Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Business Overview
St. Joe is a real estate development, asset management and operating company with real estate assets currently concentrated primarily between Tallahassee and Destin, Florida. As a real estate development company, St. Joe seeks to enhance the value of our real estate assets by undertaking targeted types of residential and commercial real estate development opportunities. As an asset management company, St. Joe actively manages leasing operations and forestry operations to capture the value of our real estate assets. As an operating company, St. Joe operates some of the finest resorts and leisure operations that Northwest Florida has to offer, including the award-winning WaterColor Inn.
We believe that our present real estate holdings and liquidity position provide us with numerous opportunities to increase recurring revenue and create long-term value for our shareholders by allowing us to focus on our core business activity of real estate development, asset management and resort operations. We actively seek higher and better uses for our diverse real estate assets through a wide range of strategic activities from land planning and development, to targeted infrastructure improvements and promoting economic development in the Northwest Florida region. We have significant residential and commercial land-use entitlements in hand or in process related to our land. We may explore the sale of all or portions of these assets opportunistically or when we believe that we can better deploy those resources.
Our strategic plan for 2018 includes making investments that we believe will contribute towards increasing our future growth, particularly in real estate projects that provide recurring revenue. Our 2018 capital expenditures budget is estimated to total
$129.6 million
, including
$36.2 million
for the development and acquisition of land for residential real estate projects,
$82.7 million
for our commercial leasing and sales segment,
$9.2 million
for our resorts and leisure segment and
$1.5 million
for our forestry segment and corporate expenditures. We anticipate that these future capital commitments will be funded through new financing arrangements, cash and cash equivalents, short term investments and cash generated from operations.
We expect to make these investments, and possibly other investments, throughout the coming fiscal year, but do not anticipate that we will see the full benefit of our investments during 2018.
Our real estate investment strategy focuses on projects that meet our investment return criteria. The time frame for these expenditures and investments will vary based on the type of project. However, 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. An analysis is conducted for capital expenditures in each of our four segments.
We seek opportunities to invest our funds in ways that could increase our returns. These investments may include longer term commercial or residential real estate or real estate related investments (in which we may play an active or passive role), investments in real estate investment trusts, and other investments in liquid or illiquid securities where we believe we can increase our returns.
Segments
As of
December 31, 2017
, we have the following four operating segments: 1) residential real estate, 2) resorts and leisure 3) commercial leasing and sales and 4) forestry.
Commencing in the fourth quarter of 2017, our commercial real estate segment and leasing operations segment were combined into a new segment titled “commercial leasing and sales”. 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. Prior to the fourth quarter of 2017, commercial real estate and leasing operations were treated as individual operating segments. All prior years’ segment information has been reclassified to conform to the 2017 presentation. The change in reporting segments has no effect on the consolidated balance sheets, statements of operations, statements of comprehensive income (loss) or statements of cash flows for the periods presented.
The following table sets forth the relative contribution of these operating segments to our consolidated operating revenue:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Segment Operating Revenue
|
|
|
|
|
|
Residential real estate
|
22.0
|
%
|
|
20.3
|
%
|
|
20.3
|
%
|
Resorts and leisure
|
55.5
|
%
|
|
59.8
|
%
|
|
52.5
|
%
|
Commercial leasing and sales
|
14.7
|
%
|
|
12.5
|
%
|
|
15.5
|
%
|
Forestry
|
7.3
|
%
|
|
7.0
|
%
|
|
11.6
|
%
|
Other
|
0.5
|
%
|
|
0.4
|
%
|
|
0.1
|
%
|
Consolidated operating revenue
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Residential Real Estate
Our residential real estate segment typically plans and develops residential communities of various sizes. From time to time, our residential real estate segment also evaluates opportunities to maximize value by selling some of our resorts and leisure properties. As is true with all of our projects, what residential real estate will actually be developed, including the actual amount of units that we ultimately approve for development in any residential development community, will depend on our development strategy, the extent to which the anticipated returns of the project meet our investment return criteria, and the availability of capital resources to fund the development. The following is a description of some of our major residential development communities that we are currently in the process of planning or developing.
The Watersound Origins community
is a residential community in South Walton County, Florida with direct access to Lake Powell. The project has received government approval for 1,074 single family units with an additional multi-family component. The Watersound Origins community includes a six-hole golf course, which is owned by us and operated by our resorts and leisure segment.
The Breakfast Point community
is a residential community in Panama City Beach, Florida. The project has received government approval for 368 single family units.
The SouthWood community
is a large scale, mixed use community located in Tallahassee, Florida. The project has received government approval for 4,770 residential units, including 2,074 single family residences and 2,696 multi-family units. SouthWood also includes a golf clubhouse, 18-hole golf course and a town center with dining, retail shops and offices. The SouthWood Golf Club is operated by our resorts and leisure segment and a portion of the town center is leased and operated by our commercial leasing and sales segment.
We have other residential communities, such as the SummerCamp Beach, RiverCamps, WindMark Beach and WaterColor communities that have homesites available for sale or future development. In addition, we have residential communities, such as the WaterSound Beach and WaterSound West Beach that are substantially developed, and the remaining developed and available homesites in these communities are available for sale.
Our residential real estate segment generates revenue primarily from the sale of developed homesites; the sale of parcels of entitled, undeveloped land; a lot residual on homebuilder sales that provides us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold; the sale of impact fee credits; marketing fees and other fees on certain transactions. The results of our residential real estate revenue may vary from period to period depending on the communities where lots are sold, as prices vary significantly by community. In addition, the majority of our sales are to homebuilders, who generally buy more homesites in a single transaction but tend to buy on a more sporadic basis. As a result, we may experience volatility in the consistency and pace of our residential real estate sales.
Our residential real estate segment incurs cost of revenue primarily from costs directly associated with the land, development and construction of real estate sold and indirect costs such as development overhead, capitalized interest, marketing, project administration and selling costs.
The Bay-Walton Sector Plan is a long term master plan that includes entitlements, or legal rights, to develop over 170,000 residential units and over 22 million square feet of retail, commercial, and industrial uses on approximately 110,500 acres of our land holdings. We anticipate a wide range of residential and commercial uses on these land holdings, including some portion of these entitlements serving the active adult retirement market. We believe that there are growing retirement and workforce housing demographics and that our development experience and the location, size and contiguous nature of our Florida land holdings provide us with strategic opportunities in these demographics.
As part of the April 2014 RiverTown real estate sale, the buyer, Mattamy, is obligated to pay impact fees to us. Based on Mattamy’s current development plans and St. Johns County’s current costs for impact fees, we estimate that we may receive $20.0 million to $26.0 million for the impact fees over the five-year period following the closing (most of which we expect to receive at the end of that five-year period, which is April 2, 2019). However, the actual consideration we will receive for the impact fees will be based on a variety of factors outside our control. We received impact fees of
$0.9 million
,
$0.4 million
and
$0.1 million
, during
2017
,
2016
and
2015
, respectively. In total, we have received approximately
$1.6 million
from April 2014 through
December 31, 2017
.
Resorts and Leisure
Our resorts and leisure segment features a hotel and a diverse portfolio of vacation rentals, as well as restaurants, golf courses, a beach club, marinas and other resort amenities.
WaterColor Inn, Vacation Rentals and Other Management Services
- Our WaterColor Inn and vacation rentals generated revenue from (1) the WaterColor Inn and other management services, (2) our management of The Pearl Hotel, (3) our vacation rental business and (4) our restaurants. The WaterColor Inn incurs expenses from the cost of services and goods provided, maintenance of the inn’s facilities, personnel costs and third-party management fees. Revenue generated from our management services of The Pearl Hotel includes a management fee, fifty percent of certain resort fees and a percentage of The Pearl Hotel’s gross operating profit. Expenses include primarily internal administrative costs. Our vacation rental business generates revenue from the rental of private homes and other services, which includes the entire rental fee collected from the customer, including the homeowner’s portion. A percentage of the fee is remitted to the homeowner and presented in the cost of resorts and leisure revenue. The vacation rental business also incurs expenses from holding costs of assets we own and standard lodging personnel, such as front desk, reservations and marketing. As discussed further below, we sold our short term vacation rental management business during December 2017. Following the December 2017 sale, we no longer manage third party vacation rentals, but continue to manage vacation rental properties we own. Our restaurants generate revenue from food and beverage sales and incur expenses from the cost of services and goods provided and standard restaurant personnel costs.
Clubs
- Our club operations include our golf courses, beach club and facilities that generate revenue from membership sales, membership reservations, daily play at our golf courses, merchandise sales and food and beverage sales and incur expenses from the services provided, maintenance of the golf courses, beach club and facilities, personnel costs and third-party management fees.
Marinas
- Our marinas generate revenue from boat slip rentals and fuel sales, and incur expenses from cost of services provided, maintenance of the marina facilities, personnel costs and third-party management fees.
From time to time, we may explore the sale of certain resort and leisure properties, as well as development of new resort and leisure properties.
Commercial Leasing and Sales
Our commercial leasing and sales segment includes the leasing of retail, office and commercial property, cell towers, and other assets as well as planning, development, entitlement, management and sale of our commercial land holdings for a variety of uses, including a broad range of retail, office, hotel, multi-family and industrial uses. Our commercial leasing and sales 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 for retail, office, hotel, multi-family and industrial uses, from the sale of undeveloped land or land with limited development and 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 and selling costs. Our Pier Park North JV incurs interest and financing expenses related to its loan as described in
Note 11.
Debt
included in the notes to the consolidated financial statements included in Item 15 of this Form 10-K
. As is true with all of our projects, what commercial real estate will actually be developed will depend on our development strategy, the extent to which the anticipated returns of the project meet our investment return criteria, and the availability of capital resources to fund the development. From time to time, our commercial leasing and sales segment also evaluates opportunities to maximize value by selling some of our resorts and leisure properties.
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. Our forestry segment revenue includes the sale of pulpwood, sawtimber and other forest products and incurs costs of revenue from internal costs of forestry management and property taxes.
As of
December 31, 2017
, we had an estimated 2.5 million tons of marketable pulpwood and 2.7 million tons of marketable sawlogs on approximately 60,000 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 330,000 tons of pulpwood and sawlogs during 2018.
Our forestry segment may also generate revenue from the sale or lease of our timber holdings, undeveloped land or land with limited development and easements. Costs incurred as part of a sale of these lands may include the cost of timber, land, minimal development costs and selling costs.
Results of Operations
Consolidated Results
Revenue and expenses.
