crossings apartments, which began leasing in the second quarter of 2019, as well as other new leases and higher rental rates. Gross profit during 2020 includes $0.7 million of business interruption insurance proceeds received for Pier Park Crossings apartments related to Hurricane Michael. Leasing gross margin was 68.6% during 2020, as compared to 69.9% during 2019. Excluding the business interruption proceeds received forduring the marinas during 2019,current period, our hospitalityleasing gross margin was 22.3%64.9% during 2019,2020, as compared to 16.2%69.9% during 2018.2019. The increase isdecrease was primarily relateddue to the increasestart-up expenses for new assets in the numbercurrent period.
35
LeasingTimber Revenue and Gross Profit
| | | | | | | | | | | ||||||||||
| | Year Ended December 31, |
| |||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||||||||||||
|
| In millions |
| |||||||||||||||||
Leasing revenue |
| $ | 15.6 |
| $ | 13.7 |
| $ | 12.9 |
| ||||||||||
| | In millions | | |||||||||||||||||
Timber revenue | | $ | 6.3 | | $ | 3.9 | | $ | 5.6 | | ||||||||||
Gross profit |
| $ | 10.9 |
| $ | 9.0 |
| $ | 8.4 |
| | $ | 5.5 | | $ | 3.3 | | $ | 4.9 | |
Gross margin |
|
| 69.9 | % |
| 65.7 | % |
| 65.1 | % | |
| 87.3 | % |
| 84.6 | % |
| 87.5 | % |
LeasingTimber revenue increased $1.9$2.4 million, or 13.9%61.5%, during 2019,2020, as compared to 2018.2019. The increase is primarily due new leases at properties such as Beckrich Office Park, Pier Park Crossings apartmentsto an increase in the amount of tons sold and WaterColor Crossings.product mix changes. The increase is partially offset by a decrease in leasing revenue related to the marinas which, subsequent to the landfall of
38
Hurricane Michael on October 10, 2018, remain closed. Cost of leasing revenue remained essentially flat for 2019 was affected by Hurricane Michael’s significant market impact after landfall in October 2018. There were 322,000 tons sold during 2020, as compared to 220,000 tons sold during 2019. Gross margin increased during 2020 to 87.3%, as compared to 84.6% during 2019, primarily due to increased volume and 2018,changes in product mix. The cost of timber revenue is primarily fixed, which also resulted in an increase to gross margin for the period.
Timber Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
|
| In millions |
| |||||||
Timber revenue |
| $ | 3.9 |
| $ | 5.6 |
| $ | 6.2 |
|
Gross profit |
| $ | 3.3 |
| $ | 4.9 |
| $ | 5.4 |
|
Gross margin |
|
| 84.6 | % |
| 87.5 | % |
| 87.1 | % |
Timber revenue decreased $1.7 million, or 30.4%, during 2019, as compared to 2018. The decrease is primarily due to a decrease in the amount of tons sold, along with price decreases and product mix changes caused by Hurricane Michael’s significant market impact since landfall in October 2018. There were 220,000 tons sold during 2019, as compared to 328,000 tons sold during 2018. Gross margin decreased during 2019 to 84.6%, as compared to 87.5% during the same period in 2018, primarily due to decreases in sales price and volume changes in product mix.
Other Operating and Corporate Expenses
| | | | | | | | | | |||||||||
| | Year Ended December 31, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Year Ended December 31, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| In millions | ||||||||||||||||
| | In millions | ||||||||||||||||
Employee costs |
| $ | 7.8 |
| $ | 7.3 |
| $ | 6.9 | | $ | 8.4 | | $ | 7.8 | | $ | 7.3 |
401(k) contribution |
|
| 1.1 |
|
| 1.1 |
|
| 1.2 | |
| 1.2 | |
| 1.1 | |
| 1.1 |
Non-cash stock compensation costs |
|
| 0.1 |
|
| 0.1 |
|
| 0.1 | |
| — | |
| 0.1 | |
| 0.1 |
Property taxes and insurance |
|
| 5.0 |
|
| 4.9 |
|
| 5.2 | |
| 5.3 | |
| 5.0 | |
| 4.9 |
Professional fees |
|
| 4.0 |
|
| 3.5 |
|
| 2.9 | |
| 4.7 | |
| 4.0 | |
| 3.5 |
Marketing and owner association costs |
|
| 1.2 |
|
| 1.2 |
|
| 1.5 | |
| 1.2 | |
| 1.2 | |
| 1.2 |
Occupancy, repairs and maintenance |
|
| 0.8 |
|
| 0.9 |
|
| 0.6 | |
| 0.7 | |
| 0.8 | |
| 0.9 |
Other miscellaneous |
|
| 1.4 |
|
| 1.6 |
|
| 2.0 | |
| 1.4 | |
| 1.4 | |
| 1.6 |
Total other operating and corporate expenses |
| $ | 21.4 |
| $ | 20.6 |
| $ | 20.4 | | $ | 22.9 | | $ | 21.4 | | $ | 20.6 |
Other operating and corporate expenses increased $0.8$1.5 million during 2019,2020, as compared to 2018.2019. The increase in employee costs of $0.5 million wasis due to an averagethe March 2020 payment of 55 full-time employees during 2019, compared to an average of 47 full-time employees during 2018.performance incentives and other employee related costs. The increase of $0.5 million inis also due to professional fees was duefor legal, accounting and tax services related to increased operations and transactions during 2019.the growth in operations.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense increased $1.3$2.5 million during 2019,2020, as compared to 2018,2019, primarily due to new assets construction and equipment placed in service.
Investment Income, Net
Investment income, net primarily includes (i) interest and dividends earned, (ii) accretion of the net discount, (iii) net realized gain or loss from the sale of our available-for-sale investments and equity securities, less other-than-temporary impairment loss, (iv) net unrealized gain or loss related to investments – equity securities, (v) interest income
36
earned on the time deposit held by a special purpose entity and (vi) interest earned on mortgage notes receivable and other receivables as detailed in the table below:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2020 |
| 2019 |
| 2018 | |||
| | In millions | |||||||
Interest and dividend income | | $ | 1.1 | | $ | 7.3 | | $ | 9.1 |
Accretion income | |
| 0.1 | |
| 0.1 | |
| 0.7 |
Net realized gain (loss) on the sale of investments | |
| — | |
| 0.1 | |
| (1.0) |
Other-than-temporary impairment loss | |
| — | |
| — | |
| (2.3) |
Unrealized loss on investments, net | | | (4.7) | | | (5.3) | | | (3.0) |
Interest income from investments in special purpose entities | |
| 8.2 | |
| 8.2 | |
| 8.2 |
Interest accrued on notes receivable and other interest | |
| 0.3 | |
| 0.3 | |
| 0.5 |
Total investment income, net | | $ | 5.0 | | $ | 10.7 | | $ | 12.2 |
39
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
|
| In millions | |||||||
Interest and dividend income |
| $ | 7.3 |
| $ | 9.1 |
| $ | 16.4 |
Accretion income |
|
| 0.1 |
|
| 0.7 |
|
| 2.0 |
Net realized gain (loss) on the sale of investments |
|
| 0.1 |
|
| (1.0) |
|
| 10.7 |
Other-than-temporary impairment loss |
|
| — |
|
| (2.3) |
|
| (2.3) |
Unrealized loss on investments, net |
|
| (5.3) |
|
| (3.0) |
|
| — |
Interest income from investments in SPEs |
|
| 8.2 |
|
| 8.2 |
|
| 8.2 |
Interest accrued on notes receivable and other interest |
|
| 0.3 |
|
| 0.5 |
|
| 0.4 |
Total investment income, net |
| $ | 10.7 |
| $ | 12.2 |
| $ | 35.4 |
Investment income, net decreased $1.5$5.7 million to $5.0 million for 2020, as compared to $10.7 million for 2019, as compared to $12.2 million for 2018.2019. The decrease in interest and dividend income and accretion income for 2019,2020, as compared to the same period in 2018,2019, is primarily due to a reductionthe change in investments held during the period.period and lower interest rates. The decreasechange in investments held during the period is primarily related to the repurchase of common stock during 2019 and 2018 under the Stock Repurchase Programa transition to a more liquid investment strategy and increased capital expenditures. See Note 16. Stockholders’ Equity included in Item 15 of this Form 10-K for additional information regarding common stock repurchases related to the Stock Repurchase Program. Investment income, net forduring 2020 and 2019 includes the sale of certain corporate debt securities, preferred stock and common stock at a net realized gain of $0.1 million, offset by an unrealized loss on investments, net of $4.7 million and $5.3 million, respectively, related to preferred stock. Investment income, net for 2018 includes a net realized loss on the sale of certain corporate debt securities of $1.0 million, an other-than-temporary impairment loss of $2.3 million related to corporate debt securities and an unrealized loss of $3.0 million related to preferred stock.
Interest Expense
Interest expense primarily includes interest incurred on our Community Development District (“CDD”) debt, the Senior Notes issued by Northwest Florida Timber Finance, LLC, project financing, Community Development District (“CDD”) debt and finance leases as detailed in the table below:
| | | | | | | | | | |||||||||
| | Year Ended December 31, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Year Ended December 31, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| In millions | ||||||||||||||||
Interest expense and amortization of discount and issuance costs for Senior Notes issued by SPE |
| $ | 8.8 |
| $ | 8.8 |
| $ | 8.8 | |||||||||
| | In millions | ||||||||||||||||
Interest expense and amortization of discount and issuance costs for Senior Notes issued by special purpose entity | | $ | 8.8 | | $ | 8.8 | | $ | 8.8 | |||||||||
Other interest expense |
|
| 3.5 |
|
| 3.0 |
|
| 3.4 | |
| 4.8 | |
| 3.5 | |
| 3.0 |
Total interest expense |
| $ | 12.3 |
| $ | 11.8 |
| $ | 12.2 | | $ | 13.6 | | $ | 12.3 | | $ | 11.8 |
Interest expense increased $0.5$1.3 million, or 4.2%10.6%, in 2019,2020, as compared to 2018,2019, primarily related to the increase in project financing. See Note 12. 11. Debt, Net included in Item 15 of this Form 10-K for additional information regarding project financing.
SaleGain on Land Contribution to Equity Method Investment
Gain on land contribution to equity method investment in 2020 and 2019 was $20.0 million and $2.3 million, respectively. Gain on land contribution to equity method investment for 2020 includes a gain of Vacation Rental Management, net
In December 2017, we entered into$15.3 million on land and consummated an Asset Purchase Agreement (the “PCR Purchase Agreement”) with PCR Rentals LLC, (“PCR”)$0.4 million on additional infrastructure improvements contributed to our unconsolidated Latitude Margaritaville Watersound JV. The $15.3 million gain on land contributed to the Latitude Margaritaville Watersound JV is comprised of $16.6 million for the salepresent value of the land contribution, net of $1.3 million cost basis. The present value of the land contribution was based on our short term vacation rental management business (the “PCR Rentals Sale”). In December 2017, we completedbest estimate of the saleprevailing market rates for the source of credit using an imputed interest rate of 5.75%, the timing of homes sales and an additional performance obligation to PCRprovide for approximately $9.9 million, which resultedinfrastructure improvements in the vicinity of the contributed land. Gain on land contribution to equity method investment for 2020 also includes a net gain of $9.8 million.
$4.3 million on land and mitigation credits contributed to FDSJ Eventide, LLC, our unconsolidated JV (the “Sea Sound Apartments JV”). Gain on land contribution to equity method investment for 2019 includes a gain of $0.8 million on land contributed to SJBB, LLC, our unconsolidated JV (the “Busy Bee JV”) and a
4037
gain of $1.5 million on land and mitigation credits contributed to Pier Park TPS, LLC, our unconsolidated JV (the “Pier Park TPS JV”). See Note 4. Joint Ventures included in Item 15 of this Form 10-K for additional information.
Other Income, Net
Other income, net primarily includes gain on land contributions, income from our retained interest investments, gain on insurance recovery, loss from hurricane damage and other income and expense items as detailed in the table below:
| | | | | | | | | | |||||||||
| | Year Ended December 31, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Year Ended December 31, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| In millions | ||||||||||||||||
Gain on land contribution |
| $ | 2.3 |
| $ | — |
| $ | — | |||||||||
| | In millions | ||||||||||||||||
Accretion income from retained interest investments |
|
| 1.4 |
|
| 1.2 |
|
| 1.1 | | $ | 1.4 | | $ | 1.4 | | $ | 1.2 |
Gain on insurance recovery |
|
| 5.3 |
|
| 7.2 |
|
| — | | | 0.7 | | | 5.3 | | | 7.2 |
Loss from hurricane damage |
|
| (2.7) |
|
| (8.6) |
|
| — | | | (1.1) | | | (2.7) | | | (8.6) |
Miscellaneous income, net |
|
| 0.2 |
|
| 1.3 |
|
| 3.7 | |
| 0.3 | |
| 0.2 | |
| 1.3 |
Other income, net |
| $ | 6.5 |
| $ | 1.1 |
| $ | 4.8 | | $ | 1.3 | | $ | 4.2 | | $ | 1.1 |
Other income, net increased $5.4decreased $2.9 million to $1.3 million during 2019,2020, as compared to 2018.$4.2 million in 2019. Other income, net for 2020 and 2019 includes a$0.7 million and $5.3 million, respectively, of gain on insurance recovery related to Hurricane Michael of $5.3and $1.1 million and $7.2$2.7 million, during 2019 and 2018, respectively. The gain on insurance recovery was partially offset by arespectively, of loss from hurricane damage of $2.7 million and $8.6 million during 2019 and 2018, respectively. The $8.6 million loss from hurricane damage during 2018 includes $7.3 million for loss on disposal of assets related to damage and $1.3 million of hurricane expenses related to Hurricane Michael. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information. Other income, net during 2019 also includes a gain of $0.8 million on land contributed to our unconsolidated Busy Bee JV and a gain of $1.5 million on land contributed to our unconsolidated Pier Park TPS JV. See Note 4. Real Estate Joint Venturesincluded in Item 15 of this Form 10-K for additional information. Miscellaneous income, net during 2018 primarily includes $2.2 million of income related to the final distribution from our unconsolidated JV ALP Liquidating Trust (“ALP”), offset by $0.6 million for a homeowners’ association settlement related to one of our residential communities.information.
Income Tax (Expense) Benefit
The Tax Act was enacted on December 22, 2017, changing many aspects of U.S. corporate income taxation including reducing the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. We recognized the tax effects of the Tax Act during the year ended December 31, 2017, which included a $33.5 million benefit from the reassessment of net deferred tax balances to reflect the newly enacted tax rate.Expense
Our income tax expense in 20192020 was $9.4$13.7 million, compared to an income tax benefit of $0.7$9.4 million in 2018.2019. Our effective tax rate was 26.1%23.2% in 2019,2020, as compared to (2.3%)26.1% in 2018.2019.
Our effective rate for 2020 differed from the federal statutory rate of 21.0% primarily due to state income taxes, income tax credits related to our JV apartment projects and other permanent differences. Our effective rate for 2019 differed from the federal statutory rate of 21.0% primarily due to state income taxes, the change in Florida corporate income tax rate from 5.5% to 4.458%4.5%, the benefit recognized for certain investments in QOZs, and other permanent differences. Our effective rate for 2018 differed from the federal statutory rate of 21.0% in part due to state income taxes and other permanent differences, but largely due to a decrease in our valuation allowance, a decrease in our uncertain tax positions and the 2018 renewal of the Qualified Timber Gain preferential rate retroactively applied to our tax year 2017. In future periods, we expect that our effective rate will be closer to the statutory rate adjusted for state taxes and other permanent differences.
4138
Segment Results
Residential Real Estate
The table below sets forth the results of operations of our residential real estate segment:
| | | | | | | | | | |||||||||
| | Year Ended December 31, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Year Ended December 31, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| In millions | ||||||||||||||||
| | In millions | ||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
Real estate revenue |
| $ | 37.0 |
| $ | 17.7 |
| $ | 19.6 | | $ | 69.4 | | $ | 37.0 | | $ | 17.7 |
Hospitality revenue |
|
| 0.5 |
|
| 0.4 |
|
| 0.5 | | | 0.4 | | | 0.5 | | | 0.4 |
Leasing revenue | | | 0.2 | | | — | | | — | |||||||||
Other revenue |
|
| 4.1 |
|
| 25.1 |
|
| 2.1 | |
| 4.8 | |
| 4.1 | |
| 25.1 |
Total revenue |
|
| 41.6 |
|
| 43.2 |
|
| 22.2 | |
| 74.8 | |
| 41.6 | |
| 43.2 |
Expenses: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Cost of real estate and other revenue |
|
| 19.9 |
|
| 9.8 |
|
| 12.5 | |
| 29.8 | |
| 19.9 | |
| 9.8 |
Cost of hospitality revenue |
|
| 0.6 |
|
| 0.4 |
|
| 0.5 | | | 0.6 | | | 0.6 | | | 0.4 |
Other operating expenses |
|
| 4.9 |
|
| 4.7 |
|
| 4.3 | |
| 5.3 | |
| 4.9 | |
| 4.7 |
Depreciation and amortization |
|
| 0.3 |
|
| 0.3 |
|
| 0.4 | |
| 0.3 | |
| 0.3 | |
| 0.3 |
Total expenses |
|
| 25.7 |
|
| 15.2 |
|
| 17.7 | |
| 36.0 | |
| 25.7 | |
| 15.2 |
Operating income |
|
| 15.9 |
|
| 28.0 |
|
| 4.5 | |
| 38.8 | |
| 15.9 | |
| 28.0 |
Other income (expense): |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Investment income, net |
|
| 0.1 |
|
| 0.2 |
|
| 0.1 | | | 0.2 | | | 0.1 | | | 0.2 |
Interest expense |
|
| (0.7) |
|
| (0.8) |
|
| (1.2) | |
| (0.7) | |
| (0.7) | |
| (0.8) |
Other (expense) income, net |
|
| (0.2) |
|
| (0.5) |
|
| 0.2 | |||||||||
Total other expense, net |
|
| (0.8) |
|
| (1.1) |
|
| (0.9) | |||||||||
Gain on land contribution to equity method investment | | | 15.7 | | | — | | | — | |||||||||
Other expense, net | |
| — | |
| (0.2) | |
| (0.5) | |||||||||
Total other income (expense), net | |
| 15.2 | |
| (0.8) | |
| (1.1) | |||||||||
Income before equity in loss from unconsolidated affiliates and income taxes |
| $ | 15.1 |
| $ | 26.9 |
| $ | 3.6 | | $ | 54.0 | | $ | 15.1 | | $ | 26.9 |
Real estate revenue includes sales of homesites, homes and other residential land and certain homesite 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. Hospitality revenue includes some of our short-term vacation rentals. Other revenue includes tap and impact fee credits sold and marketing fees. Certain homesite residuals and other revenue related to homebuilder homesite sales are recognized in revenue at the point in time of the closing of the sale. Other revenue for 2018 includes $23.1 million for a one-time receipt of RiverTown impact fees related to the 2014 RiverTown transaction. See Note 19. 18. RiverTown Impact Fees included in Item 15 of this Form 10‑K10-K for further discussion.discussion. For 20192020 and 2018,2019, real estate revenue includes estimated homesite residuals of $2.5$1.9 million and $1.0$2.5 million, respectively. For 20192020 and 2018,2019, other revenue includes certain estimated fees related to homebuilder homesite sales of $1.9 million and $2.3 million, and $1.0 million, respectively. The estimated homesite residuals and other estimated fees related to homebuilder homesite sales increased in 2019, compared to 2018, due to an increase in the volume of homesite sales. Prior to 2018, these homesite residuals and fees were recognized in revenue when consideration was received by us in periods subsequent to the initial recognition of revenue for the sale of the homesite. Cost of real estate revenue 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).costs.
