St Joe Co (JOE) 2010 Q2 法說會逐字稿

Good day and welcome to The St. Joe Company second-quarter earnings 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.

Thank you, good morning. Welcome to The St. Joe Company conference call to discuss 2010 second-quarter results. I'm 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 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 second quarter of 2010, we had a net loss of $8.6 million or $0.09 per share including a pre-tax restructuring charge of $1.2 million or $0.01 per share after tax. This compares to a net loss of $44.8 million or $0.49 per share in the second quarter of 2009, which included pre-tax non-cash charges of $64.7 million or $0.43 per share after tax.

In our residential business during the second quarter we accepted contracts on 20 home sites throughout our communities at an average price in excess of $135,000. We closed on 11 home sites at an average price of $109,000 in the resort communities of WaterColor and WaterSound West Beach in Walton County, and we closed on five home sites at an average price of $57,000 in the primary community of Fox Landing in Bay County.

Britt will discuss VentureCrossings momentarily, but in our commercial business broadly, we are currently in the final stages of negotiations on several build-to-suit agreements and ground leases. We closed on limited Rural Land Sales this quarter, as we remain focused on selling smaller tracts rather than larger contiguous acreage. We generated $400,000 from the sale of 42 acres at an average price of $9500 per acre. We also generated $400,000 from an easement transaction during the quarter and recognized another $400,000 from previously deferred sales.

Forestry revenues during the second quarter were $7.8 million, an increase of $600,000 from the second quarter of 2009, mostly due to the increased sales price per ton of saw timber.

Regarding our resort operations, we were off to a great start prior to the oil spill but now we anticipate that results for the second half of the year will be lower than in 2009, based on reduced advance bookings and continuing cancellations due to the Deepwater Horizon incident. These cancellations lead to overall lower occupancy as well as lower golf, food and beverage and marine operation revenues.

Turning to our three-year agreement with Southwest, which commenced on May 23, we every agreed to reimburse Southwest as they incur losses on service at the new airport. During the second quarter there was no required reimbursement payment to Southwest Airlines. Our quarterly evaluation of standby guarantee liability did not change, and we continue to carry liability of $800,000. We have also limited our exposure to rising jet fuel prices and effectively hedge a portion of this variable expense by way of entering into a premium neutral collar during the second quarter.

Let me now turn to our cost controls. In the first half of this year we reduced capital expenditures to $6 million from $9.4 million in the same period of 2009, a reduction of 36%. Our capital expenditures in the second half of this year will be mostly associated with the development of two buildings within VentureCrossings, which Britt will discuss.

During Q2 we were successful in continuing to trim expenses and reduce cash overheads. These costs were reduced by $2.5 million from $14.4 million in Q2 2009, a reduction of 17%. We expect expenses associated with the corporate relocation to be approximately $5 million pre-tax and cash termination benefits of $2.2 million pre-tax. Most of these expenses will be incurred by the end of the third quarter of 2011.

Regarding the balance sheet, at June 30 we had cash of $139 million, essentially no debt, and our $125 million revolving credit facility remains undrawn. Subsequent to the end of the quarter, our nearly $68 million cash receivable was received. Our solid balance sheet and increasingly efficient operating structure provide substantial flexibility, allowing us to execute our business strategies as we move ahead.

We wanted to take this opportunity now to provide you with an update regarding our response to the Deepwater Horizon oil spill incident. As was the case during the last earnings call, I will limit my comments to what we as a Company know about the incident and the steps we are taking in response. While the surface sheen is now a good distance from our properties, we realize that the oil spill is difficult to monitor and track because a substantial amount of oil that escaped from the well lies below the surface. We will continue to monitor the situation closely, and as you might expect, we are taking all necessary steps in response to this catastrophe.

However, it is too soon to definitively determine the financial impact of the incident. We realize that we face the prospect of significant long-term financial impact caused by the incident. As you know, this uncertainty has been reflected in our stock price. Indeed, since April 29, our stock price declined over 40% in the days following the explosion. We believe this decline is the direct result of the incident and the uncertainty that's caused regarding the Gulf Coast region and northwest Florida, in particular.

