St Joe Co (JOE) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the St. Joe earnings conference call for the period ending December 31, 2012. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will be given at that time.

(Operator Instructions)

As a reminder, call this conference call is being recorded.

I'd now like to turn the conference over to your host for today, Mr. Tom Hoyer, Chief Financial Officer at St. Joe.

Thank you. Hello, everyone, and welcome to the St. Joe earnings call for the period ending December 31, 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. 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 their SEC filings, which documents are publicly available. Our statements as of today, February 28, 2013. We have no obligation to update any forward-looking statements we may make.

Let's move on to the fourth quarter and full-year results. I will make some brief comments, and then I will open it up for your questions. We reported revenue of $22.6 million in the fourth quarter of this year compared to $19.8 million in the fourth quarter of last year, which is a 14% increase. Most of that increase came from our forestry operations where sales volume was higher due to strong demand. The year-over-year ongoing results are even better, but in order to give you reasonable comparison, I have to make some adjustments for unusual transactions in both 2012 and 2011. Let's start with the reported numbers.

We reported $139.4 million of revenue for 2012 compared to $145.3 million in 2011. However, as I've mentioned in a previous call, we had a couple of unusual rural land sales in 2012 that totaled $18.3 million in total revenue. If I exclude those land sales, 2012 pro forma revenue was $121.1 million. In 2011, we sold a timber deed that added $54.5 million in revenue in the first quarter of that year. If I exclude the timber deed revenue, 2011 pro forma revenue is $90.8 million. After making these adjustments, the pro forma comparison becomes $121.1 million of revenue in 2012 compared to $90.8 million of revenue in 2011, which is a 33% increase. All of our businesses contributed to the increase in revenue.

Beginning with residential, we sold 19% more lots year over year and the associated revenue grew 81%. Revenue increased at a faster pace than unit sales because the increase in demand has driven higher lot prices in some of our communities, particularly in our vacation communities. This momentum in sales volume and prices has carried into 2013 as we see an increased interest from builders beyond just our vacation communities. Primary communities such as RiverTown in Jacksonville, SouthWood in Tallahassee, and Breakfast Point in Panama City Beach are all receiving greater interest from builders.

In our Timber business, we harvested 19% more tons of timber in 2012 compared to 2011, and revenues increased by 21% after adjusting for the 2011 timber deed. Demand was strong in our timber markets, and we were able to supply that demand because we opened 70,000 acres of land to timber operations that had been previously restricted for harvest. We also invested in infrastructure and software that improved the production in our timber stands. Our pricing for our timber driven by the stronger demand also contributed to the increase in revenue.

We have created a new business segment for our operations called resorts, leisure and leasing operations, and this is the first period that we will be reporting it. The segment includes our vacation resorts, golf clubs and marinas, as well the retail and commercial leasing operations. This segment represents our businesses with recurring revenue streams. 2012 revenue for this segment was 16% higher than in 2011.

One major contributing factor was higher room rates at the WaterColor Inn, our four-star resort located on the beach within our WaterColor community. Another contributing factor was that we rented more vacation rental houses plus we had more houses under contract in our vacation rental program. Both of these operations benefited from stronger demand, not only during the summer, but also into the late fall. We get a compounding effect from this increased demand. For example, ancillary revenue for things like food and the rental of recreation equipment is higher. In our leasing operations, the major factor in the increase was the commencement of two commercial leases in the second after the year. One of them is the Port of Port St. Joe and the other is Venture Crossings by the airport.

Net income for the full-year of 2012 was $6 million compared to a net loss of $330.3 million in 2011. That comparison, however, is complicated by three items, for which I will make adjustments so that you can get a better comparison. Our 2011 results reflect a $377.3 million pre-tax impairment charge and the sale of a timber deed that netted $53.5 million in pre-tax profit. If I exclude those two items, the pre-tax loss would be $62.1 million in 2011.

