ST JOE Co (JOE) FY 2021 MD&A

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying audited consolidated financial statements and the related notes included in this Form 10-K. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described in “Risk Factors” in this Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Form 10-K, unless required by law.

Business Overview

St. Joe is a real estate development, asset management and operating company with all of its real estate assets and operations in Northwest Florida. We intend to use existing assets for residential, hospitality and commercial ventures. We have significant residential and commercial land-use entitlements. We actively seek higher and better uses for our real estate assets through a range of development activities. We may partner with or explore the sale of discrete assets when we and/or others can better deploy resources. We seek to enhance the value of our owned real estate assets by developing residential, commercial and hospitality projects to meet market demand. Approximately 86% of our real estate is located in Florida’s Bay, Gulf, and Walton counties. Approximately 90% of our real estate land holdings are located within fifteen miles of the Gulf of Mexico.

We believe our present capital structure, liquidity and land provide us with years of opportunities to increase recurring revenue and long-term value for our shareholders. We intend to focus on our core business activity of real estate development, asset management and operations. We continue to develop a broad range of asset types that we believe will provide acceptable rates of return, grow recurring revenues and support future business. Capital commitments will be funded with cash proceeds from completed projects, existing cash, owned-land, partner capital and financing arrangements. We do not anticipate immediate benefits from investments. Timing of projects may be subject to delays caused by factors beyond our control.

Our real estate investment strategy focuses on projects that meet long-term risk-adjusted return criteria. Our practice is to only incur such expenditures when our analysis indicates that a project will generate a return equal to or greater than the threshold return over its life.

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2021 highlights include:

Market Conditions

In 2021, the U.S. economy was in the process of recovery from the severe impacts of the initial onset of the COVID-19 pandemic in early 2020, and while the economic recovery following containment and mitigation measures of COVID-19 is still ongoing, demand across our segments remains strong. We believe this is primarily the result of the continued growth in Northwest Florida, which we attribute to the region’s high quality of life, natural beauty and outstanding amenities, as well as the evolving flexibility in the workplace.

Despite our positive financial results during the COVID-19 pandemic, the magnitude and duration of the COVID-19 pandemic remains unknown, and we could experience material declines within each of our reportable segments in 2022 and beyond compared to the historical norms. We have taken measures and may be required to take additional measures in the future, in response to the pandemic, including temporary closures of our hotels, retail outlets, beach clubs and food and beverage operations, implementing cost reduction measures and “work from home” policies. We will continue to monitor the potential impacts and evaluate each new project day-by-day and phase-by-phase and take prudent measures and respond as needed based on market conditions. Further discussion of the potential impacts on our business from the COVID-19 pandemic are discussed in Part I. Item 1A. Risk Factors.

Reportable Segments

We conduct primarily all of our business in the following three reportable segments: 1) residential, 2) hospitality and 3) commercial. Prior to the first quarter of 2020, commercial leasing and sales, as well as forestry were treated as individual reportable segments. Commencing in the first quarter of 2020, due to organizational changes, our previously titled “commercial leasing and sales” and “forestry” segments are reported as one segment and retitled to “commercial.” This change is consistent with our belief that the decision making and management of the assets in these segments are being made as one group. All prior year segment information has been reclassified to conform to the current presentation. Also, commencing in the first quarter of 2020, our previously titled “residential real estate” segment was retitled to “residential.” The change had no effect on the consolidated balance sheets, statements of income, statements of comprehensive income or statements of cash flows for the periods presented.

The following table sets forth the relative contribution of these reportable segments to our consolidated operating revenue:

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For more information regarding our reportable segments, see Note 19. Segment Information included in Item 15 of this Form 10-K.

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Residential Segment

Our residential segment typically plans and develops residential communities of various sizes across a wide range of price points and sells homesites to homebuilders or retail consumers. Our residential segment also evaluates opportunities to enter into JV agreements for specific communities such as Latitude Margaritaville Watersound.

The Watersound Origins, Watersound Camp Creek, Breakfast Point East, Titus Park, Ward Creek, Watersound Origins West, College Station, Park Place, Mexico Beach, WindMark Beach and SouthWood communities are large scale, multi-phase communities with current development activity, sales activity or future phases. Homesites in these communities are developed based on market demand and sold primarily to homebuilders and on a limited basis to retail customers.

The SummerCamp Beach and RiverCamps communities have homesites available for sale and lands for future development. The WaterColor community is substantially developed, with remaining homesites available for sale.

The Latitude Margaritaville Watersound community is a planned 55+ active adult residential community in Bay County, Florida. The community is located near the Intracoastal Waterway with convenient access to the Northwest Florida Beaches International Airport. The community is being developed through an unconsolidated JV (the “Latitude Margaritaville Watersound JV”) with our partner Minto Communities USA, a homebuilder and community developer, and is estimated to include approximately 3,500 residential homes, which will be developed in smaller increments of discrete neighborhoods. During 2021, the unconsolidated Latitude Margaritaville Watersound JV entered into 435 sales contracts and completed 47 home sale transactions. As of December 31, 2021, the unconsolidated Latitude Margaritaville Watersound JV had 388 homes under contract, which are expected to result in a sales value of approximately $171.0 million at closing of the homes. See Note 4. Joint Ventures included in Item 15 of this Form 10-K for additional information.

The residential homesite pipeline by community/project are as follows:

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In addition to the communities listed above, we have a number of residential projects in various stages of planning.

As of December 31, 2021, we had 2,000 residential homesites under contract with thirteen different homebuilders, which are expected to result in revenue of approximately $158.9 million at closing of the homesites over the next several years. By comparison, as of December 31, 2020, we had 1,269 residential homesites under contract, with an expected revenue of approximately $115.0 million. The increase in homesites under contract is due to the development of additional homesites and increased homebuilder contracts for residential homesites. The number of homesites under contract are subject to change based on homesite closings and homebuilder interest in each community. As of December 31, 2021, in addition to the 2,000 homesites in other residential communities, our unconsolidated Latitude Margaritaville Watersound JV had 388 homes under contract, which together with the 2,000 homesites are expected to result in a sales value of approximately $329.9 million at closing of the homesites and homes.

Hospitality Segment

Our hospitality segment features a private membership club (the “Watersound Club”), hotel operations, food and beverage operations, golf courses, beach clubs, retail outlets, gulf-front vacation rentals, management services, marinas and other entertainment assets. The hospitality segment generates revenue and incurs costs from membership sales, membership reservations, golf courses, lodging, short-term vacation rentals, management of The Pearl Hotel, food and beverage operations, merchandise sales, marina operations, charter flights, other resort and entertainment activities and beach clubs, which includes operation of the WaterColor Beach Club. Hospitality revenue is generally recognized at the point in time services are provided and represent a single performance obligation with a fixed transaction price. Hospitality revenue recognized over time includes non-refundable club membership initiation fees, club membership dues, management fees and other membership fees. From time to time, we may explore the sale of certain hospitality properties, the development of new hospitality properties, as well as new entertainment and management opportunities. Some of our JV assets and other assets incur interest and financing expenses related to the loans as described in Note 11. Debt, Net included in Item 15 of this Form 10-K.

Watersound Club provides club members and guests in some of our hotels access to our member facilities, which include the Camp Creek golf course, Shark’s Tooth golf course, WaterSound Beach Club and our Pilatus PC-12 NG aircraft (“N850J”). Watersound Club offers different types of club memberships, each with different access rights and associated fee structures. Watersound Club is focused on creating an outstanding membership experience combined with the luxurious aspects of a destination resort. Club operations include our golf courses, beach club and facilities that generate revenue from membership sales, membership reservations, daily play at the golf courses, merchandise sales, charter flights and food and beverage sales and incur expenses from the services provided, maintenance of the golf courses, aircraft, beach club and facilities and personnel costs. Watersound Origins includes an executive golf course, resort-style pool, fitness center, two tennis courts and a private dock located in the community. Access to amenities are reserved to Watersound Origins members consisting of the community residents. The golf course is available for public play.