Make no mistake, our Company has been harmed, like most others that operate in this region. Nonetheless, we are confident in the long-term outlook for St. Joe. First, we believe that our business plan remains the right course to achieve significant returns for our investors. Second, we have responded to the impact on St. Joe with a plan that will, in our opinion, maximize the likelihood that the Company achieves a full and complete financial recovery from those who are responsible for the incident.

As you know, we recently retained the services of a national litigation firm, Bickel & Brewer, to direct, analyze and execute the various legal strategies available to us in order to obtain a full and complete recovery for the damage to our Company. Bickel & Brewer has a national reputation in the field of major dispute resolution and crisis response with a wide range of experience in complex commercial litigation. We are confident that working with Bickel & Brewer will help us to maximize our recoveries.

To this end, yesterday we filed a lawsuit against Halliburton Energy Services Inc. We believe Halliburton was grossly negligent in its performance of its responsibilities and disregarded numerous warning signs that could have prevented this catastrophe. Because of the acts of Halliburton and other responsible parties, we have suffered damages related to our enterprise value, which is reflected in these key areas -- one, costs associated with remediation and responding to the spill; two, interruption to our business plan; and, three, the diminution of value of our assets.

Although the outcome of any litigation cannot be predicted, we are committed to pursuing all appropriate financial remedies and will continue to pursue our legal options against other responsible parties, as well as Halliburton. Let me repeat, we will continue to pursue our legal options against other responsible parties in addition to Halliburton.

Even as we respond to this catastrophe, our goal is to capitalize on our business plan and execute the vision for the Company. We believe will remain well-positioned for long-term success and to maximize shareholder value. We will continue to identify and seize upon new business opportunities and move our Company forward. And as is consistent with our history and our culture, we remain committed to the best interests of our investors, customers and employees.

Now let me pass the call back to Britt.

After years of hard work and anticipation we are extremely proud and excited that the new Northwest Florida Beaches International Airport opened in May. Florida's governor and other local state and federal dignitaries celebrated the event along with us and the residents and businesses of the surrounding communities. Hearing the governor echo our thoughts as he spoke of the economic benefits that the new airport could initiate was great validation of what we think lies ahead for the region and for St. Joe.

Because of the new airport, our region has now become more easily accessible to the rest of the country and the global marketplace. We believe this can greatly accelerate the positive transformation that is occurring in northwest Florida and contribute to the economic prosperity that the region could realize over the coming decades. The new airport is the first international airport built in the United States in the last 15 years. It was built in the middle of the 75,000-acre West Bay Sector plan, where we have current entitlements for over 4 million square feet of commercial space and over 5600 residential units.

Furthermore, we own over 300,000 acres within 40 miles of the new airport, which, combined with our financial strength and creativity, provides us ample opportunity to benefit on both the commercial and residential fronts. We are pleased to note that Southwest Airlines has successfully commenced service at the new airport. Recently, Gary Kelly commented during Southwest's earnings call as well as in his interview on CNBC about the new service to the airport. He said in the earnings call, and I quote, we are off to a great start. Our customers' response has been tremendous. We will continue to monitor Southwest's operations at the new airport as part of our assessment of the impact of the oil spill on our region.

One of our key commercial focuses, as we have previously discussed, is our VentureCrossings enterprise center at West Bay. VentureCrossings encompasses the first 1000 acres to be developed by St. Joe within the sector plan adjacent to the new airport. It includes approximately 100 acres designated for retail, office and hotel uses, approximately 300 acres for light industrial uses and approximately 600 acres for manufacturing, distribution and logistics uses. CB Richard Ellis is assisting us in the marketing of VentureCrossings, and we are very pleased with early progress being made with the many site selectors and potential tenants and customers interested in the project.