The following table sets forth a comparison of the results of our operations for the three years ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Revenue:
|
|
|
|
|
|
Real estate revenue
|
$
|
27.7
|
|
|
$
|
23.4
|
|
|
$
|
33.7
|
|
Resorts and leisure revenue
|
54.8
|
|
|
57.3
|
|
|
54.5
|
|
Leasing revenue
|
10.7
|
|
|
9.8
|
|
|
9.0
|
|
Timber revenue
|
5.6
|
|
|
5.2
|
|
|
6.7
|
|
Total
|
98.8
|
|
|
95.7
|
|
|
103.9
|
|
Expenses:
|
|
|
|
|
|
Cost of real estate revenue
|
15.4
|
|
|
8.0
|
|
|
16.4
|
|
Cost of resorts and leisure revenue
|
47.8
|
|
|
50.2
|
|
|
47.1
|
|
Cost of leasing revenue
|
3.2
|
|
|
3.1
|
|
|
2.8
|
|
Cost of timber revenue
|
0.8
|
|
|
0.8
|
|
|
0.8
|
|
Other operating and corporate expenses
|
20.4
|
|
|
23.1
|
|
|
33.4
|
|
Depreciation, depletion and amortization
|
8.9
|
|
|
8.6
|
|
|
9.5
|
|
Total
|
96.5
|
|
|
93.8
|
|
|
110.0
|
|
Operating income (loss)
|
2.3
|
|
|
1.9
|
|
|
(6.1
|
)
|
Other income (expense):
|
|
|
|
|
|
Investment income, net
|
35.4
|
|
|
17.8
|
|
|
22.7
|
|
Interest expense
|
(12.2
|
)
|
|
(12.3
|
)
|
|
(11.4
|
)
|
Claim settlement
|
—
|
|
|
12.5
|
|
|
—
|
|
Sale of vacation rental management, net
|
9.8
|
|
|
—
|
|
|
—
|
|
Other income (expense), net
|
6.0
|
|
|
2.7
|
|
|
(6.3
|
)
|
Total other income, net
|
39.0
|
|
|
20.7
|
|
|
5.0
|
|
Income (loss) before income taxes
|
41.3
|
|
|
22.6
|
|
|
(1.1
|
)
|
Income tax benefit (expense)
|
17.9
|
|
|
(7.1
|
)
|
|
(0.8
|
)
|
Net income (loss)
|
$
|
59.2
|
|
|
$
|
15.5
|
|
|
$
|
(1.9
|
)
|
Real Estate Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
%
(1)
|
|
2016
|
|
%
(1)
|
|
2015
|
|
%
(1)
|
|
Dollars in millions
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate revenue
|
$
|
21.6
|
|
|
78.0
|
%
|
|
$
|
19.5
|
|
|
83.3
|
%
|
|
$
|
21.2
|
|
|
62.9
|
%
|
Commercial real estate revenue
|
3.9
|
|
|
14.1
|
%
|
|
2.1
|
|
|
9.0
|
%
|
|
7.2
|
|
|
21.4
|
%
|
Rural land and other revenue
|
2.2
|
|
|
7.9
|
%
|
|
1.8
|
|
|
7.7
|
%
|
|
5.3
|
|
|
15.7
|
%
|
Real estate revenue
|
$
|
27.7
|
|
|
100.0
|
%
|
|
$
|
23.4
|
|
|
100.0
|
%
|
|
$
|
33.7
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
$
|
9.1
|
|
|
42.1
|
%
|
|
$
|
13.1
|
|
|
67.2
|
%
|
|
$
|
10.3
|
|
|
48.6
|
%
|
Commercial real estate
|
1.1
|
|
|
28.2
|
%
|
|
0.8
|
|
|
38.1
|
%
|
|
2.2
|
|
|
30.6
|
%
|
Rural land and other
|
2.1
|
|
|
95.5
|
%
|
|
1.5
|
|
|
83.3
|
%
|
|
4.8
|
|
|
90.6
|
%
|
Gross profit
|
$
|
12.3
|
|
|
44.4
|
%
|
|
$
|
15.4
|
|
|
65.8
|
%
|
|
$
|
17.3
|
|
|
51.3
|
%
|
|
|
|
(1)
|
Calculated percentage of total real estate revenue and the respective gross margin percentage.
|
Real Estate Revenue and Gross Profit.
During
2017
, residential real estate revenue increased
$2.1 million
, or
10.8%
, to
$21.6 million
, as compared to
$19.5 million
during
2016
, and gross profit decreased
$4.0 million
, or
30.5%
, to
$9.1 million
, (or gross margin of
42.1%
), as compared to
$13.1 million
, (or gross margin of
67.2%
), during
2016
. During
2017
, we sold
174
homesites and
3
homes, compared to
106
homesites during
2016
.
During
2016
, residential real estate revenue decreased
$1.7 million
, or
8.0%
, to
$19.5 million
, as compared to
$21.2 million
during
2015
. During
2016
, residential real estate gross profit increased
$2.8 million
, or
27.2%
, to
$13.1 million
, (or gross margin of
67.2%
), as compared to
$10.3 million
, (or gross margin of
48.6%
), during
2015
. During
2016
, we sold
106
homesites compared to
161
homesites and a home during
2015
.
The number of lots sold varied each period due to the timing of builder contractual closing obligations and the timing of development of finished lots in our residential communities. The revenue and gross profit for each period was impacted by the volume of sales within each of the communities and the difference in pricing among the communities. Included in the residential real estate revenue for
2016
, is a $3.4 million unimproved land sale with a gross profit of $3.3 million due to a low historical basis.
Commercial Real Estate Revenue and Gross Profit.
Revenue from commercial real estate can vary drastically 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. During
2017
, we had nine commercial real estate sales totaling approximately 49 acres for
$3.9 million
. During
2016
, we had eight commercial real estate sales totaling approximately 17 acres for
$2.1 million
. During
2015
, we had three commercial real estate sales totaling approximately 14 acres for
$7.2 million
.
During
2016
, cost of commercial real estate revenue included $0.9 million on the sale of commercial real estate and $0.4 million of impairment charges related to a commerce park, which resulted in commercial real estate gross profit of
$0.8 million
, or
38.1%
.
Rural Land and Other Revenue and Gross Profit.
During
2017
, we sold approximately
382
acres of rural and timber land for
$1.7 million
and mitigation bank credits for
$0.5 million
. During
2016
, we sold approximately
786
acres of rural and timber land for
$1.4 million
and mitigation bank credits for
$0.4 million
. During
2015
we sold approximately
3,330
acres of rural and timber land for
$5.3 million
and mitigation bank credits for less than
$0.1 million
. Revenue from rural and timber land can vary drastically from period to period.
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 basis than residential and commercial real estate sales. In addition, our 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 Leasing and Sales
and
Forestry
.
Resorts and Leisure Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Resorts and leisure revenue
|
$
|
54.8
|
|
|
$
|
57.3
|
|
|
$
|
54.5
|
|
Gross profit
|
$
|
7.0
|
|
|
$
|
7.1
|
|
|
$
|
7.4
|
|
Gross margin
|
12.8
|
%
|
|
12.4
|
%
|
|
13.6
|
%
|
Resorts and leisure revenue decreased
$2.5 million
, or
4.4%
, during
2017
, as compared to
2016
. The decrease in resorts and leisure revenue is due to a decrease of
$3.7 million
primarily from reduced vacation rental inventory based on a conscious decision to focus on higher yielding homes prior to the sale of our short term vacation rental management business in December 2017 as discussed further below, offset by an increase of
$1.1 million
in club revenue related to an increase in number of members and membership revenue. Resorts and leisure had a gross margin during
2017
of
12.8%
, compared to
12.4%
during
2016
, and the increase is primarily due to membership revenue and controlled expenses.
Resorts and leisure revenue increased
$2.8 million
, or
5.1%
, during
2016
, as compared to
2015
. The increase in our resorts and leisure revenue included an increase of $1.6 million in vacation rentals, due to an increase in average room rate along with an increase in average home size managed in the vacation rental program, an increase of $0.7 million for growth in rounds played at the golf courses by resort guests along with a strong showing by our food and beverage component and increases in ancillary spend for recreation, spa and resort service fees, and an increase of $0.5 million for membership growth. Resorts and leisure had a gross margin during
2016
of
12.4%
, compared to
13.6%
during
2015
, the decrease is primarily due to increased cost of revenue in our vacation rental business, higher contract labor rates and hours worked as compared to 2015 and a one-time homeowner association payment of
$0.7 million
.
Leasing Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Leasing revenue
|
$
|
10.7
|
|
|
$
|
9.8
|
|
|
$
|
9.0
|
|
Gross profit
|
$
|
7.5
|
|
|
$
|
6.7
|
|
|
$
|
6.2
|
|
Gross margin
|
70.1
|
%
|
|
68.4
|
%
|
|
68.9
|
%
|
Leasing revenue increased
$0.9 million
, or
9.2%
, during
2017
, as compared to
2016
, primarily due to the acquisition of two office buildings in April 2017, as well as new leases at other properties. Cost of leasing revenue was essentially flat for 2017 and 2016, which resulted in an increase to gross margin for the period. Leasing revenue increased
$0.8 million
, or
8.9%
, during
2016
, as compared to
2015
, primarily due to the continued commencement of revenue from new store openings in our Pier Park North JV, as well as other new leases. We recognized
$5.5 million
,
$5.4 million
and
$4.6 million
of leasing revenue from the Pier Park North JV during
2017
,
2016
and
2015
, respectively.
Timber Revenue and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Timber revenue
|
$
|
5.6
|
|
|
$
|
5.2
|
|
|
$
|
6.7
|
|
Gross profit
|
$
|
4.8
|
|
|
$
|
4.4
|
|
|
$
|
5.9
|
|
Gross margin
|
85.7
|
%
|
|
84.6
|
%
|
|
88.1
|
%
|
Timber revenue increased
$0.4 million
, or
7.7%
, during
2017
, as compared to
2016
, primarily due to an increase in the amount of tons sold, offset by price decreases due to fluctuations in market supply. There were
364,000
tons sold during
2017
, as compared to
309,000
tons sold during
2016
. Gross margin increased during
2017
to
85.7%
, as compared to
84.6%
during the same period in
2016
, due to the increase in timber revenue. The cost of timber revenue is primarily fixed, which resulted in an increase to gross margin for the period.
