St Joe Co (JOE) 2008 Q3 法說會逐字稿

Welcome to the St. Joe Company third quarter earnings release conference call. This call is being recorded. Currently all participants are in a listen-only mode. (Operator Instructions.)

Now at this time I would like to turn the conference over to David Childers. Please go ahead.

Good morning on this Election Day 2008. Welcome to the St. Joe Company conference call for 2008's third quarter. I am David Childers, Vice President of Finance and 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 Web site at Joe.com. Britt.

Thanks, David. Good morning.

This morning, Joe announced a net loss for the third quarter 2008 of $19.2 million or $0.21 per share compared to a net loss of $6.8 million or $0.09 per share for the third quarter of 2007. The results for the third quarter included a number of charges totaling $13 million or $0.09 per share after-tax relating to a pension charge impairments, adjustments to our installment notes and our restructuring activity during the quarter. The details are included in this morning's press release.

Some current focus. During these extraordinary times that are impacting the entire real estate industry, we continue to make progress fortifying Joe. With virtually no debt and a strong cash position, Joe's solid balance sheet better positions us to withstand the global financial crisis and the downturn in the Florida real estate market.

We also remain committed to continuing to manage our costs and will remain and will maintain our focus on managing our home and homesite inventory and assets to preserve long-term shareholder value. At the same time, we are focusing on the opportunities presented by the future opening of the new airport, and are positioning Joe for when the real estate markets begin to recover.

There were several highlights in the third quarter. We entered into a new $100 million revolving credit facility with Branch Bank and Trust Company. Joe ended into the quarter with $106.3 million of cash after receiving $69 million in net cash proceeds from the monetization of $77.9 million, all but installment notes receivable. And the construction of the Panama City Bay County International Airport continued to move forward on time and I will discuss that later.

Now I would like to turn it over to Bill, who will provide some additional detail on the quarterly results and discuss our commitment to a solid balance sheet. Bill?

Thank you, Britt. Before discussing the balance sheet, let me comment on the quarterly operating results beginning with nonstrategic rural land sales.

We continue to market nonstrategic lands for sale to a wide variety of prospective buyers. During the quarter ended September 30, we sold 346 acres for a total of $2.4 million.

In October, a previously announced contract for the sale of approximately 67,000 acres of nonstrategic conservation land in Liberty, Jefferson, Gulf and Franklin counties was terminated. The sale for a total price of approximately $130 million was to have closed in two traunches. One in the fourth quarter of this year and the second in the second quarter of 2009.

This particular buyer had sought large contiguous conservation acreage. We have now returned these parcels to the market, offering this acreage in smaller parcels to other buyers. We have seen a high level of interest in these parcels; and, in fact, have already had one small closing this quarter.

Given the strength of our balance sheet, we have no near-term need for the proceeds and we plan to continue an orderly disposition of this nonstrategic land.

Turning to residential. Resort and primary residential sales generate approximately $9 million in revenue in the third quarter. As we stated on our last quarter's call, the spring and summer selling season in our resort markets was disappointing. There continues to be resort, residential resale activity in WaterColor and WaterSound Beach, but the market remains challenged by high inventories of resale product, high credit conditions and cautious customers.

The primary home market also remains difficult. We are working with builders to adjust their takedown schedules and modify contracts in light of current market conditions.

Commercial land sales generate just over $2 million in revenue in the third quarter. While we are pleased at the level of long-term interest we see in northwest Florida, commercial markets remain weak under current economic conditions.

Leasing activity at our 58-acre, 400,000 square foot power center across from [Pier Park] is progressing with several LOIs in various stages of negotiation.

The Forest Re segment generated approximately $6 million in revenue, primarily from the sale of 327,000 tons of woodfiber.

As you know, we have had an ongoing effort to reduce capital expenditures, lower our overhead costs, and strengthen the balance sheet. We made significant progress on these initiatives this quarter. We know a focused approach to capital expenditures is critical in these economic times and we are continuing to review our CapEx budget for all projects to make certain that each expenditure is prudent in this environment.

In the first nine months of this year, we spent approximately $29 million after the application of CDD reimbursements, compared to approximately $221 million in last year's first nine months, and $527 million in the first nine months of 2006. We now expect capital expenditures for the full year of 2008 net of CDD reimbursement to be less than $50 million. These expenditures are primarily in our Rivertown, Victoria Park 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 dramatically reduced our employee headcount. As a result of this restructuring and a continued focus on costs, our total cash overhead, the combination of corporate overhead, [dealed] overhead and capitalized overhead declined by about $10 million or 33% during the quarter compared to the third quarter of 2007.

Further, we continue to expect our projected fourth quarter 2008 solid run rate to be reduced by more than 40% compared with the same quarter last year.

