St Joe Co (JOE) 2010 Q3 法說會逐字稿

Good day and 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. You will be given a chance later to ask questions.

At this time, I would like to turn the call over to the Company's Treasurer, David Childers. Please go ahead, sir.

Good morning. Welcome to The St. Joe Company conference call to discuss 2010's third-quarter results. I'm David Childers, Vice President/Treasurer, and on the call this morning are Britt Greene, our President and CEO, and Bill McCalmont, our Executive Vice President and CFO.

Before we start, let me remind you that matters discussed in this conference call which are not historical facts are forward-looking statements that are based on our current expectations. Actual results could 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.

With that, I'll turn the call over to you, Britt.

Thanks, David. Before I get into the specific results, I'd like to take a few moments to touch on our history and our business.

It's important to begin by explaining how we got to where we are today. For the majority of the last 80 years, there have been three major owners of the real estate in Northwest Florida -- the federal government, the state of Florida and The St. Joe Company.

Because of this ownership structure, when St. Joe became a seller of real estate in the late 1990s, it was the first real opportunity for the Northwest Florida region to grow economically in the last 80 years. And since the region had not developed like the rest of Florida, St. Joe undertook every aspect of real estate development and sales, including obtaining land use entitlements, master planning, developing, building and selling.

In a little over 10 years, we've developed successful and profitable residential and commercial projects, improved infrastructure, attracted regional and national businesses to the area, and in doing so, contributed to regional growth and prosperity.

Today, we operate under a changed corporate structure and with an extremely flexible balance sheet that supports a more efficient and less capital-intensive business model. We have a reduced risk profile and the ability to be very opportunistic and adaptable with regard to the future.

Because of this financial flexibility, as well as the land and assets on our balance sheet and throughout the region, the groundwork is in place to benefit our Company and its shareholders for decades to come. We have the opportunity to extract a disproportionate percentage of every new dollar to the area because we are the majority landowner that can provide for the region's growing commercial and residential needs.

Additionally, most competitors of ours must acquire land at market price and title it and build amenities to compete against us. These development processes can take a long time for our competitors. It is a competitive advantage for St. Joe that we have several communities with developed products ready for sale that prospective buyers can see.

What's most important to know about our business is that our landholdings cannot be duplicated. We enjoy a vast acreage of low-basis land suitable for development in Northwest Florida. Like all businesses, we have been impacted by the global economic downturn, and the impact has been especially pronounced in Florida. However, despite these challenging times, we are confident that St. Joe is well positioned to succeed and to create long-term value for shareholders.

With that, I am pleased to turn over the call to Bill to discuss our results. Bill?

Thanks, Britt. Before I review the quarterly results, I want to comment on our accounting for long-lived assets. In particular, I want to provide some clarity regarding the detailed process we go through each quarter to ensure that our properties are valued appropriately and in accordance with generally accepted accounting principles, or GAAP.

As part of our quarterly review of all of our long-lived assets, we perform an impairment analysis of our real estate holdings according to GAAP. This entails a review of current market data compared to homes and home sites listed for sale and a review of our economic models for our development projects.

This review, according to GAAP, evaluates the future undiscounted cash revenue streams of a project, combined with the estimated future expenses and expenditures necessary to maintain a completed project, and compares these net cash flows to the carrying value of the project. These economic models are updated at least annually.

In the event these net cash flows exceed the carrying value of the project, there is not an impairment. To the extent the net cash flows fall short of the carrying value of the project, an impairment is recorded to reduce the project to fair value.

We also review any events or changes in circumstances that would indicate that an asset might be impaired. This could include a change in the planned development of a project, the sale of a project, or even the abandonment of a project.

During this quarter's close cycle, as we've done in the past, we conducted a top-to-bottom review of our carrying values for long-lived assets and have again concluded that we are appropriately accounting for our long-lived assets. We remain comfortable with our accounting for our long-lived assets and stand by the presentation in our financial statements. Importantly, our financial statements are reviewed by our independent auditors each quarter.

Now let me discuss our third-quarter results. For the third quarter of 2010, we had a net loss of $13.1 million, or $0.14 per share, including pretax charges of $13.1 million or $0.09 per share after tax. This compares to a net loss of $14.5 million or $0.16 per share in the third quarter of 2009, which included pretax noncash charges of $12.9 million or $0.08 per share after tax.

This quarter, we recorded a pretax charge of $8.8 million as a reserve for litigation involving a contract dispute from 1997 associated with our former Victoria Park community, which we are appealing. We also recorded a $2.6 million charge for legal and cleanup costs resulting from the Deepwater Horizon oil spill, and $1.7 million of restructuring charges.