In 2012, if I exclude the impact of the unusual rural land sales that I discussed earlier which contributed $14.2 million of pre-tax profit in 2012, the pre-tax loss would be $7.8 million. The pro forma comparison then becomes a pre-tax loss of $7.8 million in 2012 compared to a pre-tax loss of $62.1 million in 2011. The better result in 2012 was largely due to the operating improvements that I have been describing. Another contributing factor, however, is overhead reductions where we realized lower legal expense, stock compensation expense and pension expense in 2012.

Let me reiterate some points that I've made on previous calls. First, rural land sales are not, nor do we anticipate that they will be, a core part of our strategy for generating revenue or cash flow going forward. In fact, we don't have any rural land sales budgeted for 2013. Although we will 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 landholdings and improving economic conditions.

We will also focus on building a recurring revenue -- sorry, recurring 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 retirement market. We expect that our timber operation and resorts and club operations will continue to be steady contributors to our financial results in the years to come. I also want to reemphasize that 2012 is just one year in a multiyear turnaround in which we intend to take advantage of an improving economy, the demand for affordable retirement living and commercial opportunities in our north Florida markets.

We ended the year with approximately $166 million in cash, which is $3.6 million more than where we began the year. The current cash balance reflects the fact that we invested $23 million in our key projects and prepaid a $19 million debt obligation at another of our key projects. The only other debt that we carry on our balance sheet of any significance is a mortgage debt related to commercial property that we sold several years ago. That debt has been defeased, which means that we purchased treasury securities that, as they mature, will be sufficient to retire the debt.

Let me spend a little time talking about where we are going. One obvious trend that we believe presents us with great opportunity is the advancing wave of retiring baby boomers. Reports say that 77 million people in the United States will be retiring over the next 20 years. Many of them will stay where they are because that is where the family is located. But we expect, based on past history, that a meaningful number will relocate.

We also believe from past history that many of them will relocate to Florida. Fortunately, we have a lot of land located in attractive geographic areas in Florida that we think will work very well for those want to try something new. We spent a significant amount of damage in 2012 planning our launch into active adult communities, and we expect to begin executing on our ideas this year.

Another unique opportunity that we have is at the Port of Port St. Joe. That piece of property, which was the site of St. Joe's old pulp mill, was planned to be a residential neighborhood. Facing an uphill approval process for building residential on a property and an uncertain residential market in the region, we began looking at alternatives that would bring a more certain return in a shorter time frame. After taking other -- talking to other port operators in and around Florida, we concluded that there is room for another port on the Gulf of Mexico. We believe that in the long-term, the expansion of the Panama Canal and the economic growth in the Southeastern United States will create a solid base of business around which to build a port operation.

We have also begun building a portfolio of assets with recurring revenue streams. We will seek to incorporate leasable properties in or near our residential communities as we build them out. An example is 390,000 square-foot retail lifestyle center called Pier Park North that we're developing with a partner in Panama City Beach, Florida, which we've announced in previous press releases. This kind of activity will allow us to slowly build solid recurring revenue streams as we develop our land.

We will continue to evaluate our assets to determine what we believe will be their best use, and thus a role in creating long-term shareholder value. We are excited about the potential opportunities in our assets, especially against the backdrop of an improving economy. You'll find more information in our earnings press release, which was released about one hour ago and in our 10-K, which will follow tomorrow.

Let's open it up for questions.

Thank you, sir.

(Operator Instructions)

Our first question comes from Buck Horne, Raymond James.

Was wondering, just help me out with a couple of little items here. It looks like there was a small impairment loss in the quarter. Could you explain where that came from and what was impaired, exactly?

Sure. The first thing I will tell you is we didn't impair it because the value had really changed. We changed the use of the asset. It is a covered airport parking facility that's out at the airport that we donated land for, the Northwest Beach Florida International Airport. And we had a parking facility there that was siphoning off parking revenue from the airport's parking facility, and they approached us with a trade really, a transaction where if we agreed to shut down our short-term parking facility for a period of time, they would release us from a land lease for which we really didn't have any immediate use.

