St Joe Co (JOE) 2013 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the St. Joe Company's second-quarter 2013 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 call is being recorded. I would now like to introduce your host for today's conference, Park Brady. Please go ahead sir.

Hello everyone, and welcome to the St. Joe earnings call for the period ending June 30, 2013. This is Park Brady, and joining me on the call is Tom Hoyer, our CFO. Before we get started, Tom will cover the forward-looking statements. Tom?

Thanks, Park. 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, which documents are publicly available. Our statements are as of today, August 7, 2013. We have no obligation to update any forward-looking statements that we may make. Now I'll turn it back over to Park for some opening comments after which I will review the second quarter results.

Thanks, Tom. As I did on the last call, I would like to start with a brief comment that will provide some context to our discussion today. I know that some of you are curious about the recent 8-K announcement that we made regarding our Forestry and Rural Lands. Let me expand on the motivation behind that announcement. We have been getting an increasing amount of interest recently in our Forestry and Rural Lands similar to the increased interest that we have been getting in the past year in our residential projects. That interest has raised a couple of possibilities, and the initial discussions have been interesting enough to continue exploring those possibilities.

To keep all followers of the Company on equal footing, we decided it was best to publicly announce that we were exploring potential transactions for our Forestry and Rural Lands. Please keep in mind this is all part of our ongoing asset evaluation and long-term corporate strategy development. We are still working on both, but making good progress in that regard given the diversity of our assets and improvements across the real estate and home building markets, we are carefully and prudently refining the various components of our strategy. We continue to see positive indicators in Florida's residential real estate market, and we remain optimistic about Joe's future. I will turn it back over to Tom for a review of our second-quarter financials.

Thanks, Park. As usual, I'll makes some brief comments about the second quarter before we open it up for your questions. We reported revenue of $33.8 million in the second quarter of this year compared to $30.4 million the second quarter of last year. Net income improved to $2.7 million from $0.2 million in the second quarter of last year. The primary drivers behind the revenue and net income improvements were higher residential lot sales, and in some of our projects, higher lot prices, the larger number of homes in our vacation rentals business, lower real estate carrying costs including property taxes and CDD interest expense, and lower pension expense.

I'll expand on these drivers and other areas next. In our residential development business, the number of lots sold in the second quarter increased by about 24% compared to the second quarter of last year, and revenue increased 28%. The net loss for the segment was $100,000 compared to a net loss in the second quarter of last year of $2 million. Much of that improvement is due to higher prices, but a portion of the improvement is to due to lower property taxes and CDD interest. CDD interest is lower because as you recall, we prepaid our CDD debt obligation at our RiverTown project late last year.

Our Timber segment revenue was essentially flat in the second quarter this year compared to the second quarter of last year. Net income increased over 22%. We shipped less tons of timber this year due to temporary slowdowns or shutdowns of our customers' plants, but higher timber prices resulted in higher gross margins and increased net income. Our new business segment called Resorts, Leisure and Leasing Operations had a strong second quarter. Just as a reminder, this segment is comprised of all the recurring revenue streams, including vacation resorts, golf clubs and marinas, as well as the retail and commercial leasing operations. Revenue in the segment, which includes the sale of one of our lease properties in the second quarter, was up almost 17% quarter over quarter, and the segment income was 50% higher.

The improvements are the result of the sale of the commercial lease property, more homes in our vacation rental program, higher average room rates in our vacation rental homes, and two commercial leases that commenced late last year. Revenues for both the Commercial and Rural Land segments were down compared to the second quarter of last year, but the combined impact of the declines on net income is less than $100,000. We mentioned before that Commercial is a longer term play for us, and it's only Rural and is not in our plan for generating revenue and profits on a quarterly basis. Just for clarity, however, we do have some rural land listed for sale on our website that is not contiguous and not strategic. And as Park has mentioned, we may be opportunistic in selling Rural Land, which can include Forestry land, if we get a good price.

We ended the quarter with approximately $54 million in cash and $114 million in investments for a total of $168 million in liquid investments. Our debt increased to $38 million from $36 million at the beginning of the year. Keep in mind that $27 million of the debt is a mortgage debt related to a commercial property 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. You can find those pledged treasury securities on the asset side of our balance sheet.