The following tables set forth our residential real estate revenue and cost of revenue activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2019 |
| |||||||||||
|
| Units |
|
|
|
| Cost of |
| Gross |
| Gross |
| ||
|
| Sold |
| Revenue |
| Revenue |
| Profit |
| Margin |
| |||
|
| Dollars in millions |
| |||||||||||
Homesites |
| 379 |
| $ | 37.0 |
| $ | 18.6 |
| $ | 18.4 |
| 49.7 | % |
Total |
| 379 |
| $ | 37.0 |
| $ | 18.6 |
| $ | 18.4 |
| 49.7 | % |
| | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 | | |||||||||||
|
| Units |
| | |
| Cost of |
| Gross |
| Gross | | ||
| | Sold | | Revenue | | Revenue | | Profit | | Margin | | |||
| | Dollars in millions | ||||||||||||
Homesites | | 509 | | $ | 67.7 | | $ | 27.4 | | $ | 40.3 | | 59.5 | % |
Land sales |
| N/A | | | 1.7 | | | 0.4 | | | 1.3 | | 76.5 | % |
Total |
| 509 | | $ | 69.4 | | $ | 27.8 | | $ | 41.6 |
| 59.9 | % |
4239
| | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 | | |||||||||||
|
| Units |
| | |
| Cost of |
| Gross |
| Gross | | ||
| | Sold | | Revenue | | Revenue | | Profit | | Margin | | |||
| | Dollars in millions | | |||||||||||
Homesites |
| 379 | | $ | 37.0 | | $ | 18.6 | | $ | 18.4 | | 49.7 | % |
| | | | | | | | | | | | | | | ||||||||||||||
| | Year Ended December 31, 2018 |
| |||||||||||||||||||||||||
| | Units |
| | |
| Cost of |
| Gross |
| Gross |
| ||||||||||||||||
| | Sold | | Revenue | | Revenue | | Profit | | Margin |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Year Ended December 31, 2018 |
| |||||||||||||||||||||||||
|
| Units |
|
|
|
| Cost of |
| Gross |
| Gross |
| ||||||||||||||||
|
| Sold |
| Revenue |
| Revenue |
| Profit |
| Margin |
| |||||||||||||||||
|
| Dollars in millions |
| |||||||||||||||||||||||||
| | Dollars in millions | | |||||||||||||||||||||||||
Homesites |
| 202 |
| $ | 17.7 |
| $ | 8.8 |
| $ | 8.9 |
| 50.3 | % | | 202 | | $ | 17.7 | | $ | 8.8 | | $ | 8.9 | | 50.3 | % |
Total |
| 202 |
| $ | 17.7 |
| $ | 8.8 |
| $ | 8.9 |
| 50.3 | % | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2017 |
| |||||||||||
|
| Units |
|
|
|
| Cost of |
| Gross |
| Gross |
| ||
|
| Sold |
| Revenue |
| Revenue |
| Profit |
| Margin |
| |||
|
| Dollars in millions |
| |||||||||||
Homesites |
| 174 |
| $ | 18.2 |
| $ | 10.3 |
| $ | 7.9 |
| 43.4 | % |
Homes |
| 3 |
|
| 1.4 |
|
| 1.3 |
|
| 0.1 |
| 7.1 | % |
Total |
| 177 |
| $ | 19.6 |
| $ | 11.6 |
| $ | 8.0 |
| 40.8 | % |
Year Ended December 31, 20192020 Compared to the Year Ended December 31, 20182019
Homesites. Revenue from homesite sales increased $19.3$30.7 million, or 109.0%83.0%, during 2019,2020, as compared to 2018,2019, primarily due to the mix and number of homesites sold per community, the timing of builderhomebuilder contractual closing obligations and the timing of development of completed homesites in our residential communities such as Watersound Origins, Breakfast Point, SouthWoodcommunities. During 2020 and WindMark Beach. During 2019, and 2018, the average revenue, excluding homesite residuals, per homesite sold was approximately $124,000 and $87,000, and $78,000, respectively,respectively. The increase in average revenue per homesite sold in 2020 was due to the mix of sales from different communities.communities, which included initial sales in the Watersound Camp Creek community and final phase of the WaterColor community. Gross margin decreasedincreased to 59.5% during 2020, as compared to 49.7% during 2019, as compared to 50.3% during 2018, primarily due to the mix and number of homesites sold from different communities during each respective period.
Land sale. During 2020 we had unimproved residential land sales for $1.7 million, resulting in a gross profit margin of 76.5%.
Other operating expenses include salaries and benefits, property taxes, marketing, professional fees, project administration, support personnel, owner association and CDD assessments and other administrative expenses.
Investment income, net primarily consists of interest earned on our mortgage notes receivable. Interest expense primarily consists of interest incurred on our portion of the total outstanding CDD debt. Other (expense) income, net during 2019 primarily consists
Gain on land contribution to equity method investment for 2020 includes a gain of loss from hurricane damage$15.3 million on land and other miscellaneous income and expense items. Other (expense) income, net during 2018 primarily consists$0.4 million on additional infrastructure improvements contributed to our unconsolidated Latitude Margaritaville Watersound JV. The $15.3 million gain on land contributed to the Latitude Margaritaville Watersound JV is comprised of $0.6$16.6 million for a homeowners’ association settlement relatedthe present value of the land contribution, net of $1.3 million cost basis. The present value of the land contribution was based on our best estimate of the prevailing market rates for the source of credit using an imputed interest rate of 5.75% and an additional performance obligation to oneprovide for infrastructure improvements in the vicinity of our residential communities and other miscellaneous income and expense items.
the contributed land. See Note 4. Joint Ventures included in Item 15 of this Form 10-K for additional information.
4340
Hospitality
The table below sets forth the results of operations of our hospitality segment:
| | | | | | | | | | |||||||||
| | Year Ended December 31, | ||||||||||||||||
|
| 2020 |
| 2019 |
| 2018 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Year Ended December 31, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||
|
| In millions | ||||||||||||||||
| | In millions | ||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
Hospitality revenue |
| $ | 45.6 |
| $ | 38.4 |
| $ | 52.7 | | $ | 47.4 | | $ | 45.6 | | $ | 38.4 |
Leasing revenue |
|
| 0.1 |
|
| 1.2 |
|
| 1.6 | | | — | | | 0.1 | | | 1.2 |
Total revenue |
|
| 45.7 |
|
| 39.6 |
|
| 54.3 | | | 47.4 | | | 45.7 | | | 39.6 |
Expenses: |
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
|
Cost of hospitality revenue |
|
| 33.9 |
|
| 32.1 |
|
| 46.0 | |
| 34.7 | |
| 33.9 | |
| 32.1 |
Cost of leasing revenue |
|
| — |
|
| 1.3 |
|
| 1.3 | |
| — | |
| — | |
| 1.3 |
Other operating expenses |
|
| 0.8 |
|
| 0.6 |
|
| 0.5 | |
| 1.2 | |
| 0.8 | |
| 0.6 |
Depreciation |
|
| 4.6 |
|
| 3.6 |
|
| 4.0 | |
| 4.6 | |
| 4.6 | |
| 3.6 |
Total expenses |
|
| 39.3 |
|
| 37.6 |
|
| 51.8 | |
| 40.5 | |
| 39.3 | |
| 37.6 |
Operating income |
|
| 6.4 |
|
| 2.0 |
|
| 2.5 | |
| 6.9 | |
| 6.4 | |
| 2.0 |
Other income: |
|
|
|
|
|
|
|
|
| |||||||||
Sale of vacation rental management, net |
|
| — |
|
| — |
|
| 9.8 | |||||||||
Other income (expense): | |
|
| |
|
| |
|
| |||||||||
Interest expense | | | (0.2) | | | — | | | — | |||||||||
Other income (expense), net |
|
| 0.2 |
|
| (0.2) |
|
| 0.3 | |
| 0.5 | |
| 0.2 | |
| (0.2) |
Other income (expense), net |
|
| 0.2 |
|
| (0.2) |
|
| 10.1 | |
| 0.3 | |
| 0.2 | |
| (0.2) |
Income before equity in loss from unconsolidated affiliates and income taxes |
| $ | 6.6 |
| $ | 1.8 |
| $ | 12.6 | | $ | 7.2 | | $ | 6.6 | | $ | 1.8 |
The following table sets forth details of our hospitality segment revenue and cost of revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||||||
| | Year Ended December 31, 2020 | | | Year Ended December 31, 2019 |
| | Year Ended December 31, 2018 |
| |||||||||||||||||||||||||||||||||||||||||||||
| | | | | Gross | | Gross | | | | | | Gross | | Gross | | | | | | Gross | | Gross | | ||||||||||||||||||||||||||||||
| | Revenue | | Profit | | Margin | | | Revenue | | Profit | | Margin |
| | Revenue | | Profit | | Margin |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
|
| Year Ended December 31, 2019 |
|
| Year Ended December 31, 2018 |
|
| Year Ended December 31, 2017 |
| |||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| Gross |
| Gross |
|
|
|
|
| Gross |
| Gross |
|
|
|
|
| Gross |
| Gross |
| ||||||||||||||||||||||||||||||
|
| Revenue |
| Profit |
| Margin |
|
| Revenue |
| Profit |
| Margin |
|
| Revenue |
| Profit |
| Margin |
| |||||||||||||||||||||||||||||||||
|
| In millions | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| | In millions | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Clubs |
| $ | 20.9 |
| $ | 7.7 |
| 36.8 | % |
| $ | 16.5 |
| $ | 3.9 |
| 23.6 | % |
| $ | 14.6 |
| $ | 1.3 |
| 8.9 | % | | $ | 22.3 | | $ | 7.6 |
| 34.1 | % | | $ | 20.9 | | $ | 7.7 |
| 36.8 | % | | $ | 16.5 | | $ | 3.9 |
| 23.6 | % |
Hotel operations, food and beverage operations, short-term vacation rentals and other management services |
|
| 23.3 |
|
| 3.0 |
| 12.9 | % |
|
| 20.6 |
|
| 2.1 |
| 10.2 | % |
|
| 36.9 |
|
| 5.1 |
| 13.8 | % | | | 23.2 | | | 3.8 |
| 16.4 | % | | | 23.6 | | | 3.0 |
| 12.7 | % | | | 20.6 | | | 2.1 |
| 10.2 | % |
Retail |
|
| 1.5 |
|
| 0.3 |
| 20.0 | % |
|
| — |
|
| — |
| N/A | % |
|
| — |
|
| — |
| N/A | % | |||||||||||||||||||||||||||
Marinas |
|
| — |
|
| 0.8 |
| — | % |
|
| 2.5 |
|
| 0.2 |
| 8.0 | % |
|
| 2.8 |
|
| 0.6 |
| 21.4 | % | |||||||||||||||||||||||||||
Other | | | 1.9 | | | 1.3 | | 68.4 | % | | | 1.2 | | | 1.1 | | 91.7 | % | | | 2.5 | |
| 0.2 |
| 8.0 | % | |||||||||||||||||||||||||||
Total |
| $ | 45.7 |
| $ | 11.8 |
| 25.8 | % |
| $ | 39.6 |
| $ | 6.2 |
| 15.7 | % |
| $ | 54.3 |
| $ | 7.0 |
| 12.9 | % | | $ | 47.4 | | $ | 12.7 |
| 26.8 | % | | $ | 45.7 | | $ | 11.8 |
| 25.8 | % | | $ | 39.6 | | $ | 6.2 |
| 15.7 | % |
Year Ended December 31, 20192020 Compared to Year Ended December 31, 20182019
Revenue from our clubs increased $4.4$1.4 million, or 26.7%6.7%, during 2019,2020, as compared to 2018,2019. The increase was primarily due to an increase in revenue for the WaterSound Beach Club and charter flights in the current period. The increase in revenue was also related to an increase in the number of members and membership revenue and in the opening of an additional dining option at the Watersound Beach Club in May 2019,current period, partially offset by a decrease in golf revenue primarily related to the salereceipt of one-time membership reservations fee in the SouthWoodprior period. In addition, the Camp Creek Golf Club was closed from March to October 2020 for renovations, however the decrease in the third quarter of 2018. We offer different types of club memberships, each with different access rights and associated fee structures.revenue was offset by an increase in revenue at our Shark’s Tooth Golf Club. As of December 31, 2019, the2020, The Clubs by JOE had 1,2741,563 members, compared with 9881,274 members as of December 31, 2018. 2019. Our clubs gross margin increaseddecreased to 34.1% during 2020, compared to 36.8% during 2019, compared to 23.6% during 2018.2019. The increasedecrease in gross margin was primarily due to thean increase in golf course maintenance during renovation of the number of members and membership revenue.Camp Creek golf course.
Revenue from our hotel operations, food and beverage operations, some of our short-term vacation rentals and other management services increased $2.7decreased $0.4 million, or 13.1%1.7%, during 2019,2020, as compared to 2018.2019. The increase in revenuedecrease is primarily due to the re-opening
41
impact of the FOOW restaurantCOVID-19 pandemic in June 2018the current period, which resulted in shut downs and the opening of the Camp WaterColor food and
44
beverage operation in March 2019. The increase inreduced revenue from mid-March to mid-May, but was partially offset by a recovery from June to December that exceeded revenue as compared to the same periods in 2019. The decrease was also partially offset by an increase in roomlodging revenue forfrom the WaterColor Inn from lower occupancy related toduring the WaterColor Beach Club being closed for renovations during thecurrent period. Gross margin increased to 12.9%16.4% during 2019,2020, as compared to 10.2%12.7% during 2018, primarily2019, due to changesan extended vacation season in business strategy, suchthe current period consistent with delayed school openings, increases in homeschooling and a rise in remote work arrangements related to the COVID-19 pandemic, as additional foodwell as management of expenses and beveragelabor.
Revenue from other hospitality operations and concept changesincreased $0.7 million, or 58.3%, during 2020, as compared to existing food and beverage operations. In December 2017, we sold our short term vacation rental management business, which reduced our 2019 and 2018 revenue. For the year ended December 31, 2017,2019. The increase was primarily related to an increase in revenue for the short term vacation rental business was $18.2 million.
Revenue from ourWaterColor retail outlets increased $1.5 million during 2019, as compared to 2018, due to the opening of the WaterColor store, in January 2019, as well as other new retail outlets during 2019.
Revenuethe Powder Room, which opened in December 2020. We did not have revenue from our marinas decreased $2.5 million, or 100.0%, during 2020 and 2019, as compared to 2018, due to the impact of Hurricane Michael on the marinas. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for further discussion. Gross profit during each 2020 and 2019 includes $1.3 million related to business interruption insurance proceeds received. Subsequent to the landfall of Hurricane Michael on October 10, 2018, the marinas remain closed. We maintain property and business interruption insurance on thereceived, which impacted marina assets. See Note 7. Hurricane Michael included in Item 15 of this Form 10‑K for further discussion.gross margin during each period.
Our hospitality segment gross margin was 25.8%26.8% during 20192020, as compared to 15.7%25.8% during 2018. 2019. The increase is primarily related to the increasean extended vacation season in the numbercurrent period consistent with delayed school openings, increases in homeschooling and a rise in remote work arrangements, as well as management of membersexpenses and membership revenue,labor, which was partially offset by the impacts of the COVID-19 pandemic from mid-March to mid-May 2020. Gross profit during each 2020 and 2019 includes $1.3 million related to business interruption insurance proceeds received relatedreceived.
The extent to Hurricane Michael and changes in business strategy, such as new retail opportunities, additional food and beveragewhich the COVID-19 pandemic may further impact our future hospitality operations concept changes to existing food and beverage operations and the sale of the SouthWood Gulf Club. Excluding the $1.3 million of business interruption proceeds received for the marinas during 2019, our hospitality segment gross margin would have been 23.0% during 2019, as compared to 15.7% during 2018. The increase is primarily related to the increase in the number of members and membership revenue and the changes in business strategy as detailed above.will depend on future developments, which are highly uncertain. See Part I. Item 1A. Risk Factors.
Other operating expenses include salaries and benefits, occupancy fees, professional fees, property taxes, CDD assessments and other administrative expenses.
The increase of $1.0 million in depreciationInterest expense during 2019, as compared to 2018, was primarily due to new assets placed in service.
Sale of vacation rental management, net during 2017 includes a net gain of $9.8 million. See Note 8. Sale of Vacation Rental Management included in Item 15 of this Form 10‑K for further discussion.
Other income (expense), net includes miscellaneous expense and income items, lossinterest incurred from hurricane damage and gain on insurance recovery related to Hurricane Michael. In October 2018, both our Bay Point Marina and our Port St. Joe Marina were impacted by Hurricane Michael and as a result of the property damage, other income (expense), net, for 2018 includes a $4.7 million loss from hurricane damage due to disposal of assets, offset by a $4.7 million gain on insurance recovery. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information.
hospitality project financing.
4542
Commercial Leasing and Sales
The table below sets forth the results of operations of our commercial leasingsegment:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2020 |
| 2019 |
| 2018 | |||
| | In millions | |||||||
Revenue: |
| |
|
| |
|
| |
|
Leasing revenue | | | | | | | | | |
Commercial leasing revenue | | $ | 14.8 | | $ | 14.3 | | $ | 12.5 |
Apartment leasing revenue | | | 3.9 | | | 1.2 | | | — |
Total leasing revenue | | | 18.7 | | | 15.5 | | | 12.5 |
Commercial and rural real estate revenue | |
| 11.7 | |
| 19.5 | |
| 6.6 |
Timber revenue | | | 6.3 | | | 3.9 | | | 5.5 |
Total revenue | |
| 36.7 | |
| 38.9 | |
| 24.6 |
Expenses: | |
|
| |
|
| |
|
|
Cost of leasing revenue | |
| 5.9 | |
| 4.6 | |
| 3.3 |
Cost of commercial and rural real estate revenue | |
| 5.5 | |
| 4.3 | |
| 3.5 |
Cost of timber revenue | | | 0.8 | | | 0.7 | | | 0.7 |
Other operating expenses | |
| 3.7 | |
| 3.5 | |
| 3.6 |
Depreciation, amortization and depletion | |
| 7.0 | |
| 5.3 | |
| 4.9 |
Total expenses | |
| 22.9 | |
| 18.4 | |
| 16.0 |
Operating income | |
| 13.8 | |
| 20.5 | |
| 8.6 |
Other (expense) income: | |
|
| |
|
| |
|
|
Interest expense | |
| (3.8) | |
| (2.7) | |
| (2.2) |
Gain on land contribution to equity method investment | | | 3.9 | | | 2.2 | | | — |
Other income (expense), net | |
| 0.1 | |
| 1.2 | |
| (0.3) |
Total other income (expense), net | |
| 0.2 | |
| 0.7 | |
| (2.5) |
Income before equity in loss from unconsolidated affiliates and income taxes | | $ | 14.0 | | $ | 21.2 | | $ | 6.1 |
The following table sets forth details of our commercial segment revenue and sales segment:cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
|
| In millions | |||||||
Revenue: |
|
|
|
|
|
|
|
|
|
Leasing revenue |
|
|
|
|
|
|
|
|
|
Commercial leasing revenue |
| $ | 13.5 |
| $ | 11.7 |
| $ | 10.6 |
Apartment leasing revenue |
|
| 1.2 |
|
| — |
|
| — |
Total leasing revenue |
|
| 14.7 |
|
| 11.7 |
|
| 10.6 |
Commercial real estate revenue |
|
| 7.8 |
|
| 4.8 |
|
| 3.9 |
Total revenue |
|
| 22.5 |
|
| 16.5 |
|
| 14.5 |
Expenses: |
|
|
|
|
|
|
|
|
|
Cost of leasing revenue |
|
| 4.6 |
|
| 3.3 |
|
| 3.2 |
Cost of commercial real estate revenue |
|
| 3.9 |
|
| 3.1 |
|
| 2.8 |
Other operating expenses |
|
| 3.1 |
|
| 3.2 |
|
| 3.4 |
Depreciation and amortization |
|
| 5.0 |
|
| 4.4 |
|
| 3.7 |
Total expenses |
|
| 16.6 |
|
| 14.0 |
|
| 13.1 |
Operating income |
|
| 5.9 |
|
| 2.5 |
|
| 1.4 |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (2.7) |
|
| (2.2) |
|
| (2.2) |
Other income (expense), net |
|
| 3.4 |
|
| (0.4) |
|
| — |
Total other income (expense), net |
|
| 0.7 |
|
| (2.6) |
|
| (2.2) |
Income (loss) before equity in loss from unconsolidated affiliates and income taxes |
| $ | 6.6 |
| $ | (0.1) |
| $ | (0.8) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 | | | Year Ended December 31, 2019 |
| | Year Ended December 31, 2018 |
| ||||||||||||||||||
| | | | | Gross | | Gross | | | | | | Gross | | Gross | | | | | | Gross | | Gross | | |||
| | Revenue | | Profit | | Margin | | | Revenue | | Profit | | Margin |
| | Revenue | | Profit | | Margin |
| ||||||
| | In millions | |||||||||||||||||||||||||
Leasing | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial leasing | | $ | 14.8 | | $ | 9.8 |
| 66.2 | % | | $ | 14.3 | | $ | 10.2 |
| 71.3 | % | | $ | 12.5 | | $ | 9.2 |
| 73.6 | % |
Apartments leasing | | | 3.9 | | | 3.0 |
| 76.9 | % | | | 1.2 | | | 0.7 |
| 58.3 | % | | | — | | | — |
| — | % |
Total leasing | | | 18.7 | | | 12.8 | | 68.4 | % | | | 15.5 | | | 10.9 | | 70.3 | % | | | 12.5 | | | 9.2 | | 73.6 | % |
Commercial and rural real estate | | | 11.7 | | | 6.2 | | 53.0 | % | | | 19.5 | | | 15.2 | | 77.9 | % | | | 6.6 | | | 3.1 | | 47.0 | % |
Timber | | | 6.3 | | | 5.5 | | 87.3 | % | | | 3.9 | | | 3.2 | | 82.1 | % | | | 5.5 | |
| 4.8 |
| 87.3 | % |
Total | | $ | 36.7 | | $ | 24.5 |
| 66.8 | % | | $ | 38.9 | | $ | 29.3 |
| 75.3 | % | | $ | 24.6 | | $ | 17.1 |
| 69.5 | % |
Year Ended December 31, 20192020 Compared to Year Ended December 31, 20182019
LeasingTotal leasing revenue increased $3.0$3.2 million, or 25.6%, and leasing gross profit increased $1.7 million, or 20.2%20.6%, during 20192020, as compared to 2018.2019. The increase is primarily due to new leases at properties such as Pier Park North, Beckrich Office Park, WaterColor Crossings and Pier Park Crossings where 216 apartment units were completedapartments, which began leasing in the second quarter of 2019, as well as other new leases and higher rental rates. Cost of leasing revenue during 2019.2020 includes $0.7 million of business interruption insurance proceeds received for Pier Park Crossings apartments related to Hurricane Michael. Leasing gross margin decreased during 20192020 to 68.7%68.4%, as compared to 71.8%70.3% during 2018,2019. Excluding the business interruption proceeds received during 2020, our leasing gross margin was 64.7% during 2020, as compared to 70.3% during 2019, primarily
43
due to increased leasingstart-up expenses andfor new assets in the lease-upcurrent period. As of new projects.December 31, 2020, we had net rentable square feet of approximately 908,000, of which approximately 774,000 square feet was under lease. As of December 31, 2019, we had net rentable square feet of approximately 882,000, of which approximately 758,000 square feet was under lease. AsDue to the impact of December 31, 2018,the COVID-19 pandemic during 2020 we had net rentable square feetprovided tenant rent abatements totaling $0.1 million, along with rent deferrals of approximately 813,000,$0.4 million, of which approximately 758,000 square feet$0.1 million was under lease.subsequently collected.
