St Joe Co (JOE) 2009 Q2 法說會逐字稿

Thank you for standing by, and welcome to The St. Joe Company's second quarter earnings release conference call. This call is being recorded. At this time, all participants are in a listen-only mode. You'll be given a chance later to ask questions.

Now, at this time, I'd like to turn the conference over to David Childers, Vice President of Finance and Investor Relations. Mr. Childers, please go ahead.

Thank you. Good morning, and welcome to The St. Joe Company conference call for 2009 second quarter 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 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. A reconciliation of non-GAAP measures mentioned in today's call can be found in the earnings release. Bill?

Thanks, David. This morning, we announced a net loss for the second quarter of $44.6 million or $0.49 per share on revenues of $40.6 million. Our net loss includes pretax non-cash charges of $64.7 million or $0.43 per share after tax. This compares to a net loss of $20.8 million or $0.23 per share, and revenues of $67.5 million for the second quarter last year. Last year's quarter included pretax non-cash charges of $35.3 million or $0.24 per share after tax.

The non-cash impairment charges this quarter were primarily related to three items. First, as we previously announced, we annuitized approximately $93 million of our pension plan liabilities by transferring approximately $101 million of our pension plan assets to an insurance company. The transaction resulted in a pretax non-cash charge for the second quarter of approximately $45 million or $0.30 per share after tax.

Importantly, this charge did not impact tangible net worth as calculated for purposes of our line of credit covenants, due to the offsetting credit to accumulated other comprehensive income. As a result of this transaction, we are able to significantly increase the pension plan's funded status ratio at June 30, thereby reducing the potential for future funding requirements.

Second, we also incurred impairments related to our real estate holdings. These charges included an approximate $7 million impairment related to an additional write-down of our Seven Shores condominium development and the Perico marina project located on non-legacy land in Bradenton, Florida. This project was written down to approximate the current fair market value of the project.

We also incurred impairments of approximately $6 million [to] associate homes, home sites, and a builder note receivable in certain of our communities.

Finally, we wrote off the entire principal balance of $7.4 million related to the note receivable from GVA Advantis. As many of you know, Advantis is a real estate services company that recently ceased operations and closed its doors in the majority of its locations. We received this note following the sale of Advantis in 2005.

The silver lining to many of these non-cash charges is that we will be able to carry the losses back to 2007 and receive a cash tax refund -- again, improving our liquidity position. And you can find additional detail on the quarter's financial performance in the 10-Q we filed this morning.

Looking at the second quarter, there is little doubt that we are in one of the most difficult economic cycles in many decades, particularly in the real estate industry. Although our markets in Northwest Florida remain challenging, we have seen an uptick in residential activity.

We successfully closed a significant number of sales in a number of our communities, generating revenue of approximately $12 million compared to $7 million in the second quarter of 2008. These revenues were as a result of 41 total closings, including 28 homes, as compared to 18 total closings in the second quarter of 2008. We obviously welcome this increased level of activity, but there's no question that the market remains very price-sensitive.

Following the end of the quarter, we also successfully auctioned the remaining 27 condominium units at Artisan Park. Once these units are closed, we will have sold out this community in central Florida.

In our commercial markets, we are seeing interest throughout the region, although the weak national economy continues to have an adverse impact. In our rural land segment, we expect to sell significantly fewer acres in 2009 than we did in 2008, as we have previously said. We do not expect to sell large tracts of contiguous acreage, but will focus on smaller tracks primarily for outdoor recreational uses, in order to generate cash and maintain our strong liquidity position.

Approximately 5,300 acres of rural land were sold during the second quarter of 2009 at a per-acre price of almost $1,600 per acre, generating approximately $8.4 million of revenue. This compares to sales of over 29,000 acres for $39 million in the second quarter last year at a price per acre of just over $1,325 per acre.

Looking at cost controls, we continue to emphasize the management of our operating and overhead expenses, as well as reducing, deferring or eliminating capital expenditures. We continue to make good progress in our efforts to reduce SG&A expenses this quarter.

