St Joe Co (JOE) 2008 Q4 法說會逐字稿

Good day. Welcome to The St. Joe Company fourth quarter 2008 earnings release call. This call is being recorded. Currently all participants are in a listen-only mode. (Operator Instructions) At this time I would like to turn the call over to the Vice President of Finance, Mr. David Childers. Please go ahead, sir.

Good morning. Welcome to The St. Joe Company conference call for 2008 fourth quarter and full year results. I'm David Childers, Vice President Finance and Investor Relations. On the call this morning are Britt Greene, our President and CEO, and our Executive Vice President and 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 are on our website at Joe.com. Bill?

Thanks, David. This morning we announced a net loss for the fourth quarter 2008 of $27.9 million or $0.31 per share. This compares to net income of $1 million or $0.01 per share for the fourth quarter of 2007. Revenues in the quarter were impacted by the global economic slowdown and the ever-widening effect of the credit crisis. Consequently, we experienced softening prices for our residential units and limited demands for both our residential units and our commercial parcels. Demand for our rural land parcels remains steady, although we are carefully watching any impact the credit crisis may have on pricing or overall demands.

The difficult economic conditions caused us to incur significant non-cash impairment charges in the fourth quarter totaling $55.8 million pretax or $0.34 per share after tax. These non-cash impairment charges were primarily related to three items. First, we made a decision to reduce prices on the majority of our existing housing inventory to reflect current market conditions, facilitate sales and eliminate continuing carrying costs. These charges affected 114 homes and totalled $8.2 million pretax.

Second, we incurred a $28.3 million impairment charge related to the write-down of our SevenShores condominium development and Perico Marina project. SevenShores is a condominium project we started in 1998 on nonlegacy land in Bradenton, Florida north of Sarasota. As has been reported frequently, there is virtually no demand for condominium projects in this market at this time. It is also important to note that we have not commenced vertical construction. This condominium development project was written down to approximate the current fair market value of land entitled for 278 condominium units. This write-down was necessary because we elected not to invest additional capital or acquire additional land for the project under an existing option agreement. We had previously incurred certain costs for the project with the expectation that the project would include 686 units. Given the reduced potential scope of the project, we do not believe that those costs are now recoverable.

Finally ,we wrote off the goodwill associated with the 1997 acquisition of Arvida's real estate business. Arvida was a master developer and home builder that we bought in 1997. Given the condition of the residential markets, our reduced emphasis on residential development, and our previous exit from the home building business, we have determined that our existing residential projects could no longer support the carrying value of Arvida's goodwill and we recorded a $19 million pretax writeoff. There is no remaining goodwill associated with the Arvida acquisition.

For the full year of 2008 we had a net loss of $35.9 million or $0.40 per share, compared to net income of $39.2 million or $0.53 per share in 2007. You will find more detailed fourth quarter and full year results in this morning's release and our 10-K including more detail regarding the impact of certain charges in both periods.

In these unprecedented economic times, our primary focus has been and remains the preservation of our unique asset base while identifying and capitalizing our future growth opportunities. We believe that we have a very solid balance sheet with virtually no debt, an enviable cash position, and valuable real estate assets.

Although we are not able to forecast the duration and severity of this continuing recession, we believe the strength of our balance sheet should position us well to weather this economic crisis. At December 31, 2008, we had cash and pledged Treasury securities of $144.4 million compared to debt of $49.6 million. As noted in the release, total debt includes $28.9 million of defeased debt. We also have a fully committed $100 million revolving credit facility. We have not drawn on this facility and we have no current plans to do so.

Because of our current balance sheet strength and the accomplishments of the past year, we are able to focus on the future with a reconstituted business model. During 2008 we greatly reduced capital expenditures and operating costs. We are continuing to intensely review CapEx spending to make certain that each expense is prudent in this environment. For 2008 our capital expenditures were approximately $35 million. Down from approximately $247 million in 2007, and $608 million in 2006. At this time, we expect our 2009 CapEx expenditures to be consistent with our CapEx expenditures in 2008. We also continue to focus on reducing SG&A. As a result of our restructuring efforts and focus on costs, our total cash overhead, the combination of corporate overhead, field overhead and capitalized overhead, declined about $9 million or 35% during the quarter, compared to the fourth quarter a year ago.

We have also included a new table in the 8-K filed today that provides further detail in the makeup of this SG&A and breaks it down between employee-related costs, real estate holding costs and other SG&A related categories. As we move through 2009 in this cycle, we believe it is critical that we continue to carefully manage our assets and maintain our financial and operational flexibility while not losing sight of future value creation opportunities. With that, I'll turn it over to Britt to discuss our activities leading to these value creation opportunities. Britt.