In our residential business, during the third quarter, we sold 12 home sites across our resort communities at an average price of a little over $271,000 and nine home sites across our primary communities at an average price of a little over $57,000.

In our commercial business during the third quarter, we not only closed two land sales, but entered into a build-to-suit transaction as well. We sold 10 acres of the 115-acre Topsail development, our mixed-use project near the west intersection of Highway 98 and County Road 38 in Walton County to Wal-Mart. Wal-Mart paid $2.5 million or $250,000 per acre and will construct one of its new coastal prototype 78,000-square-foot stores at the location.

Importantly, we retain approximately 220,000 square feet of entitled commercial land and 610 entitled multifamily units at Topsail ideally suited to benefit from Wal-Mart's presence.

Additionally, we sold 3.7 acres in Bay County on US 98 for $1.2 million, or $316,000 per acre. This parcel was sold to BookIt.com, an online travel agency, for purposes of expanding their current office complex.

As part of our commercial strategy to generate recurring revenues, we also entered into a build-to-suit lease with CVS for a 1.7-acre site that we own at Port St. Joe. Upon completion of the construction, we will collect ground and building rent under this long-term lease.

Subsequent to the end of the third quarter, we also reached an agreement to sign a triple-net ground lease on a 2.2-acre site with Express Lane, a chain of convenience stores with locations throughout Northwest Florida and South Georgia. Express Lane will operate a gas station, convenience store and fast food operation on this site, which is located in West Bay at the Northeast intersection of Highway 79 and State Road 388 near the new Northwest Florida Beaches International Airport.

Our rural land sales during the third quarter included two transactions totaling 226 acres for approximately $726,000, or over $3200 per acre. In September, we also conveyed 322 acres to the Florida Department of Transportation as part of FDOT's purchase of land from us in 2006.

As a result, we recognized $3.5 million of previously deferred revenue and pretax income this quarter. As part of this 2006 agreement, we received $46 million of cash at that time. We convey the land and recognize the revenue when FDOT is prepared to take title. We currently carry $40.6 million of deferred revenue on the books as a result of this 2006 agreement that is expected to be recognized in future periods.

Forestry revenues during the third quarter were $6.8 million from the sale of 273,000 tons of soft timber and pulp wood. Approximately 53% of these sales were to Smurfit-Stone pursuant to our fiber supply agreement. Looking to the future, we continue to pursue opportunistic alternative uses of our timberlands.

Regarding our resort operations, we experienced another difficult quarter due to the impact of the Deepwater Horizon incident. Occupancy and average daily rates were off dramatically throughout the region, and our hospitality offerings were not immune to these macro trends. The reduction in tourism across the region also reduced activity at our golf and our food and beverage operations. Marine operations were hampered by fishing closures and boaters leaving the area for waters to the South and the East.

Now let me turn to our agreement with Southwest Airlines. As previously discussed, our three-year agreement with Southwest Airlines commenced on May 23, 2010, upon the opening of the new airport. We have agreed to reimburse Southwest if they incur losses on their service during the first three years of operation.

Southwest is on record as stating that their service at Panama City has been profitable since day one and has greatly exceeded their expectations. As a result, during the third quarter there was no required reimbursement payment to Southwest Airlines. When added to the second-quarter surplus, we are now carrying a significant surplus forward to fund any future shortfall in the fourth quarter. The majority of this cumulative surplus was earned during the third quarter summer months, despite the adverse impact of the region's tourism as a result of the Deepwater Horizon oil spill.

Turning to our balance sheet, on September 30 we had cash and cash equivalents of over $196 million, not including approximately $26 million of pledged treasury securities. During the third quarter, our cash position increased, primarily due to the receipt of federal tax refunds totaling over $67 million. These refunds were due to losses incurred in 2009.

On September 30, we had debt of approximately $38 million, of which $26 million is completely offset by the treasury securities. Our $125 million revolving credit facility remained undrawn.

Our solid balance sheet and efficient operating structure provide substantial financial flexibility, allowing us to capital on real estate trends and the economic growth expected for our region.

Now let me update you regarding recent legal actions we've taken to pursue our claims arising from the Deepwater Horizon incident in the Gulf of Mexico. As you know, the uncertainty of the long-term financial impact caused by the oil spill has been reflected in our stock price. Now we, like many others in the region, must seek compensation for our damages from the parties responsible for this catastrophe.