We agreed to that transaction because the release from the lease -- the land lease will save us about $4.2 million over a number of years. The parking facility is pretty new, so it's roughly a break even parking facility, so shutting it down didn't really impact our operations in any way, shape or form. And when we shut down the parking facility, we had to write off the improvements that we had made to it to basically make it a parking facility, including the general development cost for Venture, their portion of the general development cost for Venture Crossings, because it's actually part of the Venture Crossing development out there. In the end, we wind up with a non-cash charge for saving $4.2 million in cash. But that's what it is.

Okay. Does the airport now -- you guys still on that land though, right?

That's correct, we still own the land.

It's just not use being used for parking, or is it --

It is not being used for parking.

Okay, not being used for parking, okay. On the residential side of things, you say you've raised lot pricing. Can you give us an indication of by how much you have raised lot pricing? Which communities are you seeing the most interest, and to what extent can you give us any detail on what kind of -- are you signing any land options with homebuilders right now? Or, what is under option contract?

Sure. Let me talk about it in kind of general terms. Similar to what I think what I told you on the third quarter call, a lot of the increase in pricing has come in our resort communities, the communities that are here along 38, for those of you who are familiar with the area. So, WaterSound, WaterSound West Beach where we have had higher demand and have been able to increase lot prices generally in the 10% to 40% range since the beginning of 2011. I'm sorry, since the beginning of 2012. And in some cases, as high as 60% or 65%.

We had increased volume in a couple of our primary communities, but prices there were relatively flat year-over-year. In the last few months, though, we have received greater interest from builders in our primary communities. We have not signed any transactions yet related to selling any number of lots to any particular builder. But we are talking to several national super regional builders, negotiating with them to try and do just that.

Okay. Do you have, or can you give us an indication of at year-end, how many residential lot contracts you had that were signed but were scheduled to close either in the first or second quarter of this year? Some sort of backlog number that you could give us some guidance on?

No. I don't have the backlog number for you. That is something we're going to be tracking here internally. It's -- we haven't been doing it for a while because the numbers were immaterial enough that it wasn't worth tracking here internally. So, I apologize, I don't have a number for you.

Okay, one last quick one and I will jump out of the queue. But just a total estimate for CapEx or land development dollars you plan to spend in 2013? Any update there?

I am not giving any guidance right now. I know that is valuable information for you, but it's not because I have any concerned about the Business or the trend. We have enough different ideas that we are working on here. I don't know which ones will be successful or unsuccessful and which ones we'll invest in or not invest them. I can't really responsibly give you an estimate on revenue or cash flow, and CapEx is part of the cash flow. It will be more than it was in 2012, I just really can't give you a number.

Okay. All right, I will jump out of the -- get back in the line here. All right, thanks, Tom.

Thank you. Our next question comes from Sheila McGrath from Evercore.

Yes, good afternoon. Tom, I was wondering if you could talk about the commercial development across from Pier Park. What is the status of that project? Any more details on costs? And what, economically, is Joe a 50% interest? Just a little more detail on that project.

Yes, sure. We actually -- we're a two-thirds owner in that project. We have actually started construction on it. We broke ground on it about three of four weeks ago.

So far, the construction looks like it's going to come in a little lower than the estimates than we put together when we will first were looking at this project. It's 390,000 square feet. We have several anchor tenants that have already signed up, we're in the mid- 60s in terms of lease up at this point, signed leases and still have several LOIs that we're negotiating. So far, that project seems to be getting off on a very good start.

And did you -- I'm sorry, did you say how much the total cost of the project is?

The total cost of the project is probably going to about a little over $50 million.

Okay. Also, could you give us an update on interest level at Venture Crossing? Are there any new dialogues with new tenants there?

