St Joe Co (JOE) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to The St. Joe Company 2012 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would like to now introduce your host for today's conference, Mr. Tom Hoyer. Mr. Hoyer, you may begin your conference.

Thank you. Hello, everyone, and welcome to The St. Joe earnings call for the period ending September 30, 2012. My name is Tom Hoyer. I'm the Chief Financial Officer at St. Joe and I'll be the person representing the Company on the call today. Let me begin with a forward-looking statement. Some of the information we will discuss on this call is forward-looking. This information includes statements that are preceded by or include the words believe, expect, intend, anticipate, will, may, could, or similar expressions.

These forward-looking statements may be affected by the risks and uncertainties in our business and actual results may differ materially from the forward-looking statements. Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in this afternoon's press release and our SEC filings, including the annual report on the Form 10-K filed with the SEC on February 27, 2012, which documents are publicly available. Our statements are as of today, November 1, 2012 and we have no obligation to update any forward-looking statements that we may make.

Let's move on to the third quarter results. I'll make some brief opening comments about the quarter and then, I'll open it up for your questions. We reported revenue of $55.9 million in the third quarter of this year compared to $26.7 million in the third quarter of last year. Much of the quarter-over-quarter increase in revenue came from two land sales, but I'll talk about those later.

If I exclude those land sales, revenue increased on a pro forma basis to $37.6 million compared to $26.7 million for the same quarter last year, which is about a 41% increase. It's a similar story for the comparable nine months. We reported $116.8 million of revenue for the first nine months of 2012 compared to $125.5 million of revenue for the same period last year. If I again exclude the $18.3 million in land sales in the 2012 numbers and I also exclude a one-time timber fee for $54.5 million in the 2011 numbers, I get pro forma operating revenue of $98.5 million for the nine months ending September 30, 2012 compared to $71 million for the same period last year, which is a 39% increase.

Our revenues are increasing because we sold more residential lots, delivered more tons of timber and booked more rooms in our resort properties than last year. These improvements are the result of refinements in our operations and stronger demand, even while our businesses continued to be affected by the slow economy and restrictive credit. Beginning with residential, we sold 45% more units quarter-over-quarter and the associated revenue grew 146%.

The increase in demand has driven increases in the lot prices in some of our communities, particularly in our vacation communities. We believe that we could accelerate revenue by keeping prices lower, thus generating a greater number of sales, but instead, we're seeking to maximized profits and long-term value by continuing testing the upside on lot prices. In our Timber business, we harvested 13% more tons of timber in the third quarter of 2012 compared to the third quarter of 2011, and revenues increased by roughly the same magnitude. Most of that is due to process changes that we made in our timber operations, including opening previously restricted land for harvest and also investing in infrastructure and software that have improved the production in our timber stands.

The revenue derived from our vacation resorts, golf clubs, and marinas is 9% higher in the third quarter of 2012 compared to the third quarter of 2011, due to increased demand. We get a compounding effect from increased demand; for example, at the WaterColor Inn, not only are we booking more room nights, the average room rates have increased due to higher demand. In addition, ancillary revenue for things like food and the rental of recreation equipment is higher.

We see the same compounding effects at our golf courses and marinas. Net income for third quarter of 2012 was $15.3 million compared to a net loss of $2.4 million for the third quarter of 2011. Two rural land sales, both of which have been in progress for a long time and neither of which involves property that's part of our strategic focus, contributed $14.2 million to pretax income in the third quarter.

I'm taking the time to talk about these types of land sales because they are not, nor do we anticipate that they will be, a core part of our strategy for generating revenue or cash flow going forward. Although we'll continue to sell non-strategic property if the opportunity arises, our focus for growth will be in residential and commercial development, as we take advantage of our significant land holdings and slowly improving economic conditions. We'll also focus on building a recurring revenue profit stream by investing in projects that produce leasing revenue. We believe that our development experience and location in Florida provides us with strategic opportunities in the requirement market and we've begun preliminary research into various types of retirement housing that may allow us to capitalize on those demographic trends.

We also expect that our timber operations and our resorts and club operations will continue to be steady contributors to our financial results in the years to come. This is year one of a multi-year turnaround, which we intent to take advantage of improving economy, the demand for affordable retirement living, and commercial opportunities in our Northern Florida markets.