During the second quarter, we incurred cash overhead costs of $14.3 million compared to $21.5 million in the same quarter last year, a reduction of 33%. We do not expect to achieve the same level of quarter-to-quarter improvements during the remainder of 2009, but we do expect to sustain this reduced level of cash overhead.

We have also continued to focus on managing our capital expenditures. Capital expenditures for the second quarter this year were $9.4 million compared to $31.6 million in the second quarter last year, a reduction of 70%.

We also expect to benefit from the recent enactment of Florida's Community Renewal ACT. Although being challenged in court, the law's intent is to streamline concurrency, extend permits, and spur real estate development. This legislation extends commencement and completion dates of infrastructure requirements, thereby allowing us to defer certain capital expenditures.

Looking forward, we'll continue to prudently manage our capital expenditure levels, but as we see opportunities to make high ROI investments, particularly on our lands around the Panama City Bay County international Airport, we will seriously explore these investments.

Turning to the balance sheet, at June 30, we had cash of $116.6 million and pledged treasury securities of $28 million, compared to debt of $49.1 million, $28 million of which is defeased debt. Our $100 million line of credit remain undrawn at June 30.

At this time, we continue to expect to receive a tax refund of approximately $30 million during 2009 that will again improve our cash position and further enhance our balance sheet strength. Because of this balance sheet strength and the accomplishments of the past year, we are now able to focus on the future. We have great opportunities ahead of us and we intend to leverage our valuable land holdings as we anticipate the opening of a new airport at West Bay.

And now, for an update on West Bay and the new airport, I'll turn it over to Britt.

Thanks, Bill. In the upcoming quarters, our priority will be to take advantage of the May 2010 opening of the newest international airport in the United States, that is centered within some of Joe's most valuable land holdings.

Joe has accelerated preconstruction development activity on approximately 1,000 acres in West Bay, adjacent to the new airport. We are working to position several initial parcels near the airport to be revenue-ready.

These parcels are being planned and positioned for office, retail and industrial users. The land is just a small portion of the approximately 71,000 acres that Joe owns within the West Bay Sector -- our large, mixed-use, master-plan project located in Bay County in northwest Florida.

In June, we entered into agreements with The Haskell Company, America's Green Design-Build Leader, and TranSystems Corporation, one of the world's leading transportation, planning, and engineering firms, to help master-plan Joe's land adjacent to this new airport. The team is master-planning the 1,000 acre development node to serve multiple economic sectors, including the Gulf Coast Aerospace Corridor.

The Corridor is a concentration of US Air Force, Navy, and Army aerospace and aviation facilities along the Florida, Alabama and Mississippi Gulf Coast, which has created a cluster of aerospace and aviation businesses and workforce talent in the region.

We expect over time that this new International Airport will expand our customer base, as it connects Northwest Florida with the global economy and the area is repositioned from a regional to a national destination. Conversations continue with a number of airlines, including the low-cost air carriers. In this highly competitive sector, we don't expect airline announcements before the end of this year.

While we understand growth around the new airport will ramp up over time, the Joe team is keenly focused on implementing our strategy to maximize these great assets. Our land at West Bay is a world-class asset and our marketing outreach is to global users.

During the second quarter, we initiated a significant outreach program to site consultants in multinational corporations, as well as their suppliers within the aerospace/defense security and aviation economic clusters. While we tell our story, we are listening carefully to our customer. What we are hearing can be organized into four categories.

First, timing is almost always at the top of the list of our prospects, not only for the airport facilities themselves, but also for a wide variety of specific real estate products. Once decisions are made, our potential customers will be ready to move quickly to construction.

Second, prospective customers are interested in the region's workforce and its potential. We are working with Florida's Great Northwest, Workforce Florida, and higher education institutions to address the needs of prospective users.

Third, customers are interested in our complementary capabilities and competencies, and how we together can better advance our common objectives.

And finally, they are interested in every aspect of connectivity -- the way goods, information, and people come and go to national and international markets. The new airport is potentially a new connector with the world marketplace.

