St Joe Co (JOE) 2008 Q2 法說會逐字稿

Good day everyone and welcome to The St. Joe Company second-quarter earnings release conference call. This call is being recorded. (Operator Instructions). At this time, I would like to turn the call over to Mr. David Childers. Please go ahead, sir.

Thank you. Good morning. Welcome to The St. Joe Company conference call for 2008's second quarter. I'm David Childers, Vice President, Investor Relations. And on the call this morning are Britt Greene, President and CEO of Joe, and our CFO, Bill McCalmont.

Before we start, let me remind you that matters discussed on this conference call that are not historical facts are forward-looking statements that are based on our current expectations. Actual results may differ materially. Forward-looking statements are subject to certain risks and uncertainties that are described in today's earnings release and in our SEC filings. These filings, along with reconciliations of non-GAAP measures mentioned in today's call, are on our website at Joe.com. Britt?

Good morning. This morning, Joe announced a net loss for the second quarter of $20.8 million or $0.23 per share compared to net income of $25.3 million or $0.34 per share for the second quarter last year. The results for the second quarter included a number of charges related to the prepayment of Joe's senior notes, our restructuring activity during the quarter and impairments and adjustments to our installment notes. The details are included in this morning's press release.

We are working to position St. Joe for the future real estate recovery with a continued focus on the implementation of our strategic plan. Here are some of the key events and accomplishments for the second quarter. We will add details to many of these during the remainder of this call.

Joe's real estate market remains challenging. As a result, during the second quarter, we implemented the following steps. We completed the prepayment of $240 million of our senior notes, virtually eliminating our debt. We significantly reduced our employee headcount and our annual payroll expense run rate and we sold nonstrategic rural lands for a total of $39 million.

Concurrently, we positioned the Company to benefit from the eventual return of a healthier real estate market. We commenced resort operations at WindMark Beach and launched the national promotion of the resort with our strategic partner, Southern Progress Corporation. They are the publisher of several magazines including Southern Living and Coastal Living. The State of Florida appropriated additional funds that can be used to extend the runway length and improve highway access to the new Panama City-Bay County International Airport. And construction of the new airport continues on schedule and on budget.

Even with those significant accomplishments, looking ahead, we see continuing economic weakness in a national economy and difficult conditions for our northern Florida real estate markets. We cannot predict when the national economy or our real estate markets will recover but we're continuing to execute our strategic plan, keep Joe lean and efficient to better withstand these difficult times. As you heard a moment ago, we have virtually eliminated our debt and meaningfully reduced employee headcount. Further, we have significantly reduced capital expenditures. We intend to be well-positioned when real estate markets eventually return to health by providing a variety of real estate products for the cycle's upturn. This includes key parcels in Bay County near the new international airport now under construction.

Now, Bill is going to provide some additional detail of the quarterly results and discuss our commitment to a solid balance sheet. Bill?

Before discussing the balance sheet, let me comment on the quarterly operating results beginning with nonstrategic rural land sales. Last year, we announced we were marketing our nonstrategic rural lands for sale. As part of this program, we sold over 29,000 acres at a total price of $39 million during the second quarter. After the end of the quarter, we executed a contract for the sale of a little more than 67,000 acres of nonstrategic rural conservation land in Liberty, Jefferson, Gulf, and Franklin Counties.

The sale will be closed in two transactions for a total price of a little over $130 million. The first sale of 39,000 acres for approximately $67 million is scheduled to be completed in the fourth quarter of this year. The second sale of 28,000 acres is scheduled for the second quarter of 2009 at a price of approximately $63 million. The sales are subject to customary closing conditions. We look forward to closing this sale and believe it represents good value for our shareholders. At this time, we do not expect to close any other large tract lands sales in 2008.

Turning to residential, resort and primary residential sales generated $7.2 million in revenue in the second quarter. The spring and summer selling seasons and our resort markets have not materialized as we had hoped. Although we have seen significant resale activity in WaterColor and WaterSound Beach, the market remains challenged by excess inventory and cautious buyers.

In the equally soft primary home market, builders are extending their takedown schedules and seeking contract modifications to reflect current market conditions. Given our strong balance sheet, we can remain patient and not react in impulsively to current short-term market conditions.

Commercial markets also remain weak. Although, longer-term interest in northwest Florida continued to be strong, the timing of commercial closings is being impacted by the national slowdown in retail. Tangible evidence of this longer-term interest is the strategic partnership we entered into at Glimcher Realty Trust after the close of the second quarter. We plan to jointly develop a 58-acre, 400,000 square foot anchored retail shopping center across from Pier Park. This center on land that we currently own along Highway 98 in Panama City Beach will be marketed to national retail outlets.

Let me now turn to the balance sheet. As you know, Joe is committed to maintain a strong balance sheet and continuing to reduce SG&A expenses. We fully understand the importance of operating with extreme efficiency and we are evaluating all expenditures and strategic initiatives to ensure we are well prepared when the real estate environment improves. We are positioning Joe to withstand this prolonged downturn and will continue to prudently manage our inventory and assets to preserve long-term shareholder value.