Thank you, Bill. As Bill noted, our primary focus is reserving Joe's unique asset base while identifying and capitalizing on future growth options. We have benefited greatly from our successful cost management and asset preservation initiatives. And as we look forward, we are also committing significant resources to the opportunities presented by the opening of the new international airport in Panama City still projected for May 2010.

The year 2008 will long be remembered for the unprecedented decline of global financial and real estate markets. Florida's economy, long linked to real estate cycles, has suffered even more significantly. We will continue managing the business to maintain our strong cash position. We believe that that approach will provide the widest range of options. To that end we are fully committed to managing our costs. We have also stepped up efforts to move our standing home and homesite inventory by reducing prices at several of our larger communities. As we look forward, let's remember that Florida is still one of the strongest brands in the world. While it remains a place where people want to visit, live and own real estate, Florida will need to aggressively compete for economic development and job creation to maintain the promise of the brand.

We recognize that the world is undergoing structural change. We are evaluating our unique competitive position and how it may have shifted in the midst of this change. There is any number of possible outcomes, and there is any number of possible business opportunities available to us. That's the good news. As a result, we enter 2009 with the ability to explore the most favorable options for our shareholders. A key part of our strategy going forward is connectivity.

We, along with others in northwest Florida, are committed to becoming more connected to the global economy. Over the past decade, more than $1 billion in new infrastructure investment has come to northwest Florida. This includes the dollars spent on roads and highways, port and rail improvements, health care, education and the arts, as well as the much anticipated new Panama City Bay County International Airport. Construction of the new airport began in late 2007 and almost half of the site infrastructure work, including over 75% of the primary runway, is now complete. This new airport is a key component of our global connectivity strategy.

By combining the new airport with an underutilized deep water seaport and rail system, northwest Florida can connect with a global network and create a unique competitive advantage for businesses locating there. Looking ahead in 2009 and beyond, we will continue to work with regional officials to stimulate more investments from global businesses and entrepreneurs, as well as Federal, State and Municipal governments. We are leveraging the new airport as we pursue several opportunities in the 75,000-acre West Bay. Our team is focused on recruiting businesses in the economic clusters that already have a presence in northwest Florida and have significant growth potential. This is a long-term process, but what we can accomplish now will better position the region and Joe for the future.

We are targeting four economic clusters. First, health care as it gains focus from the new national agenda. Second, international trade, transportation and logistics with world trade still expected to grow over the long-term. Third, alternative energy and environment, driven by environmental energy and environmental mandates. And fourth, defense and aerospace, which is expected to remain a top global growth business. In fact, according to the economic research firm, SRI International, this last cluster of defense and aerospace alone currently accounts for more than 30,000 workers at 1,900 companies and government establishments in northwest Florida alone.

During the fourth quarter Joe also entered into three agreements designed to stimulate economic growth and job creation in northwest Florida. The first, with the Port Authority of Port St. Joe, clears the way for the reopening of a deep water seaport in Port St. Joe. The second, an agreement with Genesee in Wyoming, links that port with a national rail system. The third provides workforce training so important to building a region through a public/private agreement with a state agency, Workforce Florida, Gulf Coast Community College and the Gulf Power Company.

The region is also committed to making northwest Florida an even more desirable national and international destination for visitors and real estate owners. A regional brand through the CV 3000 Organization has been created to promote the area and its 125 miles of white sand beaches, considered some of the best in America. This is an important building block to attract new airline service to the region.

In summary, we believe that beyond the current economic crisis, these kind of initiatives will accelerate demand for our real estate and, hence, increase revenues and asset values for Joe's shareholders. Thank you, and we are happy to respond to your questions.

Today's question-and-answer listen conducted electronically. (Operator Instructions) We will take our first question from Sheila McGrath with KBW. Please go ahead.

Good morning. My first question is on liquidity. Looking at the cash balances of over $115 million and the notes receivable. Could you just walk through? Are you going to continue selling rural acreage this year? And also I thought there was a tax receivable, and I just wanted to know income tax receivable, the status of that as well.

Thanks, Sheila. Yes, we have got $115 million of cash, $100 million undrawn on our credit facility, as we noted, and we have notes receivable of approximately $50 million. The income tax receivable at the end of the year was about $32 million. So those are our sources of primary liquidity during 2009, and we would expect to receive that income tax receivable in cash during 2009.