As we discussed last quarter, by combining the new airport with an underutilized deepwater seaport and an excellent rail system, Northwest Florida has a greater ability to connect with the global network. Joe's assets near this new airport represent a rare opportunity to address a broad range of customer needs for the future.

In summary, as we look back at the second quarter and ahead to the airport opening, we now have a flexibility to execute our strategy as we begin to implement the initial development plans on our valuable land holdings near the airport. This is due to the prudent approach we have taken to managing our balance sheet, as Bill mentioned earlier.

We believe it is critical that we continue to carefully manage these assets, and maintain our financial and operational flexibility, but we cannot lose sight of future value creation opportunities. With our balance sheet strength, we have substantial opportunities ahead of us. Our time and energy is focused on maximizing our vast assets beyond the current economic crisis.

And as we close our remarks this morning, I would like to take this opportunity to say a word about our employees. About six months ago, Joe was invited to participate in an extensive evaluation process to select the best companies to work for in Florida. The process is managed each year by the business magazine, Florida Trend, to select the companies that are the best places to work.

Last week, we were notified that we are in the great distinction of making the list on our first attempt. I believe, and experience has shown, that neither people nor organizations truly improve unless they reach toward a higher standard; and we are pleased we met that challenge, but this will be the beginning rather than the end of that effort.

And with that, we are happy to respond to your questions.

(Operator Instructions). Buck Horne, Raymond James.

A couple of questions here. I guess, first, a little housekeeping -- can I get the finished home count that you still had left in inventory and what the remaining book value is of those -- of that inventory?

Buck, at the end of the quarter, we had 123 homes in inventory and 1,370 home sites, for a total of 1,493 units.

Okay, all right. And I guess just trying to get a feel for the impairments that you took on those homes -- can you give us any color on the assumptions or the price reduction that you took intra-quarter that required the impairments?

Sure. We took them at a variety of our communities as we trued up the carrying values to reflect current market values; that the largest impairments in terms of dollars were at five homes at WindMark Beach. And then as we wrote down the carrying value of the 27 condominium units at Artisan Park, following the auction results that we experienced this past weekend.

And can you, I guess -- a little bit more color on the Artisan Park auctions. So, you are sold out now of all your remaining finished units at Artisan Park? And can you give us any color on the results of that auction and -- any per-unit pricing or anything like that?

Yes, sure. The 27 units generated a gross sales proceeds of about $5.75 million, which equates to about almost $210,000 per unit. And I want to emphasize that the contracts are being executed and signed, but the closing hasn't taken place yet. So there's always a possibility there could be some fallout; but we expect that there are sufficient backup buyers to allow us to really exit that community, following our warranty obligations.

Okay. And I guess if I can sneak in one more. We've heard a lot of talk from a variety of home builders that they're back in the market looking for well-positioned, finished lots. Have you seen any pickup in discussions or any indications of interest from home builders in your markets? And what kind of, I guess, terms and conditions would you be willing to offer some of those builders on some rolling lot option contracts?

I think we have seen an increase of phone calls and interest, both in the primary and even some interest to build some spec even in the resort residential communities, where there's some remaining inventory.

So, we're encouraged by that. I think given the variety of the regions we're in, it's really hard to speculate on what the terms would be; but suffice it to say that in these times, that we're probably more patient to allow the builders to take a few lots to test their product as they move and venture forward, than just sit there and require them to make defined quarterly takedowns, as would be normally the case in normal market conditions.

Would you be looking for any sort of minimum lot commitment? Or is it just kind of a case-by-case basis?

I think that would be case-by-case, depending on the community and the product type.

All right, thanks, guys.

Sheila McGrath, KBW.

I have a question on the impairments. Bill, you mentioned that the impairments at Seven Shores and the other homes, that would have some positive tax implications. And I'm just wondering, is that over and above the $47 million tax receivable on the books now?

That tax receivable will include the impairment charges that we've taken. And as I mentioned, we expect a $30 million tax refund this year, which will take that receivable down. And we will -- once we file our 2009 tax return, then we will file a Section 1133 carryback election to receive a tax refund based on our 2007 filing, which had income in it. And so, as I said, the silver lining is that we will be able to generate some cash from these non-cash charges.