Watersound Club has a private beach club, located on Scenic Highway 30A, which includes over one mile of Gulf of Mexico frontage, two resort-style pools, two restaurants, three bars, kid’s room and a recreation area. Shark’s Tooth includes an 18-hole golf course, a full club house, a pro shop, as well as two food and beverage operations. In addition to the golf course, Watersound Club’s tennis center is located in the Wild Heron community near the Shark’s Tooth golf course. Camp Creek is an 18-hole golf course located adjacent to the new Camp Creek residential community and near the Watersound Origins residential community. In the fourth quarter of 2019, we commenced construction on new club amenities adjacent to the Camp Creek golf course. Amenities are planned to include a health and wellness center, restaurants, a tennis and pickle ball center, a resort-style pool complex with separate adult pool, a golf teaching academy, pro shop and multi-sport fields. Once complete, these amenities will be available to Watersound Club members and guests of some of our hotels.

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We own and operate the award-winning WaterColor Inn, (which includes the Fish Out of Water restaurant), the Hilton Garden Inn Panama City Airport, the WaterSound Inn and two gulf-front vacation rental houses. We own and operate retail and commercial outlets near our hospitality facilities. We also operate the award-winning The Pearl Hotel and Havana Beach Bar & Grill restaurant and the WaterColor Beach Club, which includes food and beverage operations and other hospitality related activities, such as beach chair rentals. Revenue is generated from (i) lodging, (ii) operation of the WaterColor Beach Club, (iii) management of The Pearl Hotel, (iv) short-term vacation rentals, (v) food and beverage operations and (vi) merchandise sales. Lodging and operation of the WaterColor Beach Club generate revenue from service and/or daily rental fees and incur expenses from the cost of services and goods provided, maintenance of the facilities and personnel costs. Revenue generated from our management services include management fees and expenses consist primarily of internal administrative costs. Lodging and short-term vacation rentals generate revenue from rental fees and incur expenses from the holding cost of assets we own and standard lodging personnel, such as front desk, reservations and marketing personnel. Our food and beverage operations generate revenue from food and beverage sales and incur expenses from the cost of services and goods provided and standard personnel costs. Our retail outlets generate revenue from merchandise sales, which are recognized at the point of sale and incur expenses from the cost of goods provided, personnel costs and facility costs.

We are in the process of constructing seven additional suites at WaterColor Inn; an Embassy Suites by Hilton hotel, with our JV partner, in the Pier Park area of Panama City Beach, Florida; a Homewood Suites by Hilton adjacent to the new Panama City Beach Sports Complex in Panama City Beach, Florida; the waterfront Hotel Indigo and standalone restaurant in Panama City, Florida’s downtown waterfront district; a Home2 Suites by Hilton hotel in Santa Rosa Beach, Florida; The Lodge 30A, with our JV partner, a boutique hotel on Scenic Highway 30A in Seagrove Beach, Florida; and an upscale boutique inn located adjacent to the Camp Creek golf course near the highly desirable Scenic Highway 30A corridor. Once complete, we intend to manage the day-to-day operations of these hotels and restaurant.

Our hotel portfolio by property is as follows:

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We own and operate two marinas consisting of the Bay Point Marina and Port St. Joe Marina. We are planning new marinas along the Intracoastal Waterway. Our marinas generate revenue from boat slip rentals, boat storage fees and fuel sales, and incur expenses from cost of services provided, maintenance of the marina facilities and personnel costs. At present, we are reconstructing the marinas and expect a portion to open in spring 2022. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information.

We own and operate the WaterColor retail store that generates revenue from merchandise sales, which are recognized at the point of sale, and incur expenses from the cost of goods provided, personnel costs and facility costs. We own and operate The Powder Room in Panama City Beach, Florida. The approximately 17,000 square feet facility was completed in December 2020 and includes a retail store with firearms and ammunition, as well as training and educational space and 14 shooting lanes. The Powder Room generates revenue from service fees and merchandise sales, which are recognized at the point of sale, and incurs expenses from the cost of services and goods provided, personnel costs and facility costs.

In addition to the properties listed above, we have a number of hospitality projects in various stages of planning.

Commercial Segment

Our commercial segment includes leasing of commercial property, multi-family, senior living, self-storage and other assets. The commercial segment also oversees the planning, development, entitlement, management and sale of our commercial and rural land holdings for a variety of uses, including a broad range of retail, office, hotel, senior living, multi-family, self-storage and industrial properties. We provide development opportunities for national, regional and local retailers and other strategic partners in Northwest Florida. We own and manage retail shopping centers and develop commercial parcels. We have large land holdings near the Pier Park retail center, adjacent to the Northwest Florida Beaches International Airport, near or within business districts in the region and along major roadways. We also lease land for hunting, rock quarrying and other uses.

The commercial segment also manages our timber holdings in Northwest Florida which includes growing and selling pulpwood, sawtimber and other products, such as fill dirt. As of December 31, 2021, we had an estimated 2.0 million tons of marketable pulpwood and 2.8 million tons of marketable sawlogs on approximately 64,000 acres. Based on our annual harvest plan, we anticipate harvesting approximately 260,000 tons of pulpwood and sawlogs during 2022.

The commercial segment generates leasing revenue and incurs leasing expenses primarily from maintenance and management of our properties, personnel costs and asset holding costs. Our commercial segment also generates revenue from the sale of developed and undeveloped land, timber holdings or land with limited development and/or entitlements and the sale of commercial operating properties. Real estate sales in our commercial segment incur costs of revenue directly associated with the land, development, construction, timber and selling costs. Our commercial segment generates timber revenue primarily from open market sales of timber on site without the associated delivery costs. Some of our JV assets and other assets incur interest and financing expenses related to the loans as described in Note 11. Debt, Net included in Item 15 of this Form 10-K.

The commercial segment’s portfolio of leasable properties continues to expand and diversify. Through wholly-owned subsidiaries and consolidated and unconsolidated joint ventures we are in the process of constructing 390 multi-family units and 148 senior living units, in addition to the 791 multi-family units and 107 senior living units that have recently been completed.

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Total units and percentage leased/occupied for multi-family and senior living communities by location are as follows:

Pier Park Crossings, which was developed in two phases, includes 360 completed apartment units in Panama City Beach, Florida. Watersound Origins Crossings, includes 217 completed apartment units adjacent to the Watersound Town Center. Watercrest, includes 107 completed senior living units in Santa Rosa Beach, Florida. In addition to Pier Park Crossings, Watersound Origins Crossings and Watercrest, we have three multi-family communities and one senior living community under construction. Sea Sound apartments, an unconsolidated JV (the “Sea Sound Apartments JV”) planned for 300 units, with 214 units completed as of December 31, 2021, is located in Panama City Beach, Florida near the Breakfast Point residential communities. North Bay Landing apartments, planned for 240 units, is located in Panama City, Florida. Origins Crossings Townhomes, planned for 64 units, is located near the Watersound Town Center. Watersound Fountains, an unconsolidated JV, (the “Watersound Fountains Independent Living JV’) planned for 148 independent living units, is located near the Watersound Origins residential community.

Our leasing portfolio consists of approximately 985,000 square feet of leasable space for mixed-use, retail, industrial, office, self-storage and medical uses. This includes our consolidated Pier Park North JV. Through separate unconsolidated JVs, other commercial properties include a 124-room TownePlace Suites by Marriott operated by our JV partner (Pier Park TPS, LLC the “Pier Park TPS JV”) and a Busy Bee branded fuel station and convenience store operated by our JV partner (SJBB, LLC the “Busy Bee JV”), both located in Panama City Beach, Florida.