As we look forward in 2009 for our current business plan, I think you'll see moderate rural land sales and not focus as heavily on driving cash generation from those land sales, and being prudent in managing our inventory from that perspective.

Okay. Great. And then on the transportation or on the Economic Stimulus Package, I was just wondering if northwest Florida is due to benefit from any of those transportation dollars?

Well, we certainly have our eye on it, Sheila, and we expect that we would have our fair crack, just like the rest of the State, at opportunities there, but from a road or infrastructure improvement standpoint. So I think the State is getting enough there that it can be split among the State and that northwest Florida will get its fair share as a result.

It's obvious that we're active in promoting our interests in northwest Florida, though. That is safe to say.

Okay. Then last question, just on commercial joint ventures in general and also more specifically on the retail JV that you've mentioned in the past, could you just give us an update on that?

Sure. We are still there. We are still partners. The property is still there. It is still entitled. But given the nature of the retail marketplace, it has certainly slowed and while we still aggressively pursue the opportunity for a lease we -- obviously in this market, we think our original guesstimate of when that might come to pass is probably going to be delayed further out. But we still expect that it is a viable and well-placed opportunity with that retail center. It's just going to take a little bit to get the retailers more comfortable.

Okay. Just on your thoughts and other commercial JVs and land sales, should we just look for that sector to be a little bit quiet in '09 or are you going to have commercial land sales or are you just pursuing the JVs at this point?

Well, no, there's still some small commercial opportunities in each of the counties. But it's going to be slow. I think to expect that it will be anything dramatically different than '08, I think would be a push. So we expect that we will still have commercial sales. We still are having conversations with respective opportunities in joint venture but I have to say I think the reality is 2009. given the commercial industry as a whole. is just going to be tough.

Okay. Thank you.

Thank you, Sheila.

We will take our next question from Buck Horne with Raymond James. Please go ahead.

Good morning, guys.

Good morning, Buck.

I was wondering if you could talk a little more about SevenShores and kind of exactly what was written off in terms of the costs there and how much of your original investment is now written off. And maybe your thoughts on would it be better just to sell that property now and focus more on your core northwest Florida markets?

Sure, Buck. I guess, you know, we are considering all alternatives for that project at this point in time. What we don't intend to do is invest more capital in that project. As I mentioned in my introductory remarks that that project was started about a decade ago. It was designed to encompass 686 condominium units and towers on 193-acres with 119 wet slip marina and 30,000 square feet of commercial.

The way the agreement with the land seller was documented, we had several take down options. And at the end of 2008, we elected not to continue exercising those options, not committing further capital to the project which limited the scope of the project to the 278 units that I mentioned in my remarks. And so that caused us to write the project down to the current estimated fair market value of 278 entitled units for development on that site. But as I said, we are continuing to review all of our alternatives but don't expect us to invest additional capital at this time.

Okay. On the $8 million charge for standing inventory. I guess, you mentioned 114 homes were impaired. Does that represent your entire remaining inventory of finished homes or is there anything else still under active construction?

Nothing is under active construction. Our total standing inventory is 160 homes.

Okay.

So we impaired the 114 I mentioned.

Okay, great. And one further one, I guess. I noticed the prepaid pension asset in the balance sheet seemed to fall pretty dramatically from September. Just wonder if you could add a little color on what's going on with the pension funding and if there is any need to potentially contribute additional cash to that plan if the funding status continues to fall?

Well, our funded ratio is still 1.33 times the protected benefit obligation.

Okay.

It did fall as a result of return on assets. Obviously, the pension fund had a percentage of its assets invested in equities, and so the overall decline in the asset value of the fund was down 22% for the year. As far as our expectation going forward, at this point we do not expect to require any funding, but market conditions will dictate that and we are prudently managing that asset going forward.

All right. Thanks, gentlemen.

Thank you, Buck.

And, gentlemen, at this time there are no further questions. Mr. Greene, I will turn the conference back over to you for closing comments.

Thank you, Cynthia, I appreciate it. As we go forward,obviously we are in tough times. As we said, we will continue to manage ourselves prudently in these times and look towards the future and the opportunity to start to create and continue to create opportunities for the shareholders. If you have any questions, please feel free to give Bill or David Childers a call. And for that, we look forward to talking to you in about 90 days and hope that you have a great day.

Ladies and gentlemen, this will include The St. Joe Company fourth quarter earnings release conference call. We thank for your participation and you may disconnect at this time.