To this end we have now filed lawsuits in Delaware State Court against Halliburton, M-I SWACO and Transocean, three of the parties responsible for the incident. If you have followed the incident in the news, you will record that Halliburton was responsible for the cementing of the well; M-I SWACO was responsible for managing the use of drilling fluids to maintain well control; and Transocean, the owner of the drilling rig, was responsible for overseeing maintenance and drilling activities on the rig.

We have asserted in our complaints that all three of these parties were grossly negligent in the performance of their duties and are all response for the blowout of the well and the unprecedented damage that followed. However, even as we pursue our oil spill claims, we will continue to execute our business plan and pursue our vision for the Company. Let me emphasize that despite the oil spill, we remain well positioned for long-term success.

Britt will now discuss a number of our current initiatives.

Thank you, Bill. I'd like to now discuss our landholdings, assets and opportunities.

One of the major drivers of opportunities and value creation for St. Joe over the coming decades is the recently opened Northwest Florida Beaches International Airport. Because of the new airport, our region has now become much more accessible to the rest of the country and the global marketplace.

The new airport is only a 15-minute drive to the white sand beaches on the Gulf of Mexico. For the majority of that drive, you are traveling through St. Joe property. We have over 5600 residential units and 4.4 million square feet of commercial space entitled just in Phase I of the West Bay Sector Plan adjacent to the new airport, including our VentureCrossings Enterprise Centre, which I will discuss in a few minutes.

But first, it is important to understand our relationship with the Airport Authority. We donated land to the Airport Authority and restricted certain uses on that land via the land donation agreement and deed. The Authority is also constrained by a number of regulatory permit requirements. Consequently, the current development rights of the Airport Authority are limited in scope.

The Authority has permitted Phase I for specific aviation uses, and any future phases require significant regulatory review and permitting approvals before the Authority can deliver on any additional development beyond Phase I. Regulatory review and permitting includes the Federal Aviation Authority, the Army Corps of Engineers, and compliance with the National Environmental Policy Act and the Clean Water Act, all of which are federal agencies and approvals that require time and expense to work through.

The timeframe established for future phases by the permits associated with Phase I is 10 years. Therefore, any development beyond Phase I is intended to occur after the 10th year, or a modification to the timetable associated with the future phases must be approved by a number of the local, state and federal regulators and agencies involved in the approval process.

Let me also discuss a lease we've recently signed with the Airport Authority. We've entered into a long-term ground lease at an annual rate of $0.30 per square foot on an 11-acre parcel with the Airport Authority, providing us and our prospective customers immediate access to the airport's taxiways and 10,000-foot main runway. This agreement also provides us the time necessary to advance our development plans for the through-the-fence connectivity.

Let me now put to rest any views to the contrary. We have through-the-fence access rights clearly established by the land donation agreement and deed. These rights were approved by the Federal Aviation Administration and the Airport Authority. Recognize that any development of this scale, especially when dealing with large number of local, regional and federal agencies, takes time and effort to get through the regulatory processes.

We are currently documenting the mechanics of runway access through an agreement with the Airport Authority. We are also in the process of pursuing the necessary development permits for our through-the-fence access, including obtaining environmental authorizations from the FAA, Army Corps of Engineers and the Florida Department of Environmental Protection.

The ground lease for the Airport Authority allows us and our customers to have immediate airside access and can serve as an incubator for a large growing user base, which may eventually require expansion beyond the available airside land.

Access to the runway, the ease of contracting with a single private entity, and a virtually unlimited greenfield expansion capability gives St. Joe a competitive edge when compared with other international airports in the country.

To capitalize on our commercial entitlements within the West Bay Sector Plan, earlier this year we launched VentureCrossings Enterprise Centre at West Bay. VentureCrossings includes 100 acres designated for retail office and hotel uses, 300 acres for light industrial uses, and 600 acres for manufacturing distribution and logistical uses.

Site development has begun, and vertical construction is scheduled to begin in early 2011, specifically on an office building that we will occupy as part of our previously announced corporate headquarters relocation from Jacksonville.

We will also break ground this year on a 300-space long-term covered parking facility at the entrance to the new airport and break ground early next year on a light industrial building in Phase II.

We anticipate that many of our commercial projects in VentureCrossings will be structured as build-to-suits, joint ventures or ground leases, providing us with long-term recurring revenues and cash flows.

Let me now comment on our other development opportunities. We are continuing to have success from our portfolio of commercial and residential lands in spite of the recent oil spill in the Gulf of Mexico. Bill discussed our recent commercial successes and capital allocation.