Timber revenue decreased
$1.5 million
, or
22.4%
, during
2016
, as compared to
2015
, primarily due to a decrease in the amount of tons sold due to fluctuations in market supply. There were
309,000
tons sold during
2016
, as compared to
375,000
tons sold during
2015
. Gross margin decreased during
2016
to
84.6%
, as compared to
88.1%
during the same period in
2015
, primarily due to fluctuations in product mix and market supply.
Other Operating and Corporate Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Employee costs
|
$
|
6.9
|
|
|
$
|
7.1
|
|
|
$
|
13.8
|
|
401(k) contribution
|
1.2
|
|
|
1.4
|
|
|
1.3
|
|
Non-cash stock compensation costs
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
Property taxes and insurance
|
5.2
|
|
|
5.6
|
|
|
5.7
|
|
Professional fees
|
2.9
|
|
|
5.0
|
|
|
7.4
|
|
Marketing and owner association costs
|
1.5
|
|
|
1.5
|
|
|
1.4
|
|
Occupancy, repairs and maintenance
|
0.6
|
|
|
0.7
|
|
|
1.3
|
|
Other
|
2.0
|
|
|
1.7
|
|
|
2.3
|
|
Total other operating and corporate expenses
|
$
|
20.4
|
|
|
$
|
23.1
|
|
|
$
|
33.4
|
|
Other operating and corporate expenses decreased by
$2.7 million
or
11.7%
, during
2017
, as compared to
2016
. The decrease in other operating and corporate expenses included a decrease in professional fees of $2.1 million, partially due to a litigation settlement that resulted in the reimbursement of legal expenses of $0.7 million during 2017. The decrease in other operating and corporate expenses during 2017 reflects our continued focus on a low expense structure.
Other operating and corporate expenses decreased by
$10.3 million
, or
30.8%
, during
2016
, as compared to
2015
, primarily due to our focus on a low expense structure, which led to decreases in personnel costs, professional fees and other expenses.
Depreciation, Depletion and Amortization
The increase of
$0.3 million
in depreciation, depletion and amortization expenses in
2017
, as compared to
2016
, was primarily due to properties acquired or constructed during 2017, offset by a decrease for operating assets being fully depreciated. The decrease of
$0.9 million
in depreciation, depletion and amortization expenses in
2016
, as compared to
2015
, was primarily due to operating assets being fully depreciated.
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, less other-than-temporary impairment loss, (iv) interest income earned on the time deposit held by a special purpose entity and (v) interest earned on notes receivable and other receivables as detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Net investment income from available-for-sale securities
|
|
|
|
|
|
Interest and dividend income
|
$
|
16.4
|
|
|
$
|
6.6
|
|
|
$
|
7.0
|
|
Accretion income
|
2.0
|
|
|
1.8
|
|
|
1.5
|
|
Net realized gain on the sale of investments
|
10.7
|
|
|
0.8
|
|
|
5.3
|
|
Other-than-temporary impairment loss
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
Total net investment income from available-for-sale securities
|
26.8
|
|
|
9.2
|
|
|
13.8
|
|
Interest income from investments in special purpose entities
|
8.2
|
|
|
8.2
|
|
|
8.2
|
|
Interest accrued on notes receivable and other interest
|
0.4
|
|
|
0.4
|
|
|
0.7
|
|
Total investment income, net
|
$
|
35.4
|
|
|
$
|
17.8
|
|
|
$
|
22.7
|
|
Investment income, net increased
$17.6 million
to
$35.4 million
for
2017
, as compared to
$17.8 million
for
2016
. The increase in interest and dividend income for 2017, as compared to the same period in 2016, is primarily due to changes in our investment portfolio including cash equivalents. During 2017, our investment portfolio included a higher percentage of corporate debt securities and preferred stock as compared to 2016. The returns on the corporate debt securities and preferred stock are generally higher than the returns on the U.S. Treasury Bills and cash equivalents. Investment income, net for 2017 also includes the sale of certain corporate debt securities, preferred stock, common stock and U.S. Treasury securities at a net realized gain of
$10.7 million
, partially offset by an other-than-temporary impairment for credit-related loss of
$2.3 million
.
Investment income, net decreased
$4.9 million
to
$17.8 million
for
2016
, as compared to
$22.7 million
for
2015
. During the years ended December 31, 2016 and 2015, the average balance of investments was approximately $202.7 million and $368.2 million, respectively. The decrease in investments during 2016 is primarily related to a change in investments from U.S. Treasury securities to commercial paper, which is included in cash and cash equivalents on our consolidated balance sheets. The net realized gain on sale of investments during 2016 and 2015 of
$0.8 million
and
$5.3 million
, respectively.
Interest Expense
Interest expense primarily includes interest expense on our Community Development District (“CDD”) debt, the senior notes (“Senior Notes”) issued by Northwest Florida Timber Finance, LLC, the Refinanced Loan for our consolidated Pier Park North JV and a commercial leasing property construction loan (the “Construction Loan”) as detailed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
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
|
3.4
|
|
|
3.5
|
|
|
2.6
|
|
Total interest expense
|
$
|
12.2
|
|
|
$
|
12.3
|
|
|
$
|
11.4
|
|
Interest expense during
2017
as compared to
2016
had a minimal change. Interest expense increased by
$0.9 million
, or
7.9%
, during,
2016
as compared to
2015
, primarily due to an increase in interest expense related to the Refinanced Loan for our consolidated Pier Park North JV.
Claim Settlement
On March 24, 2016, we entered into a full and final release agreement with BP p.l.c. and various related entities pursuant to which we, on our behalf and on behalf of certain wholly owned subsidiaries, released any and all claims related to the Deepwater Horizon oil spill which occurred on April 20, 2010. In exchange for this release, we will receive
$13.2 million
from BP Exploration & Production Inc., a large portion of which will reimburse us for expenses incurred. In October 2017 and 2016, the Company received payments of
$2.7 million
and
$5.0 million
, respectively. The remaining settlement amount will be made in payments of
$2.7 million
due in October 2018 and 2019. We also received a guaranty of payments from BP North America Corporation Inc. As of March 24, 2016, we recorded the claim settlement receivable using an imputed interest rate of
3.0%
, based on our best estimate of the prevailing market rates for the source of credit, resulting in an initial present value of
$12.5 million
and a discount of
$0.7 million
. The claim settlement of
$12.5 million
was recognized as other income in our consolidated statements of operations for the year ended
December 31, 2016
. The discount is being accreted over the term of the receivable using the effective interest method. Interest income for
2017
and the period from March 24, 2016 to
December 31, 2016
was
$0.2 million
and
$0.3 million
, respectively.
Sale of Vacation Rental Management, net
In December 2017, we entered into and consummated an Asset Purchase Agreement (the “PCR Purchase Agreement”) with PCR Rentals LLC, (“PCR”) for the sale of our short term vacation rental management business (the “PCR Rentals Sale”).
The PCR Purchase Agreement contained representations and warranties, confidentiality and indemnification provisions of the type customarily found in these types of transactions. We also have a limited right of first refusal on any third party offer to purchase the vacation rental management business that will end upon the earlier of (i) 18 months after the date of the PCR Rentals Sale or (ii) the later of (x) the date of payoff of the PCR Note (as defined below) and (y) nine months after the date of the PCR Rentals Sale.
We received proceeds of approximately $9.9 million, which resulted in a net gain of
$9.8 million
, from the PCR Rentals Sale, consisting of approximately $4.9 million in cash and transfer of liabilities and $5.0 million in the form of a promissory note (the “PCR Note”) secured by certain assets of PCR. The PCR Note bears interest at 10% per annum and matures on December 31, 2020, unless it matures earlier upon acceleration, by prepayment or otherwise. On February 14, 2018, the PCR Note was paid in full.
Other Income (Expense), Net
Other income (expense), net primarily includes insurance settlement proceeds and fees and expenses related to a resolved SEC investigation, income from our retained interest investments, hunting lease income and other income and expense items as detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Accretion income from retained interest investments
|
$
|
1.1
|
|
|
$
|
1.0
|
|
|
$
|
0.9
|
|
Hunting lease income
|
0.6
|
|
|
0.6
|
|
|
0.6
|
|
Miscellaneous income (expense), net
|
4.3
|
|
|
1.1
|
|
|
(7.8
|
)
|
Other income (expense), net
|
$
|
6.0
|
|
|
$
|
2.7
|
|
|
$
|
(6.3
|
)
|
Other income (expense), net increased
$3.3 million
during
2017
, as compared to the same period in
2016
. During 2017, we negotiated an insurance settlement that resulted in proceeds of $3.5 million, included within miscellaneous income (expense), net, for reimbursement of certain attorney fees and related costs incurred by us in defending shareholder litigation and the SEC investigation, which was resolved in October 2015.
Other income (expense), net was
$2.7 million
of income during
2016
, and
$6.3 million
of expense during
2015
. In 2015, we incurred
$8.2 million
of expenses related to an SEC investigation, which was resolved in October 2015. In 2016, SEC investigation expenses were partially offset by the reversal of an accrual of
$0.7 million
. These amounts were included within miscellaneous income (expense), net.
Income Tax Benefit (Expense)
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.
Our income tax benefit in
2017
was
$17.9 million
compared to income tax expense of
$7.1 million
and
$0.8 million
in
2016
and
2015
, respectively. Our effective tax rate was (
42.9%
),
31.0%
and
87.5%
in
2017
,
2016
and
2015
, respectively.
Our effective rate for
2017
differed from the federal statutory rate of 35% primarily due to the effect of the new 21% federal corporate income tax rate enacted in December 2017, impact of state taxes, changes in the valuation allowance and changes in permanent book to tax differences. Our effective rate for
2016
differed from the federal statutory rate of 35% primarily due to the impact of state taxes, changes in the valuation allowance and changes in permanent book to tax differences. Our effective rate for
2015
reflected $2.8 million of settlement costs related to an SEC investigation that was not deductible for income tax purposes, which increased our effective rate.
In the future, we expect that our effective rate will be closer to the statutory rate.
