St Joe Co (JOE) 2009 Q4 法說會逐字稿

Good day, and welcome to The St. Joe Company fourth-quarter earnings release conference call. This call is being recorded. Currently all participants are in a listen-only mode. You will be given a chance later to ask questions.

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 2009 fourth-quarter and full-year results. I am David Childers, Vice President, Finance and Treasurer. And 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 which 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 www.Joe.com.

Reconciliation of non-GAAP measures mentioned in today's call can also be found in today's earnings release. Bill?

Thanks David. For the fourth quarter of 2009 we had a net loss of $59.3 million or $0.65 per share, which included pretax charges of $84 million or $0.56 per share after tax. Included in the pretax charges were $73 million of noncash impairment charges, including $67.8 million related to the sale of the company's remaining assets at Victoria Park in DeLand, Florida; $3.5 million related to the sale of the St. Johns Golf & Country Club near Jacksonville; $1 million related to the sale of assets acquired in connection with the settlement of our Saussy Burbank notes receivable; and approximately $1 million associated with various homes, home sites and a builder's note receivable.

We also wrote off just over $7 million of capitalized costs related to abandoned development projects in certain of our projects and incurred a restructuring charge of $3.5 million related to one-time termination benefits.

Also in the fourth quarter we recognized an $800,000 expense related to our Southwest Airlines standby guaranteed liability.

For the full year of 2009 we had a net loss of $130 million, or $1.42 per share, including pretax charges of $163.1 million, or $1.07 per share after tax.

In addition to the charges I previously mentioned, the full year also included the following noncash charges of $44.7 million related to our second-quarter pension annuitization, an additional $9 million related to the third-quarter write-off of our Saussy Burbank notes receivable, and $7.4 million related to the second-quarter write-off of our Advantis notes receivable.

Looking back at 2009, we successfully completed the sales of the nonstrategic assets in central and northeast Florida that I just mentioned, as well as our Artisan Park project and the entire SevenShores condominium project in Bradenton, Florida. These sales generated significant cash and [cash] receivables, as well as reduced the holding costs associated with those assets.

All of these assets were non-legacy land and (technical difficulty) all required us to fund the ongoing cost of operating and maintaining them. Disposing of these assets allows us to focus on our strategic lands in Northwest Florida, where our greatest opportunities lie.

Looking at our segments, we generated $57.5 million of revenue from residential real estate sales in 2009, including the sale of our Victoria Park community and the SevenShores condominium project.

Turning to commercial, we sold 29 acres of commercial land for $6.6 million at an average price of over $227,000 per acre in 2009. We believe that the pickup in activity among certain of our commercial markets is in anticipation of the economic development associated with the May opening of the Northwest Florida Beaches International Airport in the middle of our West Bay Sector Plan.

Also in 2009 we sold nearly 7,000 acres of rural land for $14.3 million at an average price of over $2,000 per acre. As mentioned on previous conference calls, we intentionally planned to sell significantly fewer acres in 2009 than we did in 2008. We intend to employ this same strategy in 2010 as we remain focused on selling smaller tracts, primarily for outdoor recreation uses, rather than targeting the sales of large tracts of contiguous acreage.

Looking at cost controls, we successfully continued our efforts to reduce capital expenditures and eliminate expenses. We incurred cash overhead costs of $57.6 million for the full year of 2009, compared to $81.7 million for 2008. This is a 30% reduction.

In 2010 we expect to sustain this level of cash overhead.

We also significantly reduced our capital expenditures during the year from $34.7 million in 2008 to $18.4 million in 2009, a 47% reduction. Many of our capital obligations associated with development permits for certain communities were completed during 2009. We expect our capital expenditures to increase in 2010 and to be closer to our 2008 levels, as opposed to our 2009 levels, as we spend capital on development within the initial 1,000 acres of commercial land around the new airport. In a few moments Britt will discuss these development initiatives adjacent to the new airport.

Turning to the balance sheet, during 2009 we significantly enhanced our liquidity position and increased our financial flexibility. The utilization of our tax loss carry-back strategy and the sales of nonstrategic assets increased our cash position and generated significant tax receivables. The majority of our $62.4 million tax receivable is expected to be received in the second half of 2010.

At the end of 2009 we had cash of almost $164 million and pledged treasury securities of just over $27 million, compared to debt of $39.5 million, $27 million of which is defeased debt.

