RYN Rayonier Inc

The St. Joe Company (JOE), a publicly-held operationally diversified real estate company, has recently monetized a 40,975 acre of land tract in Florida, by formalizing a ‘timber deed’ with an investment fund managed by Resource Management Service for a price of $55.9 million. Since its inception in 1950, Resource Management has operated as a private timberland investment firm serving pension funds, endowments, foundations and family offices.

A timber deed is a method of selling timber, whereby the seller conveys all liability and risk in timber to the buyer and receives a one-time fixed amount in exchange. The buyer reserves the right to use the timber for a specified time period, after which the uncut timber reverts back to the seller. The gain or loss from the timber cut-out during the usage period falls upon the buyer and capital gains tax on timber deeds usually depend on the frequency of their past timber sales.

In accordance with the agreement signed by St. Joe, Resource Management would possess the right to harvest or sell the standing timber on specified stands for a period of up to 20 years. Thereafter, when the individual land tracts would be released by Resource Management following the final harvest, it would revert back to St. Joe for subsequent reforestation and ongoing timber production, rural land sales, or real estate development.

St. Joe is one of the largest real estate developers in Florida engaged in town, resort, commercial, and industrial development in addition to land sales and commercial real estate operations. The company also has significant interests in the timber industry.

In 2010, St. Joe had announced the opening of the Northwest Florida Beaches International Airport developed by it. This is the first new international airport opened in the U.S. since the 2001 terrorist attack, and is expected to become a major growth driver for the region. The airport greatly increases the future value of its holdings, and provides an upside potential for St. Joe.

The company also launched Venture Crossings Enterprise Centre at WestBay – a commercial development spanning 1,000 acres adjacent to the new airport, for industries, offices, retailers and hotels, which will likely have a positive economic impact on the region in the long run.

We retain our long-term ‘Neutral’ rating on St. Joe, which presently carries a Zacks #4 Rank that translates into a short-term ‘Sell’ recommendation and indicates that the stock is expected to underperform the overall U.S. equity market for the next 1–3 months. We also have a long-term ‘Neutral’ recommendation and a Zacks #3 Rank (short-term ‘Hold’) for Rayonier Inc. (RYN), one of the competitors of St. Joe.

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