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The total net rentable square feet and percentage leased of leasing properties by location are as follows:

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We have other commercial projects under development and construction. This includes a Publix supermarket totaling approximately 50,000 square feet, in-line space totaling approximately 12,000 square feet and a build-to-suit project totaling approximately 3,350 square feet. We have commenced development of Watersound West Bay Center, a lifestyle shopping center adjacent to Latitude Margaritaville Watersound in Panama City Beach, Florida. Watersound West Bay Center has potential to include approximately 350,000 square feet of leasable space at build out, featuring a mix of retail, restaurant, office and medical space. In January 2022, we entered into a JV to develop a new 216-unit apartment community in Mexico Beach, Florida. In addition to the properties listed above, we have a number of projects in various stages of planning, including additional commercial buildings and apartment communities.

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Results of Operations

Consolidated Results

The following table sets forth a comparison of the results of our operations:

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Results of operations in this Form 10-K generally discusses 2021 and 2020 items and comparisons. For a detailed discussion of results of operations and comparisons for 2020 and 2019, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10‑K for the year ended December 31, 2020 filed with the SEC on February 24, 2021.

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Real Estate Revenue and Gross Profit

The following table sets forth a comparison of our total consolidated real estate revenue and gross profit for the three years ended December 31, 2021:

Residential Real Estate Revenue and Gross Profit. During 2021, residential real estate revenue increased $70.6 million, or 95.3% to $144.7 million, as compared to $74.1 million during 2020. Residential real estate gross profit increased $43.5 million, to $87.9 million (or gross margin of 60.7%), as compared to $44.4 million, (or gross margin of 59.9%) during 2020. During 2021, we sold 804 homesites, 2 homes and unimproved residential land sales of $0.1 million, compared to 509 homesites, no home sales and had unimproved residential land sales of $1.7 million during 2020. During 2021 and 2020 the average revenue, excluding homesite residuals, per homesite sold was approximately $157,000 and $124,000, respectively, due to the mix of sales from different communities. The revenue, gross profit and margin improvement for each period was impacted by the volume of sales within each of the communities, the difference in pricing among the communities and the difference in the cost of the homesite development. The number of homesites sold varied each period due to the timing of homebuilder contractual closing obligations and the timing of development of completed homesites in our residential communities.

Commercial and Rural Real Estate Revenue and Gross Profit. During 2021, we had 22 commercial and rural real estate sales totaling approximately 577 acres for $12.0 million, resulting in a gross profit margin of approximately 79.2%. During 2020, we had 23 commercial and rural real estate sales totaling approximately 473 acres for $11.7 million, resulting in a gross profit margin of approximately 53.0%. Revenue from commercial and rural real estate can vary significantly from period-to-period depending on the proximity to developed areas and mix of real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses.

Our gross margin can vary significantly from period-to-period depending on the characteristics of property sold. Sales of rural and timber land typically have a lower cost basis than residential and commercial real estate sales. In addition, our cost basis in residential and commercial real estate can vary depending on the amount of development or other costs incurred on the property.

Other Revenue. Other revenue primarily consists of mitigation bank credit sales and title fee revenue.

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Hospitality Revenue and Gross Profit

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Hospitality revenue increased $27.5 million, or 57.5%, during 2021, as compared to 2020. The increase in hospitality revenue was primarily related to higher demand in lodging and resort amenities due to increased popularity of the region and year-round travel that resulted in an influx of members and guests from new markets. The increase was also due to the impact of the COVID-19 pandemic on the prior period, which resulted in shutdowns and reduced revenue from mid-March to mid-May 2020. As of December 31, 2021, Watersound Club had 2,255 members, compared with 1,563 members as of December 31, 2020, an increase of 692 members. Gross profit during 2021 and 2020 includes $0.7 million and $1.3 million, respectively of business interruption proceeds received for the marinas related to Hurricane Michael. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information.

Hospitality had a gross margin during 2021 of 22.6%, compared to 26.4% during 2020. The decrease in gross margin is due to business interruption proceeds received in the prior period, as well as pre-opening expenses associated with the opening of Hilton Garden Inn Panama City Airport, onboarding of staff for future assets currently under construction and an increase in cost of labor and products in the current period.

Leasing Revenue and Gross Profit

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Leasing revenue increased $8.3 million, or 44.1%, during 2021, as compared to 2020. The increase was primarily due to new leases at Pier Park Crossings Phase II apartments, which began leasing in the fourth quarter of 2020 and new leases at Watersound Origins Crossings apartments and Watercrest senior living community, which began leasing in the first quarter of 2021, as well as other new leases. Gross profit during 2020 includes $0.7 million of business interruption insurance proceeds received for Pier Park Crossings apartments related to Hurricane Michael. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for additional information.

Leasing gross margin decreased to 57.2% during 2021, as compared to 68.6% during 2020, primarily due to start-up and lease-up expenses for new assets in the current period and business interruption proceeds received in the prior period.

Timber Revenue and Gross Profit

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Timber revenue decreased $0.3 million, or 4.8%, during 2021, as compared to 2020. The decrease was primarily due to a decrease in the sales of fill dirt and other products. The decrease was partially offset by an increase due to the

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sales mix of different wood products and price increases in the current period. There were 273,000 tons of wood products sold during 2021, as compared to 322,000 tons of wood products sold during 2020.

Corporate and Other Operating Expenses

Corporate and other operating expenses during 2021 and 2020, were comparable.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization expense increased $5.4 million during 2021, as compared to 2020, primarily due to new assets placed in service.

Investment Income, Net

Investment income, net primarily includes (i) interest and dividends earned and accretion of the net discount, (ii) net realized gain or loss from the sale of available-for-sale investments and equity securities, (iii) net unrealized gain or loss related to investments – equity securities, (iv) interest income earned on the time deposit held by a special purpose entity and (v) interest earned on mortgage notes receivable and other receivables as detailed in the table below:

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Investment income, net increased $2.2 million to $7.2 million for 2021, as compared to $5.0 million for 2020. The decrease in interest, dividend and accretion income is primarily due the change in investments held during the period. Investment income, net during 2021 and 2020 includes unrealized losses related to preferred stock of $1.9 million and $4.7 million, respectively.

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Interest Expense

Interest expense primarily includes interest incurred on the Senior Notes issued by Northwest Florida Timber Finance, LLC, project financing, Community Development District (“CDD”) debt and finance leases, as well as amortization of debt discount and premium and debt issuance costs as detailed in the table below:

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Interest expense increased $2.3 million, or 16.9%, in 2021, as compared to 2020, primarily related to the increase in project financing. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information regarding project financing.

Gain on Contribution to Unconsolidated Joint Ventures

Gain on contribution to unconsolidated joint ventures in 2021 and 2020 was $3.6 million and $20.0 million, respectively. The year ended December 31, 2021, includes a gain of $3.1 million on land contributed to our unconsolidated Watersound Fountains Independent Living JV. The year ended December 31, 2021, also includes a gain of $0.5 million on additional infrastructure improvements contributed to our unconsolidated Latitude Margaritaville Watersound JV. The year ended December 31, 2020, includes a gain of $15.7 million on land and additional infrastructure improvements contributed to our unconsolidated Latitude Margaritaville Watersound JV. The year ended December 31, 2020, also includes a gain of $4.3 million on land and mitigation credits contributed to our unconsolidated Sea Sound Apartments JV. See Note 4. Joint Ventures included in Item 15 of this Form 10-K for additional information.

Other Income, Net

Other income, net primarily includes income from our retained interest investments, gain on insurance recovery, loss from hurricane damage and other income and expense items as detailed in the table below:

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Other income, net increased $8.9 million to $10.2 million during 2021, as compared to $1.3 million in 2020. The year ended December 31, 2021 and 2020 includes a gain on insurance recovery of $4.9 million and $0.7 million, respectively, and loss from hurricane damage of $0.1 million and $1.1 million, respectively, related to Hurricane Michael. Miscellaneous income, net during 2021 includes $3.6 million received from the Florida Division of Emergency Management’s Florida Timber Recovery Block Grant Program (“TRBG”) for recovery of lost income related to timber crop that was destroyed as a result of Hurricane Michael. We have met all requirements related to the TRBG program as of December 31, 2021. See Note 7. Hurricane Michael and Note 18. Other Income, Net included in Item 15 of this Form 10-K for additional information for additional information.