Segment Results
Residential Real Estate
The table below sets forth the results of operations of our residential real estate segment for the three years ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Revenue:
|
|
|
|
|
|
Real estate revenue
|
$
|
19.6
|
|
|
$
|
17.5
|
|
|
$
|
19.4
|
|
Other revenue
|
2.1
|
|
|
2.0
|
|
|
1.8
|
|
Total revenue
|
21.7
|
|
|
19.5
|
|
|
21.2
|
|
Expenses:
|
|
|
|
|
|
Cost of real estate and other revenue
|
12.5
|
|
|
6.4
|
|
|
10.9
|
|
Other operating expenses
|
4.3
|
|
|
5.7
|
|
|
10.2
|
|
Depreciation and amortization
|
0.1
|
|
|
0.3
|
|
|
0.5
|
|
Total expenses
|
16.9
|
|
|
12.4
|
|
|
21.6
|
|
Operating income (loss)
|
4.8
|
|
|
7.1
|
|
|
(0.4
|
)
|
Other (expense) income:
|
|
|
|
|
|
Interest expense
|
(1.2
|
)
|
|
(1.3
|
)
|
|
(1.2
|
)
|
Other income, net
|
0.3
|
|
|
0.1
|
|
|
0.8
|
|
Total other expense, net
|
(0.9
|
)
|
|
(1.2
|
)
|
|
(0.4
|
)
|
Net income (loss) before income taxes
|
$
|
3.9
|
|
|
$
|
5.9
|
|
|
$
|
(0.8
|
)
|
Real estate revenue includes sales of homes, homesites and other residential land and certain lot residuals from homebuilder sales that provide us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold. Other revenue includes brokerage fees, marketing fees and impact fee credits sold. 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). During 2015, other operating expenses include non-recurring expenses related to the Bay-Walton Sector Plan.
Year Ended
December 31, 2017
Compared to the Year Ended
December 31, 2016
The following table sets forth our residential real estate revenue and cost of revenue activity by property type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Units Sold
|
|
Revenue
|
|
Cost of Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
Units Sold
|
|
Revenue
|
|
Cost of Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
Dollars in millions
|
Homesites
|
174
|
|
|
$
|
18.2
|
|
|
$
|
10.3
|
|
|
$
|
7.9
|
|
|
43.4
|
%
|
|
106
|
|
|
$
|
14.1
|
|
|
$
|
5.7
|
|
|
$
|
8.4
|
|
|
59.6
|
%
|
Homes
|
3
|
|
|
1.4
|
|
|
1.3
|
|
|
0.1
|
|
|
7.1
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Land sale
|
N/A
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
N/A
|
|
|
3.4
|
|
|
0.1
|
|
|
3.3
|
|
|
97.1
|
%
|
Total
|
177
|
|
|
$
|
19.6
|
|
|
$
|
11.6
|
|
|
$
|
8.0
|
|
|
40.8
|
%
|
|
106
|
|
|
$
|
17.5
|
|
|
$
|
5.8
|
|
|
$
|
11.7
|
|
|
66.9
|
%
|
Homesites.
Revenue from homesite sales increased
$4.1 million
, or
29.1%
, during
2017
, as compared to
2016
, due to the mix of homesites sold, the timing of builder contractual closing obligations and the timing of development of finished lots in our residential communities such as Watersound Origins, Breakfast Point and SouthWood. Revenue from homesites during 2017 included the sale of 64 lots in the WindMark Beach community to a homebuilder. During
2017
and
2016
, the average revenue per homesite sold was approximately $95,000 and $114,000, respectively, due to the location of the homesites. Gross margin decreased to
43.4%
during
2017
, as compared to
59.6%
during
2016
, primarily due to the mix of homesites sold during each respective period and the timing of the receipt of lot residuals that have no related costs at the time of recognition.
Homes.
Revenue from home sales in 2017 of
$1.4 million
is related to three completed homes that were sold within three of our communities.
Land sale.
During 2016, we had a sale of approximately 111 acres of unimproved residential land for $3.4 million resulting in a gross margin of $3.3 million.
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. In the second quarter of 2017, a litigation settlement resulted in the reimbursement of legal expenses of $0.7 million, which is reflected in other operating expenses for 2017. Other operating expenses decreased
$1.4 million
, or
24.6%
, during
2017
, as compared to
2016
, primarily due to the legal expense reimbursement noted above along with decreases in property taxes, owner association assessments, personnel costs, professional fees and other administrative expenses.
Interest expense primarily consists of interest expense on our portion of the total outstanding CDD debt.
Other income, net primarily consists of interest earned on our mortgage notes receivable and other miscellaneous income.
Year Ended
December 31, 2016
Compared to the Year Ended
December 31, 2015
The following table sets forth our residential real estate revenue and cost of revenue activity by property type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Units Sold
|
|
Revenue
|
|
Cost of
Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
Units Sold
|
|
Revenue
|
|
Cost of Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
Dollars in millions
|
Homesites
|
106
|
|
|
$
|
14.1
|
|
|
$
|
5.7
|
|
|
$
|
8.4
|
|
|
59.6
|
%
|
|
161
|
|
|
$
|
18.6
|
|
|
$
|
8.8
|
|
|
$
|
9.8
|
|
|
52.7
|
%
|
Home
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
1
|
|
|
0.8
|
|
|
0.8
|
|
|
—
|
|
|
—
|
%
|
Land sale
|
N/A
|
|
|
3.4
|
|
|
0.1
|
|
|
3.3
|
|
|
97.1
|
%
|
|
N/A
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Total
|
106
|
|
|
$
|
17.5
|
|
|
$
|
5.8
|
|
|
$
|
11.7
|
|
|
66.9
|
%
|
|
162
|
|
|
$
|
19.4
|
|
|
$
|
9.6
|
|
|
$
|
9.8
|
|
|
50.5
|
%
|
Homesites.
Revenue from homesite sales decreased
$4.5 million
, or
24.2%
, during
2016
, as compared to
2015
, due to the mix of homesites sold and timing of sales which were primarily in the Watersound Origins, Breakfast Point, and Southwood communities. During
2016
and
2015
, the average revenue per homesite sold was approximately $114,000 and $106,000, respectively, due to the location of the homesites. Gross margin increased to
59.6%
during
2016
, as compared to
52.7%
during
2015
, primarily due to price increases in certain communities, the mix of homesites sold during each respective period and the receipt of lot residuals that have no related costs at the time of recognition.
Home.
Revenue from the home sale in 2015 of
$0.8 million
is related to a completed home that was sold within the WaterSound Beach community.
Land sale.
During 2016, we had a sale of approximately 111 acres of unimproved residential land for $3.4 million resulting in a gross margin of $3.3 million.
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. Other operating expenses decreased
$4.5 million
, or
44.1%
, during
2016
, as compared to
2015
, primarily due to decreases in personnel costs and professional fees, due to our continued focus on a low expense structure as well as non-recurring expenses during 2015 related to the Bay-Walton Sector Plan.
Interest expense primarily consists of interest expense on our portion of the total outstanding CDD debt.
Other income, net primarily includes interest earned on our mortgage notes receivables and other miscellaneous income and expenses. Other income, net decreased
$0.7 million
during
2016
, as compared to
2015
, primarily due to a decrease in interest earned on the RiverTown Note that was paid in June 2015.
Resorts and Leisure
The table below sets forth the results of operations of our resorts and leisure segment for the three years ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Revenue:
|
|
|
|
|
|
Resorts and leisure revenue
|
$
|
54.8
|
|
|
$
|
57.3
|
|
|
$
|
54.5
|
|
Expenses:
|
|
|
|
|
|
Cost of resorts and leisure revenue
|
47.8
|
|
|
50.2
|
|
|
47.1
|
|
Cost of other revenue
|
—
|
|
|
—
|
|
|
—
|
|
Other operating expenses
|
0.5
|
|
|
0.5
|
|
|
0.4
|
|
Depreciation
|
4.2
|
|
|
4.5
|
|
|
5.1
|
|
Total expenses
|
52.5
|
|
|
55.2
|
|
|
52.6
|
|
Operating income
|
2.3
|
|
|
2.1
|
|
|
1.9
|
|
Other income (expense):
|
|
|
|
|
|
Sale of vacation rental management, net
|
9.8
|
|
|
—
|
|
|
—
|
|
Other income (expense), net
|
0.3
|
|
|
—
|
|
|
(0.1
|
)
|
Total other income (expense), net
|
10.1
|
|
|
—
|
|
|
(0.1
|
)
|
Net income before income taxes
|
$
|
12.4
|
|
|
$
|
2.1
|
|
|
$
|
1.8
|
|
Year Ended
December 31,
2017
Compared to Year Ended
December 31,
2016
The following table sets forth the detail of our resorts and leisure revenue and cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Year Ended December 31, 2016
|
|
Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
In millions
|
Resorts, vacation rentals and other management services
|
$
|
37.4
|
|
|
$
|
5.1
|
|
|
13.6
|
%
|
|
$
|
41.1
|
|
|
$
|
5.2
|
|
|
12.7
|
%
|
Clubs
|
14.6
|
|
|
1.3
|
|
|
8.9
|
%
|
|
13.5
|
|
|
1.2
|
|
|
8.9
|
%
|
Marinas
|
2.8
|
|
|
0.6
|
|
|
21.4
|
%
|
|
2.7
|
|
|
0.7
|
|
|
25.9
|
%
|
Total
|
$
|
54.8
|
|
|
$
|
7.0
|
|
|
12.8
|
%
|
|
$
|
57.3
|
|
|
$
|
7.1
|
|
|
12.4
|
%
|
Revenue from our resorts, vacation rentals and other management services decreased
$3.7 million
, or
9.0%
, during
2017
, as compared to
2016
. The decrease in revenue was primarily due to reduced vacation rental inventory based on a conscious decision to focus on higher yielding homes prior to the sale of our short term vacation rental management business during December 2017, which also resulted in an increased gross margin to
13.6%
during
2017
compared to
12.7%
during
2016
.
Revenue from our clubs increased
$1.1 million
, or
8.1%
, during
2017
, as compared to
2016
, primarily related to an increase in number of members and membership revenue. Our gross margin was
8.9%
during both
2017
and
2016
. However,
2017
included a non-recurring impairment of
$0.7 million
related to a non-strategic resorts and leisure asset, without which our gross margin would have been
13.7%
during
2017
, as compared to
8.9%
during
2016
. The increase in gross margin was primarily due to the increase in membership revenue.
Our resorts and leisure gross margin was
12.8%
during
2017
, as compared to
12.4%
during
2016
, the increase is primarily due to membership revenue and controlled expenses, which was partially offset by an impairment related to resorts and leisure property and the decrease in marinas gross margin.
Other operating expenses include salaries and benefits, occupancy fees, professional fees and other administrative expenses.
Sale of vacation rental management, net includes proceeds of
$9.9 million
, which resulted in a net gain of
$9.8 million
. See
Note 7.
Sale of Vacation Rental Management
included in the notes to the consolidated financial statements included in Item 15 of this Form 10-K for further discussion.