The diversity of our commercial leasing and sales segment complements the growth of our communities and our residential and hospitality segments. Commercial and rural real estate revenue can vary depending on the proximity to developed areas and the mix and characteristics of commercial and rural real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses. During 2019,2020, we had eleventwenty-three commercial and rural real estate sales totaling approximately 107473 acres for $7.8$11.7 million, resulting in a gross profit margin of approximately 50.0%,53.0%. Commercial and rural real estate revenue for 2020 included $1.8 million related to the sale of this amountthe SouthWood Town Center. During 2019, we had twenty-five commercial and rural real estate sales totaling approximately 1,605 acres for $19.5 million, resulting in a gross profit margin of approximately 77.9%. Commercial and rural real estate sales in 2019 included approximately 28 acres totaling $4.3 million in revenue were sold in the SouthWood community. During 2018, we had fourteen commercialcommunity. Commercial and rural real estate sales in 2019 also included a sale totaling approximately 330 acres for $4.8$9.9 million resultingrelated to non-strategic land located in Leon County, Florida, with a gross profit margin of 35.4%. Commercial real estate revenue for 2018 included $2.6$9.7 million relateddue to the sale of two hospitality properties located in the SouthWood community, including the golf course.a low historical basis. As our focus continues to evolve more towards recurring revenue from leasing operations, we expect to have limited commercial and rural real estate sales. Further, we may continue to transform and operate leasingcommercial properties for higher and better use. This may result in certain assets moving from the commercial leasing and sales segment to the hospitality segment.
Timber revenue increased by $2.4 million, or 61.5%, during 2020, as compared to 2019. The increase is primarily due to an increase in the amount of tons sold and product mix changes. The revenue for 2019 was affected by Hurricane Michael’s significant market impact after landfall in October 2018. There were 322,000 tons sold during 2020, as compared to 220,000 tons sold during 2019. The average price per ton sold increased to $15.32 during 2020, as compared to $14.71 during 2019. Timber gross margin increased during 2020 to 87.3%, as compared to 82.1% during 2019, primarily due to increased volume and changes in product mix. The cost of timber revenue is primarily fixed, which also resulted in an increase to gross margin for the period.
Other operating expenses include salaries and benefits, property taxes, CDD assessments, insurance, professional fees, marketing, project administration and other administrative expenses.
46
The increase of $0.6$1.7 million in depreciation, amortization and depletion expense during 2019,2020, as compared to 2018,2019, was primarily due to new properties placed in service.
Interest expense primarily includes interest incurred from our commercial leasing project financing and CDD debt.
Other income (expense), netGain on land contribution to equity method investment for 2020 includes a gain of $3.9 million on land contributed to our unconsolidated Sea Sound Apartments JV. Gain on land contribution to equity method investment for 2019 includes a gain of $0.8 million on land contributed to our unconsolidated Busy Bee JV and a gain of $1.5$1.4 million on land contributed to our unconsolidated Pier Park TPS JV. See Note 4. Real Estate Joint Venturesincluded in Item 15 of this Form 10-K for additional information. In October 2018, property in our Pier Park Crossings JV and a commercial building in Port St. Joe were impacted by Hurricane Michael. information.
Other income (expense), net for 2019, includesalso included a $1.2 million gain on insurance recovery for the Pier Park Crossings JV related to Hurricane Michael. Other income (expense), net, for 2018 includes a $2.6 million loss on disposal of assets as a result of the property damage and $0.3 million of hurricane expenses, offset by a $2.5 million gain on insurance recovery related to Hurricane Michael. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information.information.
44
The total net rentable square feet and percentage leased of leasing properties by location are as follows:
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 |
| ||||||
|
| |
| Net |
| |
| | Net |
| | | | Net |
| |
|
| | | | Rentable | | | | | Rentable | | | | | Rentable | | |
|
| | | | Square | | Percentage | | | Square | | Percentage | | | Square | | Percentage |
|
| | Location | | Feet | | Leased | | | Feet | | Leased | | | Feet | | Leased |
|
Pier Park North JV |
| Bay County, FL |
| 320,310 |
| 92 | % | | 320,310 |
| 95 | % | | 320,310 |
| 96 | % |
VentureCrossings (a) |
| Bay County, FL |
| 303,605 |
| 86 | % | | 303,605 |
| 80 | % | | 243,605 |
| 100 | % |
Beckrich Office Park (b) (c) |
| Bay County, FL |
| 86,296 |
| 80 | % | | 68,398 |
| 100 | % | | 67,108 |
| 96 | % |
WindMark Beach Town Center (b) (d) |
| Gulf County, FL |
| 44,748 |
| 47 | % | | 48,960 |
| 48 | % | | 49,260 |
| 56 | % |
WaterColor Town Center (b) |
| Walton County, FL |
| 23,121 |
| 79 | % | | 20,033 |
| 96 | % | | 21,200 |
| 100 | % |
Cedar Grove Commerce Park (e) | | Bay County, FL | | 19,449 | | 90 | % | | — | | N/A | | | — | | N/A | |
Beach Commerce Park (b) |
| Bay County, FL |
| 17,450 |
| 76 | % | | 14,700 |
| 100 | % | | 14,700 |
| 100 | % |
Port St. Joe Commercial |
| Gulf County, FL |
| 16,964 |
| 100 | % | | 15,524 |
| 100 | % | | 15,524 |
| 100 | % |
SummerCamp Commercial |
| Franklin County, FL |
| 13,000 |
| 0 | % | | 13,000 |
| 0 | % | | 13,000 |
| 0 | % |
South Walton Commerce Park (f) | | Walton County, FL | | 11,570 | | 88 | % | | 11,534 | | 82 | % | | — | | N/A | |
WaterSound Gatehouse (b) |
| Walton County, FL |
| 10,271 |
| 87 | % | | 11,515 |
| 89 | % | | 13,049 |
| 100 | % |
WaterColor Crossings | | Walton County, FL | | 7,135 | | 100 | % | | 7,135 | | 100 | % | | 7,135 | | 100 | % |
395 Office building |
| Walton County, FL |
| 6,700 |
| 100 | % | | 6,700 |
| 100 | % | | 6,700 |
| 100 | % |
Watersound Town Center (e) | | Walton County, FL | | 6,496 | | 100 | % | | — | | N/A | | | — | | N/A | |
Pier Park outparcel |
| Bay County, FL |
| 5,565 |
| 100 | % | | 5,565 |
| 100 | % | | 5,565 |
| 100 | % |
Topsail West Commercial (e) | | Walton County, FL | | 3,500 | | 100 | % | | — | | N/A | | | — | | N/A | |
Bank building (e) | | Bay County, FL | | 3,346 | | 100 | % | | — | | N/A | | | — | | N/A | |
Bank building (e) | | Gulf County, FL | | 3,346 | | 100 | % | | — | | N/A | | | — | | N/A | |
WaterColor HOA Office |
| Walton County, FL |
| 2,520 |
| 100 | % | | 1,244 |
| 100 | % | | 1,244 |
| 100 | % |
RiverCamps | | Bay County, FL | | 2,112 | | 100 | % | | — | | N/A | | | — | | N/A | |
SouthWood Town Center (b) (g) |
| Leon County, FL |
| — | | N/A | | | 34,230 |
| 80 | % | | 34,230 |
| 85 | % |
|
|
|
| 907,504 |
| 85 | % | | 882,453 |
| 86 | % | | 812,630 |
| 93 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 |
|
| December 31, 2018 |
|
| December 31, 2017 |
| ||||||
|
|
|
| Net |
|
|
|
| Net |
|
|
|
| Net |
|
|
|
|
|
|
| Rentable |
|
|
|
| Rentable |
|
|
|
| Rentable |
|
|
|
|
|
|
| Square |
| Percentage |
|
| Square |
| Percentage |
|
| Square |
| Percentage |
|
|
| Location |
| Feet |
| Leased |
|
| Feet |
| Leased |
|
| Feet |
| Leased |
|
Pier Park North JV |
| Bay County, FL |
| 320,310 |
| 95 | % |
| 320,310 |
| 96 | % |
| 320,310 |
| 96 | % |
VentureCrossings (1) |
| Bay County, FL |
| 303,605 |
| 80 | % |
| 243,605 |
| 100 | % |
| 243,605 |
| 100 | % |
Beckrich Office Park (2) |
| Bay County, FL |
| 68,398 |
| 100 | % |
| 67,108 |
| 96 | % |
| 67,108 |
| 52 | % |
WindMark Beach Commercial (3) (4) |
| Gulf County, FL |
| 48,960 |
| 48 | % |
| 49,260 |
| 56 | % |
| 48,035 |
| 27 | % |
SouthWood Town Center (4) (5) |
| Leon County, FL |
| 34,230 |
| 80 | % |
| 34,230 |
| 85 | % |
| 34,412 |
| 85 | % |
WaterColor Town Center (4) (6) |
| Walton County, FL |
| 20,033 |
| 96 | % |
| 21,200 |
| 100 | % |
| 22,532 |
| 100 | % |
Port St. Joe Commercial (7) |
| Gulf County, FL |
| 15,524 |
| 100 | % |
| 15,524 |
| 100 | % |
| 18,107 |
| 100 | % |
Beach Commerce Park |
| Bay County, FL |
| 14,700 |
| 100 | % |
| 14,700 |
| 100 | % |
| 14,700 |
| 63 | % |
SummerCamp Commercial |
| Franklin County, FL |
| 13,000 |
| 0 | % |
| 13,000 |
| 0 | % |
| 13,000 |
| 0 | % |
South Walton Commerce Park |
| Walton County, FL |
| 11,534 |
| 82 | % |
| — |
| — | % |
| — |
| — | % |
WaterSound Gatehouse (4) (8) |
| Walton County, FL |
| 11,515 |
| 89 | % |
| 13,049 |
| 100 | % |
| 12,624 |
| 100 | % |
WaterColor Crossings |
| Walton County, FL |
| 7,135 |
| 100 | % |
| 7,135 |
| 100 | % |
| — |
| — | % |
395 Office building |
| Walton County, FL |
| 6,700 |
| 100 | % |
| 6,700 |
| 100 | % |
| 6,700 |
| 100 | % |
Wetappo |
| Gulf County, FL |
| N/A |
| N/A | % |
| N/A |
| N/A | % |
| 4,900 |
| 100 | % |
Pier Park outparcel |
| Bay County, FL |
| 5,565 |
| 100 | % |
| 5,565 |
| 100 | % |
| 5,565 |
| 100 | % |
WaterColor HOA Office (9) |
| Walton County, FL |
| 1,244 |
| 100 | % |
| 1,244 |
| 100 | % |
| 1,244 |
| 100 | % |
Watersound Origins (10) |
| Walton County, FL |
| N/A |
| N/A | % |
| N/A |
| N/A | % |
| 760 |
| 100 | % |
|
|
|
| 882,453 |
| 86 | % |
| 812,630 |
| 93 | % |
| 813,602 |
| 87 | % |
| (a) |
| In December 2019, we completed construction of a 60,000 square feet flex space building. |
| (b) |
|
|
|
|
| In addition to net rentable square feet there is also space that we occupy or that serves as common area. |
| (c) |
|
| (d) | Included in net rentable square feet as of December 31, 2020, 2019 and 2018, is 13,808 square feet of unfinished space. |
| (e) | Construction was completed in 2020. |
| (f) | Included in net rentable square feet as of December 31, 2020, is 1,364 square feet leased to a consolidated JV. |
| (g) | In January 2020, we sold the SouthWood Town Center. |
|
|
|
|
|
|
|
|
|
|
47
Total units and percentage leased/occupied for apartments and assistedsenior living communitiescommunity by location are as follows:
| | | | | | | | | | | | | | | | |
| | | | | | December 31, 2020 | | December 31, 2019 | ||||||||
| | | | | | | | | | Percentage | | | | | | Percentage |
| | | | | | | | | | Leased | | | | | | Leased |
|
| |
| Units |
| Units | | Units | | of Units | | Units | | Units | | of Units |
| | Location | | Planned | | Completed | | Leased | | Completed | | Completed | | Leased | | Completed |
Apartments | | | | | | | | | | | | | | | | |
Pier Park Crossings (a) | | Bay County, FL | | 240 | | 240 | | 237 | | 99% | | 216 | | 216 | | 100% |
Pier Park Crossings Phase II (b) | | Bay County, FL | | 120 | | 120 | | 55 | | 46% | | — | | — | | N/A |
Watersound Origins Crossings (c) | | Walton County, FL | | 217 | | 18 | | — | | 0% | | — | | — | | N/A |
Sea Sound (d) | | Bay County, FL | | 300 | | — | | — | | N/A | | — | | — | | N/A |
Star Avenue (e) | | Bay County, FL | | 240 | | — | | — | | N/A | | — | | — | | N/A |
Total apartment units | | | | 1,117 | | 378 | | 292 | | 77% | | 216 | | 216 | | 100% |
Senior living community | | | | | | | | | | | | | | | | |
Watercrest Santa Rosa Beach (f) | | Walton County, FL | | 107 | | 107 | | — | | N/A | | — | | — | | N/A |
Total senior living units | | | | 107 | | 107 | | — | | N/A | | — | | — | | N/A |
Total units | | | | 1,224 | | 485 | | 292 | | 60% | | 216 | | 216 | | 100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | ||||||
|
|
|
|
|
|
|
|
|
| Percentage |
|
|
|
|
|
|
|
|
|
| Leased |
|
|
|
| Units |
| Units |
| Units |
| of Units |
|
| Location |
| Planned |
| Completed |
| Leased/Occupied |
| Completed |
Apartments |
|
|
|
|
|
|
|
|
|
|
Pier Park Crossings (1) |
| Bay County, FL |
| 240 |
| 216 |
| 216 |
| 100% |
Pier Park Crossings Phase II (2) |
| Bay County, FL |
| 120 |
| — |
| — |
| N/A |
Watersound Origins Crossings (3) |
| Walton County, FL |
| 217 |
| — |
| — |
| N/A |
Total apartment units |
|
|
| 577 |
| 216 |
| 216 |
| 100% |
Assisted living communities |
|
|
|
|
|
|
|
|
|
|
Watercrest Santa Rosa Beach Assisted Living and Memory Care (4) |
| Walton County, FL |
| 107 |
| — |
| — |
| N/A |
Total assisted living community units |
|
|
| 107 |
| — |
| — |
| N/A |
Total units |
|
|
| 684 |
| 216 |
| 216 |
| 100% |
| (a) | Construction was completed in the first quarter of 2020. |
| (b) | Construction was completed in December 2020. Subsequent to December 31, 2020, a significant number of additional units have been leased. |
| (c) | Construction of the initial buildings was completed in December 2020. Subsequent to December 31, 2020, a significant number of the completed and available units have been leased. |
45
| (d) |
| Construction began in the |
| (e) |
| Construction began in the fourth quarter of |
| (f) |
| Construction |
|
|
Real Estate Revenue. Commercial real estate revenue for the three years ended December 31, 20192020 includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Number of |
|
|
|
| Average Price |
|
|
|
| Gross Profit | ||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Number of | | | | | Average Price | | | | | Gross Profit | ||||||||||||||
Period |
| Sales |
| Acres Sold |
| Per Acre |
|
| Revenue |
| on Sales | | Sales | | Acres Sold | | Per Acre | | | Revenue | | on Sales | ||||
|
|
|
|
|
| In millions (except for average price per acre) | ||||||||||||||||||||
|
| | | | | In millions (except for average price per acre) | ||||||||||||||||||||
2020 |
| 23 |
| 473 |
| $ | 24,736 |
| $ | 11.7 |
| $ | 6.2 | |||||||||||||
2019 |
| 11 |
| 107 |
| $ | 72,758 |
| $ | 7.8 |
| $ | 3.9 |
| 25 |
| 1,605 |
| $ | 12,150 |
| $ | 19.5 |
| $ | 15.2 |
2018 |
| 14 |
| 330 |
| $ | 14,532 |
| $ | 4.8 |
| $ | 1.7 |
| 27 |
| 511 |
| $ | 12,916 |
| $ | 6.6 |
| $ | 3.1 |
2017 |
| 9 |
| 49 |
| $ | 79,494 |
| $ | 3.9 |
| $ | 1.1 | |||||||||||||
48
Forestry
The table below sets forth the results of operations of our forestry segment:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
|
| In millions | |||||||
Revenue: |
|
|
|
|
|
|
|
|
|
Timber revenue |
| $ | 3.9 |
| $ | 5.5 |
| $ | 6.0 |
Real estate revenue - other rural land revenue |
|
| 11.7 |
|
| 1.8 |
|
| 1.7 |
Leasing revenue |
|
| 0.8 |
|
| 0.8 |
|
| 0.7 |
Total revenue |
|
| 16.4 |
|
| 8.1 |
|
| 8.4 |
Expenses: |
|
|
|
|
|
|
|
|
|
Cost of timber revenue |
|
| 0.7 |
|
| 0.7 |
|
| 0.8 |
Cost of real estate revenue - other rural land revenue |
|
| 0.4 |
|
| 0.4 |
|
| 0.1 |
Other operating expenses |
|
| 0.4 |
|
| 0.4 |
|
| 0.4 |
Depreciation and depletion |
|
| 0.3 |
|
| 0.5 |
|
| 0.6 |
Total expenses |
|
| 1.8 |
|
| 2.0 |
|
| 1.9 |
Operating income |
|
| 14.6 |
|
| 6.1 |
|
| 6.5 |
Other income, net |
|
| — |
|
| 0.1 |
|
| 0.1 |
Income before equity in loss from unconsolidated affiliates and income taxes |
| $ | 14.6 |
| $ | 6.2 |
| $ | 6.6 |
The total tons sold and relative percentages of total tons sold by major type of timber revenue are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Year Ended December 31, |
| |||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
| | Year Ended December 31, |
| |||||||||||||||||||||||
| | 2020 |
| 2019 |
| 2018 | | |||||||||||||||||||
Pine pulpwood |
| 129,000 |
| 58.6 | % | 219,000 |
| 66.8 | % | 275,000 |
| 75.6 | % |
| 208,000 |
| 64.6 | % | 129,000 |
| 58.6 | % | 219,000 |
| 66.8 | % |
Pine sawtimber |
| 35,000 |
| 15.9 | % | 85,000 |
| 25.9 | % | 67,000 |
| 18.4 | % |
| 75,000 |
| 23.3 | % | 35,000 |
| 15.9 | % | 85,000 |
| 25.9 | % |
Pine grade logs |
| 21,000 |
| 9.6 | % | 23,000 |
| 7.0 | % | 19,000 |
| 5.2 | % |
| 26,000 |
| 8.1 | % | 21,000 |
| 9.6 | % | 23,000 |
| 7.0 | % |
Other |
| 35,000 |
| 15.9 | % | 1,000 |
| 0.3 | % | 3,000 |
| 0.8 | % |
| 13,000 |
| 4.0 | % | 35,000 |
| 15.9 | % | 1,000 |
| 0.3 | % |
Total |
| 220,000 |
| 100.0 | % | 328,000 |
| 100.0 | % | 364,000 |
| 100.0 | % |
| 322,000 |
| 100.0 | % | 220,000 |
| 100.0 | % | 328,000 |
| 100.0 | % |
Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018
Timber revenue decreased by $1.6 million, or 29.1%, during 2019, as compared to 2018. The decrease is primarily due to a decrease in the amount of tons sold, along with price decreases and product mix changes caused by Hurricane Michael’s significant market impact since landfall in October 2018. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information. There were 220,000 tons sold during 2019, as compared to 328,000 tons sold during 2018. The average price per ton sold decreased to $14.71 in 2019, as compared to $15.25 in 2018. Timber gross margin decreased during 2019 to 82.1%, as compared to 87.3% during the same period in 2018, due to decreases in sales price and volume changes in product mix.