Yes, Venture Crossings is still a long-term play for us, I think. We have had a few more discussions with people, but there is nothing imminent, there's nothing that's being negotiated out there. I think in the long-term, that's going to be a very successful project. A lot of that depends -- the success out there depends on the overall economy here in the Southeast and in this region, and we are situated to take advantage of that. I just don't think it's going to happen in the next couple of years. It's going to be a little longer term than that.

Okay. And then just on the -- in the press release, you mentioned again, the potential for a retirement community and also the port. I understand those are longer-term initiatives, but I was just wondering if you could give us a little bit on any milestones that you are targeting in 2013 or just a little bit more detail on those initiatives.

Yes, we should be announcing some milestones. They are longer-term projects. What we hope to be able to tell you in 2013 as it relates to the port is signing up some new tenants down there. Possibly some improvements that we would do down there, potentially assistance we would get from the state providing us funds to do some work down there.

Things like that would be milestones that we'd hope to be able to report to you in 2013. If not 2013, 2014. We think the port is a very good opportunity for us. Again, a little longer-term, but still a good opportunity.

As far as the retirement community, we are still evaluating what we are going to do there. The next big milestone is basically going to be announcing what we are going to do and where we are going to do it, and we should be doing that here this year. Hopefully we will be able to tell you who our partners are going to be on it, and kind of where we're going to start and how much we are going to start with. Those are the milestones that we hope to be able to talk to you about in 2013.

Okay. And also, just on the lawsuits related to the oil spill, that's gotten quiet. I am just not familiar where things stand at this point. If you could just give us an update on that?

Sure. There was the original fund, if you will, for paying claims against BP Oil. It closed down about, I think it was about four or five months ago. We had a claim in to that fund. We actually received about $1.7 million of payments, which was not the full amount of our claim. That claim rolled over to a District Court over in Louisiana where it is still being processed. And there is some separate litigation that we are going to participate in to see if we can recover more than just the first claim.

The first claim was really focused on losses that we had at our operations like the WaterColor Inn and the marinas. We're going to move on to other damages, oil on the beaches, which obviously would impact our ability to sell homes, the marketability of our land.

And then are there dates or timing that you'd expect to hear news on that?

No, I don't really have a good time frame for you there. It's winding its way through. We don't have a schedule or a timeline that I can provide for you on that.

Okay. Last question. I did see some closings at RiverCamps and WildHeron, is that Joe buying back lots? Or what exactly is that activity that I have seen recently?

Some of that is Joe buying back lots and some of it is other people buying lots.

Okay. So, you are buying lots from -- out of distress situations?

Yes.

Okay, all right. Thank you.

You're welcome.

Thank you. Our next question comes from David Frank from Columbia Management.

Hi, David.

First off, I had just a housekeeping item. Have you folks set the date for your annual meeting yet?

We have, but we have not announced it yet. We are going to do that shortly.

Okay, but it will be similar timing to last year? Is that fair to say?

Yes. It will be in mid-May.

Okay, a lot of my questions have been asked. Maybe a little -- if you could give a little more color on how do we think about timber in 2013? Is it -- do you see it roughly being the same as how you exited 2012? What factors could impact your timber sales and profits in 2013?

Timber, it's a pretty fixed inventory of supply. There's only so many trees that we can actually harvest in a year. We had a nice bump in 2012 because we actually opened up a bunch of land, about 70,000 acres to timber harvest that had previously been restricted against timber harvest. And going into 2013, don't have a big card like that to play, and I think that we will have incremental improvement in our Timber business.

We have a super management team there. Their job is to incrementally grow the cash flow that comes out of that business. They have done a very good job on working up the infrastructure and also using a new software tool to help them manage the timber stands more productively.

Okay.

We're also hopeful that given the market recovery -- the housing recovery, that timber prices will continue to rise in 2013, as well. But I don't really have a prediction on that. (multiple speakers)

Okay. But the types of timber you are selling an outlets that are purchasing the, you don't anticipate any big changes there?