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Income Tax Expense

We recorded income tax expense in 2021 of $25.0 million, compared to $13.7 million in 2020. Our effective tax rate was 25.1% in 2021, as compared to 23.2% in 2020.

Our effective rate for 2021 differed from the federal statutory rate of 21.0% primarily due to state income taxes, the change in valuation allowance, the changes in the Florida income tax rate, income tax credits related to our multi-family projects, the benefit of QOZ investment and other permanent differences. Our effective rate for 2020 differed from the federal statutory rate of 21.0% primarily due to state income taxes, income tax credits related to our multi-family projects and other permanent differences. See Note 13. Income Taxes included in Item 15 of this Form 10-K for additional information.

Segment Results

Residential

The table below sets forth the consolidated results of operations of our residential segment:

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Real estate revenue includes sales of homesites, homes and other residential land and certain homesite residuals from homebuilder sales that provide us a percentage of the sale price of the completed home if the home price exceeds a negotiated threshold. Hospitality revenue includes some of our short-term vacation rentals. Leasing revenue includes long-term leases of residential assets. Other revenue includes tap and impact fee credits sold and marketing fees. Certain homesite residuals and other revenue related to homebuilder homesite sales are recognized in revenue at the point in time of the closing of the sale. For 2021 and 2020, real estate revenue includes estimated homesite residuals of $4.8 million and $1.9 million, respectively. For 2021 and 2020, other revenue includes estimated fees related to homebuilder homesite sales of $2.4 million and $1.9 million, respectively. Cost of real estate revenue includes direct costs (e.g., development and construction costs), selling costs and other indirect costs.

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The following tables set forth our consolidated residential real estate revenue and cost of revenue activity:

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Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Homesites. Revenue from homesite sales increased $69.0 million, or 101.9%, during 2021, as compared to 2020, primarily due to the mix and number of homesites sold per community, the timing of homebuilder contractual closing obligations and the timing of development of completed homesites in our residential communities. During 2021 and 2020, the average revenue, excluding homesite residuals, per homesite sold was approximately $157,000 and $124,000, respectively. The increase in average revenue per homesite sold in 2021 was due to the mix of sales from different communities. Gross margin increased to 61.4% during 2021, as compared to 59.5% during 2020, primarily due to the mix and number of homesites sold from different communities during each respective period. Gross margin may vary each period depending on the location of homesite sales.

Homes. During 2021, we sold two completed homes within our RiverCamps community for a total of $1.0 million, resulting in a gross profit margin of 10.0%. During 2020, we did not have any home sales.

Land sales. During 2021, we had unimproved residential land sales for $0.1 million, with de minimis cost of revenue. During 2020 we had unimproved residential land sales for $1.7 million, resulting in a gross profit margin of 76.5%.

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Other operating expenses include salaries and benefits, property taxes, marketing, professional fees, project administration, owner association and CDD assessments and other administrative expenses.

Investment income, net primarily consists of interest earned on our notes receivable. Interest expense primarily consists of interest incurred on our portion of the total outstanding CDD debt.

Gain on contribution to unconsolidated joint ventures for 2021, includes a gain of $0.5 million on additional infrastructure improvements contributed to our unconsolidated Latitude Margaritaville Watersound JV. Gain on contribution to unconsolidated joint ventures for 2020 includes a gain of $15.7 million on land and additional infrastructure improvements contributed to our unconsolidated Latitude Margaritaville Watersound JV. See Note 4. Joint Ventures included in Item 15 of this Form 10-K for additional information.

Hospitality

The table below sets forth the consolidated results of operations of our hospitality segment:

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The following table sets forth details of our hospitality segment consolidated revenue and cost of revenue:

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue from our clubs increased $9.6 million, or 43.0%, during 2021, as compared to 2020. The increase in revenue in the current period was due to increases in the number of members and membership revenue, as well as higher

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demand for club amenities that resulted in revenue increases from the beach club, golf and charter flights. As of December 31, 2021, Watersound Club had 2,255 members, compared with 1,563 members as of December 31, 2020, an increase of 692 members. Our clubs gross margin decreased to 29.2% during 2021, compared to 34.1% during 2020. The decrease in gross margin was due to increased support services allocation related to the growth of our club memberships, as well as onboarding of staff for future assets currently under construction and an increase in cost of labor and products.

Revenue from our hotel operations, food and beverage operations, short-term vacation rentals and other management services increased $13.7 million, or 59.1%, during 2021, as compared to 2020. The increase was primarily due to increases in lodging revenue from the WaterColor Inn and Hilton Garden Inn Panama City Airport, which opened in July 2021, as well as food and beverage operations consistent with increased popularity of the region and year-round travel. The increase was also due to the impact of the COVID-19 pandemic on the prior period, which resulted in shutdowns and reduced revenue from mid-March to mid-May 2020. Gross margin increased to 17.6% during 2021, as compared to 16.4% during 2020. The increase in gross margin was due to an increase in year-round travel in the current period consistent with the growth and popularity of the region. The increase in gross margin was partially offset by pre-opening expenses associated with the opening of Hilton Garden Inn Panama City Airport, onboarding of staff for future assets currently under construction and an increase in cost of labor and products.

Revenue from other hospitality operations increased $3.9 million to $5.8 million during 2021, as compared to $1.9 million in 2020. The increase in other hospitality revenue was primarily related to an increase in revenue from The Powder Room, which opened in December 2020, as well as the WaterColor retail store. Gross profit during 2021 and 2020 includes $0.7 million and $1.3 million, respectively, related to business interruption insurance proceeds received for the marinas related to Hurricane Michael, which impacted gross margin during each period. Our other hospitality operations gross margin decreased to 22.4% during 2021, compared to 68.4% during the same period in 2020, due to the business interruption proceeds received in the prior period. We did not have revenue from our marinas during 2021, 2020 or 2019, due to the impact of Hurricane Michael on the marinas. See Note 7. Hurricane Michael included in Item 15 of this Form 10-K for further discussion.

Other operating expenses include salaries and benefits, professional fees, property taxes and other administrative expenses.

The increase of $2.4 million in depreciation and amortization expense during 2021, as compared to the same period in 2020, was primarily due to new properties placed in service.

Interest expense primarily includes interest incurred from our hospitality project financing.

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Commercial

The table below sets forth the consolidated results of operations of our commercial segment:

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The following table sets forth details of our commercial segment consolidated revenue and cost of revenue:

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Total leasing revenue increased $7.9 million, or 42.2%, during 2021, as compared to 2020. The increase was primarily due to new leases at Pier Park Crossings Phase II apartments, which began leasing in the fourth quarter of 2020 and new leases at Watersound Origins Crossings apartments and Watercrest senior living community, which began leasing in the first quarter of 2021, as well as other new leases. Total leasing gross margin decreased during 2021 to

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57.5%, as compared to 68.4% during 2020, primarily due to $0.7 million of business interruption proceeds received for Pier Park Crossings apartments related to Hurricane Michael in the prior period and start-up and lease-up expenses for new assets in the current period. As of December 31, 2021, we had net rentable square feet of approximately 985,000, of which approximately 857,000 square feet was under lease. As of December 31, 2020, we had net rentable square feet of approximately 908,000, of which approximately 774,000 square feet was under lease. As of December 31, 2021, we had 804 multi-family and senior living units leased, compared to 292 multi-family and senior living units leased as of December 31, 2020.