In our residential business, we feel that we have created a very desirable and valuable product. Especially in today's market, our prospective buyers can see the difference and quality of a St. Joe community versus our competition. We have over 1100 developed homesites in amenitized and well-maintained communities throughout our regions.

Capital has been invested in these homesites. The dollars are in the ground, and as these homesites are sold, we will recognize the revenue and receive cash.

We also are investing new capital on our residential business as well. Due to the recent market demands for a new master planned primary community in Panama City Beach, next year we will break ground on Phase I of Breakfast Point, our entitled 348-unit primary residential community in Panama City Beach. We expect sales of developed lots to builders will begin in 2011, and builders will have their models and specs open and available by the third quarter of 2011.

Breakfast Point is a fine example of the value and economics we can generate from our land and our invested capital. We expect Breakfast Point to have success similar to our Hawks Landing community in Panama City, with profit margins in excess of 30%.

We also have a vast inventory of entitled and unentitled lands located in many of the growth quarters throughout our regions. The commercial square footage and residential units that show up on our tables as entitled are but a small subset of the acreage in our portfolio suitable for these future higher and better uses.

For example, our entitled land acreage does not include many thousands of acres along major arterial roadways throughout our region of over 100 miles of waterfront property. The entitled land acreage also does not include all of our developable lands within the West Bay Sector Plan specifically.

We have proven that we are successful in getting entitlements on our land, but we will not create permanent maintenance burdens on St. Joe land at the wrong time. Real estate development is about phasing, and the highest and best use on a specific acre may change often as growth occurs throughout the region.

We understand the value-enhancing benefits from the development of each parcel and are committed to entitling, selling or leasing the right parcels, but at the right time. The best way to experience our vast landholdings and understand our opportunities is to come visit and let us show you our properties and why we're so excited about our future.

Over the past three years, we have significantly enhanced our strategy and focus, providing for a virtually debt-free balance sheet, an efficient operating structure, a commitment to long-term ownership of income-producing real estate holdings, and strategic asset sales. This was the right strategy to succeed during the recent national economic downturn, and it is the right strategy for our future.

Our real estate expertise, financial discipline, and highest-and-best-use strategy has created positive economic returns on assets and invested capital for our shareholders. This expertise, discipline and strategy also enhance the value-creation opportunities that lie ahead for our lands not yet entitled.

As I mentioned earlier, Northwest Florida is really for the first time finally open for business, thanks to the initiation of service at the new airport. Our focus is on creating recurring streams of income and maximizing the value of the land we sell.

The region is prime for economic development, with the right infrastructure now in place and the right support for many local, regional and national stakeholders. It is because of all of this that we are so excited about the future for the region, our Company and our shareholders.

Bill and I would now be happy to take any questions that you may have.

(Operator Instructions). Buck Horne, Raymond James.

Britt, I really appreciate the details that you guys gave on the rights and permits associated with the airport land and what's adjacent to the airport there. I guess maybe for the benefit of ourselves and maybe the investors listening that may be not quite as familiar with the property, can you help us understand in real estate terms what kind of value you unlocked or what kind of extra acreage adjacent to the airport you unlocked with the Phase III site next to the airport? Maybe that will help simplify what you've unlocked in terms of value, related director to the through-the-fence access rights.

Sure. Maybe the best way to -- I mean, development isn't -- through-the-fence is not unlike any other development aspect, where we have invested entitled right. And just like any -- whether it's residential or commercial development, it requires planning, design, engineering and permit approvals. That's the process we are in currently.

So that vested entitled right we have to go through the fence requires planning, design, engineering and permit approvals to go through that fence. What it unlocks is not only the 600 acres, but approximately another 2900 acres of contiguous land within the West Bay Sector Plan zoning and even in the current detail-specific area plan, the potential for up to 37 million square feet of industrial and office.

And I think when you look at that, you compare the greenfield opportunity in the arterial roads that service this area and the airport itself, and the future expansion of runway capability at the airport and gate capability at the airport, it really is a unique dynamic. But the right does exist, it is vested, and simply not unlike anything else that we are doing, we have to go through that planning, design and engineering process in order to engage in the actual development of taxiways, trunk roads or truck access.

Okay. Just for clarification, are you experiencing or having any problems or delays with Bay County or the Authority or anyone else in terms of getting the vertical development permits for the VentureCrossings buildings? Is there anything to say that the completion of those buildings will be behind what you originally planned to deliver those projects in?

No. We simply are in the same process we typically are. We've started the horizontal development for the road and the infrastructure, which needs to get in place before we can access the site to do the vertical.