We ended the quarter with approximately $172 million in cash after we spent over $19 million pre-paying in debt obligations at one of our projects. By eliminating that debt obligation 4.5 years early, we'll save about $6 million in interest expense. The only other debt that we carry on our balance sheet of any significance is a mortgage debt related to a commercial property that we sold several years ago. That debt has been defeased, which means that we purchased treasury securities that, when matured, will be sufficient to retire the debt. In other words, we shouldn't need to use any additional Company assets to repay that debt.

Year-to-date, we've increased cash by $10 million, which is after pre-paying the $19 million debt obligation. However, the fourth quarter is typically a negative cash flow quarter for us and we still have property taxes and capital expenditures to fund in the fourth quarter this year, so we expect to end the year with a lower cash balance than the beginning of the year, due to the pre-payment of the $19 million debt obligation.

You'll find more information on our earnings press release, which was released about an hour ago and in our 10-Q, which will be filed tomorrow. As a side note, last quarter, there were many of you on the call who did not ask questions. I encourage you, if you are an investor in the Company, to ask questions today. Operator, let's open it up for questions.

(Operator Instructions)

Buck Horne.

Let's talk about the rural land sales in the quarter and --

Yes.

Maybe you can give us a little color on where those were located? It obviously looks like you got a very attractive price per acre and I'm wondering if there was some sort of HBU strategic component involved or was it a conservation buyer? Just wondering how this acreage compares to the rest of your rural holdings and do you have anything else in terms of large land transactions in the pipeline?

I'll start with the last question first. We do not have anything in the pipeline in term of large rural land transactions. As I mentioned, that's not something that we are trying to market or trying to do to grow or generate cash for the Company. The two that we did close in the third quarter, one had actually been in progress for a couple of years, the other just about the same amount of time. One was outside of Tallahassee, it's not a secret, it's the Veteran's Administration bought it for a military cemetery and paid us a per acre price that was a really good price when you compare it to the land that was surrounding it. The other piece of property was to a power company, it was up near the Florida/Georgia border. I really can't go into all of the details on what it was exactly, but, again, as you could probably tell by the location I gave you, it was a very good price per acre.

Thanks for that, Tom. Also, on to the residential side of the business, it obviously looks like you got some pretty good pricing on the residential lots that were sold. Can you give us any sort of breakdown on which communities the 58 units were sold in? Whether they were WaterColor or WaterSound Beach or WindMark Beach, just any sort of community level color on terms of where you saw the most demand this quarter?

Sure. Saw most of the demand in the WaterColor, WaterSound, West Beach, those kinds of communities up here along the coast near where our headquarters is, where you visited here. We've also had increases, some increases in some of our primary communities, but most of the increase in lot sales has been in our vacation communities. It's also where we've seen the biggest increase in lot prices. Right along the coast here, in those communities, we've seen lot prices, since the beginning of the year, increase from anywhere in the range of 10% to about 40%, with some of our really good lots increasing upwards to 60%, 65%.

Obviously, you kind of answered this, it sounds like the vacation home market is doing comparatively much better than the primary home market. Have there been any other pockets, though, that have maybe softened or are slower than expected? I'm wondering about WindMark Beach, in particular, and any comments you may have? There's some concern by some investors that more impairments may have to be taken in certain communities. I'm just wondering if you've had to run any impairment tests or anything's on the watch list?

We actually evaluate all our assets every quarter. We do a major evaluation at the end of every year. We did a major evaluation at the end of last year. We went through all those assets, including WindMark Beach, the residential assets and the commercial and operating property assets. WindMark Beach in particular, we took a very large write-down on. I'm comfortable that we're not going to have further impairments on the properties that we've already written down. WindMark Beach, to answer your question about what's been going on there this year, it's actually performing about in line with the models that we put together to evaluate it when we did the impairments.

WindMark beach really is a longer-term asset for us. We're not expecting it to do much here in the short-term. But it's a great piece of property. It's got miles of waterfront, thousands of acres that are contiguous to those models of waterfront, and it's near Port St. Joe, which, as you know, we're developing. We want to see how that pans out there and what kind of demand that might bring to WindMark Beach. We have hopes for WindMark Beach. It's just a little further out than the next year or two.