Commercial and rural real estate revenue for the three years ended December 31, 2021 includes the following:

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We believe the diversity of our commercial segment complements the growth of our residential and hospitality segments. Commercial and rural real estate revenue can vary depending on the proximity to developed areas and the mix and characteristics of commercial and rural real estate sold in each period, with varying compositions of retail, office, industrial and other commercial uses. During 2021, we had 22 commercial and rural real estate sales totaling approximately 577 acres for $12.0 million, resulting in a gross profit margin of approximately 79.2%. During 2020, we had 23 commercial and rural real estate sales totaling approximately 473 acres for $11.7 million, resulting in a gross profit margin of approximately 53.0%. As our focus continues to evolve more towards recurring revenue from leasing operations, we expect to have limited commercial and rural real estate sales. Further, we may continue to transform and operate commercial properties for higher and better use. This may result in certain assets moving from the commercial segment to the hospitality segment.

Timber revenue decreased by $0.3 million, or 4.8%, during 2021, as compared to 2020. The decrease was primarily due to a decrease in the sales of fill dirt and other products. The decrease was partially offset by an increase due to the sales mix of different wood products and price increases in the current period. There were 273,000 tons of wood products sold during 2021, as compared to 322,000 tons of wood products sold during 2020. The average price of wood product sold increased to $19.57 per ton during 2021, as compared to $15.32 per ton during 2020.

The total tons sold and relative percentages of total tons sold by major type of wood product are as follows:

Other operating expenses include salaries and benefits, property taxes, CDD assessments, professional fees, marketing, project administration and other administrative expenses.

The increase of $3.5 million in depreciation, amortization and depletion expense during 2021, as compared to 2020, was primarily due to new properties placed in service.

Interest expense primarily includes interest incurred from our commercial project financing and CDD debt.

Gain on contribution to unconsolidated joint ventures for 2021, includes a gain of $3.1 million on land contributed to our unconsolidated Watersound Fountains Independent Living JV. Gain on contribution to unconsolidated joint

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ventures for 2020 includes a gain of $3.9 million on land contributed to our unconsolidated Sea Sound Apartments JV. See Note 4. Joint Ventures included in Item 15 of this Form 10-K for additional information.

Other income, net during 2021, includes $3.6 million received from the Florida Division of Emergency Management’s TRBG program for recovery of lost income related to timber crop that was destroyed as a result of Hurricane Michael. See Note 7. Hurricane Michael and Note 18. Other Income, Net included in Item 15 of this Form 10-K for additional information.

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Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents and U.S. Treasury Bills classified as investments – debt securities of $159.1 million, compared to $154.8 million as of December 31, 2020. As of December 31, 2021, we also had investments – equity securities in preferred stock investments of $0.5 million. In addition to cash and cash equivalents, we consider our investments classified as Securities, as being generally available to meet our liquidity needs. Securities are not as liquid as cash and cash equivalents, but they are generally convertible into cash within a relatively short period of time. See Note 5. Investments included in Item 15 of this Form 10-K for additional information regarding our investments.

We believe that our current cash position, financing arrangements and cash generated from operations will provide us with sufficient liquidity to satisfy our anticipated working capital needs, expected capital expenditures, principal and interest payments on our long-term debt, capital contributions to JVs, Latitude Margaritaville Watersound JV Note commitment, authorized stock repurchases and authorized dividends for the next twelve months. See Part II. Item 1A. Risk Factors.

During 2021, we incurred a total of $200.8 million in capital expenditures, which includes $52.8 million for our residential segment, $45.8 million for our commercial segment, $101.7 million for our hospitality segment and $0.5 million for corporate expenditures. Our 2022 capital expenditures budget exceeds our 2021 expenditures. We anticipate that these future capital commitments will be funded through cash generated from operations, new and existing financing arrangements, cash on hand and cash equivalents. As of December 31, 2021, we had a total of $217.0 million in construction and development related contractual obligations, of which a portion will be funded through committed or new financing arrangements.

As of December 31, 2021 and 2020, we had various loans outstanding totaling $227.5 million and $161.4 million, respectively, with maturities from May 2022 through June 2060. The weighted average rate on our variable rate loans as of December 31, 2021 was 2.6%. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk for additional information regarding London Interbank Offered Rate (“LIBOR”) related risks. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In October 2015, the Pier Park North JV entered into a $48.2 million loan (the “PPN JV Loan”). As of December 31, 2021 and 2020, $43.6 million and $44.6 million, respectively, was outstanding on the PPN JV Loan. The PPN JV Loan accrues interest at a rate of 4.1% per annum and matures in November 2025. In connection with the PPN JV Loan, we entered into a limited guarantee in favor of the lender, based on our percentage ownership of the JV. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation by the Pier Park North JV; any voluntary transfer or encumbrance of the property in violation of the due-on-sale clause in the security instrument; upon commencement of voluntary bankruptcy or insolvency proceedings or upon breach of covenants in the security instrument. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In May 2018, the Pier Park Crossings JV entered into a $36.6 million loan, insured by the U.S. Department of Housing and Urban Development (“HUD”), to finance the construction of apartments in Panama City Beach, Florida (the “PPC JV Loan”). As of December 31, 2021 and 2020, $35.7 million and $36.1 million, respectively, was outstanding on the PPC JV Loan. The PPC JV Loan matures in June 2060. In August 2021, the Pier Park Crossings JV entered into a modification of the PPC JV Loan, that reduced the interest rate from 4.0% to 3.1%. The modification revised the prepayment provision to include that the PPC JV Loan may not be prepaid prior to September 1, 2022 and

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from September 1, 2022 through August 31, 2031 a premium is due to the lender of 2% - 10% of any prepaid principal. The PPC JV Loan is secured by the Pier Park Crossings JV’s real property and the assignment of rents and leases. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In May 2019, the Watersound Origins Crossings JV entered into a $37.9 million loan (the “Watersound Origins Crossings JV Loan”). As of December 31, 2021 and 2020, $37.9 million and $27.2 million, respectively, was outstanding on the Watersound Origins Crossings JV Loan. The Watersound Origins Crossings JV Loan bears interest at a rate of 5.0% and matures in May 2024. The Watersound Origins Crossings JV Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Watersound Origins Crossings JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Watersound Origins Crossings JV Loan. We are the sole guarantor and receive a monthly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In June 2019, the Watercrest JV entered into a $22.5 million loan (the “Watercrest JV Loan”). As of December 31, 2021 and 2020, $20.1 million and $18.1 million, respectively, was outstanding on the Watercrest JV Loan. The Watercrest JV Loan bears interest at a rate of LIBOR plus 2.2% and matures in June 2047. The Watercrest JV Loan is secured by the real property, assignment of rents, leases and deposits and the security interest in the rents and personal property. In connection with the Watercrest JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Watercrest JV Loan. We are the sole guarantor and receive a quarterly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. The Watercrest JV entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap was effective June 1, 2021 and matures on June 1, 2024 and fixed the variable rate debt on the notional amount of related debt of $20.0 million to a rate of 4.4%. See Note 6. Financial Instruments and Fair Value Measurements and Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In August 2019, a wholly-owned subsidiary of ours entered into a $5.5 million loan (the “Beckrich Building III Loan”). As of December 31, 2021 and 2020, $5.2 million and $5.4 million, respectively, was outstanding on the Beckrich Building III Loan. The Beckrich Building III Loan bears interest at a rate of LIBOR plus 1.7% and matures in August 2029. The Beckrich Building III Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Beckrich Building III Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Beckrich Building III Loan. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In October 2019, the Pier Park Crossings II JV entered into a $17.5 million loan (the “PPC II JV Loan”). As of December 31, 2021 and 2020, $17.4 million and $15.9 million, respectively, was outstanding on the PPC II JV Loan. The PPC II JV Loan matures in October 2024 and bears interest at a rate of LIBOR plus 2.1%. The PPC II JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the PPC II JV Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the PPC II JV Loan. As guarantor, our liability under the PPC II JV Loan was reduced to 50% of the principal amount upon satisfaction of final advance conditions in April 2021 and will be reduced to 25% of the principal amount upon reaching and maintaining a certain debt service coverage ratio. We are the sole guarantor and receive a monthly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information. In January 2022, we began the process to refinance the PPC II JV Loan with a loan commitment to be insured by HUD.