Our cash position increased from December 31, 2008 by over $48 million, and our debt was reduced by over $10 million.

During the 2009 year we also successfully extended the maturity of our revolving credit facility to September 2012, increased commitments to $125 million from $100 million, and lowered the required minimum net worth covenant. Our facility currently remains undrawn.

Before turning the call over to Britt, I want to thank The St. Joe team that has worked so hard to overcome the many challenges both we and the entire country faced in 2009 and that we continue to experience. We have truly evolved into a much stronger company financially and a much more strategically focused company.

We are operationally lean, financially sound, and ready for the growth opportunities that will create value for our shareholders over the long term, and to that end we are well positioned to maximize the opportunities that are opening of the new Florida Beach -- Northwest Florida Beaches International Airport will provide.

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

Thanks Bill. We are now 89 days away from the scheduled May 23 opening of the nation's first international airport built in the last 16 years, centered within some of St. Joe's most valuable land holdings. The new airport will open with a 10,000-foot runway and will allow for operations 24 hours a day, seven days a week.

Given the 71,000 plus acres that we have immediately surrounding the airport and the fact that we own over 300,000 acres within 40 miles of the new airport, the long-term opportunities to create value are immense from both a commercial and residential perspective.

Starting in 2008 and throughout 2009, we deployed resources and reorganized the company to maximize the opportunities which will arise from this new airport. We are prepared to benefit from strategic commercial and residential developments that will generate cash, a high IRR, and recurring revenue. The key to our success will be minimizing the development risk and maximizing the value creation through phasing and absorption.

Significant strides towards increasing demand for St. Joe real estate were made when Southwest Airlines announced service in the fourth quarter. This will be a major catalyst for value creation across our vast land holdings around the airport and along some of the most beautiful beaches in the country. We believe the availability of direct, low-fare air travel to the region will open up our market to visitors and buyers from many parts of the country and the world, who previously have not had access to this remarkable region.

Southwest service will consist of at least two daily nonstop flights to the new airport from each of the four cities announced last December. They are Houston, Nashville, Orlando, and Baltimore-Washington. In addition Southwest will offer direct or connecting service from more than 60 destinations to the new airport, including Dallas, San Antonio, Chicago, St. Louis, Fort Lauderdale, Tampa, LaGuardia, and Providence. These new daily flights represent a total of approximately 2,000 new seats arriving and departing each day from the new airport.

Coined by the U.S. Department of Transportation as the Southwest effect, it has a dramatically positive economic impact on the market in the region. Specifically it has been proven that when Southwest begins its services, it draws passengers from every part of their network.

We believe the new travelers to our region will enjoy our wonderful lifestyle, weather and beaches, and will visit time and time again as seasonal splitters, business entrepreneurs, and full-time residents. St. Joe will provide the development opportunities and land for businesses and residential communities, realizing returns in many different ways on our vast land holdings.

We believe that this is a game changer for our company and our shareholders. While the impact could be great, it will take time for significant demand to be created and sustained. To that end we are focused on redeploying our financial resources to meet the emerging signs of what buyers are looking for.

On the residential side we are excited about our WaterSound and Breakfast Point communities, which will cover a number of different housing products and price points. WaterSound is planned for 1,432 homes and includes Origins, the Davis Love golf course. Breakfast Point is planned for an initial phase of 320 primary homes, and it is located adjacent to schools, shopping, offices and only a few minutes away from Simon's Pier Park at the beach.

Commercially we are continuing our pre-development activity on 1,000 acres within the West Bay Sector Plan adjacent to the new airport. The master plan is complete, the infrastructure design is in final engineering. It has been designed to accommodate office, retail, industrial and hotel uses. Construction on the Phase 1 infrastructure is slated for the second quarter of 2010. We have partnered with The Haskell Company, TranSystems Corporation, and CB Richard Ellis in these endeavors, and we are thrilled with the vast resources they are providing to us.

In 2010 we are focused on specific initiatives, which include the horizontal infrastructure development I just mentioned at the front door to the airport, as well as an approximate 50,000 square foot spec class A office building and an approximate 35,000 square foot industrial flex building, both of which CB Richard Ellis will pre-lease for us.

We are excited to be located in the heart of a tremendous amount of activity associated with the military's research, development and operations. Hundreds of defense contractors with 10's of thousands of employees are based in our region, and we are optimistic about the potential clustering of this contingent on our land. Also the military in the area has not been negatively impacted as much as other business segments in the country.