Okay. And then with regard to Seven Shores, does that -- taking the impairment now, does that mean that you are marketing that property for sale?

Yes. We are going to try and sell that property and exit Bradenton, Florida.

Okay. And then moving over to the airport, you said that you're looking at putting some CapEx dollars in there to get some of the site revenue ready. Could you give us an idea how much CapEx dollars and if you're in discussions with current players? Or is this more anticipatory?

We're definitely in discussion with players who have a sincere interest in looking at the opportunities. Initially, right now, our CapEx is in soft costs with engineering design. And I would expect that by the end of this year or first part of next year, that we'll actually start channeling capital into hard infrastructure site work.

But I would not want to forecast right now the level of that CapEx until such time as we have more definitive program around the users that we're talking to.

So would you go forward on the hard CapEx without a definitive contract?

Yes.

Okay.

Yes, we would. We need to make them revenue-ready, which is beyond just showing them raw land, which would involve putting in utilities and streets to service a number of the pads, both from an office retail all the way up to light industrial and even possibly heavy industrial.

Okay. And then you did mention in your prepared remarks about another carrier. You don't expect an announcement for the airport authority on another carrier this year, is that right?

Oh, I think you'll see it, we would hope, by the end of this year, but given the conditions in the marketplace. Typically, what we're hearing from the airlines is they'll make these decisions and announcements about six months out from offering service.

And so, given the fact that there's some carriers already servicing the new airport, those announcements may come a little bit earlier and those potential new carriers may be just a little bit later. So I think we're going to be patient and wait, but I would expect by the end of this year. At worst case, it would be early, but I, for most purposes, I think we're encouraged by the end of this year.

Okay, thank you.

Jim Wilson, JMP Securities.

Was wondering just on -- in the airport area, and obviously, I know you haven't sold any property yet or signed any leases, but could you give a little color on what your sense is, at least, for properties that are being marketed? Or even lease discussions you're having kind of -- if you have any ballpark or thoughts on where sales prices or lease rates might look as you get things done over the next six to 12 months?

No, I would tell you, but we are -- I will tell you we're discussing ground lease. We're talking potential for build-to-suit; talking JV opportunities. And to date, there might be one or two just outright retail parcel sales, but that would probably be more oriented to the smaller parcels and the smaller users in terms of limited service, so something on the order of maybe limited service hotel or office.

But I am -- I would not want to contemplate where those numbers are going to shake out. As you can imagine, having this much greenfield outside a new international airport and trying to look at -- there is no comparable in northwest Florida, so we have to use analogues in other parts of the country. And those have variables that we don't, so I think we're just being prudent about how we measure the metrics on what financially we can do, and be successful with the users that we're talking to.

Great. Okay, that makes sense. Is -- the majority of your discussions, I assume, or conversations with some form of airport supplier, whether it be a food caterer or something of that nature, or are there -- or is there much wider variety of those type of potential tenants or users you're talking to?

Oh, there's a wider variety. Obviously, somebody that is oriented to servicing the airport and airlines are interested parties, but way -- much bigger than that is the military presence in the region, the Gulf Coast. This aerospace aviation economic cluster is fairly large now and growing.

The Pentagon is channeling a lot of dollars into the region for unmanned vehicle research and development. And that happens in the air, on the land, and under the water. So, the Naval and the Air Force contingents, and the Army that are in the area are bringing a large amount of research development dollars.

In addition to that, there's workforce training opportunities. There's the opportunity for flex space and spec opportunities that we're looking at, to attract the smaller to midsize suppliers that service the bigger contractors that are doing business with the military.

So, I would tell you that while the normal opportunities outside this airport exist, we've even expanded to take advantage of the great depth that the military presence has brought to the region. So, I think to that extent, it is a very wide range of potential users that we're actually currently in conversations with.

Okay, great. Thanks a lot.

(Operator Instructions). Jordan Hymowitz, Philadelphia Financial.

I'll follow-up on some of Jim's questions. First of all, from what I'm understanding, the northern Florida region is the biggest beneficiary of the base realignment commission area. Can you talk about how many direct military jobs are expected to be relocated there in the next few years? And from which different NATO countries?