Year Ended
December 31,
2016
Compared to Year Ended
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Year Ended December 31, 2015
|
|
Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
Revenue
|
|
Gross
Profit
|
|
Gross Margin
|
|
In millions
|
Resorts, vacation rentals and other management services
|
$
|
41.1
|
|
|
$
|
5.2
|
|
|
12.7
|
%
|
|
$
|
39.1
|
|
|
$
|
5.6
|
|
|
14.3
|
%
|
Clubs
|
13.5
|
|
|
1.2
|
|
|
8.9
|
%
|
|
12.4
|
|
|
1.0
|
|
|
8.1
|
%
|
Marinas
|
2.7
|
|
|
0.7
|
|
|
25.9
|
%
|
|
3.0
|
|
|
0.8
|
|
|
26.7
|
%
|
Total
|
$
|
57.3
|
|
|
$
|
7.1
|
|
|
12.4
|
%
|
|
$
|
54.5
|
|
|
$
|
7.4
|
|
|
13.6
|
%
|
Revenue from our resorts, vacation rentals and other management services increased
$2.0 million
, or
5.1%
, during
2016
, as compared to
2015
, which included an increase of $1.6 million in vacation rentals, due to an increase in average room rate along with an increase in average home size managed in the vacation rental program.
Revenue from our clubs increased
$1.1 million
, or
8.9%
, during
2016
, as compared to
2015
, primarily due to a continued increase in total members, which resulted in an additional $0.5 million of revenue and an increase of $0.6 million related to growth in rounds played at the golf courses by resort guests and a strong showing by our food and beverage component.
Our gross margin was
12.4%
during
2016
, as compared to
13.6%
during the same period in
2015
, the decrease is primarily due to a one-time homeowner association payment of
$0.7 million
.
Other operating expenses include salaries and benefits, occupancy fees, professional fees and other administrative expenses.
Commercial Leasing and Sales
The table below sets forth the results of operations of our commercial leasing and sales segment for the three years ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Revenue:
|
|
|
|
|
|
Leasing revenue
|
$
|
10.6
|
|
|
$
|
9.8
|
|
|
$
|
9.0
|
|
Commercial real estate revenue
|
3.9
|
|
|
2.1
|
|
|
7.2
|
|
Total revenue
|
14.5
|
|
|
11.9
|
|
|
16.2
|
|
Expenses:
|
|
|
|
|
|
Cost of leasing revenue
|
3.2
|
|
|
3.1
|
|
|
2.8
|
|
Cost of commercial real estate revenue
|
2.8
|
|
|
1.3
|
|
|
5.0
|
|
Other operating expenses
|
3.4
|
|
|
3.5
|
|
|
3.0
|
|
Depreciation and amortization
|
3.7
|
|
|
3.1
|
|
|
3.1
|
|
Total expenses
|
13.1
|
|
|
11.0
|
|
|
13.9
|
|
Operating income
|
1.4
|
|
|
0.9
|
|
|
2.3
|
|
Other (expense) income:
|
|
|
|
|
|
Interest expense
|
(2.2
|
)
|
|
(2.2
|
)
|
|
(1.5
|
)
|
Other income, net
|
—
|
|
|
0.1
|
|
|
—
|
|
Total other expense, net
|
(2.2
|
)
|
|
(2.1
|
)
|
|
(1.5
|
)
|
Net (loss) income before income taxes
|
$
|
(0.8
|
)
|
|
$
|
(1.2
|
)
|
|
$
|
0.8
|
|
The total net rentable square feet and percentage leased of leasing properties by location at
December 31, 2017
,
2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Location
|
|
Net Rentable Square Feet
|
|
Percentage Leased
|
|
Net Rentable Square Feet
|
|
Percentage Leased
|
|
Net Rentable Square Feet
|
|
Percentage Leased
|
Pier Park North JV
|
Bay County, FL
|
|
320,305
|
|
96
|
%
|
|
320,305
|
|
|
93
|
%
|
|
320,305
|
|
|
90
|
%
|
Venture Crossings
(1)
|
Bay County, FL
|
|
243,605
|
|
100
|
%
|
|
105,000
|
|
|
100
|
%
|
|
105,000
|
|
|
100
|
%
|
Beckrich Office Park
|
Bay County, FL
|
|
67,108
|
|
52
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
WindMark Beach Commercial
(2)
|
Gulf County, FL
|
|
48,035
|
|
27
|
%
|
|
48,035
|
|
|
21
|
%
|
|
48,035
|
|
|
21
|
%
|
SouthWood Town Center
|
Leon County, FL
|
|
34,412
|
|
85
|
%
|
|
34,412
|
|
|
86
|
%
|
|
34,412
|
|
|
68
|
%
|
WaterColor Town Center
(3)
|
Walton County, FL
|
|
22,532
|
|
100
|
%
|
|
22,532
|
|
|
100
|
%
|
|
22,532
|
|
|
100
|
%
|
Port St. Joe Commercial
|
Gulf County, FL
|
|
18,107
|
|
100
|
%
|
|
18,107
|
|
|
100
|
%
|
|
18,107
|
|
|
100
|
%
|
Beach Commerce Park
|
Bay County, FL
|
|
14,700
|
|
63
|
%
|
|
14,700
|
|
|
100
|
%
|
|
—
|
|
|
—
|
%
|
SummerCamp Commercial
|
Franklin County, FL
|
|
13,000
|
|
0
|
%
|
|
13,000
|
|
|
0
|
%
|
|
13,000
|
|
|
0
|
%
|
WaterSound Gatehouse
|
Walton County, FL
|
|
12,624
|
|
100
|
%
|
|
12,624
|
|
|
90
|
%
|
|
12,624
|
|
|
90
|
%
|
395 Office building
|
Walton County, FL
|
|
6,700
|
|
100
|
%
|
|
6,700
|
|
|
100
|
%
|
|
6,700
|
|
|
100
|
%
|
Pier Park outparcel
|
Bay County, FL
|
|
5,565
|
|
100
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Wetappo
|
Gulf County, FL
|
|
4,900
|
|
100
|
%
|
|
4,900
|
|
|
100
|
%
|
|
4,900
|
|
|
100
|
%
|
WaterColor HOA Office
(4)
|
Walton County, FL
|
|
1,244
|
|
100
|
%
|
|
1,244
|
|
|
100
|
%
|
|
1,244
|
|
|
100
|
%
|
WaterSound Origins
|
Walton County, FL
|
|
760
|
|
100
|
%
|
|
760
|
|
|
100
|
%
|
|
760
|
|
|
0
|
%
|
|
|
|
813,597
|
|
87
|
%
|
|
602,319
|
|
|
87
|
%
|
|
587,619
|
|
|
83
|
%
|
|
|
|
(1)
|
During 2017 we completed construction of a 138,605 square foot manufacturing facility, for which we have a long term lease that commenced on December 1, 2017.
|
(2)
|
Included in net rentable square feet as of December 31 2017, 2016 and 2015, is 13,808 square feet of unfinished space.
|
(3)
|
In addition to net rentable square feet there is also space that we occupy or serves as common area.
|
(4)
|
In addition to net rentable square feet, there is an additional 1,276 square feet that currently serves as common area, but is subject to an agreement whereby the current lessee will expand their lease in 2019 to include the entire building.
|
Real Estate Revenue.
Commercial real estate revenue for the three years ended
December 31, 2017
includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Number of
Sales
|
|
Acres Sold
|
|
Average Price Per Acre
|
|
Revenue
|
|
Gross Profit on Sales
|
|
|
|
|
|
|
|
|
In millions
|
2017
|
|
9
|
|
49
|
|
$
|
79,494
|
|
|
$
|
3.9
|
|
|
$
|
1.1
|
|
2016
|
|
8
|
|
17
|
|
$
|
123,529
|
|
|
$
|
2.1
|
|
|
$
|
0.8
|
|
2015
|
|
3
|
|
14
|
|
$
|
514,285
|
|
|
$
|
7.2
|
|
|
$
|
2.2
|
|
Year Ended
December 31,
2017
Compared to Year Ended
December 31,
2016
Leasing revenue increased
$0.8 million
, or
8.2%
, and gross profit increased
$0.7 million
, or
10.4%
, during
2017
, as compared to
2016
. The increase in leasing revenue and gross profit was primarily due to the acquisition of two office buildings in April 2017, as well as new leases at other properties, while cost of leasing revenue remained essentially flat for 2017 and 2016. As of
December 31, 2017
, we had net rentable square feet of approximately
814,000
, of which approximately
709,000
square feet was under lease. As of
December 31, 2016
, we had net rentable square feet of approximately
602,000
, of which approximately
522,000
square feet was under lease.
In connection with our Pier Park North JV, we recognized
$5.5 million
and
$5.4 million
of leasing revenue during
2017
and
2016
, respectively. As of December 31, 2017, Pier Park North has approximately 306,000 square feet of retail space leased.
Commercial real estate revenue can vary depending on the proximity to developed areas and the mix and characteristics of commercial real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses. During
2017
we had
9
commercial real estate sales totaling approximately
49
acres for
$3.9 million
. During
2016
we had
8
commercial real estate sales totaling approximately
17
acres for
$2.1 million
. During 2016, impairment charges of
$0.4 million
were included in cost of commercial real estate revenue, related to a commerce park.
Other operating expenses include salaries and benefits, property taxes, CDD assessments, insurance, professional fees, marketing, project administration and other administrative expenses. Other operating expenses during
2016
, included the settlement of a lease obligation, which resulted in a payment by Pier Park North JV of
$0.4 million
.
The increase of
$0.6 million
in depreciation and amortization expense during 2017, as compared to 2016, was primarily due to properties acquired or constructed during 2017.
Interest expense primarily includes interest expense from the Pier Park North JV Refinanced Loan, Construction Loan and interest expense on our CDD debt.
Year Ended
December 31,
2016
Compared to Year Ended
December 31,
2015
Leasing revenue increased
$0.8 million
, or
8.9%
, and gross profit increased
$0.5 million
, or
8.1%
, during
2016
, as compared to
2015
, primarily due to the continued commencement of revenue from new store openings in our Pier Park North JV, as well as other new leases. In connection with our Pier Park North JV, we recognized
$5.4 million
of leasing revenue during
2016
, as compared to
$4.6 million
during
2015
. As of December 31, 2016, Pier Park North construction was substantially complete and approximately 298,000 square feet of retail space was leased.
As of
December 31, 2016
, we had net rentable square feet of approximately
602,000
, of which approximately
522,000
square feet was under lease. As of
December 31, 2015
, we had net rentable square feet of approximately
588,000
, of which approximately
490,000
square feet was under lease.