(Operator Instructions)

Aaron Scully.

Congrats on the quarter. Your net cash was up, it looks like 30% from the beginning of the year and you paid down, it looks like you're going to pay down some CDD debt that should generate a decent return. Could you rank any other potential uses of that cash going forward, because it seems like it continues to grow? How do you think about other potential uses?

We are looking at several different opportunities that we'd invest our cash in. We are looking at commercial development opportunities, which we would partner with mall operators, for example. You guys are aware that we're looking at opportunities down on the port, the seaport, Port St. Joe. Again, looking for a partner there to help us bring in potential tenants at that port. We are also looking at a few residential projects, again, which we would use that cash to fund those projects. We are just working, really, through the planning stages of these projects.

I can't give you a lot of detail on them. They're not mature enough to announce or talk about. But we have a plan for using that cash. We are going to do -- as we said at the beginning of year, we are looking at return on investment. We're modeling this out. We're testing our assumptions. We're not going to put all the money into the ground first and then wait for people to come and buy, we're going to do this stuff iteratively and make sure that it's working and if it doesn't, we'll adjust.

That's helpful. Thanks. Just switching gears real quick, residential -- Breakfast Point, it sounds like, is an area where you guys have had some success. Just looking at the records in Bay County, it seems like a decent number of sales there. Could you remind me how many lots, just from a supply standpoint, you could supply to the market a year and maybe just touch on any success you're having at Breakfast Point?

Are you talking about Breakfast Point, specifically?

Yes.

We have about -- Phase I, we have about 350 lots that are available in Phase I and that's what we're developing out now and that's what we're selling out now. We have a Phase II, which would have an additional 1,600 lots, but we would still have to invest some capital to develop those lots.

How many lots are left on Phase I, roughly?

I think probably about 300.

Yes. Any comments on the health of that market for you right now?

That market -- Breakfast Point, is actually a pretty good project for us right now. I know when you look at our numbers, it doesn't look like there's a big increase period over period, but there's some shift in terms of houses in some of our primary home developments versus other primary home developments and Breakfast point has been a bright spot for us. We think we have a lot of interest from builders in Breakfast Point. We are already considering Phase II. We have a lot of builders and builders from outside the area who have approached us about buying lots; not only at Breakfast Point, but in some of our other primary home communities. It's probably not unknown to you that builders are talking about a shortage of available lots to build homes on. We're seeing that in the traffic that we're getting from builders at our projects.

That's great to hear. It sounds like, from a capacity standpoint, you have the capacity to deliver a lot of lots and then, from a demand standpoint, you are seeing early indications of a ramp up in some demand for some of your primary projects?

Yes, we are seeing a ramp up in demand for some of our projects. Things are slowly improving.

Okay. Great, thanks.

Dan Kozlowski.

On the commercial real estate side, I think you generated $3.6 million in revenue selling commercial real estate. Can you give us a little more granularity as to who you sold that to or where exactly it is located?

The stuff that we sold in the third quarter was actually pretty close to where we are here. It was multi-family types of deals and that's actually for the last two quarters. If you look at our commercial transactions, they've been multi-family types of transactions.

Okay. Is there an acreage associated with that or how would you break that down in terms of the amount of land sold that generated $3.6 million?

It's about 20 acres.

20 acres, great. Just to reiterate, on the rural land, you sold 3,200 acres at $5,600 an acre, which, again, seems like a pretty good price for rural land and then, on the residential side, you referenced a loss, there's 58 units, that comes out to about $165,000 a unit. How large are those lots or units on the residential side?

They vary greatly, actually. Those are lots in our vacation home communities and our primary home communities. They range in size -- we measure them across the front, so they're anywhere from a 35-foot front to 60-foot front.

What would that be? 0.25 of an acre, 0.33 of an acre?

Probably like 0.25 of an acre, yes.

$165,000 per lot, roughly 0.33 of an acre on the residential side, $3.6 million in revenue generated off of roughly 20 acres on the commercial side and the rural land, kind of the lower value stuff that you're not even really actively marketing, you got $5,600 an acre or better. That's compelling. All right. Thank you very much and we appreciate the hard work.