Within VentureCrossings site development has begun and construction is scheduled to begin in October on the vertical development of our office building that will we will occupy as part of our previously announced corporate headquarters relocation. We will also break ground this year on a light industrial building within VentureCrossings. We have determined there is also a need for long-term covered parking at the airport, and we plan to develop an initial 300-space facility within VentureCrossings. The location of the lot will be at the entrance to the airport, and shuttle service to the front door of the terminal will be provided. We expect the covered lot facility to be operational in time for spring break next year.

We recently returned from the Farnborough International Air Show in England, where we met with many site selectors and prospective customers in the aviation, aerospace and defense industry. Along with our economic development partners and the Gulf Coast Aerospace Alliance, we met with over 16 aviation, aerospace and defense companies and connected with a number of industry leaders over several days of the air show. The key topics in every conversation were flexibility, runway access and land availability. Also discussed was our favorable location, reasonable cost of doing business, the availability of an educated workforce and the superior quality of life -- all attributes that our land in the region provides.

Unfortunately, the oil spill was also discussed at great length. Our growing prospect list includes very well-known companies within the aviation, aerospace and defense industries. And, while this industry is a main focus of St. Joe, we are aggressively pursuing and developing relationships across a number of industries. Although I can't discuss specifics today, our discussions and negotiations with prospective customers are accelerating.

Now, before I close, let me share the news of the U.S. Air Force announcing an additional operational squadron being added to Tyndall Air Force Base existing F-22 Raptor combat training mission. The Air Force planned to consolidate its F-22 facilities, and Tyndall Air Force Base came out the big winner with the maximum number of jets possible. The result is approximately 600 additional military and civil service jobs for Bay County as well as the potential for added growth of defense contractors in the region and coming from outside the region. The first of the new F-22 operational jets and personnel are expected in 2012.

I would also be remiss if I did not mention that recently Travel and Leisure Magazine recently selected our WaterColor Inn Resort as one of the top 50 resorts in the United States and Canada. We are very proud of this huge honor and, by the way, our beaches are still beautiful and we'd love to have you come visit us. And with that, we'll turn it over to questions.

(Operator instructions) Sheila McGrath, KBW.

I have a couple of questions. First, I know you can't really comment on the pending lawsuit, but I was just wondering if you could give us some insight in terms of the legal fees, if that's going to be in G&A, if that's going to increase your G&A. Or are you pursuing these ramifications on a contingency basis?

Thanks for the question. Unfortunately, I'm not really at liberty to discuss the fee arrangement at this time. Those terms are confidential. But having said that, I would expect a slight uptick in G&A as we incur some costs associated with the ongoing litigation against Halliburton and possibly others.

Were there any legal fees in this quarter's results?

There was a very small amount this quarter.

Okay, and with volumes up at the airport when you listen to Southwest's results, just wondering if you've seen any pickup in interest from like airport-related services, like gas station or convenience store to locate by the airport.

Yes, there has been. I think the effort, again, is to make sure those interested parties in all of those commercial aspects that you just mentioned are located in the right spots. So we are ongoing conversations in a number of different locations. But yes, part of the acceleration of the conversations has been the success of both Southwest and Delta at the new airport.

And then, on the parking garage and also the build-to-suit that you mentioned in your comments, the parking garage -- is that going to -- continued to be owned by St. Joe, or how will that be structured? And then, also, on the build-to-suit, are these buildings that you would turn over, or are these buildings that you would lease to companies?

As it relates to the parking garage, that would be something that we would build and own and hire a third-party manager to operate for us, so much the same way as our resort and club operations are managed today.

And, on the other commercial development and our build-to-suit, it's our intent to own and lease the buildings to the industry, companies that have interest in that region. So again, opportunity to build recurring income stream for the Company over a long period of time.

And do you think that's something that would materialize in 2010?

Oh, I can't comment on that at this point, Sheila, so I wouldn't want to try to anticipate that.