During this concurrent period of time, we are finalizing our design and engineering for the office building specifically and the light industrial building. Once we have the roadway and the infrastructure in place, then we can service the pad that is developed and accessible to start the vertical, which we expect to happen early 2011, and that we would be occupying our main headquarters building by this time next year. And the light industrial certainly is a smaller-scale building and less buildout, and so would be available sometime in probably late second quarter or early third quarter of 2011.

Okay. One more before I jump back in the queue. Just thinking about the residential projects you have ongoing and some of the things you're still in the process in, like RiverTown and maybe what you're starting in Breakfast Point in terms of primary use communities, just wondering, is there any estimate you could give us, either based on recent data points or other comparables just in terms of what you would think it costs to fully develop or even get those homesites ready to sell to homebuilders in places like RiverTown, whether Joe did it themselves or hired a third party to develop those homesites? What's a general idea of the cost to develop residential real estate in Northwest Florida?

Well, in Northwest Florida, there's a number of factors that go in to that. First of all, how amenitized is the community going to be? What's the price and product that's associated with those amenities and infrastructure costs?

So we have, between primary and resort, there is a fairly broad change in terms of the developed lot costs. But for primary, I think you could be comfortable in using somewhere in the $30 to $35 range per lot for primary, and because the resort communities are much more highly amenitized, that that number would actually be incrementally higher. But still, we would enjoy, as we historically have, a very good margin on our residential lot development.

Okay, so $30,000 to $35,000 per developed lot and for primary use?

Yes.

Okay, all right. Thanks, guys.

Sheila McGrath, KBW.

I was wondering if you could address the cash burn outlook and the progress on ramping towards recurring revenue streams. I think the cash burn is really the major risk that investors hone (sic) in on. How much cushion or flexibility does that almost $200 million of liquidity provide, Joe?

This is Bill. Yes, as you mentioned, at the end of the quarter we had a little over $196 million of cash on the balance sheet. And of course, our $125 million credit facility is undrawn at this time, providing a great deal of liquidity to allow us to pursue our economic development goals.

As far as a cash burn rate goes, if you look at our cash SG&A on a year-to-date basis, and you exclude the one-time charges related to the Deepwater Horizon incident and the litigation settlement that we recorded this quarter, you'll see we are down about 21% year over year.

So we continue to focus on reducing the overall cash burn rate of the Company. And as you know, we've restructured ourselves, we've streamlined ourselves. And so with our strong balance sheet and our much less capital-intensive business model, we think we are well positioned to take advantage of these opportunities in the future.

Okay. And could you remind us also the dollar per acre that your land is carried on your books at, and if this, in your opinion, would come into play when looking at the amount of impairments Joe has taken versus more traditional homebuilders?

Yes, Sheila, this is Britt. We carry -- we are right at $110 an acre carrying on the puts. And I'll let Bill speak to your second part of that question.

And that's the historical legacy land that Britt is referring to. So obviously, that reduced carrying value as compared to an at-the-market price, gives us a significant advantage compared to some competitors.

I think when talking about impairments, and obviously the comments I made during the prepared remarks support -- are accounting for the carrying value of our assets. But when you look at what we have done during the three-year period 2007 through 2009, we have taken impairments. We have taken almost a little over $196 million of impairments during this three-year period of time as we've evaluated the carrying value each quarter, as we do every quarter, and made the determination that we needed to write down certain assets at that point in time.

Okay. One more question and then I'll get back in line. But can you tell us what your plans are for your landholdings next to the commercial acreage you sold to Wal-Mart, how much your holdings are, and if you plan to bring in a joint venture partner or sell the remaining acreage there?

One of the things -- Wal-Mart corporate typically buys their land; otherwise we would've approached it from a ground-lease standpoint. But certainly, Topsail is in a great location. There is a lot of completed development. So in effect, it's mostly an infill retail opportunity and multifamily development opportunity.

So, Sheila, I think our -- not I think, I know our strategy going forward is about where we can do ground-lease and build-to-suit opportunities at Topsail on the retail component, we're going to do it. We think this is another well-located opportunity, not unlike what we have outside the airport or over near Pier Park in Panama City Beach. And the more we can do in that mix, then we will.

We are not -- and if for whatever reason we believe there is a real draw like a Wal-Mart where we need to retail our property, we'll do it at market rate. The 610 multifamily units will either be through a joint venture or outright sale of the land. But certainly, we are going to investigate recurring income stream opportunities first as our strategy, with backup retailing the land and market value as a secondary.

Okay, thank you.

Jim Wilson, JPM (sic) Securities.