In March 2020, a wholly-owned subsidiary of ours entered into a $15.3 million loan (the “Airport Hotel Loan”). As of December 31, 2021 and 2020, $14.6 million and $3.5 million, respectively, was outstanding on the Airport Hotel Loan. The Airport Hotel Loan bears interest at LIBOR plus 2.0%, with a floor of 3.0%, and matures in March 2025. The Airport Hotel Loan is secured by the real property, assignment of leases, rents and profits and the security interest in the rents and personal property. In connection with the Airport Hotel Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Airport Hotel Loan. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

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In April 2020, the Pier Park Resort Hotel JV entered into a loan with an initial amount of $52.5 million up to a maximum of $60.0 million through additional earn-out requests (the “Pier Park Resort Hotel JV Loan”). As of December 31, 2021, $14.7 million was outstanding on the Pier Park Resort Hotel JV Loan. As of December 31, 2020, there was no principal balance outstanding on the Pier Park Resort Hotel JV Loan. The Pier Park Resort Hotel JV Loan matures in April 2027 and bears interest at a rate of LIBOR plus 2.2% during construction and LIBOR plus 2.0% upon hotel opening. The Pier Park Resort Hotel JV Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the Pier Park Resort Hotel JV Loan, as guarantor, we and our JV partner entered into a guarantee based on each partner’s ownership interest in favor of the lender, to guarantee the payment and performance of the borrower. As guarantor, our liability under the Pier Park Resort Hotel JV Loan will be released upon reaching and maintaining certain debt service coverage for twelve months. In addition, the guarantee can become full recourse in the case of the failure of guarantor to abide by or perform any of the covenants or warranties to be performed on the part of such guarantor. The Pier Park Resort Hotel JV entered into an interest rate swap to hedge cash flows tied to changes in the underlying floating interest rate tied to LIBOR. The interest rate swap is effective December 10, 2022 and matures on April 12, 2027 and fixed the variable rate on the notional amount of related debt of $42.0 million to a rate of 3.2%. See Note 6. Financial Instruments and Fair Value Measurements and Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In November 2020, a wholly-owned subsidiary of ours entered into a $16.8 million loan to finance the construction of a Homewood Suites by Hilton hotel in the Breakfast Point area of Panama City Beach, Florida (the “Breakfast Point Hotel Loan”). As of December 31, 2021, $11.8 million was outstanding on the Breakfast Point Hotel Loan. As of December 31, 2020, there was no principal balance outstanding on the Breakfast Point Hotel Loan. The Breakfast Point Hotel Loan matures in November 2042 and bears interest at a rate of LIBOR plus 2.8% through November 2022, 3.3% over the 5-Year T-Bill Index from November 2022 through November 2027 and 3.3% over the 1-Year T-Bill Index from November 2027 through November 2042, with a minimum rate of 3.8% throughout the term of the loan. The Breakfast Point Hotel Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Breakfast Point Hotel Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Breakfast Point Hotel Loan. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In November 2020, a wholly-owned subsidiary of ours entered into a $5.8 million loan to finance the construction of a self-storage facility in Santa Rosa Beach, Florida (the “Self-Storage Facility Loan”). As of December 31, 2021, $4.7 million was outstanding on the Self-Storage Facility Loan. As of December 31, 2020, there was no principal balance outstanding on the Self-Storage Facility Loan. The Self-Storage Facility Loan matures in November 2025 and bears interest at a rate of LIBOR plus 2.4%, with a floor of 2.9%. The Self-Storage Facility Loan is secured by the real property, assignment of leases and rents and the security interest in the rents and personal property. In connection with the Self-Storage Facility Loan, we executed a guarantee in favor of the lender to guarantee the payment and performance of the borrower under the Self-Storage Facility Loan. Our liability as guarantor under the Self-Storage Facility Loan shall not exceed $2.9 million, plus any additional fees, upon reaching and maintaining certain debt service coverage. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In January 2021, The Lodge 30A JV entered into a $15.0 million loan to finance the construction of a boutique hotel in Seagrove Beach, Florida (the “Lodge 30A JV Hotel Loan”). As of December 31, 2021, $7.5 million was outstanding on the Lodge 30A JV Hotel Loan. The Lodge 30A JV Hotel Loan bears interest at a rate of 3.8% and matures in January 2028. The Lodge 30A JV Hotel Loan is secured by the real property, assignment of leases and rents and the security interest in the rents and personal property. In connection with the Lodge 30A JV Hotel Loan, we, wholly-owned subsidiaries of ours and our JV partner entered into a joint and several payment and performance guarantee in favor of the lender. Upon reaching a certain debt service coverage ratio for a minimum of twenty-four months, our liability as guarantor will be reduced to 75% for a twelve-month period. The debt service coverage ratio will be tested annually thereafter and will be reduced to 50% in year four and 25% in year five. We receive a monthly fee related to the guarantee from our JV partner based on the JV partner’s ownership percentage. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In March 2021, a wholly-owned subsidiary of ours entered into a $26.8 million loan to finance the construction of apartments in Panama City, Florida (the “North Bay Landing Apartments Loan”, formerly referenced as “Star Avenue”).

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As of December 31, 2021, $1.3 million was outstanding on the North Bay Landing Apartments Loan. The North Bay Landing Apartments Loan bears interest at a rate of LIBOR plus 2.5%, with a floor of 3.2%. Upon reaching a certain debt service coverage ratio, the North Bay Landing Apartments Loan will bear interest at a rate of LIBOR plus 2.3%, with a floor of 3.0%. The North Bay Landing Apartments Loan matures in September 2024 and includes an option for an extension of the maturity date by eighteen months, subject to certain conditions. The North Bay Landing Apartments Loan is secured by the real property, assignment of rents and leases and the security interest in the rents, leases and personal property. In connection with the North Bay Landing Apartments Loan, we executed a guarantee in favor of the lender to guarantee completion of the project and the payment and performance of the borrower under the North Bay Landing Apartments Loan. As guarantor, our liability under the North Bay Landing Apartments Loan will be reduced to 50% of the principal amount upon satisfaction of final advance conditions and reduced to 25% of the principal amount upon reaching and maintaining a certain debt service coverage ratio. In addition, the guarantee can become full recourse in the case of any fraud or intentional misrepresentation or failure to abide by other certain obligations on the part of such guarantor. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In June 2021, a wholly-owned subsidiary of ours entered into a $28.0 million loan to finance the construction of Watersound Camp Creek, which includes an inn and amenity center near the Watersound Camp Creek residential community (the “Watersound Camp Creek Loan”). As of December 31, 2021, $3.4 million was outstanding on the Watersound Camp Creek Loan. The Watersound Camp Creek Loan bears interest at a rate of LIBOR plus 2.1%, with a floor of 2.6%, and matures in December 2047. The Watersound Camp Creek Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Watersound Camp Creek Loan, we executed a guarantee in favor of the lender to guarantee completion of the project and the payment of the borrower under the Watersound Camp Creek Loan. As guarantor, our liability under the Watersound Camp Creek Loan will be reduced to 50% of the principal amount upon the project reaching and maintaining a trailing six months operations with a certain debt service coverage ratio and reduced to 25% of the principal amount upon reaching and maintaining a trailing twelve months operations of a certain debt service coverage ratio. In addition, the guarantee can become full recourse in the case of the failure of guarantor to abide by or perform any of the covenants, warranties or other certain obligations to be performed on the part of such guarantor. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In August 2021, a wholly-owned subsidiary of ours entered into a $12.0 million loan to finance the construction of the a building in the Watersound Town Center near the Watersound Origins residential community (the “Watersound Town Center Grocery Loan”). As of December 31, 2021, $0.6 million was outstanding on the Watersound Town Center Grocery Loan. The Watersound Town Center Grocery Loan bears interest at LIBOR plus 2.0%, with a floor of 2.2%, and matures in August 2031. The Watersound Town Center Grocery Loan is secured by the real property, assignment of rents and the security interest in the rents and personal property. In connection with the Watersound Town Center Grocery Loan, we executed a guarantee in favor of the lender to guarantee completion of the project and the payment and performance of the borrower under the Watersound Town Center Grocery Loan. As guarantor, our liability under the Watersound Town Center Grocery Loan will be reduced to 50% of the principal amount upon satisfaction of final advance conditions, issuance of the certificate of occupancy for the project and receipt of the initial base rent payment and reduced to 25% of the principal amount upon reaching a certain debt service coverage ratio and the project maintaining 93% occupancy for ninety consecutive days. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