Last question, on Southwest, their results in terms of their comments on just the traffic that they experienced at the new airport were very positive. Did you get any inclination or insight -- and was that positively impacted by the spill, or was that then capturing market share from people that used to drive? Just curious if you have any insights, what was driving that.

I'm not sure that we have those specific insights. I think Southwest would obviously be a better source of that. But I think our premise for the investment we've made in and around the airport was that there's untapped demand that is being manifested here, we believe, during the first 39 days of operation in the second quarter.

And I think you have to take note of the fact that the original airport had maybe a third of the flights there opened up on May 23. The fact that the load factors are up where they are, I think, speaks volumes to a number of different passenger uses, [enplanements] and [deplanements], that take place.

(Operator instructions) Buck Horne, Raymond James.

I'm just wondering, were there any direct environmental response costs that you absorbed in expenses this quarter? And how do you plan on getting reimbursed for those? Did you get reimbursement this quarter, or would that be at a later date? How do those costs get claimed? Do you throw them into the larger complaints that you plan to file?

We did incur some costs this quarter, and they were included in our G&A, as were the small amount of litigation costs that we incurred this quarter. And as it relates to ongoing costs that we will incur, we will include those in claims, or potential lawsuits against the responsible parties.

Okay, and the timing or -- well, I guess that's all dependent on -- you're putting all that in the larger complaints, right, for reimbursement? You are not going to file a claim against one of the funds that are set aside?

You know, we're reviewing all of our options for financial compensation, and the claims process is certainly one of those options that we'll consider pursuing, once we've had the opportunity to review the best course of action for the Company.

And just thinking about the drop-off in commercial sales that we saw this quarter, with that going to zero here, is that a function of something strategic where you didn't want to transact anything with all the negative headlines that were out there this quarter, or was there some drop-off in interest from some of the end users, just as people are concerned about the oil spill? Just trying to understand or see if you can help us understand commercially what's going on with your conversations and what they're concerned about and if there's strategically something you're holding out for.

Well, one of the things that we are doing, Buck, is that we are pursuing ground leases and build-to-suit opportunities as opposed to outright sales. And those are a little bit more complex and can take a little more time. Having said that, yes, we have seen people delay discussion, delay closings as a direct result of the oil spill, so it's a combination of a couple of things there.

Yes; again, the purpose here is to try to use this great asset that we have around the airport and make sure we deliver the best value to shareholders. So I would anticipate, as we go forward here, exactly what Bill said -- our efforts are to do that through ground leasing or build-to-suit opportunities. The pace at which that happens is still uncertain, given the fact the oil spill occurred. And, while we are encouraged by the conversations we are having, the accelerated conversations as a result of the success Southwest and Delta have seen, that it will be balanced as we go forward. But we are encouraged by the conversations.

My last one, if I can throw it in there, is just on the resort and club revenue. I just noticed that it was up this quarter year-over-year. I'm just wondering what drove that, and then why is it we are seeing such a large drop-off? I guess I would've expected a drop-off, but it looks like that's going to occur in the second half of this year. Just wondering if you can add some color around the dynamics of that.

Yes, we were off to a great start this year and captured a great deal of spring break business in the months before the oil spill. But as we walked through the quarter and we neared the end of the quarter, the negative effects of the Deepwater Horizon incident became more evident. And so we become a little more concerned about performance during the balance of the year. We also spent, as you might imagine, a great deal of time dealing with public relations issues and negative booking impacts created by the oil spill. Kind of anecdotally, the Bay Point Marina experience its worst month in the history of the marina. So it's those types of things we are seeing presently, and we lay those results at the doorstep of the oil spill.

And at this time, there are no further questions. I'll turn the call back to Britt Greene.

Thank you, appreciate your time this morning. If you're seeking any other opportunities of clarity, please call Dave Childers and go online and check out the claim through Bickel & Brewer's website.

So with that, I appreciate your time. Let me reiterate, the beaches and the water look great, and we'd love to have you come visit. So thank you very much.

Bye.

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