As we have previously stated, we are committed to a strong balance sheet and the real estate assets that represent long-term value, particularly in these difficult economic times. At the end of the third quarter we had cash and pledged treasury securities of approximately $136 million compared to debt of $51 million, which includes $29 million of (inaudible) debt.

In the third quarter, as Britt said, we entered into a new revolving credit facility with BB&T, with an aggregate principal amount of $100 million. We have not drawn on this facility which matures in September 2011. And given the current state of the capital markets, we are pleased to be able to close this three-year borrowing facility.

Let me close my remarks by saying we have a solid balance sheet, we have virtually no debt, we have liquidity in excess of $200 million as defined in our new credit agreement; and we have no current plans to draw on this new facility. Importantly, we believe this gives us the financial flexibility to weather these difficult market conditions.

Back to you, Britt.

Thank you, Bill. Before we close let me update you on the new international airport under construction within our 75,000-acre West Bay sector plan.

Almost half of the site infrastructure work has been completed to date. Construction crews have started paving the primary runway and taxiways. The contractor has mobilized and started work on the terminal control tower and support facilities.

As the construction work continues on the new Panama City Airport, Joe is aggressively pursuing opportunities for its assets adjacent to the airport at West Bay. The new airport is being positioned as a focal point for economic development and air service for northwest Florida and a neighboring portion of Southern Alabama.

We are gearing up to compete for the industries of this century. We are aggressively working with regional and national partners to attract economic development projects to West Bay, and concentrating on economic clusters expected to have significant growth potential in the region.

The current cluster of targets include aerospace, defense and security industries, international trade and logistics, alternative energy technology, and health and human performance. A new Website, www.newpcairport.com, has been created by the airport authority to provide updates on the airport construction project. And I would encourage you to visit this site regularly.

The Airport Authority remains on schedule and projects a May 2010 opening.

Last week, the US District Court in Jacksonville granted motions for summary judgment in the airport's favor and dismissed the challenges to the airport's Army Corps of Engineer 404 permit. There is a 60 day appeal period after that ruling.

We are delighted with the District Court's ruling. The challenge to the FAA record of decision remains outstanding, but is not delaying any of the construction activity. And we look forward to its positive resolution in the near term.

In summary, although we are facing very tough economic conditions today, we believe that when Florida comes back after this market downturn, Joe's assets in northwest Florida are well-positioned to lead the way. By working together now on important regional issues like transportation infrastructure, regional branding, economic and workforce development, we are building a strong foundation to fully realize our potential when our economy recovers.

We are hard at work to make West Bay one of the main focal points of our value creation process.

At the end of the third quarter Joe had land use entitlements in hand or in process, totaling approximately 45,000 residential units in more than 14 million square feet of commercial space, as well as an additional 592 acres with land use entitlements for commercial uses.

Let me remind you Joe owns approximately 607,000 acres, concentrated primarily in northwest Florida. And currently our total entitlement portfolio that I just mentioned is only on approximately 40,000 acres, which is less than 7% of our current holdings. We will continue to broaden our entitlement portfolio in the region as we build our long-term value generation strategies.

Florida has seen boom and bust cycles before. In every challenge, there is an opportunity. The only way to get past these troubled economic times is to push through them. Fortunately, our strong balance sheet and cash position allows us to be patient, prudent and prepared.

And with that, as we all keep an eye on the exit polls this afternoon and early this evening, we will be happy to respond to your questions.

(Operator Instructions.) Chris Haley, Wachovia.

Good morning. Two questions, if I can. First, could you offer a little bit of color on the contract that fell through? Was it financing contingent? Was it a buyer that you had in the past? I'd just like a little bit to understand what changed and how that may have been underwritten.

Then secondly, recognizing that we are still in a very slow period and Britt's comment that when Florida comes back, you feel more enthusiastic, you can feel more enthusiastic. You do provide information regarding your margins and granted most of your activity going forward will be lot sale only versus vertical bit build.

Could you give us a sense as to where you think long-term margins are for that type of sale activity?

Let me start with the first one. The contract was with a previous buyer of Joe lands. It was -- this is very nonstrategic conservation-oriented land and it was, frankly, a result of a termination being the result of the buyer's [cost] of capital and access to capital in the eleventh hour that caused the termination.

And given the timing of the closing and the capital market at that time in early October, it was -- they decided to terminate and to leave the contract. It doesn't mean in the future that we won't sell to that buyer. They have been a good buyer in the past and I would expect would be in the future and understand the position they were in.

I will let Bill maybe talk to margin. He has the numbers in front of him.

During this year on lot sales, we've seen resort margins plus or minus 50%, and primary home margins plus or minus 20%. And that's kind of the reality of our marketplace today.