Area defense contractors servicing Kendall Air Force Base and Eglin Air Force Base, along with the Army's Fort Rucker to the north and the Panama City Beach Navy facilities will now arrive and depart through the new airport daily. New business and traffic patterns will emerge, all of which will reshape the real estate landscape in Northwest Florida, with St. Joe holdings at its center.

We participate in the new Gulf Coast Aerospace Alliance, which is a four-state partnership between Louisiana, Mississippi, Alabama and Florida, dedicated to building the next global aerospace corridor. West Bay will be able to strongly compete for the major suppliers and supporting businesses along with the resulting job creation that will follow the growth in this emerging aerospace and aviation corridor.

We also expect other businesses and industries to emerge from the current economic uncertainty looking for a strong labor force and a low cost of living, both key ingredients now established in the Northwest Florida region. We are big supporters of education in the region, and we know that a skilled labor force will be attractive to companies looking to expand to this area.

Just this past month a plan was unveiled for a 100,000 square foot, $30 million advanced technical center at Gulf Coast Community College in Panama City. The new facility allows for new technical educational opportunities, providing students with a background necessary for highly skilled, high paying jobs which will be created in the region. Keeping a younger, technically trained workforce in this region compounds the opportunities for growth. The technical center is expected to accommodate up to 1400 students and educators. The entire facility will be environmentally friendly, and the goal is for a 2012 opening with construction to begin this summer.

As we enter 2010 we are excited and energized by our developments in progress. We believe that we are well on our way in positioning St. Joe to create value for our shareholders for many years to come.

Before I conclude, let me share with you some great news. Just last week the new Sacred Heart Hospital on the Gulf had its dedication ceremonies with a grand opening in Port St. Joe scheduled to take place on March 15. This $38 million, 25-bed hospital sits on 20 acres of land donated by St. Joe and will provide visitors and residents access to high-quality health care, featuring a 24-hour emergency department, inpatient services, surgical services, a full complement of diagnostic and laboratory services, and a helipad to be used by Sacred Heart's regional air ambulance service to provide rapid transport for trauma or critically ill patients.

This is the second new hospital in the last seven years for the Northwest Florida region where St. Joe has partnered with the Sacred Heart Health System. We know that it is regionally -- we know that it is regional infrastructure including transportation, educational facilities, parks and recreation, health care and emergency services, that contribute to the sustainable long-term economic development growth of the region. That is why we make these investments and donations for region changing facilities like the new Sacred Heart Hospital in Port St. Joe and land for a new international airport.

Although we continue to face some economic headwinds, we continue to believe that we are well-positioned to benefit from a new airport, an improving economy, and extraordinary land assets.

Thank you. And now we will be happy to respond to your questions.

(Operator Instructions). Sheila McGrath, KBW.

I was wondering, Bill, if you could just repeat what you said about the impact of Southwest on fourth quarter and where we can expect -- how the Southwest agreement hits the income statements.

We recorded a liability this quarter of $800,000 that flowed through the income statement. And as you may know, that we are required to recognize at the inception of the guarantee that liability measured share value, and we can do that a couple ways. One is if we had some third-party valuation, or we can use a discounted cash flow methodology.

We were not able to obtain a third-party valuation, although interestingly we did seek to buy insurance coverage from carriers but were unsuccessful in doing that. And so we used a discounted cash flow methodology that included a lot of variables related to load factors, airfares, seasonality, fuel prices, analogous markets, etc. And when we discounted those cash flows back over the three-year term of the agreement, we recorded that $800,000 liability.

I think it's important that you know and that we state in the K that we are going to continue to evaluate that liability quarterly, we will be very transparent in our reporting regarding that liability to the extent it moves up or down, but the initial valuation was the $800,000 I mentioned on the call.

And which bucket on the income statement does that fall into? That's -- is that in (multiple speakers)

Other -- yes. Other expenses.

Other. Okay. And then have you had any indications from Southwest how presale activity might be going thus far for them?

Yes Sheila -- this is Britt. We have. And they would -- they have indicated to us that it has exceeded their expectations under normal conditions for a new service that's being announced.

And I just want to add and emphasize the fact that they have not to this day started any advertising in the out-markets. So we're -- they're favorable about what they are seeing and are very positive about how the ticket sales are going. That's without any advertising taking place yet, which most will come onboard in May as we get closer to the opening.