The remaining debt on our balance sheet, approximately $11.5 million, is community development district debt, or CDD debt, primarily related to our RiverTown and SouthWood residential projects. We temporarily reflect that debt on our books and pay the associated interest expense until the property that secures the debt is sold. The land owner, typically the homeowner in the community, assumes the obligation upon purchasing the property and is ultimately responsible for repaying this debt over the long term. In the meantime, the debt balance fluctuates on our balance sheet as we add platted lots to our inventory, which increases the CDD balance, and as we sell lots, which decreases the CDD debt balance. Now Park would like to make some closing comments.

As a wrap up, let me reiterate that we are working diligently on Company's strategic plan with a keen focus on maximizing shareholder value. I can tell you that this includes our residential resort communities, primary homes, and the active adult market. In the meantime, we intend to take advantage of rising prices in our residential resort communities and rising demand from national and local home builders in some of our key primary residential communities, such as Breakfast Point and RiverTown, to drive revenue. You'll find more information in our earnings press release, which was released about one hour ago, and in our 10-Q, which we'll file later tonight. Operator, let's open it up for questions.

(Operator Instructions)

Aaron Scully, Janus.

Just curious to hear your thoughts on where we are in terms of the approval funding for the dredging of the port and what the timeline is there?

We do not have any specific timeline. It is a complicated procedure to get the funding. It will probably be a combination of different government entities. The funding will come through the port authority, which is in Port St. Joe. We cannot give you a specific timeline. We are in the process of going out and getting quotes for an engineering report, which is the beginning of that process, which will give us the specifics of what we actually need to make the channel usable as a deepwater port.

Okay.

Has the announcement that you intend to dredge the port -- has that led to any additional interest or activity at the port? Have you started receiving more calls on potential tenants there?

We have had positive response from that, and the tenants are basically saying to us, the ones who called originally and the ones who called as a result of that, say to us. It is very important to know there is a timeline and the dredging will happen. We signed two letters of intent that we announced with Lenovo and Green Circle, and those are contingent on the port being dredged. With no time commitment, and we are working on getting that done.

One last question, and I will let others ask.

I guess the final question, the 8-K announcing the potential for some sales of the Timber Rural Land. I'm curious hypothetically if you were to see a significant amount of cash -- how you prioritize the uses of that cash? Would one of those potentially be a share buyback?

We would be looking at all options there, and we have no present plans if we generate cash out of a small or large sale. It would be part of our strategic planning, which we are in the process of working on right now. That is one of the pieces of that would be, which strategy do we use to deal with excess cash?

Great. Thanks for your hard work.

Sheila McGrath, Evercore Partners.

Park, I was wondering if you could discuss any more specifics on the retirement community that you mentioned in the press release? Would this be with a partner? Would it entail selling lots to builders? If you give us a little bit more insight there?

Because of the land owns that we have, Sheila, and the location that they are, we feel like we've got the real ability to have a large scale active adult project. And the first piece of that is working with the governmental agencies, planning departments, the counties, the federal and state to get our entitlements to make that happen. And so we've had our first preplanning meetings with those agencies in the last 10 days. We are starting the process. I can't tell you where that s going to go other than our intention is to plan it well and execute it well.

And so do you think it would entail bringing in a partner? Or you guys feel comfortable once you get everything with the local jurisdiction that you might do it on your own?

If we get a good partner, we said that before that we would work with someone experienced in it to make it happen, or we feel like we also have the ability -- we have been working on this, Sheila, for two years now. And so we feel like we have enough information that we might be able to go it alone as well.

Okay.

And then -- just, I noticed in the public filings with the courthouses and stuff that it seems like volume both at the primary communities, RiverTown and Breakfast Point, was pretty good, and also at the resort communities. I am wondering if you can tell us a couple things, just how the pricing trends are going, volume trends are going, and if you have any new builder partnerships that are worth noting?

I would say all of those trends are up. It is pretty clear that the market here is doing well. Again, they are not big numbers for us yet. We feel like that -- it is real positive as we are going forward. We do not have any brand new partner builders, although we have said we are talking to larger builders who are willing and exploring larger takedowns.

Okay.

Is most of the activity still on the primary side? It's isolated to Breakfast Point and RiverTown? On the resort side, is there any notable pickup at some of the communities that have been kind of quiet for a while?