Before you go, it was actually 40 acres in commercial. I only saw the one 20-acre transaction. It was actually 40 acres in commercial, sorry.

Okay. Thanks for helping us understand the value of that.

(Operator Instructions)

Buck Horne.

Let's talk about the timber business and maybe also, secondarily, the resort business, just what your near-term and longer term plans are for those business units. Anything else that St. Joe wants to do with timber and/or the resort business?

Sure. Our timber business has been a staple of our business here for a lot of years. We anticipate it's going to be a staple of the business going forward. Five years from now, it'll be incrementally larger unless we add to it from land acquisitions. If there's a good transaction out there, we would seriously look at it. We're not under pressure to go out and try to buy timberland just to grow the timber business, but if we see a good transaction, we'll go out there and take a look at it. Timber also lends itself to tax-efficient structures and so we're looking at that as well. All that combined, I think timber could be a nice part of our business going forward.

The resorts business, which is the Inn vacation rentals, the golf clubs, and marinas; the Inn, the golf clubs, and the marinas, in a way, they have a fixed capacity. They'll remain part of our overall business going forward. The vacation rentals, we actually have a nice opportunity to grow in vacation rentals. It's a very big business up here in Northwest Florida. We have a CEO who has a lot of experience in the vacation rentals business and it's one of the places in the next few years that hopefully, you might see us become a dominant player.

Okay. All right. That's helpful. Going to the airport now, have you had any recent conversations with Southwest Airlines regarding their decision to drop the Orlando route? Is there any indication from Southwest that they have any sort of second thoughts about their commitments to Panama City?

They have no second thoughts at all for the commitment to Panama City. They are making money on the routes that they come here with, even the routes that were coming up from Orlando. They dropped the Orlando route because I think it was running about 62% or 63% capacity when you looked at it over a week or a month-long period, I forget the period that they used. They just wanted higher traffic to be able to continue that route. When they stopped that route, they replaced it. In essence, they replaced it about six months ago with additional routes from Houston, a couple of routes from St. Louis. Overall, Southwest airport or passenger traffic has actually been increasing over the last year or so here in Panama City Beach. They have no plans to pull out of Panama City Beach.

Okay. Great. Can you give us an update at VentureCrossings? Where are you at with the ITT building? What additional infrastructure improvement do you want to put into VentureCrossings near term? How would you characterize the level of dialogue the Company's getting with potential new tenants at VentureCrossings?

VentureCrossings, I think I mentioned in the call, that's going to be a bit of a longer term opportunity for us. We do have the one client there or one tenant there and it's ITT, they actually commenced their lease back in August. They're in the building, very happy. We do continue to talk with other potential tenants out there, but we have nothing that's imminent in terms of signing any new tenants up out there. In terms of investing out there in VentureCrossings, what we have on the ground is where we're going to be until we get a little more traction on what's going on with tenants out there. I wouldn't look for a lot of investment in that from us until that market starts picking up out there, the commercial and industrial market starts picking up there around the airport.

Okay. Switch over to Port St. Joe, if we could, because it sounds like the Company's really ramped up some of the marketing initiatives there. I've seen the new website, looks great. PDF brochures are really cool. Has that marketing effort led to any new leads for Port St. Joe? How much more investment do you want to put into it, either marketing-wise or infrastructure-wise to ramp up your effort at Port St. Joe this next year?

Sure. Our next big milestone with Port St. Joe is going to be selecting a port operator to be our partner in operating the seaport down there. We're going through the selection process right now. We hope to have that wrapped up here pretty soon. As you know, we've got one tenant down there, which is Eastern Shipbuilding, which services the oil and gas industry out in the Gulf. We are in talks with another potential tenant. I can't really tell you who it is, but it fits the types of industries that you see down here in the panhandle. As we've been talking to the different port operators, as we've been talking to Bank of Montreal, who we hired to advise us, be our advisor on the port in terms of putting deals together for the port, as we've been talking to all these people, we're getting pretty excited about the different opportunities that might be available to us at the port.