As previously reported, we paid off $240 million of senior notes and made an approximate $30 million make-whole payment with the proceeds of the first-quarter equity offering. At June 30, we had cash and marketable securities of $74 million compared to debt of approximately $54 million, which includes approximately $30 million of [the fee's] debt. We also hold $78 million face amount of notes receivable from rural land sales and we intend to monetize those notes during the third and fourth quarters of 2008.

From a capital perspective, we're continuing to focus on reducing our capital expenditures. In the first six months of this year, we spent approximately $32 million compared to approximately $147 million in last year's first six months and $355 million in the first six months of 2006. We now expect capital expenditures in 2008 to be less than $75 million and even lower in 2009. These expenditures are primarily in our RiverTown and WindMark Beach communities.

We also continue to focus on our SG&A. In both the fourth quarter of 2007 and this year's second quarter, we announced restructuring plans to dramatically reduce our employee headcount. In the second quarter, we announced staff reductions that include the elimination of approximately 30 positions and the accelerated departure of approximately 10 additional employees. As a result of these restructurings and a continued focus on cost, our total cash overhead, the combination of corporate overhead, sealed overhead and capitalized overhead declined by about $7.5 million or over 25% during the quarter compared to the second quarter of 2007. Further, we now expect our projected fourth-quarter 2008 salary ran rate to be reduced by more than 40% compared with the same quarter in 2007. Back to you, Britt.

Let's now turn to West Bay and northwest Florida's new international airport. Construction continues on the relocation of the new Panama City-Bay County International Airport in West Bay. All clearing has been completed on the 1330 acre Phase I of the airport including all wetland impacts as authorized by federal and state permits. Over 1.8 million cubic yards of material has been excavated and redistributed over the site. The local airport authority has indicated that the initial phase of the new international airport is scheduled to open in mid-2010.

During the second quarter, the State of Florida appropriated an additional $4.5 million in funding for the construction of additional operational enhancements for the airport. These funds would be available to extend the primary runway length from 8400 feet to 10,000 feet, subject to customary approvals and permits. In addition, the State of Florida also appropriated another $7.5 million to improve airport access by creating an east-west corridor from State Road 77 in Bay County to US Highway 98 in the West in Walton County that would include a realignment of County Road 388 that runs along the airport. The appropriation is to be used to initiate the necessary project studies for this road improvement project. If the project proceeds, the Florida Department of Transportation would use a portion of the right-of-way purchase from Joe in 2006 for this road project. The primary north-south access road for the airport, State Road 79, is now being widened to four lanes from West Bay North to State Road 20 and plans suggest that eventually it will be widened to four lines to Interstate 10. All of this work is positioning thousands of acres of Joe land for the future economic growth in the region.

There is also progress to the East on the new 25-bed Sacred Heart Hospital near WindMark Beach. Sacred Heart Health System has started vertical construction on the new $35 million hospital located along Highway 98 in Port St. Joe. Completion of the hospital is scheduled for the fall of 2009 and is projected to employ approximately 160 people. It is located on land donated by Joe. This community hospital and emergency room, two operating rooms and a helipad provides for essential healthcare infrastructure for residents of WindMark Beach or St. Joe, as well as all of Gulf and Franklin Counties and surrounding region.

In summary and before we respond to your questions, let me emphasize we face a difficult market in the near term. The only way to get past current market conditions is to go through them. Fortunately, our strong balance sheet allows us to remain patient. Growth will return. It's impossible to say exactly when that will be but know that when it comes, Joe will be ready. The construction of the Panama City-Bay County International Airport continues on time and on budget. We are prudently managing Joe to best position ourselves for the market's return with significantly-reduced capital expenditures, virtually no debt, and meaningfully reduced employee headcount. We intend to be well-positioned when real estate markets eventually return to health and will be prepared for the cycle's upturn.

With that summary and that conclusion, we will be happy to respond to your questions.

(Operator Instructions). Buck Horne, Raymond James.

I was wondering if you could talk -- just maybe if you have any data on inventory trends in the resale market in your key markets and maybe to what extent you might be affected by additional foreclosures.

The best analog obviously is out in northwest Florida where they have both primary and resort residential. What we've seen is don't mistake this as saying other than there is some stabilization in inventory levels, we have not seen them grow sales, resales year-over-year from 2006 to 2007 and out to 2008 year-to-date have continued to increase in volume. Yet the inventory is remaining stable and I would say most of that -- some of that may be associated with foreclosure but also those who are starting to see signs of some recovery off of the bottom but still bouncing along the bottom and starting to put their units on the market. And we're in the high season for sales so we've seen some -- it was going down; now it's come up. But all-in-all, pretty stable in the inventory and on the price side some stabilization in terms of discounts off the 2005 highs.