I don't -- this is Britt -- I don't have that number exactly but I can tell you it's significant with regard to the F-35 strike fighter training base. That's going to be situated at Eglin Air Force Base. The other big number from Barack is the Special Forces, which are being located to Hurlburt Field, which is adjacent to Eglin Air Force Base.

And then the Naval subsurface warfare continues to add research and development needs in private contractor. And as -- in all three of those, actually Eglin and the Naval Warfare Lab are the direct recipients of increased research and development dollars on autonomous and unmanned vehicle research.

So, I would not -- I don't have the exact number. I'm not even sure the military has the exact number, but I can tell you it's in the thousands and it's significant (multiple speakers).

I've heard it's between 5,000 and 6,000 direct military jobs. Does that sound reasonable to you?

Yes, I would say that's conservative, based on what we know is coming.

And then with the F-22 being delayed for now, that's going to result in more F-35's, correct?

I don't know if they're really related, but the F-22, discontinuous still; Tyndall is still an F-22 training facility. I do think it probably makes room in the airspace over the Gulf and the training facility to allow more F-35 to come into Eglin. And I know it's --while the first 59 F-35s are targeted for Eglin, I know it's the intent to have it all situated there; so the over 100-plus F-35s located at Eglin Air Force Base.

Okay. Also could you discuss an update on the Port there? It seems like the Port of Panama City is going to either double or triple their capacity over the next few years at this point.

Well, they've -- since 2005, as you know -- or may not know, they've gone from zero to over 200,000 TEUs or containers annually. And plus they're still the largest import of copper into the United States comes into that, with 65% of the nation's coppering is coming into Panama City.

With regard to expansion, I think it's still an underutilized port. I think with the -- it probably gets closer to when the Canal opens, the new Panama Canal and the movement of West Coast shipping in 2014 from the West Coast to the East Coast, that there's an opportunity for that type of expansion multiplier. But between now and then, I would not expect those kind of metrics.

Okay. And finally, when you look on commercial property websites and, again, you have all the land closest to the airport in West Bay, but just on the outlying areas, there's listings for commercial acreage that's unzoned, from between $150,000 and $250,000.

I mean, obviously, your prices are going to compare more favorably than what's gotten, but again, those are just asking prices and not transaction prices. But do you think that the $200,000 per acre for the 3,000 to 4,000 acres that are near the airport runway are reasonable base valuations?

I would not -- again, as I said earlier, I would not want to contemplate on what the value of that land is outside of a new international airport. Those other parcels don't have the same makeup and accessibility that our land does. There are unique differentials there.

Whether you're on a main highway, at an intersection, a parcel that has access through the fence to an airport facility -- which is a rare opportunity that we have as a private landowner -- are all unique opportunities. And whether we decide to retail the land or actually ground lease it, I think we have to look at the long-term economic opportunity for the shareholders and make sure that we don't just comp ourselves off of local and current landfills.

I'm not going to try to forecast what that is, but it's our intent to take this advantage of this unique asset we're blessed with in the last 11 years to put it in place, and make sure that it's a driver for long-term recurring revenue streams for this Company. And we know how to be smart about how we do that. And there will be a wide variety of deals that we do over the course of the next few years (multiple speakers) [in that case].

And final military question is -- with the Alabama/Georgia/Florida military presence combined and pitching of the Paris Airshow, I mean do you think there is a potential for direct military manufacturing, whether it be a parts manufacturing facility or something like that, given that there's four military facilities located very closely to the airport? Or something more than, in other words, than just typical hotels and gas stations by the airport and stuff like that?

I would fully expect that we would see some manufacturing from small, middle, and even large-sized companies that are located within our West Bay sector.

Okay, thank you.

And with that, this will conclude the question-and-answer session. And I'd like to turn the call to Britt Greene for an additional or closing comment.

Thank you. I appreciate everybody's time this morning and we look forward to talking to you again in approximately 90 days, and hope that you're enjoying a good summer. With that, we would conclude our conversation.