No, I would not say -- WaterSound West Beach, WaterSound Beach, WaterColor, those are all -- they picked up one year ago and really accelerated this year. There is not much inventory left in those. But no new ones; we are probably going to -- because of that demand and the locations of it being close to the water net, we will probably -- we have held off on WaterSound now for two years -- WaterSound North. And so we will probably be getting very active in that, the residential community, it has been on hold for three or four years.

Okay.

Just quickly following up on Aaron's questions on Port St. Joe, a couple of contracts that you mentioned or have announced, they were contingent on the dredging. Is there any -- are you kind of waiting for government to fund the dredging? I just want to get a sense on timing of when you might know more?

As I told Aaron, the first step is to determine what the scope of the project is. We are beginning that right now, we are funding the initial phase to do the study to get that done. And once we do that, we will be coming back to the government agencies and saying this is the need. There is a strong acknowledgment with both state and federal government that ports are very big job creators. And all the indications we have gotten so far is that we will get support.

Okay, thank you very much.

(Operator Instructions)

Buck Horne, Raymond James.

Good afternoon. Some of my questions have been answered, so let me circle back to a couple things.

Maybe if we can go back to the Timber 8-K disclosure, I was wondering strategically what is the rationale behind going back to -- or revisiting the possibility of either a large-scale timber land sale or timber e-transaction? Which would be your preference? Would it be comparable to what was done back in 2011? Would the structure be different? And just in general, what kind of trends are you seeing in Timberland prices in your region of the woods?

What we are seeing, and if you follow the timber market, is the market is probably as high as it has been in many years. Because of that, it gives -- it potentially opens up opportunities for us. Those opportunities are anywhere from the scale of what we did back in 2011 to larger than that, to outright sales. So we are looking at those opportunities right now to see what is best -- we feel is best for shareholder value. That's a market that was not there 2.5 years ago, it is now there, and we need to look at it. We cannot just ignore that it is there, and t is an opportunity for us.

Would your preference be a Timber deed transaction to retain the land rights like what was done a couple years earlier? Or would it just be non-core assets that might be sold outright? What is your preference?

Based on pricing? Based on pricing, whichever is the best. I am sorry I cannot go further than that with you. (laughter)

Fair enough.

Maybe we could talk about the active adult project. I am just curious -- location wise, where are we talking about possibly quartering off some land for the active adult project? How much acreage are we talking about, and would this land come from existing residential entitlements that you have? Would you need to go out -- how much more would you need to entitle to make that happen?

What we presented to the local governmental entities, which is now no secret because it is there, is we presented acreage that encompasses 110,000 acres. And it incorporates the existing 70,000 acres in the West-based sector plan, so it is a additional 30 to that. That is the size, so it is right here next to us right next to the gulf, to the bays, to the intercoastal and to some of our inland lakes. So it's a prime piece of property.

So this would incorporate the majority of what you have entitled in the West Bay sector now. And add on to that, but it would be in proximity to the airport? Is that fair?

Proximity to the airport and coming around to behind on the north side of Highway 98.

Okay.

Well -- how much -- I guess you guys are still in the preliminary stage of that. Maybe could talk about the commercial activity, there was a comment in the press release about the slow and intermittent pace of commercial activity. Is that more of a statement about the nature of the regional economy in Northwest Florida right now? Or is that something more Company specific because you're not actively pursuing as many commercial opportunities?

If you look at the Pier Park North, which is a commercial opportunity, that is a very hot area right now. We're experiencing lots of activity in Pier Park North and our commercial properties that are over there both north and south of Highway 98 and Panama City. If you look at our commerce parks, there is no activity, basically no activity. And if you look at the [airport] commercial activities, we said in the past, that is going to be out in the future for us. People aren't making big moves right now in that market. Where it's slow is our commerce parks and the airport commercial activity, but the rest of it is pretty hot right now.

Okay.

Last one, any update on the CFO search or timeline for transitions with Tom?

No update. We are fortunate to have Tom to give us the time to find somebody. So --

Okay. All right. Thank you gentlemen.

I'm not showing any further questions at this time. I'd like to turn the call back to you, Mr. Hoyer, for closing remarks.

Sounds like we answered all the questions, so thanks for listening today, and have a great day. We will talk to you on the next earnings call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.