During 2019, we sold approximately 1,498 acres of rural and timber land for $11.7 million, resulting in a gross profit margin of 96.6%, as compared to approximately 181 acres of rural and timber land sold in 2018 for $1.8 million, resulting in a gross profit margin of 77.8%. Rural land sales for 2019 included $9.9 million related to non-strategic land located in Leon County, Florida, with a gross profit of $9.7 million due to a low historical basis.
Leasing revenue consists primarily of hunting leases, which is recognized as income over the term of each lease.
Other operating expenses include salaries and benefits, property taxes, professional fees and other administrative expenses.
49
Liquidity and Capital Resources
As of December 31, 2019,2020, we had cash and cash equivalents of $185.7$106.8 million compared to $195.2$185.7 million as of December 31, 2018.2019. During 2020, we transitioned our cash equivalents from commercial paper to short-term U.S. Treasury Bills. Our cash and cash equivalents as of December 31, 20192020 included commercial paper of $138.2 million, $21.0$11.0 million of money market fundsU.S. Treasury Money Market Funds and $7.0$79.0 million of short termshort-term U.S. Treasury Bills. In addition to cash and cash equivalents, we consider our investments classified as Securities, as being generally available to meet our liquidity needs. Securities are not as liquid as cash and cash equivalents, but they are generally convertible into cash within a relatively short period of time. As of December 31, 2019,2020, we had investments – debt securities in U.S. Treasury Bills of $48.0 million and corporate debt securities of $0.1 million and investments – equity securities in preferred stock investments of $9.7$2.6 million. See Note 5. Investments included in Item 15 of this Form 10‑K10-K for additional information regarding our investments.
We believe that our current cash position, financing arrangements and cash generated from operations will provide us with sufficient liquidity to satisfy our anticipated working capital needs, expected capital expenditures, principal and interest payments on our long term debt, andcapital contributions to JVs, Latitude Margaritaville Watersound JV Note commitment, authorized stock repurchases and authorized dividends for the next twelve months. However, we are continuing to monitor the COVID-19 pandemic and its impact on our business, customers, tenants, and industry as a whole. See Part II. Item 1A. Risk Factors.
During 2019,2020, we incurred a total of $114.3$162.2 million forin capital expenditures, which includes $28.6$33.6 million related to the acquisition and development infor our residential real estate communities, $67.3segment, $85.1 million for our commercial leasing and sales segment, $15.9$42.8 million related tofor our hospitality segment and $2.5$0.7 million related primarily to our forestry segment andfor corporate expenditures. Our 20202021 capital expenditures budget exceeds our 2019 expenditures, as projects move into construction and new projects commence.2020 expenditures. We anticipate that these future capital commitments will be funded through cash generated from operations, new and existing financing arrangements, cash on hand and cash equivalents, cash generatedequivalents. As of December 31, 2020, we had a total of $157.1 million in construction and development related contractual obligations, of which a portion will be funded through committed or new financing arrangements.
As of December 31, 2020 and 2019, we had various loans outstanding totaling $161.4 million and $94.5 million, respectively, with maturities from operations.May 2024 through June 2060. The weighted average rate on our variable rate loans as
46
of December 31, 2020 was 2.2%. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk for additional information regarding LIBOR related risks. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.
In October 2015, the Pier Park North JV entered into a $48.2 million loan (the “PPN JV Loan”). As of December 31, 2020 and 2019, and 2018, $45.5$44.6 million and $46.4$45.5 million, respectively, was outstanding on the PPN JV Loan. The PPN JV Loan accrues interest at a rate of 4.1% per annum and matures in November 2025. In connection with the PPN JV Loan, we entered into a limited guarantee in favor of the lender, based on our percentage ownership of the JV. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the Pier Park North JV; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary bankruptcy or insolvency proceedings andor upon breach of covenants in the security instrument. See Note 12. 11. Debt, Net included in Item 15 of this Form 10‑K10-K for additional information.
In May 2018, the Pier Park Crossings JV entered into a $36.6 million loan, insured by the U.S. Department of Housing and Urban Development (“HUD”), to finance the construction of apartments in Panama City Beach, Florida (the “PPC JV Loan”). As of December 31, 2020 and 2019, and December 31, 2018, $34.6$36.1 million and $15.4$34.6 million, respectively, was outstanding on the PPC JV Loan. The PPC JV Loan accrues interest at a rate of 4.0% per annum and matures in June 2060. The PPC JV Loan may not be prepaid prior to July 1, 2020. From July 1, 2020 through June 30, 2030, aA prepayment premium is due to the lender of 1.0% - 10.0% of any principal prepaid.prepaid through June 30, 2030. The PPC JV Loan is secured by the Pier Park Crossings JV’s real property and the assignment of rents and leases. See Note 12. 11. Debt, Net included in Item 15 of this Form 10‑K10-K for additional information.
In May 2019, the Watersound Origins Crossings JV entered into a $37.9 million loan (the “Watersound Origins Crossings JV Loan”). As of December 31, 2020 and 2019, $27.2 and $2.9 million, respectively, was outstanding on the Watersound Origins Crossings JV Loan. The Watersound Origins Crossings JV Loan bears interest at a rate of 5.0% and matures in May 2024. The Watersound Origins Crossings JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Watersound Origins Crossings JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Watersound Origins Crossings JV Loan. We are the sole guarantor and will receive a monthly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. See Note 12. 11. Debt, Net included in Item 15 of this Form 10‑K10-K for additional information.
In June 2019, the Watercrest JV entered into a $22.5 million loan (the “Watercrest JV Loan”). As of December 31, 2020, $18.1 million was outstanding on the Watercrest JV Loan. As of December 31, 2019, there was no principal balance outstanding on the Watercrest JV Loan. The Watercrest JV Loan bears interest at a rate of LIBOR plus 2.2% and matures in June 2047. The Watercrest JV Loan is secured by the real property, assignment of rents, leases and deposits and the security interest in the rents and personal property. In connection with the Watercrest JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and
50
performance of the borrower under the Watercrest JV Loan. We are the sole guarantor and will receive a quarterly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. WeThe Watercrest JV entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap is effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amount of related debt of $20.0 million to a rate of 4.37%. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk for additional information regarding LIBOR related risks. Also see Note 12. 11. Debt, Net included in Item 15 of this Form 10‑K10-K for additional information.
In August 2019, a wholly ownedwholly-owned subsidiary of ours entered into a $5.5 million loan (the “Beckrich Building III Loan”). As of December 31, 2020, $5.4 million was outstanding on the Beckrich Building III Loan. As of December 31, 2019, there was no principal balance outstanding on the Beckrich Building III Loan. The Beckrich Building III Loan bears interest at a rate of LIBOR plus 1.7% and matures in August 2029. The Beckrich Building III Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Beckrich Building III Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Beckrich Building III Loan. See Note 12. 11. Debt, Net included in Item 15 of this Form 10‑K10-K for additional information.
47
In October 2019, the Pier Park Crossings Phase II JV entered into a $17.5 million loan (the “PPC II JV Loan”). As of December 31, 2020, $15.9 million was outstanding on the PPC II JV Loan. As of December 31, 2019, there was no principal balance outstanding on the PPC II JV Loan. The PPC II JV Loan matures in October 2024 and bears interest at a rate of LIBOR plus 2.25% during construction and LIBOR plus 2.10% after completion of construction and final draw. The PPC II JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the PPC II JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the PPC II JV Loan. We are the sole guarantor and will receive a monthly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. See Note 12. 11. Debt, Net included in Item 15 of this Form 10‑K10-K for additional information.
In March 2020, a wholly-owned subsidiary of ours entered into a $15.3 million loan (the “Airport Hotel Loan”). As of December 31, 2020, $3.5 million was outstanding on the Airport Hotel Loan. The Airport Hotel Loan bears interest at LIBOR plus 2.0%, with a floor of 3.0%, and matures in March 2025. The Airport Hotel Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Airport Hotel Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Airport Hotel Loan. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.
In April 2020, the Pier Park Resort Hotel JV entered into a loan with an initial amount of $52.5 million up to a maximum of $60.0 million through additional earn-out requests (the “Pier Park Resort Hotel JV Loan”). As of December 31, 2020, there was no principal balance outstanding on the Pier Park Resort Hotel JV Loan. The Pier Park Resort Hotel JV Loan matures in March 2027 and bears interest at a rate of LIBOR plus 2.15% during construction and LIBOR plus 1.95% upon hotel opening. The Pier Park Resort Hotel JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the Pier Park Resort Hotel JV Loan, as guarantor, we and our JV partner entered into a guarantee based on each partner’s ownership interest in favor of the lender, to guarantee the payment and performance of the borrower. As guarantor, our liability under the Pier Park Resort Hotel JV Loan will be released upon reaching and maintaining certain debt service coverage for twelve months. In addition, the guarantee can become full recourse in the case of the failure of guarantor to abide by or perform any of the covenants or warranties to be performed on the part of such guarantor. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.
In November 2020, a wholly-owned subsidiary of ours entered into a $16.8 million construction loan to finance the construction of a Homewood Suites by Hilton hotel in the Breakfast Point area of Panama City Beach, Florida (the “Breakfast Point Hotel Loan”). As of December 31, 2020, there was no principal balance outstanding on the Breakfast Point Hotel Loan. The Breakfast Point Hotel Loan matures in November 2042 and bears interest at a rate of LIBOR plus 2.75% through November 2022, 3.25% over the 5-Year T-Bill Index from November 2022 through November 2027 and 3.25% over the 1-Year T-Bill Index from November 2027 through November 2042, with a minimum rate of 3.75% throughout the term of the loan. The Breakfast Point Hotel Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Breakfast Point Hotel Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Breakfast Point Hotel Loan. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.
In November 2020, a wholly-owned subsidiary of ours entered into a $5.8 million construction loan to finance the construction of a self-storage facility in Santa Rosa Beach, Florida (the “Self-Storage Facility Loan”). As of December 31, 2020, there was no principal balance outstanding on the Self-Storage Facility Loan. The Self-Storage Facility Loan matures in November 2025 and bears interest at a rate of LIBOR plus 2.5%, with a floor of 3.0%. Upon receipt of final lien waivers and certificate of occupancy, the Self-Storage Facility Loan will bear interest at a rate of LIBOR plus 2.35%, with a floor of 2.85%. The Self-Storage Facility Loan is secured by the real property, assignment of leases and rents and the security interest in the rents and personal property. In connection with the Self-Storage Facility Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Self-Storage Facility Loan. Our liability as guarantor under the Self-Storage Facility Loan shall not exceed $2.9 million, plus any additional fees, upon reaching and maintaining certain debt service coverage. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.
48
CDD bonds financed the construction of infrastructure improvements in some of our communities. The principal and interest payments on the bonds are paid by assessments on the properties benefited by the improvements financed by the bonds. We have recorded a liability for CDD debt that is associated with platted property, which is the point at which it becomes fixed orand determinable. Additionally, we have recorded a liability for the balance of the CDD debt that is associated with unplatted property if it is probable and reasonably estimable that we will ultimately be responsible for repayment. We have recorded CDD related debt of $7.0$6.3 million as of December 31, 2019.2020. Total outstanding CDD debt related to our land holdings was $17.7$15.8 million atas of December 31, 2019,2020, which is comprised of $14.7$12.9 million at SouthWood, $2.6$2.5 million at the existing Pier Park retail center and $0.4 million at Wild Heron. We pay interest on this total outstanding CDD debt.
As of December 31, 2020, our unconsolidated Sea Sound Apartments JV, Latitude Margaritaville Watersound JV, Pier Park TPS JV and Busy Bee JV had various loans outstanding, some of which we have entered into guarantees. See Note 4. Joint Ventures and Note 21. Commitments and Contingencies included in Item 15 of this Form 10-K for additional information.
In June 2020, we, as lender, entered into a $10.0 million secured revolving promissory note with the unconsolidated Latitude Margaritaville Watersound JV, as borrower (the “Latitude Margaritaville Watersound JV Note”). As of December 31, 2020, $2.7 million was outstanding on the Latitude Margaritaville Watersound JV Note. The Latitude Margaritaville Watersound JV Note was provided by us to finance the development of the pod-level, non-spine infrastructure, which will be repaid by the JV as each home is sold by the JV, with the aggregate unpaid principal and all accrued and unpaid interest due at maturity in June 2025. The Latitude Margaritaville Watersound JV Note is secured by a mortgage and security interest in and on the real property and improvements located on the real property of the JV. See Note 4. Joint Ventures and Note 9. Other Assets included in Item 15 of this Form 10-K for additional information.
During the years ended December 31, 20192020 and 2018,2019, we repurchased a total of 1,263,159532,034 and 5,238,5661,263,159 shares, respectively, of our common stock outstanding for an aggregate purchase price of $20.8$8.8 million and $93.4$20.8 million, respectively, including costs. See Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities and Note 16. 15. Stockholders’ Equity included in Item 15 of this Form 10‑K10-K for additional information regarding common stock repurchases related to the Stock Repurchase Program and treasury stock retirement during 2020 and 2019.
As part of a timberland sale in 2007 and 2008, we have recorded a retained interest with respect to notes contributed to bankruptcy-remote qualified special purpose entities of $12.9 million for the installment notes monetized through December 31, 2020. This balance represents the present value of future cash flows to be received over the life of the installment notes, using management’s best estimates of underlying assumptions, including credit risk and interest rates as of the date of the monetization, plus the accretion of investment income based on an effective yield, which is recognized over the term of the notes, less actual cash receipts.
As part of certain sales of timberlands in 2007, 2008 and 2014, we generated significant tax gains. The installment notes structure allowed us to defer the resulting federal tax liability of $33.7 million until 2022 - 2023 and $37.8 million until 2029, respectively, the maturity dates for the installment notes. We have a deferred tax liability related to the gains in connection with these sales.
As of December 31, 2020 and 2019, we were required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and 2018.mitigation banks of $24.2 million and $10.7 million, respectively, as well as standby letters of credit in the amount of $6.6 million as of December 31, 2020, which may potentially result in a liability to us if certain obligations are not met.
In conducting our operations, we routinely hold customers’ assets in escrow pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. These amounts are maintained in segregated bank accounts and have not been included in the accompanying consolidated balance sheets, consistent with U.S. generally accepted accounting principles (“GAAP”) and industry practice. The cash deposit accounts and offsetting liability balances for escrow deposits in connection with our title agency real estate transactions
5149
were $4.5 million and $4.3 million as of December 31, 2020 and 2019, respectively, these escrow funds are not available for regular operations.
Summary of Cash Flows
A summary of our cash flows from operating, investing and financing activities are as follows:
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| 2019 |
| 2018 |
| 2017 | ||||||||||||
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| In millions | ||||||||||||||||
| | In millions | ||||||||||||||||
Net cash provided by operating activities |
| $ | 30.4 |
| $ | 41.4 |
| $ | 53.7 | | $ | 37.3 | | $ | 30.4 | | $ | 41.4 |
Net cash (used in) provided by investing activities |
|
| (29.3) |
|
| 44.1 |
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| 44.4 | |
| (164.5) | |
| (29.3) | |
| 44.1 |
Net cash used in financing activities |
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| (10.5) |
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| (79.9) |
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| (149.2) | |||||||||
Net cash provided by (used in) financing activities | |
| 48.6 | |
| (10.5) | |
| (79.9) | |||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| (9.4) |
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| 5.6 |
|
| (51.1) | |
| (78.6) | |
| (9.4) | |
| 5.6 |
Cash, cash equivalents and restricted cash at beginning of the year |
|
| 198.1 |
|
| 192.5 |
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| 243.6 | |
| 188.7 | |
| 198.1 | |
| 192.5 |
Cash, cash equivalents and restricted cash at end of the year |
| $ | 188.7 |
| $ | 198.1 |
| $ | 192.5 | | $ | 110.1 | | $ | 188.7 | | $ | 198.1 |
Cash Flows from Operating Activities
Cash flows from operating activities include costsincludes net income, adjustments for non-cash items, changes in operating assets and liabilities and expenditures related to assets ultimately planned to be sold, including residential real estate development and related amenities, sales of timberlands or undeveloped and developed land and land developed by the commercial leasingsegment. Adjustments for non-cash items primarily include depreciation, depletion and sales segment.amortization, unrealized loss on investments, net, deferred income tax expense, cost of real estate sold and gain on land contribution to equity method investment. Net cash provided by operations was $37.3 million in 2020, as compared to $30.4 million in 2019, as2019. During 2020 net income was $45.5 million, compared to $41.4$26.7 million in 2018. Net cash provided by operations included $23.1 million of a one-time receipt of RiverTown impact fees during 2018.2019.