I was wondering, in the airport vicinity, any of the basic services for Southwest, whether it's near the basic [catering], etc., what has come in so far and what is on the horizon? I would think that would be some of the, obviously, the most near-term general and industrial space needs.

I think the near term is a lot of our conversations are focused around the economic cluster group that's already here, which is aviation, aerospace and defense contractors. There's many that may not know this, but there's 1900 defense contractors servicing the seven military bases in our region. And that's our focus and attention, because a number of them have expressed interest in consolidation or actually expansion.

They need to be here. It's not that they could be somewhere else in the country; they need to be here to be able to continue to contract with the Department of Defense on a number of research, development, maintenance or repair type facilities and needs. So the immediate services are focused there. There are a number of other logistical distribution type conversations that we are having. But for right now, we have a fairly -- I would say a robust field of opportunity, given the local companies that are in place.

And then I guess the other one is just, any other airline discussions out there that might be coming to the airport, [well], Delta or any others?

Well, Delta expanded to 11 flights. Southwest has eight, so there's a total of 19 flights. Southwest's announcement of their acquisition of AirTran we see as a great positive. Their aircraft, they have a number of 717s, a smaller aircraft. They can even bring in additional flights from existing connection points or even expansion to smaller community connections.

But suffice it to say we think Southwest's announcement on AirTran was a big benefit to the new airport and the region as a whole. So I think we are excited by that. But I'm not aware of any other current conversations with other airlines at the airport.

Okay. All right, thanks.

Michael Gaiden, Morningstar.

I was wondering if you could please discuss any key learnings from the CVS and Express Lane lease deals, and if and how these contracts inform your broader plan for leasing amongst your landholdings.

I think if anything, it tells us there is a market out there when you can service it with the right product in the right location. And so for CVS, it was important that they wanted to be in the downtown Port St. Joe. They've been there. They wanted to expand the size of their store. And we had the right location for that to happen.

With regard to the convenience store and gas station, we certainly provided them with the most appropriate site location to not only command current traffic that uses Highway 79, which if you look at a map is a major North-South arterial from the beach north to I-10, which has been -- predominant amount of it has been four-lane. So that corner, plus 388 is the main arterial access to the new airport.

So putting them -- putting a product out there, to put a convenience store at that location, not only currently captures the traffic for tourism, but it captures the traffic as it grows at the airport, so a real benefit. I think the real learning is that when we have the right product at the right location and that we can command conversations with regard to build-to-suit and ground-leasing opportunities.

Understood. Thanks, Britt. Can I also ask, related to VentureCrossings, can you please discuss more specifically the planned timing for the opening of the paid parking facility adjacent to the airport, as well as the flexspace there, and related to the flexspace, what type of customers you might initially target?

The covered parking facility is something we have looked at and reacted to as a result of the overpark conditions that are currently are -- the Airport Authority. They are adding more surface parking, but we felt that given the long-term parking aspect of what's happening in the airport, a great opportunity as people are driving from greater distances to use the low-cost carrier base that's at the new airport.

So that parking facility we're expected to have open by late first quarter or early second quarter for spring break. It will be 300 covered parking spaces. And we are excited about the income stream that will come from that facility and the ability to expand it if necessary with contiguous lands.

With respect to the light industrial, there's a number of users we've talked to who are looking for short-term near small incubator office industrial space as they think about their expansion needs in the region. And again, I mentioned earlier aviation, aerospace and defense contractors who want to expand, test the site or know that there is a bigger facility coming.

So we see a number of users going in there who will have an immediate need. And then if successful in that preleasing, we have a second building ready to go, of similar design and size, that we could put in the ground if we find our lease-up is going as quickly as we expect. So we think a big benefit to service the area, and frankly, we're the only ones out there who can develop that type of product near the airport. And we see a number of current interest patterns in the right direction.

Great. Thanks for that color, Britt. And when might that flexspace come online, next year?

I'm sorry. That should be by July, by July of next year. So parking by April, light flexspace by July, and our headquarters building by November of 2011, all coming in 2011.

Great, Britt. Thanks very much for that color. Can I lastly ask, before I bow out, we spent a lot of time on the call talking about the commercial side of the business. Could you briefly address qualitatively the health and outlook on the residential side? Certainly accepting the macro headwinds as well as the regional issues associated with the Gulf oil spill, could you maybe talk about how you see that segment recovering in the next several quarters? Thank you.

Yes. And, listen, the oil spill created uncertainty in the marketplace, and more at the resort area, in the resort side of it. I think that is going to continue to be slow. But it's starting to show good signs of starting to move a little bit off of what everybody has considered to be the bottom that we are bouncing around. But don't mistake me here, it's going to be slow.

