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Property Developer Cutting Way Back

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By BOB IVRY and PETER WOODIFIELD, Bloomberg News

Published: October 9, 2007

St. Joe Co., Florida's largest private landowner afflicted by the worst housing slump in 16 years, plans to eliminate more than 75 percent of its work force, sell about 100,000 acres and scrap its dividend.

The retrenchment includes cutting 260 jobs, transferring 500 workers to the payrolls of its development partners and selling 190 homes and about 1,200 developed home sites, Jacksonville-based St. Joe said Monday in a statement.

This quarter's earnings will be reduced by a $30 million charge. The company also will have $7 million in severance costs this year and next.

St. Joe is shifting from building homes in Florida, where sales plummeted 41 percent in the second quarter, according to the National Association of Realtors, to developing planned communities and handing off their management to what it calls strategic partners. The company's profit has dropped four of the past six quarters and sales haven't risen since the third quarter of 2005.

'This is not a fire sale,' Chief Executive Officer Peter Rummell said Monday on a conference call. 'We are not dumping stuff on the market and we are not going to make stupid decisions, but there are things that we believe have reached their height in pricing. I firmly believe that we would be doing this whether the market was good or bad.'

St. Joe fell 11 cents to $34.04 in New York Stock Exchange composite trading. The company has a market value of $2.53 billion. The stock has fallen 36 percent this year.

Existing single family home sales fell 24 percent in July in Florida and the median price fell 5 percent to $237,500, according to the Florida Association of Realtors. Property values in 20 metropolitan markets slid 3.9 percent in the 12 months through July, S&P/Case Shiller said last month.

The housing decline may push Florida's economy into recession as early as this year, said Mark Zandi, chief economist at the West Chester, Pa.-based Moody's Economy.com, who owns a home in Vero Beach.

Home builders are struggling as prices fall and stricter lending standards resulting from the collapse of the subprime home-loan industry have cut demand. Florida has been hard hit as speculators abandoned the market, and foreclosures have soared. In August, Florida had 26,203 foreclosure notices, ranking it the second highest in the nation after California.

'The market is showing us that there are homebuyers - at the right prices,' said Dan Poole, who helps manage $31 billion at National City Private Client Group in Cleveland. 'In a case like this when you've announced a sale, you can book some of the sales prices as restructuring costs.'

St. Joe had about 983 employees as of Feb. 1 and held about 800,000 acres. It owns 10 master-planned communities, seven commerce parks, six golf courses and three marinas. The company said its land holdings could allow it to build 46,000 residential units and more than 14 million square feet of commercial space.

The restructuring will save about $10 million in 2008, $18 million in 2009 and $20 million in later years, the company said.

'We're not selling land now,' Rummell said in the conference call. 'We're carving it out and identifying it and we'll sell at an appropriate price at an appropriate time. We have been able to articulate 100,000 acres that we think over a reasonable time frame is close to its reasonable value and based on pure economics it doesn't make sense to hold on to.'

The restructuring announced today continues a process that began more than 10 years ago to turn the company into a real estate developer, Rummell said in a letter to shareholders.

By the end of the year, the company plans to transfer the operations of its hospitality, recreational and golf assets to companies that focus on those types of business. St. Joe said it will transfer 500 workers to those companies. It will also transfer or eliminate another 260 jobs by the end of next year.

St. Joe will replace its dividend with a share buyback program. It has paid a quarterly dividend of 16 cents a share since the third quarter of 2005.

Earlier this year, St. Joe sold 31,000 acres of rural land in the Florida Panhandle and 15 office buildings as part of a strategy to quit home construction and building management. It also sold the Sassy Burbank home-building operation in the Mid-Atlantic states.

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