Cash Flows from Investing Activities
Cash flows (used in) provided by investing activities primarily include capital expenditures for operating property and property and equipment used in our operations and purchases of investments, partially offset by sales and maturities of investments, proceeds from insurance claims, maturities of assets held by special purpose entities and proceeds from the disposition of assets. During 2020, net cash used in investing activities was $164.5 million, which included capital expenditures for operating property and property and equipment and purchases of investments of $58.9 million, partially offset by maturities of investments of $11.0 million, sales of investments of $3.7 million, proceeds from insurance claims of $0.7 million and maturities of assets held by special purpose entities of $0.8 million. During 2019, net cash used in investing activities was $29.3 million, which included purchases of investments of $5.9 million and capital expenditures for operating property and property and equipment, partially offset by sales of investments of $30.8 million, maturities of investments of $7.0 million, proceeds from insurance claims of $12.1 million, maturities of assets held by special purpose entities of $0.8 million and proceeds from the disposition of assets of $0.1 million. During 2018, net cash provided by investing activities was $44.1 million, which included sales of investments of $75.8 million, maturities of investments of $10.0 million, proceeds from the disposition of assets of $5.0 million and maturities of assets held by special purpose entities of $0.8 million, partially offset by purchases of investments of $22.1 million and capital expenditures for operating property and property and equipment.
Capital expenditures for operating property and property and equipment were $121.8 million and $74.2 million during 2020 and $25.4 million during 2019, and 2018, respectively, which were primarily for our commercial leasing and sales and hospitality segments.
Cash Flows from Financing Activities
Net cash provided by financing activities was $48.6 million for 2020 and net cash used in financing activities was $10.5 million for 2019. Net cash provided by financing activities during 2020 included borrowings on debt of $69.0 million and $79.9capital contribution from non-controlling interests of $7.7 million, partially offset by capital contribution to unconsolidated affiliates of $10.8 million, repurchases of common shares of $8.8 million, dividends paid of $4.1 million, principal payments for 2019debt of $1.9 million, debt issuance costs of $1.8 million, capital distribution to non-controlling interest of $0.6 million and 2018, respectively.principal payments under finance lease obligation of $0.1 million. Net cash used in financing activities during 2019 included the repurchase of common stock of $20.8 million, additional ownership interest in
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Windmark of $11.6 million, principal payments for debt of $1.6 million, debt issuance costs of $1.2 million, capital contribution to unconsolidated affiliate of $1.1 million and capital distribution to non-controlling interest of $0.6 million, partially offset by borrowings on debt of $23.9 million and capital contribution from non-controlling interest of $2.5 million. Net cash used in financing activities during 2018 included the repurchase of our common stock of $93.4 million, principal payments for debt of $1.4 million, debt issuance costs of $1.1 million, capital contribution to unconsolidated affiliate of $1.1 million and capital distribution to non-controlling interest of $0.4 million, partially offset by borrowings on debt of $16.6 million and capital contribution from non-controlling interest of $0.9 million.
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Off-Balance Sheet Arrangements
As of December 31, 2019 and 2018, we had various loans outstanding for which we have entered into guarantees and are required to comply with financial covenants. See Note 12. Debt, Net included in Item 15 of this Form 10‑K for additional information.
In January 2019, our unconsolidated Pier Park TPS JV, entered into a $14.4 million loan (the “Pier Park TPS JV Loan”). As of December 31, 2019, $6.8 million was outstanding on the Pier Park TPS JV Loan. The Pier Park TPS JV Loan bears interest at LIBOR plus 2.5% and matures in January 2026. The Pier Park TPS JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Pier Park TPS JV Loan, as guarantor we, a wholly owned subsidiary of ours and our JV partner entered into a joint and several guarantee in favor of the lender, to guarantee the payment and performance of the borrower. As guarantor our liability under the Pier Park TPS JV Loan will be automatically reduced to 50.0%, or a further 25.0% of the outstanding principal balance upon reaching and maintaining certain debt service coverage. See Note 22. Commitments and Contingencies included in Item 15 of this Form 10‑K for additional information.
In November 2019, our unconsolidated Busy Bee JV, entered into a $5.4 million construction loan maturing in November 2035 (the “Busy Bee JV Construction Loan”) and a $1.2 million equipment loan maturing in November 2027 (the “Busy Bee JV Equipment Loan”). As of December 31, 2019, $1.4 million was outstanding on the Busy Bee JV Construction Loan and less than $0.1 million was outstanding on the Busy Bee JV Equipment Loan. The loans bear interest at LIBOR plus 1.5%. The loans are secured by the real and personal property, assignment of rents and leases and a security interest in the construction contract and management agreement. In connection with the Busy Bee JV Construction Loan and the Busy Bee JV Equipment Loan, as guarantor we, a wholly owned subsidiary of ours and our JV partner entered into a joint and several guarantee in favor of the lender, to guarantee the payment and performance of the borrower through substantial completion. As guarantor, our liability under the loans upon substantial completion will be reduced to 50.0% for a twelve month period. Subsequent to that time, our guarantee will be released upon request. Upon release of our guarantee, our JV partner will be the sole guarantor and will receive a fee related to the guarantee from us based on our ownership percentage. See Note 22. Commitments and Contingencies included in Item 15 of this Form 10‑K for additional information.
We have assessed the need to record a liability for the guarantees related to our unconsolidated JVs and did not record an obligation as of December 31, 2019.
As part of a timberland sale in 2007 and 2008, we have recorded a retained interest with respect to notes contributed to bankruptcy-remote qualified special purpose entities of $12.2 million for the installment notes monetized through December 31, 2019. This balance represents the present value of future cash flows to be received over the life of the installment notes, using management’s best estimates of underlying assumptions, including credit risk and interest rates as of the date of the monetization, plus the accretion of investment income based on an effective yield, which is recognized over the term of the notes, less actual cash receipts.
At December 31, 2019, we were required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and mitigation banks of $10.7 million, which may potentially result in a liability to us if certain obligations are not met.
In conducting our operations, we routinely hold customers’ assets in escrow pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. These amounts are maintained in segregated bank accounts and have not been included in the accompanying consolidated balance sheets, consistent with U.S. generally accepted accounting principles (“GAAP”) and industry practice. The cash deposit accounts and offsetting liability balances for escrow deposits in connection with our title agency real estate transactions were $4.3 million and $1.6 million as of December 31, 2019 and 2018, respectively, these escrow funds are not available for regular operations.
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Contractual Obligations at December 31, 2019
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| Payments due by Calendar Period | |||||||||||||
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| Less Than |
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| More Than | ||
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| Total |
| 1 Year |
| 1-3 Years |
| 3-5 Years |
| 5 Years | |||||
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| In millions | |||||||||||||
Debt (1) |
| $ | 94.5 |
| $ | 2.0 |
| $ | 4.5 |
| $ | 7.4 |
| $ | 80.6 |
Interest related to debt, including Community Development District debt (1) (2) |
|
| 49.3 |
|
| 3.7 |
|
| 7.3 |
|
| 6.9 |
|
| 31.4 |
Contractual obligations (3) |
|
| 98.8 |
|
| 48.7 |
|
| 50.0 |
|
| 0.1 |
|
| — |
Other long term liabilities (4) |
|
| 71.5 |
|
| — |
|
| 13.3 |
|
| 20.4 |
|
| 37.8 |
Finance lease obligations |
|
| 0.3 |
|
| 0.1 |
|
| 0.1 |
|
| 0.1 |
|
| — |
Operating lease obligations |
|
| 0.9 |
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| 0.2 |
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| 0.3 |
|
| 0.1 |
|
| 0.3 |
Senior Notes held by special purpose entity (5) |
|
| 180.0 |
|
| — |
|
| — |
|
| — |
|
| 180.0 |
Interest related to Senior Notes held by special purpose entity (5) |
|
| 81.1 |
|
| 8.6 |
|
| 17.1 |
|
| 17.1 |
|
| 38.3 |
Total contractual obligations |
| $ | 576.4 |
| $ | 63.3 |
| $ | 92.6 |
| $ | 52.1 |
| $ | 368.4 |
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Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and our accounting estimates are subject to change.
Investment in Real Estate and Cost of Real Estate Revenue. Costs associated with a specific real estate project are capitalized during the development period. These development costs include land and common development costs (such as roads, structures, utilities and amenities). We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as project administration, may also be capitalized. We capitalize interest (up to total interest expense) based on the amount of underlying expenditures and real estate taxes, on real estate projects under development.may also be capitalized.
Real estate development costs also include land and common development costs (such as roads, utilities and amenities), capitalized property taxes, capitalized interest and certain indirect costs. A portion of real estate development costs and estimates for costs to complete are allocated to each unit based on the relative sales value of each unit as compared to the estimated sales value of the total project. These estimates are reevaluated at least annually and more
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frequently if warranted by market conditions, changes in the project’s scope or other factors, with any adjustments being allocated prospectively to the remaining property or units.
The capitalization period relating to direct and indirect project costs is the period in which activities necessary to ready a property for its intended use are in progress. The period begins when such activities commence, typically when we begin the site work foror construction on land already owned, and ends when the asset is substantially complete and ready for its intended use. Determination of when construction of a project is substantially complete and ready for its intended use requires judgment. We determine when the capitalization period begins and ends through communication with project and other managers responsible for the tracking and oversight of individual projects. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. If we determine not to complete a project, any previously capitalized costs that are not recoverable are expensed in the period in which the determination is made and recovery is not deemed probable.
Our investments in real estate are carried at cost, net of depreciation and timber depletion, unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset’s carrying value, an impairment charge is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.
Long-Lived Assets. Long-lived assets include our investments in land holdings, operating and development propertyproperties, investment in unconsolidated JV’s and property and equipment. Our investments in land holdings, operating and development properties and property and equipment are carried at cost, net of depreciation and timber depletion. We review our long-lived assets for impairment quarterly to determine whether events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As part of our review for impairment of long-lived assets, we review the long-lived asset’s carrying value, current period actual financial results as compared to prior period and forecast contained in our business plan and any other events or changes in circumstances to identify whether an indicator of potential impairment may exist. Some of the events or changes in circumstances that are considered as indicators of potential impairment include:
| a prolonged decrease in the |
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| a change in the expected use or development plans for the properties; |
| a material change in strategy that would affect the |
| continuing operating or cash flow losses for an operating property; |
| an accumulation of costs in excess of the projected costs for development or operating property; and |
| any other adverse change that may affect the |
We use varying methods to determine if an impairment exists, such as (i) considering indicators of potential impairment, (ii) analyzing expected future cash flows and comparing the expected future undiscounted cash flows of the property to its carrying value or (iii) determining market resale values.
The accounting estimate related to real estate impairment evaluation is susceptible to change due to the use of assumptions about future sales proceeds and future expenditures. For projects under development or construction, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management’s best estimates about future sales prices and planned holding periods. Based on our investment return criteria for evaluating our projects under development or undeveloped land, management’s assumptions used in the projection of undiscounted cash flows include:
| the projected pace of sales of homesites based on estimated market conditions and our development plans; |
| estimated pricing and projected price appreciation over time; |
| the amount and trajectory of price appreciation over the estimated selling period; |
| the length of the estimated development and selling periods, which can differ depending on the size of the development and the number of phases to be developed; |
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| the amount of remaining development costs, including the extent of infrastructure or amenities included in such development costs; |
| holding costs to be incurred over the selling period; |
| for bulk land sales of undeveloped and developed parcels, future pricing is based upon estimated developed homesite pricing less estimated development costs and estimated developer profit; |
| for commercial, multi-family and |
| whether liquidity is available to fund continued development. |
For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties. Some of the significant assumptions that are used to develop the undiscounted cash flows include:
| for investments in hotels, other rental units and vacation rental homes, use of average occupancy and room rates, revenue from food and beverage and other amenity operations, operating expenses and capital expenditures, and eventual disposition of such properties as hotels, private residence vacation units or condominiums, based on current prices for similar units appreciated to the expected sale date; |
| for investments in commercial, multi-family, senior living or retail property, use of future occupancy and rental rates, operating expenses and capital expenditures and the amount of proceeds to be realized upon eventual disposition of such property at a terminal capitalization rate; and |
| for investments in club |
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Other properties that management does not intend to sell in the near term under current market conditions and has the ability to hold are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property. Typically, assets are carried based on historical cost basis, which in some cases may exceed fair value if sold in the near term. The results of impairment analysis for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group.
If a property is considered impaired, the impairment charge is determined by the amount the property’s carrying value exceeds its fair value. We use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values in a given market, (iii) applying a capitalization rate to net operating income using prevailing rates in a given market or (iv) applying a multiple to revenue using prevailing rates in a given market. The fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate, through appraisals of the underlying property or a combination thereof.
We classify the assets and liabilities of a long-lived asset as held-for-sale when management approves and commits to a formal plan of sale and it is probable that a sale will be completed. The carrying value of the assets held-for-sale is then recorded at the lower of their carrying value or fair value less costs to sell.
Income Taxes. In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities and changes in tax laws. To the extent adjustments are required in any given period, we will include the adjustments in the deferred tax assets and liabilities in our consolidated financial statements. We record a valuation allowance against our deferred tax assets as needed based upon our analysis of the timing and reversal of future taxable amounts and our historyhistorical and future expectations of taxable income.
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In general, a valuation allowance is recorded, if based on the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of our deferred tax assets is dependent upon us generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from net loss carryforwards.
As of December 31, 20192020 and 2018,2019, we had a state net operating loss carryforward of $304.0 million and $341.4 million, and $357.0respectively. As of December 31, 2020, we had $2.3 million respectively,of federal net operating loss carryforwards and no federal net operating loss carryforwards.carryforwards as of December 31, 2019. The federal net operating loss carryforwards as of December 31, 2020 are applicable to a specific QOF entity of the Company and do not expire. The majority of state net operating losses are available to offset future taxable income through 2036 and will begin expiring in 2029. In the third quarter of 2018, we reassessed our need for a valuation allowance by evaluating all available evidence, including but not limited to historical and projected pre-tax profits.income. Based on this assessment, we determined that we had the ability to fully realize the future benefit of our net operating loss carryforward and released the valuation allowance in full, resulting in a $5.0 million tax benefit. As of December 31, 2017,2020, we had a valuation allowanceincome tax payable of $5.0 million. $2.7 million, included within other liabilities on the consolidated balance sheets. As of December 31, 2017,2019 we had a federalan income tax receivable of $8.4$2.8 million, related toincluded in other assets on the reclassification ofconsolidated balance sheets, that included a U.S. federal alternative minimum tax (“AMT”) credit carryforward followingreceivable of $2.2 million, which was converted to a tax deposit and partially utilized on the enactment offederal income tax return filed for the Tax Act in December 2017, which is refundable to us in the years 2018 through 2021. During thetax year ended December 31, 2018, the U.S. federal AMT credit receivable decreased $4.5 million to $3.9 million due to the utilization in 2018. During the year ended December 31, 2019 the U.S. federal AMT credit receivable decreased $1.1 million to $2.8 million due to the expected utilization in 2019..
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU 2016‑02, Leases (Topic 842) (“ASU 2016-02”), that amended the existing accounting standards for lease accounting, including requiring lessees to recognize both finance and operating leases with terms of more than 12 months on the balance sheet. The accounting applied by a lessor is largely unchanged by this amendment. This amendment also required certain quantitative and qualitative disclosures about leasing arrangements. In January 2018, the FASB issued ASU 2018‑01, which provided an optional transition practical expedient to not evaluate under the new lease standard, existing or expired land easements that were not previously accounted for as leases. In July 2018, the FASB issued ASU 2018-10 that provided clarifications and improvements to ASU 2016-02. In July 2018, the FASB issued ASU 2018-11 that provided entities with an additional and optional transition method to apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption. In December 2018, the FASB issued ASU 2018-20 that provided an accounting policy election for certain narrow-scope improvements for lessors. In March 2019, the FASB issued ASU 2019-01 that provided clarifications and improvements to ASU 2016-02. During our evaluation of ASU 2016-02, as amended, (“Topic 842”) the following practical expedients and accounting policies with respect to Topic 842 have been elected and/or adopted effective January 1, 2019:
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We adopted the new guidance, including amendments, as of January 1, 2019 and elected to implement Topic 842 retrospectively using the cumulative-effect adjustment transition method as of the date of adoption. As a result, prior periods have not been restated. As of the date of adoption, a cumulative-effect adjustment was not necessary and we recognized an operating lease right-of use assets of $0.4 million and corresponding operating lease liabilities of $0.4 million based on the present value of minimum rental payments related to leases for which we are the lessee. The
57
operating lease right-of-use assets and corresponding operating lease liabilities are included within other assets and other liabilities, respectively, on the consolidated balance sheets. There were no adjustments related to the leases for which we are the lessor. The adoption of this guidance did not materially impact results of operations or cash flows.
Codification Updates
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates that aligns SEC paragraphs in the codification with changes made in the above-referenced SEC rules to simplify disclosures, modernize the reporting and disclosureof information by registered investment companies and other items. This new guidance was effective upon issuance and did nothave a material impact on our financial condition, results of operations and cash flows.
Recently Issued Accounting Pronouncements
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016‑13, 2016-13, Financial Instruments – Credit Losses(Topic (Topic 326) (“ASU 2016-13”), that requiresrequired a financial asset measured at amortized cost to be presented at the net amount expected to be collected and requiresrequired that credit losses from available-for-sale debt securities be presented as an allowance for credit loss. The
53
allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. In November 2018, the FASB issued ASU 2018-19, which clarifiesclarified that impairment of receivables from operating leases should be accounted for using lease guidance. In April 2019, the FASB issued ASU 2019-04, which clarifiesclarified and improvesimproved ASU 2016-13. In May 2019, the FASB issued ASU 2019-05, which providesprovided an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. In November 2019, the FASB issued ASU 2019-11, which providesprovided codification improvements to clarify narrow-scope issues of ASU 2016-13.This
We adopted the new guidance, will be effective for us on including amendments, as of January 1, 2020, and implementedelected to implement Topic 326 retrospectively using athe cumulative-effect adjustment to retained earningstransition method as of the date of adoption. As a result, prior periods have not been restated. We have evaluatedelected the practical expedient to not measure an allowance for credit losses for accrued interest receivables and will write-off uncollectible balances in a timely manner, which is 90 days from when it is determined uncollectible. As of the date of adoption, a cumulative-effect adjustment was recorded to beginning retained earnings. The impact of adopting this guidance resulted in an adjustment to decrease retained earnings by $0.1 million, net of the related tax effects, a decrease in accounts receivable, net and notes receivable, net for allowance for credit losses of $0.1 million and an increase to other liabilities related to allowance for credit losses for unconsolidated JV debt guaranteed by us of less than $0.1 million. There were no adjustments related to operating lease receivables for which we are the lessor. The adoption of this guidance did not materially impact results of operations or cash flows.
Codification Improvements to Financial Instruments
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”), which made narrow-scope improvements to various aspects of financial instruments guidance. The standard is effective immediately for certain amendments and as a resultfor fiscal years beginning after December 15, 2019. The implementation of this evaluation, determined it willguidance did not have a material impact on our financial condition, results of operations and cash flows.
Recently Issued Accounting Pronouncements
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes (“Topic 740”). The amendment also improves consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This new guidance will be effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations and cash flows.flows.
Investments –- Equity Securities, Investments-EquityInvestments - Equity Method and Joint Ventures and Derivatives and Hedging
In January 2020, the FASB issued ASU 2020-01, Investments—Investments - Equity Securities (Topic 321), Investments—Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task ForceForce) (“ASU 2020-01”),which clarifies the interaction between the accounting standard on recognition and measurement of financial instruments in Topic 321, Investments –- Equity Securities and Topic 323, Investments - Equity Method and Joint Ventures. Ventures. The new guidance will be effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations and cash flows.
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) that provides temporary optional guidance to ease the
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potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The new guidance provides expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are currentlymet. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”) that clarifies that certain optional expedients and exceptions in contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.This new guidance is effective immediately through December 31, 2022. There is no current impact to us from this guidance and we are evaluating the impact that the adoption of this guidance will have on our financial condition, results of operations and cash flows.flows.
Codification Improvements
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TableIn October 2020, the FASB issued ASU 2020-10, Codification Improvements (“ASU 2020-10”) that improves consistency by including all disclosure guidance in the appropriate disclosure sections and clarifies application of Contentsvarious provisions in the Codification. The amendments in this ASU should be applied retrospectively. This new guidance is effective for annual periods beginning after December 15, 2020. The adoption of this guidance is not expected to have an impact on our financial condition, results of operations and cash flows and we do not expect a material impact on the disclosures to the financial statements.