On primary, we're seeing interesting little ticks in the market in the submarkets, like Panama City Beach, where Breakfast Point is going, where there is a limited amount of available new product in the marketplace for primary residential. And so that's why we have started the process by which we will start construction of Phase I there, the delivery of homes in the third quarter of 2011.

Macro, the region itself, I think residentially, both primary and resorts, can continue to be a slow-paced growth. I think it's not unlike -- there's parts of Florida South of I-4 that will probably take a longer period of time to ramp up, and North of I-4 in the state of Florida a little bit shorter time. But rest assured, it's going to be a slow pace.

It's why this Company is not totally dependent on residential, but has the ability not only in the commercial aspects to drive new jobs; those new jobs will drive a need for increased housing, which is a great benefit to us. And we think that we are primed for that because there's just not a lot of standing inventory currently in place in the market that we serve.

Great. Thanks, Britt.

(Operator Instructions). Buck Horne, Raymond James.

Appreciate taking all this time. I was wondering if you could help us understand maybe the pricing structure you guys are using for some of your residential land sales, or how you're working with homebuilders or offering them certain types of incentives to help preserve their capital in this tough time. What are you doing to help kind of motivate and keep homebuilders coming to you and continue construction as you think about a Breakfast Point, for example?

Well, maybe not even specifically Breakfast Point, but just strategy as a whole --

Sure.

One of the ways to help builders is to provide them a low entry point into the acquisition of a developed lot from us, for them to go vertical on homebuilding, with the idea that we will get what is typically done and historically been done in a number of areas of the country is a true-up. Back in participation in the sale of that home, where there is a determined percentage, and typically in the marketplace, that runs 15% to 20% of the backend value of the home, in which case we'll get a true-up against what they originally paid for the lot.

And in most respects, it will get us to our targeted initial lot price that we have in our models, where the idea that as the market grows, our price of our lots grow. And it's our protection against any quick movement in the marketplace as we release lots to the builders.

And whether we are doing it at Breakfast Point or other communities, we typically have found great success in that program, because it limits the amount of capital the builder needs to output initially with the idea that he knows at the point of sale, and as part of the closing costs, we will get reimbursed for the balance of the lot. So it's a good program and it works well, and it's a great initiator, especially in these slow times.

Yes, and Buck, I think that's an important point, Britt's initiator point. So as activity is generated in our residential communities, it's been our experience that that leads to more activity and helps accelerate price appreciation over time. So we focused on a small number of lots with builders to generate that activity, to get the vertical construction started so that we can generate long-term price appreciation in these communities.

Great. Also, just one last one. If I look at some recent maps, that I think St. Joe still owns quite a bit of waterfront real estate, either directly on the Gulf or the waterways or other places. But I realize not a lot or maybe not all of it has necessarily entitlement. So I was just wondering if you could refresh our memory maybe on some of the waterfront real estate that may not currently have residential entitlements today?

Sure. And there's a good portion of it left. I think most people know about WaterColor or WaterSound Beach and the waterfront, and WindMark Beach, and even RiverTown, with St. John River water frontage.

But in addition to that, we still have 90 miles of bay and estuary waterfrontage on our property. And in addition to that, there's a little over 75 miles of intracoastal waterway frontage. We still have 5.5 miles of white sand beaches left to develop and 30 miles of Gulf beach frontage that maybe doesn't have white sand beach, but is still Gulf frontage.

And then in addition to that, and just as importantly, not just residential, but both residential and commercial is tens of thousands of acres with miles of road frontage on major arterial road fronts. And I think those are -- it's the scale of what we have and the contiguous holding of what exists for us. And even within the 400,000 acres within 15 miles of the coast is important.

If you look at Florida historically in the past 100 years, 80%-plus of the population of the state of Florida lives within 15 miles of the coast. And we happen to have a good probably -- in fact, the only landowner that has that much contiguous land near the coast -- well, certainly in the state of Florida, but even in the Gulf of Mexico and along the Eastern seaboard.

But we believe in Florida. We are committed to delivering long-term shareholder value. And we think we are well positioned with our land, whether it's entitled currently or it will be entitled in the future.

You know, Buck -- this is Bill -- I also think it's interesting when you look at the St. Joe landholdings, it's difficult to see the inherent value of those landholdings jump up a spreadsheet, for instance, because that's not the way we value the Company.

Our value is in those landholdings, in those waterfront properties, in the residential communities that we are developing, in the infrastructure that we've already invested. So there's a lot there that really almost needs to be seen to fully appreciate, and clearly doesn't jump off a spreadsheet.

