WATERSOUND, Fla. (AP) — Shares of Florida real estate developer St. Joe Co. dropped more than 7 percent Monday morning after the company released a new plan to cut back its investments and sell off properties "in bulk" or at reduced prices.
THE SPARK: St. Joe revealed its new strategy Friday. The company's shares rose slightly then, apparently on optimism that the new plan might boost shareholder value. But the stock plunged Monday morning after investors had more time to think about it.
St. Joe plans to cut spending on current projects by $190 million, while significantly cutting planned outlays for infrastructure and master planned communities. It will prepare to sell some assets at a discount.
The company will pay a big price up front. I will take a charge against fourth-quarter 2011 earnings of $325 million to $375 million to write down the value of current projects.
THE BIG PICTURE: St. Joe, formerly a timber company, undertook an ambitious plan to transform 72,000 acres of Florida pineland and swampy forest into a bustling tourism and aerospace corridor.
The company lured Southwest Airlines to an airport near the property by promising to cover the airline against any losses for a specified period.
The project coincided with the real estate crash that wiped out demand for new homes throughout Florida. The real estate market remains weak, with a flood of foreclosed properties on the market.
St. Joe's plan to scale back spending and unload properties is one way to keep cash on hand to weather the real estate crash. It expects to generate positive operating cash flow this year, excluding discretionary capital spending.
THE ANALYSIS: Raymond James & Associates analyst Buck Horne downgraded St. Joe to "Market Perform" from "Outperform" based on the costs of the plan.
Horne said in a note to clients that investors were expecting some kind of strategic shift, but were surprised by the size of the charges in the fourth quarter. He said the size of the write-downs indicates that St. Joe might be selling some of its property for nothing more than the value of the timber on it rather than high-end property value investors were hoping for.
At least one analyst was optimistic about the long term. Keefe, Bruyette & Woods analyst Sheila McGrath said in a client note that the stock likely dropped because of the big fourth-quarter charge.
McGrath said there could be benefits after the upfront costs. St. Joe's plan appears to be more focused on current action, rather than waiting for the markets to come back," she wrote.
Mcgrath rates the stock "outperform" with a target price of $24.
SHARE ACTION: St. Joe shares fell $1.28, or 7.4 percent, to $15.99 in morning trading. The stock tumbled during the real estate crash, falling from $58.65 in April, 2007. In the last 52 weeks it's ranged from $12.72 to $30.32.
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