JOE Reveals Pension Plan Annuitization

The St. Joe Company (JOE - Analyst Report), a publicly held, operationally diverse real estate company based in Florida, recently signed a commitment letter to purchase a group annuity contract from Massachusetts Mutual Life Insurance Company. The annuity scheme would mostly benefit the retired employee participants of the Pension Plan. However, current and former employees with cash balances in the Pension Plan would remain unaffected by this move.

JOE purchased the annuity for $101 million, funded primarily by the assets of the Pension Plan. The transaction also resulted in an estimated transfer and settlement of pension benefit obligations of approximately $93 million. As of May 31, 2009, JOE had $174 million of assets in the Pension Plan, along with liabilities of $121 million and a funded ratio of approximately 145%. With the annuitization, the funded ratio increased to approximately 260% with an estimated $73 million in assets and $28 million in liabilities.

JOE would record a pre-tax non-cash charge of $43 million and an after-tax charge of $27 million in 2Q09, relating to the Pension Plan transaction. Furthermore, the company would record the transaction in ‘Accumulated Other Comprehensive Income’ in its consolidated balance sheet in 2Q09, thereby offsetting the non-cash charge to earnings. Consequently, the transaction is not expected to have any significant effect on the tangible net worth of the company.

However, with the plummeting housing industry, we see no near-term growth catalyst for JOE. While we think the company is a good long-term investment, we maintain our near-term Sell recommendation.