During
2016
we had
8
commercial real estate sales totaling approximately
17
acres for
$2.1 million
. During
2015
we had
3
commercial real estate sales totaling approximately
14
acres for
$7.2 million
. During 2016, impairment charges of
$0.4 million
were included in cost of commercial real estate revenue, related to a commerce park.
Other operating expenses include salaries and benefits, property taxes, CDD assessments, insurance, professional fees, marketing, project administration and other administrative expenses. Other operating expenses increased
$0.5 million
during
2016
, as compared to
2015
, primarily due to the settlement of a lease obligation in June of 2016, which resulted in a payment by the Pier Park North JV entity of
$0.4 million
.
Interest expense primarily includes interest expense from the Pier Park North JV Refinanced Loan and interest expense on our CDD debt. Interest expense increased
$0.7 million
during
2016
, as compared to
2015
, primarily due to interest expense from the Pier Park North JV Refinanced Loan.
Forestry
The table below sets forth the results of operations of our forestry segment for the three years ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Revenue:
|
|
|
|
|
|
Timber revenue
|
$
|
5.5
|
|
|
$
|
5.2
|
|
|
$
|
6.7
|
|
Real estate revenue - other rural land revenue
|
1.7
|
|
|
1.4
|
|
|
5.3
|
|
Total revenue
|
7.2
|
|
|
6.6
|
|
|
12.0
|
|
Expenses:
|
|
|
|
|
|
Cost of timber revenue
|
0.8
|
|
|
0.8
|
|
|
0.8
|
|
Cost of real estate revenue - other rural land revenue
|
0.1
|
|
|
0.3
|
|
|
0.5
|
|
Other operating expenses
|
0.4
|
|
|
0.5
|
|
|
0.9
|
|
Depreciation and depletion
|
0.6
|
|
|
0.5
|
|
|
0.6
|
|
Total expenses
|
1.9
|
|
|
2.1
|
|
|
2.8
|
|
Operating income
|
5.3
|
|
|
4.5
|
|
|
9.2
|
|
Other income, net
|
1.3
|
|
|
1.1
|
|
|
1.1
|
|
Net income before income taxes
|
$
|
6.6
|
|
|
$
|
5.6
|
|
|
$
|
10.3
|
|
The total tons sold and relative percentages of total tons sold by major type of timber revenue for the three years ended
December 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Pine pulpwood
|
275,000
|
|
|
75.6
|
%
|
|
232,000
|
|
|
75.1
|
%
|
|
249,000
|
|
|
66.4
|
%
|
Pine sawtimber
|
67,000
|
|
|
18.4
|
%
|
|
62,000
|
|
|
20.1
|
%
|
|
100,000
|
|
|
26.7
|
%
|
Pine grade logs
|
19,000
|
|
|
5.2
|
%
|
|
13,000
|
|
|
4.2
|
%
|
|
24,000
|
|
|
6.4
|
%
|
Other
|
3,000
|
|
|
0.8
|
%
|
|
2,000
|
|
|
0.6
|
%
|
|
2,000
|
|
|
0.5
|
%
|
Total
|
364,000
|
|
|
100.0
|
%
|
|
309,000
|
|
|
100.0
|
%
|
|
375,000
|
|
|
100.0
|
%
|
Year Ended
December 31, 2017
Compared to the Year Ended
December 31,
2016
Timber revenue increased by
$0.3 million
, or
5.8%
, during
2017
, as compared to
2016
, primarily due to an increase in the number of tons sold, offset by price decreases due to fluctuations in market supply. There were
364,000
tons sold during
2017
, as compared to
309,000
tons sold during
2016
. The average price per ton sold decreased to
$15.45
in
2017
, as compared to
$16.82
in
2016
. Gross margin increased during
2017
to
85.5%
, as compared to
84.6%
during the same period in
2016
, due to the increase in timber revenue. The cost of timber revenue is primarily fixed, which resulted in an increase to gross margin for the period.
During
2017
, we sold approximately
382
acres of rural and timber land for
$1.7 million
, as compared to approximately
786
acres of rural and timber land for
$1.4 million
during
2016
.
Other operating expenses include salaries and benefits, property taxes, professional fees and other administrative expenses.
Other income, net consists primarily of income from hunting leases and fill dirt sales.
Year Ended
December 31,
2016
Compared to Year Ended
December 31,
2015
Timber revenue decreased by
$1.5 million
, or
22.4%
, during
2016
, as compared to
2015
, primarily due to a decrease in the number of tons sold due to fluctuations in market supply. There were
309,000
tons sold during
2016
, as compared to
375,000
tons sold during
2015
. The average price per ton sold decreased to
$16.82
in
2016
, as compared to
$17.71
in
2015
. Gross margin decreased during
2016
, to
84.6%
, as compared to
88.1%
during the same period in
2015
, primarily due to fluctuations in product mix and market supply.
During
2016
, we sold approximately
786
acres of rural and timber land for
$1.4 million
, as compared to approximately
3,330
acres of rural and timber land for
$5.3 million
during
2015
.
Other operating expenses include salaries and benefits, property taxes, professional fees, repairs and maintenance and other administrative expenses. Other operating expenses decreased
$0.4 million
, or
44.4%
, during
2016
, as compared to
2015
, primarily due to a decrease in repair and maintenance expense.
Other income consists primarily of income from hunting leases and fill dirt sales.
Liquidity and Capital Resources
As of
December 31, 2017
, we had cash and cash equivalents of
$192.1 million
, compared to
$241.1 million
as of
December 31, 2016
. Our cash and cash equivalents at
December 31, 2017
includes commercial paper of
$160.0 million
and
$10.5 million
of money market funds. In addition to cash and cash equivalents, we consider our investments classified as available-for-sale securities, as being generally available to meet our liquidity needs. Securities classified as available-for-sale 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, 2017
, we had investments in U.S. Treasury securities of
$9.9 million
, corporate debt securities of
$66.4 million
and preferred stock investments of
$35.0 million
. As of
December 31, 2016
, we had investments in corporate debt securities of
$139.1 million
and preferred stock investments of
$36.6 million
. See
Note 4.
Investments
,
included in the notes to the consolidated financial statements included in Item 15 of this Form 10-K
for additional information regarding our investments.
We believe that our current cash position and our anticipated cash flows from cash equivalents, short term investments 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, and authorized stock repurchases for the next twelve months.
Our real estate investment strategy focuses on projects that meet our investment return criteria. During
2017
, we incurred a total of
$39.9 million
for capital expenditures, which includes
$8.4 million
related to acquisition and development in our residential real estate projects,
$25.2 million
for our commercial leasing and sales segment,
$4.9 million
related to our resorts and leisure segment and
$1.3 million
related primarily to our forestry segment and corporate expenditures. Our 2018 budgeted capital expenditures are estimated to total
$129.6 million
, which includes
$36.2 million
primarily for the development and acquisition of land for our residential real estate projects,
$82.7 million
for our commercial leasing and sales segment,
$9.2 million
for our resorts and leisure segment and
$1.5 million
primarily for our forestry segment and corporate expenditures. A portion of this spending is discretionary and will only be spent if we believe the risk adjusted return warrants the expenditures. We anticipate that these future capital commitments will be funded through new financing arrangements, cash and cash equivalents, short term investments and cash generated from operations.
In October 2015, the Pier Park North JV refinanced its construction loan and entered into a $48.2 million loan. As of
December 31, 2017
and
2016
,
$47.3 million
and
$48.1 million
, respectively, was outstanding on the Refinanced Loan. The Refinanced Loan accrues interest at a rate of 4.1% per annum and matures in November 2025. In connection with the Refinanced Loan, we entered into a limited guarantee in favor of the lender, based on our percentage ownership of the joint venture. 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 and upon breach of covenants in the security instrument. See
Note 10.
Debt
included in the notes to the consolidated financial statements included in Item 15 of this Form 10-K for additional information
.
CDD bonds financed the construction of infrastructure improvements in some of our projects. 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 or 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 repaying. We have recorded CDD related debt of
$7.2 million
as of
December 31, 2017
. Total outstanding CDD debt related to our land holdings was
$21.7 million
at
December 31, 2017
, which is comprised of
$18.2 million
at SouthWood,
$2.9 million
at the existing Pier Park retail center, and
$0.6 million
at Wild Heron. We pay interest on this total outstanding CDD debt.
During the years ended
December 31, 2017
and 2016, we repurchased a total of
8,450,294
and
995,650
shares, respectively, of our common stock outstanding for an aggregate purchase price of
$147.4
million and
$14.8 million
, respectively, including costs. See
Note 15.
Stockholders' Equity
included in the notes to the consolidated financial statements included in Item 15 of this Form 10-K
for additional information regarding common stock repurchases related to our Stock Repurchase Program and treasury stock retirement during
2017
.
Summary of Cash Flows
A summary of our cash flows from operating, investing and financing activities for the three years ended
December 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
In millions
|
Net cash provided by operating activities
|
$
|
55.8
|
|
|
$
|
12.9
|
|
|
$
|
22.4
|
|
Net cash provided by investing activities
|
44.4
|
|
|
21.0
|
|
|
445.4
|
|
Net cash used in financing activities
|
(149.2
|
)
|
|
(5.6
|
)
|
|
(289.5
|
)
|
Net (decrease) increase in cash and cash equivalents
|
(49.0
|
)
|
|
28.3
|
|
|
178.3
|
|
Cash and cash equivalents at beginning of the year
|
241.1
|
|
|
212.8
|
|
|
34.5
|
|
Cash and cash equivalents at end of the year
|
$
|
192.1
|
|
|
$
|
241.1
|
|
|
$
|
212.8
|
|
Cash Flows from Operating Activities
Cash flows from operating activities include costs related to assets ultimately planned to be sold, including residential real estate development and related amenities, sales of timberlands or undeveloped and developed land, our forestry operations and
land developed by the commercial leasing and sales segment. Net cash provided by operations was
$55.8 million
in
2017
, as compared to
$12.9 million
in
2016
. Net cash provided by operations includes $26.7 million of federal income tax refunds received during 2017. Net cash provided by operations was
$12.9 million
in
2016
, as compared to
$22.4 million
in
2015
. The decrease in net cash provided by operations in
2016
as compared to
2015
is primarily a result of receiving the $19.6 million RiverTown Note payment during 2015, offset by the receipt of $5.0 million for the claim settlement receivable in 2016.