Yes. They said we'll get a much better reading in March and into April, yes, as we approach the opening, but the initial indications are very positive.

Just moving on to the commercial opportunity around the airport, you did make an announcement that you hired CB and -- Richard Ellis, and I was just wondering how that marketing effort is going. And also, just your thoughts on the airport authority hiring Jones Lang. Are you guys bumping up against each other? Or your thoughts on that?

Well, first on CB Richard Ellis, we're -- yes, it's great to have them onboard from a -- not only just from a national standpoint, from a global standpoint. They have started to contact and have conversations with targeted clients. They are clearly involved with us in making sure that the design of the office building and the industrial flex building that we are going to be constructing is in line with those customers they have talked to and what their needs and wishes are.

With regard to -- so frankly we are very ramped up, and we are taking what we have gathered over the last couple of years as the airport became real and people understood it was going to happen, we've turned over that opportunity to CB Richard Ellis, along with our other partners, Haskell and TranSystems.

With regard to Jones Lang, we are fine with them. They've got a marketing effort going on, but I would like to say that we know there's a lot of back and forth or there's potential for competition inside and outside the fence and always understood that, which is why embodied within our land donation agreement and subsequently the deed, the airport authority has Phase 1 permitted, it has conditions we have approved with regard to development in Phase 1, and frankly that's where it ends with regard to their phasing.

There's significant -- if they want to do future phases, there's a significant amount of regulatory review and permitting that needs to take place before they can deliver additional phases, and we are comfortable with that and our ability to compete when that does come on, but that's a number of years away. So our feeling is, we know what's in Phase 1, we know what their rights are within Phase 1 per our land donation agreement and subsequent deed, which really covers the entire site. But for this matter, Phase 1 is what is permitted, it's what was permitted by the FAA, it's what was permitted by DEP, it's what was permitted by the Army Corps of Engineers.

And frankly, we are happy to have Jones Lang and CB Richard Ellis, two large, global entities, out marketing and taking these efforts to move forward with economic activity, both inside and outside the fence. I think that's something -- we've talked to each other, conversations are going on, and I don't think you're going to -- I think you're going to see ultimately what happens here is a well-balanced plan, both inside and outside the fence, so that this area as a whole and the West Bay Sector Plan as a whole is developed as we originally intended through a master plan based on specific uses in the right places at the right time. So --

Okay, thank you very much.

Buck Horne, Raymond James.

Kind of following up on the CB Richard Ellis, is there any way you could help us quantify or understand the economics behind the relationship you have there? How much will it cost the company on future transactions to work with CB on these deals?

Sure. Our arrangement with them is based on normal -- what you would consider normal commercially paid fees for bringing business. It will come in different forms, obviously. Each deal will probably be different. But specifically to just leasing spec space, that would be under normal conditions. For joint venture opportunities, for ground leasing opportunities, then there's a different scale, but nothing outside of what you would normally see in commercially accepted fee structure.

There's also the opportunity to partner with Trammell Crow, which is of course acquired by CB Richard Ellis, as we look at joint venture opportunities and development opportunities where they would bring their capital and expertise from that arm of the business to West Bay.

And speaking about these potential joint venture partnerships, we are pretty far down the road here, and the opening of the airport is just a few days away almost. Is there a reason, or is there any hesitancy among some potential partners about why we have not heard more about joint ventures? Are they kind of waiting for more of that infrastructure to be in place before signing any contracts?

Well, let me put this -- not unlike Southwest, where we spent a number of years, and then when it finally got close, several succinct months, we won't make announcements until we actually have all the pieces in place and everything -- i's dotted and t's crossed. I think it's just important to make sure this is -- this is for us the making sure it's right, and anybody that we would partner with or do business with, we want to make sure before we go out to the public, that all of that is in order. So it's -- stay tuned, but the 35,000 feet of industrial flex space and the 50,000 square foot of office space we believe will produce some announcements in 2010.

Thanks gentlemen.

With no further questions, I would like to turn the conference back over to Mr. Britt Greene for any additional or closing remarks.

Thank you, and I appreciate everybody's participation and time this morning. We'll look forward to talking to you again at the end of the first quarter. And have a nice day. Thank you.

Thank you.

This concludes today's conference call. We thank you for your participation.