That's today or is that when you do your long-term positioning? Long-term strategic -- are those kind of the numbers you are centering on?

Well, no, that's today's reality. I think as we go forward, in any one of the product points and price points it will -- our lot pricing to the builders and to the retail market, I would expect in resort residential will work its way back, back towards to where we were, but certainly not at '04 and '05 highs. And I would tell you that in the primary residential that it will take a while to get back to what we had sustained, frankly, prior to the collapse of the market.

Rather than trying to pinpoint an exact, I would say normalcy to us won't look like '04 and '05. But it is not going to be as bad as it is today.

Thank you. One follow-up on the timber on the 67,000 acres sale, Britt. Were they typically or were they typically in -- or in the past using about 1 to 1 leverage or was it all equity?

No. I don't know that. In this case it was just purchased. And I wouldn't want to try to guess on that one.

Okay (multiple speakers) that you're not sure whether it was financing contingent. It's just that at the eleventh hour they walked?

It was not -- our contract was not financing contingent.

All right. Thank you.

Buck Horne with Raymond James.

Good morning. On the CapEx run rate, great detail there on the '08 numbers.

Is that $50 million a good number for '09? Or is there potentially any other things you can do to term CapEx or how does that look? And also -- well. I guess you mentioned the primary components of that Rivertown and WindMark Beach and what not?

Yes. But we are putting our plans together for '09 now as you might imagine and we are continuing to modify those plans. I think on the last call we said that -- the last quarter's call, we said that we expected '09 CapEx to be less than $75 million.

We certainly continue to expect that. Some of this year's CapEx we have deferred until next year.

So I would at this point expect it to range somewhere between this year -- around this year's level and slightly up to maybe 75. But we have not finalized our plans for '09. And I want going to reiterate that we are very cognizant of dispersing these dollars very prudently.

And so we will continue to evaluate each expenditure, based upon the timing and the return we would expect on those dollars.

Okay. And one more. Is there really any price elasticity left in the site sales at this point? I mean -- meaning, given a -- could you generate some more activity, some more interest from builders on land takedown, if you lower the price a little bit or is it just a point where most of the guys out there looking are not buying at any price right now?

I don't think it is in our best interest to chase prices down at this point, given the strength of our balance sheet and our liquidity position. So we have not pursued that strategy and don't intend to.

We are active in the markets and we have an understanding of where the markets are, but chasing prices down is not in our best interest.

And, frankly, let me just add to that, have not seen that to be productive by others who have done it. So --.

Thanks.

(Operator Instructions). Sheila McGrath with KBW.

Good morning. Could you talk about the pricing in the quarter for commercial acreage and rural acreage? Commercial seemed a little bit low and rural seemed a little bit higher than typical. So I'm just wondering if there were specific characteristics of those parcels?

No. Not really. I think it was a matter of -- one, the size. There wasn't a large amount their and so the numbers can get skewed as a result. But commercial sales were on market. And, Bill, do you have the -- in the price on the --?

Rural land sale is about $7600 an acre, which was very attractive, given the nature of that land with some of the topographical characteristics that were attractive to that particular buyer.

Then looking back at the attractive land that -- the rural, at the contract that fell through. Is that all of that land back on the market and is that something that you think would close over the next 18 months or so? How should we think about timing of the sale of that?

I think you ought to think about the timing as near term and not over a number of years. I do think that, yes, it is all on the market. We have had significant interest as a result of it being [accept] back on the market.

And like we have said in our release when we terminated the contract, we put it could out there in different sizes and parcels, with the parcels because we think we can create that activity. It was unique to have the one buyer for that much contiguous conservation land. They are not there, but there are other buyers who are looking for different portions of what are considered significant conservation, but not strategic to our future values.

The only thing I will add to what Britt said is that as we break that large lot if you will into various parcels, you'll see different price points for the different parcels based upon the characteristic of the land.

So some of that land will be sold as timberland, some of that will be sold as conservation land commanding a higher price point and I think you'll see a variety of buyers come to the fore and close on those lands.

Last question, on (inaudible) Center], that you mentioned in your comments, the commercial and your Pier Park. Is that 100% finalized and it's in leasing or if you could just update is on the status of that JV?

Yes, the JV is 100% finalized with [Winter] Realty. That project itself is in process of securing leases with a variety of tenants and as you know that sits across US Highway 98 from Pier Park Mall and it is very well located and we've seen a great deal of interest in the site, and have a number of LOIs that are in various stages of negotiation.

Great. Thank you.

With that, this will conclude today's question-and-answer session. I would like to turn the call then to Britt Greene for any additional or closing comments.

I will just thank you all for today and be safe and look forward to talking to you in 90 days. Thank you.

Thank you.