Cash Flows from Investing Activities
Cash flows provided by investing activities primarily includes sales and maturities of investments and investments in assets held by special purpose entities and proceeds from the disposition of assets, partially offset by purchases of investments and capital expenditures for property and equipment used in our operations. During
2017
, net cash provided by investing activities was
$44.4 million
, which includes sales of investments of
$174.5 million
, maturities of investments of
$14.0 million
, proceeds from the disposition of assets of
$2.5 million
and maturities of assets held by special purpose entities of
$0.8 million
, partially offset by purchases of investments of
$115.9 million
. During
2016
, net cash provided by investing activities was
$21.0 million
, which includes sales of investments of
$197.5 million
, maturities of investments of
$185.0 million
and investments and maturities of assets held by special purpose entities of
$0.8 million
, partially offset by purchases of investments of
$357.8 million
. During
2015
, net cash provided by investing activities was
$445.4 million
, which includes maturities of investments of
$410.0 million
, sales of investments of
$385.7 million
and investments and maturities of assets held by special purpose entities of
$0.8 million
, partially offset by purchases of investments of
$342.0 million
.
Capital expenditures for operating property and property and equipment were
$31.4 million
,
$4.5 million
and
$9.1 million
during
2017
,
2016
and
2015
, respectively, which were primarily for our resorts and leisure and commercial leasing and sales segments. Capital expenditures for operating property during 2017 included the purchase of two office buildings and construction of a manufacturing facility for lease in Venture Crossings.
Cash Flows from Financing Activities
Net cash used in financing activities was
$149.2 million
,
$5.6 million
and
$289.6 million
for
2017
,
2016
and
2015
, respectively. Net cash used in financing activities during
2017
included the repurchase of common stock of
$147.4 million
, capital distribution to non-controlling interest of
$2.3 million
and principal payments for debt of
$1.3 million
, partially offset by borrowings on debt of
$1.6 million
and capital contribution from non-controlling interest of
$0.2 million
. Net cash used in financing activities during
2016
included the repurchase of common stock of
$14.8 million
, capital distribution to non-controlling interest of
$0.6 million
and principal payments for debt of
$0.5 million
, partially offset by capital contribution from non-controlling interest of
$10.4 million
. Net cash used in financing activities during
2015
included the repurchase of common stock of
$305.0 million
, capital distribution to non-controlling interest of
$0.1 million
, principal payments for debt of
$31.9 million
and debt issuance costs of
$0.7 million
, partially offset by borrowings on debt of
$48.2 million
.
Off-Balance Sheet Arrangements
In October 2015, the Pier Park North JV refinanced its construction loan and entered into a $48.2 million loan. As of
December 31, 2017
, the Refinanced Loan was secured by a first lien on, and security interest in, a majority of Pier Park North JV’s property. Security on the Refinanced Loan included a remaining
$1.3 million
short term letter of credit, which was released during October 2017. In connection with the Refinanced Loan, we are required to comply with a financial covenant and entered into a limited guarantee as described in
Note 11.
Debt
included in the notes to the consolidated financial statements included in Item 15 of this Form 10-K
.
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
$11.1 million
for all installment notes monetized through
December 31, 2017
. 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, 2017
, we were required to provide surety bonds that guarantee completion of certain infrastructure in certain development projects and mitigation banks of
$8.6 million
and standby letters of credit of less than
$0.1 million
, which may potentially result in a liability to us if certain obligations are not met.
Contractual Obligations at
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Calendar Period
|
|
Total
|
|
Less Than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More Than
5 Years
|
|
In millions
|
Debt
(1)
|
$
|
56.2
|
|
|
$
|
1.5
|
|
|
$
|
3.1
|
|
|
$
|
3.0
|
|
|
$
|
48.6
|
|
Interest related to debt, including Community Development District debt
(1)
|
17.2
|
|
|
2.3
|
|
|
4.3
|
|
|
4.1
|
|
|
6.5
|
|
Contractual obligations
(2)
|
9.6
|
|
|
9.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other long term liabilities
(3)
|
71.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71.5
|
|
Senior Notes held by special purpose entity
(4)
|
180.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
180.0
|
|
Interest related to Senior Notes held by special purpose entity
(4)
|
92.1
|
|
|
8.0
|
|
|
16.0
|
|
|
16.0
|
|
|
52.1
|
|
Total contractual obligations
|
$
|
426.6
|
|
|
$
|
21.4
|
|
|
$
|
23.4
|
|
|
$
|
23.1
|
|
|
$
|
358.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These amounts do not include additional CDD obligations associated with unplatted properties that are not yet fixed or determinable or that are not yet probable or reasonably estimable.
|
(2)
|
These aggregate amounts include individual contracts in excess of $0.1 million.
|
(3)
|
Other long term liabilities include certain of our deferred federal tax liabilities related to our installment note monetization transactions.
|
(4)
|
Senior Notes held by a consolidated special purpose entity. There is no recourse against the Company on the Senior Notes, as recourse is limited to proceeds from the installment note (the “Timber Note”) and the underlying letter of credit held by the special purpose entity. See Note 5.
Financial Instruments and Fair Value Measurements
, of our consolidated financial statements included in Item 15 of this Form 10-K for further discussion.
|
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 United States generally accepted accounting principles (“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. We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as project administration, may also be capitalized. We capitalize interest (up to total interest expense) based on the amount of underlying expenditures and real estate taxes on real estate projects under development.
Real estate development costs also include land and common development costs (such as roads, 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 frequently if warranted by market conditions, changes in the project’s scope or other factors, with any adjustments being allocated prospectively to the remaining property or units available-for-sale.
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 for land already owned, and ends when the asset is substantially complete and ready for its intended use. Determination of when construction of a project is substantially complete and ready for its intended use requires judgment. We determine when the capitalization period begins and ends through communication with project and other managers responsible for the tracking and oversight of individual projects. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. If we determine not to complete a project, any previously capitalized costs are expensed in the period in which the determination is made and recovery is not deemed reasonable.
Our investments in real estate are carried at cost, net of depreciation and timber depletion, unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset’s carrying value, an impairment charge is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.
Long-Lived Assets.
Long-lived assets include our investments in operating and development property and property and equipment. 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 fair value or demand for the properties;
|
|
|
•
|
a change in the expected use or development plans for the properties;
|
|
|
•
|
a material change in strategy that would affect the fair value of our properties;
|
|
|
•
|
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 fair value of the property.
|
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, 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, 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;
|
|
|
•
|
the amount of remaining development costs, including the extent of infrastructure or amenities included in such development costs;
|
|
|
•
|
holding costs to be incurred over the selling period;
|
|
|
•
|
for bulk land sales of undeveloped and developed parcels future pricing is based upon estimated developed lot pricing less estimated development costs and estimated developer profit;
|
|
|
•
|
for commercial development property, future pricing is based on sales of comparable property in similar markets; and
|
|
|
•
|
whether liquidity is available to fund continued development.
|
For operating properties, an estimate of undiscounted cash flows requires management to make similar assumptions about the use and eventual disposition of such properties. Some of the significant assumptions that are used to develop the undiscounted cash flows include:
|
|
•
|
for investments in inns and rental condominium units, average occupancy and room rates, revenue from food and beverage and other amenity operations, operating expenses and capital expenditures, and eventual disposition of such properties as private residence vacation units or condominiums, based on current prices for similar units appreciated to the expected sale date;
|
|
|
•
|
for investments in commercial or retail property, future occupancy and rental rates and the amount of proceeds to be realized upon eventual disposition of such property at a terminal capitalization rate; and
|
|
|
•
|
for investments in golf courses, future memberships, rounds and greens fees, operating expenses and capital expenditures, and the amount of proceeds to be realized upon eventual disposition of such properties at a multiple of terminal year cash flows.
|
Other properties that management does not intend to sell in the near term under current market conditions and has the ability to hold are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property. Typically, assets are carried based on historical cost basis, which in some cases, exceeds 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.
Investments.
We evaluate investments classified as available-for-sale with an unrealized loss to determine if they are other-than-temporary impaired. This evaluation is based on various factors, including the financial condition, business prospects, industry and creditworthiness of the issuer, severity and length of time the securities were in a loss position, our ability and intent to hold investments until the unrealized loss is recovered or until maturity and the amount of the unrealized loss. If a decline in fair value is considered other-than-temporary, the decline is then bifurcated into its credit and non-credit related components. The amount of the credit-related component is recognized in earnings, and the amount of the non-credit related component is recognized in other comprehensive (loss) income, unless we intend to sell the security or it is more likely than not that we will be required to sell the security prior to its anticipated recovery. Based on these factors, the unrealized loss related to our investments and restricted investments of
$3.2 million
was determined to be temporary at
December 31, 2017
. During
2017
, we determined that unrealized losses related to our corporate debt securities and preferred stock were other-than-temporary and recorded an impairment of
$2.3 million
for credit-related loss in investment income, net in our consolidated statements of operations.
Retained interest investments
. We have recorded retained interest investments with respect to the monetization of certain installment notes through the use of qualified special purpose entities, which are recorded in other assets in our consolidated balance sheets. At the time of monetization, the initial retained interest recorded was an estimate based on the present value of future excess cash flows expected to be received over the life of the notes, using management’s best estimate of underlying assumptions, including credit risk and discount rates. We recognize investment income over the life of the retained interest using the effective yield method with rates ranging from
3.7%
-
11.8%
based on expected future cash flows. We continue to update the expectation of cash flows to be collected over the term of the notes. Changes to the previously projected cash flows are accounted for prospectively, unless based on management’s assessment of current information and events, it is determined that there is an other-than-temporary impairment. We have not recorded an other-than-temporary impairment related to our retained interest investments during the three years ended December 31,
2017
.
Income Taxes.
In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, and changes in tax laws. To the extent adjustments are required in any given period we will include the adjustments in the deferred tax assets and liabilities in our consolidated financial statements. We recorded a valuation allowance against our deferred tax assets as needed based upon our analysis of the timing and reversal of future taxable amounts and our history and future expectations of taxable income.
A valuation allowance is recorded, if based on the 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,
2017
and
2016
, we had a state net operating loss carryforward of
$391.7 million
and
$427.3 million
, respectively, and no federal net operating loss carryforwards. The state net operating loss is available to offset future taxable income through
2037
. As of December 31,
2017
, based on the timing of reversal of future taxable amounts and our history of losses, we do not believe that we have met the requirements to realize the benefits of certain of our deferred tax assets; therefore, we have maintained a valuation allowance of
$5.0 million
for these deferred tax assets at December 31,
2017
. We had a federal AMT credit carryforward of
$13.5 million
as of
December 31, 2016
. During 2017,
$5.1 million
of the AMT credit was utilized, leaving a remaining balance of
$8.4 million
as of
December 31, 2017
. This AMT credit was reclassified as an income tax receivable following the enactment of the Tax Act in December 2017 and is refundable to us in the years 2018 through 2021.