Thanks, Bill. I'm sorry, just one last one is, can you spend a minute on the litigation reserve for Victoria Park this quarter and just what that relates to, and what does that reserve represent exactly?

Sure. It stems from a 1997 contract dispute related to the purchase of land for our former Victoria Park community. And the sellers of the land asserted that they were owed more money for the land pursuant to the purchase price mechanics in the contract.

And the case has actually been pending for years and finally went to trial in September. The judge ruled in favor of the plaintiff, an $8.8 million verdict. We are appealing that verdict. And we expect that appeal to be heard within the next several months. And it was appealed to the Florida Court of Appeals. So it's essentially a contract dispute related to lands that were not developed by St. Joe inside the community.

Perfect. Thanks, gentlemen.

Sheila McGrath, KBW.

You've mentioned the ground lease that you have at the airport at $30 a square foot. I'm just wondering if you think that's a good barometer for us to use for expectation on ground-leasing around the airport, or is there another metric or rule of thumb we should consider for comparables?

Well, first it's $0.30, not $30.

Oh, no, I said -- I thought I said $0.30 a foot, right?

I heard $30. I'm sorry. It's $0.30 a square foot. And I think where we saw it based on costs we've seen at other international airports and as an acceptable market price for the acreage that we were leasing from them.

In terms of the metric for our property, I think you're going to see a range, depending on location and size of the tract of land, size of the building that will go on that parcel. So I would be careful not to use it as a specific barometer, but one that we will look at, depending on whether we are just doing ground-lease or joint venture or build-to-suit.

And so, Sheila, I'm not giving you the exact answer you want. I think it's a good barometer for land that's next to a taxiway and a runway. I think when it comes to -- we are going to continue to look at the economics of each deal that we do and put the most aggressive market price we can on our land.

Okay. Well, on the ground lease for the convenience store, can you give us an idea of -- are there increases, annual increases, how that's kind of structured?

Yes, Sheila. This is Bill. It's a 15-year initial term, with the rent fixed for the first 10 years, with an escalator after that 10-year period of time. There are five five-year renewal options that do show a 10% increase over the previous-year rent. And as we valued that land that we put into the ground lease, when you look at it from an overall valuation perspective, we were very comfortable with the per-acre price that is equated to.

So you take the per-acre price, and around what kind of yields are you looking at versus -- your estimate of the per-acre price versus the rent?

We used a valuation here that would relate back to essentially a plus or minus $300,000 per-acre price for the land.

Okay. And can you reminder us of the capital that you are investing in both the CVS and the parking lot?

Yes. The CVS build-to-suit is on land that we own in Port St. Joe. So the total investment in the vertical construction there will be something over $2 million, although we valued that land at about $850,000 on that slightly over 2-acre site. So what we see there in terms of yield for us on the hard costs that we will invest going forward is the next step of 12%. Obviously, that excludes the land value.

Okay. And then you did announce in the quarter a new hire on economic development side. I was wondering if you could discuss the new hire and any noteworthy progress on conversations with clients at VentureCrossings.

Sure. We did Neal Wade, who had previously worked at St. Joe. And then he left and went to the state of Alabama, where he was the head of economic development with a stellar track record, considered one of the best in the country when it came to economic development.

Neal is now with us. He started officially this week. And we're pleased by the contacts that he brings with us and the ability to accelerate conversations we are having with a number of different users for VentureCrossings, and even off-site opportunities outside of VentureCrossings that may pursue -- that we may pursue in the Commerce Parks.

Okay. Last question. I know the mantra is really to preserve cash. But given the stock has slid down quite a lot recently, well below many's opinion of the real estate value, how would you view a share buyback at the current levels?

Well, Sheila, as you know, we still have a share buyback authorization in place from the Board of Directors. We have not, during the third quarter, consummated any buybacks. And that would be something that we might consider in the future. But I think that as we look at some of the other opportunities we will have to invest capital, we will have to weigh a share buyback versus those opportunities to invest capital profitably for the Company.

Okay. Thank you.

And that concludes the question-and-answer session for today. At this time, I would like to turn the conference back over to Mr. Britt Greene for any additional or closing remarks.

Thank you. We are confident that St. Joe is well positioned to succeed and that our prospects remain strong and that our properties and our Company continue to be attractive investments. St. Joe is focused on creating the long-term value, and we believe that we have a very bright future ahead and appreciate your time and considerations this morning. Thank you.

And this concludes today's conference. We do thank you for your participation.