In October 2021, a wholly-owned subsidiary of ours entered into a $21.2 million loan to finance the construction of a hotel in Panama City, Florida (the “Hotel Indigo Loan”). As of December 31, 2021, there was no principal balance outstanding on the Hotel Indigo Loan. The Hotel Indigo Loan bears interest at a rate of LIBOR plus 2.6%, with a floor of 2.6%, through October 2023 and LIBOR plus 2.4%, with a floor of 2.4%, from November 2023 through maturity. The Hotel Indigo Loan matures in October 2028 and includes an option for an extension of the maturity date by sixty months, subject to certain conditions. The Hotel Indigo Loan is secured by the leasehold property, assignment of rents, leases, deposits, permits, plans, fees, agreements, approvals and contracts and the security interest in the personal property and rents. In connection with the Hotel Indigo Loan, we executed a guarantee in favor of the lender to guarantee completion of the project and the payment and performance of the borrower under the Hotel Indigo Loan. See Note 11. Debt, Net included in Item 15 of this Form 10-K for additional information.

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CDD bonds financed the construction of infrastructure improvements in some of our communities. The principal and interest payments on the bonds are paid by assessments on the properties benefited by the improvements financed by the bonds. We have recorded a liability for CDD debt that is associated with platted property, which is the point at which it becomes fixed and determinable. Additionally, we have recorded a liability for the balance of the CDD debt that is associated with unplatted property if it is probable and reasonably estimable that we will ultimately be responsible for repayment. We have recorded CDD related debt of $4.9 million as of December 31, 2021. Total outstanding CDD debt related to our land holdings was $14.1 million as of December 31, 2021, which is comprised of $11.8 million at SouthWood, $2.2 million at the existing Pier Park retail center and $0.1 million at Wild Heron. We pay interest on this total outstanding CDD debt.

As of December 31, 2021, our unconsolidated Watersound Fountains Independent Living JV, Sea Sound Apartments JV, Latitude Margaritaville Watersound JV, Pier Park TPS JV and Busy Bee JV had various loans outstanding, some of which we have entered into guarantees. See Note 4. Joint Ventures and Note 20. Commitments and Contingencies included in Item 15 of this Form 10-K for additional information.

In June 2020, we, as lender, entered into a $10.0 million secured revolving promissory note with the unconsolidated Latitude Margaritaville Watersound JV, as borrower (the “Latitude Margaritaville Watersound JV Note”). As of December 31, 2021 and 2020, $7.1 million and $2.7 million, respectively, was outstanding on the Latitude Margaritaville Watersound JV Note. The Latitude Margaritaville Watersound JV Note was provided by us to finance the development of the pod-level, non-spine infrastructure, which is being repaid by the JV as each home is sold by the JV, with the aggregate unpaid principal and all accrued and unpaid interest due at maturity in June 2025. The Latitude Margaritaville Watersound JV Note is secured by a mortgage and security interest in and on the real property and improvements located on the real property of the JV. See Note 4. Joint Ventures and Note 9. Other Assets included in Item 15 of this Form 10-K for additional information.

During the year ended December 31, 2021, we did not repurchase shares of our common stock outstanding. During the year ended December 31, 2020, we repurchased a total of 532,034 of our common stock outstanding for an aggregate purchase price of $8.8 million, including costs. See Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities and Note 15. Stockholders’ Equity included in Item 15 of this Form 10-K for additional information regarding common stock repurchases related to the Stock Repurchase Program and treasury stock retirement during 2020.

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 $13.8 million for the installment notes monetized through December 31, 2021. This balance represents the present value of future cash flows to be received over the life of the installment notes, using management’s best estimates of underlying assumptions, including credit risk and interest rates as of the date of the monetization, plus the accretion of investment income based on an effective yield, which is recognized over the term of the notes, less actual cash receipts.

As part of certain sales of timberlands in 2007, 2008 and 2014, we generated significant tax gains. The installment notes structure allowed us to defer the resulting federal tax liability of $33.7 million until 2022 - 2024 and $37.8 million until 2029, respectively, the maturity dates for the installment notes. We have a deferred tax liability related to the gains in connection with these sales.

As of December 31, 2021 and 2020, we were required to provide surety bonds that guarantee completion and maintenance of certain infrastructure in certain development projects and mitigation banks, as well as other financial guarantees of $36.9 million and $24.2 million, respectively, as well as standby letters of credit in the amount of $12.9 million and $6.6 million, respectively, which may potentially result in a liability to us if certain obligations are not met.

In conducting our operations, we routinely hold purchasers’ assets in escrow pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. These amounts are maintained in segregated bank accounts and have not been included in the accompanying consolidated balance sheets, consistent with U.S. generally accepted accounting principles (“GAAP”) and industry practice. The cash deposit accounts and offsetting liability balances for escrow deposits in connection with our title agencies for real estate

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transactions were $9.3 million and $4.5 million as of December 31, 2021 and 2020, respectively, these escrow funds are not available for regular operations.

Summary of Cash Flows

A summary of our cash flows from operating, investing and financing activities are as follows:

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Cash Flows from Operating Activities

Cash flows provided by operating activities includes net income, adjustments for non-cash items, changes in operating assets and liabilities and expenditures related to assets ultimately planned to be sold, including residential real estate development and related amenities, sales of timberlands or undeveloped and developed land and land developed by the commercial segment. Adjustments for non-cash items primarily include depreciation, depletion and amortization, unrealized loss on investments, net, equity in loss from unconsolidated joint ventures, net of distributions, deferred income tax expense, cost of real estate sold and gain on contribution to unconsolidated joint ventures. Net cash provided by operations was $111.8 million in 2021, as compared to $37.3 million in 2020. During 2021 net income was $73.7 million, compared to $45.5 million in 2020. The increase in net cash provided by operating activities was primarily due to increased net income, the changes in cost of real estate sold and gain on contribution to unconsolidated joint ventures during the period.

Cash Flows from Investing Activities

Cash flows used in investing activities primarily includes capital expenditures for operating property and property and equipment used in our operations, purchases of investments, capital contribution to unconsolidated joint ventures and payments for interest in unconsolidated joint venture, partially offset by proceeds from insurance claims, sales and maturities of investments, capital distribution from unconsolidated joint ventures and maturities of assets held by special purpose entities. During 2021, net cash used in investing activities was $196.1 million, which included capital expenditures for operating property and equipment, purchases of investments of U.S. Treasury Bills of $157.9 million, capital contribution to unconsolidated joint ventures of $9.4 million and payments for interest in unconsolidated joint venture of $0.5 million, partially offset by maturities of investments of $117.0 million, proceeds from insurance claims of $4.9 million, sales of investments of $1.5 million, capital distribution from unconsolidated joint ventures of $1.0 million and maturities of assets held by special purpose entities of $0.8 million. During 2020, net cash used in investing activities was $175.3 million, which included capital expenditures for operating property and property and equipment, purchases of investments of $58.9 million and capital contribution to unconsolidated joint ventures of $10.8 million, partially offset by maturities of investments of $11.0 million, sales of investments of $3.7 million, maturities of assets held by special purpose entities of $0.8 million and proceeds from insurance claims of $0.7 million.