Forward-Looking Statements
This annual report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements include, among other things, information about possible or assumed future results of the business and our financial condition, liquidity, results of operations, plans, strategies, prospects and objectives. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue" or other similar expressions concerning matters that are not historical facts. Specifically, this annual report contains forward-looking statements regarding:
| the potential impacts of the ongoing COVID-19 pandemic; |
● | our expectations concerning our current and future business strategy, including |
| our expectations regarding our capital structure and ability to fund capital commitments; |
● | our expectations concerning the demand for our homesites; |
| ● | our ability to develop and sell homesites in a typical manner or at all; |
| ● | our intention to |
| our expectations regarding investments that we believe will contribute towards increasing our future growth, particularly in real estate projects that provide recurring revenue; |
| our |
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| our assessment and expectations regarding the impact of Hurricane Michael, including the amount and timing of insurance proceeds and ability to recover additional losses; |
| our assessment and expectations regarding the demographics and corresponding market demand and growth of Northwest Florida; |
● | our expectations regarding the amount and timing of revenue we expect to realize upon closing over the life of the residential homesites under contract; |
| our expectations regarding homesite sales and timing of sales |
| our beliefs regarding opportunities to develop, improve or acquire a broad range of asset types that will generate recurring revenue; |
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| our plan to focus on investing in residential communities that have the potential for long term, scalable and repeatable revenue; |
| our expectation to continue to be a developer of completed residential homesites for sale to |
| our intention to form additional JVs with third parties, |
| our plan to expand the scope and scale of our hospitality assets and services in order to enhance the value and contribution those assets provide; |
| our expectations regarding our |
| our intention to continue to work collaboratively with public and private partners on strategic infrastructure and economic development initiatives that will help to attract quality job creators and help to diversify the Northwest Florida economy; |
| our expectations regarding opportunities near the Northwest Florida Beaches International Airport and our other land holdings in Northwest Florida; |
| our belief that by entering into partnerships, JVs or other collaborations and alliances with best of class operators, we can efficiently utilize our land assets while reducing our capital requirements; |
| our expectation to continue a cost and investment discipline to ensure low fixed expenses and bottom line performance; |
| our plan to continue to maintain a high degree of liquidity while seeking opportunities to invest our cash in ways that we believe will increase shareholder value, including investments in Securities, authorized dividends, share repurchases, real estate and other strategic investments; |
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| our expectation regarding our liquidity or ability to satisfy our working capital needs, declared dividends, expected capital expenditures and principal and interest payments on our |
| our intention to continue paying a quarterly dividend; |
● | our estimates regarding our annual harvest plan; |
| ● | our estimates and assumptions regarding the installment notes and the Timber Note; |
| our estimates and assumptions regarding the Coronavirus Aid, Relief, and Economic Security Act; |
● | our estimated impact of new accounting pronouncements; and |
| our expectation regarding the impact of pending litigation, claims, other disputes or governmental proceedings, on our cash flows, financial condition or results of operations. |
These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, those risk factors and disclosures set forth in this Form 10‑K10-K and subsequent Form 10‑Qs10-Qs and other current reports, and the following:
| any changes in our strategic objectives or our ability to successfully implement such strategic objectives, including development of our real estate, expanding our portfolio of income producing commercial and residential properties and expanding the scope of our hospitality assets and services; |
| our ability to capitalize on our investments in new business opportunities; |
● | any potential negative impact of our longer-term property development strategy, including losses and negative cash flows for an extended period of time if we continue with the self-development of our entitlements; |
| our ability and the ability of our investment advisor to identify and acquire suitable investments for our investment |
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| significant decreases in the market value of our investments in Securities or any other investments; |
| our ability to attract and work effectively with strategic partners; |
● | volatility in the consistency and pace of our residential real estate revenue; |
| ● | our ability to realize the anticipated benefits of our acquisitions, JVs, investments in leasable spaces and operations and share repurchases; |
| ● | our dependence on the real estate industry and the cyclical nature of our real estate operations; |
| ● | our ability to successfully and timely obtain land use entitlements and construction financing, maintain compliance with state law requirements and address issues that arise in connection with the use and development of our land, including the permits required; |
| ● | disruptions by an epidemic or pandemic (such as the ongoing COVID-19 pandemic), or similar public threat, or fear of such an event, and the measures that international, federal, state and local governments, agencies, law enforcement and/or health authorities have implemented and may continue to implement, as well as additional measures to address it; |
| ● | our ability to capitalize on strategic opportunities presented by a population growth and migration in Florida, particularly Northwest Florida; |
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| economic or other conditions that affect the future prospects for the Southeastern region of the U.S. and the demand for our products, including a slowing of the population growth in Florida, inflation, or unemployment rates or declines in consumer confidence or the demand for, or the prices of, housing; |
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| any reduction in the supply of mortgage loans or tightening of credit markets; |
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| the impact of natural or man-made disasters or weather conditions, including hurricanes, fires and other severe weather conditions, on our |
| our ability to fully recover under claims for losses related to Hurricane Michael; |
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| increases in operating costs, including costs related to real estate taxes, owner association fees, construction materials, labor and insurance and our ability to manage our cost structure; |
| our ability to close and realize the expected revenue of the residential homesites currently under contract; |
● | our ability to successfully and timely complete homesite construction in our new developments; |
| ● | our ability to realize the |
| ● | our ability to maintain our commercial tenants; |
| ● | operational risks with respect to our senior living community; |
| ● | our ability to effectively manage risks associated with the hospitality industry; |
| ● | our ability to effectively manage our real estate assets, as well as the ability of us or our JV partners to effectively manage the day-to-day activities of our |
| ● | our ability to successfully enter into previously announced potential JVs; |
| ● | our ability to retain key personnel and |
| ● | risks related to the sale of firearms; |
| ● | the expense, management distraction and |
| potential liability under environmental or construction laws, or other laws or regulations; |
● | changes in laws, regulations or the regulatory environment affecting the development of real estate; |
| ● | our ability to anticipate the impact of pending environmental litigation matters or governmental proceedings on our financial condition or results of operations; |
| ● | our ability to fully realize benefits of the federal QOZ Program; |
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| the impact of changes in federal or state tax laws on our business and financial condition; |
● | uncertainty about the |
| ● | our ability to effectively deploy and invest our assets, including our Securities; |
| ● | our ability to satisfy our current debt obligations and to obtain additional financing in the future; |
| ● | the sufficiency of our current cash position, financing arrangements and cash generated from operations to satisfy our anticipated working capital needs, capital expenditures and principal and interest payments on long term debt, capital contributions to JVs, Latitude Margaritaville Watersound JV Note commitment, authorized stock repurchases and authorized dividends; |
| ● | our ability to carry out the Stock Repurchase Program in accordance with applicable securities laws; |
| ● | potential limitations on our ability to pay dividends at our expected rate, or at all; |
| ● | the obligations associated with |
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| the impact if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting; the impact if the SEC were to disagree with our Investment Company Act |
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks primarily from interest rate risk fluctuations. We have investments in U.S. Treasury Bills and corporate debt securities that have fixed interest rates for which changes in interest rates generally affect the fair value of the investment, but not the earnings or cash flows. A hypothetical 100 basis point increase in interest rates would result in an insignificant change in the market value of these investments as of December 31, 2020. Any realized gain or loss resulting from such interest rate changes would only occur if we sold the investments prior to maturity or if a decline in their value is determined to be related to credit loss. We also have investments in certain preferred stock that have fixed interest rates for which changes in interest rates generally affect the fair value of the investment and are recorded in the consolidated statements of income. A hypothetical 100 basis point increase in interest rates would result in a decrease of approximately $0.3$0.1 million in the market value of these investments as of December 31, 2019.2020. In addition, our investments in certaincorporate debt securities and preferred stock are non-investment grade, which maycould affect their fair value.
We have exposure to credit risk associated with our Securities and these instruments are 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 may also decrease the value of our Securities. As of December 31, 2020, approximately 95% of our total Securities are rated AA or better.
Our cash and cash equivalents are invested in commercial paper, money market instruments and short termshort-term U.S. Treasury Bills. Changes in interest rates related to these investments would not significantly impact our results of operations. The amount of interest earned on one of our retained interest investments is based on LIBOR. A 100 basis point change in the interest rate may result in an insignificant change in interest earned on the investment.
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interest expense on some of our construction loans are based on LIBOR. Based on the outstanding balance of these loans as of December 31, 2020, a hypothetical 100 basis point increase in the applicable rate would result in an increase to our annual interest expense of $0.3 million.
LIBOR is expected to be discontinued after 2021. Many of our current debt agreements have an interest rate tied to LIBOR. Most ofLIBOR, but these agreements provide for an alternative base rate in the event that LIBOR is discontinued, but not all do so.discontinued. There can be no assurances as to what alternative base rates may be and whether such base rate will be more or less favorable than LIBOR and any other unforeseen impacts of the potential discontinuation of LIBOR. We intend to continue monitoring the developments with respect to the potential phasing out of LIBOR after 2021 and work with our lenders to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impactcondition.
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Increases in interest rates, reductions in mortgage availability or the tax benefits of mortgage financing or residential ownership may negatively impact our real estate business and would also increase the costs of our development projects. Similarly, a downturn in economic conditions in Northwest Florida would reduce discretionary income and decrease demand for our hospitality segment operations.
Item 8. Financial Statements and Supplementary Data
The Financial Statements, related notes and the Reports of Independent Registered Public Accounting Firms are included in Part IV, Item 15 of this Form 10‑K10-K and incorporated by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) | Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules |
(b) | Changes in Internal Control Over Financial Reporting. During the quarter ended December 31, |
(c) | Management’s Annual Report on Internal Control Over Financial Reporting. |
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a‑15(f)13a-15(f) and 15d‑15(f)15d-15(f) under the Exchange Act. The Company’sOur internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’sOur internal control over financial reporting includes those policies and procedures that:
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Management assessed the effectiveness of the Company’sour internal control over financial reporting as of December 31, 2019.2020. In making this assessment, management used the criteria described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our assessment and those criteria, management concluded that our internal control over financial reporting was effective as of December 31, 2019.2020. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 20192020 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their attestation report as follows.
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(d) | Report of Independent Registered Public Accounting Firm. |
Board of Directors and Stockholders
The St. Joe Company
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of The St. Joe Company (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2019,2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theconsolidated financial statements of the Company as of and for the year ended December 31, 2019,2020, and our report dated February 26, 202024, 2021, expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Grant Thornton LLP
Tampa, Florida
February 26, 202024, 2021
None.
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Item 9B. Other Information
On February 23, 2021, the Company and FCM amended the Investment Management Agreement, to provide that the investment guidelines and restrictions described in the Amended Investment Management Agreement require that any new securities for purchase must be issues of the U.S. Treasury or U.S. Treasury Money Market Funds. The Amended Investment Management Agreement terminated specific restrictions from the previous investment guidelines and restrictions.
The foregoing description of the Amended Investment Management is qualified in its entirety to the full text of the agreement, a copy of which is attached as Exhibit 10.6 to this Annual Report on Form 10-K and is incorporated by reference into this Item 9B.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Business Conduct and Ethics that applies to our Chief Executive Officer and Chief Financial Officer. The Code of Business Conduct and Ethics is located on our internet web site at www.joe.com under “Investor Relations-Corporate Governance.” We intend to provide disclosure of any amendments or waivers of our Code of Business Conduct and Ethics for our executive officers or directors on our website within four business days following the date of the amendment or waiver.
The items required by Part III, Item 10 are incorporated herein by reference from the Registrant’s Proxy Statement for our 20202021 Annual Meeting of Shareholders to be filed on or before April 29, 2020.30, 2021.
Item 11. Executive Compensation
Information concerning executive compensation will be included in the Registrant’s Proxy Statement for our 20202021 Annual Meeting of Shareholders to be filed on or before April 29, 202030, 2021 and is incorporated by reference in this Part III.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information concerning the security ownership of certain beneficial owners and of management will be set forth under the caption “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” in the Registrant’s Proxy Statement for our 20202021 Annual Meeting of Shareholders to be filed on or before April 29, 202030, 2021 and is incorporated by reference in this Part III.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information concerning certain relationships and related transactions during 20192020 and director independence will be set forth under the captions “Certain Relationships and Related Transactions” and “Director Independence” in the Registrant’s Proxy Statement for our 20202021 Annual Meeting of Shareholders to be filed on or before April 29, 202030, 2021 and is incorporated by reference in this Part III.
Item 14. Principal Accounting Fees and Services
Information concerning our independent registered public accounting firm will be presented under the caption “Audit Committee Information” in the Registrant’s Proxy Statement for our 20202021 Annual Meeting of Shareholders to be filed on or before April 29, 202030, 2021 and is incorporated by reference in this Part III.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
| (a) | (1) Financial Statements |
The financial statements listed in the accompanying Index to Financial Statements and Financial Statement Schedules and Reports of Independent Registered Public Accounting Firms are filed as part of this Report.
(2)Financial Statement Schedule
The financial statement schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this Report.
(3) Exhibits
| (3) | Exhibits |
The exhibits listed on the accompanying Index to Exhibits are filed or incorporated by reference as part of this Report.
Exhibit Index
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES F 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders The St. Joe Company Opinion on the We have audited the accompanying consolidated balance sheets of The St. Joe Company (a Florida corporation) and subsidiaries (the “Company”) as of December 31, We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, Basis for These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. As described further in notes 4 and 19 to the financial statements, in June 2019, LMWS, LLC (“Latitude Margaritaville Watersound JV”) was created when the Company entered into a joint venture agreement to develop a 3,500-lot 55+ active adult residential community in Bay County, Florida. In June 2020, the Company contributed land to Latitude Margaritaville Watersound JV, in exchange for a preferred distribution of approximately $10,000 per home, as each home is sold by Latitude Margaritaville Watersound JV. The contributed land had a present value of $16.6 million, which resulted in a gain of $15.3 million. The present value of the land was determined based upon a discounted cash flow model that used certain key assumptions, including a discount rate and timing of home sales. We identified the evaluation of the present value of the contributed land as a critical audit matter. The principal consideration for our determination that the evaluation of the present value of the contributed land is a critical audit matter is that there is a high degree of subjectivity required in applying procedures and evaluating results F 2 from such procedures over the discounted cash flow model used to calculate the present value of the contributed land. Specifically, the discounted cash flow model is sensitive to changes in the discount rate and timing of home sales, which have a significant effect on the determination of the present value and resulting gain from this land contribution. Auditing these key assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our internal valuation specialists. Our audit procedures related to the evaluation of the present value of the contributed land included the following, among others:
/s/ Grant Thornton LLP We have served as the Company’s auditor since 2018. Tampa, Florida February
F 3 THE ST. JOE COMPANY (Dollars in thousands)
See notes to the consolidated financial statements. F 4 THE ST. JOE COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in thousands) The following presents the portion of the consolidated balances attributable to the Company’s consolidated variable interest entities, which as of December 31,
See notes to the consolidated financial statements. F 5 THE ST. JOE COMPANY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands except per share amounts)
See notes to the consolidated financial statements. F 6 THE ST. JOE COMPANY (Dollars in thousands)
See notes to the consolidated financial statements. F 7 THE ST. JOE COMPANY (Dollars in thousands)
See notes to consolidated financial statements. F 8 THE ST. JOE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
See notes to consolidated financial statements. F 9 THE ST. JOE COMPANY (Dollars in thousands) The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the
Restricted cash includes amounts
See notes to consolidated financial statements. F 10 THE ST. JOE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, unless otherwise stated) The St. Joe Company, together with its consolidated subsidiaries, (“St. Joe” or the “Company”) is a Florida real estate development, asset management and operating company with real estate assets and operations in Northwest Florida. Approximately 86% of the Company’s real estate is located in Florida’s Bay, Gulf, and Walton counties. Approximately 90% of the Company’s real estate land holdings are located within The Company conducts primarily all of its business in the following 2. Significant Accounting Policies Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its majority-owned and controlled subsidiaries and variable interest entities where the Company deems itself the primary beneficiary. Investments in JVs and limited partnerships in which the Company is not the primary beneficiary are accounted for by the equity method. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on the Company’s previously reported total assets and liabilities, stockholders’ equity or net income. A variable interest entity (“VIE”) is an entity in which a controlling financial interest may be achieved through arrangements that do not involve voting interests. A VIE is required to be consolidated by its primary beneficiary, which is the entity that possesses the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and has the obligation to absorb losses or the right to receive benefits from the VIE that are significant to the entity. The Company consolidates VIEs when it is the primary beneficiary of the VIE, including real estate JVs determined to be VIEs. The Company continues to assess whether it is the primary beneficiary on an ongoing basis. See Note 4. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions including investment in real estate, real estate impairment assessments, investments, F 11 Investment in Real Estate The Company capitalizes costs directly associated with development and construction of identified real estate projects. These costs include land and common development costs (such as roads, structures, utilities and amenities). The Company also capitalizes
The capitalization period relating to direct and indirect project costs is the period in which activities necessary to ready a property for its intended use are in progress. The period begins when such activities commence, typically when the Company begins site work Investment in real estate is carried at cost, net of depreciation and timber depletion, unless circumstances indicate that the carrying value of the assets may not be recoverable. If the Company determines that an impairment exists due to the inability to recover an asset’s carrying value, an impairment charge is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell. Depreciation for operating property is computed on the straight-line method over the estimated economic
Building improvements are amortized on a straight-line basis over the shorter of the minimum lease term or the estimated economic life of the assets. Long-Lived Assets Long-lived assets include the Company’s investments in land holdings, operating and development
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The Company uses varying methods to determine if an impairment exists, such as (i) considering indicators of potential impairment, (ii) analyzing expected future cash flows and comparing the expected future undiscounted cash flows of the property to its carrying value or (iii) determining market resale values. For projects under development or construction, an estimate of undiscounted future cash flows is performed using estimated future expenditures necessary to develop and maintain the existing project and using management’s best estimates about future sales prices and holding periods. The projection of undiscounted cash flows requires that management develop various assumptions including:
For operating properties, an estimate of undiscounted cash flows also requires management to make assumptions about the use and disposition of such properties. These assumptions include:
Homesites substantially completed and ready for sale are measured at the lower of carrying value or fair value less costs to sell. Management identifies homesites as being substantially completed and ready for sale when the properties are being actively marketed with intent to sell such properties in the near term and under current market conditions. F 13 Other homesites, which management does not intend to sell in the near term under current market conditions, are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of such property. Other properties that management does not intend to sell in the near term under current market conditions and has the ability to hold are evaluated for impairment based on management’s best estimate of the long-term use and eventual
disposition of the property. The results of impairment analyses for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group. If a property is considered impaired, the impairment charge is determined by the amount the property’s carrying value exceeds its fair value. The Company uses varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values in a given market (iii) applying a capitalization rate to net operating income using prevailing rates in a given market or (iv) applying a multiplier to revenue using prevailing rates in a given market. The fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate, through appraisals of the underlying property, or a combination thereof. The Company classifies the assets and liabilities of a long-lived asset as held-for-sale when management approves and commits to a formal plan of sale and it is probable that a sale will be completed. The carrying value of the assets held-for-sale are then recorded at the lower of their carrying value or fair value less estimated costs to sell. Timber Inventory The Company estimates its standing timber inventory on an annual basis utilizing a process referred to as a “timber cruise.” Specifically, the Company conducts field measurements of the number of trees, tree height and tree diameter on a sample area equal to approximately 20% of the Company’s timber holdings each year. Inventory data is used to calculate volumes and products along with growth projections to maintain accurate data. Industry practices are used for modeling, including growth projections, volume and product classifications. A depletion rate is established annually by dividing merchantable inventory cost by standing merchantable inventory volume. Investment in Unconsolidated Joint Ventures The Company has entered into real estate JVs in which the Company is not the primary beneficiary and the Company’s investment in these JVs are accounted for by the equity method. The Company evaluates its investment in unconsolidated JVs for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of the Company’s investment in the unconsolidated JV has Cash and Cash Equivalents Cash and cash equivalents can include cash on hand, bank demand accounts, money market instruments, Investments Investments – debt securities and restricted investments consist of available-for-sale securities recorded at fair value, which is established through external pricing services that use quoted market prices and pricing data from recently executed market transactions. Unrealized gains and
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Fair Value Measurements Fair value is an exit price, representing the amount that would be received by selling an asset or paying to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value: Level 1. Quoted prices in active markets for identical assets or liabilities; Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3. Unobservable inputs in which there is little or no market data, such as internally-developed valuation models, which require the reporting entity to develop its own assumptions. Comprehensive Income The Company’s comprehensive income includes unrealized gains and losses on available-for-sale securities and restricted investments Receivables The Company’s receivables primarily include receivables related to certain homesite sales, homebuilder notes, a revolving promissory note with an unconsolidated JV, leasing receivables, membership initiation fees, hospitality receivables and other receivables. Inventory Inventory primarily consists of food, beverage, retail products and operating supplies, which are reported at the lower of cost or net realizable value. Cost is determined using weighted-average cost basis or specific identification. F 15 Property and Equipment, net Property and equipment is stated at cost, net of accumulated depreciation. Major improvements are capitalized while maintenance and repairs are expensed in the period the cost is incurred. Depreciation is computed using the straight-line method over the estimated economic
Income Taxes The Company’s provision for income taxes includes the current tax owed on the current period earnings, as well as a deferred provision, which reflects the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Changes in existing tax laws and rates, their related interpretations, as well as the uncertainty generated by the prospect of tax legislation in the future may affect the amounts of deferred tax liabilities or the realizability of deferred tax assets. For tax positions Concentration of Risks and Uncertainties The Company’s real estate investments are concentrated in Northwest Florida. Uncertain economic conditions could have an adverse impact on the Company’s real estate values. On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19, as a global pandemic and recommended containment and mitigation measures. The economic conditions in the United States have been negatively impacted by the continued threat by the COVID-19 pandemic. The Company’s hospitality operations have already been, and may continue to be, disrupted by the impacts of the COVID-19 pandemic and the federal, state and local government actions to address it. While the breadth and duration of the COVID-19 pandemic impact is unknown, it could have a material adverse impact on the Company’s results of operations, cash flows and financial condition. See Part I. Item 1A. Risk Factors. Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments, other receivables, investments held by special purpose entity or entities (“SPE”), and investments in retained interests. The Company deposits and invests cash with local, regional and F 16 Earnings Per Share Basic and diluted earnings per share are calculated by dividing net income attributable to the Company by the weighted average number of common shares outstanding for the period. For the three years ended December 31,
Revenue and Revenue Recognition Revenue consists primarily of real estate sales, hospitality operations, leasing operations, and timber sales. Taxes collected from customers and remitted to governmental authorities (e.g., sales tax) are excluded from revenue, costs and expenses. In accordance with Accounting Standards Codification Topic 606,Revenue from Contracts with Customers (“Topic 606”), revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services by applying the following steps; Real Estate Revenue Revenue from real estate sales, including homesites, commercial properties, operating properties and rural or timberland, is recognized at the point in time when a sale is closed and title and control has been transferred to the buyer. If a performance obligation is not yet substantially complete when title transfers to the buyer, the revenue associated with the incomplete performance obligation is deferred until completed. Residential real estate revenue includes (i) the sale of developed homesites; (ii) the sale of parcels of entitled or undeveloped land; (iii) a homesite residual on homebuilder sales that provides the Company a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold; (iv) the sale of tap and impact fee credits; (v) marketing fees and (vi) other fees on certain transactions.