No, I don't anticipate any big changes there.

Okay. And then in terms of the traffic at the airport, the flights, the number people, is there anything significant happening there?

No, not really. Since the airport has opened, we have seen a significant increase in traffic there in both the number of flights and the number of people flying on those planes. Southwest last year added some flights through -- out of Houston and through St. Louis, and they have been doing pretty well there. Delta, I fly Delta sometimes, and Delta has moved up from the smaller regional jets to the larger jets. It is going pretty good. It's -- traffic pattern has been strong out there at the airport.

Okay. Thank you very much.

You're welcome.

Thank you.

(Operator Instructions)

Our next question comes from Aaron Scully from Janus Capital.

Hey, Tom.

Hi, Aaron.

This Village is like development, and we could talk about that a little bit more. You did about 160 units of lots last year. Could you give us a sense of how large this retirement community could be? Let's just say it's one-tenth or one-twentieth of the villages. How many lots or units could that potentially entail?

The Village is, I think today is about 40,000 lots, maybe going to about 50,000 lots. They are the biggest in the country right now, I think by a long shot. I can't really give you any details on our plans. We're still working through them. It would be very premature for me to talk about what we're thinking about.

That's helpful in just sizing. Who knows? But even if it's one-tenth, it is a meaningful amount of units and lots. I guess the second question, again, I know you don't want to tip your hat, but would you be striving for a model where it would be capital light for you guys in contributing just the land and the bulk of the construction would be on a partner? How are you guys thinking about that?

I think that we would most likely avail ourselves of a tool here in Florida called a Community Development District and a CDD bond issue. It's similar to Mello-Roos, for anybody who has lived in California or mud districts in Texas. It is a mechanism, it's a taxing authority, actually. We borrow money through the CDD, use it to build basically the horizontal infrastructure and some of the amenities, and it becomes a tax to the ultimate homeowner. And the ultimate homeowner repays it through their -- basically through the mortgage payments. Part of their -- in addition to the mortgage payment, but it goes through that servicing mechanism.

And I think that probably we will avail ourselves of that as we are building out a retirement community or any other community. We have used CDD debt and RiverTown and SouthWood. It's not something that is new to us. It is a very good tool for developers like ourselves.

And then the partner would be brining senior community expertise, and that would be the --

Yes, the partner that we would look for in an active adult community is exactly right. We would look for somebody who has a lot of experience building those types of homes, they know what to put in those homes, what not to put in those homes, control the cost. We think that price would probably be pretty important, and somebody who has expertise marketing and selling.

And maybe just a quick question on the port, and I know that you're talking about bringing in a port operator. If you could just touch on, maybe some of the main benefits of this. Like, would there be any relatively immediate benefits that we would see from bringing on a Newport operator?

Immediate, like in the next year or so?

Yes.

Probably not. I think that we have a potential of signing up another tenant down there within a year. But bringing a port operator on, we're thinking bigger and longer term than just a couple of tenants at the Port of Port of St. Joe. We're trying to get somebody in early just so that we don't make any decisions today that somehow preclude us from doing something in the future. We might be a little bit ahead of the curve in terms of getting some help with the port, but we think it's a smart move.

Okay, and just one last question on -- you mentioned some potential sales to -- or some conversations with national developers. Can you just kind of quantify in the ballpark, is this a 10 to 20 lot, or is it a 50 plus lot opportunity, or is it bigger than that? How should we think about the size of that?

It's bigger than that. These are national builders and super regionals. These are hundreds and hundreds of lots that we are talking about.

So again, working off a base of almost 160 from last year?

Yes.

That's helpful, thank you.

Thank you, and I'm showing no further questions at this time, sir.

Okay, very good. Well, good, I think we've answered all the questions. Thank you, everybody, for participating today. We'll be talking about our first-quarter in the first week of May, and I'll talk to you then. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program, and you may all disconnect and have a wonderful day.