Capital expenditures for operating property and property and equipment were $153.5 million and $121.8 million during 2021 and 2020, respectively, which were primarily for our commercial and hospitality segments.

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Cash Flows from Financing Activities

Net cash provided by financing activities was $48.6 million for 2021, compared to $59.4 million during the same period in 2020. Net cash provided by financing activities during 2021 included borrowings on debt of $69.3 million and capital contribution from non-controlling interest of $3.2 million, partially offset by dividends paid of $18.8 million, principal payments on debt of $2.3 million, debt issuance costs of $1.4 million, capital distribution to non-controlling interest of $1.3 million and principal payments for finance leases of $0.1 million. Net cash provided by financing activities during 2020 included borrowings on debt of $69.0 million and capital contribution from non-controlling interest of $7.7 million, partially offset by repurchases of common shares of $8.8 million, dividends paid of $4.1 million, principal payments for debt of $1.9 million, debt issuance costs of $1.8 million, capital distribution to non-controlling interest of $0.6 million and principal payments for finance leases of $0.1 million.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally, we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and our accounting estimates are subject to change.

Investment in Real Estate and Cost of Real Estate Revenue. Costs associated with a specific real estate project are capitalized during the development period. These development costs include land and common development costs (such as roads, structures, utilities and amenities). We capitalize costs directly associated with development and construction of identified real estate projects. Indirect costs that clearly relate to a specific project under development, such as project administration, interest (up to total interest expense) and real estate taxes, may also be capitalized.

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.

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 or construction on land already owned, and ends when the asset is substantially complete and ready for its intended use. In the event that the activities to ready the asset for its intended use are suspended, the capitalization period will cease until such activities are resumed. If we determine not to complete a project, any previously capitalized costs that are not recoverable are expensed in the period in which the determination is made and recovery is not deemed probable.

Our investments in real estate are carried at cost, net of depreciation and timber depletion, unless circumstances indicate that the carrying value of the assets may not be recoverable. If we determine that an impairment exists due to the inability to recover an asset’s carrying value, an impairment charge is recorded to the extent that the carrying value exceeds estimated fair value. If such assets were held for sale, the provision for loss would be recorded to the extent that the carrying value exceeds estimated fair value less costs to sell.

Long-Lived Assets. Long-lived assets include our investments in land holdings, operating and development properties, investment in unconsolidated JV’s and property and equipment. Our investments in land holdings, operating and development properties and property and equipment are carried at cost, net of depreciation and timber depletion. We review our long-lived assets for impairment quarterly to determine whether events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. As part of our review for impairment of long-lived assets,

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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:

We use varying methods to determine if an impairment exists, such as (i) considering indicators of potential impairment, (ii) analyzing expected future cash flows and comparing the expected future undiscounted cash flows of the property to its carrying value or (iii) determining market resale values.

The accounting estimate related to real estate impairment evaluation is susceptible to change due to the use of assumptions about future sales proceeds and future expenditures. For projects under development or construction, an estimate of future cash flows on an undiscounted basis is performed using estimated future expenditures necessary to maintain the existing project and using management’s best estimates about future sales prices and planned holding periods. Based on our investment return criteria for evaluating our projects under development or undeveloped land, management’s assumptions used in the projection of undiscounted cash flows include:

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:

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Other properties that management does not intend to sell in the near term under current market conditions and has the ability to hold are evaluated for impairment based on management’s best estimate of the long-term use and eventual disposition of the property. Typically, assets are carried based on historical cost basis, which in some cases may exceed fair value if sold in the near term. The results of impairment analysis for development and operating properties are particularly dependent on the estimated holding and selling period for each asset group.

If a property is considered impaired, the impairment charge is determined by the amount the property’s carrying value exceeds its fair value. We use varying methods to determine fair value, such as (i) analyzing expected future cash flows, (ii) determining resale values in a given market, (iii) applying a capitalization rate to net operating income using prevailing rates in a given market or (iv) applying a multiple to revenue using prevailing rates in a given market. The fair value of a property may be derived either from discounting projected cash flows at an appropriate discount rate, through appraisals of the underlying property or a combination thereof.

We classify the assets and liabilities of a long-lived asset as held-for-sale when management approves and commits to a formal plan of sale and it is probable that a sale will be completed. The carrying value of the assets held-for-sale is then recorded at the lower of their carrying value or fair value less costs to sell.

Income Taxes. In preparing our consolidated financial statements, significant management judgment is required to estimate our income taxes. Our estimates are based on our interpretation of federal and state tax laws. We estimate our actual current tax due and assess temporary differences resulting from differing treatment of items for tax and accounting purposes. The temporary differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheets. Adjustments may be required by a change in assessment of our deferred tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities and changes in tax laws. To the extent adjustments are required in any given period, we will include the adjustments in the deferred tax assets and liabilities in our consolidated financial statements. We record a valuation allowance against our deferred tax assets as needed based upon our analysis of the timing and reversal of future taxable amounts and our historical and future expectations of taxable income.

In general, a valuation allowance is recorded, if based on all the available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets 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, 2021 and 2020, we had a state net operating loss carryforward of $229.3 million and $304.0 million, respectively. As of December 31, 2021 and 2020, we had $3.1 million and $2.3 million of federal net operating loss carryforwards. The federal net operating loss carryforwards are applicable to a specific QOF entity of ours and do not expire. The majority of state net operating losses are available to offset future taxable income through 2036 and will begin expiring in 2030. As of December 31, 2021, we had a valuation allowance of $0.3 million. As of December 31, 2020, we had a de minimis valuation allowance. As of December 31, 2021 and 2020, we had income tax payable of $0.7 million and $2.7 million, respectively, included within other liabilities on the consolidated balance sheets.

Recently Adopted Accounting Pronouncements

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”) which simplified the accounting for income taxes by removing certain exceptions to the general

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principles in Topic 740. The amendment also improved consistent application of and simplified GAAP for other areas of Topic 740 by clarifying and amending existing guidance. We adopted the new guidance as of January 1, 2021. The adoption of this guidance did not have an impact on our financial condition, results of operations and cash flows.

Investments – Equity Securities, Investments-Equity Method and Joint Ventures and Derivatives and Hedging

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force) (“ASU 2020-01”), which clarified the interaction between the accounting standard on recognition and measurement of financial instruments in Topic 321, Investments—Equity Securities (“Topic 321”) and Topic 323, Investments—Equity Method and Joint Ventures (“Topic 323”). We adopted the new guidance as of January 1, 2021. The adoption of this guidance did not have a material impact on our financial condition, results of operations and cash flows.

Codification Improvements

In October 2020, the FASB issued ASU 2020-10, Codification Improvements (“ASU 2020-10”) that improved consistency by including all disclosure guidance in the appropriate disclosure sections and clarified application of various provisions in the Codification. We adopted the new guidance as of January 1, 2021. The adoption of this guidance did not have an impact on our financial condition, results of operations and cash flows and did not have a material impact on the disclosures to the financial statements.

Recently Issued Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) that provides temporary optional guidance to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The new guidance provides expedients and exceptions for applying GAAP to contract modifications and hedging relationships affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued due to reference rate reform. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) (“ASU 2021-01”) which clarifies the original guidance that certain optional expedients and exceptions in contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. This new guidance was effective upon issuance and may be applied prospectively through December 31, 2022, as reference rate activities occur. There is no current impact to us from this guidance and we are evaluating the impact that the adoption of this guidance will have on our financial condition, results of operations and cash flows.