Hospitality Revenue The Company’s hospitality F 17 Clubs – Club operations include the Company’s golf courses, beach club, N850J aircraft and facilities that generate revenue from membership sales, membership reservations, daily play at the golf courses, merchandise sales, charter flights and food and beverage sales. Daily play at the golf courses, merchandise sales, charter flights and food and
Hotel Operations, Food and Beverage Operations, Short-Term Vacation Rentals and Other Management Services – Hotel operations, food and beverage operations, short-term vacation rentals and other management services generate revenue from
Other Hospitality Operations – Other hospitality operations include the WaterColor retail store, marinas and The Powder Room. Other hospitality operations generate revenue from merchandise sales, fuel sales and service fees, which are recognized at the point of sale. Leasing Revenue Leasing revenue is excluded from Topic 606 and consists of Leasing revenue within the forestry segment consists primarily of hunting leases, which is recognized as income over the term of each lease. The Company’s marinas generate revenue from boat slip rentals recognized over the term of the lease. See Note Revenue from the sale of the Company’s forestry products is primarily from open market sales of timber on site without the associated delivery costs and is derived from either pay-as-cut sales contracts or timber bid sales. Under a pay-as-cut sales contract, the risk of loss and title to the specified timber transfers to the buyer when cut by the buyer, and the buyer or some other third party is responsible for all logging and hauling costs, if any. Revenue is recognized at the point in time when risk of loss and title to the specified timber are transferred. Timber bid sales are agreements in which the buyer agrees to purchase and harvest specified timber (i.e., mature pulpwood and/or sawlogs) on a tract of land over the term of the contract. Unlike a pay-as-cut sales contract, risk of loss and title to the trees transfer to the buyer when the contract is signed and revenue is recognized at that point in time F 18 accordingly. The buyer pays the full purchase price when the contract is signed and the Company does not have any additional performance obligations.
The following represents revenue disaggregated by segment, good or service and timing:
F 19
Recently Financial Instruments - Credit Losses In June 2016, the FASB issued ASU The Company adopted the new guidance, Codification Improvements to Financial Instruments In March 2020, the FASB issued ASU 2020-03 which made narrow-scope improvements to various aspects of financial instruments guidance. The standard was effective immediately for certain amendments and
Recently Issued Accounting Pronouncements Income Taxes In December 2019, the FASB issued ASU 2019-12 which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendment also improves consistent application of and Investments In January 2020, the FASB issued ASU 2020-01 F 20 Reference Rate Reform In March 2020, the FASB issued ASU 2020-04 that provides temporary optional guidance to ease the potential burden inaccounting for or recognizing the effects of reference rate reform on financial reporting. The new guidance providesexpedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by referencerate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that referenceLIBOR or another reference rate that is Codification Improvements In October 2020, the FASB issued ASU 2020-10 that improves consistency by including all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the Codification. The amendments in this ASU should be applied retrospectively. This new guidance is effective for annual periods beginning after December 15, 2020. The adoption of this guidance is not expected to have an impact on the Company’s financial condition, results of operations and cash flows and the Company does not expect a material impact on the disclosures to the financial statements. 3. Investment in Real Estate Real estate by property type and segment includes the following:
Development property consists of land the Company is developing or intends to develop for sale or future operations and includes direct costs associated with the land, as well as development, F 21
International Airport and Port of Port St. Joe as well as other properties. Development property in the hospitality and commercial Operating property includes the following components:
Operating property includes property that the Company uses for operations and activities. Residential Depreciation expense related to real estate investments was $8.3 million, $6.8 million and $6.0 million in 2020, 2019 and 4. The Company enters into real estate JVs, from time to time, for the purpose of developing real estate and other business activities in which the Company may or may not have a controlling financial interest. GAAP requires consolidation of VIEs in which an enterprise has a controlling financial interest and is the primary beneficiary. A controlling financial interest will have both of the following characteristics: The timing of cash flows for additional required capital contributions related to the Company’s JVs varies by agreement. The Company, as lender, entered into a $10.0 million secured revolving promissory note with the unconsolidated Latitude Margaritaville Watersound JV as borrower. Some of the Company’s consolidated and unconsolidated JVs have entered into financing agreements where the Company or its JV partners have provided guarantees. See Note Consolidated Joint Ventures The Lodge 30A JV 30A Greenway Hotel, LLC was created in July 2020, when the Company entered into a JV agreement to develop and operate a boutique hotel in Seagrove Beach, Florida. The JV parties are working together to develop and construct the hotel. The hotel is located on Scenic County Highway 30A on land that was contributed to the JV by the Company’s F 22 JV partner. As of December 31, 2020, the Company owned a 52.8% interest in the consolidated JV. The Company’s partner is currently responsible for the construction activities of the JV, but once operational, a wholly-owned subsidiary of the Company will manage the day-to-day operations of the hotel. The Company has significant involvement in the project design and development and approves all major decisions, including annual budgets and financing. The Company determined The Lodge 30A JV is a VIE and that the Company is the VIE’s primary beneficiary as of December 31, 2020. Pier Park Resort Hotel JV Pier Park Resort Hotel, LLC was created in April 2020, when the Company entered into a JV agreement to develop and operate an Embassy Suites hotel in Panama City Beach, Florida. The JV parties are working together to develop and construct a 255 room hotel. The hotel is located on land in the Pier Park area that was contributed to the JV by the Company. As of December 31, 2020, the Company owned a 70.0% interest in the consolidated JV. The Company’s partner is currently responsible for the construction activities of the JV, but once operational, a wholly-owned subsidiary of the Company will manage the day-to-day operations of the hotel. The Company has significant involvement in the project design and development, annual budgets and financing. The Company determined Pier Park Resort Hotel JV is a VIE and that the Company is the VIE’s primary beneficiary as of December 31, 2020. Pier Park Crossings II JV Pier Park Crossings Phase II
development, annual budgets and financing. The Company determined Pier Park Crossings Watersound Closings JV Watersound Closings & Escrow, LLC, formerly Reliant Title
Watercrest JV
F 23 Watersound Origins Crossings JV
Pier Park Crossings JV
Pier Park North JV During 2012, the Company entered into a JV agreement with a partner to develop a retail center at Pier Park North. As of December 31,
2019. Windmark JV
F 24 Unconsolidated Joint Ventures Investment in unconsolidated joint ventures includes the Company’s investment accounted for using the equity method. The following table presents detail of the Company’s investment in unconsolidated joint ventures and total outstanding debt of unconsolidated JVs:
The following table presents detail of the Company’s equity in loss from unconsolidated affiliates:
Latitude Margaritaville Watersound JV LMWS, LLC F 25 alone selling prices of the land and agreed upon improvements. The Latitude Margaritaville Watersound JV community is estimated to include approximately 3,500 residential homes, which will be developed in smaller increments of discrete neighborhoods. As of December 31, 2020 and 2019, the Company owned a 50.0% voting interest in the JV. Each JV member Per the JV agreement, the Company
revolving promissory note to the Latitude Margaritaville Watersound JV to finance the development of the pod-level, non-spine infrastructure, which will be repaid by the JV as each home is sold by the JV. See Note 9. Other Assets for additional information related to the revolving promissory note.The day-to-day activities of the JV Summarized financial information for Latitude Margaritaville Watersound JV is as follows:
Sea Sound Apartments JV FDSJ Eventide, LLC was created in January 2020. The Company entered into a JV agreement to develop, construct and manage a 300 unit apartment community in Panama City Beach, Florida. The community is located near the Breakfast Point residential community on land that was contributed to the JV by the Company in January 2020, with a fair value of $5.1 million. In addition, during 2020 the Company contributed mitigation bank credits of $0.4 million and cash of $4.9 million and the JV partner contributed $6.9 million of cash. The project is currently under development with 0 income or loss impacting the consolidated statements of income for the year ended December 31, 2020. As of December 31, 2020, the Company owned a 60.0% interest in the JV. The Company’s partner is responsible for the day-to-day activities of the JV. The Company has determined that Sea Sound Apartments JV is a VIE, but that the Company is not the primary beneficiary since it does not have the power to direct the activities that most significantly impact the economic performance of the JV. The Company’s investment in Sea Sound Apartments JV is accounted for using the
F 26 equity method. In January 2020, the JV entered into a $40.3 million loan (the “Sea Sound Apartments JV Loan”). The Sea Sound Apartments JV Loan bears interest at LIBOR plus 2.15% and matures in January 2024. The Sea Sound Apartments JV Loan is secured by the real property, all assets of the borrower, assignment of leases and rents and the security interest in the rents and personal property. The Company’s JV partner is the sole guarantor of the Sea Sound Apartments JV Loan. As of December 31, 2020, $8.8 million was outstanding on the Sea Sound Apartments JV Loan. Summarized financial information for Sea Sound Apartments JV is as follows:
Pier Park TPS JV Pier Park TPS, LLC was created in April 2018. The Company entered into a JV agreement to develop and operate a 124 room hotel in Panama City Beach, Florida. The hotel
Summarized financial information for Pier Park TPS JV is as follows:
F 27
Busy Bee JV SJBB, LLC was created in July 2019, when the Company entered into a JV agreement to construct, own and manage a Busy Bee branded fuel station and convenience store in Panama City Beach, Florida. The Summarized financial information for Busy Bee JV is as follows:
F
ALP Through November 2018, the Company was a partner in ALP Liquidating Trust (“ALP”) and beneficially owned 23.9% of ALP’s outstanding beneficial interest units, for which the Company had no basis. In November 2018, the Company received a final distribution of $2.2 million, which is recorded in other income, net on the consolidated statements of income. 5. Investments Available-For-Sale Investments Investments classified as available-for-sale securities were as follows:
F 29
During 2020, net realized gains from the sale of available-for-sale securities were $0.1 million, proceeds from the sale of available-for-sale securities were $1.2 million, proceeds from the maturity of available-for-sale securities were $11.0 million and purchases of available-for-sale securities were $58.9 million. During 2019, net realized gains from the sale of available-for-sale securities were $0.1 million, proceeds from the sale of available-for-sale securities were $4.0 million, proceeds from the maturity of available-for-sale securities were $7.0 million and purchases of available-for-sale securities were $0.1 million.
The following table provides the available-for-sale investments with an unrealized loss position and their related fair values:
As of December 31, The amortized cost and estimated fair value of investments – debt securities and restricted investments classified as available-for-sale, by contractual maturity are shown in the following table.
Investments – Equity Securities As of December 31, Investment Management Agreement Mr. Bruce R. Berkowitz is the Chairman of the Company’s Board. He is the Manager of, and controls entities that own and control, Fairholme Holdings, LLC, which wholly owns FCM. Mr. Berkowitz is the Chief Investment Officer of FCM, which has provided investment advisory services to the Company since April 2013. FCM does not receive any F 30 compensation for services as the Company’s investment advisor. As of December 31, Pursuant to the terms of the Investment Management Agreement, as amended, with the Company, FCM agreed to supervise and direct the investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Company. The investment guidelines are set forth in the Investment Management Agreement and require that, as of the date of any investment: (i) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government), (ii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10% of the investment account, but not 15%, requires
equivalents, (iv) the investment account is permitted to be invested in common equity securities; however, common stock investments shall be limited to exchange-traded common equities, shall not exceed 5% ownership of a single issuer and, cumulatively, the common stock held in the Company’s investment portfolio shall not exceed $100.0 million market value and (v) the aggregate market value of investments in common stock, preferred stock or other equity investments cannot exceed 25% of the market value of the Company’s investment portfolio at the time of purchase. See Note 22. Subsequent Events for information regarding the Amended Investment Management Agreement dated February 23, 2021. 6. Financial Instruments and Fair Value Measurements Fair Value Measurements The financial instruments measured at fair value on a recurring basis are as follows:
F
Money market funds, commercial paper, U.S. Treasury Bills The Company’s corporate debt securities and Restricted investments are included within other assets on the consolidated balance sheets and include certain of the surplus assets that were transferred from the Company’s Pension Plan to a suspense account in the Company’s 401(k) plan in December 2014. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s consolidated financial statements until they are allocated to participants. As of December 31, F Liabilities measured at fair value on a recurring basis are as follows:
In June 2019 the In January 2019 the Pier Park TPS JV, which is unconsolidated and accounted for using the equity method, entered into an interest rate swap agreement designated as a cash flow hedge to manage the interest rate risk associated with variable rate debt. The interest rate swap is effective January 14, 2021 and matures on January 14, 2026 and fixed the variable rate on the related debt of $14.4 million. As of December 31, 2020, the interest rate swap was recorded at the Company’s proportionate share of its estimated fair value, based on Level 2 measurements, of $0.8 million and is included within investment in unconsolidated joint ventures on the consolidated balance sheets. The gain or loss on the derivative instrument is reported as a component of other comprehensive (loss) income and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company did not reclassify any amounts out of other comprehensive (loss) income into equity in loss from unconsolidated affiliates during 2020. See Note 21. Commitments and Contingencies for additional information. Investment in Unconsolidated Joint Ventures The Company evaluates its investment in unconsolidated JVs for impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in the value of the Company’s investment in the unconsolidated JV has Long-lived Assets The Company reviews its long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The fair value of long-lived assets required to be assessed F 33 for impairment is determined on a nonrecurring basis using Level 3 inputs in the fair value hierarchy. During 2020 and 2019 the Company did Fair Value of Financial Instruments The Company uses the following methods and assumptions in estimating fair value for financial instruments:
The carrying amount and estimated fair value, measured on a nonrecurring basis, of the Company’s financial instruments were as follows:
Investments and Senior Notes Held by Special Purpose Entities In connection with a real estate sale in 2014, the Company received consideration including the $200.0 million fifteen-year installment On October 10, 2018, Hurricane Michael made landfall in the Florida F 34 Marina in Gulf County, as well as certain timber, commercial and multi-family leasing assets were impacted. The marinas suffered significant damage requiring long-term restoration and will remain closed during the reconstruction of significant portions of these assets, which is currently underway. The Company maintains property and business interruption insurance, subject to certain deductibles, and is continuing to assess claims under such policies; however, the timing and amount of insurance proceeds are uncertain and may not be sufficient to cover all losses. Timing differences are likely to exist between the impairment losses, capital expenditures made to repair or restore properties and recognition and receipt of insurance proceeds reflected in the Company’s financial statements. During both 2020 and 2019, $1.3 million of insurance proceeds were received related to business interruption insurance, included within cost of hospitality revenue on the consolidated statements of income. During 2020, $0.7 million of business interruption insurance proceeds were received related to Pier Park Crossings JV, included within cost of leasing revenue on the consolidated statements of income. Costs incurred due to business interruption, primarily at the marinas, are continuing to be evaluated. The Company does not expect revenue at these locations until the properties have been rebuilt, but will incur costs for employee retention and property maintenance. During 2020, 2019 and 2018, the Company
8.