Variable Interest Entities.
In connection with a real estate sale in 2014, two special purpose entities were created, Northwest Florida Timber Finance, LLC (“NFTF”) and a buyer sponsored special purpose entity, Panama City Timber Finance Company, LLC (“Buyer SPE”). We own the equity interest in NFTF, but no equity interest in the Buyer SPE. Both the Buyer SPE and NFTF are distinct legal entities and the assets of the Buyer SPE and NFTF are not available to satisfy our liabilities or obligations and the liabilities of the Buyer SPE and NFTF are not our liabilities or obligations. In the event that proceeds from the financial instruments are insufficient to settle all of the liabilities of the Buyer SPE or NFTF, we are not obligated to contribute any funds to either the Buyer SPE or NFTF.
We have determined that we are the primary beneficiary of the Buyer SPE and NFTF, and therefore, the Buyer SPE’s and NFTF’s assets and liabilities are consolidated in our financial statements as of
December 31, 2017
. The carrying amounts of the Buyer SPE’s and NFTF’s assets and non-recourse liabilities were
$210.9 million
and
$179.4 million
, respectively, as of
December 31, 2017
. The consolidated assets of the Buyer SPE and NFTF consist of a $200.0 million time deposit that pays interest at 4.0% and matures in March 2029, U.S. Treasuries of
$7.6 million
, cash of
$0.4 million
and accrued interest of
$2.9 million
. The consolidated liabilities include the Senior Notes issued by NFTF of
$176.5 million
, net of the
$3.5 million
discount and debt issuance costs and
$2.9 million
of accrued interest expense on the Senior Notes.
Our consolidated statements of operations for the year ended
December 31, 2017
includes
$8.2 million
of interest income on the time deposit and amortization of the discounts on the U.S. Treasuries and
$8.8 million
of interest expense for the Senior Notes and amortization of the discount and issuance costs related to the Buyer SPE and NFTF.
Recently Adopted Accounting Pronouncements
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09 that simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted the new guidance as of January 1, 2017. The adoption of this guidance did not have a material impact on our financial condition, results of operations or cash flows.
Consolidation
In October 2016, the FASB issued ASU 2016-17 that amends the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. We adopted the new guidance as of January 1, 2017. The adoption of this guidance had no impact on our financial condition, results of operations or cash flows.
Business Combinations
In January 2017, the FASB issued ASU 2017-01 that clarifies the definition of a business for entities that must determine whether a business has been acquired or sold. This guidance is intended to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. We adopted the new guidance as of April 1, 2017. The adoption of this guidance had no impact on our financial condition, results of operations or cash flows.
Recently Issued Accounting Pronouncements
Revenue recognition
In May 2014, the FASB issued ASU 2014-09 that establishes the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 that further clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10 that clarifies guidance on identifying performance obligations and to improve the operability and understandability of licensing implementation guidance. In May 2016, the FASB issued ASU 2016-11 that rescinds SEC guidance pursuant to announcements at the March 3, 2016 Emerging Issues Task Force Meeting. In May 2016, the FASB issued ASU 2016-12 that provides narrow-scope improvements and practical expedients to Revenue from Contracts with Customers. In December 2016, the FASB issued ASU 2016-20 that includes technical corrections and improvements to ASU 2014-09. The new guidance will be effective for annual and interim periods beginning after December 15, 2017. We have elected to implement ASU 2014-09 using the modified retrospective application, with the cumulative effect recorded as an adjustment to opening retained earnings at January 1, 2018. We have evaluated the impact of adopting this guidance and as a result of this evaluation estimate an adjustment to increase retained earnings by $1.6 million, related to the recognition of lot residuals, marketing fees, and tap and impact fee credits. We also expect an impact to revenue-related disclosures as a result of adopting this guidance.
Financial Instruments
In January 2016, the FASB issued ASU 2016-01 that amends existing guidance to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The new guidance will require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in results of operations. Additionally, certain disclosure requirements and other aspects of accounting for financial instruments will change as a result of the new guidance, which is effective for interim and annual reporting periods beginning after December 15, 2017. ASU 2016-01 will be effective for us January 1, 2018 and implemented using a cumulative-effect adjustment to retained earnings as of the date of adoption. We have evaluated the impact of the adoption of this guidance, and as a result of this evaluation, determined the change in the fair value of our equity investments after January 1, 2018, will be recognized in the consolidated statements of operations rather than the consolidated statements of comprehensive income (loss), and estimate a cumulative-effect adjustment to reduce retained earnings by $0.9 million.
Leases
In February 2016, the FASB issued ASU 2016-02 that amends 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 from existing guidance. This amendment also requires certain quantitative and qualitative disclosures about leasing arrangements. In January 2018, the FASB issued ASU 2018-01 which provides
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.
The new guidance will be effective for annual and interim periods beginning after December 15, 2018 and requires a modified retrospective adoption. We are currently evaluating the impact that the adoption of this guidance will have on our financial condition, results of operations and cash flows.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13 that requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected and requires that credit losses from available-for-sale debt securities be presented as an allowance for credit loss. This new guidance will be effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted for annual and interim periods beginning after December 15, 2018. We are currently evaluating the impact that the adoption of this guidance will have on its financial condition, results of operations and cash flows.
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15 that amends the classification of certain cash receipts and cash payments, to reduce the diversity in how these cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. As this guidance only affects the classification within the statement of cash flows, it is not currently expected to have an impact on our cash flows.
Statement of Cash Flows - Restricted Cash
In November 2016, the FASB issued ASU 2016-18 that requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. ASU 2016-18 will be effective for us on January 1, 2018 and is not expected to have a material impact on the Company’s cash flows.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU 2018-02 that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The ASU also requires additional disclosures that include a description of the accounting policy for releasing income tax effects from accumulated other comprehensive income, whether we elected to reclassify the effects from the Tax Act and information about other tax effects related to the Tax Act that are reclassified from accumulated other comprehensive income to retained earnings, if any. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and should be applied either in the period of adoption or retrospectively to each period in which the effect of the Tax Act is recognized. Early adoption is permitted, including adoption in an interim period. We are currently evaluating the impact that the adoption of this guidance will have on our financial condition, results of operations and cash flows.
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 concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Specifically, this annual report contains forward-looking statements regarding:
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our expectations concerning our future business strategy, including exploring the sale of our real estate assets opportunistically or when we believe that we can better deploy those resources;
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our intention to use our land holdings and our cash and cash equivalents and investments to increase recurring revenue while creating long-term value for our shareholders;
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our expectations regarding
investments that we believe will contribute towards increasing our future growth, particularly in real estate projects that provide recurring revenue
;
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our 2018 capital expenditures budget and the timing of benefits of these investments;
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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;
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our expectation to continue to be a developer of finished residential lots for sale to builders and retail lots for sale to consumers in our communities;
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our continued exploration of the concept of establishing some form of an active adult community on our land holdings;
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our plan to expand the scope and scale of our resorts and leisure assets and services in order to enhance the value and contribution those assets provide;
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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,
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our expectations regarding opportunities surrounding the Northwest Florida Beaches International Airport and our other land holdings in Northwest Florida;
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our belief that by entering into partnerships, joint ventures or other collaborations and alliances with best of class operators, we can efficiently utilize our land assets while reducing our capital requirements;
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our expectation to continue a cost and investment discipline to ensure low fixed expenses and bottom line performance;
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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 available-for-sale securities, share repurchases, real estate and other strategic investments;
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our expectations regarding the amount and timing of the impact fees which we will receive in connection with the RiverTown Sale;
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our expectation regarding our liquidity or ability to satisfy our working capital needs, expected capital expenditures and principal and interest payments on our long term debt;
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our estimates and assumptions regarding the installment notes and the Timber Note; and
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our expectation regarding the impact of pending litigation, claims, other disputes or governmental proceedings, on our cash flows, financial condition or results of operations.
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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-K and subsequent Form 10-Qs and other current reports, and the following:
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any changes in our strategic objectives and our ability to successfully implement such strategic objectives;
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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;
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our ability and the ability of our investment advisor to identify and acquire suitable investments for our investment portfolio that meet our risk and return criteria;
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significant decreases in the market value of our investments in securities or any other investments;
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our ability to capitalize on strategic opportunities presented by a growing retirement demographic;
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our ability to accurately predict market demand for the range of potential residential and commercial uses of our real estate, including our Northwest Florida holdings;
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volatility in the consistency and pace of our residential real estate revenue;
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economic or other conditions that affect the future prospects for the Southeastern region of the United States 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 downturns in real estate markets in Florida or across the nation;
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our dependence on the real estate industry and the cyclical nature of our real estate operations;
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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 business;
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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 for mixed-use and active adult communities;
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changes in laws, regulations or the regulatory environment affecting the development of real estate;
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our ability to effectively deploy and invest our assets, including our available-for-sale securities;
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our ability to effectively manage our real estate assets, as well as the ability of our joint venture partners to effectively manage the day-to-day activities of the Pier Park North JV and Pier Park Crossings JV;
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our ability to realize the anticipated benefits of our acquisitions, joint ventures, investments in leasable spaces and operations and share repurchases;
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our ability to carry out our Stock Repurchase Program in accordance with applicable securities laws;
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the impact of the recently passed comprehensive tax reform bill on our business and financial condition;
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our ability to successfully estimate the amount and timing of the impact fees we will receive in connection with the RiverTown Sale;
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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;
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the sufficiency of our current cash position, anticipated cash flows from cash equivalents and short term investments and cash generated from operations to satisfy our anticipated working capital needs, capital expenditures and principal and interest payments;
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our ability to anticipate the impact of pending environmental litigation matters or governmental proceedings on our financial condition or results of operations;
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the expense, management distraction and possible liability associated with litigation, claims, other disputes or governmental proceedings;
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Fairholme’s ability to influence major corporate decisions;
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potential liability under environmental or construction laws, or other laws or regulations;
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the impact if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting;
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our ability to receive payments of settlement amounts due under our claims settlement receivable; and
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our ability to successfully estimate the impact of certain accounting and tax matters that arise from the installment notes and the Timber Note.
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