And maybe, could you talk a little bit more about what the homebuilders that are talking to you about contracted, extending the takedowns and modifying contracts, put a little extra color on maybe who's out there trying to get out of those commitments or what recourse you have if they decide to walk?

Well, our recourse is, they have deposits up and they would forfeit those deposits. And we also get the lots back and remarket them to another builder. The builders generally have been asking for extensions because frankly the market is slow and rather than continue to take lots from us and put them on their balance sheet, it's another reason we can -- we're here to be patient with them and not to try to chase the market down. So, the conversations have been about extending those takedowns of those lots, not necessarily walking.

We have had one builder who has decided to exit not all of our regions but a couple of our regions and we're in renewed talks with other builders who have had an interest to come into this community. If you remember initially, we had limited the number of national builders to some of these communities. So we didn't allow them to cannibalize each other. So as one departs, there's others who have called and expressed an interest to take their position.

Eric Landry, Morningstar.

Up through 2007, you quoted your land holdings and entitlements those within 10 miles of the coast. In the last two quarters, you've switched to that within 15 miles of the coast. I'm wondering, why the switch in the quote and if you had it, a number for the acreage within 10 miles.

I think it was more just to get clarity of the fact that we have some -- when it's off the coast, it's also within 15 miles as we move in just to demonstrate that there's still a significant amount of Joe-held land still near the 10 mile line. A lot of people cut it off at 10 and don't realize that if you add another five miles that are a significant portion remaining ownership of Joe. So that's why we made the amendment.

But do you see a difference in value of that incremental five miles? Is there any difference -- I guess on a 30,000 foot level, is there a difference in value between those in the 10 to 15 mile range and those in the --

I think it depends on which county you are in. And I could say I think there's -- 15 miles off the coast in Bay County is different than 15 miles off the coast in Franklin County. So I think it's just -- I think at this moment in time, it really depends on where you are looking at the acreage.

Yes, it clearly depends on the character of the land, topographical features, access to waterways, recreational activities so that I think that what we're trying to do was to demonstrate that a number of our land holdings moving from 10 to 15 miles inland still have some very desirable features.

Whether it's on a river or off an intercoastal waterway or off of a large bay, some of the bays in and around Bay County are actually stretched inwards five, six miles off the coast.

So, then, is the 10-mile number still 310,000 in that area?

I don't have that number in front of me (multiple speakers) --

I don't have that in front of me.

But I'm sure that's probably pretty close.

(Operator Instructions). Sheila McGrath, KBW.

Could you give us an idea, Bill, on a quarterly run rate for SG&A? And also looking at the quarter-end cash position, with that looks like monetizing the remaining timber notes? How many timber notes looking through 2008? What do you expect the proceeds from those to be?

Taking your second question first, we have about $78 million of notes at the end of the quarter. And when we monetize those, we would expect to realize the proceeds of about $70 million in cash from those notes.

From a G&A perspective, we talked about our cash G&A which is what I focus on to the greatest degree here. And for the quarter ended June, that cash SG&A number was about $21 million, down from about $28.5 million in the corresponding quarter of 2007. And included in that as we talked about in the past, about 41% of those costs represent employee-related costs. The remaining 60% or so are not employee-related costs.

And going forward, I think you'll see us make a continued focus on those non-employee related costs trying to continue to drive those numbers down as low as we can. And so, for the balance of 2008, I would expect that cash SG&A number to trail off getting the benefit of the restructurings we've announced and continued focus on reducing the nonemployee related costs.

And then, are there any remaining charges from the restructurings that we can expect in the next couple quarters?

Yes, there is actually a schedule in the 10-Q that highlights that. So what we would expect for the balance of 2008 is about $1.4 million and then some trickles over to 2009. That would be a little over $0.25 million for a total of about $1.7 million.

And then, one last question. Could you give us a little bit more detail on the joint venture on the retail property? Is that a 50-50 joint venture? How does it work? Are you donating the land into a partnership and where kind of the leasing might stand?

It is 50-50. We are donating the land into the partnership. Maybe some are wondering why Glimcher. They have a very good leasing group that approached us and we're responsible for Destin Commons and other local. We think they understand the local market very well. They understand the tourist industry very well and they understand how to talk to retailers about how to capitalize on that. And they brought Glimcher to us and we're excited about the opportunity going forward and feel that it will be what we've been searching for which is the opportunity to start JVs to start generating some recurring income stream for the shareholders of the Company.

Would it require any capital from Joe to put into it, other than the land?

That's not our expectation at this time. Now obviously we haven't financed the project and we're in the pre-leasing stages but that's not our expectation.

Mr. Greene, that does conclude the question-and-answer session. So I would like to turn it back to you for any closing comments, Sir.

Great. I appreciate it, Dave, and I appreciate everybody's commentaries today and questions and look forward to talking to you in 90 days. Thank you.

Thank you. That does conclude the call. We do appreciate your participation. At this time, you may disconnect. Thank you.