Leasing revenue consists of rental revenue from multi-family, retail, office and commercial property The components of leasing revenue are as
Minimum future base rental revenue on non-cancelable leases subsequent to December 31,
As of December 31, F 35 operating lease right-of-use assets are included within other assets on the consolidated balance sheets, which represent the Company’s right to use an underlying asset during a lease term for leases in excess of one year. Corresponding finance lease liability and operating lease liabilities are included within other liabilities on the consolidated balance sheets and are related to the Company’s obligation to make lease payments for leases in excess of one year. Prior to the adoption ASU 2016-02, Leaseson
January 1, 2019 lease assets and liabilities for operating leases were not recognized. The Company uses its incremental borrowing rate to determine the present value of the lease payments since the rate implicit in each lease is not readily determinable. The Company recognizes short-term (twelve months or less) lease payments in profit or loss on a straight-line basis over the term of the lease and variable lease payments in the period in which the obligation for those payments is incurred. The components of lease expense are as follows:
The aggregate payments of finance lease liability subsequent to December 31,
The aggregate payments of operating lease liabilities subsequent to December 31,
F
Other assets consist of the following:
Restricted Investments The Company’s restricted investments are related to the Company’s deferred compensation plan. As part of the Pension Plan termination in 2014, the Company directed the Pension Plan to transfer the Pension Plan’s surplus assets into a suspense account in the Company’s 401(k) plan. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s consolidated balance sheets until they are allocated to current or future 401(k) plan participants Accounts Receivable, Net As of December 31, Homesite Sales Receivable Homesite sales receivable from contracts with customers include estimated homesite residuals and certain estimated fees that are recognized as revenue at the time of sale to homebuilders, subject to constraints. Any change in circumstances from the estimated amounts will be updated at each reporting period. The receivable will be collected as the homebuilders build the homes and sell to retail consumers, which can occur over multiple years. See Note 2. Summary of Significant Accounting Policies for additional information. The following table presents the changes in homesite sales receivable:
F
Notes Receivable Notes receivable consist of the following:
The Company may allow homebuilders to pay for homesites during the home construction period in the form of homebuilder notes. The Company evaluates the carrying value of all notes and the need for an allowance for In June 2020, the Company entered into a $10.0 million secured revolving promissory note with the unconsolidated Latitude Margaritaville Watersound JV. The Latitude Margaritaville Watersound JV Note was provided to finance the development of the pod-level, non-spine infrastructure, which will be repaid by the JV as each home is sold by the JV, with the aggregate unpaid principal and all accrued and unpaid interest due at maturity in June 2025. The Latitude Margaritaville Watersound JV Note is secured by a mortgage and security interest in and on the real property and improvements located on the real property of the JV. See Note 4. Joint Ventures for additional information. Retained Interest Investments The Company has a beneficial interest in certain bankruptcy-remote qualified SPEs used in the installment sale monetization of certain sales of timberlands in 2007 and 2008. The SPEs’ assets are not available to satisfy the Company’s liabilities or obligations and the liabilities of the SPEs are not the Company’s liabilities or obligations. Therefore, the SPEs’ assets and liabilities are not consolidated in the Company’s financial statements as of December 31, F 10. Property and Equipment, Net Property and equipment, net consists of the following:
Depreciation expense on property and equipment was $4.0 million, $3.2 million and $2.4 million in 2020, 2019 and
11. Debt, Net Debt consists of the following:
In October 2015, the Pier Park North JV entered into a $48.2 million loan, secured by a first lien on, and security interest in, a majority of the Pier Park North JV’s property. The PPN JV Loan provides for principal and interest
payments with a final balloon payment at maturity. In connection with the PPN JV Loan, the Company entered into a limited guarantee in favor of the lender, based on its percentage ownership of the JV. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the Pier Park North JV; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary bankruptcy or insolvency proceedings F 40 In May 2018, the Pier Park Crossings JV entered into a $36.6 million loan, insured by HUD, to finance the construction of apartments in Panama City Beach, Florida. The PPC JV Loan provides for
In May 2019, the Watersound Origins Crossings JV entered into a $37.9 million loan to finance the construction of apartments in Watersound, Florida. The Watersound Origins Crossings JV Loan provides for interest only payments for the first thirty months and principal and interest payments thereafter
apartments in Panama City Beach, Florida. The PPC II JV Loan provides for interest only payments for the first twenty-four months and principal and interest payments thereafter with a final balloon payment at maturity in October 2024. The PPC II JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the PPC II JV Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the PPC II JV Loan. The Company is the sole guarantor and receives a monthly fee related to the guarantee from its JV partner based on the JV partner’s ownership percentage. In June 2019, the Watercrest JV entered into a $22.5 million loan to finance the construction of CDD bonds financed the construction of infrastructure improvements at some of the Company’s projects. The principal and interest payments on the bonds are paid by assessments on the properties benefited by the improvements financed by the bonds. The Company has recorded a liability for CDD debt that is associated with platted property, which is the point at which it becomes fixed and determinable. Additionally, the Company has recorded a liability for the portion of the CDD debt that is associated with unplatted property if it is probable and reasonably estimable that the Company will ultimately be responsible for repayment. The Company’s total CDD debt assigned to property it owns was $15.8 million and $17.8 million at December 31, 2020 and 2019, In August 2019, a In F 41 payments thereafter with a final balloon payment at maturity in March 2025. The Airport Hotel Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Airport Hotel Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Airport Hotel Loan. In May 2018, a wholly-owned subsidiary of the Company entered into a $1.7 million construction loan to finance the construction of 2 beach homes located in Panama City Beach, Florida (the “Beach Homes Loan”). The Beach Homes Loan provides for monthly principal and interest payments with a final balloon payment at maturity in May 2029. The Beach Homes Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Beach Homes Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Beach Homes Loan. In March 2017, a wholly-owned subsidiary of the Company entered into a $1.6 million construction loan to finance the construction of a commercial leasing property located in Panama City Beach, Florida (the “Pier Park Outparcel Construction Loan”). The Pier Park Outparcel Construction Loan provides for principal and interest payments with a final balloon payment at maturity in March 2027. The Pier Park Outparcel Construction Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In February 2018, a wholly-owned subsidiary of the Company entered into a $1.9 million construction loan to finance the construction of a commercial leasing property located in Santa Rosa Beach, Florida (the “WaterColor Crossings Construction Loan”). The WaterColor Crossings Construction Loan provides for monthly principal and interest payments with a final balloon payment at maturity in February 2029. The WaterColor Crossings Construction Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the WaterColor Crossings Construction Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the WaterColor Crossings Construction Loan. In April 2020, the Pier Park Resort Hotel JV entered into a loan with an initial amount of $52.5 million up to a maximum of $60.0 million through additional earn-out requests. The Pier Park Resort Hotel JV Loan was entered into to finance the construction of an Embassy Suites by Hilton hotel in the Pier Park area of Panama City Beach, Florida. The In November 2020, a wholly-owned subsidiary of the Company entered into a $16.8 million construction loan to finance the construction of a Homewood Suites by Hilton hotel in the Breakfast Point area of Panama City Beach, Florida. The Breakfast Point Hotel Loan provides for interest only payments for the first twenty-four months and principal and interest payments thereafter through maturity in November 2042. The Breakfast Point Hotel Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Breakfast Point Hotel Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the In November 2020, a wholly-owned subsidiary of the Company entered into a $5.8 million construction loan to finance the construction of a self-storage facility in Santa Rosa Beach, Florida. The Self-Storage Facility Loan provides for interest only payments for the first forty-eight months and principal and interest payments thereafter with a final balloon payment at maturity in November 2025. The Self-Storage Facility Loan is secured by the real property, F 42 assignment of leases and rents and the security interest in the rents and personal property. In connection with the Self-Storage Facility Loan, the Company executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Self-Storage Facility Loan. The Company’s liability as guarantor under the Self-Storage Facility Loan shall not exceed $2.9 million, plus any additional fees, upon reaching and maintaining certain debt service coverage. As of December 31, 2020, there was 0 principal balance and the Company had incurred $0.1 million of loan costs related to the Self-Storage Facility Loan. The Company’s financing agreements are subject to various customary debt covenants and as both of December 31, 2020 and 2019 the Company was in compliance with the financial debt covenants. The aggregate maturities of debt subsequent to December 31,
Other liabilities consist of the following:
Accounts payable as of December 31, 2020 and 2019 includes payables for projects under development and construction. Deferred revenue as of December 31, 2020 and 2019 includes $11.5 million and F 43 Club initiation fees are recognized as revenue over the estimated average duration of membership, which is evaluated periodically. The following table presents the changes in club initiation fees related to contracts with customers:
Remaining performance obligations represent contracted revenue that has not been recognized, which include club initiation fees. As of December 31, 2020 remaining performance obligations were $10.7 million, of which the Company expects to recognize as revenue $2.6 million in less than 1 year, $4.5 million in 1-3 years, $3.0 million in 3-5 years and $0.6 million after 5 years. Advance deposits consist of deposits received on hotel
Income tax expense (benefit) consist of the following:
Total income tax expense (benefit) was allocated in the consolidated financial statements as follows:
F 44 Income tax expense (benefit) attributable to income from operations differed from the amount computed by applying the statutory federal income tax rate of 21% as of December 31, 2020, 2019 and 2018
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented below:
As of December 31,
On September 12, 2019, the Florida Department of Revenue announced that the corporate income tax rate for tax years 2019, 2020, and 2021 was reduced from 5.5% to F 45 income tax expense during 2019 to adjust its deferred tax balances due to the impact on the Company’s existing Florida net operating loss In general, a valuation allowance is recorded if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of the Company’s deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards. In 2018, the Company reassessed its need for a valuation allowance by evaluating all available evidence, including but not limited to historical and projected pre-tax Significant judgment is required in evaluating the Company's uncertain tax positions and determining its provision for income taxes. The Company regularly assesses the likelihood of adverse outcomes resulting from potential
examinations to determine the adequacy of its provision for income taxes and applies a “more-likely-than-not” in determining the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has not identified any material unrecognized tax benefits as of December 31, 2020, 2019 and 2018. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating loss carryovers and carrybacks incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. Based upon current facts and circumstances, the Company does not expect that these provisions would result in a material cash benefit or impact to the effective tax rate. On December 27, 2020, the Taxpayer Certainty and Disaster Tax Relief Act of 2020, a part of the Consolidated Appropriations Act, 2021, was enacted also in response to the COVID-19 pandemic. This legislation provided extensions on several federal tax credits and the expansion of the Employee Retention Credit, in addition to many other provisions. Based upon current facts and circumstances, the Company does not expect that these provisions would result in a material cash benefit or impact to the effective tax rate. The Company is currently open to examination by taxing authorities for the years ended December 31, F 46
Following is a summary of the changes in the balances of accumulated other comprehensive loss, which is presented net of tax:
Following is a summary of the tax effects allocated to other comprehensive
income:
Stock Repurchase Program The Company’s Board During the years ended December 31, F 47 common stock pursuant to its Stock Repurchase Program. The Company may repurchase its common stock in open market purchases from time to time, in privately negotiated transactions or otherwise, pursuant to Rule In December 2020, the Company retired 532,034 shares of treasury stock at a value of $8.8 million. In December 2019, the Company retired 1,263,159 shares of treasury stock at a value of $20.8 million. Dividends During the fourth quarter of 2020, the Company Issuance of Common Stock for Director’s Fees During the year ended December 31, 2020, the Company did 0t issue any common stock for director’s fees. On May 20, 2019, the Company’s Board approved granting to each non-employee director an equity grant with an aggregate fair market value of $50,000 or, at the director’s election, its cash equivalent. On July 1, 2019, 5,708 shares of restricted stock were granted to
On May 23, 2018, the Company’s Board approved granting to each non-employee director an equity grant with an aggregate fair market value of $50,000 or, at the director’s election, its cash equivalent. On July 2, 2018, 2,778 shares of restricted stock were granted to On May 25, 2017, the Company’s Board approved granting to each non-employee director an equity grant with an aggregate fair market value of $50,000 or, at the director’s election, its cash equivalent. On July 3, 2017, 5,334 shares of restricted stock were granted to
For each of the years ended December 31, 2020, 2019 Issuance of Common Stock for Officer Compensation Pursuant to the Company’s 2015 Plan, the Company’s named executive officers (“NEOs”) were provided with the opportunity to elect to receive up to 50% of their discretionary cash incentive award for 2017 performance in shares of Company stock and For the year ended December 31, 2018, the Company recorded expense of $0.2 million related to restricted stock awards to the Company’s NEOs.
16. Stock Based Compensation The Company’s 2015 Total stock-based compensation recorded in other operating and corporate expenses on the consolidated statements of income is as follows:
In 2019
grant date fair value of restricted stock units during 2019 In 2018, the Company granted 9,956 shares, net of shares withheld for taxes, of restricted stock awards to certain of the Company’s NEO’s as their discretionary cash incentive award for 2017 performance under the 2015 Plan, of which all vested during the year ended December 31, 2018. The weighted average grant date fair value of the restricted stock units granted to the Company’s NEO’s during 2018 was $19.32. The total fair value of restricted stock units related to restricted stock awards to the Company’s NEO’s that vested were $0.2 million during 2018. The Company maintains a 401(k) retirement plan covering substantially all officers and employees of the Company, which permits participants to defer up to the maximum allowable amount determined by the IRS of their eligible compensation. As part of the Pension Plan termination in 2014, the Company directed the Pension Plan to transfer $7.9 million of the Pension Plan’s surplus assets into a suspense account in the Company’s 401(k) plan. The Company has retained the risks and rewards of ownership of these assets; therefore, the assets held in the suspense account are included in the Company’s consolidated financial statements until they are allocated to participants. As of December 31, The Company expenses the fair value of the assets at the time the assets are allocated to participants, which is expected to be allocated F 49 18. RiverTown Impact Fees As part of the Company’s April 2014 RiverTown transaction, the buyer, an affiliate of Mattamy (Jacksonville) Partnership d/b/a Mattamy Homes (“Mattamy”), was obligated to pay certain impact fees to the Company prior to April 2, 2019 and, depending on circumstances, potentially thereafter. In June 2018, the Company received $23.1 million from Mattamy to pay the estimated impact fees based on Mattamy’s current development plans and the impact fee schedule in effect at the time of the payment. For the year ended December 31, 2018, the impact fees of $23.1 million were included in real estate revenue in the Company’s consolidated statements of income. Mattamy may be required to pay to the Company additional impact fees based on its future development plans. Any consideration the Company may receive for additional impact fees will be based on a variety of factors outside the Company’s control or ability to estimate, including impact fee increases or decreases by St. Johns County, home sizes and the number of homes built in the project. The Company received impact fees for a total of $1.7 million, $1.3 million and $23.7 million during 2020, 2019 and
Other income (expense) consists of the following:
Investment Income, Net Interest and dividend income includes interest income accrued or received on the Company’s U.S. Treasury Bills, corporate debt securities, commercial paper and money market funds, and dividend income received from the Company’s investment in preferred stock. Accretion income includes the amortization of the premium or accretion of discount related to the Company’s available-for-sale securities, which is amortized based on an effective interest rate method over the term of the available-for-sale securities. Net realized (loss) gain 2018. Unrealized loss on investments, net includes unrealized gains or losses on investments – equity securities. F 50 Interest income from investments in SPEs primarily includes interest earned on the investments held by Panama City Timber Finance Company, LLC, which is used to pay the interest expense for Senior Notes held by Northwest Florida Timber Finance, LLC. Interest Expense Interest expense includes interest incurred related to the Company’s
costs for the Senior Notes issued by Northwest Florida Timber Finance, LLC, are amortized based on the effective interest method at an effective rate of 4.9%. During 2020, 2019
mitigation credits contributed to the Company’s unconsolidated Sea Sound Apartments JV. Gain on land contribution to equity method investment for the year ended December 31, 2019 includes a gain of $0.8 million on land contributed to the Company’s unconsolidated Busy Bee JV and a gain of $1.5 million on land and mitigation credits contributed to the Company’s unconsolidated Pier Park TPS JV. See Note 4. Other Income, Net Other income, net primarily includes income from the Company’s retained interest investments, gain on insurance recovery, loss from hurricane damage and other income and expense items. The Company records the accretion of investment income from its retained interest investment over the life of the retained interest using the effective yield method with rates ranging from 3.7% to During the year ended December 31, 2020 the Company had a $0.7 million gain on insurance recovery and incurred $1.1 million of loss from hurricane damage related to Hurricane Michael. During the year ended December 31, 2019 the company had a $5.3 million gain on insurance recovery and incurred $2.7 million of loss from hurricane damage related to Hurricane Michael. The year ended December 31, 2018 includes a $7.2 million gain on insurance recovery and $8.6 million of loss from hurricane damage, which includes $7.3 million for loss on disposal of assets related to damage and $1.3 million of expenses related to Hurricane Michael. See Note 7. Hurricane Michael for additional Miscellaneous income, net for the year ended December 31, 2018 primarily consists of $2.2 million of income related to the final distribution from the Company’s unconsolidated ALP JV,
The Company F 51 The Company’s reportable segments are strategic business units that offer different products and services. They are each managed separately and decisions about allocations of resources are determined by management based on these strategic business units. The Company uses income before equity in loss from unconsolidated affiliates, income taxes and non-controlling interest, cash flows and other measures for purposes of making decisions about allocating resources to each segment and assessing each segment’s performance, which the Company believes represents current performance measures. The accounting policies of the segments are the same as those described herein. Total revenue represents sales to unaffiliated customers, as reported in the Company’s consolidated statements of income. All significant intercompany transactions have been eliminated in consolidation. The caption entitled “Other” consists of mitigation credit revenue, title fee revenue and corporate operating and general and administrative expenses, net of investment income.
Information by
F
F 53
21. Commitments and Contingencies The Company establishes an accrued liability when it is both probable that a material loss has been incurred and the amount of the loss can be reasonably estimated. The Company will evaluate the range of reasonably estimated losses and record an accrued liability based on what it believes to be the minimum amount in the range, unless it believes an amount within the range is a better estimate than any other amount. In such cases, there may be an exposure to loss in excess of the amounts accrued. The Company evaluates quarterly whether further developments could affect the amount of the accrued liability previously established or would make a loss contingency both probable and reasonably estimable. The Company also provides disclosure when it believes it is reasonably possible that a material loss will be incurred or when it believes it is reasonably possible that the amount of a loss will exceed the recorded liability. The Company reviews loss contingencies at least quarterly to determine whether the likelihood of loss has changed and to assess
whether a reasonable estimate of the loss or range of loss can be made. This estimated range of possible losses is based upon currently available information and is subject to significant judgment and a variety of assumptions, as well as known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate. The Company is subject to a variety of litigation, claims, other disputes and governmental proceedings that arise from time to time in the ordinary course of its business, including litigation related to its prior homebuilding and development activities. The Company cannot make assurances that it will be successful in defending these matters. Based on current knowledge, the Company does not believe that loss contingencies arising from pending litigation, claims, other disputes and governmental proceedings, including those described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period. F 54 The Company is subject to costs arising out of 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 that have been previously sold. It is the Company’s policy to accrue and charge against earnings environmental cleanup costs when it is probable that a liability has been incurred Other litigation, claims The Company has retained certain self-insurance risks with respect to losses for third party liability and property damage, including its timber assets. In June 2020, the Company, as lender, entered into a $10.0 million secured revolving promissory note with the unconsolidated Latitude Margaritaville Watersound JV, as borrower. As of December 31, As of December 31, 2020 and 2019, the Company was required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and mitigation banks of $24.2 million and $10.7 million, As of December 31, In January 2019, the Company’s unconsolidated Pier Park TPS JV, entered into a $14.4 million loan F In November 2019, the Company’s unconsolidated Busy Bee JV, entered into a $5.4 million construction loan maturing in November 2035 (the “Busy Bee JV Construction Loan”) and a $1.2 million equipment loan maturing in November In November 2020, the Company’s unconsolidated Latitude Margaritaville Watersound JV, entered into a $25.0 million construction loan (the “Latitude Margaritaville Watersound JV Loan”). The Latitude Margaritaville Watersound JV Loan bears interest at LIBOR plus 2.5%, with a floor of 3.25%. The Latitude Margaritaville Watersound JV Loan matures in November 2023 and includes additional annual extension rights, subject to bank approval. The Latitude Margaritaville Watersound JV Loan is secured by the real and personal property, assignment of rents, leases and deposits and security interest in the land development, construction contracts, plans and specifications, permits, agreements, approvals, fees and deposits. In connection with the Latitude Margaritaville Watersound JV Loan, the Company and the Company’s JV partner entered into an unconditional guaranty of completion of certain homes in favor of the lender. As of December 31, 2020, $0.6 million was outstanding on the Latitude Margaritaville Watersound JV Loan. The Company has assessed the need to record a liability for the guarantees related to the Company’s unconsolidated JVs and did not record an obligation as of both December 31, 2020 and 2019.As of December 31, 2020, allowance for credit losses related to the contingent aspect of these guarantees, based on historical experience and economic trends, was $0.1 million and is included within other liabilities on the consolidated balance sheets. As part of certain sales of timberlands in 2007, 2008 and 2014, the Company generated significant tax gains. The installment notes structure allowed the Company to defer the resulting federal tax liability of $33.7 million until 2022 - 2023 and $37.8 million until 2029, respectively, the maturity dates for the installment notes. The Company has a deferred tax liability related to the gains in connection with these sales.
22. Subsequent Events On February 23, 2021, the Company and FCM amended the Investment Management Agreement, to provide that the investment guidelines and restrictions described in the Amended Investment Management Agreement require that any new securities for purchase must be issues of the U.S. Treasury or U.S. Treasury Money Market Funds. The Amended Investment Management Agreement terminated specific restrictions from the previous investment guidelines and restrictions. On February 24, 2021, the Company’s Board declared a cash dividend of $0.08 per share on the Company’s common stock, payable on March 30, 2021, to shareholders of record at the close of business on March 8, 2021. F THE ST. JOE COMPANY SCHEDULE III (CONSOLIDATED) - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, (in thousands)
F Notes:
F THE ST. JOE COMPANY SCHEDULE IV (CONSOLIDATED) - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, (in thousands)
The summarized changes in the carrying amount of mortgage loans are as follows:
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