It might be more than just what you see in the industry that's immediate to the area. It could be a seaport for other types of commodities. We have to wait and see if that will actually pan out or not. But it's very interesting to people that we have a rail line that runs from the seaport up to CSXT up near Tallahassee. You have to wait and see on that one. The port might be a star for us.

Are you guys working on getting any public funding or matching commitments from the local or state government to help with the infrastructure on the project?

We have actually secured some public funding to do some work on the railroad. We are seeking some public funding to help with repairs or construction of a piece of the bulkhead. You'd asked a little earlier about investments in Port St. Joe, once we get a port operator on board and we start working with a port operator and we start talking to people and bringing them on board, we'll start getting a clearer picture of how much we think we have to invest in the seaport. We could wind up investing not a lot because the port may be deep enough and the land may be suitable for the types of tenants we might have in there. However, it could go the other way, other end of the spectrum, and we'd be dredging for deeper channels to putting in a second rail line to building structures and adding a industrial bulkhead along the water front there. I can't really tell you where we're going to wind up on that just yet, but as those plans come to fruition over the next year, 18 months, we'll be talking to you about them.

Great. Sounds intriguing. Any progress on oil spill claims? Anything to report on the legal effort there?

No, not much update from I think the last time we talked about it. We've got the one claim out there that we've got a partial recovery on. That claim has been moved over to the court in Louisiana, the multi-district litigation court over in Louisiana. We're currently preparing additional claims. It's hard to tell, at this point, how all that's going to turn out for us.

There's been a couple of comments I guess you guys have made recently about demographic trends and retirement communities and trying to be a more appealing option to these retiring baby boomers. Can you elaborate a little bit more what you have in mind exactly and what St. Joe wants to do to position? Are you guys going to look to build or invest directly in seniors-type housing or what type of housing or communities are you thinking about?

We are thinking about retirement communities. We're doing some research, actually doing just a little bit of planning just to see what something like that might look like. Florida has no state income tax. The area, the land that we own is an area that's a very nice area for somebody that wants to retire, very mild climate, a lot of stuff to do down here. The demographic of the baby boomers is just too big to ignore. We'd be dumb not to take a look and see if we can capitalize on it some way. That's what we're doing. But at this point, it's still a research and planning exercise.

Right. A couple of modeling things here, the corporate and operating expenses, you've really gotten that down to a pretty low level. Is this a sustainable run rate in terms of your overhead expenses? At what point, as things start to improve, would you need to add a little bit more resource than what you've done? Related to that, what's your outlook for property taxes and insurance going into the back half of the year or latter part of this year?

Property taxes and insurance, probably latter half of the year. In terms of the fourth quarter, just like everybody in Florida, we've got to pay our property taxes. I'd say it's about $6.5 million for our property taxes. Insurance is another couple million dollars on top of that. The overheads, we're pretty comfortable where we are right now with the overhead, for the corporate overhead, in particular. As we embark on projects, I can see us hiring staff to work on the projects, but we would consider them to be project staff. They'd be fluid with the projects.

I don't know that as we grow, that we're going to be taking on a whole lot more corporate overhead. We will, as I think we've already demonstrated, bring on best in class kinds of experts, like Bank of Montreal. There's a couple of legal firms that have been helping us with some transactions, things of that nature, that we'll be spending money on going forward, but relative to the profession fees that the Company has spent in the last few years, I don't think you're going to see it be higher than it was in prior years.

Last one for me is just if you've got an update for the total CapEx budget, how it's going to come in for this year and if you've got anything preliminary for next year for CapEx?

We're not giving guidance, so I can't go into the detail of what the CapEx is for next year. I wasn't here at the beginning of this year, maybe we talked about CapEx a little bit. It looks like for the full year, for 2012, we'll be just a little north of $30 million in CapEx.

All right. That's it for me. Thanks, again, Tom. Really appreciate it.

I'm seeing that's all the time we have for questions.

All right. Great. Thank you, operator. I believe that we've answered all the questions. Thanks to everyone who listened today. We'll talk again around the beginning of March when we discuss the fourth-quarter and full-year results. Have a great day, everyone.

Thank you, ladies and gentlemen. You may disconnect now.